Delonix’s new Marriott tie-up hints at re-listing attempt post-pandemic

The high-end hotel operator, which delisted from Hong Kong in 2021, said it could open up to 100 boutique-style hotels from Marriott’s Tribute Portfolio brand over the next few years

Key Takeaways:

• Delonix announced a new tie-up with Marriott to bring the U.S. hotel giant’s young Tribute Portfolio brand of independent, boutique-style hotels to China
• The move could signal Delonix may attempt to re-list its shares in either New York or Hong Kong, capitalizing on a strong post-pandemic travel rebound in China

By Doug Young

China is home to some of the world’s largest hotel operators, which have grown at lightning speed over the last two decades by catering to the nation’s newly emerging middle class with a strong taste for travel. But the group is also largely insular, often focused on the middle- to lower-end of the market and shunning tie-ups with major global operators.

One of the few exceptions to that rule is H World Group (HTHT.US; 1179.HK), which formed a major alliance with France’s Accor (AC.PA), operator of the Sofitel and Ibis brands, back in 2016. Now, Hangzhou-based upscale operator Delonix Group has joined that small club with its announcement of a new tie-up with global heavyweight Marriott International (MAR.US).

The tie-up is relatively modest, and will see Delonix bring Marriott’s Tribute Portfolio brand of independent, boutique-style of hotels to China. The pair said Delonix anticipates it could open more than 100 hotels under the alliance in the coming years, according to their announcement on Tuesday.

The deal has some strong selling points for both sides. For Marriott, it will bring the young Tribute Portfolio brand to China, potentially doubling its global footprint that currently stands at just around 100 properties. For Delonix, the tie-up gives it a new upscale brand to reinforce its positioning as a leading homegrown operator of higher-end hotels, led by its Grand New Century hotels chain with 180 hotels currently open or in development.

The tie-up will also give Delonix access to Marriott’s huge global resources like its reservation system and loyalty program. After all, Marriott is the world’s largest hotel operator based on room count, with nearly 1.5 million rooms spread across more than 8,000 properties at the end of 2022, according to the latest annual ranking by Hotels Magazine.

Equally intriguing, the tie-up looks like a way for Delonix to raise its profile in a potential return to becoming a publicly traded company, most likely in New York or Hong Kong. The company previously listed its shares in Hong Kong in 2019 under the name Zhejiang New Century Hotel Management Co. Ltd. But the timing was quite poor, as the company and its peers took a huge hit the next year at the start of the pandemic, with its profit plunging more than 80% in 2020.

As it struggled during the pandemic, the company was privatized in 2021 by a group whose members included Hongshan, formerly known as Sequoia China, in a deal that valued it at a relatively modest HK$5.2 billion ($665 million).

Of course, much has happened since the company went private. Most notably in Delonix’s case, China’s hotel industry has come roaring back from its pandemic lows. Following its privatization, the company doesn’t disclose any detailed financials.

But a news item on its website says its revenue per available room (revpar), a widely watched industry indicator, was up 21% for its core Grand New Century brand during last year’s May Day holiday compared with pre-pandemic levels in 2019. It also said occupancy rates for the brand stood at a quite respectable rate of about 70% during last year’s summer travel season.

Growing footprint

Delonix is one of a number of major Chinese operators that have grown rapidly by expanding in their home market. The company was the world’s 17^th largest hotel operator on the latest Hotels Magazine ranking, behind domestic rivals including Jin Jiang (600754.SH), H World and BTG (600258.SH).

The company says it currently has 1,400 hotels either opened or in development, with a total of more than 200,000 rooms. That compares with about 144,000 rooms at 860 hotels at the end of 2021, and 167,000 rooms in more than 1,000 properties at the end of 2022, showing the company is expanding quite rapidly.

Delonix is hardly alone in such rapid expansion, as most of its peers also continue to build up their presence, after only pausing slightly during the pandemic. Delonix is also one of a growing number of Chinese hotel operators expanding beyond its home market.

The company’s overseas move is still in its relatively early stages, with its website stating that it has expanded to Japan, Singapore and Indonesia. It only entered Indonesia last year by setting up a local subsidiary, and says it aims to operate 20 hotels under its Ruby and MJ Hotel brands in that market within the next three years.

Probably one of the best companies for comparisons with Delonix is Atour (ATAT.US), another Chinese operator trying to position itself as an upscale brand. Atour listed in New York at the end of 2022, and – unlike most Chinese stocks – has actually done quite well since then. Its stock currently trades about 65% above its IPO price of $11, giving it a market value of about $2.5 billion and a healthy price-to-sales (P/S) ratio of 4.7.

Atour’s revenue nearly doubled in the first nine months of last year to 3.16 billion yuan from the year-ago level, as Chinese continued to show strong appetite for travel even after the country’s post pandemic rebound quickly ran out of fuel in many other sectors. Atour had a similar number of hotels in its portfolio to Delonix, over 1,100, at the end of September last year, which was also up 25% from the same time a year earlier.

It’s difficult to say if Delonix would get a similar valuation to Atour without seeing any more detailed financials. H World, which is also similar due to its Accor tie-up, is about five times larger than Delonix in terms of room count, and is currently valued at $10.6 billion. That seems to show Delonix might be worth about $2 billion if and when it decides to go public again – about triple its market value at the time of its privatization.

Such a re-listing looks likely within the next couple of years, since Hongshan and the other private equity investors who privatized Delonix rarely hold on to their investments for more than a few years before cashing out. And with so many uncertainties hovering over China’s economy right now, this profile-raising exercise with the Marriott tie-up seems to indicate a new IPO bid could come sooner rather than later.

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