US private equity firm TPG has formed a joint venture with China Lodging Group, a NASDAQ-listed Chinese hotel group also known as Huazhu Hotels, to purchase a pair of hotels in Beijing for a total of RMB 1.18 billion ($186 million), China Lodging said in a statement.
The 80-20 TPG-Huazhu joint venture has given the US investment giant its first access to the mainland hotel market by agreeing to acquire a 100 percent interest in the Novotel Beijing Sanyuan and Ibis Beijing Sanyuan from Singapore’s Ascendas Hospitality Trust.
Picking up 703 Rooms in Beijing’s CBD
In return for its cash the US-mainland duo are taking possession of the Novotel Beijing Sanyuan, a 17-storey hotel offering 306 guest rooms and Ibis Beijing Sanyuan, a 14-storey hotel of 397 guest rooms, which sit on adjacent lots in Chaoyang District, Beijing’s central business area.
Opened in 2008, the pair of Accor-branded hostelries are located a five-minute walk from the Sanyuanqiao metro station. As master franchisee for French hotel titan Accor’s Mercure, Ibis and Ibis Styles in China, as well as holding co-development rights for Grand Mercure and Novotel on the mainland, Huazhu should already be well acquainted with the properties.
“The acquisition enables us to create new flagship hotels by renovation and operational improvement,” Huazhu CEO Jenny Zhang commented in the statement. “It will not only strengthen our upscale brands, but also generate good return for our invested capital.”
Ascendas Hospitality Trust acquired the assets for RMB 416 million (then $65.5 million) in July 2012, the trust said in a statement. The value of the properties rose by 178 percent in less than four years. Most of the proceeds will be channelled for repayment of existing loans, it added.
Huazhu Works with TPG to Go Asset-Light
By working with TPG as a co-investor, Shanghai-based Huazhu indicates that it is moving away from owning the majority of its properties, in order to focus on being a hospitality management firm.
After completion of the acquisition, the joint venture says it plans to renovate the hotels with Huazhu continuing to serve as the operator. The deal is expected to enhance Huazhu’s upscale brands and generate strong returns on invested capital, Jenny Zhang, Huazhu’s chief executive officer said in the statement.
“Going forward, light asset model will continue to be Huazhu’s primary focus. Meanwhile, Huazhu will work with investment partners through minority participation to create more flagship hotels and generate more investment return based on our strong operational expertise,” Zhang added.
Huazhu owns 3,746 hotels in China, with a primary focus on economy and midscale hotels. In addition to its Accor-related venues, the company also operates the Hanting Inns and Hotels, JI Hotels, Starway Hotels and other brands in China.
TPG Makes First Hotel Buy in China
For TPG, which has more than $73 billion of global assets under management, the deal marks the firm’s first commercial property investment play in China, according to Chang Sun, TPG’s Managing Partner in China. TPG appointed Sun, a Warburg Pincus veteran, to lead its China business in September, with a goal of expanding its investment focus beyond private equity and into distressed real estate and other areas.
TPG Capital Asia, the company’s regional platform, manages about $7.8 billion in assets across Asia, where it was one of the first private equity investors. The alternative asset firm has backed companies from investment bank China International Capital Corporation (CICC) to computer maker Lenovo.