Vietnam Hotel, Office cum Apartments Project

Vietnam Hotel, Office cum Apartments Project

PROJECT INTRODUCTION

The project of offices, hotel and apartments is located at 287 and 301 Doi Can Street, Lieu Giai Ward, Ba Dinh District, Hanoi.
– Total land area: 2,249.08 m2 in which project area is 1,130.3 m2.
– Built-up area: 896.5 m2.
– Floor area: 12,866.5 m2 excluding the basement area of 1,868m2.
– Construction density: 79.3%
– Plot ratio: 11.38

It borders:
– Doi Can Street on the southwest.
– 285 Lane, Doi Can Street on the northeast.
– Residential area of Lieu Giai ward on the sides.

The project is located on the area with a lot of luxury hotel such as Daewoo hotel, La Thanh hotel which create a good architectural complex for Doi Can route and the area, establish a modern urban space. At present, the foundation of the project “supermarket, hotel and office for lease” owned by Xxxxx Trade and General Service JSC (301 Doi Can Street) are completed.

GENERAL INFORMATION

Name of project: Offices, hotel and high-ranking apartments for lease
Location: No. 287 and No. 301 Doi Can Street, Lieu Giai Ward, Ba Dinh District, Hanoi
Owner: Xxxxx Trade and General Services JSC

Market Overview

In the process of international economic integration, Hanoi is becoming a destination for travel conferences, events, and a distribution tourist center for the whole northern of Vietnam. Therefore, the lack of luxury hotels is quite urgent problems of the city.

In 2006, Hanoi is ranked third among cities with the highest hotel occupancy rates in the world. On the city has more than 516 tourist accommodation establishments, including 12,894 rooms, among which there are 181 hotels ranked with 8562 rooms including 08 five-star hotels, 06 four-star hotels, 20 three-star hotels.

However, the scale of the hotels in Hanoi is not big, the number of hotels with over 100 rooms and 50 rooms accounts for only 3.63% and 8.87% of total accommodation establishments. At the moment, the capacity of room use in hotels in Hanoi reaches the average level from 85% to 95%. Seasonal factor is reduced, almost no low season, as May and June every year is off-peak time of the hotels, but capacity of room use in many hotels still reaches over 70%.

According to calculations of Hanoi tourism industry, in 2010, the city can accommodate two million international visitor turns and from six to seven million domestic visitor turns each year. However, major challenge for tourism development in Hanoi is lack of facilities to serve tourists. One of them is the system of tourist accommodation establishments in Hanoi. To be able to accommodate for two million tourist turns, the city lacks about 13 thousand hotel rooms, especially the luxury hotels of three to five star scale. It means that each year Hanoi will lack 2,000 to 3,000 hotel rooms each year, mainly hotels with three-stars and above, which are scale hotel welcoming large delegations, with the extensive support services to serve customers and being able to organize major international conferences and seminars.

In four years from now to 2010, each year, the city will need more 1,700 hotel rooms from four to five stars, equivalent to construction of six to seven four-five star hotels a year, if calculated according to the average room scale of current the four – five star hotels.

Acknowledging the increasing need for hotels and apartments for lease, and impacts of the shortage, especially of high quality hotels and apartments on the growth of tourism, construction hotels and apartments for rent at the current time is perfectly reasonable.

The “Offices, hotels and apartments for rent” project is one of the key projects of the Company, the construction investment is fully consistent with the ideological direction of Hanoi People’s Committees and Department of Tourism in formulating and developing the types of luxury hotels and apartments for lease in urban areas today, contributing to solve the lack of quantity and quality of the hotel types serving for important events of the city, quickly complete the master plan approved by Hanoi People’s Committee.

An office is defined as a location in which operation tasks are carried out, the basic purposes of an office building are to provide work places, the basic working environment for management and administration staff. In Vietnam in general and Hanoi capital in particular, the office leasing market has developed very blooming in recent years especially after the time when Vietnam joined the WTO. As the country’s economic, cultural, political center and trading, diplomatic hub with other countries in the world, Hanoi capital is becoming an attractive place to many investors, a reliable destination of Corporations, Groups and non-governmental organizations in the world.

Commercial office market, in which Grade A office is defined as modern building with good access and presence in the market with high quality standards and facilities, modern systems, flexible layouts, including efficient central air conditioning system, good management, convenient parking, etc. The classification of office buildings is based on the combination of buildings’ location, quality and credibility on the market. Grade B and Grade C buildings are always defined as the quality reference of Grade A building. In Hanoi, the A class office buildings are normally the buildings invested by investors from Hong Kong, Singapore, Korea, Japan and France while about 50% of B class office buildings is invested by investors from Hong Kong Singapore, Korea, Thailand, Indonesia and the remaining 50% is belong to domestic investors. C class office buildings are developed by domestic enterprises and state corporations to serve their demand rather than for leasing.

A class office market in Hanoi is completely dominated by foreign investors thanks to their financial capability; B and C class offices with lower quality are suitable to domestic investors.

The need of office for lease

Demand for office leasing in Hanoi mainly comes from multinational companies, diplomatic corps, and non-governmental organizations; short-term demand for A class and B class offices is expectedly comes from newly established companies or relocated companies in Hanoi or from other companies in the country.

Office market in Hanoi achieves significant development. A class and B class office space in Hanoi are almost used up in the first thee quarters of 2006 as the result of limited supply and big demand. Despite the addition of new B class office, the reservation in the 4th quarter in 2006 remains high. Specifically, the reservation of A class, B class offices has reached 98% at the end of the 4th quarter of 2006.

Some factors including strong economic growth, the growth of foreign direct investment in Hanoi and the expansion of transnational corporations, diplomatic corps and non-governmental organizations promote demand of offices driven to A class and B class office market in Hanoi. It is expected that a moderate investment and Asian economic environment in general will increase demand of office within 2 to 3 years.

Supply capability of market

Supply of A class commercial offices in Hanoi primarily consists of office space, according to some old-style villas were refurbished, some high-rise buildings and some rooms of local hotels were converted. Most A class buildings was constructed before 2000 except the Vietcombank building was built in 2001. The total area of A class office for rent is 84,172m2.

While companies want to promote its image through the choice of locating office in a good position, the difficulty of Grade A and Grade B office space supply which is currently happening in Hanoi is making to emerging needs for office for rent. With the leasing price of Grade A office ranging around 100%, leasing price will increase by 10% by the time when a group of Grade A office buildings will put into operation in 2007.

Price of lease and customers’ information

The third quarter of 2006 was the time the market witnessed a growth of office leasing price, Grade A office buildings reach the increase of about 10%. In the fourth quarter continued to increase but the increase rate is lower. At the moment, the leasing price of Grade A office averages 30.79USD/m2/month (including service charges from 5-8USD/m2/month). The leasing price of Grade B office averages 23.81USD/m2/month (including service charges from 5USD/m2/month). Rental rates much depend on economic issues and increase of FDI from overseas into Vietnam.

A good sign is that the customers with demand of Grade A office is not mainly foreign customers but also leading companies of Vietnam. Currently, domestic customers renting Grade A office accounts for about 9%. Rental period often last from 12 to 24 months.

INVESTMENT TARGETS

Strategic goals of production and business of the Xxxxx Trading and General Services JSC in 2006-2010: Moving gradually from their role of employer to the role of owner by creating increasing proportion of revenues from investment field is expected to reach 25% in 2006 and 40% in 2010; the Company strives to become a strong company in the field of investment and construction.

Investment projects to build Offices, hotels and apartments for lease have met the following requirements:

– Contribute to the implementation of Hanoi’s plans of economic and social development.
– Contribute to increase the number of luxury hotels in the area.
– Handle the shortage of high standard accommodation for the important events of the city on the occasion of 1000 year anniversary of Thang Long-Hanoi.
– Build civilized and modern living space.
– Contribute to complete the plan of Doi Can route following to the master plan approved by the city People’s Committee.

FINANCIALS

(A) Expected construction and operation plan of the project :

Expected operation life of the project is 20 years
Expected construction period of the project is 24 months (from the beginning of 2009 to the end of 2010)
Expected exploitation period of the project is 20 years (from 2011 to the end of 2030)
(B) Expected Capital of the Project

Owner’s equity
Expected that 30% of total investment of the project is from the project owner’s equity equivalent to 65,266 million VND

Loan:

Expected that 70% of total investment of the project is from loan equivalent to 150,000 million VND.
Lender : VIETCOMBANK – Ba Dinh
Lending conditions: Interest rate is 10%/year, grace period in 2-year construction.
Loan term is 10 years (from 2009 to 2018)
Loan will be used to implement Items of Construction, Equipments and other cost of the Project.
Total mobilized capital: 150,000 triÖu ®ång
– Mobilized capital of 2009: 72,250 triÖu ®ång
– Mobilized capital of 2010: 77,750 triÖu ®ång

(C) Payment plan of the project’s principal and interest:
During the construction period (2009-2010) arising interest rates will be paid by the Owner’s equity.
From 2011 to 2018 Principal will be paid steady over years and interest of investment capital will be paid on the raimaining debit balance
(D) Plan of extraction and establisment of basic depreciation fund as a payment fund for the project:
The construction project has duration of 20 years, the rate of basic depreciation is 5%/year.
Equipments have duration of 8 years, the rate of basic depreciation is 12%/year.
Duration of the project and equipments is based on Decision of Ministry of Finance about average rate of basic depreciation extraction of 8% in enterprises.
(E) Revenue and capacity of the project:

To ensure the project’s feasibility, we calculate the project’s capacity as followings:
When the project comes into operation, the project’s capacity is expected to gradually increase through years as followings:

Year 2011 -2012 The project is expected to reach 80% of designed capacity
Year 2013-2014 The project is expected to reach 85% of designed capacity
From 2015 The project is expected to reach 90% of designed capacity

EXPECTED RATE OF RETURNS

– The index of IRR = 14,08%> average discount rate (10%) in which average discount rate is defined as stabilized average value of financial discount of the project’s expected funds.

– Payback time: As calculated, payback time is 9.83 years (2018) which means 8 years after project coming into operation and 10 years since commencement.

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