• Wanda continues to fish outside China

Dalian Wanda has announced a USD900m investment in a luxury hotel project in Chicago, marking the company’s first move in the US.

The deal came as hotel performance in the group’s domestic market of China continued to struggle, with China Lodging reporting flat revpar and a drop in the economy segment.

China Lodging saw growth in the mid-market segment, but management have warned that revpar “will be marginal at best throughout 2014”. The group continued to pursue the manachised model, adding 125 new sites under the structure, out of a total of 139 opened during the quarter (up from 105 openings in the precious quarter). The number of hotels in the group’s pipeline reached a record high of 505 (45 leased hotels and 460 manachised hotels).

The company said that it would remain under pressure due to weak macroeconomic environment conditions and weak business travel, particularly in lower-tier cities. The group said it would adopt a more “conservative” pricing approach to capture rising demand from the leisure market. Long term, the company repeated an opinion familiar to those who operate in the market; that it was hopeful and would continue to expand, focusing on the mid-market and upscale sectors.

China’s economy is currently failing to live up to expectations. After 10% growth a year for the last three decades this week saw a CNNMoney survey of economists forecast growth for the year of 7.3%, below the government’s 7.5% target. Eighty per cent of the economists surveyed said that the country’s property market posed the greatest risk to the economy, as years of expansion give way to excess supply, slack investment and falling prices.

At Dalian Wanda, known more commonly as Wanda Group, chairman Wang Jianlin had a definitive plan for the company’s future in the US, commenting: “Investing in Chicago property is just Wanda’s first move into the US real estate market. Within a year, Wanda will invest in more five-star hotel projects in major US cities like New York, Los Angeles and San Francisco. By 2020, Wanda will have Wanda branded five-star hotels in 12 to 15 major world cities and build an internationally influential Chinese luxury hotel brand.”

Construction on the Chicago property is expected to start this year and it is scheduled to open in 2018.

Wanda Group chose London for its first move outside China, with a GBP700m investment in a project in London announced last year. It will feature 160 rooms and 63,000 square metres of luxury apartments on the One Nine Elms site in Vauxhall in two towers, including the highest residential tower in Europe, at 205m.

Within China, Dalian Wanda has a property arm to its hotel interest and a more branding and management-focused business. The Wanda Hotel Investment & Development Company describes itself as the largest enterprise in China in terms of the size of investments into five-star hotels. It currently operates 28 five-star and “super” five-star hotels, and plans to expand to 70 by 2015.

The company covers all aspects of the development process and has partnerships with the majority of hotel management groups, including: InterContinental Hotels Group, Starwood Hotels & Resorts, Hyatt Corporation, Accor and Hilton Worldwide.

Wanda Hotels & Resorts, which was founded in 2012, includes the company’s own brands, which will be used in London. It owns and manages hotels under Wanda Realm, Wanda Vista and Wanda Reign, all luxury brands.

At the group’s most recent meeting, it said that: “In spite of China’s current downturn in economic growth, the company was able to maintain its exceptional overall growth, reporting a 21% increase in total assets to CHY460bn (USD74bn) and a 24% increase in income to CHY92.07bn, comprehensively reaching its performance targets by a margin of 105%.”

The group said that its main businesses of commercial real estate, luxury hotels, culture & tourism and department stores all achieved first half targets, in addition to achieving significant overall growth. The company has forecast that total assets for 2014 will reach CHY500bn, with total income expected to exceed CHY244bn.

Wang called out for employees to “dig deep to fulfill year-end targets to achieve a milestone nine years of consecutive growth in revenue above 30%”.

Earlier this year Wang was recognised as China’s most generous charitable benefactor with total donations of CHY438m in 2014, according to this year’s Forbes China Charity List released in April. He is also in the Forbes rich list proper, at number 76, with an estimated worth of USD14.7bn – taking the title of richest man in mainland China.

Sadly for the fortunes of wider China, Wang, who was a deputy to the 17th National Congress of the Communist Party of China, now has less direct involvement with government, instead holding positions on a number of industry organisations. While those who once dealt with deposed party chief Bo Xilai are best placed to distance themselves when looking to expand outside China (“Our relationship was based on our work, we didn’t have a personal relationship”) the government must wish he was closer to the helm during the current malaise.

 

HA Perspective [by Chris Bown]: Figures from Real Capital Analytics put China as the second largest investor in the US, behind only Canada. And the rate of investment is accelerating, with USD5.8bn invested in US real estate between January 2013 and March 2014.

While parallels are being drawn with the wave of Japanese property investment in the 1980s, there are fundamental differences. The Japanese bought near the top of the market, thereby bidding it further higher; in contrast, the Chinese are buying while prices are recovering. Compared with the Japanese, they also appear to have longer time horizons.

The different outlook means that what Westerners perceive as a problem, Asians can perceive as an advantage, as happened when Hong Kong investor Joint Treasure bought the Marriott Grosvenor Square in London earlier this year; the 43 year lease seems a good deal, compared with the 40 year land tenure common in China.

Wanda’s hotel aspirations are expanding, with the London investment followed in Europe by the recent EUR265m acquisition of Madrid landmark the Edificio Espana. The 117m high building is to be converted from its recent office use to create another luxury hotel.

Wanda, along with others, is also planning ahead. Chinese outbound visitor numbers are set to balloon in coming years, and those visitors will look for familiar names and brands, when they land in new destinations. There will be a lot of them – and while they won’t all be looking for Wanda’s brand of luxury, there are likely to be enough to ensure business booms.

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