Saturday, October 13, 2012

Ascott on the prowl for more buys in Europe


It aims to boost its serviced residential units from 30,000 to 40,000 units
Oct 13, 2012
By Dennis Chan, Deputy Money Editor

The door to the lift at Citadines Prestige Trafalgar Square in London was gliding to a close when two Malaysian boys sauntered through.

One looked to be about eight while the other was perhaps older by two or three years. My interest piqued, I asked: "Dah cuti sekolah? (Have the school holidays begun?)"

They giggled and shook their heads as we made our way down to the lobby where they joined their parents and several other Malaysians. I could tell because some of them were donning tracksuits printed with the initials of a government agency.

Perhaps the entourage was in London for business but I saw plenty others who were clearly tourists.

Their presence underscored the blurring of the line between the leisure and business market.
In the past, these visitors might not have looked beyond hotels.

While corporate executives will continue to form the mainstay of The Ascott's serviced residence business, the leisure segment has given business an added boost, with some Citadines properties in London reporting occupancy of well above 90 per cent this month.
It is no wonder then that the company, a wholly owned subsidiary of real estate giant CapitaLand, is still on the lookout for more properties to own or manage in London and Paris as well as in thriving cities in Germany where business remains resilient despite the euro zone woes.

"We are actively looking but there are not many (big) chains left. The chains available are mainly four to five apartments rather than 20 or 30," Ascott chief executive officer Chong Kee Hiong told Singapore reporters during a media tour to London and Paris this week.

"Obviously, it is the same amount of work for us whether it is to buy one chain or one property."

On a global basis, Ascott is targeting to increase its serviced residential units by a third in three years' time.

"Currently, we have about 30,000 units of which 8,000 are under development. Our target is to have 40,000 units by 2015," added Mr Chong, noting that the growth will come from both investment and management contracts.

The company operates three brands, home-grown Ascott and Somerset, and Citadines, in 74 cities across 21 countries - making it the world's largest serviced residence owner-operator.
Last year, it committed about $600 million on acquisitions while divesting about $300 million in assets. So far this year, it has divested and invested about the same amount as last year.
"We are investing more than we are divesting to build a pipeline for the future," said Mr Chong, noting that the investments and divestments will level out at about $500 million each way eventually.

Divestments allow the company to recycle capital for redeployment into new investments.
As the key shareholder and sponsor of mainboard-listed Ascott Residence Trust (ART), the company is instrumental in identifying and injecting yield-accretive properties into the trust's portfolio.

In 2010, Ascott sold 28 properties to ART for $969.6 million. More recently, it sold Ascott Raffles Place Singapore and Ascott Guangzhou to ART for $283.3 million while buying ART's Somerset Grand Cairnhill for $359 million for redevelopment before selling it back for $405 million.

One of its latest acquisitions is The Cavendish London, a hotel in the upscale Mayfair area, bought for $311 million.

"You ask me where to put my money. My answer is in key gateway cities like London," said Mr Chong.

It plans to convert Cavendish to a serviced residence under the premier Ascott brand. It already has six other serviced residences in London.

Ascott manages over 5,000 units across 45 properties in 20 cities across Europe.
Overall, occupancy numbers in Europe have fallen by five to 10 percentage points compared with five years ago.

Turning a potential weakness into strength, the company has embarked on a rejuvenation programme of its European properties since 2010 to improve yields.

"We are not passive. So during periods of weaker occupancy, we refurbished our properties as it won't affect our performance because certain portion of the rooms are not occupied anyway," explained Mr Chong.

Mr Tan Choon Kwang, the managing director for Europe, said Ascott had earmarked about €74 million (S$114 million) to refurbish 26 properties in Europe starting in 2010. By the end of 2015, about 90 per cent will have been rejuvenated.

It will spend another €42 million to do up Cavendish and Ascott Arc de Triomphe in Paris.
These two projects incur higher costs because they are operating as hotels, so more work has to be done to convert them into serviced residences.

It is also more challenging to refurbish the Paris property as Ascott had bought a separate historical block that it intends to amalgamate with the current hotel block. The facade of the historical block has to be conserved.

The payoff is well worth the effort.

Refurbishment has allowed Ascott to charge more per room, or RevPAR in industry parlance.
"As of year-to-date, we are talking about increase in RevPAR of 30 to 50 per cent after renovation. That was seen in Trafalgar, Holborn and South Kensington," Mr Chong noted.
In absolute terms, the rate increase worked out to an average of £50 (S$97) in London and €40 in Paris post-refurbishment, said Mr Tan.

Although the euro zone crisis has taken its toll on businesses in general, contributions from Europe have continued to provide a healthy salve to group revenue.

This was reflected in the first half results, which saw revenue rising to €56 million from €53 million in the same period last year.

"In Singdollar terms, it's flattish due to the exchange rate fluctuation. The market is not that strong, so you can't see that kind of phenomenal growth (of the past) but 5 per cent year-on-year growth is actually quite good," said Mr Chong.


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