Datapulse says valuation of Seoul hotel acquisition target higher than purchase price

DATAPULSE Technology in a regulatory filing on Thursday reiterated that it is paying less than an independent valuation for a Seoul hotel it plans to acquire, after the 35 billion won (S$42.7 million) deal came under some criticism. 

The company will be holding an extraordinary general meeting (EGM) at 2pm on Thursday (March 14) to seek shareholder approval for the acquisition. 

The media storage company said that hotel supply growth in Seoul is expected to "stabilise" due to a decrease in pipeline of new hotel developments and strong demand from a recovery of tourist arrivals, quoting a November 2018 report by real estate consultant JLL. Datapulse said this was further supported by findings from a study it commissioned with a hospitality research consultancy.

As for net property income (NPI) yield concerns, Datapulse said that past NPI yield performance was "not necessarily indicative" of future NPI yield due to the possibility of improvements and value-added initiatives.

Datapulse reiterated that it had appointed CBRE Korea to value Hotel Aropa, whose valuation of the hotel was higher than the purchase consideration.

Its filing, which was in response to articles published by Mak Yuen Teen on his website, who urged shareholders to consider the reasonableness of the hotel purchase price, clarity of terms and conditions and the substance of the proposed structure. The associate professor of accounting at the NUS Business School had said he would vote against the resolution. 

In one of his articles, Prof Mak questioned the value of the acquisition, as Datapulse's expected occupancy rates appeared higher relative to historical occupancy rates. As for NPI yield, Prof Mak said it was "much lower and earnings multiple much higher" when compared to the NPI yields of Ascendas Hospitality Trust for its 2018 hotel acquisitions in Seoul.

As such, getting the same margins as Ascendas for the Seoul hotel purchase would require factors such as increased room rates, aggressive cost management and/or consistently high occupancy rates, amid what appears to be an oversupply of rooms in Seoul, Prof Mak said, quoting a May 2018 Savills report.

The hotel deal is also expected to use a "substantial" part of Datapulse's cash balance of S$75 million, Prof Mak said.