The International Finance Corporation (IFC) is proposing a debt facility of up to $45 million for Descap1 Private Equity Trust, a distressed hospitality asset investment vehicle of the Thailand-based Destination Group.
The Trust, managed by Destination Capital, a subsidiary of Destination Group, plans to renovate, rebrand, and reposition up to eight 4-star hotels in order to capture returns when the market rebounds from the COVID-19 pandemic in 3-4 years, IFC said in an investment proposal.
The total capitalisation of the Trust is expected to be 8 billion baht ($256.4 million). It includes a senior secured loan facility equivalent to 35 per cent of the Trust, or 2.75 billion baht, in two equal tranches. IFC’s proposed investment is aimed to make the first tranche.
Another 2.75 billion baht mezzanine equity is expected to be raised from other lenders, and the remaining 30 per cent of the Trust, or 2.5 billion baht, will be taken up in two tranches by institutional, and governmental agencies, as well as sophisticated private investors.
Destination Capital has significantly increased the target capitalisation of the Trust from the 2.5 billion baht it announced on September 30. At the time, the firm said that Descap1 has a five- to seven-year holding period and will target investor returns of up to 15 per cent per year.
The first three hotels the Trust is acquiring are The TJ Hotel in Chonburi Province, Hilton Garden Inn Phuket Bangtao in Phuket, and Mandarin Eastville Pattaya in Chonburi Province, Thailand.
IFC said its proposed financing will be one of the first green funds earmarked for acquisition and refurbishment.
“This green fund will also set a precedent for other fund managers, as well as being a benchmark for similar investments in the property and hospitality sectors elsewhere,” it said.
The World Bank Group member added that Descap 1 will become the first EDGE-refurbished fund globally. “The EDGE (Excellence in Design for Greater Efficiencies) green building standard is not widespread in Thailand today. Having a private equity trust committed to EDGE is expected to create green building awareness among local entrepreneurs.”
Destination Group, founded in 1997 by Gary Murray, who is the firm’s current CEO, is engaged in ownership and operation of prime hotels and operation of branded restaurants through Destination Eats. The group owns and operates 1,420 hotel rooms across Thailand through Destination Resorts, a hotel owner and operator focusing on acquiring distressed hotel assets and repositioning them to prime assets.
Murray; James Kaplan, CEO of Destination Capital; and Ross McClellan, a senior advisor of Destination Capital, each own 33.3 per cent of the asset manager.