S'pore's hotel market draws investors

Singapore

THERE seems to be more buzz in the Singapore hotel investment market lately, as potential buyers - mostly foreigners - scout for properties in a sector where assets are tightly held.

No major hotel transactions have been sealed since 2015, but investment sentiment seems to be waking up with the anticipated rise in visitor arrivals and a tighter pipeline of properties from 2018, consultants say.

Based on asking prices by Singapore hotel owners, yields here are between 2.5 and 3 per cent - low, relative to markets in Europe, for example. Investors eyeing Singapore hotel assets in Singapore thus tend to be high-net-worth individuals and Asian family businesses, rather than institutional investors, said Chee Hok Yean, managing partner of hotel consulting firm HVS Asia Pacific.

"Chinese investors are keen, but unless they have already moved their funds out of the country, they may find it difficult to do so now, given the tighter capital controls," she said.

"The investment draws in the Singapore hotel market are security, quality of assets, the strong Singapore dollar and the Republic's financial hub status", she added.

Grand Park City Hall in Coleman Street is understood to be on the market for at least S$1 billion, or what could be a record S$1.7 million per room. Savills has been appointed its exclusive marketing agent.

In Cavenagh Road, JLL is handling the sale of Hotel Chancellor@Orchard, which is being marketed at S$900,000 per key. The property, which has 60 years left on its site, opened barely three years ago and is owned by the listed Hotel Grand Central. It is being offered for sale with vacant possession of brand and management. This means the buyer can rebrand and reposition the asset.

Both Savills and JLL declined to comment on their respective roles in marketing the two hotels.

JLL was more forthcoming about the expression-of-interest (EOI) exercise it ran for Park Hotel Farrer Park, which ended a few weeks ago.

Nihat Ercan, managing director of investment sales for Asia at JLL Hotels & Hospitality Group, said the exercise attracted strong interest from groups across South-east Asia and even the Middle East.

Bidders were high-net-worth individuals, institutions, private-equity money and owner-operators looking for opportunities to flag their brands.

Industry talk has it that about half a dozen parties took part in the EOI.

The exercise in soliciting interest in the property was launched in July, after its owner, RB Capital, began receiving unsolicited offers just a month after the hotel opened.

The property, directly linked to the Farrer Park MRT station, is valued at about S$390 million or S$1.3 million per room. The buyer can acquire the hotel with vacant possession or with a management contract with the Park Hotel Group.

The Park Hotel Group, which is offering its Grand Park City Hall for sale, prefers to continue managing the property after its sale, in line with its push to go asset-light, The Business Times understands.

Assuming the hotel's 343 rooms are priced at an average of S$1.7 million each, the retail component of about 62,400 sq ft net lettable area would be worth nearly S$6,700 psf. The hotel, which is being revamped, has 75 years' balance lease on its site.

Preliminary stats on the Singapore Tourism Board website put the revenue per available room (RevPAR) for Singapore hotels in the first seven months of this year at S$199.60 - a 0.4 per cent year-on-year rise.

Over the same period, international visitor arrivals climbed 3.8 per cent to 10.175 million.

Julien Naouri, director of Savills Hotels Asia-Pacific, noting the lack of major hotel deals in Singapore since 2015, said: "Investment sentiment appears to be returning. A lot of the new supply has been digested. Singapore's visitor arrivals continue to grow, occupancy rates are still high and room rates are stabilising."

Some large hotels have been put on the market this year, but no deal has been sealed yet. Only three boutique hotels within shophouses have been transacted since January.

Mr Naouri said: "There is still a price gap , though this gap is narrowing. Last year, owners were seeking, say, 2.5 per cent yield, whereas buyers would have been prepared to pay around 4 per cent yield." (Yield is a hotel's net operating income or NOI divided by its price.)

Today, buyers' yield expectation remains the same, but the yield sought by owners has risen to 3 per cent - not because they have lowered their asking price, but because of improved hotel trading performance, resulting in a higher NOI.

He said: "We are already seeing a revival in hotel investments in Hong Kong, with HK$14.3 billion in deals in the year to date - against just HK$1.3 billion last year. Singapore is lagging."

Hotel investment deals here hit a high in 2013, with 13 transactions worth S$3 billion, going by JLL's data.

Besides the Grand Park Orchard and Park Hotel Clarke Quay, other transactions that year included Sentosa Resort & Spa at S$210.85 million and that of Westin Singapore at Asia Square Tower 2 at S$468 million or a record S$1.534 million per room.

Transactions thinned to S$248 million in 2014, rose to S$406 million in 2015 and fell back down to S$145 million last year. The three boutique hotel deals so far this year went for a total of S$158 million.

JLL's Mr Ercan believes investment interest in Singapore hotels is set for a recovery. "There is expectation of continued increase in visitor arrivals into Singapore and a relatively benign supply outlook.

"Therefore, trading fundamentals for the Singapore market are viewed as positive by the investment market; add on to that Singapore's gateway status as an investment destination - that is fuelling interest.

"We've had quite a bit of supply coming into the market in the past couple of years, (but as) we now look into the next few years, there really is not a lot of new hotel room supply coming up. So with the continuing visitor arrivals, that is really going to drive trading."

According to data compiled by JLL, 4,545 new hotel rooms were completed last year - the highest figure since 2010.

This year, 3,174 rooms are expected to be completed. Supply will be more limited beyond this year - 266 rooms next year, 1,576 rooms in 2019 and 290 rooms in 2020.

Some consultants are upbeat that rising visitor arrivals will mop up last year's and this year's rise in room supply - boding well for the hotel market - but HVS's Ms Chee argues that it will take a while for the market to digest the supply: "The outlook for 2018 may still prove to be challenging for hoteliers, given new room supply and labour costs, among other factors."