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Investors Take Note: The Key Differences between Hoteliers Shangri-La Asia and Mandarin Oriental International

hotels

It might seem like hotel business owners are all one of the same, but that’s not exactly true.

Some hotel operators own the property outright and use the profit from the hotel business to finance the mortgage of the buildings. Others might run a hotel management company and help the property owners operate a hotel under their own brands. Such a model has the advantage of having low capital expenditure requirements and having the ability to generate a high return on equity – that is if everything goes well.

These differences can make the study of hotel businesses interesting. So, let’s compare two of the largest hotel operators listed in Singapore to sieve out key differences between them that investors have to know. The hoteliers in question are Mandarin Oriental International Limited (SGX: M04) and Shangri-La Asia Limited (SGX: S07).

But before we look at the differences, let’s take a look at the many similarities first. Both own luxury hotel brands and operate internationally. Both have also managed to attain great reputations within the hotel industry.

At the end of 2013, Mandarin Oriental ran 44 hotels under the Mandarin Oriental brand in addition to 13 other serviced residences. Shangri-La Asia meanwhile, runs 63 of its own hotels on top of 19 others which it manages for third party property owners. The hotels under Shangri-La Asia’s care come mainly in one of the following four brands: Shangri-La Hotel; Shangri-La Resort; Kerry Hotel; and Traders Hotel.

Areas of operation

In terms of geographic exposure though, that’s where the differences come. Shangri-La Asia derives most of its revenue from Southeast Asia and China – the two regions collectively accounted for about 66.0% of its total revenue in 2013. Mandarin Oriental meanwhile obtains almost 70% of its revenue from Hong Kong and Europe, with only a tiny presence in China.

Earnings from Associates

Mandarin Oriental owns and operates most of its hotels. This is evident from the fact that its share of results from associates is only 15.4% of its total pre-tax earnings in 2013. On the contrary, Shangri-La Asia prefers to expand through joint ventures and investments in associated companies – this has led to its share of results from associates making up 75.6% of its total pre-tax earnings in 2013.

Foolish Summary

To summarize, the key differences between the two companies are their geographic exposure and their methods in expansion. Mandarin Oriental prefers to expand on its own while Shangri-La Asia has a penchant for partnering with others.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn't own any shares of companies mention above