First Sponsor acquires Milan hotel property for 9.3m euros

REAL estate developer First Sponsor Group has acquired a hotel property in Milan, Italy for about 9.3 million euros (S$14.4 million) in cash from BNP Paribas real estate investment fund Fondo Kona, according to market filings on Friday before the market opened.

The six-storey building with a basement is located in Corso Buenos Aires no 33, Milan. The property, which is now vacant and unleased, was formerly the 65-room four-star hotel called "Grand Hotel Puccini". Its designated use remains as a hotel.

The purchase price has been paid in full via a wholly owned subsidiary using internal cash resources and credit facilities. Acquisition costs are estimated at 1.4 million euros, including an insurance premium and taxes paid in relation to the insurance policy.

According to a bourse filing on Friday, First Sponsor does not have information on the book value or net tangible asset value of the property.

"The property does not have an available open market value, and the company has not commissioned a third party valuation of the property," First Sponsor said.

As such, the purchase price was derived based on the current property market conditions in Milan, the physical condition of the property, its location, renovation costs, the estimated earnings before interest, tax, depreciation and amortisation of the property based on hospitality use, and insurance costs.

Separately, the group also noted that there is an on-going litigation between an ex-tenant of the property and the seller, with the former alleging that there was a preliminary sale and purchase agreement in relation to the property, and that the seller is obliged, but has failed to execute the agreement.

The next hearing is expected to be held in March 2019 where the court is likely to set deadlines for the parties to file their final pleadings. Thereafter, a court ruling is expected to be issued sometime at the end of 2019. Assuming that appeals are made up to the Supreme Court in Italy, the litigation process may take up to about eight years, First Sponsor said.

If Fondo Kona loses the dispute, it will have to pay First Sponsor the entire price that was actually paid by the ex-tenant for the purchase of the property. The ex-tenant has alleged that Fondo Kona had agreed to sell it the property for 6.1 million euros.

Based on a legal opinion issued by the seller's lawyers dated March 29, 2018, the lawyers are of the opinion that the seller has "good prospects" of succeeding in the litigation. Among other things, the lawyers considered that the alleged documents were "mere drafts" and therefore not capable of creating any contractual obligation.

Notwithstanding this, First Sponsor's subsidiary has taken up an insurance policy to cover the price paid for the property, and the expenses suffered by it should the ex-tenant succeed in the litigation.

First Sponsor noted that the acquisition is an opportunity for it to expand its property holding business in Italy, and that it has embarked on initiatives to accelerate its growth through developments and acquisitions since 2015.

The acquisition is not expected to have any material impact on the consolidated earnings per share and net tangible assets per share of the group for the current financial year, the company said.

Shares in First Sponsor closed at S$1.27 apiece on Jan 23.