Can’t wrap your head around the headline?
Try this: Intercontinental Hotels Group (IHG), the world’s largest hotel group by number, has sold its harborfront property in Tsim Sha Tsui to private equity group Gaw Capital for HK$7.3 billion.
That’s nearly US$1 billion.
At that price, you’d expect to get more than an unimpressive 35-year-old building, even if you agree that the views from its harbor-facing rooms are priceless and its ballrooms are the most sought-after in Hong Kong for wedding receptions.
In fact, Gaw Capital did get its money’s worth, judging by what came with the package.
It turns out the new owner managed to wrangle a 15-year lease with the hotel — a guaranteed income of HK$3.2 billion — and another 24-year deal at a negotiable rate.
According to Land Registry records, IHG has leased back the hotel for a monthly rental of HK$18.1 million since October.
The rental is fixed until 2030 which works out to HK$3.2 billion, less than half of the money it received from the sale of the Tsim Sha Tsui property.
That’s equivalent to a daily rate of HK$1,200 for each of its 503 rooms, according to a back-of-the-envelope calculation by Ming Pao, or a 3 percent yield for the new owner.
Note that most five-star hotels in Hong Kong fetch a 5 per cent yield for their owners.
Gaw Capital has committed to renovate the hotel in in 2017. The work will take 18 months.
Despite its unremarkable exterior and an outdated interior design, Intercontinental Hong Kong has been the venue of choice for wedding receptions and social functions.
With its pillarless ballrooms covering a combined 885 square meters, the hotel offers an unimpeded view of Victoria Harbor.
The signature marble staircase in the main lobby has provided a backdrop for many a celebrity and Hong Kong luminary.
The sale came at a time when New World Development, its previous owner, decided to renovate the Tsim Sha Tsui East promenade where it plans a clump of office buildings.
Intercontinental Hong Kong stands to benefit in foot traffic from the massive facelift.
Under the tenancy agreement, Gaw Capital can propose a rent review every two years after the first 15 years and negotiate lease renewal every five years at the end of the 37-year contract.
At the time of the sale, the market marveled at the record-breaking price tag despite a slowdown in mainland tourist arrivals this summer.
IHG booked a HK$5 billion net profit from the sale. It acquired the property from New World for HK$2.3 billion in 2001.
Still, the deal pales in comparison to the blockbuster HK$12.5 billion sale of Chinese Estates’ Mass Mutual Tower in Wan Chai to Evergrande Real Estate.
The record price came despite analysts’ projections that the property would yield no more than 1 percent.
The building provided a hulking backdrop to last year’s democracy protests in photos that went viral and splashed in newspapers around the world.
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