A-HTRUST enters South Korean market with hotel acquisition

Singapore

IN ITS maiden foray into Korea, Ascendas Hospitality Trust (A-HTRUST) has, through Ascendas Hospitality Business Trust, entered into a sale and purchase agreement with KY-Development Co to acquire a majority stake in KY-Heritage Hotel Dongdaemun for 72.1 billion won (S$89.5 million).

It will hold a 98.7 per cent stake in the 215-room hotel, while the remainder will be held by Ascendas (Korea), which is a wholly-owned subsidiary of Ascendas Land International (ALI). ALI is a controlling stapled security-holder and sponsor of A-HTrust, which is a stapled group comprising the business trust as well as Ascendas Hospitality Reit. The total purchase consideration works out to 73 billion won. The purchase price is at a 3.2 per cent discount to the four-star hotel's latest valuation and translates to a pro forma net property income yield of 4.1 per cent, A-HTRUST said in a release on Friday. CBRE Korea Co valued the property at 75.4 billion won as at March 30, 2018.

The freehold, 20-storey hotel, which was completed in 2015, is located in the prominent Dongdaemun area and is close to some of the city's other attractions, such as Dongdaemun Design Plaza and Doota Mall. Its facilities include a restaurant, a cafe, two conference rooms and a gym.

The acquisition is expected to be accretive, A-HTRUST highlighted. Assuming A-HTRUST had owned the hotel since 1 April 2016, on a pro forma basis, the distribution per stapled security for FY2016/17 would have edged up from 5.68 Singapore cents to 5.69 cents.

Meanwhile, the acquisition is expected to be fully funded by bank borrowings. In addition to the purchase fee, an acquisition fee of 720.7 million won is payable to Ascendas Hospitality Trust Management while professional fees and other transaction expenses is expected to amount to 8.8 billion won.

Tan Juay Hiang, chief executive of the managers, said: "The acquisition is in line with our strategy to invest in markets with sound hospitality fundamental and growth potential. After completion, the hotel will be managed by an established regional hotel management company and we believe there is potential to enhance asset value through rebranding and repositioning."

The master lease agreement, with a rent structure comprising fixed and variable component, will commence on July 1 this year for a lease term of 20 years. The completion of the deal - which is contingent on certain conditions including the necessary regulatory approvals - is expected to take place by June this year.