Regal Hotels eyes HK$4.5b loan to acquire assets for reit

Regal Hotels International Holdings, controlled by Lo Yuk-sui, plans to take out a HK$4.5 billion, five-year term loan to fund the acquisition of hotel assets for a planned real estate investment trust (reit), market sources said.

The hotel operator is asking a clutch of relationship banks to help arrange the loan facility, backed by five Hong Kong hotels with a net asset valuation of HK$15 billion to HK$16 billion, much higher than the previously reported HK$10 billion.

The company plans to increase the reit's portfolio by 460 rooms, increasing the total to 3,800 after the renovation of some is completed within two years.

'The better valuation was helped by the [mainland] individual visitor scheme being extended to more provinces, an expected strong economy and the asset portfolio quality,' said a source close to the transaction.

With the loan, the reit will be leveraged at about 30 per cent of the net asset value of the underlying properties, far below the maximum of 45 per cent allowed under Hong Kong regulations.

'Most banks are awaiting approvals from headquarters,' said a lender. 'They have some lingering concerns over the prospects of the Hong Kong tourist industry in the next few years.'

Regal Hotels hopes to raise at least HK$6 billion by listing the reit as early as next month subject to the market sentiment, the sources said.