Apertor Research                  www.apertorhospitality.comFebruary 25, 2011                 Gregg Carlson               ...
2                                                                                Chinese Lodging Industry Growth          ...
Introduction   3                                                                                                         C...
Executive Summary    4                                                                                                    ...
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Executive Summary    8                                                                                                   C...
Recent China and Asian (ACPC) Industry Data Points and Select U.S. Company Comments   9                                   ...
Recent China News Flow   10                                                                                               ...
Summary of the Chinese Economic and Development Story                                   11                                ...
Summary of the Chinese Economic and Development Story   12                                                                ...
Summary of the Chinese Economic and Development Story   13                                                                ...
Summary of the Chinese Economic and Development Story                       14                                            ...
Summary of the Chinese Economic and Development Story   15                                                                ...
Summary of the Chinese Economic and Development Story     16                                                              ...
Summary of the Chinese Economic and Development Story    17                                                               ...
Overview of the Chinese Lodging Market   18                                                                               ...
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Overview of the Chinese Lodging Market    22                                                                              ...
Overview of the Chinese Lodging Market   23                                                                               ...
Overview of the Chinese Lodging Market   24                                                                               ...
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Apertor chinese lodging-industry_growth

  1. 1. Apertor Research www.apertorhospitality.comFebruary 25, 2011 Gregg Carlson Advisor 702.506.0475 x540 gcarlson@apertorhospitality.comChinese Lodging Industry GrowthAn Unprecedented Opportunity ©2011 Apertor Hospitality, LLC. All Rights Reserved.
  2. 2. 2 Chinese Lodging Industry Growth February 25, 2011Table of Contents 3 Introduction 4 Executive Summary 9 Recent China and Asian (ACPC) Industry Data Points and Select U.S. Company Comments 10 Recent China News Flow 11 Summary of the Chinese Economic and Development Story 18 Overview of the Chinese Lodging Market 35 China and ACPC (regional) Industry Data 39 China and ACPC Pipeline Data 44 Appendix A: Additional Recent Chinese Economic Headlines 46 Appendix B: Summary of Chinese Economic and Structural Issues 51 Appendix C: Recent Sentiment Regarding ACPC-Chinese Real Estate Market Conditions 53 Appendix D: Chinese Tier 1, 2 and 3 Cities 54 Appendix E: Smith Travel Asian Region Definitions 55 Bibliography 59 Disclosures and Terms of Use©2011 Apertor Hospitality, LLC. All Rights Reserved.
  3. 3. Introduction 3 Chinese Lodging Industry Growth February 25, 2011Introduction This report is the product of an in-depth research project that addresses the growth and development of the lodging industry within China and to a lesser degree the Asia Pacific region. The work presented in this report is a combination of company, industry and economic analyses that address what we believe are the key issues tied to the ongoing development of the Chinese lodging industry. This report is independent and not sponsored by any of the companies or institutions mentioned herein. Over the past 20 years, China and the Asia Pacific region have experienced rapid development and significant economic growth. China is viewed today as an emerging world economic power that is expected to develop at what may be the highest rate of economic growth in the world over the next decade and beyond. At the current forecasted growth rate, China’s GDP may surpass the size of U.S. GDP as early as 2020.[1] With this growth, come challenges and a massive development story as millions of residents move from rural to urban areas and reach middle class status. Due to the size of the country’s population (approximately 1.3 billion), the magnitude of these and other shifts as drivers to the ongoing overall development story is unprecedented. The influences of many of the major themes within the Chinese development story are likely to have a significant impact not only on China but also the region and world as whole. Driven by the significant growth backdrop and positive structural tailwinds, multi-national companies in a variety of industries view China as a significant market and continue to invest in both the country and region. These and other large long-term development trends within China and the region are expected to continue to provide a positive, powerful backdrop for long-term industry growth for many industries including the lodging industry over the next decade. We have sourced relevant information for the topics covered here from companies, investment banks and consulting firms, which are participants in and/or focused on China and the Asia Pacific region. We have also sourced information from government databases within Asia, China and the U.S., relevant books written about the region, industry trade organizations and various news outlets, among other sources. We have also held discussions with institutional investors, industry analysts and industry executives that are active participants within the China and the Asia Pacific region. As the subject of China’s major social, political and economic trends vis-à-vis the lodging industry is quite large and complex, it would be easy to produce a voluminous report; instead we have summarized the key issues. As a result, this report serves as an entry point for further research into China’s lodging industry. We have provided a list of sources to allow for further reading and research on topics covered in this report. We have also provided a summary in Appendices A & B that focuses on current and forward looking economic and development issues.1 Per the “Dating Game, When will China overtake America?”, The Economist magazine, December 18, 2010.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  4. 4. Executive Summary 4 Chinese Lodging Industry Growth February 25, 2011Executive Summary Despite some fear of an economic slowdown in 2011 (being engineered by the Chinese central government in an effort to control inflation), long-term growth forecasts over the next 5 to 15 years remain intact. The current size and pace of economic growth over the next decade means that Chinese GDP could surpass the size of U.S. GDP as early as 2020. This record-breaking pace of economic growth and overall development creates its own set of risks and issues. Within the overall Chinese emerging market development story, the lodging industry has grown at a significant pace, buoyed by the positive economic backdrop and other factors such as foreign travel and investment in the region, growth of the middle class and development of the domestic tourism industry. During 2010, the lodging industry in the Asia Pacific region and China recovered at a significantly stronger pace than the remainder of the world. Our analysis provides a snapshot of the growth of the lodging industry within China and to a lesser degree the Asia Pacific region (ACPC). The goal of this report is to provide an introduction and overview of the Chinese lodging industry and key companies that operate within the country and region as well as insight into some select current and essential issues. Key points and findings of this report are: „ Y/Y RevPAR growth in ACPC and China significantly surpassed y/y RevPAR growth in Europe and the U.S. in 2010. YTD y/y RevPAR growth as of October 2010 for the U.S., Europe, ACPC and China is 7%, 3%, 24% and 37%, respectively. The above world trend for ACPC and China RevPAR growth continues today. The 2010 recovery in ACPC and China RevPAR follows the 2009 downturn, which was triggered by the short term supply glut tied to the 2008 Olympic Games and 2008-2009 worldwide economic downturn. „ Recent company comments and pipeline announcements made by IHG, Marriott, Shangri-La, Starwood, Home Inns and 7 Days, among others, remain positive regarding forward prospects in both the Asia region and more so in China over the next several years. „ Recent Chinese news flow has been focused on inflation pressures, loan growth and central government tightening measures within the country. Some media reports suggest that China could face an economic slowdown. Despite these fears consensus GDP growth rates for the next few years remain in the 8% to 9% range, one of the strongest growth rates in the world. „ The Chinese economy has grown at a significant rate since the early 1990’s. Driven by significant economic stimulus, among other factors, growth persisted in 2008 and 2009 despite the world wide economic slowdown. „ The Chinese economy and lodging industry have benefitted from several significant long-term trends that continue today which include; − a massive rural to urban migration trend which drives a significant increase in the urban population; − ongoing growth of the middle class and overall per capita income levels that are expected to continue over the next decade;©2011 Apertor Hospitality, LLC. All Rights Reserved.
  5. 5. Executive Summary 5 Chinese Lodging Industry Growth February 25, 2011 − changes in lifestyle and behavior that allow for more leisure time and consumer spending; − ongoing significant growth in small to medium enterprises (SME’S) as a driver of both overall economic growth and tourism; − and government effort to stimulate domestic tourism growth. „ Traffic count growth rates at Chinese gateway airports have continued to move towards the top of the worldwide rankings in recent years, providing further evidence of the growth of international travel into the country. Domestic travel has also grown at a significant rate in recent years. „ China’s lodging market is defined as follows: privately owned guesthouses & unrated hotels, 1–3 star hotels, branded economy hotels and 4 – 5 star rated hotels. In 2008, approximately 93% of the Chinese lodging market consisted of guesthouses and unrated hotels, suggesting that the market remains significantly underpenetrated by local and international brands compared to U.S. penetration statistics. „ The 1 – 3 star segment of the Chinese lodging industry (measured in hotels) expanded at a 5.6% compound average growth rate (CAGR) over the previous decade. The 4 – 5 star and branded economy segments expanded at 18% and 73% CAGR, respectively, over the same period as these segments took share from the unrated and 1 – 3 star hotel segments. „ Branded economy and 4 – 5 star industry hotel and room supply is expected to continue to grow at a significant pace resulting in market share losses by 1 – 3 star and unrated hotels through 2015 and beyond. „ The 4 – 5 star segment is dominated by brands of global companies such as Accor, IHG, Shangri-La, Starwood, Marriott and others. „ The branded economy segment which really only began significant operations in 2004 is now dominated by 5 companies, 4 of which are publicly listed.[2] „ Despite some fear of a short-term supply glut for branded economy hotels, the long- term growth story remains intact due to the low penetration rate and competitive advantages held by these firms. „ The three publicly listed, branded economy operators have expanded from approximately 26 hotels in 2004 to 1,800 as of December 31, 2010. Select industry analysts expect the rapid pace of growth to continue as the combined hotel footprint of these companies is expected to expand to approximately 5,700 hotels by 2015. „ Recently two of the three (Home Inns and 7 Days) U.S. listed, branded economy operators announced increases to their previously announced robust development pipelines.2 Three companies are listed in the U.S. (China Lodging Group, Home Inns and 7 Days). One company, Jin Jiang Hotels, is listed on the Hong Kong exchange.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  6. 6. Executive Summary 6 Chinese Lodging Industry Growth February 25, 2011 „ The three U.S. listed, branded economy operators are expected to continue to increase their market share within the segment over the next several years. They are also expected to continue to rapidly increase their revenue and EBITDA between 2010 and 2012.[3] „ Over the next several years, revenue growth for Chinese focused operators is expected to significantly surpass overall worldwide revenue growth for the major global lodging companies. „ Publicly listed Asian and China focused hotel operators were recently valued at a premium to global companies due to the perceived superior forward looking growth prospects over the next several years. „ Our overall China supply model (for the combined star rated and branded economy segments) indicates the Chinese Lodging market (measured in hotels and rooms) tripled in size over the last decade growing at a 11% and 12% CAGR’s. „ The current ACPC and Chinese pipeline approaches the 2008 pipeline peak that preceded the Olympic Games. Based on recent data points, the Chinese pipeline continues to expand. „ During 2010, several major international operators (Accor, IHG, HOT, etc.) have expressed forward looking positive sentiment toward development within Asia and have announced significant development plans. HOT has focused 52% of its pipeline efforts on the ACPC region and has indicated this region represents the highest rate of pipeline growth for the company. „ Our survey of Chinese economic forecasts suggest the Chinese economic growth may slow some between 2010 and 2011 but remain at a premium to growth rates of virtually all major economies in the world for the next decade. „ Analysts, investors, economists and industry participants within the ACPC and Chinese lodging industry that we have spoken to as part of this research effort remain positive regarding current conditions and continue to maintain bullish views regarding long-term industry growth and overall Chinese economic growth.3 Select analyst estimates suggest revenue and EBITDA may increase approximately 40% to 80% between 2010 and 2012.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  7. 7. Executive Summary 7 Chinese Lodging Industry Growth February 25, 2011Chinese Lodging Industry GrowthAn Unprecedented Opportunity Recent China and Asian Pacific (ACPC) lodging industry data points remain strong and support current robust forward growth expectations in the region. Over the course of 2010, China and Asia have become the key growth story for the worldwide lodging industry. At this juncture, the consensus view is that China and Asian markets are expected to continue to grow into 2011 and for the next decade. Faced with more limited growth prospects in the U.S. and attracted by significant opportunities in emerging markets, where supply continues to create demand, lodging companies with management and ownership opportunities in the region remain bullish regarding forward prospects. Driven by strong regional and global economic growth, massive rural to urban Chinese migration trends and a growing middle class, among other factors, the lodging industry in China has grown at a rapid pace in recent years and is expected to continue to do so between now and 2020. Today, the Chinese lodging market is comprised of two major market segments as follows: „ The upscale market that targets international business travelers. This market is primarily located in tier 1 cities (e.g. Beijing, Shanghai, etc.) and is dominated by global operators. „ Domestic market properties that target the growing middle class. This market is dominated by independent hotels and Chinese guesthouses, which includes 1 to 3 star hotels and a handful of rapidly growing budget operators that operate economy hotels in tier 1, 2 and 3 Chinese cities.[4] In this report, we provide an overview of the greater China lodging industry and our prognosis for expansion of the industry over the next several years. We also provide some insight into Asian regional lodging industry and economic trends. We view the Chinese lodging market as one of the most dynamic and significant forward- looking growth markets in the world. To understand future growth prospects of the market and market participants requires an understanding of China’s economic history and forward looking economic prospects as well as structural, political and other issues that are relevant to this dynamic growth story. Our research suggests that this large, complex story could literally result in several hundred pages of explanation. We have chosen to provide brief summaries of what we believe are the most relevant issues. Included in the report bibliography are references to research reports and other documents to allow our readers the option to dig deeper into particular aspects of this subject. This report is focused on China and should primarily be used as a starting point into the China lodging industry story and to a lesser degree the Asian region as a whole.4 See Appendix D for a description of Chinese tier 1, 2 and 3 cities.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  8. 8. Executive Summary 8 Chinese Lodging Industry Growth February 25, 2011 Our analysis of the Chinese lodging industry is organized as follows: „ Recent China and Asian (ACPC) Industry Data Points and Select U.S. Company Comments „ Recent China News Flow „ Summary of the Chinese Economic and Development Story „ Overview of the Chinese Lodging Market „ China and ACPC (regional) Industry Data „ China and ACPC Pipeline Data „ Appendix A: Additional Recent Chinese Economic Headlines „ Appendix B: Summary of Chinese Economic and Structural Issues „ Appendix C: Recent Sentiment Regarding ACPC-Chinese Real Estate Market Conditions „ Appendix D: Chinese Tier 1, 2 and 3 Cities „ Appendix E: Smith Travel Asian Region Definitions©2011 Apertor Hospitality, LLC. All Rights Reserved.
  9. 9. Recent China and Asian (ACPC) Industry Data Points and Select U.S. Company Comments 9 Chinese Lodging Industry Growth February 25, 2011Recent China and Asian (ACPC) Industry Data Points and Select U.S. Company Comments Recent RevPAR Data Points During 2010, y/y RevPAR metrics in the lodging industry within China and Asia have shown strong signs of recovery despite the mixed bag nature of results in Europe and more moderate signs of recovery in the U.S. as follows:Exhibit 1: Y/Y recent RevPAR growth in world markets y/y U.S. RevPAR growth y/y European RevPAR growth y/y ACPC RevPAR growth y/y China RevPAR growth 60% 50% 40% 30% 20% 10% 0% -10% 03/10 04/10 05/10 06/10 07/10 08/10 09/10 10/10Source: Smith Travel During 2009, Chinese and ACPC y/y RevPAR growth was negative due to the demand decline tied to the worldwide recession. Chinese 2009 y/y RevPAR growth was also negatively affected by supply and demand issues tied to the significant increase in supply that preceded the 2008 Beijing Olympic Games and post Olympic demand drop off. China and ACPC RevPAR began to recover in late 2009 and have led the worldwide recovery in the lodging industry during 2010. During 2010, the Chinese lodging market also benefitted from the Shanghai Expo that attracted approximately 70 million visitors between May and October. Recent Select U.S. Company Comments Regarding Asia Major operators’ results and pipeline outlook reflect current strong trends in China and ACPC as a whole as follows: Hyatt (H) Hyatt posted significant increases in international RevPAR (+17.3%) and franchise fee revenues (+14.8%) for 3Q10. Hyatt indicated that the increases were primarily attributed to the ACPC region.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  10. 10. Recent China News Flow 10 Chinese Lodging Industry Growth February 25, 2011 Marriott (MAR) MAR recently forecasted robust growth in Asia and international operations as a whole. MAR ‘s forecast includes a total international and Asian fee CAGR of approximately 15%–22% between 2010 and 2013. MAR also indicated that one-half of company room growth will occur in international markets between 2011 and 2013 with ACPC growth at 19%. MAR and the International Travel and Tourism Council forecasted a 2009 to 2019 ACPC and China travel spend growth CAGR of 9.6% and 15%, respectively, the highest international market growth rate. At 2010, the MAR ACPC region consists of 47k rooms, a number that is expected to grow to 74k by 2013. Within MAR’s ACPC region, the majority of pipeline development will occur in China, India and Singapore at CAGR’s of 15%, 14% and 12%, respectively.[5] Starwood (HOT) On October 25, 2010, HOT announced that China had become the company’s second largest hotel market behind the U.S. with 60+ hotels and 86 new hotels in the pipeline. During 2011, one in every three new HOT hotels will open in China, including flagships for eight of its nine brands. HOT indicated that demand continues to outpace supply in China. This is a long runway for growth when you consider China has 171 cities with populations of more than one million, most of which do not have a major internationally branded hotel. HOT estimates that by 2015, China will have 100 million outbound travelers, the largest number of potential visitors in the world. Put into perspective, this number is larger than the number of people who visit France, the number one international tourist destination in the world.[6] The company currently generates 58% of its EBITDA in international markets and has committed 87% of its pipeline to international development.Recent China News Flow Recent China news flow has been focused on inflation and the central government’s effort to address the issues via tightening measures. As a result of the 2008 worldwide recession and resulting slowdown of exports, the Chinese government instituted a significant round of economic stimulus. The concern today is that this stimulus, among other factors, has created a property bubble and significant inflation pressure. The Chinese continue to take steps to rein in inflation. Concern has emerged that Chinese tightening efforts could cause a significant economic slowdown during 2011. We expect these issues to remain in the headlines.5 Per Marriott Analyst Day presentation on 10/27/10.6 Per HOT press releases and Investor Day presentation on 12/8/10. Per various media reports between 2007 and 2009 between 74 to 82 million tourists per annum visited France. We view HOT’s outbound tourism comment as an overall indicator regarding the development of the Chinese tourism industry.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  11. 11. Summary of the Chinese Economic and Development Story 11 Chinese Lodging Industry Growth February 25, 2011 Despite the possibility of a 2011 China economic slowdown, the current consensus view is that significant ongoing economic growth will continue in China through at least 2020. This long- term economic growth profile is expected to support growth in the tourism industry within the country and the region.[7]Summary of the Chinese Economic and Development Story The Chinese lodging industry is rapidly growing due to the strong growth in the Chinese economy and dynamic development trends. China’s double digit GDP growth has been the fastest in the world of any major economy over the past 20 years. In Exhibit 2, we present China’s GDP growth between 1990 and 2010 and also include a forecast to 2015.Exhibit 2: Real China GDP growth 15% 10% 5% 0% 1990 1991 1992 1993 1995 1996 1998 1999 2000 2001 2002 2003 2005 2006 2008 2009 1994 1997 2004 2007 2010E 2011E 2012E 2013E 2014E 2015ESource: IMF 2010 database China’s economic growth trend is expected to continue to surpass the growth rate of any other major world economy over the next 5 to 15 years. Chinese GDP forecasts call for absolute Chinese GDP to surpass the U.S. sometime after 2020. The case for long-term Chinese economic growth remains in place. At the same time, near-term risks of a 2011 Chinese economic slowdown have grown due to China’s tightening measures that have been triggered by a spike in inflation. For 2011, economic concerns exist regarding a property bubble and bad bank debt issues that were triggered by the massive 2008 stimulus put into the Chinese economy in response to the export slowdown caused by the worldwide financial crisis. Current consensus Chinese economic forecasts for 2011 call for some level of economic slowdown from the recent high growth rate. Despite the slowdown, growth rate forecasts remain significant and far surpass those of any other major economy in the world. Chinese 2011 economic issues emerged as a key headline around7 In 2010, the World Travel & Tourism Council is forecasting that Chinese real travel and tourism consumption will grow at one of the highest growth rates for all major countries at a real 10.4% CAGR between 2010 and 2020. Between 2005 and 2010. Chinese real travel and tourism consumption was 9.5%, 10.2%, 5.8%, 5.1%, 4.6% and 6.4%, respectively. For additional information see, “2010 Travel and Tourism Economic Impact Report – China,” World Travel & Tourism Council.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  12. 12. Summary of the Chinese Economic and Development Story 12 Chinese Lodging Industry Growth February 25, 2011 the world during the fall of 2010. In response to these issues, the Shanghai and Hong Kong stock markets dropped in late 2010. Stock prices of companies with significant exposure to China’s tourism industry also dropped between early November and late December 2010.[8] We would not be surprised to see ongoing stock volatility in the Chinese equity markets and China related tourism stocks. Lodging Industry growth has also been driven by the massive rural to urban migration trend, growth of the middle class, changes in lifestyle and efforts by the central government to rebalance the economy towards increased consumer spending, growth of small to medium enterprises (SME’s) and specific targeted efforts to support domestic tourism growth. The industry has also benefitted from foreign investment and world trade. These trends, which have benefitted the lodging industry, are expected to continue over the next decade. We have highlighted several as follows: Rural to Urban Migration Trend A rural to urban migration trend has occurred within China in recent years. Despite the trend, the urban population as a percentage of total population remains well below developed nations (such as the U.S.) as recently as 2008. See Exhibit 3 below: Exhibit 3: China and U.S. rural and urban populations U.S. China amount † % of total amount % of total Rural 58 19.0% 721 54.3% Urban 248 81.0% 607 45.7% Total 306 100.0% 1,328 100.0% Source: McKinsey and Company † amount in millions Over the next 15 years, the massive rural to urban migration trend is expected to continue. The scale of this migration trend is expected to be immense.[9] Highlights of this trend are as follows: „ 350 million people will be added to China’s urban population by 2025 – an amount greater than the population of the U.S. „ 1 billion people will live in Chinese cities by 2030. „ As many as 231 cities will have at least 1 million residents (Europe, for example, has 35 today).8 See stock prices for HMIN, HTHT, SVN, LVS and WYNN.9 See Jonathan Woetzel, Janamitra Devan, Luke Jordan, Stefano Negri, Diana Farrell, “Preparing for China’s Urban Billion”, McKinsey Global Institute, March 2008.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  13. 13. Summary of the Chinese Economic and Development Story 13 Chinese Lodging Industry Growth February 25, 2011 „ Between now and 2025 to 2030: − 5 billion square meters of road will be paved; − 170 mass transit systems could be built; − 40 billion square meters of floor space in 5 million buildings could be built; − 50K skyscrapers will be built, an amount equal to 10 New York cities; − GDP will grow 5x by 2025; and − the urban economy will drive 90% of GDP. „ China’s goal is to grow per capita GDP four-fold by 2020. „ The urban population will grow to 1 billion between 2025 and 2030. „ Mega and mid size cities will grow at rapid rates between now and 2025. „ By 2025, six new mega cities with populations > than 10 million will emerge. Eight mega cities will exist that include: Beijing and Shanghai (present day mega cities), Tianjin, Shenzhen, Wuhan, Chongqing, Chengdu and Guangzhou. The scale of this trend will continue to create issues and pose risks to China. Mckinsey points out that demands placed on land, energy supply, water, the environment and social services will be significant. This massive development effort is positive for long-term lodging industry development. The existing penetration rate of hotel rooms in China is extremely low compared to the U.S. The massive urbanization trend and increasing penetration trend from the current low base is expected to continue to drive growth of the Chinese lodging industry. As a result, domestic and international hotel developers have significant development plans within China over the next several years. Growth of Disposable Income and the Chinese Middle Class Between 2003 and 2008, the number of households with annual disposable incomes over U.S. $5,000 in China increased from 33.8 million in 2003 to 134.1 million in 2008 (a 31.7% CAGR). By 2020, this number is expected to be 341.4 million, representing a CAGR of 8.1%. Domestic tourism is expected to expand at a significant growth rate as a result of growing disposable income. China’s domestic tourism spending grew from RMB 344.2 billion in 2003 to RMB 875.0 billion in 2008 (a CAGR of 20.5%) while international inbound travel grew at a 11.7% CAGR between 2001 to 2008.[10] Exhibit 4 includes disposable income and tourism expenditure data as follows:10 Per China Lodging Group 2010 registration statement and investor presentation. The term RMB is the abbreviation for Renminbi, which is the official currency of China.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  14. 14. Summary of the Chinese Economic and Development Story 14 Chinese Lodging Industry Growth February 25, 2011Exhibit 4: Growth in disposable income and tourism expenditures Household growth by annual disposable income Domestic tourism expenditures growth (RMB in billions) above U.S. $15,000 between U.S. $5,000 to $15,000 1,400 200 1,500 1,273 1,157 160 40 1,200 1,006 33 875 28 777 23 25 900 120 623 16 600 471 529 80 12 136 148 344 9 111 117 125 40 7 86 300 6 56 69 28 43 0 0 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012E 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012ESource: China Lodging Group 2010 investor presentation Over the next 20 years, a large middle class will emerge in China with enormous spending power. Significant growth will occur across various personal consumption categories. Over the next 20 years the growth of higher paying jobs in urban areas will continue to create a larger middle class.[11] This trend along with the government’s effort to rebalance the economy toward consumer spending will drive a significant amount of recreational spending. At a 9.5% CAGR, the Chinese recreation spending category is forecasted to grow at one of the highest spending category growth rates between now and 2025. Total discretionary spending is also expected to take a larger share of the Chinese consumer’s wallet over this time period. Between now and 2015 urban upper middle class households are expected to increase from 12% to 60% of the total urban population, and at the same time, the urban poor are expected to decline from 40% to 10%. In regard to tourism, in late 2009 the government declared tourism as a key industry to develop and has announced plans to significantly increase the market share of budget hotels over the next several years. Changes in Lifestyle Between 2000 and 2007, car ownership per 100 households increased from .5 to 6.1, representing an eleven-fold increase. Car ownership provides more independence and facilitates domestic travel. Other examples of significant lifestyle changes that are benefitting the travel industry include the rising number of employers that are providing paid leave benefits, and the younger generation demonstrating a higher interest in leisure travel compared to older generations.[12]11 See Diana Farrell, Eric Beinhocker, Ulrich Gersch, Ezra Greenberg, Elizabeth Stephenson, Jonathan Ablett, Mingyn Guan, Janamitra Devan,“From ‘Made in China’ to ‘Sold in China’: “The rise of the Chinese urban consumer,” McKinsey Global Institute, November 2006.12 Per China Lodging Group 2010 registration statement.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  15. 15. Summary of the Chinese Economic and Development Story 15 Chinese Lodging Industry Growth February 25, 2011 Growth of Small to Medium Enterprises (SME’s) Ongoing growth of SME’s is viewed as a positive driver of the Chinese lodging industry. The number of SME’s is expected to continue to grow as the economy continues to expand and evolve. In 2003, 24m SME’s existed in China. By 2008, the number grew to 37m and is expected to grow to 60m by 2012.[13] We have viewed estimates that suggest SME’s are the most important driver of job creation and economic growth in China contributing 60% to GDP in 2009.Exhibit 5: Growth in Chinese SME’s 70 60 60 44 47 50 40 36 37 40 32 28 28 30 24 20 10 0 2003 2004 2005 2006 2007 2008 2009E 2010E 2011E 2012ESource: China Lodging Group registration statement Growth in SME’s has benefitted the domestic hotel market and is expected to continue. According to the China Economy Hotel Survey in 2008, 42% of economy hotel guests were individual business travelers, many of which were associated with SME’s. [14] Continued Growth in International Arrivals Driven by World Trade and Affluent International Travelers The Chinese economy has been dependent on and has benefitted from foreign direct investment by multinational corporations and exports.[15] China has also emerged as an international tourism destination evidenced by in-bound international travel that has grown at a rapid pace between 2000 and 2009.[16] These trends are expected to continue, driven by expected ongoing strong international direct investment trends and multinational expansion over the next several years. These robust trends are evidenced by traffic volume at Chinese gateway airports such as Beijing, Hong Kong and Shanghai that have experienced some of the strongest passenger count growth rates in the world in recent years (see Exhibit 7 for additional information,) which in turn has benefitted 4 and 5 star international hotels operated by global brands.13 Per China Lodging Group 2010 investor presentation. SME’s are forecasted to grow at a 27% CAGR between 2003 to 2012.14 The economy segment is the fastest growing segment of both the domestic and overall Chinese lodging industry. See China Lodging Group 2010 registration statement and investor presentation.15 For an extensive overview of these issues, see Jonathan Anderson, “How to Think About China, UBS, January 2006.16 Per the UNWTO World Tourism Barometer at June 2010, Chinese inbound tourism receipts and traffic grew at 9.4% and 5% CAGR’s between 2000 and 2009. As of April 2010 in-bound tourism receipts and traffic grew y/y by 14.7% and 9.6%., respectively.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  16. 16. Summary of the Chinese Economic and Development Story 16 Chinese Lodging Industry Growth February 25, 2011 Chinese Air Traffic In Exhibit 6, we present Beijing and Hong Kong air traffic data as a proxy for international travel in and out of China. The chart includes present traffic counts for Beijing and Hong Kong that have consistently increased in recent years due to the robust economic growth in the country and region, among other factors.Exhibit 6: Beijing and Hong Kong airport passenger counts (amounts in millions) Beijing Hong Kong 80 70 60 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009 2010Source: Airport Council International In Exhibit 7, we present rankings of passenger count data into the world top 30 airports for Beijing and Hong Kong. Between 2004 and 2010, Beijing and Hong Kong have led the world in y/y passenger growth and moved up the overall top 30 international airport world rankings for total passenger deplanements. During 2009, Guangzhou appeared in the rankings and led all other airports in terms of y/y passenger growth. In 2010, Shanghai ranks #1 in terms of y/y passenger growth owing to the Shanghai Expo. As of August 2010 on a ytd basis, Beijing, Guangzhou, Hong Kong and Shanghai were all near the top of the world rankings for y/y passenger growth according to ACI. [17].17 ACI is known as Airport Council International, an international trade association of airports. ACI compiles passenger and freight traffic data and provides monthly and annual traffic count ranking for the top 30 airports worldwide.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  17. 17. Summary of the Chinese Economic and Development Story 17 Chinese Lodging Industry Growth February 25, 2011Exhibit 7: World ranking of Chinese international airport traffic counts Beijing Hong Kong Passenger Passenger Comments Comments Year Count Count world world y/y gth y/y gth rank rank08 /10 ytd 2 13.4% # 2 ranked worldwide growth rate 11 10.6% near top of worldwide growth rate rankings 2009 3 16.9% top ranked worldwide growth rate 13 -4.8% near top of worldwide growth rate rankings 2008 8 4.4% near top ranked worldwide growth rate 12 1.7% near top of worldwide growth rate rankings 2007 9 10.1% top 5 worldwide growth rate 14 7.3% near top of worldwide growth rate rankings 2006 9 18.7% top ranked worldwide growth rate 14 8.9% near top of worldwide growth rate rankings 2005 15 17.5% top ranked worldwide growth rate 16 9.7% near top of worldwide growth rate rankings 2004 20 43.0% top ranked worldwide growth rate 17 35.0% near top of worldwide growth rate rankingsNote: During 2009 Guangzhou appeared in the top 30 airport passenger count ranking at 23 and also ranked near the top in terms of y/y passenger growth rates. On a YTD basis as of August 2010, Shanghai ranked #1 in terms of y/y passenger growth at 29.1% and 21st in terms of total passenger counts. Data sourced from Airport Council International (ACI). ACI is the trade association to the worlds top international airports.Source: Airport Council International Chinese domestic air traffic has significantly increased as well, as the total number of domestic air passengers increased from 110.5 million to 176.8 million between 2004 and 2008, a 12.5% CAGR.[18] China’s Targeted Effort to Drive Further Domestic Tourism Growth Domestic tourism volume and spending has significantly grown between 2004 and 2008.[19] The Chinese government has earmarked tourism as a key industry for development within the national economy and has announced key initiatives to promote ongoing tourism growth within the country.[20] The government has also made specific expenditures in the tourism industry to drive growth. The World Travel and Tourism Council (WTTC) estimates that annual government tourism expenditures grew from 87.5b RMB in 2004 to 158.6b RMB in 2008, a 16% CAGR.[21] Post the 2008 Beijing Olympic Games, the government announced spending plans of approximately $1.5b RMB for railways, highways and other infrastructure designed to benefit/facilitate tourism in specific regions.[22]18 Per China Lodging Group 2010 registration statement.19 Per the China Lodging Group 2010 registration statement, Chinese domestic trips and total spending on domestic travel increased at 11.6% and 16.7% CAGR’s between 2004 and 2008, while the overnight visitor count increased at a 9.4% CAGR between 2004 and 2007.20 Per JP Morgan China Hotel and Lodging industry report, “Riding the Upcoming China Travel Boom,” November 2010.21 Per the 2010 China Lodging Group registration statement.22 Per the 2010 China Lodging Group registration statement.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  18. 18. Overview of the Chinese Lodging Market 18 Chinese Lodging Industry Growth February 25, 2011Overview of the Chinese Lodging Market China’s lodging market is comprised of two major subsets as follows: „ Upscale properties that target upscale domestic and foreign travelers plus international business travelers. The majority of these properties are located in gateway cities (e.g. Beijing, Shanghai, etc.), with some located in tier 2 cities and are typically 4 and 5 star hotels operated by global companies; „ Domestic market properties that target the growing middle class. This market is dominated by independent hotels and Chinese guesthouses, including 1 to 3 star hotels and a handful of rapidly growing budget operators that operate economy hotels in tier 1, 2 and 3 Chinese cities.[23] The overall share of specific Chinese lodging industry subsets in 2008 was as follows:Exhibit 8: 2008 Market share of Chinese lodging industry 1.5% 1.9% 3.9% branded economy 4 to 5 star 28.2% 1 to 3 star 64.5% Other hotels Other accomodationsSource: Morgan Stanley and Apertor Research estimates The overall lodging market has grown rapidly in China between 2003 and 2008 as the hotel and room count has moved from 237.8k hotels/20.1m rooms to 315.9k hotels/27.3m rooms (5.8% and 6.3% CAGR).[24] Branded economy, 1 – 3 star rated, 4 – 5 star rated and total branded economy plus star rated hotels and rooms have increased rapidly between 2001 and 2010 as follows: Branded economy CAGR hotels/rooms 72.5% / 71.1% 1 – 3 star rated CAGR hotels/rooms 5.6% / 5.4% 4 – 5 star rated CAGR hotels/rooms 18.9% / 17.3% Branded economy plus star rated CAGR hotels /rooms 10.7% / 12.2%23 See Appendix D for a description of Chinese tier 1, 2 and 3 cities.24 Per China Lodging Group 2010 registration statement. These amounts include star rated hotels, branded economy hotels, guest houses and other unrated hotels. The growth rate of the star rated and branded economy segment is significantly higher than the overall growth rate as these segments have further penetrated the market and taken market share from guesthouses and unrated hotels.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  19. 19. Overview of the Chinese Lodging Market 19 Chinese Lodging Industry Growth February 25, 2011 In Exhibit 9, we present the number of branded economy plus star rated hotels and rooms between 2001 and 2010 and also include forecasts for 2011 and 2012.Exhibit 9: Total economy and star rated hotels (left axis) and rooms (right axis) hotels rooms 25,000 3,500,000 3,000,000 20,000 2,500,000 15,000 2,000,000 10,000 1,500,000 1,000,000 5,000 500,000 - - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012ESource: Public news sources, analyst and Apertor estimates The Chinese hotel market (ex guesthouses) is expected to continue to grow over the next 10 to 15 years to 4x the current size, 2x the size of the current U.S. market and be equal in size (measured in rooms) to the U.S. market sometime between 2020 and 2025.[25] On a per capita basis, the number of rooms, lodging spend per capita and room revenue as percentage of real GDP remains 45%, 75% and 20%, respectively, below the U.S.[26] Luxury/upper upscale/upscale segments and economy segments are expected to continue to grow at a rapid pace while midscale segments are expected to grow as well. The industry remains fragmented as only 15% to 20% of all hotels in the market have brand affiliation vs. 70% in the U.S.[27] Domestic low end hotels and guesthouses currently dominate the market, which provides an opportunity for global operators with international brands and economy brands to expand via market share gains. The brand proposition in China centers around prestige tied to international brands, standardized room-product offerings, consistent quality (safety & cleanliness) and loyalty programs, etc. The overall market penetration rate of branded economy and 4 & 5 star hotels (1.5% and 1.9%) into the Chinese hotel market remains low despite the rapid growth of these two segments. For the branded economy segment on a population penetration basis, currently .52 rooms exist per 1k urban residents compared to 8.9 in the U.S.[28] Although the ultimate penetration rate is unknown, a double or triple of the current penetration rate implies a 19% to 32% room count CAGR in this segment between 2008 and 2012. Market penetration and market growth driven by the major trends of ongoing robust economic growth, growing middle class, domestic consumption growth and rural to urban trends, among other factors, create the backdrop of a multi-year growth story for both international and domestic economy brands.25 Per IHG 2010 analyst day presentation.26 Per IHG 2010 analyst day presentation and United Nations World Travel Organization.27 Per IHG 2010 analyst day presentation.28 Per China Lodging Group 2010 investor presentation.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  20. 20. Overview of the Chinese Lodging Market 20 Chinese Lodging Industry Growth February 25, 2011 International Operators – Brands Segment Select high quality international operators with a brand presence in the Chinese market include Accor, Hilton, Hyatt, Intercontinental Hotel Group, Marriott, Shangri-La, Starwood and Wyndham. Given the bullish outlook for Chinese economic growth and development over the next decade, many of these companies maintain significant development pipelines that are focused on China. The companies continue to focus on 4 and 5 star hotel development opportunities in primary cities such as Beijing and Shanghai, but have also evolved their pipeline strategies to incorporate tier 2 and tier 3 cities as part of the “go west” and cluster trends.[29] The “go west” trend to central provinces is expected to be significant as many of the fastest growing Chinese cities over the next decade are expected to be located here.[30] The cluster trend refers to the current urban development trend where multiple smaller cities are expected to grow into major urban metropolises over the 10 to 15 years. In Exhibit 10, we present 4 and 5 star Chinese lodging supply between 2001 and 2012.Exhibit 10: 4 & 5 star supply hotels rooms 3,500 900,000 3,000 800,000 700,000 2,500 600,000 2,000 500,000 1,500 400,000 300,000 1,000 200,000 500 100,000 - - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012ESource: Public news sources, analyst and Apertor Research estimates Most of the international brands pursue management contract opportunities in the market. Ownership was previously dominated by fragmented SOE’s with government supplied funding sources.[31] Major SOE’s and significant real estate developers are now more prevalent with internal SOE funding sources comprised of public equity issuance. In 2005, SOE’s owned 58% of all hotels in the market. The number has now moved down to 35% and expected to reach 20% sometime after 2015.[32] In the future, Chinese hotel ownership is likely to include institutional investors and REIT’s. Successful international operators in China have strong connections with the government, SOE’s and partnerships with local leading developers. The current system and pipeline plans within the market include a cross section of international brands. We have provided an outline of pipeline size and brand information for the most significant players in the market, Accor, IHG and Starwood.29 Company 4 and 5 star brands target upscale Chinese travelers, international tourists and business travelers.30 For additional information see ”CHAMPS, China’s fastest growing cities,” Economist Intelligence Unit, 2010.31 SOE’s, known as state owned enterprises are owned and controlled by the central government. For further explanation of SOE’s, see “How to Think About China,” by Jonathan Anderson, UBS, January 2006.32 As of 2010, Chinese hotel ownership is comprised of SOE and private local & foreign funding sources (35% and 65%, respectively).©2011 Apertor Hospitality, LLC. All Rights Reserved.
  21. 21. Overview of the Chinese Lodging Market 21 Chinese Lodging Industry Growth February 25, 2011 Accor[33] The company operates 93 hotels and approximately 25K rooms in China as of 2010. The company’s current Chinese pipeline includes another 108 hotels. The company has doubled its footprint in China since 2003 to 93 hotels and would like to re-double its footprint by 2015 to approximately 200 hotels. In 2009, Chinese rooms were 5% of the total worldwide room base (owned, franchised, managed and leased). The Chinese room composition is expected to move to 7% of system wide totals by 2015. Accor remains focused on tier 1 and 2 cities and has a current footprint and development pipeline that covers the economy, midscale, upscale and luxury segments. Current Chinese footprint and development pipeline details are presented in Exhibit 11 as follows: Exhibit 11: Accor’s Chinese hotels and development pipeline Current Chinese development Brand Segment Future Chinese hotels Chinese Hotels pipeline IBIS economy 39 66 105 Novatel mid-scale 12 7 19 Mercure mid-scale 14 15 29 Pullman upscale 6 14 20 Sofitel luxury 22 6 28 Total   93 108 201 Intercontinental Hotels Group (IHG)[34] The company’s total worldwide system was 4,476 hotels and 651k rooms as of June 2010. The company currently operates 137 hotels and approximately 47k rooms in China as of 2010 (approximately 3.3% & 7.2% of total worldwide hotels & rooms). The company’s current Chinese pipeline includes another 149 hotels/49.5k rooms. Based on IHG, Chinese and total worldwide pipeline, Chinese hotels and rooms will make up 7.6% and 11.4% of the company’s worldwide hotel and room base. IHG’s Chinese room base and development pipeline is located in tier 1 – 3 cities and includes properties throughout the chain scale. Exhibit 12 includes IHG’s current Chinese hotels and development pipeline as follows:33 Per Accor 2010 investor presentation.34 Per IHG November 2010 investor presentation.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  22. 22. Overview of the Chinese Lodging Market 22 Chinese Lodging Industry Growth February 25, 2011 Exhibit 12: IHG’s Chinese properties and development pipeline Current Chinese Chinese development Brand Segment Future Chinese hotels Hotels pipeline Holiday Inn Express mid-scale 30 27 57 Holiday Inn mid-scale 52 39 91 Hotel Indigo upscale 0 4 4 Crown Plaza upscale 37 59 96 Intercontinental luxury 18 20 38 Total 137 149 286 Shangri-La Asia[35] At December 31, 2009, the company owned 47 hotels, held one operating lease and managed 17 hotels located in Asia. Approximately one-half of the hotels are located in mainland China with the remainder located in Hong Kong (3), Malaysia, the Philippines and Singapore, among other countries. Company primary brands include Portman, Shangri-La, and Traders. For the six months ending June 30, 2010, forty-four percent of total company revenue was generated in China ($318.5m of the company-wide total $722.9m). At December 31, 2009, the company indicated that it planned on developing approximately 35 hotels (1/2 owned and 1/2 managed) over the next 3 to 4 years. At June 30, 2010 the company had 11 specific projects identified in its pipeline with 7 hotels located in mainland China. Starwood (HOT)[36] The company currently operates 62 hotels in China as of 2010. The company’s current China pipeline includes an additional 82 hotels. HOT defines greater China as China, Hong Kong, Macau and Taiwan. Approximately one-half of the company’s worldwide pipeline is dedicated to China. HOT’s 62 hotels are four/five star hotels in key Chinese markets. HOT’s expansion includes secondary Chinese markets, which we believe are tier 2 and 3 markets. HOT’s existing properties and pipeline encompass a range of HOT brands including Sheraton, Westin and W, among others. HOT’s worldwide pipeline is currently 28% of the company’s current room base, which implies that the Chinese pipeline is nearly 14% of the overall company room base.[37] For additional information regarding international brand activity in China, see company filings and presentations for Accor, Hyatt, IHG, Marriott, Shangri-La, HOT and Wyndam.[38]35 Per company 2009 annual report and 6/20/2010 interim financial statements.36 Per HOT December 2010 investor presentation.37 Per HOT December 2010 investor presentation.38 Although we have not addressed in detail here, Shangri-La currently controls 98 existing and pipelined luxury hotels primarily located in Asia. Of the total company hotel portfolio, 49 hotels (current and pipeline) are located in China (44 in China, 3 in Hong Kong and 2 in Macau).©2011 Apertor Hospitality, LLC. All Rights Reserved.
  23. 23. Overview of the Chinese Lodging Market 23 Chinese Lodging Industry Growth February 25, 2011 The Domestic Lodging Market – Growth of the Economy Brands Measured by the number of hotels, the domestic hotel market is the largest in China at approximately 97% of the total Chinese market. The domestic lodging market remains highly fragmented and consists of independently and privately owned 1 to 3 star hotels, unrated hotels, guesthouses and the small but fast growing economy branded sub segment, which is dominated by four public operators. As of 2008, 1 – 3 star hotels and branded economy hotel chains comprise approximately 5.4% of the entire Chinese lodging market, accounting for a small percentage of the industry. In Exhibit 13 we present historical data and estimates for the total number of 1–3 star hotels and rooms. Between 2001 and 2010, the 1 – 3 star hotels and rooms grew at a CAGR of 5.6% and 5.4%. Between 2010 and 2012, the number of hotels in this segment is expected to grow at a 6% CAGR. This segment is expected to continue to grow through 2015 despite an overall forecasted market share loss to the branded economy segment.Exhibit 13: 1–3 Star hotels in China hotels rooms 14,000 1,400,000 12,000 1,200,000 10,000 1,000,000 8,000 800,000 6,000 600,000 4,000 400,000 2,000 200,000 - - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012ESource: Public news sources, analyst and Apertor estimates The branded economy chain segment has grown at an extraordinary pace since 2003. Home Inns (HMIN) is the current dominate player in the market; more recently, a handful of other operators have rapidly increased in size. Per the 2010 China Lodging Group, Limited (HTHT) registration statement, there were 2,805 and 312.9k branded economy hotels and rooms in the market as of 2008, which comprised approximately 1.5% of the entire lodging market (comprised of branded economy and star rated hotels plus unrated hotels and guesthouses) and approximately 17.6% of the combined branded economy and star rated market.[39] The economy chain hotel segment has continued to grow since 2004, with approximately 4.8k hotels and 600k rooms now in existence as of 2010. The majority of the domestic market that the branded economy competes against is currently comprised of 1 to 3 star & unrated hotels and private guesthouses with no dominate player existing. Most owners own one to two units. Our understanding is that many of the private guesthouses remain unprofitable. In 1997, the Chinese branded economy hotel chain segment began and since 2004 expansion within the segment has been driven by several factors including robust overall economic growth,39 For additional information see the China Lodging Group 2010 registration statement and company presentation.©2011 Apertor Hospitality, LLC. All Rights Reserved.
  24. 24. Overview of the Chinese Lodging Market 24 Chinese Lodging Industry Growth February 25, 2011 growth of the middle class and SME’s and a standardized-superior product, among other factors. Since 2004, the domestic branded economy chain segment in China has essentially been one of the fastest growing segments in the worldwide lodging industry at a 70% multi-year CAGR in room growth. In Exhibit 14, we present historic and forecasted hotel and room data for Chinese branded economy hotel segment.Exhibit 14: Branded economy hotel segment hotels rooms 8,000 1,000,000 7,000 900,000 6,000 800,000 700,000 5,000 600,000 4,000 500,000 3,000 400,000 2,000 300,000 200,000 1,000 100,000 - - 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010E 2011E 2012ESource: Company reports, public news sources and analyst reports, Apertor Research The rapid growth of the branded economy segment has created some fear of a short term supply glut. Despite short term fear regarding supply issues, the long-term trend of this segment remains positive due to expected additional market share gains connected to the existing low penetration rate and multi-year growth of the entire Chinese tourism-lodging market.[40] Public company operators and various industry analysts have forecasted significant ongoing industry growth to 2015 and beyond.[41] Population and urbanization forecasts we have viewed for China in 2015 suggest the market penetration rate for branded economy hotel rooms will remain below that of the U.S. despite the significant industry growth forecasts we have viewed. The current customer base is comprised of approximately 60% business, 20% leisure and 15% to 20% in other traveler categories. The market is dominated by seven major hotel chains with the top five operators controlling approximately 50% of the market as follows:40 The recent China Lodging Group registration statement indicated that the Chinese branded economy penetration rate is .52 per 1,000 urban resident compared to 3.0 in the U.S. They also pointed out that the urban population will continue to significantly expand over the next several years which is a positive driver for this segment.41 Goldman Sachs recently forecasted an industry segment size of 13,000 hotels by 2015 (from the current size of 5,000 as of 2010) representing a 21% CAGR. They also suggested that this segment plus 1 & 2 star rated hotels will resemble the structure of the U.S. budget lodging industry, based on a forecasted 49% share of the overall Chinese lodging market, an amount that is equivalent to the U.S. market in 2008. Goldman’s longer term forecast assumes growth will continue to 2020, a point in time where the industry reaches a level comparable to U.S. per capita penetration rate.©2011 Apertor Hospitality, LLC. All Rights Reserved.

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