Executives on Huazhu Group’s first-quarter earnings call said the company closed 60 hotels during the quarter, with 22 closed due to property-related issues, rezoning and lease expirations.
SHANGHAI—Huazhu Group Limited opened more than 200 hotels during the first quarter, but it also closed about a quarter of that number.
According to the company’s earnings release, a total of 60 hotels were closed during the quarter, which includes 12 leased properties and 48 manachised and franchised hotels. Twenty-two hotels were closed due to property-related issues, rezoning and lease expirations.
Huazhu is continuing fast hotel expansion in 2019 with a focus on midscale and upscale brands, the release states. CEO Jenny Zhang said on an earning call with analysts that Huazhu’s “mid- and upscale groups inventory increased 45% from a year ago, accounting for 40% in total growth operations.”
She added that the company had a record-breaking number of hotel openings. Huazhu opened 226 hotels during the quarter—11 leased and 215 manachised.
“We had record-breaking hotel openings in the first quarter, with an average of 2.5 hotels gross or two hotels net opened every day,” Zhang said. “We added net 166 hotels in Q1 2019, up from 71 hotels in Q1 last year, an increase of 130% year over year. And we expect future hotel expansion to continue to accelerate given a strong growing pipeline.”
At the end of the quarter, the company had a total of 1,311 hotels, which “represented 30% of hotels in operation. up from 19% and 14% for Q1 2018 and Q1 2017, respectively,” she said.
Huazhu aims to open 300 to 400 new hotels under its four soft brands, Zhang told analysts.
She said this is a re-acceleration because the company opened few hotels under its soft brands last year.
“We re-accelerated because we see the potential expansion in the independent hotels, and we also see the need of the independent hotels (to) join a brand, join a distribution network to help them achieve better returns on their investment,” she said. “As we look back at our current system, we realize that we need to be more flexible to embrace those hotels. So we had developed slightly different distribution approaches, slightly different fee structure to accommodate their needs.”
Asked by analysts how Huazhu is looking at the competitive landscape of soft brands with players in the market such as Oyo Rooms and other online travel agencies, Zhang said the company developed its soft-brand model to target a growing and profitable business and to create new value opportunities for franchisees to join those brands.
“This is not the same as what some of the other players like Oyo and OTAs are doing. They are pouring a lot of cash into the market, trying to develop large inventory,” she said. “And I believe many of those are trying to generate profit through distribution. We believe our value is more comprehensive, and we don’t expect to generate large losses because of the soft brands in the business. As I said earlier, we expect it to be a growing and a profitable business for us.”
Average daily rate for all hotels in operation was 221 Chinese yuan ($31.98) for the first quarter, a 6.9% year-over-year increase, according to the earnings release. Occupancy decreased 3.7% year over year to 80.6%. Revenue per available room for all hotels in operation during the quarter was 178 Chinese yuan ($25.76), a 2.9% increase year over year.
The company expects to open 1,100 to 1,200 hotels this year, and close 200 to 250 hotels in 2019.
As of press time, Huazhu Group’s stocks were trading at $32.26 per share, up 5.7% year to date. The Baird/STR Hotel Stock Index was up 15% for the same time period.