First Step in Wanda Hotel’s Asset Reorganization Plan: Acquisition of Wanda Hotel Management for HK$878 million

Wanda Hotel Development Company Limited (0169), which is publicly listed in Hong Kong, has announced its plan for reorganizing its business assets, namely its proposal to transform into a cultural tourism flagship company by acquiring assets from its parent company. Today, the details of the first step for its asset reorganization plan were released as Wanda Hotel Development announced that it will acquire all of the issued shares of Wanda Hotel Management (Hong Kong) Co. Limited (“Wanda Hotel Management”) for HK$878 million, which signaled its first step towards capital reorganization.

Wanda Hotel Management is principally engaged in hotel management and operational businesses. At present, it is the only brand in China’s hotel management industry with the capability for multinational management. In total, it currently manages and operates 65 hotels and has entered into agreements with 13 other third-party hotels under development, including 2 hotel development projects in Malaysia and Turkey. Following the acquisition, all of the hotels under the current management and operation of Wanda Hotel Management will continue to be granted licenses for the use of the Wanda Hotel Brands, and Wanda Hotel Management’s business will be expanded to cover hotel design, hotel construction management and other subsidiary businesses.

As a leading provider of hotel services in China, Wanda Hotel Management operates under an asset-light strategy, which is characterized by high-return businesses and high profitability. According to the announcement, in the first half of this year, Wanda Hotel Management earned a premium profit as high as HK$46.39 million before tax, which was already far more than that of the entire year of 2016. Along with such rapid growth, it is believed that this can bring a more profitable contribution to its public listing platform. According to preliminary estimates, the acquisition in question is expected to be approximately 10 times that of the 2017 predicted PE, which would minimize its cost. In the coming few years, in light of the fact that the expected earnings of Wanda Hotel Management will substantially increase due to its plans for expanding its business into the areas of hotel design, construction management and so forth, rapid growth in the hotel management business of Wanda Hotel Management is arguably foreseeable. At the same time, most of the hotels under its management are currently undergoing a period of fast growth in income and business performance after beginning their operations. The number of hotels under the company’s management will grow rapidly in the future.

Regarding the hotel projects included under Wanda Commercial that were sold to R&F Properties and Sunac Real Estate, the announcement in question clearly stated that Wanda Hotel Management will keep managing those hotels until the existing contract has expired upon the due date. On the other hand, R&F Properties and Sunac Real Estate have both prioritized the extension of their contracts with Wanda Hotel Management. The announcement reveals that most of the contracts held by Wanda Hotel Management have approximately 15-plus years left before they end, which provides a guarantee for sustaining stable growth in its profits.

Following its successful acquisition of Wanda Hotel Management, Wanda Hotel Development will develop into an actual management company, and Wanda Hotel Management will be able to improve its profile via its public listing which will provide it access to global investors and capital and allow it to further diversify its customer base and attract more independent third-party clients. At the same time, both will contribute complimentary and synergistic effects to the business of their parent company, which will be conducive to leveraging opportunities arising from the fast growth in China’s travel industry.

Based on Wanda Hotel Development’s above announcement, after the acquisition of Wanda Hotel Management, the next step will see new assets injected into other businesses under Wanda Culture and Tourism, such as theme parks and other cultural and tourism management businesses. Wanda Hotel Development is widely expected to become a publicly-listed cultural and tourism flagship company, as well as the most important overseas capital platform for Wanda Group.