POLARIS HOLDINGS CO., LTD. July 26, 2022
FOR IMMEDIATE RELEASE
Company Name: Polaris Holdings Co., Ltd. (TSE: 3010)
Representative: Atsuo Umeki, President and Representative Director
Stock Listing: Tokyo Stock Exchange, Second Section
Stock Code: 3010
Inquiries: Satoshi Hosono, Director and CFO (TEL:03-5822-3010）
Polaris Opportunistically Acquires Red Planet Hotel Philippines Business;
Continues to Execute Strategic Growth Plans in Japan and South East Asia
Polaris Holdings Ltd ("Polaris" or the "Company") is pleased to announce that the Company has entered into a definitive agreement to acquire all the outstanding shares of a holding company (the "Philippines Acquisition Target Group") that owns and operates 13 limited-service hotels (2,208 rooms) under the Red Planet brand as well as 2 attractive sites for potential hotel development. The hotels are all well-positioned in strong and competitive locations in the Republic of the Philippines (the "Hotel Portfolio"). Red Planet Group is the 2nd largest owner/operator of limited-service hotels in the Philippines with a sophisticated brand and efficient operations given its advanced proprietary technology platform. The Board of Directors has resolved to proceed with the acquisition and consolidate the Philippine Acquisition Target Group into the Company's subsidiary through Polaris Asia. Through its strategic growth initiatives, Polaris has now increased its hotels rooms under management by 2.54x since the outbreak of COVID-19 pandemic.
1. Reasons for the Acquisition
As Polaris continues to strive to maximize value for all shareholders, the Company has strengthened its balance sheet, secured capital for future growth, increased revenues and gross operating profits for each hotel, lowered the break-even point, and opportunistically expanded its hotel operating platform during the COVID-19 pandemic. In order to further accelerate these accretive growth plans, the Company has agreed to acquire all of the outstanding shares of the Philippines Acquisition Target Group, a leading hotel owner and operating platform in the Philippines, for approximately JPY857 million1. This transaction was facilitated by taking advantage of the long-term relationship Star Asia Group, our parent company sponsor, has with the seller.
Red Planet Group is one of the leading mid-scale economy hotel brands that operates under a sophisticated brand standard in the Philippines, Japan, Indonesia, and Thailand and offers high quality hotel lodging, targeted services, and a highly effective customer loyalty program. The Red Planet Group also has financially efficient operations in terms of its sales and costs by utilizing its own proprietary, advanced technology platform which is one of the best in the region. Unfortunately, Red Planet Group's rapid growth and increased leverage, along with reduced sales due to travel restrictions during the COVID-19 pandemic, resulted in an imminent liquidity need.
The PhilippineAcquisition Target Group, a member of the Red Planet Group, is the 2nd largest owner/operator of limited-service
1 USD6.35 million. USD1 = JPY134.93 monthly average TTS in June 2022
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hotels in the Philippines2, with 13 limited-service hotels (2,208 rooms) under its ownership and operation as well as 2 sites for potential hotel development. Of the 13 hotels, two (Red Planet Angeles City and Red Planet Manila Bay) are fee simple comprised of land and building ownership, while 11 hotels are ground leased with building ownership. Compared to leasing both the building and land from third-party owners, which is typical in Japan, the PhilippinesAcquisition Target Group's business model is expected to generate much higher returns given much less rent leakage to 3rd party hotel owners. The Hotel Portfolio has generated positive EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) over the past three years, including the period when severe travel restrictions were imposed due to the COVID-19 pandemic.3 All the hotels are conveniently located in highly competitive locations within Manila as well as desirable tourist destinations in the Philippines, where continued domestic and international business and tourist demand can be expected. Since few major organized limited- service hotel operators exist in the Philippines, the Philippines Acquisition Target Group has established valuable economies of scale in terms of its customer loyalty base and operational efficiency given its extensive platform.
Under the agreed upon terms and conditions of the acquisition, the Philippines Acquisition Target Group and its subsidiaries will eliminate JPY7,922 million4 of effective debt obligations owed to Red Planet Group companies outside the Philippines Acquisition Target Group.As a result of this effective debt forgiveness, the GAAPnet assets of the PhilippinesAcquisition Target Group will be improved from approximately negative JPY3,468 million5 to approximately positive JPY4,454 million. The GAAP net assets of approximately positive JPY4,454 million6 is based on the JPY8,470 million7 GAAP book value of the hotel property portfolio. Colliers International Group, a third- party real estate specialist company, has valued the hotel property portfolio at approximately JPY10,390 million8. The economic net assets of the Philippines Acquisition Target Group will be approximately positive JPY6,374 million9 assuming the Colliers'value. The acquisition price of approximately JPY857 million for all the issued shares of the Philippines Acquisition Target Group represents a 81% discount to the GAAP net assets of approximately JPY4,454 million and a 87% discount to the economic net assets of approximately JPY6,374 million.
Philippines Acquisition Target Group Consolidated Pro Forma Balance Sheet as of Dec 2021
Pre-Debt Forgiveness | Effective Debt | Post EDF | Post EDF | ||
GAAP BS | Forgiveness ("EDF") | GAAP BS | Economic BS | ||
ASSETS | |||||
Land, Property and Equipment | ¥8,470,300,678 | ¥8,470,300,678 | ¥10,389,960,000 | ||
Loan to Other Red Planet Group Entities | ¥988,907,692 | -¥192,439,236 | ¥796,468,456 | ¥796,468,456 | |
Other Assets | ¥5,278,808,899 | ¥5,278,808,899 | ¥5,278,808,899 | ||
Total Assets | ¥14,738,017,269 | ¥14,545,578,033 | ¥16,465,237,355 | ||
LIABILITIES AND EQUITY | |||||
Bank Loans | ¥5,026,419,014 | ¥5,026,419,014 | ¥5,026,419,014 | ||
Borrowings from Other Red Planet Group Entities | ¥8,196,365,622 | -¥8,114,524,059 | ¥81,841,563 | ¥81,841,563 | |
Other Liabilities | ¥4,982,982,275 | ¥4,982,982,275 | ¥4,982,982,275 | ||
Net Assets | -¥3,467,749,642 | ¥4,454,335,181 | ¥6,373,994,503 | ||
Purchase Price of Shares | ¥856,805,500 | Discount Ratio | 81% | 87% |
Notes;
- Economic BS uses Land, Property and Equipment valuation by Colliers International Group .
- Loans to and Borrowing from Other Red Planet Group Entities are forgiven.
- Purchase Price of Shares represents 81% of GAAP Net Assets and 87% of Economic Net Assets.
JPY/PHP average TTS Jun 2022 | ¥2.66 |
JPY/USD average TTS Jun 2022 | ¥134.93 |
- The Company's study.
- SyCip Gorres Velayo & Co. (A member firm of Ernst & Young Global Limited)) compiled the audited and unaudited financial information provided by Red Planet Group.
- 2,978 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022.
- 1,304 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 1,675 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 3,184 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 3,906 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 2,396 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
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All or a part of the difference between the JPY857 million acquisition price and the JPY6,374 million economic net assets (subject to final detailed audit by the Company's auditor) will be accounted for as negative goodwill. Negative goodwill will be added to the Company's consolidated net assets on the balance sheet as the Company recognizes the negative goodwill as extraordinary profit after the acquisition is completed. Polaris will announce the final amount of negative goodwill as soon as our auditor finalizes its audit.
The restrictions on activities during the COVID-19 pandemic have been gradually lifted in the Philippines, and the acquisition of this hotel platform is expected to generate attractive profit growth as the country continues to recover. This profit growth and net asset accretion should significantly contribute to enhancing Polaris' shareholder value. Upon completion of this acquisition, Polaris and its subsidiaries will operate a total of 44 hotels with 7,890 rooms, an increase of approximately 39% in rooms under management. Through its strategic growth initiatives, Polaris has increased its hotels rooms under management by 2.54x since the outbreak of the COVID-19 pandemic.
2. Overview of the Owned Hotel Portfolio
Hotel Name | Location | Number | ||
of rooms | ||||
① | Red Planet Davao | J.P. Laurel Avenue Davao City 8000 Philippines | 155 | |
② | Red Planet Manila Ortigas | Lot 5, Block 4, Shaw Boulevard Pasig 1600 Philippines | 182 | |
③ | Red Planet Aurora Boulevard | Corner of Aurora Boulevard and Stanford Street, Cubao, | 167 | |
Quezon City | ||||
④ | Red Planet Manila Aseana City | Lot 38 Block 2, Bradco Avenue, Paranaque City 1700, | 200 | |
Philippines | ||||
⑤ | Red Planet Manila Amorsolo | 99 Urban Avenue, Brgy. Pio Del Pilar, Makati City 1230, | 189 | |
Philippines | ||||
⑥ | Red Planet Angeles City | Don Juico Avenue, Malabanias, Angeles City, Pampanga | 165 | |
2009, Philippines | ||||
⑦ | Red Planet Cebu | 36 Archbishop Reyes Avenue, Cebu City 6000, | 150 | |
Philippines | ||||
⑧ | Red Planet Manila Mabini | 1740 A. Mabini St., Malate Manila 1004 Philippines | 167 | |
⑨ | Red Planet Manila Bay | Corner of Arquiza and Alhambra St., Ermita, Manila | 150 | |
0930, Philippines | ||||
⑩ | Red Planet Manila Binondo | 251-61 Juan Luna St., Binondo, Manila 1006, Philippines | 171 | |
⑪ | Red Planet Manila Makati | E. Mercado Corner F. Calderon St., Kalayaan Avenue, | 213 | |
Barangay Poblacion, Makati City 1210, Philippines | ||||
⑫ | Red Planet Cagayan de Oro | C.M. Recto Avenue, Cagayan de Oro City 9000, | 159 | |
Philippines | ||||
⑬ | Red Planet Quezon Timog | 100 Timog Avenue Barangay Sacred Heart Quezon City | 140 | |
1100, Philippines | ||||
Total | 2,208 | |||
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3. Overview of the Subsidiary to be Transferred (Red Planet Holdings (Philippines) Limited)
（１） | Company Name | Red Planet Holdings (Philippines) Limited | ||||
Brumby House, Jalan Bahasa, P.O. Box 80148, 87011 Labuan F.T., | ||||||
（２） | Address | Malaysia to Brumby Center, Lot 42, Jalan Muhibbash, 87000 Labuan | ||||
F.T., Malaysia | ||||||
（３） | Title and Name of | Mark Michael Reinecke/Director | ||||
Representative | ||||||
（４） | Business | Investment holding | ||||
（５） | Capital Stock | USD$10,000 | ||||
（６） | Date of Establishment | 25 June 2010 | ||||
（７） | Major Shareholders and | RPHL Holdco Limited, 100% | ||||
Shareholding Ratio | ||||||
Capital Ties | None | |||||
Relationship between the | Personal | None | ||||
（８） | Listed Company and the | Relations | ||||
Company | ||||||
Business | None | |||||
Relations | ||||||
（９） | Consolidated Operating Results and Consolidated Financial Position for the Past Three Years | |||||
Fiscal Year End | FY12/2020 | FY12/2021 | Mar/2022 | |||
consolidated net sales | JPY1,940 million10 | JPY1,925 million11 | JPY486 million12 | |||
Total consolidated assets | JPY15,769 million13 | JPY14,738 million14 | JPY14,383 million15 | |||
consolidated net assets | ▲JPY2,886 million16 | ▲JPY3,468 million17 | ▲JPY3,648 million18 |
Note
The above figures are based on the financial statements submitted by Red Planet Group and our own calculations based on the results of research conducted by Sycip Gorres Velayo & Co. (A member firm of Ernst & Yong Global Limited), an international specialist accounting firm. The debt waiver/forgiveness and valuation of real estate holdings are not reflected as stated in "1. Reasons for Acquisition of Shares".
4. Outline of the Counterparty of the Share Acquisition
（１） | Company Name | RPHL Holdco Limited | |
（２） | Address | 89 Nexus Way, Camana Bay, Grand Cayman KY1-9007, Cayman | |
Island | |||
Title and Name | of | Timothy John Hansing, Director | |
（３） | Simon Morris Gerovich, Director | ||
Representative | |||
Mark Michael Reinecke, Director | |||
（４） | Business | Investment holding | |
- 729 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 724 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 183 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 5,928 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 5,541 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 5,407 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- ▲1,085 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- ▲1,304 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- ▲1,371 million Philippine pesos. PHP1 = JPY2.66 average TTS in June 2022
- 4 -
（５） | Capital Stock | USD$0.01 | ||
（６） | Date of Establishment | 16 Aug 2016 | ||
（７） | Net Asset | USD$572,953（as of Mar 2022） | ||
（８） | Total Asset | USD$672,546（as of Mar 2022） | ||
（９） | Major Shareholders and | Red Planet Hotels Limited, 100% | ||
Shareholding Ratio | ||||
Capital Ties | None | |||
Personal | None | |||
Relationship between the | Relations | |||
（10） Listed Company and the | ||||
Business | None | |||
Company | Relations | |||
Status as | a | None | ||
Related Party | ||||
5. Outline of the Company's Subsidiary that will acquire the shares
（１） | Company Name | Polaris Asia Co., Ltd. | |
（２） | Address | 1-12-3, Iwamotocho, Chiyoda-ku, Tokyo 101-0032, Japan | |
（３） | Title and Name | of | Atsuo Umeki, CEO |
Representative | |||
（４） | Business | Hotel Business | |
（５） | Capital Stock | 1 million Yen | |
6. Number of Shares Acquired, Acquisition Price and Status of Shares Held Before and After Acquisition
（１） | Number of Shares Held | 0 shares（Number of voting right : 0） |
Before the Acquisition | （Percentage of voting right : 0.0%） | |
（２） | Number of Shares | 10,000 shares |
Acquired | （Number of voting right : 10,000） | |
For the common shares of Red Planet Holdings (Philippines) Limited: JPY857 | ||
（３） | Acquisition Price | million |
Advisory Fees etc. (approximate): JPY135 million | ||
Total (approximate): JPY992 million | ||
Number of Shares Held | 10,000 shares | |
（４） | （Number of voting right : 10,000） | |
After the Acquisition | （Percentage of voting right : 100.0%） | |
7. Schedule
（１） | Date of Resolution by the | July 26, | 2022 |
Board of Directors | |||
（２） | Contract Date | July 26, | 2022 (Scheduled) |
（３） | Date of Share Transfer | January, 2023 (Scheduled) | |
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KACHIKAIHATSU Co. Ltd. published this content on 26 July 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 July 2022 08:18:09 UTC.
