KUALA LUMPUR (Sept 22): Advance Synergy Bhd has terminated a land lease agreement (LA) with the Municipality of Phnom Penh Cambodia (MPP) and will exit the hotel market there due to heated competition from three-star hotel operators.

In a filing with Bursa Malaysia today, Advance Synergy said its unit AHP has entered into an agreement with Monoratanak Construction Co Ltd and Canadia Bank PLC to terminate the LA dated Jan 31, 1996 for US$1.25 million (RM5.4 million).

The LA was entered into with MPP, where the latter leased AHP a piece of land located on the corner of Preah Monivong Boulevard in Phnom Penh, including Hotel Monorom and the land adjacent to the rear.

Under the LA, AHP has the right to operate the hotel for 70 years — up to Jan 31, 2066 — for a lease rental of US$60,000 to US$192,000 per annum.

However, AHP has been informed via a letter from the director of Phnom Penh Municipality Department of Economy and Finance that MPP has sold the land to Monoratanak, subject to the LA.

According to the filing, the hotel and resorts operator has been operating Hotel Monorom (now known as Holiday Villa City Centre Phnom Penh) on the said land. It also intended to construct a new hotel on the vacant land located behind the hotel, but the construction plan has not been given approval since the submission was made in 2008.

"The hotel market condition in Phnom Penh remains soft and the mushrooming of three-star hotels along Monivong Boulevard impacts the room rate of the hotel market," the company said.

"In view of the above, AHP intends to exit the Phnom Penh market and the proposal provides for an early termination of the lease with the new owner, Monoratanak," it added.

According to the filing, with the proposal, there will be a one-off provision for the writing off of the net book value of the assets of the hotel amounting to approximately RM15.1 million as at Dec 31, 2014.

"The consideration was derived at after taking into consideration, amongst others, the remaining annual lease rental payable by AHP and the operating results of the hotel.

"AHP has received a sum of US$250,000 as earnest money and the remaining balance of US$1 million shall be paid to AHP by Canadia Bank PLC," it added.

Shares in Advance Synergy inched up one sen or 4.17% to close at 13 sen, for a market capitalisation of RM83 million.

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