China Lodging, which hopes to raise about $100 million in an initial public offering today, has grown rapidly by renting budget rooms under three different brands for an average of $25.49 a night.
The number of rooms the company had to rent increased 160% in 2008 and another 35% in 2009. At the end of December China Lodging had 28,360 rooms for rent, mostly in big cities in the heavily industrialized eastern part of the country.
Its occupancy rate in 2009 was 94%, up from the mid- to high-80s the previous two years.
Chinese are willing to spend on hotels during pleasure trips but budget hotels are the choice for businesses aiming to keep costs down.
"Budget hotels are growing popular among business executives," said William Lo, an analyst at Ample Finance Group in Hong Kong. "We think there is an oversupply in the hotel industry."
Reuters reports China Lodging in its prospectus said it does not hold land use rights or own any of the hotel properties it operates. It also holds several leases without the permission of the property owners or government authorities.