Royal Orchid Hotel Thailand (ROH) was the first Stock Exchange of Thailand-listed tourism-related company to seek approval from the Securities and Exchange Commission (SEC) to set up a real estate investment trust (REIT) with a buy-back condition, a new kind of REIT launched by the SEC to help real estate operators boost liquidity amidst the pandemic.
Jomkwan Kongsakul, assistant secretary-general of the SEC, said a REIT with a buy-back condition is designed to assist real estate and hotel businesses that are experiencing liquidity crises caused by the pandemic. It was approved by the SEC's board of directors on Feb 1.
According to the SEC, the buy-back condition will allow real estate companies to buy back their properties or assets within a predetermined period and at a value agreed upon with investors.
For example, a property company can specify it will repurchase its property in the next five years from the day of trading. The company then needs to hire 1-2 trustworthy appraisal firms to evaluate the sales and purchase prices of the property.
Companies will usually sell their properties at a price below market value and pledge to buy the properties back at a higher price to attract investors with a profit margin, she said.
After ownership of the properties has been transferred to the REIT, the REIT manager will manage the assets to generate income and allocate profits to investors until the maturity date.
"Investors will enjoy returns from both income from property management and the profit margin when the company repurchases its property in the future," said Ms Jomkwan.
She said ROH asked for SEC approval to establish the REIT with a buy-back condition under the title "Grande Royal Orchid Hospitality Real Estate Investment Trust with Buy-Back Condition" (GROREIT).
The company filed information for the initial public offering (IPO) of the REIT with the SEC on April 5 and appointed One Asset Management as the REIT manager and Kasikorn Asset Management as the REIT trustee.
"A REIT with a buy-back condition is a measure to help property companies facing a liquidity shortage because of the pandemic as regular REITs don't allow companies to set a predetermined date and price for repurchase," said Ms Jomkwan.
"If regular REITs need to buy their properties back, they have to buy them at market prices."
She said other property companies are expressing interest in setting up REITs with buy-back conditions, but are still in the preparatory stages and have not filed IPO information yet.
According to ROH's filing data, GROREIT will acquire the Royal Orchid Sheraton hotel and towers for a total value of 4.5 billion baht, of which 3.15 billion will be raised through an IPO, while the remaining 1.35 billion is to be acquired via bank loans.
ROH hired two property appraisers -- Knight Frank Chartered (Thailand) Co Ltd (KF) and Value & Consultants Co Ltd (V&C) -- to assess the value of the Royal Orchid Sheraton hotel and towers to be sold to GROREIT.
According to ROH, KF appraised the property's value at 5.245 billion baht, while V&C valued it at 5.218 billion.
GROREIT has a five-year investment period with options for ROH to buy back the property in the third, fourth or fifth year from the day of trade at the price of 4.703 billion baht, 4.783 billion or 4.873 billion, in those respective years.
During the five-year period, ROH intends to rent the property from GROREIT and is required by the SEC to complete a credit rating to provide investors with confidence in its business.
ROH offers a fixed annual rate of 6% return to GROREIT's unitholders, and is responsible for the hotel's maintenance, fire insurance, land and building tax.
ROH also has to pay rent in advance to GROREIT for six months.
Investors in GROREIT are advertised an equity internal rate of return in the third, fourth, and fifth years of 8%, 8.01% and 8.03%, respectively.
According to data from the SET, ROH generated revenues of 944 million baht in 2018, 987 million in 2019 and 241 million in 2020.
Net profit tallied 142 million baht in 2018 and 147 million in 2019.
The company recorded a loss of 155 million baht in 2010.
As of December 2020, ROH's total assets stood at 916 million baht, with total liabilities of 252 million.