Wanda checks in with Marriott model but will shareholders buy its asset-light approach?
Move to boost Hong Kong-listed Wanda Hotel Development’s flagging share price
Chinese magnate Wang Jianlin is on course to merging his mainland hotel management business with the Hong Kong-listed Wanda Hotel Development, in a move aimed at boosting its flagging share price with the introduction of the asset-light model.
But history suggests this yields mixed results.
In a meeting on December 8, shareholders of Wanda Hotel Development will vote on the proposed acquisition of the entire equity interest in Wanda Hotel Management, a company controlled by Wang Jianlin involved in hotel management, including hotel operations management, hotel franchising under the Wanda Hotels brand and consultancy services to other hotel owners, according to a Wanda Hotel Development circular to shareholders.
According to the circular, Wanda Hotel Management has more than 60 hotels in operation, including those in Beijing, Shanghai, Chengdu, Sanya and Nanjing. It has also been contracted to manage more than 15 additional hotels that are currently under construction and owned by independent third parties, as well as 20 hotels under sale to R&F Properties and Sunac Real Estate that are under construction.
In July, Wanda Group sold 77 hotels to developer R&F Properties for 19.9 billion yuan (US$3 billion), and 91 per cent equity in 13 cultural tourism projects to Sunac China for 43.84 billion yuan. Wanda Hotel Management will continue to manage 54 hotels owned by R&F for 19 years, after which it has the priority to renew management contracts for a further 19 years. It will continue to manage 25 hotels owned by Sunac for 20 years, after which it can renew contracts for another five years.
Wanda Hotel Management’s after-tax profit in the first half of this year reached HK$46.9 million, and Wanda Hotel Development has recommended that it be bought for HK$878 million, subject to downward adjustment, according to the circular.
In a sign that it is emulating asset-light international hotel management brands’ success, the company said Marriot International’s price is 32 times its earnings and its share price has risen by about 50 per cent this year.
The share price of Wanda Hotel Development, however, has been volatile since its initial public offering. It hit as high as HK$4.66 a share in mid-2013, or a 106.9 price/earnings ratio, but dipped to HK$0.58 in early July, or a 7.8 price/earnings. It was trading at HK$1.17 on Monday morning.
In August, Wang announced the sale of Mainland Wanda Culture Travel Innovation Group and Wanda Hotel Management for a combined 7.05 billion yuan to Wanda Hotel Development.
Hong Kong-listed Wanda Culture, worth 6.3 billion yuan, builds and manages theme parks. Following its merger with Wanda Hotel Development, Wanda Culture will hold most of Wanda’s asset-light hospitality assets, the company said.
Share prices rallied by as much as 90 per cent to HK$2.2 after the announcement, but have fallen back to the current level over the following three months.
Adding to the company’s risk is the news that Wanda is seeking to sell five of its large-scale projects in Britain, the US and Australia to a single buyer, which may add to investors’ worries over the conglomerate’s finances.