Teho to build five-star hotel in Phnom Penh

March 16, 2015 3:22 PM SGT

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SINGAPORE: SGX-listed Teho International Inc Ltd (Teho), an offshore oil-and-gas services provider that is also involved in property development, plans to build a five-star hotel in Phnom Penh.

According to Eric Cheng, managing director of Teho, the hotel is set to “rob the top spot” from the incumbent luxury hotels in Cambodia’s capital city.

Currently, there are only three internationally branded hotels with a combined total of 745 keys in Phnom Penh, JLL estimates in its July 2014 report.

Supply in the midscale and economy segments, on the other hand, comprises numerous independently owned and operated “unbranded” boutique hotels, typically in the range of 20 to 40 keys each.

Future supply includes four hotels with 1,705 rooms that are expected to enter the market by end-2015.

The majority of upcoming supply comprises hotels in the upscale and luxury segments, while the economy-to-midscale segment remains largely untapped, according to JLL.

Teho’s Cheng, however, remains optimistic about the luxury hotel segment.

“Today, there is still a limited supply of luxury hotel choices in Phnom Penh,” he says.

“In time to come, I believe Teho can capture quite a significant market share in the five-star segment.”

He attributes his optimism to Cambodia’s booming tourism industry.

In 2014, the country attracted more than 4.5 million tourists, about 7.1% higher than the 4.2 million the previous year.

The country is projecting five million tourist arrivals for 2015.

The hotel occupancy rate in Cambodia was 69.53% as at end-2013, according to statistics from the Ministry of Tourism.

Tallest towers in Phnom Penh Teho has appointed Hotel Okura as the hotel operator of its upcoming 250-room hotel, which will be branded The Okura Prestige Phnom Penh.

The hotel is part of a US$500 million ($681.5 million) mixed-use development that includes a 688-unit condominium called The Bay.

The project is situated on a 35,000 sq m (about 377,000 sq ft) freehold site on the peninsula of Chroy Changvar, sandwiched between the Tonle Sap and Mekong Rivers, and a 20-minute drive from the international airport.

The project will have two towers — 55 and 53 storeys, making the buildings the tallest in the capital — offering views of the river as well as the royal palace.

Singapore-based Ong & Ong is the design architect for the project.

According to Cheng, the rooms in Okura Hotel will have an average size of 484 sq ft, or about 65 sq ft more than the typical five-star hotel room in the area.

Hotel facilities include a rooftop bar, multiple dining options, banquet halls, a spa and an outdoor pool.

The project is expected to be completed in 2019, with daily room rates likely to be pegged at US$250 to US$350.

Cheng says about 20% of the 688-unit The Bay was sold prior to its launch recently, with most of the buyers being foreigners.

The units at the freehold condo are 430 to 507 sq ft, with prices starting from US$150,000.

To attract buyers, Teho provided a rental guarantee of 6% for the first three years.

Cheng reckons most of the buyers are likely to be investors.

“There are a lot of foreigners who are currently looking for investment products.

You are not likely to get that price [US$150,000] in most cities in Asia, where property prices are pegged at US$400,000 and above.”

Japanese expatriates may become the largest group of foreign investors, as many Japanese companies involved in construction and infrastructure are located in Phnom Penh.

The second-biggest group is likely to be Korean expatriates.

‘Limited quantifiable demand’ However, Andrew Gulbrandson, JLL’s head of research and consulting in Thailand, sounds a note of caution with regard to Phnom Penh’s highend residential market.

“There is quite a bit of proposed supply at the top end of the residential market and limited quantifiable demand,” he replied in an email response to queries from The Edge Singapore.

What sets The Bay apart, however, is the fact that “Hotel Okura has agreed to go in”, adds Gulbrandson.

“In the short term, [it] will raise the attractiveness of the project relative to most others at the top end of the market.”

Hotel Okura has a strong track record as a luxury hotelier and operates 72 international hotels currently.

However, the Japanese hotelier will face stiff competition from the upcoming Shangri-La International Hotel in Phnom Penh, which is scheduled to open in 2019.

Originally an offshore and marine firm, Teho is relatively young in the property business.

It acquired ECG Property Services and TIEC Holdings, a boutique property developer, last year before embarking on its Cambodian project.

Cheng says the higher margin in the property business is attractive for Teho.

In its latest financial results for 1HFY2015 ended Dec 31, Teho registered revenue of $29.9 million, a 6.8% increase from 1HFY2014, with the main contributor being the property segment.

Its marine, offshore oil and gas segment, on the other hand, saw a decline in revenue of 2.4%, as the market remained sluggish at end- 2014.

Overall, Teho reported a decrease in earnings by 87% to $252,000 in 1HFY2015 compared with 1HFY2014.

Cheng wants t o expand Teho’s property business in other emerging markets in Asia.

“There is a lot of potential for both developers and buyers in these markets,” he says.

“So, we are still exploring other countries, including Japan, Malaysia and Thailand.”

This article appeared in the City & Country of Issue 665 (Feb 23) of The Edge Singapore.

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