大悦城地产| Joy City Selling Loss-Making Beijing Hotel for RMB 2B

Joy City boss Zhou Zheng is dumping a loss-making hotel

Commercial real estate developer Joy City Property is selling the W Hotel Beijing Chang’an to a Shanghai-based fund for a total of RMB 2 billion ($302 million), according to an announcement to the Hong Kong stock exchange on Friday by the unit of state-run Chinese conglomerate COFCO.

Joy City is selling the 349 room, five star hotel to Tianfu Fund Management Co for RMB 1.36 billion in cash, with the buyer also agreeing to repay shareholder loans of RMB 895,600 and other debts totalling RMB 62.3 million in return for the three-year old property.

The developer previously known as COFCO Land Holdings, which is known for its chain of mainland shopping malls, is selling the hotel at 2 Jianguomen South Street in Chaoyang district in the face of ongoing losses and disappointing occupancy, as revealed in the stock market report.

State-Run Developer Checks Out of Hotel Sector

The lights are all on, but the W Hotel is only averaging 66% occupancy

The buyer will gain full ownership of the holding company for the 21-storey, 62,805 square metre Starwood-managed boutique hotel as Joy City readjusts away from hotel development.

Despite excellent ratings from visitors, the W Hotel Beijing Chang’an was averaging only 66 percent occupancy as of mid-2017, according to Joy City. The property, which officially opened in November 2014 had a consolidated net loss after taxation of approximately RMB 148 million in 2015 and a consolidated net loss after taxation of RMB 96 million in 2016.

“A high initial investment and a challenging location have made it hard for the hotel to cover its steep operating costs,” said Annie Wang, director for China with the hotel division of property consultancy Savills. “It is a smart move by COFCO to sell the hotel now that the cash flow has stabilized three years after opening.” Wang expects the company to move away from hotels as it focuses on developing its Joy City-branded mixed-use complexes in the future.

As of mid-2017 Joy City had a total of six hotels in its portfolio, including the W Hotel Beijing Chang’an. The group also owns the St. Regis Sanya Yalong Bay Resort , the MGM Grand Sanya,Gloria hotels in Suzhou and Nanchang, and a Gloria branded hotel in Sanya. The developer now has a set of 17 Joy City mixed-use complexes nationwide.

Shanghai Fund Manager Buys into Beijing

Wang indicated that the price Tianfu Fund Management paid for the W Hotel Beijing is reasonable based on other projects on the market at the moment. The buyer, which operates as a private equity fund manager, is a newly-founded branch of Tianfu Group, a Shanghai-based investment management company concentrating on providing funds and management team solutions to small and medium-sized enterprises, according to its website.

Tianfu Fund Management was established in May 2017 with a registered capital of RMB 500 million, while the group’s cumulative funds under management are said to total more than RMB 20 billion.