Weak A$ drawing more S'pore interest in hotel assets Down Under

Singapore

THE weak Australian dollar is boosting interest in hotel assets Down Under from international investors, especially Singapore-based players who have traditionally favoured the Australian hospitality market.

Hotel acquisitions within the last twelve months include private equity group SC Capital's A$84 million (S$84.2 million) acquisition of the Rydges Darwin Airport Hotel and Resort in Marrara, TEE Land's purchase of Sydney-based Diamant Hotel for A$23.2 million and Bonvests Holdings' acquisition of the Four Points by Sheraton in Perth for around A$91.5 million. In July, the Rendezvous Sydney Central was also snapped up by Naumi Hospitality, according to a report out of Australia. Naumi Hospitality is owned by the Hind Group of Companies.

Meanwhile, it was also reported this month that Pontiac Land Group made its first foray into Australia after snapping up leases on two heritage buildings in Sydney. The group plans to redevelop the buildings into a 240-room luxury hotel for about A$300 million.

"Singaporeans have been strong, dominant players in the market for many years," said Wayne Bunz, senior director at CBRE Hotels, pointing to CDL and M&L Group. "Traditionally, Singaporeans have done very well investing in Australia."

Singapore investors tend to focus more on corporate hotels - as opposed to leisure hotels - and typically eye markets such as Sydney, Melbourne and Perth. Buyers for the hospitality sector often include institutional investors - especially if the property is a luxury hotel - since such projects may require a hefty investment and a long-term contract with a hotel management company, industry players said.

In addition, price per key in Australia is lower than other markets in Asia, such as Singapore or Hong Kong, while yields are fatter, Mr Bunz added. He reckons even more Singapore buyers might enter the Australian market now, since the shift in the Australian dollar benefits the buyer.

Other factors for Australia's popularity among Asian real estate investors include its location in the Asia-Pacific and its transparent and stable legal, tax and regulatory framework, highlighted Dominic Brown, head of research (Asia-Pacific) for Cushman & Wakefield (C&W).

CBRE Hotels puts the total value of hotel transactions in Australia from investors worldwide at over A$2.5 billion in the first half of the year, making it among the hottest markets in the Asia-Pacific. Aside from Singapore, another big source of investors for Australia is China. The 114-room Pensione Hotel in Melbourne went to a Chinese buyer recently for A$26 million, while the Hilton Sydney was acquired by Bright Ruby Resources for A$442 million.

According to Dr Brown, of the A$8.1 billion that has been invested in Australian hotel and leisure assets since 2012, A$1.7 billion came from Singapore. The total amount from offshore investors was A$5.5 billion.

Of the A$5.5 billion, slightly over one third, or 36 per cent, of investment volume stemmed from unlisted funds and property companies, while listed entities comprised roughly a quarter of investment volume. Private investors comprised 10 per cent of investment volumes.

"With regard to the lower Australian dollar, it may encourage some investors - for example, private investors - to enter the market," Dr Brown said. In fact, some forecasts project that the Aussie dollar will continue to trade against the US dollar at present levels for the next to three years, he noted.

Against the US dollar, the Australian dollar is now trading at US$0.70240, down from US$0.87660 a year ago. It is trading at near-parity against the Singapore dollar, down from S$1.16477 a year ago.

Dr Brown added: "Larger institutional investors are likely to undertake a range of currency hedging strategies to mitigate any rise or fall in foreign exchange rates."

The outlook for Australia's tourism sector for the rest of the year is looking positive too, which should prove another attractive factor for prospective hotel investors. While major cities such as Sydney tend to be popular with visitors such as the Chinese, tourism should also get a shot in the arm from robust domestic demand as the weak Aussie dollar keeps Australians Down Under.

In the first six months of this year, Sydney and Melbourne were among the markets which saw the highest hotel occupancies across the Asia-Pacific, along with Singapore, Hong Kong and Osaka, a CBRE report shows. They also delivered among the highest average daily rates in the region, which translated to growth in revenue per available room (RevPAR) of just under 5 per cent for both.

"Strong operational trading will continue to be underpinned by the continued economic growth of almost 3 per cent per annum on average, the economic transition from mining investment to export production, the weaker Australian dollar, the increase of Chinese tourists and the dominant domestic tourists," CBRE's Robert McIntosh said, commenting on tourism outlook.

According to figures from C&W, tourist volumes have expanded 30 per cent from the financial crisis in June 2009 to June 2015, with major cities such as Melbourne and Sydney reaping significant double digit growth at 60 per cent and 23 per cent respectively.

One of the major driving forces behind the rebound in these cities in particular is the influx of visitors from China, who prefer the capital cities.