• Shangri-La takes long march in China

Shangri-La Asia, the Hong Kong-based owner and operator of deluxe hotels, is continuing its focus on mainland China despite apparently slow profit growth from its investments in the country.

The company grew profits by less than 2% during 2005 in mainland China but still has 10 of its 12 equity development projects there.

Revpar at Shangri-la's existing mainland Chinese hotels was US$78 during 2005, markedly less than the US$188 achieved in Hong Kong. The previous year revpars were $72 and $157 respectively.

But the push into China by Shangri-La, controlled by Malaysian tycoon Robert Kuok, is a long-term affair.

Globally, the group is expanding via management contracts. But in China, Asia's largest deluxe hotelier, is prepared to commit its own capital.

The favoured path appears to be mixed-use developments usually undertaken with development partners such as the connected Kerry Properties Ltd or Allgreen, which is also a related company.

All told, the current scheduled development spending by Shangri-La amounts to $756m, to be funded by existing cash flow and bank debt.

Since being hit by the Asian financial crisis and then SARS, trade for Asian-based hoteliers has been picking-up, particularly in the last 18 months. This helped Shangri-La to report a 33% rise in net profits for 2005 to $151m. Revpar across the 36 owned hotels increased 16%.

Mainland China accounted for $278.6m of the $842m total revenues in the group, the largest contribution from a single country. The group has equity interests in 18 hotels and manages two hotels in mainland China, totalling 9,816 rooms.

In addition to managing all but one of the 36 owned hotels, the company has management contracts at 11 other hotels and 15 hotel development projects ranging from North America to the Middle East and from China to Australia. The management business grew revenues by 33%.

The London Bridge Tower hotel, held on an operating lease and expected to open in 2010, is set to cost $40m in fit-out and pre-opening expenses. Although this project was signed in January 2005, the European debut for the Shangri-La brand will be the Prince Roland Bonaparte in Paris which was bought for Eu92m in January this year and is set to open its 140 rooms in late 2008.

Share →