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ARA Asset Mgt buys Hyatt Hotels portfolio in global blitz

Group CEO and co-founder John Lim said the acquisition is part of ARA's multi-platform, multi- product global fund management strategy.


ARA ASSET Management has bought a sizeable portfolio of Hyatt hotels that represents not just its maiden entry into the US but also what observers say could be Singapore's first pure-play US hotel Reit listing.

That means that ARA also joins several property players reportedly mulling Reit listings of US assets here, though analysts say that also depends on investor appetite.

ARA announced on Monday it had bought 38 Hyatt Place and Hyatt House select service hotels across 21 states - with no indication of deal price, exact locations or seller's identity.

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Select service hotels, as defined by ARA, offer "efficient, economical hotel rooms to business travellers".

Market sources told The Business Times that the seller is private equity firm Lone Star Funds, which bought the portfolio from Hyatt affiliates for about US$590 million in 2014.

These hotels are scattered across several cities such as Boise, Idaho; Omaha, Nebraska and Burlington, Massachusetts.

John Lim, group chief executive of ARA, said in a statement: "We will look at injecting this quality portfolio into our growing Reits and private fund platforms in the near future as part of our multi-platform, multi-product global fund management strategy."

The company says it is "confident of the US hospitality sector, particularly in select service hotels, where entry yields remain attractive".

This sector has outperformed the full service sector over the past two decades due to its simpler operating model and steady demand, ARA said.

It will open an office in Dallas, Texas that will serve as its US base of operations, and will work with Hyatt Hotels and hotel investment and management firm Aimbridge Hospitality.

ARA assistant group chief executive and group chief investment officer Moses Song said: "(The acquisition) presents us with great potential for business and assets under management (AUM) growth both in the hospitality sector and the US market."

ARA, which de-listed last year and counts Warburg Pincus and Straits Trading Company as major shareholders, wants to grow from being an Asian real estate fund management firm to becoming a global powerhouse.

It directly manages Fortune Reit, dual-listed in Singapore and Hong Kong; Suntec Reit and Cache Logistics Trust, listed in Singapore; and in Hong Kong, Prosperity Reit and Hui Xian Reit. The latter owns a portfolio of retail, office, serviced apartments and hotel businesses in China.

If ARA does decide to list its new US portfolio here, it may not be alone. Ascendas-Singbridge is considering an IPO worth US$500 million of US office properties it acquired earlier this year. There is also market talk of a new Reit by Keppel and KBS of various US prime office properties.

There are already two US-focused Reits: Manulife US Reit and Keppel-KBS US Reit.

But is the timing right, and is market appetite present?

RHB's analyst Vijay Natarajan pointed out that "rising rates, trade tensions and general concern the global economic growth is tapering" means investor sentiment is lukewarm.

"Investors are asking for higher yield or better price," he told BT.

The Reits market is also awaiting a clarification on US tax regulations. The fear is that authorities may say that Manulife US's Reit's Barbados entity, which is used to repatriate cash from the US to Singapore, is deemed as a "hybrid entity". This means that under new tax rules, the Reit would be unable to claim a tax deduction.

Its management has said that the maximum downside risk to distribution per unit (DPU) in a worst-case scenario could be 15 per cent.

"This continues to represent the systemic risk to people who invest in US Reits because you never know when US authorities will change their ruling," GCP Global executive chairman Gabriel Yap said.

Singapore-based investors continue to pour money into US real estate. So far this year, US deals that involved Singapore-based investors totalled US$6.3 billion, excluding the ARA transaction.

That makes Singapore the third highest cross border investor into the US globally this year, according to Cushman & Wakefield.

This is also the first hotel deal by Singapore investors in the US this year.

According to Real Capital Analytics data going back to 2012, the largest hotel deal by Singapore capital in the US was a S$1.5 billion transaction in 2013.