Is Hilton Expanding Too Quickly in Myanmar?

Hilton just signed a deal to open five hotels over the next three years, but with significant delays and costs with its still unopened flagship Yagon hotel, should it slowdown?

Jun 19, 2014 at 9:25AM

Myanmar has been mostly closed off from the west for around the last 50 years due to military rule. It has recently enjoyed a surge of growth following significant reforms, leading to most EU and U.S. sanctions being lifted. Its a big market: approximately 60 million people and little or no competition in several industries. 

Hilton Worldwide Holdings (NYSE:HLT) wants a piece of the action, announcing in early 2013 that it has ambitious plans to build a hotel network within the country. Combining growth in business with a surge in tourism, Hilton looks well positioned to take advantage of these conditions, right? Not so fast...

The new Southeast Asia tourist destination
With relaxed visa requirements, and only a one-hour flight from nearby Bangkok, Thailand, the country is more accessible than ever. Discount airlines often charge less than $60 one-way, offering tourists compelling value.

Img

Bagan, Myanmar (2013)   Source: Mike Fee (author)

There are beautiful temples, ancient cities, and magnificent seaside resorts. In November, 2012, Barack Obama became the first U.S. president to ever visit the country. But perhaps the biggest driver of tourists is curiosity.

The first time I visited in 2012, roughly one million tourists flocked to "The Golden Land." In 2013, the total number doubled to just over two million. The Ministry of Hotels and Tourism expects 7.5 million arrivals by 2020.

A massive shortage of hotel rooms
Yangon, the former capital and still the economic and financial center of the country, is suffering from a huge shortage of hotel rooms. Large international hotels take years to build. Guesthouses can often accommodate only a handful of people.

According to Myanmar's Ministry of Hotels and Tourism, there were about 10,000 hotel rooms in Yangon at the end of 2013, only about 2,000 of which were considered to be of international standard. Luxury hotel occupancy has increased from 45.8% in 2009 to around 80% in 2013. RevPAR during this period has soared from $40 to $157. The number of hotels will triple by 2015, according to research firm Jones Lang LaSalle. There is a lot of evidence that suggests a huge surge in hotels is coming shortly. Both public and private hotel companies want to fill that demand.

In April, Marriott (NASDAQ:MAR) was planning on building a large hotel in the country's new capital, Nay Pyi Daw, but it pulled out of the deal because of a dispute related to quality control. Swiss hotel chain Kempinski quickly stepped in and took over the project. Other hotel competitors, including Starwood (NYSE:HOT) and Intercontnental (NYSE:IHG), are not in the market...yet.

However, their large portfolios of familiar luxury brand names include: St. Regis, Sheraton, Westin, Le Méridien, Crowne Plaza, as well as budget hotel Holiday Inn already have significant international exposure. Living in Bangkok, Thailand, I have seen every single one of these brands. These are large companies with deep pockets, looking for the next growth opportunity. So it seems likely that one or both companies will be in neighboring Myanmar soon. Private hotel giant Accor is scheduled to open three Myanmar properties later this year under its Novotel and Pullman brands, while other private hotels scheduled to open include Amara and Pan Pacific.

It's a crowded space.

Hilton's Yangon headache
In March 2013, Hilton reached an agreement with Thailand-based LP Holding to manage Hilton Yangon in the 21-story Centrepoint Tower, a mixed-use project in the city's downtown area. But progress has been delayed multiple times trying to complete the 300-room hotel. Construction began in 1995. It was halted in 1998 after the Asian financial crisis, and finally had a soft opening in 2006.

In March 2014, the company said in March that it was aiming for a partial opening of around 150 rooms by the end of the year.  The project has been pushed back again to late-2005 or early 2016. So what's causing the massive delays? Mostly, it is a massive shortage of skilled labor. The problem is so big, Thailand sent skilled workers to Yangon to help, but the majority of them quit due to low pay and poor working conditions. 

Img

Construction in Yangon (2012)   Source: Mike Fee (author)

Five more hotels in the pipeline
On June 11, 2014, Hilton signed an agreement with Eden Group, to open five new hotels over the next three years. The deal will rebrand two existing Eden hotels and open them under the Hilton name around October 2014, as well as building three additional hotels outside of Yangon.   

Takeaways
So should investors buy into Hilton Worldwide and sleep well at night? After the Centrepoint Tower project's woes, the company certainly is finding out the hard way how hard it is to do business in Myanmar. Continuing to expand with five additional hotels seems a little ambitious, but it will position the company ahead of its competitors. Since two of Hilton's hotels are expected to open this October, I would wait and see if it opens on schedule.

Myanmar is a very small part of the overall business, but it can still grow into a big one.

Will this stock be your next multi-bagger?
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Mike Fee has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers