Global Premium Hotels

[steven]

Global Premium Hotels launches IPO at S$0.26 per share

Opportunity to invest in the second largest economy-tier hotel chain in Singapore
IPO seeks to raise approximately S$117.0 million in gross proceeds to mainly fund the acquisition of Fragrance Group Limited’s hotel portfolio and future expansion
Offering closes at 12 noon on Tuesday, 24 April 2012

19 April 2012 – Global Premium Hotels Limited ("GPH"), the owner and operator of the second largest economy-tier hotel chain in Singapore, launched its Initial Public Offering ("IPO" or "Invitation") of 450.0 million new shares today at the Issue price of S$0.26 per share ("Issue Price"). The Invitation comprises 13.0 million shares to the public, and 437.0 million shares by way of placement. It will close at 12 noon on Tuesday, 24 April 2012. GPH is scheduled to commence trading on the SGX Mainboard on Thursday, 26 April 2012. The market capitalisation of GPH based on the Issue Price and the post-Invitation share capital is S$260.0 million. Oversea-Chinese Banking Corporation Limited ("OCBC") is the issue manager, underwriter and placement agent for the IPO. GPH has granted OCBC an over-allotment option of up to 67.5 million additional new shares, representing 15.0% of the total number of invitation shares.
Mr. Lim Chee Chong, Chief Executive Officer of GPH, commented, "Global Premium Hotels is the second largest economic-tier hotel chain in Singapore1. We have established track record and reputation for providing affordable and value-for-money accommodation in terms of price, location, service and cleanliness. This has led to our "Fragrance" brand of hotels becoming well-recognised in the local and regional hospitality industry. We are committed to deliver continued earnings growth through the development of new hotels and asset enhancement. We also plan to distribute at least 80% of the net profit for FY2012 to shareholders."
For more information, please refer to attached press release.

The following link is the URL to access the prospectus for Global Premium Hotel:


Prospectus
http://masnet.mas.gov.sg/opera/sdrprosp....ean%29.pdf

[Musicwhiz]

The Business Times
Published April 20, 2012
NEW LISTINGS
Fragrance's GPH to raise $117m in IPO
IPO invitation closes on April24; trading expected to start on SGX on April 26
By Nisha Ramchandani

GLOBAL Premium Hotels (GPH), the hospitality arm of property company Fragrance Group, is launching 450 million new shares at $0.26 per share under its initial public offering (IPO) on the Singapore Exchange (SGX).

Thirteen million shares will be offered to the public and 437 million shares will be sold by way of placement, which will raise some $117 million in gross proceeds for the company.

Based on the issue price and the post-invitation share capital, the market capitalisation of GPH is $260 million.

In Singapore, GPH operates 23 hotels mainly in the economy segment - comprising 1,738 rooms - of which it owns 22 hotels.

The hotels were acquired from parent company Fragrance Group at an aggregate discount of $67.2 million, or 9.1 per cent, of the aggregate adjusted market value of the hotels, which is $736.7 million. As payment, the Fragrance Group received 549.99 million shares in GPH and will own a 55 per cent stake post-IPO.

$74.8 million of the $112.1 million net proceeds from the IPO will go to the parent company as partial payment, while $30 million will go towards GPH's expansion plans and a further $7.3 million will be set aside for working capital purposes.

In Singapore, GPH plans to add another 200-300 rooms to its portfolio within the next two years. In addition, it is looking to make its foray into the Asia-Pacific market, with an eye on Malaysia, Indonesia and the Philippines.

The company has also said that it plans to distribute at least 80 per cent of the FY 2012 net profit to shareholders.

"We have received keen interest from funds and investors," said chief executive Eddie Lim at a press briefing yesterday, commenting on demand for the offering.

The IPO invitation closes at noon on April 24 with GPH expecting to commence trading on SGX on April 26.

He added: "GPH is the second largest economic-tier hotel chain in Singapore. We are committed to deliver continued earnings growth through the development of new hotels and asset enhancement."

"This IPO will provide investors looking for an opportunity to participate in the growth potential of the economy-tier hotel segment in Singapore," said Ang Suat Ching, head of corporate finance for OCBC Bank, which is the issue manager, underwriter and placement agent for the IPO.

GPH has also granted OCBC an over-allotment option of up to 67.5 million additional new shares, representing 15 per cent of the total number of invitation shares.

Shares in Fragrance climbed to a high of 47.5 cents in trading yesterday before closing at 47 cents, up 2.5 cents.

[money]

Hi guys, I was analysing the prospectus of this IPO, and this is what I feel ( it is just my opinion so please don’t be offended if it differs from yours.)

On page 61, it says

As adjusted for the Restructuring Exercise, the net proceeds from the issue of New Shares and the intended use of such proceeds ($’000)

Cash and Cash Equivalents 58,882

Indebtedness
Current
Term Loans (Secured and Guaranteed) 20,147
Non-current
Term Loans (Secured and Guaranteed) 443,035

Total Indebtedness 463,182

Total Shareholders’ Equity 299,119
Total Capitalisation and Indebtedness 762,301

Now, here is the crucial part. Assuming a 2.5% interest rate (page 190, first sentence states loan facilities between approximately 2%to 3%per annum) on the long term loan, in the next few years, the company will have to pay interest expense of 443m x 2.5% = 11m

On page 120, under audited 9m2011,
The pretax, pre-finance cost profit is (21.248 – 2.158)m = 19m
Adjusting it for 12 months, 19m / 3 x 4 = 25m
Accounting for the 11m interest expense per annum, pretax profit = 14m
Accounting for tax of 18%, net profit after tax = 11.5m
Therefore eps = $0.0115 (total 1,000,000,000 shares after IPO)

Considering a share price of $0.26, PER = 23 !!! WITH LARGE LEVERAGE
Even if shareholders are willing to forgo their dividends, it will take 443m/11.5 = 38 years to clear off its debt. What if interest rate rises to 5% in the next few years?

Can someone point out where I have gone wrong? Would really appreciate it.

Anyway, assuming I am correct, I would conclude that this IPO is a speculation NOT INVESTMENT. As a value investor, I think if we have friends or relatives interested in this IPO, we should make an effort to advise them.

[camelking]

Hi guys, I was analysing the prospectus of this IPO, and this is what I feel ( it is just my opinion so please don’t be offended if it differs from yours.)

On page 61, it says

As adjusted for the Restructuring Exercise, the net proceeds from the issue of New Shares and the intended use of such proceeds ($’000)

Cash and Cash Equivalents 58,882

Indebtedness
Current
Term Loans (Secured and Guaranteed)(2) 20,147
Non-current
Term Loans (Secured and Guaranteed)(2) 443,035

Total Indebtedness 463,182

Total Shareholders’ Equity 299,119
Total Capitalisation and Indebtedness 762,301

Now, here is the crucial part. Assuming a 2.5% interest rate (page 190, first sentence states loan facilities between approximately 2%to 3%per annum) on the long term loan, in the next few years, the company will have to pay interest expense of 443m x 2.5% = 11m

On page 120, under audited 9m2011,
The pretax, pre-finance cost profit is (21.248 – 2.158)m = 19m
Adjusting it for 12 months, 19m / 3 x 4 = 25m
Accounting for the 11m interest expense per annum, pretax profit = 14m
Accounting for tax of 18%, net profit after tax = 11.5m
Therefore eps = $0.0115 (total 1,000,000,000 shares after IPO)

Considering a share price of $0.26, PER = 23 !!! WITH LARGE LEVERAGE
Even if shareholders are willing to forgo their dividends, it will take 443m/11.5 = 38 years to clear off its debt. What if interest rate rises to 5% in the next few years?

Can someone point out where I have gone wrong? Would really appreciate it.

Anyway, assuming I am correct, I would conclude that this IPO is a speculative investment. As a value investor, I think if we have friends or relatives interested in this IPO, we should make an effort to advise them.

Hi,
Sharing my view too.

On the number of years needed to clear the debts.
1. You are assuming that they want and need to clear the debts which may not be the case.
2. Think you forgotten to add back the non-cash items including depreciation. Assuming the co depreciates their hotels (Don't know, too lazy to read the FRS), the depreciation amount should be quite a lot.
So, a better way is to look at the cash flow statement if you want to calculate the years required to pay off the loans.

On the speculative nature of this IPO
1. You are right. The two brothers are very shrwed businessmen.
If you had invested in Fragance and Aspial years ago, you will be quite happy with them.

On the advising friends/relatives not to buy
1. Why not? Money is money.

[greengiraffe]

Thank you Money for all his work.

I will add the following:

http://info.sgx.com/webcoranncatth.nsf/V...A0070C88C/$file/Announcement_Proposed_Invitation.pdf?openelement

In summary the entire deal is as follows:

Fragrance Hotel is being relisted as the newco with Fragrance diluting control from 100% to 55%. The hotels have been monetized at a slight discount to mkt value with financiers willing to part finance with an IPO (public) owning 45%.

Fragrance will continue to own the revalued (inflated) hotel arm in smaller proportion. They have promised to declare a special div (rightly so they will as the family has been steadfastly buying back shares from the mkt) and with the huge family holdings, this is the only way that money is returning back to their coffers.

However, given that their property development model is also valued at PER instead of discount to NAV, I m inclined to think that none of the buddies will be daring enough to have a bite.

On Global, with its huge float and undisclosed actual financial financing cost impact, its really a serious case of caveat emptor.

[Coattails]

Hi,
Sharing my view too.

On the number of years needed to clear the debts.
1. You are assuming that they want and need to clear the debts which may not be the case.
2. Think you forgotten to add back the non-cash items including depreciation. Assuming the co depreciates their hotels (Don't know, too lazy to read the FRS), the depreciation amount should be quite a lot.
So, a better way is to look at the cash flow statement if you want to calculate the years required to pay off the loans.

On the speculative nature of this IPO
1. You are right. The two brothers are very shrwed businessmen.
If you had invested in Fragance and Aspial years ago, you will be quite happy with them.

On the advising friends/relatives not to buy
1. Why not? Money is money.

With regards to depreciation of investment properties, I believe the rule is as follows (got this from the annual report "Notes to Financial Statements" section of another property developer I was researching):

Freehold Land - not depreciated because it has unlimited life
Freehold Properties - straight line over 50 years
Leasehold Properties - straight line over 50-96 years

Based on the abovementioned, I doubt you will get much depreciation from GPH's investment properties (i.e. hotels) over their useful lives, and the reported annual earnings actually may be close to the actual annual cash flows.

As for the high level of debt, the current interest rate environment is artificially low at the moment but this will not last forever. I believe it is save to assume that at some point in the not-too-distance future, debt reduction will become highly necessary for GPH...

Caveat emptor indeed!

[camelking]

Yeap, money is money...be it from value investing or market sentiment based "punting"

Different approaches for different stages of market
Value investing for bearish market
Sentiment based punting for bullish market

Just my opinion

[Musicwhiz]

Yeap, money is money...be it from value investing or market sentiment based "punting"

Different approaches for different stages of market
Value investing for bearish market
Sentiment based punting for bullish market

Just my opinion

I have a different opinion - value investing for all seasons, all types of markets. It's for sustainable long-term decent return on investment, while keeping capital safe.

[shanrui_91]

GLOBAL PREMIUM HOTELS IPO: Insights into room pricing

The market is abuzz with talks of hotel IPOs in the pipeline. Global Premium Hotels is the first this year, a spin-off of Fragrance Group's hotel assets.

THE IPO of economy hotel developer and operator Global Premium Hotels has been attracting much interest from analysts and fund managers, thanks to Singapore’s vibrant tourism scene.

Singapore tops Asia Pacific in travel and tourism competitiveness, ahead of Hong Kong, Australia and New Zealand, according to The World Economic Forum.

And this has translated into growth in revenue per available room (RevPar) generated by Singapore gazetted hotels of a good 9.5% (CAGR) a year over the past decade.

Singapore’s year-on-year RevPar growth in good years can reach the high-twenties.

Singapore hotels were resilient to last year’s uncertain global economic outlook, thanks to the high volume of visitors from China, India, Malaysia and Indonesia, which had GDP growth rates blistering ahead at 5.2% to 8.1% in 2011.

Singapore’s RevPar last year grew 14.6% year-on-year to S$211.70 per room per night.

Global Premium is raising net proceeds of S$112 million from the IPO. S$74.8 million (64%) will be used to pay down the purchase of its hotel assets from its parent company, SGX-listed real estate developer Fragrance Group.

Another S$30 million (26%) is intended for the development of its hotel business in Singapore and overseas.

'Our revenue is stable even during economic crisis,' says CEO Eddie Lim. Photo by Sim Kih

It has 22 economy hotels under the Fragrance brand name and one mid-tier hotel under the Parc Sovereign brand name in Singapore.

”Net margins generated by budget hotels are usually higher than for higher-tier hotels,” said CEO Eddie Lim.

Global Premium has managed to maintain net margins at around 40% for Parc Sovereign, in line with its Fragrance hotels.

The other advantage of being a budget hotel chain operator is that occupancy actually increases during times of economic uncertainty as visitors look for affordable alternatives.

It generated net profit of S$19.9 million in FY2010, up 47% year-on-year. The company has a dividend policy to pay at least 80% of net profit after tax in FY2012.

CFO Chen Loong Mey joined Global Premium Hotels from CapitaMalls Asia. Photo by Sim Kih

Below is a summary of questions raised during an investor briefing yesterday (Friday) and the replies of Mr Lim and CFO Chen Loong Mey:

Q: Why did you not structure your company as a REIT since your assets yield stable income?

We want to develop our own assets. There are limitations to developing real estate under the REIT structure.

Q: Does the scandal involving the under-aged prostitute affect your business?

All hoteliers are subject to the same risk in this area. Even the high-end hotels are exposed to such incidents. We do not see such scandals as a threat to our business.

Demand and expansion plans

Q: Where is the demand coming from for budget hotels?

A lot of Malaysians stay at our Geylang hotel, which offers the most affordable rates. Also, when the economy is good, demand overflows to budget hotels. During peak seasons, our Balestier hotel can command as high as S$200 per room per night. During the SARS crisis, many high-end hotels lost money but we were still profitable.

Q: Where will you focus on expanding? Fragrance or Parc Sovereign?

It really depends on the property site that we are able to get for development. A small plot will go to the Fragrance brand, which is a budget hotel. For the mid-tier market brand Parc Sovereign, we need a plot that is big enough to include things like a sizable swimming pool.

Q: Is there a possibility of converting a Fragrance hotel into a Parc Sovereign brand hotel?

It is possible, but plot sites for Fragrance hotels are smaller. So, the number of rooms will come down after conversion.

Segment margins and costs

Q: How do margins differ between customer segments? Do walk-in customers yield the highest margins?

Yes, walk-in customers yield the highest margins. Travel agents give us the lowest margins, but they also give us high take-up of idling rooms well in advance.

Q: Can you increase your room rates?

We are in a very price-sensitive price segment. So, we have to be very careful about this.

Q: Who sets the room rates in your competitive space?

Hotel room rates are very transparent. We want to provide affordability and we do not want to overprice ourselves compared to the competitor. Pricing has a lot to do with hotel location.

Q: How does the rise in labor costs affect you?

There will be fewer and fewer Singaporeans in our sector. Singaporeans don't realize that a chambermaid's job is much tougher than a cleaner's. We have a system of retaining existing staff. We have no choice but to engage more foreign workers as they are the ones that help to stabilize our operating cost. The good thing is we haven't seen a sharp increase in staff cost.

http://nextinsight.net/index.php/story-a...ng-nations

Some insights into hotel industry in Singapore as well as operation of budget hotel

[pianist]

does anyone know why now at this time cannot use local bank internet banking to apply for this ipo which closes at noon tomorrow?