STAYWELL SEES OPPORTUNITY IN CHINA TURMOIL
Written on the 23 February 2016 by Nick Nichols
HOTELS entrepreneur Simon Wan sees some upside in the turmoil facing the Chinese economy.
While he doesn't believe the Chinese economy is heading for a hard landing, he is braced for some 'painful adjustment' along the way.
But that hasn't stopped the CEO of StayWell Hospitality Group from looking at the opportunities in mainland China amid what he sees as a burgeoning global tourism economy among middle-class travellers.
The Sydney-based entrepreneur established StayWell in 2007, not long after taking a break in the wake of the $37 million takeover of ASX-listed Tourism, Hotels & Leisure (THL) by former Gold Coast-based investment group MFS in 2006.
Wan was CEO of THL at the time, in his second bite at the hotel industry since leaving a career with Accor Hotels in 1996.
His third bite at the hotel industry has seen Wan grow the StayWell to a portfolio of 29 hotels under the Park Regis and Leisure Inn brands.
Wan says growth has been bolstered by a more flexible business model than his previous ventures, with StayWell holding equity interest in about 12 of these hotels.
Wan is particularly looking at opportunities to grow the business in China where he says conditions are ripe for strategic acquisitions.
"Certain cities like Beijing and Shanghai are oversupplied because they have built too many hotels," he says.
"Because of that oversupply, hotel owners are looking for strong operators who have an international network that can attract customers and give people consistent product. That opens up opportunities in a sense for us."
Wan says he isn't fazed by talk of a hard landing for the Chinese economy.
"While China is not going to get that 9-10 per cent (economic) growth of the past, I think they will still get between 5 and 6 per cent.
"There will be some painful adjustment along the way and we have seen a bit of volatility in the past year or so. But the Chinese are changing and they are learning. They will continue to grow, but it will be a more measured and a more disciplined growth."
Wan is looking to boost the StayWell portfolio to 100 properties by 2020, and much of that growth is likely to come in offshore markets. Innovative deal structures are not off the table, he says.
"The business model is hotel management, but along the line we try to do different deal structures," he says.
"We do invest in a sense, but we also manage third-party hotels which is our preference. We also have two hotels that we lease, where we play a tenant role and run the hotel.
"Our business model encompasses investment, ownership, leasing as well as pure management contracts.
"It's a very competitive industry in a sense, but I've been used to competition for the last 28 years in the business. "
The hotel sector has been abuzz with merger and acquisitions activity over the past year, highlighted by Marriott's $US12 billion union with Starwood.
Wan says StayWell's smaller scale gives it an advantage in seizing opportunities in the sector.
"We can move faster than the bigger players and that is one of the advantages of the group that has helped us win contracts over the past three years. We deal directly with the hotel owners and that gives us some competitive advantage."
StayWell also maintains its focus on the mid-scale market, the four star and three-star leisure sector.
"That is where the growth market is," says Wan.
"The two major reasons for this is in a growing economy like China we are talking some big numbers. They talk about only 100 million Chinese travelling a year out of a population of 1.2 billion people.
"But if their middle class is growing, just as it is in India and Indonesia, then with increased budget airline capacity these people will be looking for more mid-scale hotels.
"They will want a good mid-scale brand in a good location paying about $150 a night rather than $400.
"We are riding with the rising middle class, and a higher disposable income. A lot of these travellers are tech savvy, they like to be independent and book directly."
StayWell has two hotels in China, four in India and two in the Middle East. Over the next three years, Wan plans to boost the portfolio in these markets to 20 hotels.
"On top of that there are some portfolio opportunities in areas such as Indonesia where smaller operators lack the scale to grow their business on their own and are seeking joint venture partnerships," he says.
"That's when you can have a quantum leap if you can do a merger or acquisition with a regional player."
Wan says that through organic growth and portfolio acquisition opportunities such as these he sees StayWell growing to 100 hotels by 2020.
"We will grow our numbers in Australia, but not as fast as we can in other countries. Australia is a great base for us, with our headquarters in Sydney. It's a very good place for us to grow our management team."
Average occupancy across the StayWell portfolio last calendar year was 78 per cent with strong markets such as Sydney and Singapore offsetting softer markets in Dubai and Shanghai.
Author: Nick Nichols