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RB Capital and Royal Holdings eye S$10b asset size by 2020

The companies, owned by son and father team, will be integrated over 18-24 months; overseas share of asset size to grow from hotels
Thursday, October 23, 2014 - 05:50
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Mr Kishin says he would like for Singapore to account for about 70-80 per cent of the asset size

Singapore

KISHIN RK, who founded property and hotel group RB Capital in 2006, plans to integrate the group's portfolio of assets with that of his father's Royal Holdings - resulting in a combined value of around S$4.5 billion.

This will be part of succession planning as well as to provide a single management platform to propel the group's growth to an asset size of S$10 billion by 2020, Mr Kishin said in a recent interview.

"Over the next 18-24 months, we plan to integrate the two platforms. We might have an umbrella holding entity encompassing both companies," he added."Currently, we have two different offices, two different management teams, two asset platforms. These will collapse into one integrated team that will be driven by a common vision."

"In the past four years, from being mostly in the office and retail markets, we have diversified into hotels and medical suites. Our integrated platform will focus on the same asset classes, though we hope to diversify geographically too. Right now, we have 90 per cent of our asset value in Singapore. Our overseas exposure is limited to Kuala Lumpur, where we have an office building, 33 Jalan Sultan Ismail with HSBC as anchor tenant, and a hotel development site in Bukit Bintang."

Moving forward, what Mr Kishin would like is for Singapore to account for about 70-80 per cent of the asset size, with the rest being driven by the growth of its hospitality business overseas. "At the moment, we are looking at completed hotels in Europe and Australia," he added.

The overall doubling in asset size by 2020, though, will come mostly from development projects in Singapore. "The difference between our two entities is that RB Capital has focused a lot on building ground-up, greenfield projects. Royal Holdings, on the other hand, has focused mostly on repositioning completed assets. This is also where we see the synergy between the two platforms."

Today, RB Capital and Royal Holdings each has about slightly more than S$2 billion of assets. This values development and repositioning projects on a completion basis.

Among the completed projects in RB Capital's portfolio are EFG Bank Building, which was finished in 2009 following a total redevelopment of the combined site of the former Satnam House and Amar Raj House; and the 442-room Holiday Inn Express Clarke Quay on Magazine Road, which opened its doors this year and was built on a 99-year-leasehold site the group acquired at a state tender in 2010.

Come 2016, the group will unveil two major projects. Farrer Square - comprising the 300-room Park Hotel Farrer Park and 27,500 sq ft of medical suites - is being built on a 99-year-leasehold site above Farrer Park MRT Station in Little India. The group clinched the site at a 2012 state tender.

Along Robertson Quay, RB Capital will soon begin a major revamp of The Quayside retail podium (acquired in 2012) and the neighbouring Gallery Hotel (bought in 2013). The transformation will result in the unveiling of the 225-room InterContinental Singapore Robertson Quay and nearly 100,00 sq ft of combined food and beverage-led retail space between the two assets.

"Our next round of asset rejuvenations may include redevelopment of the RB Capital Building in Raffles Place, and a major re-positioning of Cuppage Terrace," said Mr Kishin. Cuppage Terrace is a row of 17 conservation shophouses off Orchard Road.

He revealed that a design competition is now underway to select an architect for the proposed redevelopment of the 16-storey RB Capital Building, formerly known as Royal Brothers Building and prior to that, DBS Securities Building. A new project could have 50 storeys or more.

In the meantime, the group will continue to look for opportunities in the retail and office front in Singapore. "We still believe there are opportunities, though they may be in areas that have been earmarked to benefit from the decentralisation of the city centre," said Mr Kishin.

Summing up the group's strategies, he said: "We buy land, build and hold. Or we buy completed buildings, do asset enhancements and hold. We generally don't sell, unless we view the asset as non-core to the group."

Another principle is maintaining low leverage, where on a group basis, loan-to-valuation (LTV) today is below 20 per cent. "At the time of acquisition, we may take on higher leverage; however upon completion of our development or asset enhancement process, our target LTV for the project will be below 20 per cent.

"Being a cash flow-driven group, we enhance our yields through the asset repositioning that we undertake for each property. It is that process that creates value for the group."

Royal Holdings - controlled by Kishin's father Raj Kumar - holds Cuppage Terrace and half stake in RB Capital Building (the other half is owned by RB Capital) in addition to a substantial strata retail portfolio spanning Tanglin Shopping Centre, Far East Shopping Centre, Far East Plaza, Lucky Plaza and Orchard Plaza in the Orchard/Scotts roads shopping belt. It also owns strata retail units in Queensway Shopping Centre and Peninsula Plaza.

RB Capital too holds strata units - in Coronation Shopping Plaza in Bukit Timah as well as Malacca Centre.

Both companies own their own strata retail units in The Arcade.

Mr Raj Kumar and his brother Asok founded the Royal Brothers property empire in the 1970s. Under a restructuring exercise that culminated in 2012, the brothers swapped assets estimated to be worth S$1 billion. The move was aimed at succession planning for their respective sons.

The two men set up their own vehicles, Royal Holdings for Mr Raj Kumar and Royal Group for Mr Asok Kumar.

That restructuring exercise was the first phase of succession planning. "The proposed integration of RB Capital with Royal Holdings can be seen as the second phase," said Mr Kishin, 31. His father is 60.

Mr Kishin in 2011 spoke about plans to do an initial public offering in Singapore, possibly a real estate investment trust. Looking back, he said those plans had been minted against the backdrop of the group's bid at the time for the portfolio of 42 Marriott hotels in the UK that had been put up for sale by Royal Bank of Scotland.

Had RB Capital been successful with the acquisition, the UK hotels could have been combined with the group's Singapore hotels and that would have made for a good hospitality Reit listing story, Mr Kishin reckoned. The Marriott hotel portfolio was however sold to Abu Dhabi Investment Authority.

"Moving forward, if we have an opportunity like that again where we have a strategic portfolio of hotels, then we might revisit a hospitality Reit listing - subject to market conditions at that point in time," he said.