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August 20, 2013

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6-month hotel investment surges 80% year-on-year

By Cherry Cao | August 20, 2013, Tuesday | Print Edition

Transaction volume of the hotel investment market in the Asia Pacific region surged 79.7

percent year-on-year in the first half of 2013 to US$3 billion — the highest level in a six-month period since late 2007, according to Jones Lang LaSalle Hotels & Hospitality Group.

Asian hotel markets recorded the lion’s share of activity, with sales totaling US$2.7 billion, compared with Australasia’s US$300 million.

This represented a marked difference from 2012 when Australia scorched its mark on the regional hotel investment landscape.

With the good news, including US$2 billion of hotels in due diligence or exchanged, Jones Lang LaSalle, the international industry service provider, has raised its full year projection from US$3.6 billion to US$5.5 billion.

Asian investors who had been active in the United States and Europe retreated to their home markets during the first half of 2013 but did cast their net a little wider than the traditional bases of Hong Kong and Singapore, where yields have tightened considerably.

Many Asian investors have found global hotel acquisitions to be complex given the requirement to understand the hotel market and compete with local capital in a short space of time.

Capital outflows have therefore slowed and investors once again focused on buying repositioning opportunities and developing assets in the buoyant Asia Pacific hotel market, since this is generally perceived as being lower risk. Trophy assets in major global gateways are the exception to the rule.

Transaction activity during the first six months of 2013 was greatest in Japan (US$803 million), China (US$665 million), Singapore (US$397 million), Australia (US$337 million) and Thailand (US$289 million) but transactions also occurred in Vietnam, Indonesia, Philippines, India and the Indian Ocean.

Many investors believe that hotels in Hong Kong and Singapore are at a high point in the investment cycle and that other Asian markets will provide superior overall returns over the next few years. Notable transactions included CDL hospitality real estate investment trust’s first acquisition in the Indian Ocean with the purchase of Angsana Velavaru Maldives.

While investment became more widespread, the major gateways topped the most active hotel transaction markets. While partly a function of the asset pricing in these markets, volumes were highest in Singapore, Tokyo and Shanghai, as well as Phuket, Thailand, and Guangzhou, China.

While intra-regional investors dominated in 2012, domestic investment increased markedly from January to June, in line with higher levels of activity in Japan and China. Crossborder investments accounted for only 26.3 percent of the total transaction volume in the first six months of this year, compared with 58.9 percent in 2012.

Australia and Thailand recorded the highest capital inflows but crossborder investments were also evident in China’s mainland and Hong Kong, India, Indonesia, the Maldives, Mauritius and Vietnam.

The Asia Pacific hotel transaction landscape has been reshaped by the steady flow of REIT issuance in recent years with REITs (or those planning to list) emerging as one of the most active buying groups.

During the first six months of 2013, REITs were responsible for over 25 percent of the total capital invested in the sector. This proportion is even higher if it includes those groups that are building scale with this exit in mind. In a marked turnaround from recent years, REITs were also responsible for two of the largest hotel sales in the region.

Previously these groups had shied away from the acquisition of large assets, which have the potential to skew the risk of an overall portfolio towards a particular asset or geography.

 

 

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