Two hospitality assets flipped for 30-70% profit in just months

Singapore

TWO Singapore hospitality assets - one along Orange Grove Road and the other in Outram Road - have been flipped for handsome gains after holding periods of just under a year.

The Outram Road deal, involving the distinctive barrel-shaped Wangz Hotel, yielded a gross gain of about 30 per cent or S$14 million over a period of just three months.

Over in District 10, the resale of Darby Park Executive Suites was even more substantial, raking in a difference of S$67 million for the seller. While the holding period was longer at about 10 months, the gain was a sharp 72 per cent. During the 10 months, the site on Orange Grove Road was rezoned from residential to hotel use.

Market watchers attribute the flips to investors being increasingly drawn to hospitality assets following the July 2018 cooling measures on residential property.

While both transactions may fire up hopes of quick gains for other hospitality asset owners, word in the market is that both transactions were unplanned and analysts generally do not expect them to mark the start of a trend.

Last November, BT reported that the Royal Group had bought Darby Park Executive Suites, a six-storey serviced residence property, for S$92.71 million from Bursa Malaysia-listed Sime Darby Property. Royal Group is controlled by Asok Kumar Hiranandani and his son Bobby.

In June this year, Mr Hiranandani obtained the Urban Redevelopment Authority's written permission for the site to be redeveloped into an eight-storey hotel block with a basement carpark. In the same month, the site was rezoned from residential use to hotel use. Following that, Royal Group is understood to have sold the property for S$160 million; the sale was completed late last month.

The buyer is an entity linked to low-profile Indonesian tycoon Bachtiar Karim, who is the executive chairman of Singapore-headquartered Musim Mas Holdings. The privately-held group is in the palm oil business.

Mr Karim, who is also known as Lim Ek Tjioe, is in his early 60s. He was educated at Hwa Chong Junior College and National University of Singapore, according to Wikipedia.

The family is understood to have been on the lookout for some time for a Singapore hotel development site in the prime Orchard Road area. The 12 Orange Grove Road property sits on a 99-year leasehold plot starting January 1993, leaving a balance lease term of about 72 years.

Over at 231 Outram Road, the 41-room freehold Wangz Hotel was sold by Glastech Pte Ltd for S$46 million in early August of last year to TCRE Partners, which is owned equally by Tower Capital Asia founder Danny Koh and Y Developments, owned by Ben Yeo and his family.

After the transaction was completed in October 2018, the property changed hands again, at slightly over S$60 million; the deal was completed the following month. The buyer is Cheong Sim Lam, a private investor whose family developed International Plaza next to Tanjong Pagar MRT Station. Most recently, Mr Cheong was in the news for his acquisition of Ascott Raffles Place this year.

It is believed Mr Cheong was drawn to Wangz Hotel's unique design and location at the corner of Outram and Tiong Bahru roads.

The hotel's 41 rooms range from 26 to 47 sq m; some of them may potentially be subdivided to increase room inventory - and revenue.

Both TCRE and Royal Group are understood to have received unsolicited offers for their respective properties soon after their acquisitions became known.

Cushman & Wakefield is understood to have brokered the resales of both properties. When contacted by BT, its executive director of capital markets, Shaun Poh, declined to comment.

Real estate transactions of hospitality assets in Singapore so far this year (up to Sept 12) have totalled S$1.65 billion, surpassing the S$1.2 billion for the whole of last year. That in turn was a marked jump from the S$275.3 million in 2017 and S$145 million in 2016, based on figures from Savills Singapore Research.

These transactions include collective sales such as Waterloo Apartments (in 2018) and the next-door Min Yuan Apartments (in 2019) as well as Golden Wall Centre (2018) - all bought with the intention of conversion to hotel use.

The major hospitality assets transacted this year include a development site along Club Street that was sold for S$562.2 million, translating to a record S$2,148.50 per sq ft per plot ratio for 99-year leasehold hotel land at a state tender. Another sizeable deal was the S$353.3 million sale of Ascott Raffles Place.

Savills Singapore executive director of research and consultancy Alan Cheong attributes the jump in hospitality transactions in the past few years, mainly to cooling measures in force in the private residential property market. Hospitality assets are being bought not so much as a yield play, but for capital preservation or appreciation, he said.

"The market for hospitality assets is still hot and we believe that if a product is listed at a slight premium to market price, it should still sell. Looking ahead, given the lack of premium-grade hotels for sale, the market would likely swing to boutique hotels, including those in conservation properties."

Chee Hok Yean, president, Asia Pacific, at hospitality and leisure advisory group HVS, said another draw of Singapore hotels to investors is that they have traditionally traded at high occupancies exceeding 80 per cent. "Moreover, we are in a period of relatively stable supply in terms of completion of new hotel rooms."

Investment demand for this asset class is also supported by the scarcity factor. "Hotels in Singapore are very tightly held, resulting in very limited stock that is available for sale."

She said the Orange Grove Road property and Wangz Hotel transactions are unlikely to mark the start of a trend of speculation of hotel assets. "It requires several elements to be aligned; the right location, the right time, the right owner and buyer - which may not be easy to replicate."

A seasoned property agent agreed, but added: "With news of these hotel flips, some people may want to try their luck."