Far East Consortium Selling Kowloon Hotel to Nanjing Developer for HK$450M

A hotel subsidiary of Hong Kong’s Far East Consortium has agreed to sell a hotel in Hong Kong’s Mongkok area to a Nanjing-based developer for HK$450 million ($58 million) in the latest acquisition by Chinese real estate developers in the Asian financial hub.

Far East Consortium’s Dorsett Hospitality International is selling the 141-room Silka West Kowloon hotel on Anchor Street to Golden Wheel Jasper Company, a subsidiary of Golden Wheel Tiandi Holdings Company, according to a pair of announcements on Friday by the two Hong Kong-listed firms.

The transaction comes just a few months after Far East’s chairman declared an interest in opportunities in Australia, in the face of growing competition from mainland developers on his company’s home turn in Hong Kong.

Far East to Book HK$316 Mil Gain

Under the terms of the deal, Far East’s Dorsett Hospitality subsidiary is selling the three-star property to Golden Wheel Tiandi at an aggregate consideration of HK$450 million, through the disposal of its equity interest and shareholder loans. Far East expects to record a gain from the sale of approximately HK$316 million. The agreement also calls for Dorsett to continue managing the hotel under its mid-market Silka brand on behalf of Golden Wheel Tiandi for another six years.

“The sale is yet another example of our proven track record in successful monetisation of hotel assets, and is consistent with the group’s strategy of disposing smaller and non-core hotel properties. It enables the group to release hidden value in our hotel portfolio accumulated over the years,” Far East’s managing director, Chris Hoong said.

In its statement to the exchange, Far East explained that the sale would provide a good opportunity for the group to realise profits and would bring in cash which would “enable it to redeploy its resources to other investment opportunities.” As of 30 September 2016, the company owned 20 hotels in Hong Kong, Mainland China, Singapore, Malaysia and the United Kingdom totalling more than 6,000 rooms and had 13 more hotels under development.

Nanjing Developer Seeks to Diversify

In its own announcement to the Hong Kong exchange, Golden Wheel’s board said that “the Proposed Acquisition would enhance the Group’s hotel operation business segment which is in line with the Group’s strategies to further develop new business segments besides the major property development segment.”

Based in the capital of eastern China’s Jiangsu province, Golden Wheel specialises in commercial and mixed-use projects in Nanjing. The company was listed on the Hong Kong stock exchange in January 2013.

Golden Wheel’s Hong Kong acquisition is part of a wave of mainland property investment in the city. A report released last week by property consultancy JLL found that the percentage of Hong Kong residential development sites won in public land auctions by seven of Hong Kong’s largest developers had shrunk from 45 percent in 2012, to 28 percent in 2014 and 22 percent in 2016, due in large part to increased competition from mainland developers.

Far East Turns to Australia and Beyond

Far East Consortium has not yet specified a destination for its budget hotel haul, but it has already declared an interest in looking outside of Hong Kong and mainland China.

“I am optimistic about Australia. The country has relatively soft immigration policies and we have seen a sharp increase in Chinese buying properties there,” chairman David Chiu told the South China Morning Post last September.

Far East Consortium is currently selling apartments in Melbourne, where it has been investing for more than 20 years, and Chiu’s company says that it is now expanding its Aussie operations to Sydney, Brisbane, the Gold Coast and Perth. The developer also has holdings in Malaysia, Singapore, the UK and New Zealand, in addition to Hong Kong and mainland China.