R&F Selling Wanda Realm Beijing Hotel at a Loss

Guangzhou R&F Properties has renewed its efforts to sell off assets and pay down its liabilities as the mainland developer last week agreed to sell its Wanda Realm Beijing hotel to a unit of Beijing Pengrui Real Estate for RMB 550 million ($79 million).

A unit of R&F, which booked a net loss of RMB 6.9 billion ($1 billion) in the first half of 2022, is selling 100 percent of its stake in the hotel to Beijing Yingxie Property Investment Co Ltd, the developer said last week in a filing with the Hong Kong stock exchange, with Beijing Yingxie linked to Pengrui.

R&F estimates that it will record a loss of about RMB 6.54 million on the disposal of the 310-room, five star hotel in western Beijing’s Shijingshan district, with the developer planning to use the proceeds to repay debt.

The deal was announced just days after R&F declared that it was exercising an option to repurchase at a cost of about £106.6 million ($123.7 million) a London project that it had sold to Hong Kong’s Far East Consortium in March for £95.7 million.

Beijing Hospitality Losses

“The disposal enables the group to realise the value in its investment in the target group and will help the group to optimize its resources allocation, focus on the development of its core business, increase capital reserves and lower debt ratio,” Li said in last week’s filing.

The 43,460 square metre (467,800 square foot) property incurred a net loss (after tax) of RMB 15.9 million in 2021 and a net loss (after tax) of RMB 15.3 million in 2020, according to R&F’s statement.

The net asset value of the hotel is RMB 453 million and it has an outstanding shareholder’s loan of RMB 103 million, R&F said.

The Beijing disposal follows reports from June this year that R&F was in talks with potential buyers of ten Wanda hotels, most of which are located in third and fourth tier cities in China.

Hotels are Hard

R&F, co-chaired by Hong Kong billionaire Li Sze Lim and mainland counterpart Zhang Li, had purchased the hotel near Beijing’s fifth ring road in 2017 as part of a RMB 19.9 billion deal which included 76 other Wanda hotels and made the developer the world’s largest five-star hotel owner.

Those hotels are proving to be a drag on R&F’s bottom line as China keeps up its COVID Zero quest, with the developer reporting in its results for the first half of the year that its hotel revenue fell 29 percent from January through June, compared to the same period last year, to reach just RMB 1.78 billion.

In announcing its 2022 interim report earlier this month R&F said that it had sold a hotel in Fuzhou for RMB 430 million during the first half of the year, in a bid to generate liquidity and focus on money-making assets.

While the developer didn’t name the property, it previously had only one hotel in Fuzhou, the Westin Fuzhou Minjiang located on the banks of the Minjiang River.

Formerly known as “Fuzhou Wanda Westin” in Chinese, the hotel was also one of the 77 Wanda hotels that R&F bought from Wanda Group in 2017.

Continuous Losses

R&F had 93 hotels under operation and 41 more under development as of the end of last year, according to its 2021 annual report.

The developer’s hotel business, however, has been continuously losing money. In 2018 and 2019, years unaffected by the Covid-19 pandemic, R&F’s hotel business recorded net losses of RMB 459 million and RMB 1 billion respectively, while the group overall generated profits of RMB 8.7 billion and RMB 10.1 billion respectively.

The group’s hotel losses widened to RMB 1.43 billion in 2020 and RMB 1.42 billion in 2021 as the pandemic smote the tourist and hospitality markets.

The hotel segment continued to lose money in the first half, recording a net loss of RMB 840 million, which was up 64 percent compared to a year earlier as the highly transmissible Omicron variant of the Covid-19 virus surged across China.

Asset Fire Sale

In its interim results published earlier this month, R&F blamed the worsening real estate market in mainland China for bringing its revenues down by 55 percent to RMB 17.78 billion in the first six months of this year.

To bolster its finances, R&F has scrambled to raise cash by offloading its assets.

Last December, R&F sold 30 percent of its Guangzhou International Airport R&F Integrated Logistics Park to Blackstone for RMB 3.4 billion, after closing on its $1.1 billion sale of 70 percent of the distribution centre to the US fund manager in January.

In May, R&F sold its 50 percent stake in Thames City, a London joint venture with fellow Chinese developer CC Land, to the latter firm’s chairman for HK$2.66 billion, and booked a loss of HK$1.84 billion on that disposal.