A chain of 30 budget hotels is to be set up across South-east Asia over the next three years in a US$50 million joint venture between Hong Leong Group

A chain of 30 budget hotels is to be set up across South-east Asia over the next three years in a US$50 million joint venture between Hong Leong Group and Dubai investment company Istithmar.

Hong Leong, through its subsidiary City Developments’ City e-Solutions (CES), will take a 40 per cent stake in the joint company, Tune Hospitality Investments. Another 40 per cent will be owned by Istithmar, the investment arm of Dubai World, which is fully owned by the government of Dubai.

The remaining 20 per cent stake will be held by Tune Hotels.Com, which will develop and operate the hotels. Tune Hotels.Com is owned by the founders of the AirAsia budget airline.

The partners plan to exit their investment through the private or public markets in four to six years’ time, they said. One option will be selling the hotels to CityDev’s listed real estate investment trust, CDL Hospitality Trusts.

With the hotels, which will all have the ‘Tune’ brand, the partners hope to address the lack of affordable and quality budget accommodation in the region.

The first Tune Hotel opened in Kuala Lumpur in April this year and has been enjoying 91 per cent occupancy since. Additional properties are due to be opened over the next few years in Penang, Johor Baru, Kuching and Kota Kinabalu, although these will not be owned by the new company.

The new company will instead look for new locations in Malaysia, Indonesia, Thailand, the Philippines and Singapore to set up its 30 hotels. The venture will focus on destinations served by the region’s rapidly growing low-cost airlines.

Tune operates a ‘no-frills’ hotel concept, using many tactics pioneered by budget airlines - including a Internet-based reservations system, demand-based pricing and outsourcing of operations such as F&B. Most of the hotels will have 150 to 250 rooms.

‘With low-cost carriers making air travel affordable and accessible to everyone, there has been a correspondingly strong demand for affordable and quality hotel accommodation to meet the needs of such economy travellers who are comfortable with prepaid, online bookings,’ said Vincent Yeo, chief executive of CES.

The investment will mark CityDev’s first foray into budget hotels. The developer has more than a dozen high-end hotels in the region, including the Grand Copthorne Waterfront Hotel, M Hotel and Orchard Hotel in Singapore.

CityDev’s shares closed 20 cents down at $17.20 yesterday.

Source: The Business Times, 27 June 2007