M&C sells Seoul hotel with gain

M&C sells Seoul hotel with gain

 

It will book profit of £155m from sale of Millennium Seoul Hilton

 

KWEK Leng Beng’s London-listed hotel arm Millennium & Copthorne Hotels (M&C) is selling Millennium Seoul Hilton for about 580 billion Korean won (around S$767 million). This will bring a profitable end to a difficult relationship M&C has had with the asset. The chain has faced labour problems as well as escalating labour costs operating the hotel.

 

Mr Kwek bought the freehold property in 1999 for US$228.5 million. M&C will book a pre-tax profit of £155 million (S$417.4 million) from the divestment, which is subject to M&C shareholders’ approval. The hotel chain will use cash from the sale to finance acquisition opportunities, among other things.

 

Workers in the hotel went on a strike in 2000 and even after that was resolved, M&C continued to battle rising labour costs in Seoul. But the unsolicited offer for the property from Korean real estate and architectural services group Kangho was just too good to refuse for Mr Kwek.

 

The sale price works out to US$832,000 per room, nearly matching the US$836,000 achieved for The Plaza in New York, which M&C sold in 2004.

 

That was the last major asset sale by M&C, which had owned the hotel – which enjoys a prime location at Central Park South/Fifth Avenue – jointly with Saudi billionaire Prince Alwaleed bin Talal.

 

Millennium Seoul Hilton’s sale price of about £287.9 million works out to 35 times the hotel’s £8.2 million profit before tax last year. ‘The price is very good. I could not refuse,’ Mr Kwek said in an interview with BT yesterday.

 

Mr Kwek had been criticised for overpaying for the Seoul hotel when he bought it nine years ago from Daewoo Group. He beat 11 other contenders that had been shortlisted out of an initial 20 bids.

 

M&C is keen on buying a replacement hotel in Seoul, preferably a ‘brand new hotel’, Mr Kwek said. M&C is also on the lookout for acquisitions in Japan, US and Europe to fill gaps in its hotel portfolio.

 

‘We’ve been trying in Japan for a long time, but no one was willing to sell hotels in the past. Now, we can see some hotel owners, including funds, selling because of the credit crunch and tighter bank lending. But it’s still early days,’ said Mr Kwek.

 

The group could also look at opportunities to buy hotel chains available for sale, though these tend to be more in the West currently rather than Asia, where the economies are stronger, he added.

 

The sale of Millennium Seoul Hilton ‘further strengthens the M&C group’s ability to take advantage of market and cyclical opportunities’, he said in M&C’s statement.

 

The completion of the sale is expected in September this year. M&C is about 53 per cent owned by Singapore-listed City Developments Ltd (CDL), which is controlled by Singapore’s Hong Leong Group, which in turn is owned by the Kwek family.

 

CDL last year inked a memorandum of understanding to develop a mixed development project that will include a hotel, in Incheon City near the International Airport.

 

M&C chief executive Richard Hartman said: ‘We will be maintaining a constant watch for suitable opportunities as they may arise in Korea. Seoul is a key gateway city and this will present a more difficult decision on divestment to us. While the city has a challenging hotel operating environment particularly in Millennium Seoul Hilton, we have managed to achieve a profitable exit from the investment,’ he added.

 

M&C has been managing the hotel since December 2003 after a management contract with Hilton expired, but under a franchise agreement, the group continues to use the Hilton name.

 

Millennium Seoul Hilton was in the news recently in Korea, where a court ruled in favour of CDL Hotels (Korea), an indirect subsidiary of M&C which owns the hotel, after the company filed a lawsuit to nullify a long-term lease for a penthouse on the hotel’s 23rd floor to former Daewoo Group chairman Kim Woo-choong. The hotel’s previous owner, Daewoo Development, signed the 25-year lease contract with Mr Kim in early 1999 for just 328 won or about 31 US cents per day.

 

Source: Business Times

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