GUANGZHOU, China—7 Days Group Holdings Limited is continuing its march toward a portfolio dominated by managed hotels.
During the company’s third-quarter conference call with analysts Thursday morning in China, executives said 7 Days opened 104 hotels during the quarter, 79 of which are managed by 7 Days. The remaining 25 are leased-and-operated hotels.
Further, 63% of the company’s hotels in operation and 81% of the hotels in its pipeline are or will be managed, CFO Eric Haibing Wu said. The company had 1,236 hotels in operation as of 30 September and 228 pipeline properties.
CEO Yuezhou Lin said the company sees many advantages in increasing its percentage of managed hotels in the portfolio. For instance, it’s a way for the company to broaden its brand presence, and the managed hotels are seeing strong cash-flow generation.
There is also strong demand for 7 Days franchises from potential franchisors, executives said.
“The managed hotel model is key to the company’s rapid growth,” Yuezhou said via a translator.
The managed properties saw performance edge upward during the quarter. The hotels’ occupancy finished the quarter at 84.3%, up 1.6% from 83%, while revenue per available room increased 1.2% to 137.5 renminbis ($21.99) from 135.9 renminbis ($21.73) during the same period a year ago.
“We believe this strategy is working,” Haibing said of adding a greater number of managed hotels to the company’s portfolio.
The company intends to continue adding more managed hotels during the fourth quarter and beyond, executives said, adding that its asset-light strategy allows the company to maintain its rapid base of expansion while generating fee-based income.
Moving up the chain scale
Similar to fellow economy chain company China Lodging Group Limited’s announcement earlier this week, 7 Days also is working on introducing a product aimed at the upper end of the Chinese hotel market.
“No question, we believe there exist very good opportunities in the higher end of the market,” Haibing said.
7 Days is working with architectural design and marketing firms on the project. The first of these hotels is scheduled to open during the third quarter of 2013.
“We want to make sure we get it right from the beginning,” he said.
Buyout offer
Yuezhou addressed the recent privatization offer made by company shareholders, including co-founders Boquan He and Nanyan Zheng, The Carlyle Group and Sequoia Capital China. The consortium has offered to buy the company for $634.7 million.
The company’s board of directors, along with a team of third-party advisers, is evaluating the going-private offer, Yuezhou said. The company’s stock price closed Wednesday on the New York Stock Exchange at $11.95 per share. Year to date, the stock is up 7.2%.
“The company will discuss developments of the going-private transaction when appropriate and required to do so,” he said.
An analyst during the call asked whether going private would dull 7 Days’ expansion momentum. Yuezhou responded by repeating that demand from franchisors is strong, and the company’s expansion plans are dictated by market conditions.