Stress On Six Senses Hideaway Property Fund
According to a notice filed with the Stock Exchange of Thailand (SET) unitholders of a property fund which has invested into the Six Senses Hideaway Yao Noi in Phang Nga are seeking legal recourse.
The listed Luxury Real Estate Investment Fund under management by financial institution TMB Asset Management had asked unitholders to approve a deferment on guaranteed returns due to under performance of the hotel. Both the global financial crises and Thai political events in 2010 have been cited as downward performance drivers.
This was subsequently rejected, and according to SET documents the fund manager TMB has agreed to appoint legal representative to pursue a formal demand of the breach. The fund is listed on the SET index as LUXF.
Notification had previously been provided to the SET of the inability of the minimum income guarantor Pakoh Hotel Co., Ltd. to provide securitization in order to meet the fund guarantee.
On December 20,2010 the fund manager notified the President of the Stock Exchange of Thailand of an offer for a revised deadline for payment of the guarantee and pledged additional fund units. According to the notice overseas investor Greming Frey holds 50% of the shares of Pakoh Hotel Co.,Ltd. This was not approved and the case now appears to be going via legal channels.
Comments in the media by investment analysts and the SEC have flagged Thailand's property funds which offer guaranteed returns as one requiring scrutiny and due diligence.
Over the past year a number of new offerings by hospitality asset owners to tap into the rising property fund sector have been, or are going to launch into the financial markets.
The highest profile offering is the THB4 billion Dusit Thani PLC fund which has packaged ownership stakes in Dusit Laguna Phuket, Dusit Thani Hua Hin and dusitD2 Chiang Mai. Some negative comments by industry experts have focused on the subject of high guaranteed returns required by the financial markets which require a optimum level of sustainable financial returns. For hotel funds the triggering point remains focused on cash flow and if there is prolonged downturn or volatility then defaults are likely.
According to industry experts traditionally REITS or institutional investments such as property funds are most suitable for properties located in city center or significant resort destinations rather than tertiary locations. The latter is often susceptible to seasonal trading patterns, and inherent trading volatility. Single asset funds are often viewed as risker vehicles then those offering a basket of properties which spread market dynamics.
It should be noted that Six Senses Resorts and Spas are only engaged in the development by means of a management contract.