Wuthivet Vetchabutsakorn is the Senior Vice President and Group Head of Finance at ONYX Hospitality Group, overseeing finance, procurement, treasury, IT, shareholder relations, and business transformation. With over 20 years of experience in financial accounting, corporate finance, investor relations, and asset management, he has played a key role in ONYX’s expansion and ESG initiatives. Previously, he was CFO for Asset World Corporation’s hotel business unit, contributing to its successful IPO, and held senior finance roles at Hilton, Marriott, P&G, and Bristol-Myers Squibb.
Through this article, Vetchabutsakorn emphasizes how Joint Ventures (JVs) and Real Estate Investment Trusts (REITs) serve as strategic financing alternatives for real estate and hospitality companies, enabling capital expansion, risk reduction, and sustainable growth amid tighter capital markets.
Joint ventures (JVs) and REITs, Alternative Capital Sources of Funds for today’s market volatility.
However, Today’s tighter capital markets and market volatility are expected to generate even more consideration of corporate financing and funding, especially in the Real Estate and hospitality sectors, to achieve financial objectives and ensure long-term value creation.
Usually, when a real estate company with recurring income, such as a hotel, wants to invest or expand its business, it may not have a sufficient cash reserve or retained profits from operations. In this case, the firm has two main options for corporate funding sources.
First, borrowing money from the bank or issuing bonds.
Second, the capital of existing shareholders is increased in the firm.
These two fundamental methods have different advantages and disadvantages.
If the company chooses to borrow money, it will come with significant financial costs. Sometimes, banks lend money in a limited amount due to a Loan-to-Value constraint, which directly impacts the investment amount in a new project.
Choosing to increase capital may cause shareholders to raise many questions that can lead to a negative perception of the company and may reduce EPS (Earnings per Share) in the short term.
So, what other financing vehicles can companies choose and use to raise new funds?
The first option for any company not listed on the stock exchange is a business model called “Joint venture” or JV.
For example, the Hotel Group may jointly invest with partners with capital and specialised expertise in mixed-use projects such as shopping malls or residential projects.
The joint venture method has advantages: It helps reduce capital investment because resources are shared among parties, and the company may get strategic partners with specialised expertise that could create more value for the project.
In the JV, The Hotel Group manages hotel and serviced apartment assets while Joint Ventures partners could run the residential properties or shopping malls where they already have expertise.
The second option is to access funding through the capital market via a Real Estate Investment trust(REIT).
The company will set up a REIT to raise public funds from both institutional and individual investors. Then, it will invest in various asset classes, such as hospitality, via freehold assets or leasehold rights while receiving the leased income or dividends.
Once the entire process is complete, the sponsor company will receive money from the REIT and re-invest in new hotel projects or enhance its liquidity by reducing debts or increasing its cash reserve.
In addition to using the firm’s accumulated retained earnings, borrowing money from the bank, or issuing debentures, the REIT and JV models have different approaches for funding growth in order to achieve an optimal capital structure and reduce the firm’s financial risk.
In summary, Investors have been turning to joint ventures (JVs) and REITs to extend their balance sheets, moderate leverage, and recycle capital for their growth.
I plan to pay it forward by sharing my experiences and insights with the next generation of business owners, finance leaders, and hospitality professionals.
