• Asian investors circle Brexit bargains

The Travelodge London Kings Cross Royal Scot has been acquired by Hong Kong-listed Magnificent Real Estate for GBP70.3m.
The hotel went as Shearings sold a site to an unnamed Malaysian investor and Kewk Leng Beng, Millennium & Copthorne chairman, said that he was looking for “fire sales” as the post-Brexit market offered opportunities from overseas.
The 408-room Travelodge London Kings Cross Royal Scot was sold by Henderson Global Investors. William Cheng Kai-man, chairman, Magnificent, told the local press: “We are probably the first company to buy a property in London amid the Brexit overhang.”
Magnificent said that the deal represented “an undervalued opportunity to acquire a substantial sized freehold hotel …in one of the most popular tourism cities”. The company said that the site’s net income was GBP3.14m pa, adding: “The management is confident the total floor area and number of rooms can be further increased by extensions and redevelopment.”
It said: “The management does not think England leaving the EU may have any negative impact on its prosperous tourism industry, instead its cheaper currency may attract even more visitors. The hotel property was valued after the EU departure decision to be the same as the purchase price.”
Cheng was equally confident about Britain’s prospects, commenting: “I was educated in England and I appreciate the last 500 years of British success in every way. To be governed now under Brussels is just killing the British style, class…which the world adored for centuries. I am confident that Britain can do things their way and be as successful as they were in the last two centuries.”
His enthusiasm, at least for a deal, was shared by Kwek, executive chairman of CDL, which includes Millennium & Copthorne. He told The Straits Times: “My exposure there is very limited. We have good cash flow in terms of pound sterling so it doesn’t matter. When people panic and start to sell hotels, I will come into the picture. In fact, I am looking.
“Overall I’m confident that the UK will be good in the medium term. Temporarily, it will face a lot of issues negotiating with EU. More importantly, the political leadership must be forthcoming. I’m confident that if there are fire sales, I will buy in the UK, whether real estate or hotels. I’m looking in Europe as well.
“Some people could panic and maybe I will come into the picture. My balance sheet is not very leveraged and I’ve got firepower.”
When asked about the operations of the Millennium & Copthorne sites, he added: “I’m not worried about our hotels for the time being because we have always faced (difficult) situations – such as during the Lehman Brothers crisis, September 11 attacks and Sars. We face these problems from time to time and we survive.”
An unnamed Malaysian investor has acquired the Bay Glenburn Hotel on the Isle of Bute. Currently trading as a Bay hotel, the business was marketed on both a branded or unbranded basis, and current operator Shearings Holidays has agreed to remain associated with the hotel in an ongoing sales and marketing capacity for the next three years, allowing a comfortable transition to the new owners.
Ken Sims, director, Christie & Co, which brokered the deal on behalf of the vendor, said: “The purchase of the Bay Glenburn Hotel is the first foray into the UK market for this investor. We have seen an increase in Asian investors entering the UK market in recent times, but now it looks like investors are moving away from the highly-sought after London market, beyond prime locations such as Stratford and Cambridge, and are looking to invest in areas further afield.”
Jeremy Jones, head of hotels brokerage at Christie & Co, told us: “We’re feeling OK, the regions should be fine. We’re seeing a few mischief-makers out there trying to re-negotiate, but if you’ve got a workaday regional hotel, sensibly priced, we have as many buyers, as strong. Some buyers are saying that the banks are giving them a hard time, but I wouldn’t think that’s true – RBS, Santander, they’re all still out there.
“The Asians are back and knocking on doors. The most spooked are the North American buyers, the currency fall is not convincing them and they are struggling. What we’re hearing is that, if you can get a bargain, it will be between now and 1st September when the politicians go back.”

HA Perspective [by Katherine Doggrell]: Every cloud, as they say, and finding the silvery lining down the back of the sofa after the decision to leave the European Union are Asia’s real estate investors.
Talking to us, Will Hawkley, UK head of leisure, KPMG UK, said: “We are seeing a large amount of interest since Brexit from Asian investors focused on prime hotel and residential assets in central London. They have been poised to take advantage of what they see to be a window of opportunity caused by the weakness of the pound. Assets have suddenly become cheaper for them, especially compared to pricing and levels of competition in their home markets.
“The interest isn’t necessarily new, i.e. deal processes have been ongoing in the run up to the referendum, but whereas other competitors are pausing to consider options these investors, often new entrants, are forging ahead with the strategic plans that they have been developing in recent years, because recent activity was dampened by the scale of competition, they are now seeking to take advantage of the shift in the competitive landscape and the weaker pound.”
Also with an opinion, Anders Nissen, CEO, Pandox, told us: “You have more yield compression in properties in the UK than in the rest of Europe. The weaker Sterling brings more tourists in, which is what London needs with so much extra capacity.”
The transactions merry-go-round continues.

Additional comment [by Andrew Sangster]: The consensus view prior to the EU referendum was that economically the UK would be worse off, both in the short-term and the long-term. It is now clear that there will be a significant short-term impact to the UK economy (and indeed globally) even if the full effects are still manifesting themselves.
As I remarked immediately following the result, this is not politics as usual. The economy is now no longer the dominant driver for voters.
An interesting piece of research was recently published by Eric Kaufmann, Professor of Politics at Birkbeck College, University of London. He argued that the referendum result was driven by the personal values of voters. The correlation between a voter’s attitude towards say capital punishment and how they voted in the referendum was much stronger than for what the voter’s social economic status was and how they voted.
The economy will of course remain important but it is no longer going to trump everything else under consideration. Brexit voters seem pretty sanguine despite damaging their own wealth and economic position.
For corporates, a new era of tighter regulation looks set to be ushered in. The new UK government, led by Theresa May, could well be generous in terms of taxation but it is going to enforce what it considers are higher standards of corporate behaviour, however ill-defined these concepts might be.
A key requirement for the UK hospitality industry is to raise its lobbying game. The big corporates in UK hospitality stood aside from the arguments during the referendum. Whether that was wise remains a moot point. They now need to invest time and money in ensuring that the industry’s voice is heard loud and clear. As the creator of one in three new jobs in the UK in recent years, politicians should be paying far more attention to us than they are.
There are many unknowns in the coming months and years. This uncertainty is, on an aggregate level, bad for business. But the disruption is going to create a lot of opportunities for those smart enough and lucky enough to be in a position to exploit the changing circumstances.
The devaluation of Sterling is one such opportunity. Back in 2009, Sterling crashed by a similar level (although other currencies fell soon after to eliminate any comparative advantage the devaluation brought).
This devaluation proved a boon to the UK hospitality industry and business was much more robust than forecast even in the face of the severe recession (GDP went down 4.2% in 2009). This coming year, 2017, GDP is not expected to turn negative for the year (at least that is the current consensus). But there has been a similar drop in Sterling since the referendum to that experienced after the collapse of Lehman Brothers in the autumn of 2008. All other things equal, this should provide a big boost to hotel trading.
In addition, real estate in the UK now looks like a relative bargain. Given that monetary policy is set to provide further stimulus to asset prices (through interest rate cuts and more quantitative easing), the push on yields to move out in the face of business uncertainty should be held in check.
This is not to claim that we are better off following the vote for Brexit. Far from it. But the vote has happened and any attempts to back away from Brexit are likely to cause even more disruption than going forward and negotiating the best possible way out for the UK and the EU.

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