SINGAPORE – Datapulse Technology said on Wednesday (April 24) that it is acquiring a 15 per cent stake in the Holiday Inn Express Euljiro hotel in Seoul for 8.6 billion won (S$10.2 million), in a joint venture deal with Bizcentre Capital.
Bizcentre Capital is a subsidiary of Plenitude Berhad, a Malaysia-listed investment holding company engaged in property development, property investment and hotel operations in prime areas across Malaysia.
Datapulse’s indirect subsidiary KPH Top purchasers KPH Top and Bizcentre Capital will take a 15 per cent and 85 per cent stake respectively in Korea Investment Private Placement Business Hotel Real Estate Investment Trust (REF Trust), which owns the hotel, for a total of 59 billion won.
REF Trust is a real estate fund wholly-owned by the Military Mutual Aid Association, a retirement savings fund in South Korea holding the outstanding beneficiary certificates of the trust. Established in the Republic of Korea, the trust is a collective investment vehicle with Korean Investment Management Co as quality asset manager and KB Kookmin Bank Co as the trustee.
Datapulse’s estimated 8.6 billion won in total acquisition costs comprises 4.1 billion won for its share of the purchase upon completion, 4.4 billion won for a proportionate corporate guarantee in connection with refinancing an existing loan, and 100 million won for its share of transaction costs. The acquisition will be fully funded by internal resources, said Datapulse.
The proposed investment is expected to complete by June 21, 2019.
According to Datapulse, the deal is in line with its expansion strategy and presents an “attractive opportunity” to increase its interests in the Republic of Korea and grow its presence in its hospitality market.
It added that the 224-room midscale hotel is a relatively new asset with a freehold land title and is also strategically located in Euljiro, which is in between popular retail and shopping districts Myeongdong and Dongdaemen. The hotel is also within walking distance to office and commercial buildings in the Euljiro business districts which it says is “expected to develop further”.
Moreover, the hotel is currently operated by a local hotel operator under the Holiday Inn Express brand through a franchise agreement. Datapulse said that this may provide the group with upside potential when the franchise agreement is converted to a full hotel management arrangement.
As part of the transaction, KPH Top and Bizcentre Capital have entered a joint venture agreement to ensure the risk and rewards of the proposed investment are shares pro rata.
Decisions on all matters including the appointment of a hotel management company will be subject to majority vote. The exception of this is customary reserved matters which include any change to dividend policies, which tell then require unanimous approval.
Thus, capital contributions in relation to the deal will be borne by KPH Top and Bizcentre Capital in the agreed proportion of 15:85 respectively.
At the same time, Datapulse will incorporate a new company called KPH 2 with a paid-up share capital of S$1,000. KPH 2 will be a wholly-owned subsidiary of KPH Top and will be assigned the conditional beneficiary certificate sale and purchase agreement (BCA) and the conditional joint venture agreement (JVA).
KPH 2 and Bizcentre Capital will together incorporate a new company called Pinetree Hotel LLC, which will have a paid-up share capital of 100 million won, contributed according to the agreed proportion. Pinetree Hotel LLC will undertake the conditional business transfer agreement (BTA), which includes the assets, licences, contracts and employees of the hotel.
Under the BCA, KPH Top and Bizcentre Capital will pay a 2.7 billion won deposit to the Military Mutual Aid Association, refundable if the purchasers fail to obtain respective shareholder approval for the investment.
The completion of the deal is also subject to and conditional “including but not limited” to the approval of shareholder of both companies, including their ultimate holding companies where applicable. This is on top of satisfying certain conditions precedent.
Datapulse has also disclosed the interests of its chairman and non-independent, non-executive director Aw Cheok Huat, who is a director and controlling shareholder of ICP Group, which provides hotel management services to certain hotels owned by Plenitude.
This is not Datapulse’s first foray into South Korean hotels as part of its expansion into the property business. In March, the group defended its decision to acquire Hotel Aropa in Seoul for 35 billion won after the deal came under some criticism. It reiterated at the time that it was paying less than an indepedent valuation for the hotel. The group’s expansion strategy, and the Hotel Aropa acquisition, were subsequently passed by shareholders at a following extraordinary general meeting.
Datapulse shares closed flat at $0.26 on Tuesday.