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SCMP Reporter

Property investment trust to begin marketing HK$5.9b IPO

Regal Hotels International Holdings will raise at least HK$14 billion from selling its hotel assets to a property trust in a move to slash debt.

To fund the purchase, the Regal Real Estate Investment Trust today will begin pre-marketing its initial public offering to  raise as much as HK$5.9 billion, according to market sources.

Regal Hotels is selling its assets amid strong tourism growth in Hong Kong to drive demand for hotel accommodation. The Hong Kong Tourism Board last month forecast a record  27 million visitors for this year.

Hotel occupancy in Hong Kong averaged 86 per cent in the year's first nine months, up from 84 per cent a year ago, according to the board. Average room rates increased 16.2 per cent to HK$1,028.

Regal Hotels plans to use about HK$4.3 billion to repay bank loans, slashing its net debt to assets ratio to zero from 67 per cent as at the end of June.

The company will also spend HK$4.8 billion to buy 50 per cent of Regal Reit. The remainder  of the sale proceeds will be set aside as general working capital.

Regal Hotels will book a  one-off gain of at least HK$4.6 billion this year from the spin-off. It will earn management fees from the reit and hotels after the spin-off.

Platinum Securities, the independent financial adviser of the spin-off, recommended Regal Hotels' shareholders vote for the deal. Shares of Regal Hotels surged 3.7 per cent to close at 84 HK cents yesterday even though the company did not disclose any plan to pay special dividends.

To fund the purchase of the hotel assets, Regal Reit will take out a HK$4.5 billion five-year term loan, raise HK$5.9 billion from the IPO and issue promissory notes.

Regal Reit aims to sell 50 per cent of its total units to the public with an option to raise the size by 5 per cent to meet demand.

It plans to distribute HK$570 million to HK$590 million as dividends or a yield of as much as 5.8 per cent next year for unitholders, according to the circular and a pre-IPO marketing document to fund managers.

Regal Hotels has guaranteed to fill any shortfall between the promised payout and the earnings generated from the five hotels next year.

Regal Reit will start to take orders from institutional investors from the week of December 4.

Trading of the units is scheduled  for December 22.

Existing shareholders of Regal Hotels will have the preferential right to subscribe for one unit of the reit for every 100 shares they hold.

Deutsche Bank, Goldman Sachs and Merrill Lynch are arranging the public offering.

The reit's assets  include the Regal Airport Hotel, the Regal Hongkong Hotel, the Regal Kowloon Hotel, the Regal Oriental Hotel and the Regal Riverside Hotel in Sha Tin.

Together they have 3,348 rooms. An additional 468 rooms will be added by the fourth quarter of 2008, Regal Hotels said.



Regal Hotels lines up HK$14b asset sale to reit