Huazhu Hotels Group, a NASDAQ-listed hotel operator known for its network of economy hostelry chains in China, has teamed up with investment giant China Everbright’s real estate investment arm to launch a private equity investment fund focusing on hotel and residential opportunities in China, according to a joint statement by the two companies.
The new partnership between Huazhu and Everbright Ashmore Investments is seen as a move by the mainland hotel operator, which ranked as the world’s fourth most valuable hospitality group with a valuation of $12.8 billion as of 31 May last year, to go beyond management into owning hotel assets.
At the same time that Huazhu and its investment partner announced the fund, they also unveiled their first acquisition, a 352 room hotel near Shanghai’s Lujiazui financial district in Pudong.
New Fund to Follow Value Add Strategy
Huazhu and Everbright Ashmore have declared their new “Anzhu” fund to be China’s first hotel and residential property private equity investment vehicle, and say that the management will follow a value-add strategy under which they acquire assets with high levels of potential before repositioning and upgrading them.
In response to inquiries from Mingtiandi, officials at Huazhu declined to specify the size of the fund or to provide other financial details, however, the vehicle’s managers indicated that they expect to improve the profitability of they assets they acquire by leveraging Huazhu’s brand assets and by enhancing operational efficiency.
The partnership’s first project, Minya Hotel Shanghai, is a 23-storey property located at 500 Gushan Road, about 30 minutes drive from the Pudong International Airport and around one kilometre from the North Yangjing Road metro station on line six. The Huazhu and Everbright Ashmore say that they the Anzhu fund will complete its makeover of the hotel and relaunch the property in the second half of this year.
The joint venture fund’s vision is to optimize the room size of the 352-unit hotel and convert some of the “low-efficiency” area into office space to maximize potential returns, according to the statement. Shanghai-based Huazhu also plans to leverage the 130 million members of its loyalty programs to reduce their reliance on third party booking platforms and to lower their costs of customer acquisition.
Huazhu operates 4,230 hotels with 425,552 rooms under both international brands as Ibis, Mercure and Novotel as well as home-grown Chinese chains such as Crystal Orange, Hanting and Hi Inn.
Hospitality Operator Says China is Ready for Hotel Private Equity
In the statement, Ye Fei, Huazhu’s vice president for strategic investment indicated that the company was turning to fixed asset investment as yields on hospitality properties continue to increase.
Ye stated that whereas returns on hotel investment had traditionally trailed behind residential and office properties, growing demand from business travellers and rising hospitality standards have made hotel property investments more attractive.
Huazhu, which is also known as China Lodging Group already became involved in hotel investments early last year when it formed a joint venture with US private equity firm TPG to purchase the Novotel Beijing Sanyuan and Ibis Beijing Sanyuan from Singapore’s Ascendas Hospitality Trust for a total of RMB 1.18 billion.
Established in 2005, the company generated RMB 10.06 billion of revenue last year, according to its 2018 financial report, a 22.3 percent increase over 2017.
Everbright Ashmore, also known as EBA Investments, is the real estate asset management platform of China Everbright Limited, and according to its website primarily focuses on investing in properties that are long-term and stable cash flow generators, including shopping malls, office buildings, office campuses, logistics warehouses and long-term lease apartments.
As of June 2018, EBA had 40 real estate projects under management worth RMB 50 billion.