Thai REIT aborts plan to buy KL hotels

This article first appeared in The Edge Malaysia Weekly, on August 19, 2019 - August 25, 2019.

The north block offers 265 rooms while the south block has 267 rooms.

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CONCERN over the volatility in the Thai and global capital markets has caused the Strategic Hospitality Extendable Freehold and Leasehold Real Estate Investment Trust (SHREIT) to back out of a deal to acquire two hotels in Kuala Lumpur, The Edge understands.

Located in Jalan Tuanku Abdul Rahman and owned by Singapore’s Royal Group, Hilton Garden Inn North and Hilton Garden Inn South are now back on the market.

SHREIT, which is listed on the Stock Exchange of Thailand (SET), had planned to buy the two buildings — which offer a total room inventory of 532 — for an estimated RM240 million. The purchase would have been partly funded by the issuance of new units.

Royal Group did not respond to The Edge’s question as to whether the deal had collapsed. However, SHREIT confirmed that the deal was off. “The deal did not happen,” its company secretary Kemakorn Ariyakun said via email.

In an announcement to SET, SHREIT reveals that the lead joint underwriter had advised the REIT manager against issuing new units because of the instability in the global financial and capital markets.

It would have been SHREIT’s first capital increase. The underwriters were The Siam Commercial Bank Public Co Ltd and Maybank Kim Eng Securities (Thailand) Public Co Ltd while the REIT manager was Strategic Property Investors Co Ltd.

“… sentiment of the Thai and international capital markets is volatile, in which the SET index as well as the international stock exchange index of the targeted investors such as the Hang Seng Index (Hong Kong) and FTSE Straits Times Index (Singapore) are volatile and have continuously decreased during the offering period for the first capital increase, which may potentially compromise the interest to invest in SHREIT,” said Patan Somburanasin, managing director of Strategic Property Investors, in the announcement.

The offer period was December last year.

“…. it is expected that the continuation of this offering may negatively affect the overall offering of the additional trust units,” said Somburanasin, adding that the post-offering market price might also be affected as the domestic and international stock markets were quite volatile.

Accordingly, the joint lead underwriters and the initial purchasers proposed the cancellation of the offering to mitigate the potential negative consequence.

“… after jointly considering the rationale as well as potential effect to trust unitholders and subscribers and for the benefit of the unitholders and subscribers, the REIT manager has duly exercised its fiduciary duty to allow the joint lead underwriters to cancel the whole offering of the additional trust units,” Somburanasin added.

Last September, The Edge reported that Royal Group had found a buyer in SHREIT just three years after it had purchased the hotels and was going to sell them for a handsome profit. Observers had said that the purchase price of RM240 million or RM451,128 per room would provide Royal Group with a profit of RM65 million after deducting its initial investment and renovation costs.

Will the group be able to get another buyer who will offer the same price or more? It is noteworthy that in the fourth quarter of 2018, tycoon Choo Chong Ngen, the founder of the Hotel 81 budget chain in Singapore, purchased the 296-room Swiss-Garden Bukit Bintang in Jalan Pudu for RM170 million or RM574,324 per room.

The north block of Hilton Garden Inn, which offers 265 rooms, is a few minutes’ walk from the south block, which has 267 rooms.

The north block was formerly the Cititel Express hotel, which Royal Group, via Knights Bridge Avenue Sdn Bhd, bought from IGB Corp Bhd for RM37 million in December 2015. Knights Bridge Avenue’s shareholders are Royal Group Capital Pte Ltd (50%), Power Rich Investment Pte Ltd (25%) and NMM Pte Ltd (25%) while its directors are Bobby Hiranandani, Asok Kumar Naraindas, Naraindas Gangaram and Phang Lee Kah. Forbes lists Asok, who is also known as Asok Kumar Hiranandani and has a net worth of US$1.7 billion, as Singapore’s 21st richest person. Bobby is Asok’s son.

The south block, which used to house the non-operational Hotel Empress Kuala Lumpur, was purchased by Royal Group’s Gateway Legend Sdn Bhd from Malaco Mining Sdn Bhd for RM45.5 million. The 15-storey building, originally owned by Gula Perak Bhd, was completed in 2005.

The shareholders of Gateway Legend are Royal Group Capital (50%), Power Rich Investment (25%) and Indosing Pte Ltd (20%). The directors are Bobby, Asok, Naraindas and Phang.

These are not the only hotels owned by Royal Group. In 2015, it purchased the 540-room DoubleTree by Hilton Kuala Lumpur from private real estate fund BlackRock Inc for RM388 million.

The group may soon have another hotel in Jalan Sultan Ismail, Kuala Lumpur. In February, The Edge reported that the group had purchased Wisma KFC from the Employees Provident Fund. Industry sources say the 22-storey office building, believed to have been sold for RM130 million, is likely to be repositioned as a hotel.

 

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