Hotel group may launch HK$5.9b IPO in first quarter after Sunlight falls 11.5pc in two days of trading Regal Hotels International Holdings is delaying the launch of its HK$5.9 billion real estate investment trust initial public offering after the poor debut of rival Sunlight Reit, market sources said. The unit price of Sunlight has fallen 11.54 per cent since it started trading on Thursday, underscoring investors' negative view of Hong Kong's year-old reit market, which has seen three of the five trusts sink below their initial offer prices. 'The dipping of Sunlight has technically lifted its annual yield to about 10 per cent,' said a source close to Regal. 'It is meaningless to persuade investors to place orders on [Regal] Reit offering an average yield of 5 to 6 per cent per annum.' The company still hoped to hold the offer before the end of the first quarter, taking advantage of the strong market liquidity, he said. Regal Reit, which was forced to delay its trading debut from yesterday due to typographical errors in the listing documents, had intended to begin offering shares to retail investors next week and then open the book to institutional investors. Regal's shareholders approved the asset sale on December 18. The vote had originally been planned for December 9. Regal Hotels planned to use about HK$4.3 billion from the sale of assets to the reit to slash its net debt-assets ratio to zero from 67 per cent at the end of June. The company planned to sell the Regal Airport Hotel, the Regal Hongkong Hotel, the Regal Kowloon Hotel, the Regal Oriental Hotel and the Regal Riverside Hotel to the property trust. The five hotels have a total of 3,348 rooms. Meanwhile, hotel and property developer Far East Consortium International, which is planning its own HK$5 billion reit of 10 Hong Kong hotels for April, will pay HK$331.44 million for two four-star hotels in Malaysia, paving the way for a hotel reit listing on a Southeast Asian stock exchange in the next few years. The group was on an acquisition spree for three to four-star hotels in Malaysia and Singapore to bundle them into a hotel-backed reit for a separate listing in either of the two countries, sources said. Far East management declined to comment on the possible reits. In Malaysia, the group agreed to two purchases - the 21st to 30th floors of the 33-storey May Tower in Kuala Lumpur and the first nine floors of the 10-storey Berkeley Court in Johor Bahru, company deputy chairman and chief executive David Chiu Tat-cheong said. The properties are undergoing conversion into boutique hotels, with 179 rooms at May Tower and 310 rooms at Berkeley Court, from their original design as commercial towers with serviced apartments. The properties, which are scheduled for completion in July next year, require no further investment, according to the group's chief financial officer Bill Mok Kwai-piu. Mr Mok said the acquisitions would raise the group's portfolio in Malaysia to four hotels or 1,329 rooms. 'We have seen a larger number of Middle Eastern and Indian travellers pouring into the country in the first 10 months of this year,' he said. 'The trend is going well.' Far East's 320-room four-star Dorsett Regency and 520-room Sheraton Subang in Kuala Lumpur had recorded brisk business, with average occupancy rates at close to 80 per cent, compared with 70 per cent last year, he said. To settle the deal, Far East plans to issue a five-year convertible bond to Mr Chiu with an option to convert the bond into 77.08 million new Far East shares at HK$4.30 each on maturity. The conversion price represents a 14.97 per cent premium to Thursday's closing of HK$3.74, the last trading day before the deal was announced. The stock closed yesterday 1.6 per cent lower at HK$3.68. On conversion, Mr Chiu's stake in the group will increase to 23.45 per cent from 23.39 per cent.