How Peninsula's careful growth is generating higher RevPAR

The Peninsula Hong Kong (Peninsula Hong Kong)

The Peninsula hotel chain isn't big, but by carefully choosing locations and partners, it is seeing some solid returns on investment.

Upcoming Properties

Peninsula is expanding into some new markets, with long-in-development plans in the works for new luxury hotels in Myanmar, Turkey and London.

The Peninsula Yangon, the brand's first in Myanmar, will form a key part of a broader redevelopment project with a mid-February groundbreaking around Yangon Central Railways Station. Owner and operator Hongkong and Shanghai Hotels, partnering with the local Yoma Strategic Holdings, will invest an estimated $100 million into the project. 

In Istanbul, the company plans to set up a hotel in a Bosporus-facing port area. When the project was first announced nearly two years ago, the plan was for an estimated total investment of €300 million. The hotel will be equally owned by Peninsula Istanbul Holdings and SLI, a joint venture between Turkish group Dogus Holding and private equity fund BLG. 

The Peninsula London, meanwhile, is slated to begin construction this summer. The company was in talks with British real estate company Grosvenor since before the June 2016 vote by the UK to leave the European Union: Hongkong and Shanghai Hotels acquired its 50 percent interest from the previous owner, Derwent London, for £132.5 million in July 2013.. Begun as a joint development, this has turned into a solo project for Hongkong and Shanghai Hotels.

Careful Growth

The luxury hotel chain has a presence in 10 cities across Asia, Europe and the U.S. While this is significantly below Shangri-La Asia's 79 hotels and Mandarin Oriental's 29, Hongkong and Shanghai Hotels' claims higher RevPAR. In Hong Kong alone, the nearly 100-year-old Peninsula hotel claimed RevPAR of $510 in 2015, four times that of Shangri-La's, according to the QUICK FactSet data service.

The Peninsula Tokyo, meanwhile, saw 9 percent year-on-year growth in per-room revenue in the first half of 2016.

Significantly, Honkong and Shanghai Hotels owns its hotel buildings rather than franchising them with third parties. While this strategy presents more initial risk, it also provides increased power in terms of rapidly making and implementing executive decisions. The company itself is majority-owned by the Kadoorie family.

Owning buildings, on the other hand, erodes capital efficiency, making balancing brand power and earnings potential for investors a key challenge.

Hongkong and Shanghai Hotels' return on equity averaged 4.7 percent for the five years through fiscal 2015, compared with Mandarin Oriental's 8.7 percent. Shangri-La, which is reportedly struggling in China, had a ROE similar to that of Hongkong and Shanghai Hotels.