New World Development sells Hong Kong hotel stakes to Abu Dhabi investor for HK$18.5 billion
Grand Hyatt, Hyatt Regency and Renaissance Harbour View will be injected into joint venture
New World Development (NWD) is selling three of its luxury hotels for HK$18.5 billion into a joint venture with the Abu Dhabi Investment Authority (ADIA) in the biggest hotel deal in Asia in a decade.
The developer and controlling shareholder Chow Tai Fook Enterprise (CTFE) - owned by the family of Cheng Yu-tung - will inject the three hotels, including the flagship Grand Hyatt Hong Kong in Wan Chai, into a newly formed 50-50 joint venture with ADIA, the world's second-largest sovereign fund.
The other two hotels to be transferred to the joint venture are the Renaissance Harbour View in Wan Chai and the Hyatt Regency Hong Kong in Tsim Sha Tsui.
"It is a breakthrough deal for ADIA as it marks its first entry to the hotel market in Asia excluding Japan and Australia," a source said.
The deal tops Cuscaden Partners and Wheelock Properties' purchase of a 58 per cent stake in Singapore's Hotel Properties for US$1.79 billion in April last year.
It is also the second big investment by a Middle Eastern sovereign wealth fund in Hong Kong in the past six months. In October, the Qatar Investment Authority paid HK$4.78 billion for 19.9 per cent of Sogo Department store operator Lifestyle International.
After the completion of the latest deal, ADIA will own a 50 per cent stake in the three hotels, via the joint venture, with NWD's stake reduced to about 23 per cent and CTFE's to 18 per cent.
ADIA's head of hospitality, Mike Goodson, has said real estate accounts for about 7 per cent of its investment portfolio, which analysts estimate at more than US$627 billion.
NWD shelved plans to spin off the hotel assets to raise about US$1 billion in 2013 due to souring market sentiment.
Alfred Lau, an analyst at Bocom International, said the joint-venture deal was better than a spin-off as hotel stocks were trading at a discount to asset values of about 60 per cent to 70 per cent.
The direct asset sale to ADIA involved a discount of just 13 per cent on the HK$21.3 billion valuation by appraiser Savills Valuation and Professional Services.
"What I can say is it is a good deal," Lau said.
Shares in NWD rose 2.18 per cent to close at HK$10.30 yesterday.
NWD said it would receive HK$10.08 billion in cash, while CTFE would generate HK$3.79 billion from the sale. The deal, advised by JP Morgan, values the three hotels, with a total of 1,777 rooms, at HK$10.4 million per room.
NWD executive vice-chairman Adrian Cheng Chi-kong said the proceeds would be used to finance its development projects, land bank expansion and other general working capital purposes.
Sources said the proceeds would be ploughed into the HK$18 billion redevelopment of Tsim Sha Tsui's New World Centre into a Grade A office, retail, serviced apartments and hotel project. The three million square foot redevelopment is scheduled for completion as early as 2017.