CHINA HOTEL MARKET OUTLOOK

Topics To Cover
• Historical Supply Growth
• Developers Outlook
• Hoteliers Outlook
• Key Issues For 2009
• The Crystal Ball

HISTORICAL SUPPLY GROWTH

China Hotel Supply Database
• China Database has 6,008 hotels with 1.3 million rooms
• Cover all 31 provinces, 282 cities and towns
• Hotel's Opened: 4,861 hotels with 977,573 rooms
• New Supply: 1,147 hotels with 300,104 rooms
• From budget, mid-tier, up-tier to luxury hotels.
Note: 1 all the data collected YTD March 2009; 2 exclude HK, Macau, Taiwan

Star-rating For All Existing Hotels
2-Star, 0.3% Star-rating No. Ratio
Budget 34.8%
5-Star 650 13.4%
3-Star, 3.5%
4-Star 1,364 28.1%
3-Star 171 3.5%
Pending, 13.5%
2-Star 13 0.3%
Budget 1,694 34.8%
4-Star, 28.1% Pending 654 13.5%
No-rating, 6.5% No-rating 315 6.5%
5-Star, 13.4% Total Opened Hotels: 4,861 100.0%
Note: 1 all the data collected YTD March 2009
2 exclude HK, Macau, Taiwan

China Hotel Supply Growth
Hotel Supply Growth
Hotels Growth% Rooms Growth%
2005 2,322 18% 548,931 14%
2006 2,856 23% 648,902 18%
2007 3,669 28% 789,037 22%
2008 4,738 29% 959,737 22%
Note: exclude HK, Macau, Taiwan

China Existing Rooms Supply – 2000 to 2008
2008
2000 Domestic, Budget, 49%
Budget, 2% 20%
Domestic,
53%
International
, 46% International
2005 , 31%
Budget, 17%
Domestic,
39%
International
Note: 1 exclude HK, Macau, Taiwan , 44%

Supply Growth Excluding Budget
Year Hotels Growth% Rooms Growth%
2005 2,156 14% 524,733 12%
2006 2,457 14% 591,926 13%
2007 2,816 15% 672,198 14%
2008 3,165 12% 756,498 13%
2009 3,428 8% 837,748 11%
2010 3,662 7% 913,399 9%
2011 3,799 4% 957,175 5%
2012 3,877 2% 984,655 3%
Note: 1 exclude HK, Macau, Taiwan; 2 exclude budget hotels; 3 source from Intl & Domestic HMCs, Horwath HTL

China Hotel Supply Growth – Hotels
4,500 16%
4,000 14%
3,500 12%
3,000
10%
2,500
8%
2,000
6%
1,500
1,000 4%
500 2%
0 0%
2005 2006 2007 2008 2009 2010 2011 2012
Hotels Growth%
Note: 1 exclude HK, Macau, Taiwan; 2 exclude budget hotels; 3 source from Intl & Domestic HMCs, Horwath HTL

China Hotel Supply Growth – Rooms
1,200,000 16%
14%
1,000,000
12%
800,000
10%
600,000 8%
6%
400,000
4%
200,000
2%
0 0%
2005 2006 2007 2008 2009 2010 2011 2012
Rooms Growth%
Note: 1 exclude HK, Macau, Taiwan; 2 exclude budget hotels; 3 source from Intl & Domestic HMCs, Horwath HTL

New Supply – Market Positioning: 2009 & 2010
No-rating, 34% Luxury, 6%
Top-tier, 38%
Mid-tier, 22%
Note: 1 exclude HK, Macau, Taiwan; 2 exclude budget hotels; 3 source from Intl & Domestic HMCs, Horwath HTL
4 No-rating properties include independent hotels and seeking operator hotels.

Existing Hotel Supply – Beijing
Including Budget Hotels Excluding Budget Hotels
Total New Hotel Growth % Total New Hotel Growth %
2005 259 34 15% 2005 239 25 12%
2006 307 48 19% 2006 268 29 12%
2007 391 84 27% 2007 300 32 12%
2008 590 199 51% 2008 398 98 33%
Note: 1 exclude HK, Macau, Taiwan

Existing Room Supply – Beijing
Including Budget Hotels Excluding Budget Hotels
New Growth New Growth
Total Total
Hotel % Hotel %
2005 73,865 6,452 10% 2005 70,990 4,940 7%
2006 82,462 8,579 12% 2006 76,946 5,956 8%
2007 97,075 14,613 18% 2007 84,983 8,037 10%
2008 134,435 37,360 38% 2008 110,063 25,080 30%
Note: 1 exclude HK, Macau, Taiwan

Openings in 2008 – Beijing Vs. China
Including Budget Hotels Excluding Budget Hotels
Beijing China Ratio Beijing China Ratio
Hotels 199 1,069 19% Hotels 98 349 28%
Rooms 37,360 170,700 22% Rooms 25,080 84,300 30%

Intl. HMCs Deal Signing – 2007 Vs. 2008
Hotel Supply - excluding budget hotels
Q1 Q2 Q3 Q4 Total
2007 32 26 27 19 104
2008 25 29 48 102
Hotel Supply - including budget hotels
Q1 Q2 Q3 Q4 Total
2007 47 33 31 31 142
2008 31 46 53 130
Note: 1 exclude HK, Macau, Taiwan

CHINA DEVELOPERS SURVEY

China Hotel Developers Survey
What impact do you expect the current economic crisis will have on new
hotel developments?
Don't Know
Insignificant Impact
Delay in Excess of 1 Year
Moderate Dropout (25%)
Significant Dropout (>50%)
0% 5% 10% 15% 20% 25% 30% 35% 40%

China Hotel Developers Survey
How long do you think it will be before there is a significant pick-up in the
hotel sector of the property market in China?
More Than 1 Year
6-12 Months
3-6 Months
0-3 Months
0% 10% 20% 30% 40% 50% 60% 70%

China Hotel Developers Survey
How much do you think Central Government policies and the economic
stimulus package will help hotel development in China?
Will Help A Lot Will Not Help
9% 13%
Will Help A Little
78%

China Hotel Developers Survey
What are the major development issues (for hotels) that you face?
Others
Infrastructure Issues
Brand Availability
Debt Cost
Debt Availability
Cash Flow Problems
Land Cost
Land Availability
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

China Hotel Developers Survey
What will be your main development focus for the next 3 to 5 years?
Purely Residential
5%
Purely Commercial
9%
Mixed Use
86%

China Hotel Developers Survey
How do you rank the investment return potential of the following
property types?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Residential Office Retail Hotel Industrial
R1 R2 R3 R4 R5

China Hotel Developers Survey
How do you rank the investment return potential of the following
property types?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Residential Office Retail Hotel Industrial
R1 R2 R3 R4 R5

China Hotel Developers Survey
How do you rank the investment return potential of the following
property types?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Residential Office Retail Hotel Industrial
R1 R2 R3 R4 R5

China Hotel Developers Survey
Do you think there will be a lot of hotel transactions in the
coming 12 months?
Increase in
Transactions
24%
Similar Volume Less Transactions
14% 62%

China Hotel Developers Survey
What are your expectations for construction costs for the
next 12 months?
Increase By More Than 30%
Increase By 15% to 30%
Increase By 0% to 15%
No Change
Decline Between 0% to 15%
Decline Between 15% to 30%
Decline of 30% or More
0% 5% 10% 15% 20% 25% 30% 35% 40%

CHINA HOTEL MARKET SENTIMENT SURVEY

Sentiment Survey Overview
• Participants from 46 countries
• Survey conducted in 16 languages
• About 2,800 responses
• More than 20 reports produced to date
• Follow-up survey to be conducted June/July

Sentiment Survey Overview
• Participants from 51 cities
• More than 300 responses
• Reports produced for China, Beijing, Shanghai
and Shenzhen
• The second survey conducted in China

Overall Sentiment Ranking
• Each answer to each question was given a
score.
• Negative answers scored negative points,
positive answers positive points.
• Minimum score representing the most negative
outlook equaled -150. Maximum score
representing the most positive outlook equaled
+150. A score of zero equated to a neutral
outlook.

Asia Sentiment Rankings
South Korea -7.2
Japan -72.1
China -40.8
India -40.1
Hong Kong -52.7
Thailand -44.9
Singapore -64.3 Malaysia -32.8
Indonesia -4.3

Asia Sentiment Rankings
South Korea -7.2
Japan -72.1
China -40.8
India -40.1
Hong Kong -52.7
Thailand -44.9
Singapore -64.3 Malaysia -32.8
Indonesia -4.3

Asia Sentiment Rankings
South Korea -7.2
Japan -72.1
China -40.8
India -40.1
Hong Kong -52.7
Thailand -44.9
Singapore -64.3 Malaysia -32.8
Indonesia -4.3

Asia Sentiment Rankings
South Korea -7.2
Japan -72.1
China -40.8
India -40.1
Hong Kong -52.7
Thailand -44.9
Singapore -64.3 Malaysia -32.8
Indonesia -4.3

Market Performance Outlook - China
100%
90%
80%
China was slightly
70%
more negative than the
60%
50% global average with 66
40%
30%
percent of the
20% respondents stating
10%
0%
that market-wide
Occupancy ADR Revenue occupancy
Much Better
Better
performance would get
Same worse than 2008. Only 9
Worse
Much Worse percent said it would be
better.

Hotel Performance Outlook - China
100%
90%
80% About 70% or more of
70%
hoteliers across China
60%
50% expect declines in
40%
30%
occupancy, ADR and
20% total revenue in 2009.
10%
0%
Only 10 percent or less
Occupancy ADR Revenue expect growth.
-15% plus -10% to -15%
-5% to -10% 0% to -5%
0% to +5% +5% to +10%
+10% plus

Hotel Performance Outlook - China
100%
90%
80% On average, hoteliers in
70%
China expect declines
60%
50% in market performance
40%
30%
of close to 5% in 2009.
20%
10%
0%
Occupancy ADR Revenue
-15% plus -10% to -15%
-5% to -10% 0% to -5%
0% to +5% +5% to +10%
+10% plus

Hotel Performance Outlook – Key Cities
Occ % ADR
Beijing 0% to -5% -5% to -10%
Shanghai 0% to -5% 0% to -5%
Shenzhen -5% to -10% 0% to -5%
Guangzhou 0% to -5% 0% to -5%
Hangzhou 0% to -5% 0% to -5%
Sanya 0% to +5% 0% to -5%
Suzhou -5% to -10% 0% to -5%
Chongqing +5% to +10% 0% to +5%
Xian 0% to -5% 0% to -5%
Dalian -5% to -10% -5% to -10%

Factors Affecting Performance - China
100%
90%
80%
70% Amongst the abovementioned factors,
60%
50% central government policy has the
40%
30% most positive response as 42 percent
20%
10%
of the hoteliers stated that
0% government policy would have a
Stock Market
Local Economy
Global Economy
Local Tourism
New Supply
Global Oil Prices
Exchange Rates
Central Government Policy
Exports positive impact on performance, as
most respondents expected the RMB
4 trillion economic stimulus package
to boost domestic demand. Global
economy, due to concerns with
Very Positive Impact regards to the worsening financial
Positive Impact crisis, had the highest negative
No Impact
Negative Impact
response rate of 82 percent.
Very Negative Impact

Factors Affecting Performance – Key Cities
Global Econ New Supply Exports
Beijing 1 3 4
Shanghai 1 3 2
Shenzhen 2 7 1
Guangzhou 2 8 1
Hangzhou 1 5 2
Sanya 1 5 2
Suzhou 2 1 3
Chongqing 1 8 2
Xian 1 7 2
Dalian 2 3 1

Market Segment Performance - China
100%
90%
80%
70% The majority of the hoteliers held a
60%
50% bleak outlook for international
40%
30%
demand in 2009, as over 85 percent of
20% respondents stated that performance
10%
0%
across foreign corporate, foreign
leisure FIT and foreign leisure group
Domestic Corporate
Foreign Corporate
Domestic Leisure FIT
Foreign Leisure FIT
Domestic Leisure Group
Foreign Leisure Group
MICE
would get worse.
On the other hand, hoteliers in China
are much more positive on domestic
Much Better demand sources, with 20 to 30
Better
percent of respondents expecting
Same
Worse
domestic demand to record growth.
Much Worse

Market Segment Performance – Key Cities
Dom. Corp Int’l Corp Dom. Leisure Int’l Leisure
Beijing 8.4 -84.4 7.5 -81.6
Shanghai -2.0 -75.0 -3.9 -78.9
Shenzhen -40.2 -101.8 -40.2 -101.8
Guangzhou 46.9 -37.5 56.3 -37.5
Hangzhou -10.7 -75.0 0.0 -53.6
Sanya -42.9 -100.0 -10.7 -100.0
Suzhou 37.5 -87.5 37.5 -75.0
Chongqing 25.0 -50.0 0.0 -50.0
Xian 30.0 -75.0 15.0 -105.0
Dalian -75.0 -120.0 -60.0 -135.0

KEY ISSUES FOR 2009

Key Issues For The Hotel Industry
For the first time in a long time, the economy is viewed in
negative terms for the market outlook.

Key Issues For The Hotel Industry
For the first time in a long time, the economy is viewed in
negative terms for the market outlook.
• Financial services industry
• Light manufacturing
• Export-oriented industries
• Automobile Industry

Key Issues For The Hotel Industry
Owners Cash Flow Situation May Impact On Operations
and Owner/Management Relations

Key Issues For The Hotel Industry
Owners Cash Flow Situation May Impact On Operations
and Owner/Management Relations
• Developers survey show that cash flow issues are listed
as a major impediment to future development – it will
also be an issue for hotels that are already in operation
• Owners will be seeking/requiring stronger cash flows to
help them get through the next 12 months
• There will be a stronger focus and attention to asset
management by owners to maximize cash flow
• Hotels less than 12 months old will particularly be under
pressure

Key Issues For The Hotel Industry
Booking patterns will change in response to the
economic environment

Key Issues For The Hotel Industry
Booking patterns will change in response to the
economic environment
• Booking engines like eLong and Ctrip, already
important in many hotel markets in China, will become
an even more important driver of bookings
• Short-term pick up in bookings will become stronger,
making it harder for budgeting and staffing
• There will be a shift down in demand to lower rated
hotels

Key Issues For The Hotel Industry
Domestic demand sources will continue to become more
important

Key Issues For The Hotel Industry
Domestic demand sources will continue to become more
important
• China Hotel Market Sentiment Survey shows us that the
outlook for international demand segments is not
positive – hoteliers are looking to domestic demand
sources in 2009
• International hotel groups will have to make
adjustments to booking channels used and sales
strategies
• Price competition is likely to increase in the short term

Key Issues For The Hotel Industry
While development trends may slow down, new supply
will continue to be a major issue for many markets.

Key Issues For The Hotel Industry
While development trends may slow down, new supply
will continue to be a major issue for many markets.
• Horwath supply database shows a potential 80,000
rooms to enter the market in 2009 (excluding budget
hotels).
• Hotels opened in 2008 will also continue to impact the
market in 2009.
• Beijing will particularly feel the effects of new supply in
2009, given an incredible amount of new supply in 2008.

The Crystal Ball – 2009
First Half Second Half
All markets!!!!

THANK YOU!