• M&C and Thistle can have REIT solution

Millennium & Copthorne’s outgoing chief executive Tony Potter said after his company’s half-year results presentation that more disposals of Asian hotels into REITs might well be considered.

With his departure, however, the group now has the opportunity of truly unlocking value in its assets by using REIT vehicles across Europe as well as in Asia. And REITs present an opportunity for other hoteliers.

The sale of M&C’s three Singapore properties netted it £206.8m from an Asian portfolio valued at around £620m. Other prime assets that might make their way into REITs in the future include the Marriott in Hong Kong and the Grand Hyatt in Taipei.

Potter is joining Corinthia Hotels International as its new CEO. Corinthia is the operating arm of International Hotel Investments which is listed in Malta. The 20 property strong operator has a total of 5,300 rooms and is currently repositioning the Corinthia brand into the five-star segment.

The main reason Potter gave for his decision to go was the warmer climate in Malta. But he is remaining in post until a successor is found.

In contrast to M&C, Corinthia has already undergone the bricks and brains split. It separated out its management arm in 2000 with International Hotel Investments retaining just a 20% stake (although the majority shareholder of IHI, Corinthia Group, owns the rest).

And Corinthia itself is much better placed to pursue its ambitious expansion plans thanks to Malta’s EU accession and the ending of a US ban imposed due to its Libyan shareholder. Both events happened almost simultaneously in May 2004.

The Libyan Arab Foreign Investment Company owns 47% of Corinthia Group and Corinthia is not surprisingly using these ties, together with those between its native country of Malta and Libya, to strongly pursue growth in Libya.

Corinthia is also currently in negotiations to sell a 30% stake to what it describes as a “major US hotel company, one of the largest in the world”. It will be the exclusive hotel operator for this hotel group in EMEA and will use the Corinthia brand for five-star hotels and pin the brand names of the US company onto four-star properties.

Potter’s current focus though is with overseeing the expansion of M&C’s own management business. This saw the addition of seven management contracts totalling 1,617 rooms in the first half, bringing the total under management contract to 5,691.

The six months saw sales up 11% to £312.7m and hotel operating profit up 13% to £50.2m. Pre-tax profit was down at £36.1m from £39.1m thanks to the absence of last year’s one-off £12.8m insurance receipt. Group revpar was up 10.8%. In July, revpar was up9.6%.

The ultimate parent of M&C is Hong Leong Group Singapore, run by M&C’s chairman Kwek Leng Beng. Kwek’s cousin, Quek Leng Chan, runs Hong Leong Group Malaysia, which through Guoco and then BIL, owns Thistle Hotels.

Thistle this week saw the debt securities on 28 of its hotels, worth £396m, downgraded by rating agency Moody’s. The ultimate way out for the holders of these financial instruments might be for BIL to inject the assets into a REIT, although unlikely given the ugly history of the portfolio that includes an investigation by the Serious Fraud Office into previous owner Orb Estates.

Despite a restructuring at the end of 2004 that saw Morgan Stanley, Thistle and Andy Ruhan vehicle Atlantic Hotels Group take a third each, the portfolio has struggled.

The sale of the Thistle Lancaster Gate this April for residential development provided a small boost but is not a viable exit strategy for most of the other hotels.

Maybe a solution might be for Kwek and Quek to come together for a deal. It was once mooted in the Asian press back when M&C and Thistle had their IPOs in 1996. This time around they have the bonus of being able to exit via a REIT.

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