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Ascott adds Africa to portfolio following S America addition in April
THE Ascott is entering Africa.
The serviced residence unit of CapitaLand has secured contracts to manage two properties in Accra, the capital of Ghana, in what has been a record year of growth as the company added 18 new cities across nine countries and added over 21,000 units to its portfolio. Following the latest acquisition, it now has 69,464 units.
Africa was not the only continent that Ascott entered for the first time this year In April, it also advanced into South America with its first two franchise properties in São Paulo, Brazil.
In an interview with The Business Times, Lee Chee Koon, Ascott's longest-serving CEO who will switch role to become CapitaLand's group chief investment officer position in January, said Africa was the "last missing piece".
While Africa is still considered new ground for many Singapore hospitality companies, several others are already dipping their toes into the hotel sector there. Frasers Hospitality in March this year said it was planning to open properties in Nigeria and the Republic of Congo, also marking its first entry into the continent.
As for Ascott, its 220-unit Ascott 1 Oxford Street Accra will open in phases from 2019, while the 40-unit Kwarleyz Residence will open in the fourth quarter of 2018.
Mr Lee said: "Africa itself has a population of a billion people. I think as the continent becomes affluent, there will be increasingly more domestic travel and people going into Africa for business as well, so it would be good to enter the market when it is still developing, to plant your flag, get yourself recognised, understand your operations, build your team and be ready when the market fully opens up."
Because of the limited hotel supply in Ghana, hotel rates are also generally quite good, going as high as US$200 per night, he added.
Ascott has been able to scale up its portfolio rapidly in recent years since it switched its business model to an asset-light one about four years ago.
The company used to own many of the properties that it operated, but this percentage has dwindled to less than a quarter of its overall portfolio today.
Most of its properties are instead on management contracts, meaning that Ascott is paid a fee by the building owner to run the serviced residence. Ascott would handle everything - from the sales and distribution to the day-to-day operations, finance, and even the interior design.
"So you don't need any equity to grow your fee income - that's why it helps to drive return on equity. Assuming, for instance, you add 10,000 units every year of third-party management contracts. That will add about S$25 million of fees to our bottom line."
Properties run by management contract currently make up 55 per cent of its portfolio.
The remainder mostly comprises franchise properties - meaning a serviced residence owner runs the property under one of Ascott's brands, and can leverage Ascott's sales and distribution platform. It would pay Ascott a fee for using its brand and for delivering business to the property.
Ascott plans to grow its franchise business through Quest Apartment Hotels, a company which owns properties across Australasia and which Ascott in July beefed up its stake in - from 20 per cent to 80 per cent.
"The team in Australia has been running the entire business as a business franchise format for the last 30 years. It's always more painful to do everything on our own, so we find a partner that can help us in the growth of our franchise business. Now we are looking to deploy the solution in the UK, to bring the Quest to the UK where we already have a presence," said Mr Lee.
Already, last month, Quest announced that it will develop its first property in the UK city of Liverpool - a £10 million (S$18 million) redevelopment of a commercial office building into a 100-room apartment hotel that will open in early 2019.
But Mr Lee was quick to add that it does not mean Ascott will not continue to buy real estate - it is simply bidding its time for the right price point in the property cycle to enter.
It still has undeployed funds in its 50-50 US$600 million global serviced residence fund with Qatar Investment Authority, having spent only S$533 million of it so far.
He is confident that Ascott will surpass its target of 80,000 units well ahead of 2020, even in the new hands of his successor Kevin Goh, Ascott's current chief operating officer.
Yet, given that Ascott's number of properties and apartment units more than doubled under Mr Lee's helm, it is surprising that he prefers not to talk numbers when asked what he thinks his greatest contribution to Ascott has been.
"Not all that can be measured is important, and not all that is important can be measured," he said. It is rather the "dynamic" team that he has built up at the firm that he is most proud of.
" I don't believe we have any superstar performer, but as a team, we work extremely well together. Everybody is very aligned and has the interest to grow the business and look after the properties they manage and the guests staying with us. This, to me, is the greatest joy and satisfaction of running the business."