Despite SARS, Hotel Companies Still Intend to Expand in China

Three hotel giants, including InterContinental Hotels Group, said their plans to expand in China would continue despite the damage done by the disease known as severe acute respiratory syndrome, or SARS.

China has confirmed 190 deaths resulting from SARS and 4,000 cases of infection, which have scared off tourists and left 2 out of 3 hotel rooms empty.

The virus has forced authorities to close schools, hospitals and the stock markets. The World Health Organization warned against travel to the country. And that has taken a toll on tourism.

Recently, the Ritz-Carlton in Shanghai said it had 32% occupancy last month compared with the usual 82% for April. Still, Intercontinental, Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc. announced that they were expanding despite SARS, betting that China’s 2001 entry into the World Trade Organization and the 2008 Olympic Games will boost arrivals.

“The underlying situation of China being a strong-growth economy isn’t changing; people will go back at some point,” said Pieter van Putten, chief executive of Morley Fund Management Singapore, which holds $3 billion in Asia.

Since 1997, the number of five-star hotels in China has risen to 282 from 57, and four-star hotels have doubled to 386, the China National Tourism Administration said.

InterContinental, which has about 40 Holiday Inn, Crowne Plaza and InterContinental hotels in China and Hong Kong, said it’s on track to double the number of properties there over the next three to four years.

Among them are 14 contracts under which InterContinental, the world’s No. 2 hotelier by rooms, would manage hotels under its three key brands, it said.

“Whether one’s delayed by a month or two months because of the current issue, that could happen,” said A. Patrick Imbardelli, InterContinental’s managing director for Asia Pacific, who is based in Singapore. “But we believe we’re still pretty strong and realistic.”

Shangri-La, Asia’s largest manager of luxury hotels, has 16 of its 38 properties in China. It has clinched six management contracts in China and is spending $330 million through 2006 to build four hotels in Shanghai and other cities.

Singapore-based Ascott Group Ltd., Asia’s biggest serviced apartment operator in China with six properties, may look for more opportunities in the country. The firm has said it may introduce a mid-market brand to add to its properties. A night’s stay at one of its Shanghai apartments costs $150.

“We’re monitoring the situation for short-term impact, but the long-term outlook for China and its appeal as a destination for investments are still there,” said Benett Theseira, Ascott’s chief corporate and investment officer.

Though visitors may return when the outbreak is contained, China’s handling of the situation has not helped. The government delayed until March telling the World Health Organization about the contagious disease, which first appeared in the country in November.

China lags behind in efforts to contain the illness, investors said, even as WHO said SARS cases in Singapore and Hong Kong had probably peaked and it lifted an advisory against nonessential travel to Toronto.

“If the authorities in China are able to improve how they cope with the current situation, its growth should not be hindered,” said Stephanie Lee of Aberdeen Asset Management Asia in Singapore. “The SARS impact could well be a short-term epidemic, and hotel builders tend to have a longer-term view.”