**Translation:**
**By | Jiu Guan Finance**
A recent announcement about a hotel being listed for sale at a reduced price has brought Shimao Group back into the spotlight.
Recently, Shimao Group has listed Hong Kong's second-largest hotel, the Sheraton Hong Kong Tung Chung Hotel and Four Points by Sheraton, for sale at a 25% discount, with a minimum asking price of HKD 4.5 billion (approximately RMB 4.2 billion).
Public information reveals that this hotel opened at the end of 2020 and is Marriott's first dual-brand hotel established in Hong Kong, featuring over 1,200 rooms, making it the second-largest hotel in Hong Kong by room count.
As early as last year, Shimao was reported to have appointed Jones Lang LaSalle as the exclusive agent to sell the hotel, initially pricing it at HKD 6.5 billion (approximately RMB 6.1 billion), and at one point, even included it in a collateral asset package.
Additionally, this hotel is Shimao Group's first hotel to open in Hong Kong, and it recorded a total revenue of HKD 217 million in the first half of the year, a 43% increase year-on-year, showcasing impressive performance.
Compared to other real estate companies like Country Garden and Sunac, Shimao seems more willing to offload its core hotel assets, even selling Hong Kong's second-largest hotel, a "cash cow" in a prime location, at a discount, which has led to external skepticism about "robbing Peter to pay Paul."
As Shimao faces a new round of debt challenges, can the hotel become a lifeline?
**01 In the Face of a Debt Crisis, Is Shimao "Robbing Peter to Pay Paul"?**
Not long ago, Shimao Group's RMB 80 billion debt restructuring plan finally made significant progress.
According to its latest announcement, about 79.06% of the planned creditors have supported the proposed restructuring scheme, surpassing the 75% threshold required to enter court proceedings.
Moreover, the winding-up petition previously filed by China Construction Bank (Asia), involving financial obligations of approximately HKD 1.5795 billion, has been withdrawn.
However, Shimao Group's mid-2024 financial report shows that as of the end of June this year, the group's total liabilities still amounted to RMB 461 billion, with interest-bearing borrowings at RMB 256.6 billion, and debts maturing within one year reaching RMB 153.3 billion.
After deducting restricted funds, the group's available cash on the books is only RMB 6.87 billion.
Additionally, Shimao Group's losses continue to widen, with its revenue for the first half of 2024 at RMB 29.195 billion, a year-on-year decrease of 3.9%, and the loss attributable to shareholders increasing to approximately RMB 22.668 billion.
In June this year, Shimao Group delisted from the Shanghai Stock Exchange. Although it still holds a listing status on the Hong Kong Stock Exchange, its stock price has plummeted to an unbearable level.
Given this context, it's not hard to understand why Shimao is urgently selling Hong Kong's second-largest hotel at a reduced price.
It is reported that the Hong Kong Shimao Tung Chung Hotel Cluster represents Shimao Group's first foray into the hotel business in Hong Kong and is also the largest single hotel and hotel cluster under the Shimao brand. Strategically located between three major tourist hubs—Hong Kong International Airport, the Lantau Island tourist area, and Hong Kong Disneyland—it also sits on the key route leading into Hong Kong via the Hong Kong-Zhuhai-Macao Bridge, making its geographical position highly advantageous.
According to Shimao’s 2021 interim financial report, the Tung Chung Hotel Cluster generated a combined revenue of approximately 108 million RMB in its first year of operation.
TMTPost Focus noted that Shimao’s hotel business was one of the few segments that did not experience a revenue decline in the first half of this year.
Financial reports show that in the first half of 2024, Shimao’s self-owned hotels generated a total revenue of 1.07 billion RMB, reflecting a year-on-year increase of 1.4%, with RevPAR (Revenue Per Available Room) rising by 2.1% year-on-year.
Among these, the Hong Kong Tung Chung Shimao Sheraton Hotel and Four Points by Sheraton Hotel achieved a combined revenue of 217 million HKD, marking a significant year-on-year growth of 43%, a particularly impressive performance.
However, under the pressure of high debt and leverage, Shimao has opted to sell off its high-performing hotel assets, offering a glimpse into the company’s strained financial situation.
It is worth mentioning that during this year’s 618 shopping festival, Shimao Group launched a product on its mini-program called the "Shimao 20th Anniversary Universal Redemption Card." Priced at just 2,888 RMB, the card allowed customers to redeem a 10-night stay package, including breakfast for two, at over 20 Shimao hotels.
▊ Shimao Group
However, refunds for this package were not offered on a no-questions-asked, full-refund basis; instead, a 1% processing fee was charged.
This sparked complaints from many consumers, who criticized the company for even trying to collect a small amount like 20 or 30 RMB, which speaks volumes about how desperate Shimao is for cash.
02 Shimao Hotels That Can’t Be Sold?
That said, this is not the first time Shimao Group has sold off its hotel assets.
In January 2022, Shimao sold the Hyatt on the Bund in Shanghai to the local state-owned enterprise Shanghai Real Estate Group for a total price of 4.5 billion yuan. This was equivalent to an 80% discount compared to the previously reported valuation of 5.6 billion yuan.
In addition, rumors once circulated about a "Shimao Asset Sale Package List," which included 34 projects. Among them were several well-known high-end hotels, such as the viral "Deep Pit Hotel"—the InterContinental Shanghai Wonderland.
Industry insiders previously revealed that the Deep Pit Hotel had already found a buyer with a state-owned background. However, subsequent reports indicated that while state-owned enterprises had indeed been in contact with Shimao, there had been no substantial progress in the transfer process.
Regarding the rumored document, Shimao Group issued a statement at the time refuting the claims. However, it explicitly acknowledged that it had officially begun the process of disposing of high-quality operational assets in first- and second-tier cities.
**As of now, four luxury hotels in Shanghai have been put on the market by Shimao. These include the InterContinental Shanghai Wonderland, the Shimao Sheshan Atour Hotel, and the Conrad Hotel, which was bundled with the sale of Shanghai Shimao Plaza.**
It appears that Shimao's sell-off of its self-owned hotels is still ongoing. Among these properties are prime-location "cash cows," with some even being classified as distressed assets and auctioned off by courts.
According to Alibaba's asset auction platform, the No. 1 building of the Hilton Tianjin Eco-City Hotel in Tianjin Binhai New Area is scheduled for a second auction this November, with a starting price of 653 million yuan. This is a reduction from the initial starting price of 816 million yuan in the first auction held in September.
The mortgagor, Tianjin Shimao New Milestone Real Estate Co., Ltd., is a subsidiary of Shanghai Shimao Construction under the Shimao Group.
Similarly, in September of this year, the Taizhou Shimao Yuluxe Hotel, along with its large-scale machinery and equipment, underwent a second auction with a starting price of approximately 260 million yuan.
An industry insider familiar with real estate hotel projects revealed that successfully auctioning off these Shimao Group hotel projects is not an easy task.
"If Shimao couldn't sell them before, what makes anyone think an auction will succeed now? It's just going through the motions," the insider remarked.
Of course, distressed assets do not necessarily equate to liabilities.
Li Hongjiang, Vice President of China Cinda Asset Management, once stated that distressed assets are not valueless but rather assets whose value requires restoration.
However, due to the high costs and slow returns associated with these high-end hotels under Shimao, they remain challenging to offload in the current market.
In recent years, the downward pressure on the value of domestic hotel assets has also been significant.
