Emperor Entertainment Hotel Sells Hong Kong Serviced Apartment Block for $35.4M

Emperor Entertainment Hotel, the HKEX-listed hospitality arm of Hong Kong-based conglomerate Emperor Group, has agreed to sell a 57-unit serviced apartment block in Hong Kong’s Kennedy Town area for an agreed property value of HK$275 million ($35.4 million), after the property’s value fell by nearly half in two years.

A subsidiary of Emperor EH is divesting The Unit Davis to a vehicle linked to a local investor whose businesses include tea trading, according to market sources who spoke to Mingtiandi. The buyer is paying cash consideration of HK$267.7 million for the asset in addition while the seller is forgiving a HK$433.3 million shareholder loan associated with the property, Emperor EH said in a filing on Thursday.

The consideration is based on a 30 September valuation of the property at HK$275 million, with that valuation representing a 44 percent decline from the property’s HK$490 million value in 2022, when the company acquired the asset from its then controlling shareholder, HKEX-listed developer Emperor International. Emperor EH, which was spun out of Emperor International in August, pointed to the sale of The Unit Davis as enhancing the company’s financial flexibility.

“Having regard to the prevailing market condition, the Directors are of the view that it is a suitable opportunity to dispose of the Property. The Directors expected that the net proceeds from the Disposal will enhance the financial flexibility of the Group and enrich the working capital for the hospitality business in the future,” Emperor EH said in the filing.

Buying and Selling

Located a two-minute walk from the Kennedy Town MTR station at 22 Davis Street, the 22-storey property has a gross floor area of 20,363 square feet (1,917 square metres) and features 57 units situated above a ground-level retail podium.

Including the loan associated with the property, the transaction value works out to HK$12.3 million per room, or HK$34,425 per square foot. Emperor EH expects the deal to complete by 16 December. Cushman & Wakefield’s Hong Kong capital markets team is understood to have brokered the deal.

The buyer, whose surname is Tsoi, reportedly paid HK$144 million in September for a set of units in the 333 Hennessy office building in Wan Chai, after selling a floor in the Capital Centre commercial building in the same area for HK$240 million last year.

The Unit Davis opened its doors in August 2022 under Emperor EH’s The Unit brand of serviced apartments. At that time, the property had maximum lease terms of 12 months, with monthly average rents of around HK$20,000 per unit. The holding company of the property swung to a loss of HK$11.1 million in the 12 months ended 31 March from a profit of HK$43.8 million in the prior year.

Emperor EH is selling the property after having agreed in May to acquire The Unit Soho, a newly completed serviced apartment building located at 20-26 Old Bailey Street and 11 Chancery Lane in Central district, from Emperor International for a consideration of HK$655.2 million and assumption of a HK$637.8 million shareholder loan.

That consideration was based on a HK$700 million agreed valuation for the 69-room property. An occupancy permit for the 25-storey property was obtained in July, with pre-leasing set to begin in the near future, according to the company.

The company said it does not expect to recognise any gain or loss on the disposal of The Unit Davis, and intends to use half of the HK$267 million in net proceeds for settling the outstanding balance of the acquisition of The Unit Soho, with the remainder earmarked for working capital.

Emperor EH’s portfolio also includes a pair of serviced apartments in Happy Valley and Wan Chai, both under The Unit brand; the 299-key Emperor Hotel in Wan Chai; as well as two hospitality assets in Macau, including the 311-key Grand Emperor Hotel and casino and the 285-key Inn Hotel.

Rental Residential Fire Sales

The Unit Davis is the latest serviced apartment asset to be marketed or sold in Hong Kong this year amid plummeting valuations.

Earlier this week, Colliers began marketing a pair of serviced apartments owned by local living operator Chi Residences, including the 107-unit Chi 138 in Wan Chai and the 59-unit Chi 314 in Jordan. Market sources reported just over a month ago that Blackstone was in conducting due diligence on the two properties, however, that effort appears to have lapsed.

Last month, Schroders launched a fresh marketing campaign for The Nate, with the UK investment manager offering the combined residential and retail block in Tsim Sha Tsui at a third off of its HK$600 million purchase price eight years ago.

Hanison Construction in July began marketing the 55-unit The Mercer serviced apartment building in Sheung Wan. Market sources told Mingtiandi at the time that the property was estimated to be worth from approximately HK$380 million to HK$500 million, which represents a 49 percent to 33 percent markdown from the HK$741 million price the HKEX-listed company paid to acquire the property from Singaporean property giant CapitaLand nearly five years ago.

That deal came a month after local developer Crystal Investment acquired the 25-storey Incredible Residences residential and commercial building for HK$123 million after the asset had been put up for sale by receivers in March 2023.

Earlier this year, PGIM Real Estate teamed up with co-living provider Dash Living to buy The Sheung Wan hotel from Hong Kong-based boutique hotel and serviced apartment provider Ovolo Group for HK$320 million.

Note: An earlier version of this story misstated the valuation of the property. The article has been updated to show the agreed property value of HK$275 million.