New World Development and its controlling shareholder, Chow Tai Fook Enterprises, have agreed to guarantee a minimum HK$707 million first-year payout from the proposed spin-off of the group's hotel subsidiary.
The guaranteed dividend distribution to unit-holders of the proposed NW Hotel Investments Group is for the period between the listing of the investment trust and June 30 next year, New World said in an announcement to the Hong Kong stock exchange.
If the actual distributable income of the trust is less than the guaranteed amount, New World and Chow Tai Fook, both controlled by Cheng Yu-tung and his family, will pay the difference to the unit-holders.
"The purpose of the distribution guarantee is to assist in smoothing out any possible volatility in the distributions made by the trustee-manager [on behalf of NW Hotel Investments] … thereby providing [unit-holders] with certainty as to the expected income and yield from their holdings," New World said.
New World submitted a listing application last month to the stock exchange to spin off its three hotels in Hong Kong - Grand Hyatt Hong Kong and Renaissance Harbour View Hotel in Wan Chai, and Hyatt Regency Hong Kong in Tsim Sha Tsui. The three have a total of 1,787 rooms. In addition, NW Hotel plans to invest in internationally branded hotels in Hong Kong.
New World's announcement said it would offer to transfer to NW Hotel its contractual entitlement to the operating results of Hyatt Regency Hong Kong in Sha Tin, if the Chinese University of Hong Kong gave its consent.
New World and Chow Tai Fook also plan to sell to the trust their interests in any completed hotel or hotel under development in Asia managed under an internationally recognised brand in which they have an at least a 30 per cent stake. They will also pass on to the trust any opportunity offered to them to invest in such hotels.
Both have also agreed to guarantee that Grand Hyatt will pay at least HK$60 million to the trust's manager for the benefit of unit-holders in each of the two years to June 2016, and HK$30 million in the year to June 2017. Grand Hyatt's renovation, lasting until 2016, is expected to affect its operation.
The trust will pay out all of its distributable profit in the first year of operation and not less than 90 per cent in later years.