7 Days Group Holdings announced on Tuesday that it is shifting its long-term strategic focus from leased-and-operated hotels to managed hotels.
The budget hotel chain, based in Guangzhou, China, currently operates 1,044 hotels across China under its 7 Days Inn brand, of which 417 are leased-and-operated and 627 are managed. The company says focusing on management will allow for greater expansion and operational leverage, expand its brand presence and generate stable fee-based income with a higher return on employed capital.
“The adoption of a more asset-light approach to expansion is a logical fit with 7 Days’ business model, as the less risky, less capital intensive and more profitable nature of managed hotels will allow us to maintain our rapid expansion strategy and further strengthen our brand image while increasing the company’s long-term and sustainable growth of profitability and cash flow generation,” said Alex Nanyan Zheng, 7 Days Group board of directors co-chairman and CEO. “We believe a focus on managed hotels bring us in-line with the predominant trend in the global lodging industry, where we are seeing operators worldwide focus increasingly on asset-light, profit-oriented managed and franchised operating models.”
The company’s board of directors also approved a share repurchase program, which will allow it to repurchase up to US$25M million worth of outstanding American depositary shares over the next 12 months. The timing and extent of any purchases will be determined by the company’s management, in its discretion, and will depend upon market conditions.