Ascendas Hospitality Trust Buys Second Seoul Hotel for $69M

Ascendas Hospitality Trust continues to expand its presence in Seoul as the manager of the Singapore-listed trust has agreed to purchase its second hotel in the South Korean capital in less than seven months.

The trust, which already owns a portfolio of 12 hotels with over 4,000 rooms in Australia, South Korea, Japan and Singapore, announced last week that it has agreed to purchase the Ibis Ambassador Seoul Insadong hotel for KRW 77.5 billion ($68.99 million). The Singaporean trust is acquiring the property from a local fund managed by Seoul-based Richmond Asset Management, according to local press reports.

This latest acquisition followed closely after the vehicle’s maiden entry into Seoul this April with the acquisition of The Splaisir Seoul Dongdaemun, as the Asian gateway city gains favour with regional and global investors.

Borrowing to Expand in Seoul

The 363-room hotel, located in the business district of Jung-gu, is changing hands at a discount of 3.1 percent to its latest valuation, equating to a pro forma net property income yield of 4.6 percent. Ascendas Hospitality Trust said the acquisition will be fully funded by debt and is expected to be completed by the end of December 2018.

The five-year-old property, which is less than a 20 minute metro ride from prominent tourist destinations such as the Insadong retail precinct, Changdeokgung Palace and Jongmyo Shrine, is managed by Ambassador Hotel Group. The South Korea-based hotel operator has a collaboration with AccorHotels via a joint investment in a hotel management company, currently operating more than 20 hotels across the country.

“We are confident that the operator’s deep knowledge of the local market and access to AccorHotel’s extensive loyalty programme will drive the performance of the hotel,” said Tan Juay Hiang, CEO of Ascendas Hospitality Trust Management, which manages the listed vehicle, in a statement.

Asset Price Stable Over Five Year Period

While the asset’s new owners are confident in the deal’s upside, the KRW 77.5 billion transaction price shows little benefit for Richmond Asset Management investors, who backed the KRW 75 billion acquisition of the property in 2013, according to a report by the Korea Economic Daily.

Limited partners Korean Teachers’ Credit Union (KTCU) and tobacco maker KT & G Corp had invested in Richmond’s deal for the property shortly after it had been completed five years ago, with KTCU having contributed KRW 30 billion and KT & G kicking in another KRW 10 billion, while Richmond arranged debt financing for the remaining cash needed.

Sino-Korean Thaw Boosts Hotel Market in Post-Olympics

The hotel market in Seoul has benefitted from a strong recovery in inbound arrivals on the back of the city’s successful hosting of the Winter Olympics in February of this year. Inbound visits to South Korea for the period from January through September 2018 climbed 12.1 percent year-on-year, while visitors from China — South Korea’s top source of tourists — grew 9.4 percent year-on-year during the same period, Ascendas Hospitality Trust noted in the statement.

Marketing efforts by the government to attract visitors to South Korea and reduce reliance on its key source markets also appears to be making progress as the first nine months of the year saw the number of visitors from countries in Southeast Asia such as Malaysia, Thailand and Vietnam posting strong year-on-year growth.

In addition to the macro-level rationale for the investment, the trust’s managers also cited the asset’s location near a major business district and several tourist attractions as allowing it to capture both leisure and corporate segments in an improving hospitality market. The Singaporean investor also pointed to the project’s links with AccorHotels and the French group’s 41 million members to supporting potential future returns.

The freehold property was completed in 2013 and major capital expenditure is not expected in the near term, allowing cash resources to be conserved for other use, said the trust manager.

The managers have also reached an agreement with the hotel operator where the rent payable is based on pre-determined percentage of the total revenue with a minimum rent payable to A-HTRUST. The minimum rent helps to mitigate downside risk and provides added stability to the income stream of A-HTRUST.

Selling in China and Buying in Korea

In January, Ascendas Hospitality Trust sold its only two Chinese hotel properties, Beijing Novotel Sanyuan and Ibis Beijing Sanyuan for a total of RMB 1.156 billion ($235.9 million) in cash.

In April, the trust made its first foray into South Korea by picking up a 98.7 percent in Seoul’s 215-room KY-Heritage Hotel Dongdaemum,

In June, the Singapore-listed trust struck a deal to buy three newly built hotels in Osaka for a total price of about 11.24 billion yen ($101.6 million) amid a surge of overseas tourist arrivals in Japan’s third-largest city.

Tan said that the acquisitions make up for the loss of net property income from the sale of the hotels in Beijing, on a full year basis. “In addition, the (latest) acquisition further diversified the portfolio into markets which we believe have good long term growth prospects.”

“Following the acquisition, gearing is expected to remain relatively low, thereby providing us debt headroom for further acquisitions. We will maintain a disciplined approach as we continue to seek appropriate acquisitions,” he added.