Straits Times: Hong Leong in $77m tie-up to open budget hotels

June 27, 2007

Hong Leong in $77m tie-up to open budget hotels
It partners AirAsia founders, Dubai fund to run hotels in region
By Joyce Teo, Property Correspondent

THE Hong Leong Group is linking up with a Dubai investment fund and Tune Hotels.Com to open around 30 budget hotels across South-east Asia, including Singapore.

Tune Hotels is a no-frills chain, created by AirAsia's founders Tony Fernandes and Kamarudin Meranun, offering rooms from RM9.99 (S$4.44) a night. The first hotel opened in Kuala Lumpur in April. Istithmar PJSC, the investment arm of the Dubai government, Hong Leong and the founding hotel company yesterday announced their US$50 million (S$77 million) joint venture. The move will allow the new property investment fund, called Tune Hospitality Investments, to tap into the tourism boom generated by the growing popularity of low-cost carriers such as AirAsia. 'The hotels sector is crying out for clean, safe, branded budget accommodation in major cities,' said Istithmar Real Estate's managing director, Mr Richard Johnson. Mr Dennis Melka, director of Tune Hotels.Com, said the joint- venture partners are talking to a few parties on a possible site in Singapore, where they see a strong market but challenges from rising land costs.

The chain's main focus for now is Malaysia and Thailand, though hotels are also being planned for Indonesia and the Philippines. Tune Hotels.Com is already developing six sites - in KL city and the airport, Penang, Kota Kinabalu, Johor Baru and Kuching. It will roll out another 30 hotels, together with its two new partners, over the next 24 months. Average room rates hover around US$15 and up, although advance booking rates can be as low as US$3.

Istithmar and Hong Leong, through its unit City e-Solutions, will each hold 40 per cent, with Tune Hotels.Com owning the rest. The partners aim to exit in about four to six years' time, possibly earlier. Options include an initial public offering or a sale to a related or third party such as CDL Hospitality Trusts, said Mr Vincent Yeo, chief executive of City e-Solutions.