Charitable yet Profitable Investment Opportunities

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  This is a great opportunity for investors who are looking to convert cash into return for investment rather than saving money in the bank for small gain. The COVID-19 pandemic has significantly impacted the tourism industry in Thailand since the breakout and are expected to remain until the foreseeable future. Look no further than hotel & resort and apartment & condominium projects as businesses which were most heavily affected in the tourism sector. 

            According to a survey by Invest:MaN, many parties in the hospitality industry have already looked to sell their businesses officially. Some are weighing their options between selling or waiting for any potential stimulus package from the government. As a result, thousands of businesses are available all over the country, presenting a golden opportunity for the investors looking to invest in the hospitality sector.

            However, instead of an investment for the total takeover of one business, Invest:MaN would like to deviate investors’ attention to supportive & sustainable investments for these hotel businesses that desperately needed funds to survive this crisis. By investing for a small share of businesses, making sure that businesses are able to continue, not only investors will receive profitable returns but also a feel-good factor playing a part in helping others during the time of hardship. We would like to call this, “charitable yet profitable investment”.

            Invest:MaN proposes an investment model similarly to accepting mortgages for sale, with rental period up until 3-5 years. However, investors must also consider the future business plans proposed by the business owner to ensure that the investment will guarantee profit from the increase in business’s value. Alternatively, the riskier option could be injecting a lump sum of money for the owner to manage, without any guarantee payout for the investment, considering it as a soft loan when compared to the risk free rate of 3-5 year government bond with interest rate of +2%.

Tips for investment in hotel & hospitality business to consider when opportunity presents itself.

  • General location is the first factor to be considered. It is very important when looking at investment on a big picture. Location of hotels include, a primary or secondary city, tourists attraction spot and how they are appealed to visitors; historical value or scenery nature for example. 
  • Occupancy rate is an information that investors do their own research on the tourism website. One which implies how well the business is currently doing. Hence, the numbers can be studied and compared with one another when weighing investment options.
  • Specific location is a factor that must be considered in terms of location according to the terrain, public facilities, vicinity, magnetism elements, special features such as the sea, mountains and etc which draw in visitors. 
  • Type of hotel license should be checked. Licenses are usually categorized into four categories: Type 1 hotels mean hotels that provide rooms only; Type 2 hotels refer to hotels that provide rooms and restaurants; Type 3 and 4  hotels refers to hotels providing rooms, restaurants and facilities such as auditorium and meeting rooms to accommodate special events along with the catering service such as according to hotel regulations. Investors should be aware of the type of business according to their licenses. Changes and retention of license in order to maintain a continuous operation must not be overlooked by investors.
  • Physical age of hotels tells investors how much capital is needed as part of  improvement, renovation and rebranding costs.
  • Land Per Key is a variable used in determining the use of land per room. The ratio suggests how dense the use of the space is congested and if there is any space left to expand the hotel services. Hotels located in city areas normally have high density, while resort-style hotels in the provincial and tourist areas are likely to have more space.
  • Price Per Key is the quoted price per room. The number is calculated by dividing the total selling price by the number of rooms available in a hotel.
  • Initial rate of return (Yield) can be computed after price per key and the occupancy rate based on the market criteria are identified. Investors can estimate the initial rate of return based on three scenarios; best, fair, and worst. Investors will understand the appropriate yield to anticipate which will lead to a final investment decision.

The appropriate nature of hotel investment may vary according to personal preferences of each investor which can be summarized as a guideline as follows.

  • Stock investment involves total purchase and selling for profit gain after a short holding period. Occasionally, distress hotels become available for grab at bargain prices through auctions held by the Legal Execution Department. Nevertheless, investors must have an understanding on how to take advantage of the situation. These types of acquisition does not consider the factor of ongoing concern, therefore, certain expenses incurred from taking over the business which are excluded from final price as obtained from auction.
  • Depository investment works similarly to a general lending scheme with collateral as an insurance for investors, to avoid pursuing litigation on mortgage if the debtor fails to pay installments. Investors obtain the right of ownership when in default of payment in certain. However, this investment method comes with a higher cost of borrowing than mortgage trading, therefore, a full ownership transfer fee has to be paid. Business owners, in this case, the debtors, will have a heavy financial burden due to a high borrowing cost, less the actual fund for businesses.
  • Charitable yet profitable investment is the new investment approach Invest:MaN suggests. Investors will be rewarded financially as well as good peace of mind. Playing part in helping those struggling business owners carrying on their lifetime work restores investors’ consciousness which is usually financially driven.

          -The investment which would serve best to business owners’ gain aree one which low borrowing costs, to maximize actual funding to genuinely stimulate businesses.

          -Including additional terms related to business plans in which business owners and investors have to come to agreements. This way, investors are able ensure the guarantee of their investment by playing a role in running the business along with the owners. Instead of fully trusting investment on the owner which could turn sour as an outcome. Some examples of business plans are renovation or rebranding of businesses. To demonstrate further, businesses such as   apartments can be turned into a boutique hotel or hostel, etc with extra cash for investment to earn revenue from different income streams. 

          -Playing a role in business may also include analyzing and managing the financial structure of the business, in order to identify the current issue which needs urgent attention, such as clearing of personal debts of directors, hotel business payable debt, amount of money to supplement the liquidity of the working capital that needs to be injected. With this being said, the level of investors involvement will only down to the agreement of both parties.

          -Investors need to seek connections with hotel brands and chains, now available in both national and international level. Extra clauses should be considered in the agreement as backup if the fund is not being used in the most efficient way possible, jeopardizing the investors’ decision, allowing investors to step into the management role.  

          -In terms of juristic acts, contracts are important for both the front and back side of administration. On the front side, the business as property needs to be registered as a mortgage or sale. On the back, a loan agreement can be entered in the form of corporate bonds, along with setting of appropriate rental terms at the % rate per loan released after the grace period. Recording accounts as debtors in the accounting system will guarantee that investors will receive money as a creditor if auction sales should take place. These contractual ideas simply serve as a safeguard for investors from coming out with a bad investment.

 

This is the idea of charitable yet profitable investment presented by Invest:MaN!

Interested in investing in hotels & resorts, contact the Invest:MaN team.

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