Action Hotels (LON:AHCG) has told investors it has agreed to a joint venture in Ras Al Khaimah, UAE, where it agreed to acquire a leasehold interest in new hotel back in October last year.
The AIM quoted company said the new partnership with Action Group Holdings, to acquire the building jointly on a freehold basis from Action Real Estate Company, will add greater value to its shareholders.
It was previously envisaged, under the October 2014 deal, that the AIM company would contribute US$4.8mln to refurbish the building and convert the interior of the building into a hotel.
This new arrangement will effectively mean that the company and its shareholders will see any benefit from changes to the building’s value as a result of the investments.
Action Hotels explained that the new joint venture would acquire the land and building for US$6.5mln, and the total project costs would be around US$6.3mln.
It represents an incremental cost to Action Hotels of around US$1.5mln, the company said, and it is anticipated that those costs will be met from existing cash resources.
The company also highlighted that as a result of the new arrangements it will be able to recognize all of the assets, liabilities, income and expenses attributable to the Joint Venture on a consolidated basis, so it will be able eliminate forecast rental expenses.
Additionally, the company could be in a position to raise debt against the asset.
Action Hotels expects the transaction to have a positive impact on its balance sheet, and it expects an improved return on its investment and cash in the project (now anticipated as 13.2% and 10.6% at year three).
Alain Debare, Action Hotels chief executive, said: "The opportunity to partner with Action Group Holdings to take ownership in the Tulip Inn Ras al Khaimah is a great value addition for Action Hotels and our shareholders.
“Through a minimum cash contribution, we were able to structure a transaction that will contribute favourably to Action's operating profit and enable Action Hotels to participate in the capital appreciation of the property.”
“The hotel is currently in the final stages of conversion with fit out works being completed with formal opening during Q1 2016."
Joint venture partner Action Group Holdings owns 64.7% of the AIM quoted company.