Commentary on a Case Study of State-Owned Hotels in China

The recent liquidity crisis in the global hotel sector makes valuation more critical than ever, as a two-year scarcity in transactions and reduced prices have challenged hotel valuation methodology in certain markets. Chinese owners and sponsors of new projects should have all the tools at their disposal to negotiate successful transactions at reasonable valuations. Access to information makes buy-sell transactions more efficient and often rewards the sellers with higher valuations if they can make a persuasive case. One effective valuation approach is a discounted cash flow model, with particular attention paid to the risk premium. The Chinese hotel sector has evolved into segments, divided according to geography and according to service offerings. Sellers must accurately interpret scarce data and be innovative in their application of capitalization rates and comparable transactions from similar markets, both within the Asia Pacific region and in other emerging markets at similar stages of development.