The strength of the hotel market in Asia-Pacific has encouraged both Shangri-La Asia and Ascott to expand in the region.
Shangri-La Asia is looking to raise as much as USD670m through a rights issue, while Ascott is to invest up to AUD500m (USD439m) to acquire new properties in Australia.
At Shangri-La Asia, the company said that it planned to raise a minimum of HKD4.97bn (USD641m) selling more than 447 million shares in the group at HKD11 each. The group said that the estimated net proceeds would be around HKD4.94bn. It plans to use a “substantial” part of the proceeds – around HK3.9bn – to repay the group’s bank loans to save interest costs, according to a filing on the Hong Kong stock exchange.
The remaining proceeds will be used for general working capital and to fund capital expenditure for ongoing hotels and development projects. The group added that it would continue to use bank loans to fund its development projects.
Shareholders would be entitled to buy one rights share for every seven shares held. The offer price is at a 4.8% discount to the last traded price of HKD18.9 before trading was suspended ahead of the announcement.
The group opened its first hotel in the UK – at The Shard in London – in May this year. It has equity in a total of 63 hotels, 34 of which are in mainland China, with two hotels under operating lease. The group’s development pipeline includes projects in Hong Kong, mainland China, Indonesia, Mongolia, Myanmar, the Philippines, Sri Lanka and Ghana. The group also manages 83 hotels under a subsidiary.
At the end of August the company announced a fall in half-year net profit from the hotel ownership segment of USD11.3m on the year, to USD37.8m. In keeping with the results reported elsewhere in this issue of Hotel Analyst, the group attributed this to the startup costs of hotels in mainland China which opened in this year and 2013. This also pushed down the group’s Ebitda, by USD15.9m, to USD265.1m.
Shangri-La Asia shares its enthusiasm for investing in the region with serviced apartment specialist Ascott, which signed a strategic partnership with Quest, Australia’s largest provider in the sector.
Ascott will invest up to AUD500m to acquire new properties in Australia, that Quest will then manage. Ascott will have a right of first refusal to acquire the properties sourced by Quest. Quest will then provide a lease for the properties, which will be operated under franchises using the Quest brand.
Ascott will also acquire a 20% stake in Quest, paying AUD28.8m, with an option to increase the stake to 30%. Separately, Ascott’s Reit will acquire three properties in greater Sydney from Quest, for a consideration of AUD83m. Ascott currently operates five serviced residences with more than 670 apartment units. Quest has around 150 properties with over 8,000 existing units in Australia, New Zealand and Fiji, and a further 1,500 units under construction.
Lee Chee Koon, Ascott’s CEO, said: “Serviced apartments represent over 25% share of the accommodation market in Australia where Quest is a leading player. Ascott has many global customer accounts and strong global systems to manage our properties. Through our strategic partnership with Quest, we can leverage each other’s knowledge and contacts in Australia to rapidly extend our presence in the growing market for international quality serviced apartments. We also expect a stronger pipeline of properties in Australia for Ascott to acquire.
“The Australian accommodation sector continues to expand with more than 100 properties expected to be opened over the next few years. Foreign investment in Australia’s accommodation sector has been on the increase in recent years due to the reliable legislative environment, resilient economy and stable returns in Australia.”
Ascott is also looking for investment opportunities in markets where it already has a presence, such as Singapore, India, capital cities in Southeast Asia, Paris, London and key cities in Germany. The group is open to a number of routes to reach its growth target of 80,000 apartment units globally by 2020, including management contracts, strategic alliances and franchises.
While confidence is high in the region, the impact of a slowdown in China is giving pause. In early October the World Bank cut its 2014 to 2016 growth forecasts for developing East Asia – a key trading partner of Australia – to 6.9% in 2014 and 2015, down from the 7.1% rate previously forecast.
The fall was attributed to China, where, the bank said, “measures to contain local government debt, curb shadow banking, and tackle excess capacity, high energy demand, and high pollution will reduce investment and manufacturing output”. For those looking to grow in the region, the most popular game to play is the long one.
HA Perspective [by Chris Bown]: Shangri-La has recently taken the brave decision to rebrand several of its Traders hotels under new moniker Hotel Jen. And there’s a strong pipeline of Shangri-La branded hotels with up to 12 due to open next year, and seven in the pipeline for 2016. Hence the sense in tapping the market for some new funds, to reduce bank borrowing and give management flexibility to keep up the pace of expansion.
For Ascott, already dominant in Asia, the bid to acquire a stake in Quest provides it with an immediate, substantial presence in Australia, effectively a nearby market for the group and its management. The bold move is supported with substantial firepower including the company’s Reit that can acquire properties, not leaving expansion reliant on other landlords. As a signal of intent to do big deals, it begs the question of where Ascott will look next, to acquire market presence. Serviced apartment owners in Europe will doubtless already be having the Ascott rule run over them.