Dalian Wanda Sells Hotel Management Arm to Tencent Backed Tongcheng in Stunning Deal

Hotel News: Wanda’s Grand Selloff Continues

Debt-ridden Chinese property giant Dalian Wanda Group is pressing forward with a bold strategy to trim its sprawling empire, agreeing to sell its hotel management arm to Tongcheng Travel Holdings, a Tencent and Trip.com-backed company, for a staggering RMB 2.5 billion (approximately $347 million). The transaction underscores Wanda’s urgent need to generate liquidity as it struggles with mounting debt obligations stemming from its once-ambitious expansion across real estate, entertainment, and luxury assets.

Wanda Hotel Development Limited, which is 65 percent owned by Wang Jianlin — once celebrated as China’s richest man — is offloading its entire stake in Wanda Hotel Management (Hong Kong) to Tongcheng. This Hotel News report highlights that the proceeds from the deal are expected to significantly help Wang reduce the financial burdens on his broader business empire, following a similar divestment last year where Wanda sold its mall management division to a PAG-led consortium for $8.3 billion.

Massive Portfolio Changes Hands

The agreement transfers to Tongcheng management rights for 204 hotels, boasting a collective inventory of over 40,200 rooms across China, with the deal calculated at 9.5 times Wanda Hotel Management’s 2023 adjusted EBITDA. Wanda’s hospitality division, which operates nine upscale hotel brands such as Reign, Vista, and Realm, accounted for approximately 90 percent of Wanda Hotel Development’s revenue last year, bringing in HK$892 million.

Adding even more weight to the acquisition, Wanda Hotel Management has another 376 hotel properties under contract, still in development, which will also bolster Tongcheng’s already considerable hotel portfolio. Notably, Wanda had transitioned its hospitality arm into a pure management model after selling 73 hotel properties to Guangzhou R&F in 2017 for nearly RMB 19 billion.

Following this transaction, Wanda Hotel Development plans to pivot its focus towards investment property leasing and exploring opportunities in culture and tourism sectors, pending approvals from shareholders and relevant authorities.

Tongcheng’s Big Leap into High-End Hospitality

Suzhou-based Tongcheng Travel, primarily known for serving customers in China’s lower-tier cities, views the Wanda acquisition as a golden opportunity to establish a strong presence in the country’s competitive high-end hospitality segment. In its filing to the Hong Kong Stock Exchange, Tongcheng emphasized the value of acquiring well-established premium hotel brands and a seasoned management team to enhance its overall competitiveness.

Previously catering mostly to midscale and economy travelers through brands like Yaze, eLong, and Mehood, Tongcheng is now set to expand into the luxury market. The company’s success has largely been fueled by its presence on Tencent’s WeChat platform, which directs the majority of user traffic. Last year, Tongcheng posted a healthy profit of RMB 1.97 billion on revenues of RMB 17.3 billion, with its hotel management and online tour packages growing rapidly at a 35 percent year-on-year rate.

Interestingly, the relationship between Wanda and Tongcheng dates back nearly a decade. In 2015, Wanda invested RMB 3.58 billion into Tongcheng, partnering with Tencent and CITIC Capital in a record-setting funding round. Although Wanda later exited its investment, Tencent and Trip.com now each hold about 21 percent stakes in Tongcheng.

A Deal That Divides Investors

Despite the strategic fit, Tongcheng shareholders did not initially cheer the acquisition news. Shares of Tongcheng dropped by six percent following the announcement, as investors expressed concern over the timing of the deal amid a sluggish Chinese economy. In contrast, Wanda Hotel Development’s stock surged as much as 24 percent before closing the day with a ten percent gain.

While Tongcheng’s acquisition gives it an enviable foothold in the high-end segment, there is a risk that Chinese consumers, facing an economic downturn, may increasingly opt for more affordable accommodation options. Investors seem to prefer Tongcheng’s previous focus on midscale and economy hotels, which are expected to fare better during periods of tightened spending.

Nevertheless, the deal undeniably strengthens Tongcheng’s diversification and positions it to challenge bigger players like Trip.com, which currently commands about 50 percent of the market compared to Tongcheng’s 14 percent. With eight billion yuan in cash reserves — triple the acquisition cost — Tongcheng is well-armed to absorb this strategic expansion without jeopardizing its financial health.

Wanda’s Decline Mirrors Broader Market Shifts

For Wang Jianlin and Dalian Wanda Group, the deal marks another chapter in a long saga of asset sell-offs aimed at staving off creditors. Since the collapse of China’s property market boom, Wanda has been scrambling to meet bond repayment deadlines by selling off prized assets, including flagship properties on Shanghai’s Bund, stakes in Legendary Entertainment, and even the British luxury yacht builder Sunseeker International.

Once envisioning an empire to rival Disney, Wanda’s dreams have been steadily dismantled piece by piece. Recent reports suggest the group is now rushing to redeem 2.27 billion yuan in onshore bonds early, further illustrating the urgency behind these asset sales.

The nine brands that Tongcheng is inheriting posted a profit of HK$21.6 million last year, a dramatic decline from HK$148.6 million the year before, revealing how even premier hotel brands have felt the pinch of China’s economic woes.

Yet for Tongcheng, the acquisition could prove transformative. The addition of prestigious brands and properties gives it a powerful edge, provided it can successfully market luxury experiences while maintaining its stronghold in the mid-tier segments. It is a calculated gamble — one that could either catapult Tongcheng to new heights in China’s fiercely competitive hospitality landscape or weigh it down if luxury travel remains subdued.

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