The Wall Street Journal - 04.03.2020

B6| Wednesday, March 4, 2020 THE WALL STREET JOURNAL.

too. Organizers of a cargo-ship-

ping trade conference—ex-

pected to attract more than

2,000 participants to Long

Beach, Calif., during the first

week of March—canceled and

cited the virus, according to a

Saturday notice on the orga-

nizer’s website.

Even if coronavirus is con-

tained soon, the damage to the

hospitality business could re-

verberate for a while, analysts

said. After events like SARS

and the Sept. 11 terrorist at-

tacks, companies tend to take

at least two to three years to

make up for the losses, Mr. Sc-

holes said.

The U.S. lodging industry

hasenjoyedapowerfulre-

outlook following corporate

travel restrictions in North

America and Europe and can-

cellations outside of Greater

China. “This is an evolving sit-

uation, and our ability to as-

sess the financial impact of

[coronavirus] on our business

continues to be limited due to

quickly changing circumstances

and uncertain consumer de-

mand for travel,” Mr. Hoplama-

zian said in a statement.

Hotel share prices reflected

that gloomy outlook. Marriott

shares dropped 22.59% from

Feb. 19 through Tuesday, com-

pared with the S&P 500’s

11.3% decline. Hilton and Hyatt

shares slid more than 17%.

Lodging real-estate invest-

ment trusts, which have little

overseas exposure, sold off

anyway. The Dow Jones US

Hotel & Lodging REIT Index

fell 19.01%.

By the weekend, the travel

outlook seemed to be deterio-

rating further. “Over the past

72 hours we have been hearing

rapidly increasing chatter from

our private hotel owner, prop-

erty manager, and corporate

travel contacts of travel re-

strictions, meeting cancella-

tions and/or poor meeting at-

tendance,” C. Patrick Scholes, a

senior lodging analyst at Sun-

Trust Robinson Humphrey Inc.,

wrote in a Sunday client note.

While most of the events

that have been canceled or

postponed were scheduled

abroad, some U.S. groups re-

cently have called off events,

bound over the past 10 years,

with both occupancy levels

and daily room rates reaching

all-time highs last year, ac-

cording to hotel data tracker

STR. But in January, STR fore-

cast growth in revenue per

available room, or RevPAR, a

crucial industry metric, as flat

for the year. That was the first

time since 2009 that STR pre-

dicted a year without RevPAR

growth.

Weaker U.S. economic

growth and competition from

short-term rental companies

are hurting hotel pricing power

and keeping room rates in

check, said Ryan Meliker, pres-

ident of Lodging Analytics Re-

search & Consulting, a hotel

data and forecasting firm. In a

number of major markets, in-

cluding New York City, Nash-

ville, Tenn., and Miami, new

supply growth is also an issue.

Jan Freitag, a senior vice

president at STR, said some

travel bookings lost in the first

quarter may be gone for good,

like group events that recently

canceled. Corporate travel also

looks challenging for the mo-

ment. “I would not be sur-

prised to see some companies

cut travel to zero,” he said.

If there is a bright spot, it

is that leisure travel tends to

snap back once a global virus

or other threat comes under

control. “Leisure demand will

decline sharply, but we have

seen it always comes back

rather quickly,” Mr. Freitag

said.

The hotel industry’s dec-

adelong run of growth and ris-

ing revenue looked vulnerable

at the start of the year. Now

the spread of the coronavirus

threatens to make it the worst-

performing year since the re-

cession.

The biggest brands have

warned about how tough last

month was, and how chal-

lenged the first quarter is go-

ing to be.Marriott Interna-

tional Inc. said during an

earnings call last week that

revenue per available room for

Greater China, which repre-

sents about 9% of the com-

pany’s total room count,

plunged nearly 90% in Febru-

ary compared with a year ear-

lier.

Hilton had estimated that

the coronavirus epidemic will

hurt its full-year adjusted earn-

ings by $25 million to $50 mil-

lion, assuming the epidemic

lasts around three to six

months. Hyatt HotelsCorp.

President Mark Hoplamazian

said hotels in Singapore, Japan,

and the Indonesian island of

Bali reported declines in recent

bookings, driven by a sharp

pullback in Chinese travel.

“So I would say we’ve seen

it radiate across the globe,” Mr.

Hoplamazian said on an earn-

ings call on Feb. 20.

On Monday, Hyatt said in a

release it was withdrawing its

previously announced 2020

BYKEIKOMORRIS

ANDCRAIGKARMIN

Hotels Warn of Hit From Epidemic

Indexandshare-price

performance

Source: FactSet

5

–25

–20

–15

–10

–5

0

%

Feb. 14 M

S&P 500

Hilton

Marriott

revenue at its travel retail divi-

sion, which occupies 9% of its

global sales, rose 25% last year,

making the division one of the

French cosmetics company’s

fastest-growing channels.

But these stores are being

pummeled since the coronavi-

rus epidemic began, as foot

traffic drops at airports popular

with international tourists. Air-

port retail at some of the major

Asian hubs has tumbled 60% to

70%, according to the Moodie

Davitt Report, a travel retail-in-

telligence service provider.

“This is the greatest crisis

the travel retail sector has

faced, worse than [severe

acute respiratory syndrome],

the two Gulf wars or various

financial crises,” said Martin

Moodie, chairman of the re-

port. “That’s largely driven by

the fact that the Chinese trav-

eler has become the epicenter

of the sector over recent years

and many retailers are worry-

ingly reliant on them.”

In a February survey of more

than 1,000 international travel-

ers from the U.S., U.K., Australia

and Asia who are regular duty-

free shoppers, more than one-

third said they would spend

less time in a store, not make a

purchase if they need to wait in

line, and would be less likely to

touch or pick up items, accord-

ing to U.K.-based travel-re-

search specialist Pi Insight.

“There’s a high portion of

travelers who want to go

straight to the departure gate,”

said Stephen Hillam, managing

director at Pi Insight.

Transport authorities in

Singapore and Thailand began

to offer rent relief in February

to retail, dining and service op-

erators for a period of six

months to a year, to help defray

costs and protect jobs.

In Hong Kong, the airport

authority said it is expanding

an earlier relief package first

extended in September to help

retail and catering outlets, air-

lines, ground handling agents

and other support-service com-

panies. In total, these relief

measures, including rent adjust-

ments and concessions, are ex-

pected to reach 1.6 billion Hong

Kong dollars (US$205 million).

Airport foot traffic in San

Francisco fell 15% in February,

compared with a year earlier,

and declined 20% at Los Ange-

les International Airport, ac-

cording to geolocation data

platform Advan Research.

At Terminal 1 of New York’s

John F. Kennedy International

Airport, food-court vendors and

retailers such as Hudson News

said daily revenues have fallen

as much as 50% in recent weeks

as passenger traffic has

plunged.China Eastern Air-

lines,Air China,Korean Air

andJapan Airlinesfly out of

Terminal 1, making it the worst-

hit among the airport’s termi-

nals because flight suspensions

have been more concentrated

there, said Vivian Shi, manager

of Wok & Roll, a vendor that

sells Chinese food.

“Now we’re making $1,000

to $2,000 a day, compared to

$4,000 on regular days and

$8,000 on exceptionally good

days,” said Ms. Shi.

Mall landlord Unibail-Ro-

damco-WestfieldSE, which op-

erates stores and restaurants at

airports in Los Angeles, Chicago

and New York, said those out-

lets face lower foot traffic. But

the company added only one

tenant, in New York, has re-

quested shorter hours, and

none has asked for rent relief.

Airport retail outlets have

been a rare success story in

the slumping bricks-and-mor-

tar world. Now, duty-free and

other airport shops are getting

hit hard from the impact of

the coronavirus epidemic.

Airport terminal stores

have become havens of high-

end shopping, with travelers

buying luxury goods, liquor or

perfume often on a whim or as

last-minute presents.

Travelers from Asia in par-

ticular have made duty-free

shopping sprees an essential

part of their itinerary. Brands

such asEstée Laudernow have

higher sales at major airports

than in North American depart-

ment stores.L’OréalSA said

BYESTHERFUNG

Airport Stores Suffer Amid a Decline in Terminal Foot Traffic

The coronavirus has extended the slowdown in property

transactions that usually accompanies China's Lunar New Year

holiday.

Dailypropertysales,30majorChinesecities,beforeandafter

theholiday

Source: Wind

Note: 1 square meter=10.76 square feet

600,000

0

100,000

200,000

300,000

400,000

500,000

square meters

2 weeks

before

1week

before

Lunar

New Year

1week

after

2 weeks

after

3 weeks

after

4 weeks

after

2020

2019

2018

A high portion of

travelers now ‘want

to go straight to the

departure gate.’

A worker checks the temperatures of visitors at the entrance of a Marriott International hotel in Shanghai.

QILAI SHEN/BLOOMBERG NEWS

THE PROPERTY REPORT

some sector bonds began in

late January but largely re-

traced within two weeks.

The strong performance also

reflects a widespread belief that

Chinese authorities could offer

extra support to an economi-

cally significant sector if

needed. “The government will

be pulling whatever levers they

can to help this industry

through this crisis,” said

Charles Macgregor, head of Asia

at Lucror Analytics, a credit-

analysis firm. Mr. Macgregor

said home purchases should re-

cover as life returns to normal

in the second quarter.

Freddy Wong, head of Asia

Pacific fixed income at Invesco,

said: “We didn’t see a major

selloff as the market is expect-

ing incremental policy support

as the situation settles down in

the coming days and months.”

Given the importance of a

healthy property sector to

China’s economy, Mr. Wong said

the government could take

measures such as cutting down-

payment requirements for

home buyers and easing restric-

tions for firms on buying land

for future development.

Some existing moves should

help developers’ finances. Local

governments have stepped in

with a variety of short-term

measures, including tax relief,

easier bank-loan approvals, and

allowing developers to extend

project delivery dates, accord-

ing to research from Lucror.

Authorities are giving de-

velopers more leeway to bor-

row in foreign currencies,

something the state usually

controls tightly.

Even as home sales in China

dry up because of the coronavi-

rus epidemic, international

bond investors are keeping faith

with major real-estate groups.

The resilience of Chinese

property debt contrasts with a

steep decline in business, as de-

velopers are forced to close

sales centers, and with a slide

in property shares signaling

that the sector’s earnings are

likely to suffer.

In a Feb. 26 note, Goldman

Sachs analysts said recent prop-

erty-sales volume across 30 ma-

jor cities was barely a quarter

of the seasonal norm. Heavy-

weight China Evergrande

Group, the country’s most in-

debted developer, has moved to

drum up business with promo-

tions such as offering steep dis-

counts for residential-property

purchases made online.

Despite the challenges, credit

markets appear confident that

big players have the financial

firepower to withstand months

of disruption. It helps that

many companies issued dollar

debt in the first few weeks of

this year, shoring up their abil-

ity to meet coming obligations.

For example, some recently

issued dollar bonds from Ever-

grande, which pay 11.5% cou-

pons and are due in 2023,

were quoted at about 99.1

cents on the dollar on Friday,

according to FactSet data.

Five-year bonds in rivalKaisa

Group Holdings, issued in Jan-

uary, were quoted at 96.8 cents

on the dollar. A brief selloff in

BYFRANCESYOON

ANDSTELLAYIFANXIE

China Property

Market Draws In

Bond Investors

SoftBank GroupCorp. has

made two large bets on the

Chinese property market, ac-

cording to people familiar with

the investments, exposing it to

a volatile sector during a dra-

matic economic slowdown.

The deals, which closed in

November, could pose chal-

lenges, given the deepening hit

to the Chinese economy from

the coronavirus epidemic. High-

profile missteps by SoftBank’s

$100 billion Vision Fund—in-

cluding an investment in the

parent company of WeWork

that produced a multibillion-

dollar loss—have hamstrung ef-

forts to raise funds for a second

enormous investment vehicle.

Still, the twin billion-dollar

investments, one in apartment-

rental firm Ziroom and the

other in online real-estate por-

tal Beike, give the Japanese

conglomerate a foothold in a

market where prices have

soared in recent years.

Beijing-based Ziroom leases

apartments from individual

owners, renovates them and

subleases them to renters. In a

deal that values the company at

$6.6 billion, the Vision Fund in-

jected $500 million into Ziroom

and bought an additional $500

million of shares from its

founders, the people said. It

was one of the fund’s last deals:

Having spent around $80 bil-

lion in two years, it is keeping

the rest of its capital in part for

follow-on investments in its

portfolio companies.

SoftBank’s $1 billion Beike

investment was part of a

broader fundraising, with an

additional $500 million coming

from investors including pri-

vate-equity firm Hillhouse

Capital Group, social-media gi-

antTencent HoldingsLtd. and

venture-capital firmSequoia

Capital, according to people fa-

miliar with the deal, who said

the round valued Beike at

slightly more than $14 billion.

The transaction was among the

first by a new vehicle SoftBank

hopes will become the second

Vision Fund, said a person fa-

miliar with the deal.

Beike is a real-estate broker-

age with an online tool to

match buyers and sellers, as

sites like Zillow and Redfin do

in the U.S.

China’s real-estate market

has surged in recent years, es-

pecially in big cities, as rising

middle-class incomes have

spurred home buying. Residen-

tial-property sales rose 10% last

year, to 13.94 trillion yuan ($1.99

trillion), according to China’s

National Bureau of Statistics.

In recent years, China’s gov-

ernment has sought to encour-

age the rental market to meet

demand from people flocking to

richer cities for jobs. That has

boosted the fortunes of compa-

nies like Ziroom that fix up and

rent out properties.

Andy Boreham, a 38-year old

from New Zealand, has lived in

a Ziroom apartment in Shang-

hai for two years. He says he

likes the apartment and the

service—recalling a staffer who

checked on his puppy for him.

It is more expensive than some

alternatives, he says, but

young, white-collar workers are

willing to pay for convenience.

Still, with the country

struggling to get back to work

amid the epidemic, short-term

leases such as Ziroom’s are

easier to abandon.

Ziroom in 2016 was spun out

of Lianjia, also known as

HomeLink Real Estate Agency

Co., a bricks-and-mortar real-

estate brokerage owned by

Beike. Its business model is

similar to WeWork’s, but with

apartments rather than office

space. In China, Ziroom com-

petes with numerous startups

that have similar business mod-

els. The share prices of two

peers that recently went public

in the U.S. have slumped.

Ziroom describes itself as a

“technology unicorn,” citing its

mobile app for matching ten-

ants and owners. But the Vision

Fund got in at a much lower

valuation than with WeWork.

Beike touts its tech creden-

tials, pointing to its app’s vir-

tual-reality apartment viewing

that it says draws traffic. The

company aims for an initial

public offering in Hong Kong as

soon as this year, according to

people familiar with the plans,

though they added the epi-

demic has slowed things down.

The IPO is targeted to value the

company at $20 billion to $30

billion, the people said.

SoftBank Moves Into Chinese Real Estate

ByJulie Steinberg,

Rolfe Winkler

andJing Yang