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by Ravi Ladduwahetty

Shareholders of Asian Hotels Ltd will enjoy the tax benefits up to 12 years following the decision of the management of the company going in for a share swap with Crescat Developments Ltd.

The management of Asian Hotels Ltd wrote to the Colombo Stock Exchange and the Securities and Exchange Commission asking for a share swap, which will enable the shareholders of Asian Hotels to own Crescat shares. For AHOT shareholders, they will receive a Crescat share for every AHOT share held.

The Board of Directors of Asian Hotels Ltd deciding to merge with its fully owned subsidiary Crescat Developments Ltd will enjoy a three-year tax holiday as a result of this merger in terms of the Supplementary Agreement with the Board of Investment (BOI) and thereby exempting the current profits of CDL and future profits of Asian Hotels for 12 years. The business operations of Asian Hotels businesses will enjoy customs duty and exchange control concessions as a result of this proposed merger.

Asian Hotels has 221.4 million shares and the Market Capitalisation is US$ 39.4 million. The Average Daily Turnover is US$ 41600. The major shareholders of the company are: Tan Sri Hamza which owns 31.5 percent and Gold Quest International Ltd which owns 19.2 percent.

Market analysts point out that the shareholders will have certain value for money with Colombo Plaza well positioned to grow with the refurbishment of 250 of the 530 rooms completed in September 1997 and a brand new lobby being constructed linking the two wings of the hotel.

Trans Asia Hotel, in which AHOT has 43.3 percent of the shares, has also been a key contributor to the Asian Hotels profits.

For the year ended 1998,the 538-room Transasia had been enjoying rising occupancy and room rates following a program begun in the mid-1990s to position the property as the leading business hotel in Colombo. Whilst its performance over the last three years has been stymied due to the downturn in tourist arrivals, the hotel is now benefiting significantly from the revival in tourist arrivals, and should grow faster following the engagement of a new manager, the Singapore based General Hotel Management (whose Chairman is Adrian Zecha) in 2001.

It is believed that AHOT and GHM will strive to re-position Transasia as the premier leisure/family hotel in Colombo, emphasising F&B banquet sales, while focusing the Colombo Plaza on the business market. A Rs. 300 million refurbishment is already under way at Transasia, with GHM likely to rebrand the hotel.

Crescat Developments has completed its first phase of development involving a 23 storey, 152 unit apartment block, and 72,000 square feet of retail shopping space (of which 45,000 square feet is lettable). The latter has achieved over 90% occupancy and is being re-positioned as Colombo's premier shopping-mall, with carefully selected key tenants. Future promotional activities are likely to reinforce this positioning as well as nurture more impulse buying.

A lack of Crescat apartment sales at the inception compelled the company to adopt a more focused and cohesive marketing strategy, which has been put into operation sold (approximately 35-40 are estimated to have been sold in FY03), with almost all apartment over the seventh floor being sold. The last few apartments are indeed understood to have been sold at rates in excess of Rs. 15,000 per square foot, well above the nearest competition. Over 50% of the outright buyers have however leased their properties back to AHOT to manage for a guaranteed return.

Crescat also currently maintains a pool of around 40 apartments for lease/rent, with total rental occupancy levels believed to be in the region of 70%. With the rival JAIC Hilton Tower having also leased out its apartments (occupancy levels are estimated at around 60-70%), this indicates the existing unexploited demand for quality accommodation. There is significant scope for effectively marketing the condos at Crescat as serviced apartments.

With the bulk of Crescat's apartments having thus been sold, the company has indicated that they are considering the construction of another apartment tower, for which US$2 million worth of foundations are already in place, in 2004. Architectural designs are currently being evaluated and the company plans to commence pre-selling apartments (to part finance construction) in December 2003. We believe AHOT's new management team will strive to minimise the mistakes that dogged the construction of the first tower, i.e. cost over-runs, relatively poor design/marketing.

Crescat is also currently investing about Rs. 200 million to construct a lifestyle complex, featuring a swimming pool, spa, gym and restaurants, while also expanding its car parking facilities. AHOT is negotiating with international resort-hotel operators to manage this lifestyle complex (Banyan Tree/Angsana Spa is believed to be the frontrunner), which will be financed from internal funds/short term borrowings. The new facilities, which are scheduled to be completed by 2Q2004, should make the apartments, hotel and even the mall more attractive to potential buyers/visitors, and ensure closer integration of all developments on the property.

AHOT is also understood to be evaluating the option of engaging in facilities management, possibly with external technical expertise.

There are significant opportunities for professional facilities management in Sri Lanka, with the large commercial banks and significant real estate owners such as John Keells Holdings, Hayleys and Overseas Realty likely to be possible candidates.

www.crescat.com

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