Lex Letter from Asia: hotel conversions point to slow post-Covid recovery

{"text":[[{"start":12.78,"text":"Dear readers, "}],[{"start":15.04,"text":"Hotels in Tokyo are converting rooms into serviced rental apartments. "},{"start":19.957,"text":"Perks include lounge and pool access. "},{"start":22.887,"text":"There are no utility bills to worry about. "},{"start":25.753999999999998,"text":"Developers in Hong Kong have started permanently repurposing hotel buildings to apartments. "}],[{"start":32.39,"text":"Asia’s developers are adapting to a new normal. "},{"start":35.907000000000004,"text":"The latest trends complicate a reopening trade for investors in related stocks. "}],[{"start":41.82,"text":"In the US, optimism is high among investors in the hotel industry. "},{"start":46.862,"text":"Shares of US hotel group Marriott International have doubled in the past year. "},{"start":52.004,"text":"Blackstone and Starwood Capital’s recent $6bn deal to buy hotel chain Extended Stay America is another bet on a quick recovery as Covid-19 vaccination programmes are rolled out. "}],[{"start":null,"text":"

"}],[{"start":65.41,"text":"In Asia, the tone is downbeat. "},{"start":68.377,"text":"Hotels suffering record-low occupancy rates are seeking new revenue sources. "},{"start":73.669,"text":"In Japan, the 131-year-old Imperial Hotel Tokyo is one of the many local properties that converted blocks of guest rooms into rentals after occupancy rates languished at about 10 per cent. "}],[{"start":87.44999999999999,"text":"The picture is even bleaker in Thailand. "},{"start":90.52899999999998,"text":"Once-popular destinations such as Phuket have suffered from travel restrictions, with 80 per cent of its hotels in resort cities remaining closed since last year. "},{"start":100.58399999999999,"text":"With many of them on the brink of collapse, the government has been working on a rescue plan. "},{"start":105.90199999999999,"text":"The industry is posing a systemic risk to local banks. "},{"start":109.86899999999999,"text":"The largest local lender, Siam Commercial Bank, does not expect about 90 per cent of its loans made to hotels to be repaid "}],[{"start":118.97999999999999,"text":"In Hong Kong and South Korea, another trend is unfolding. "},{"start":123.30899999999998,"text":"Hotels in big cities are being converted to apartments as home prices soar. "},{"start":128.289,"text":"Hong Kong property group CK Asset is transforming two of its hotels into more than 5,700 apartments. "},{"start":136.119,"text":"The Le Méridien Seoul and Sheraton Palace Hotel are among many properties that have been shut for repurposing. "}],[{"start":143.6,"text":"This is a worrying trend for the hotel industry. "},{"start":147.017,"text":"Converting hotels into rental apartments is easy. "},{"start":150.509,"text":"Changing them back is a lot harder. "},{"start":152.902,"text":"Developers are evidently betting on a slow recovery. "}],[{"start":157.32999999999998,"text":"Hong Kong is highly reliant on tourist arrivals; these have fallen more than 90 per cent. "},{"start":163.684,"text":"Meanwhile, the city’s high-end residential market has been breaking records. "},{"start":168.87699999999998,"text":"CK Asset sold a five-bedroom apartment for a record $59m last month, at $17,512 per square foot. "}],[{"start":179.79,"text":"That has been reflected in the stock of the developer, up 15 per cent this year. "},{"start":185.232,"text":"The shares of Hong Kong-based hotel group Mandarin Oriental have gone nowhere. "}],[{"start":190.67,"text":"The region’s hospitality Reits — real estate investment trusts that own hotels and serviced residences — are especially exposed to the fallout. "},{"start":200.099,"text":"Some have suspended dividends. "},{"start":202.32899999999998,"text":"Others are poorly hedged. "},{"start":204.159,"text":"Singapore-listed Far East Hospitality Trust, for example, has all its hotels, serviced apartments and retail spaces located in the city-state. "}],[{"start":214.52999999999997,"text":"There are still opportunities for local investors. "},{"start":217.87199999999999,"text":"Shares of Singapore-listed Ara US Hospitality Trust, for example, which has all its properties in America, have gained more than 80 per cent from a November low. "},{"start":228.68899999999996,"text":"The stock still trades below book value and at a small fraction of Marriott. "},{"start":233.59399999999997,"text":"Local peers such as Frasers Hospitality Trust also have a geographically hedged portfolio of hotels. "}],[{"start":241.35999999999996,"text":"Indiscriminate sell-offs triggered by big trends always create opportunities for the more discerning investor. "}],[{"start":248.72999999999996,"text":"Enjoy the rest of your week. "}],[{"start":251.20999999999995,"text":"June Yoon\nLex writer "}],[{"start":253.03999999999996,"text":""}]],"url":"https://creatives.ftacademy.cn/album/35676-1616231217.mp3"}