• Huazhu builds on upgrades

Hauzhu, which last month changed its name from China Lodging, reported ongoing growth in its domestic market, where it has continued to move away from its budget roots.

The results came as the company’s stock was identified as the strongest performing across the hotel sector in the past year.

Stronger room rates lifted average revpar to RMB203 (EUR25) in the second quarter, with revpar at mature hotels up 7.9% year-on-year.

The group added a net 86 hotels during the quarter, after closing 61 properties as it continued to upgrade its portfolio. Huazhu had 839 hotels in its development pipeline, of which 39 were leased and the remainder manachised and franchised.

During the past three years, the company has increased its room inventory in mid and upscale segments from 11% in 2014 to 25%. In addition, approximately 66% of rooms in the group’s 606-strong pipeline were mid and upscale hotels. Of the new hotels due to open this year, 60% to 65% of the room count was expected to come from midscale and upscale hotel brands.

This year the company planned to accelerate gross openings to 650 to 700 hotels, with 220 due to close.

Bloomberg reported that Huazhu was the top performer among the world’s 10 largest hotel stocks in the past year and was trading at nearly twice its global peers’ valuation. The company’s market capitalisation, at USD12.3bn, was the fourth-largest in the sector, behind leader Marriott International, on USD41.5bn, Hilton (on USD24.2bn ) and AccorHotels (USD14.6bn).

The enterprise value of Huazhu was about 23 times Ebitda, compared with about nearly 14 times for the peer group.

“Huazhu still looks very cheap compared to those international hoteliers,” said Tian X. Hou, analyst at TH Capital, citing its growth potential.

The group’s pipeline included 145 hotels under brands of Ibis, Ibis Styles, Mercure, Grand Mercure and Novotel as part of its agreement with AccorHotels. May saw the group acquire a 4.5% stake in AccorHotels to strengthen the pair’s partnership, which was first announced at the end of 2014 and formalised into a strategic alliance in 2016.

The China-based group has master franchisee rights for Mercure, Ibis and Ibis Styles, and co-development rights for Grand Mercure and Novotel as well as 28% stake in Accor’s luxury and upscale hotel businesses in the Pan-China region.

The pair planned to have 350 to 400 new hotels under Accor brands within five years and, as part of the agreement, AccorHotels took a 10.8% stake in Huazhu, with AccorHotels’ chairman & CEO, Sébastien Bazin sitting on the board.

Huazhu’s CEO, Min Zhang, said: “We believe by a partnership, we can bring each other an additional value. We are going to have a deeper collaboration with Accor in the China market – there are a few initiatives we are under discussion. And we also feel Accor’s global experience will also help us when we go overseas.”

AccorHotels told us that it saw the investment as “a positive move, illustrating the company’s strong and valuable partnership with Huazhu and mirroring AccorHotels’s own stake in Huazhu. Huazhu’s investment is a strong sign of confidence in AccorHotels’s development strategy and of the excellent relationship between the two companies”.

Zhang has also been appointed as advisory board member of AccorHotels’ board

Bazin said: “This new step highlights our mutual commitment to our partnership. China is a key priority for AccorHotels globally, both in terms of network development and attracting the fast growing Chinese travellers to our hotels worldwide. Jenny and Huazhu’s wealth of expertise in this market will be of great value to AccorHotels.”

This year also saw Huazhu sign a joint venture agreement with Ascott to expand its portfolio in China, with a target of 16,000 units under the Citadines brand by 2025.

The joint venture will also include CJIA Apartments Group, a subsidiary of Huazhu. Under the terms of the agreement, with an initial registered capital of CHY100m, Ascott, Huazhu and CJIA will hold 50%, 10% and 40% respective stakes.

HA Perspective [by Katherine Doggrell]: China Lodging’s decision to use its domestic name globally underscored where it feels it is as a company: able to stand on its own achievements and, as it starts to talk about global expansion, asserting its roots.

Huazhu has been largely under the radar to the wider world as it went about its business, starting with a rash of economy hotels, of interest largely as a route for the global operators, such as AccorHotels, to get into the closed shop that is China.

Now it is looking to go global, although further details have not been made clear as yet. China’s outbound travellers are currently wildly underserved, with the idea of paying through WeChat an anathema to all but a smattering of hotels – and, apparently, Camden market. The company which can capture this increasingly independent group of travellers will find itself much more than a handy joint venture partner.

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