SHANGHAI—While hotels remain at the core of China Lodging Group’s business, the company’s executives said they will invest in apartments and shared offices.
During China Lodging’s first-quarter earnings call, CEO Min Zhang said the company has invested 113 million Chinese yuan ($17.3 million) in five apartment and shared offices companies. Contrasting with the “matured market in the West,” Zhang said Chinese apartments are mostly owned by individuals instead of corporations.
“Consumers are looking for good products with appropriate services,” she said. “The market potential for the apartment is huge, estimated to be over 1 trillion yuan ($153.3 billion). Right now, this market is still at its embryo and fast-growing stage with numerous smaller players.”
Apartments are a natural extension of the hotel business, according to the company’s founder and executive chairman Qi Ji, who spoke through an interpreter on the call. The company has invested in two apartment companies, he said, because China’s younger generation who lives in metropolitan first-tier cities can’t afford skyrocketing house prices like in New York and other large cities.
“We think we are naturally advantaged in a few things such as site acquisition, product design and daily operations,” he said. “So we want to apply our current experience in this into the apartment area. That's No. 1.”
Shared offices provide small- and medium-sized companies with a collaborative working space with full services, including restrooms and events, Zhang said. This model is more practical and cost competitive than traditional offices, she said, and the market potential is sizeable in first-tier and second-tier cities.
“We believe we can apply our know-how and expertise in brand building, site acquisition and development, as well as daily operations from our hotel experience to the apartment and office-sharing business,” she said.
First-quarter growth
Blended revenue per available room grew year over year as the geographical mix stabilized, Zhang said, and the mix moved toward an increased proportion of midscale and upscale hotels. The RevPAR growth is the result of strong performance by the Ji hotel brand (10% growth), the upgraded HanTing 2.0 (8% growth) and Hi Inn (6%), she said.
Customers have given HanTing 2.0 high ratings and a strong response since the refreshed brand launched in 2014, Zhang said.
“In Q1, the same hotel RevPAR for this group of hotels improved by 8%,” she said. “Currently, about 18% of our HanTing revenues were contributed by the HanTing 2.0 model at the end of the first quarter.”
The new HanTing model will make up about 35% to 40% of the brand’s inventory by the end of the year, she said.
China Lodging continues on its fast track for expansion this year, Zhang said. During the first quarter, the company added 226 new hotels, which was a year-over-year increase of 24%. Of those, 129 are China Lodging Brands, and 97 are AccorHotels brands.
As of the end of the quarter, the company has 2,989 hotels in operation, CFO Teo Nee Chuan said. Of those, 21% are leased hotels and the remaining 79% are manachised and franchised properties.
The company’s pipeline has 632 hotels, he said, with 25 leased properties and 607 manachised and franchised hotels.
As of press time, China Lodging Group’s stock price was up 11.84% year to date. The Baird/STR Hotel Stock Index was up 1.83% during the same period.