Why hotels are currently the favored flavor for APAC investors

SINGAPORE — Pan Pacific Hotels Group CEO Peng Sum Choe remembers it wasn’t that long ago that hotels weren’t the favored assets to own in Asia Pacific, especially compared to office building assets. However, the times and investment flavors have changed.

“Hotels seem to be the flavor of the month or the flavor of the year [right now]. The yields are going up,” Choe said on stage at the opening of HICAP 2025 in Singapore. “One thing I’d say to a lot of hotel investors is if you have to have a very good location in a city center and obviously you’ll pay a high price. The operating yield will not be that sexy, but it’s a long-term asset. Most of the time, if we look at the total return… it makes sense.”

Although Singapore-based Pan Pacific considers most of the hotels it owns to be long-term assets, that doesn't mean the company won’t sell. He mentioned Pan Pacific's 2024 sale of the Park Royal Kitchener in Singapore, which featured an eye-popping return.

“Last year… we sold a hotel at S$530 million and on our books it was S$100 million. That’s almost a S$430 million profit. What other place can you get that?” Cho said.

Last year… we sold a hotel at S$530 million and on our books it was S$100 million. That’s almost a S$430 million profit. What other place can you get that?

Peng Sum Choe

Choe was part of the “Views from the Boardroom – Round One” panel on the first day of the 35th annual Hotel Investment Conference Asia Pacific (HICAP). The panel included Jihong He, chief strategy officer of Shanghai-based H World Group and executive chair for H World International; Yoshiki Kaneda, president and representative director for Tokyo-based Seibu Prince Hotels Worldwide; Bob van den Oord, CEO for Hong Kong-based Langham Hospitality Group; and Alex Murray, vice president and regional head of Southeast Asia for Hilton. Jennifer Davey, director, Australia for Horwath HTL, served as moderator.

Because H World International has such an extraordinary amount of hotels (Jihong He said the company runs about 12,000 hotels and about 1.1 million rooms, with most of them franchised), it’s an essential paradigm for the company to have its franchises be able to make a good return so it can keep up with massive growth.

“We open about 2,300 hotels a year… That means that all our franchisees need to see [returns]. Otherwise, we’ll have difficulty signing new deals,” she said. “In order to make a return for them, we really look at every aspect of the business.”

Jihong He said the model also must include the ability to renovate hotels at a lower cost.

“We build a very big supply chain and find the products… So they can exactly calculate how much they will have to spend on the renovations,” she said. “For each category of hotels, each brand will have a very clear target cost and we cannot exceed that.”

That also means each H World hotel franchisee has a clear understanding of what the GOP will be for hotels.

“We run mostly limited-service hotels. So, our GOP margin is between 50, 60, 70%,” Jihong He said. “We have to promise our franchisees that GOP margin. Otherwise, they will say, ‘How long is my investment return?’”

What owners value

Oord said it takes an owner to understand an owner. So, Langham and its parent company, Hong Kong-based Great Eagle Holdings Ltd., are able to cater to what a potential investor is looking for.

“It’s not particularly rocket science. An owner is looking for someone who can take good care of their assets and who can give good financial returns,” he said. “Of course, as an operator, we want brand strength. We want integrity. Ultimately, these two parties will have to work closely together to achieve success.

“Throughout that partnership, it’s going to be really important to have transparency and to be able to have frank discussions when you might get off [the path] at times.”

Murray said that for Hilton, it’s about working with their owners to ensure they have the right partner and deploy the right brands in the right applications at the right time.

In terms of location, we will consider ownership in key, strategically important cities in Asia Pacific… In secondary cities, we prefer management contracts.

Yoshiku Kaneda

“It’s important to ensure the integrity of your brands, because essentially, they’re the ones that help you deliver those premium returns,” she said. “At the same time, there really has to be a deep understanding of the investment intent, the horizon that the owner aspires to and how long the asset will be kept as well, and make sure that you really deepen that understanding of what is going to make that partnership a success for both the operator and the brands, as well as the owner and the investor.”

Murray said it’s those positive experiences for owners that allow Hilton to continue growing in places like Asia Pacific.

“In my experience, it’s good examples where we are securing a lot of repeat hotel deals with existing owners because there’s trust there,” he said. “There’s an understanding that if you get this mutual understanding right, you really act in the spirit of doing the right thing for the owner and for the investment and that translates into that trust to grow together and making sure that the investors are successful for the long term.”

For Seibu Prince, which recently made a splash with its acquisition of Ace Hotels, Kaneda said the company’s basic strategy is to determine when it should be asset-light with an HMA, and when the company should take an ownership stake.

“The decision between being an owner/operator or an HMA will be delivered by mainly two considerations: location and brand,” he said. “In terms of location, we will consider ownership in key, strategically important cities in Asia Pacific… In secondary cities, we prefer management contracts. We will consider key money to secure a deal. If the right opportunity comes along.”

Kaneda said lifestyle hotels are also candidates for ownership.

“Lifestyle hotels require more details… [for] the asset and more control over the asset by the operator,” he said.

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