Savills World Research Asia Pacific

Briefing sales & investment July 2014

Image: Avenue of the Stars, Hong Kong SUMMARY Prime yields are hardening in core markets and stabilising elsewhere.

 The total value of investment sales transaction volumes surging 431.2% Hong Kong, Singapore and Sydney fell by 13.9% year-on-year (YoY), from and 198.9% respectively YoY. have reached a level last achieved US$1.97 billion in Q2/2013 to US$1.67 pre-crisis in 2007, at an average of billion in Q2/2014.  Investment sales in Australia and between 3% and 5%. New Zealand declined 29.1% YoY.  Japan contributed US$1.07 billion or 64% of all investment sales in the  Southeast and Eastern Asia, reviewed quarter. including Singapore and Hong Kong, “The limited supply of prime remained quiet in the second quarter. assets in core areas is benefiting  Singapore invested nearly US$330 both core market secondary million or 20% of all investment sales  The hardening of average prime in Q2/2014. hospitality asset yields across the locations and prime properties in survey area is due to the downward non-core markets.” Savills Research  Investment sales in China pressure on yields, particularly in the and South Korea increased, with core markets. Prime yields in Tokyo,

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Market overview showed that the prime yield gap transaction volume in Asia Pacific The second quarter of the year has been narrowing due to further in Q2, with a total of 51 registered approximately US$1.67 compression in core markets such transacted for US$883.0 million, an billion worth of investment as Tokyo. Secondly, the acquisition increase of 70.3% compared with transactions, representing a 13.9% of Wentworth Sydney the same period of last year. Eighty- decrease over Q2/2013 (US$1.97 by Singaporean group, Frasers six percent of the acquisitions this billion). Centrepoint Limited, indicated that quarter were made by Japanese Sydney continues to be a priority REITs, including Invincible Investment Two major transactions concluded destination in the country for Asian Corporation, United Urban in the second quarter provide good hotel investors. Investment Corporation and Hoshino examples of investment market Resorts. 1 trends. Firstly, the sale of the b Northern Asia roppongi Tokyo, Japan for JPY3.50 The robust hotel investment market The most notable transaction was billion (US$34.5 million) at a cap rate in Japan contributed the largest the acquisition of a portfolio of 22 roadside Chisun Inn hotels in of 4.9% to United Urban Corporation 1 South Korea and Japan. various cities of Japan, operated by GRAPH 1 Solare Hotels and Resorts, which is Asia Pacific hotel investment sales transaction values, Q1/2010– based in Chiyoda-ku and is under Q2/2014 the umbrella of Lone Star Funds by 3,500 REIT. The price was approximately JPY14.6 billion 3,000 (US$143.0 million) in total, with a cap rate ranging from 7.3% to 7.8%. 2,500 Another example of a benchmark REIT transaction in the reviewed 2,000 quarter was J-REIT Invincible 1,500 Investment Corporation’s acquisition US$ million of 20 hotels – mostly limited service 1,000 facilities – from Fortress for a total transaction volume of JPY45.4 500 billion (US$443.3 million), and cap 0 rates ranging from 4.6% to 7.9%. Japan’s gradual shift towards asset price appreciation, positive hotel performance outlook and low Q1/2010 Q2/2010 Q3/2010 Q4/2010 Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012 Q2/2012 Q3/2012 Q4/2012 Q1/2013 Q2/2013 Q3/2013 Q4/2013 Q1/2014 Q2/2014 Source: Savills Research & Consultancy financing costs will continue to stoke investor demand for hard assets.

GRAPH 2 In South Korea, the sale of the Asia Pacific hotel investment sales transaction volumes by location, 321-room Pullman Ambassador Q2/2014 Changwon City was the first Others* transaction in 1H/2014, with a total 7% South Korea price of KRW71.1 billion (US$70.0 4% million) or KRW221.5 million (US$217,949) per room. The buyer China was Korea-based Hanlim Engineering 6% & Construction.

The outlook for the Korean hotel Australia and New investment market remains strong. Zealand With strengthening fundamentals, 19% Japan 64% increased confidence throughout the hotel sector, availability of debt and equity capital, and a growing appetite for Korean assets from non-domestic buyers, there is the capacity for new products to garner the competitive

Source: Savills Research & Consultancy and focused attention of the *Others including Sri Lanka and Maldives. investment community.

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Eastern Asia2 More vendors in Hong Kong are hotel investment market remained Hotel sentiment in China was robust, coming to terms with the softening favourable in the first half of 2014. with an approximate 4.3-fold rise sales market and some are willing Hotel room supply is relatively low over the same of period last year, to to accept lower offers to facilitate compared with competitor countries, a deal, although these are still rare stand at RMB655.1 million (US$104.8 offering attractive opportunities at the cases and volumes continued to million) from three transactions moment. The most recent investment record low levels over the quarter. over the second quarter. A notable action came from Philippines-based In the first half of 2014, only two transaction during the reviewed Shang Properties, which acquired a serviced apartments were transacted quarter was the acquisition of the 20% partial interest in the 674-room for a total of HK$505 million Shangri-la at the Fort for a total value 299-room five-star La Palazzo Hotel (US$65.1 million). in Maoming, Guangdong province by of PHP8.5 billion (US$189.8 million). The current positive sentiment has UK-based Ceneric (Holdings) Ltd for With an increasing weight of capital also attracted some institutional a total of RMB584.4 million (US$93.4 chasing limited existing hotel stock money on the move, with serious million), equating to RMB1.95 million and minimal new-build stock entering (US$312,500) per room. the market, investors and developers negotiations instead of the wait-and- are now searching for new ways to see attitude seen a few years ago. Serviced apartments saw growing bring hotel products to the market. interest from a number of domestic Outdated office towers are being With a further interest rate cut by the and international developers/ transformed into stylish boutique state bank in March, the hotel sector investors. Ascott Residence Trust hotels as investors take advantage of continued to see improving liquidity purchased the 195-room Shama a well-performing hotel sector. in Viet Nam. Currently, the Indochine Luxe Grand Central Serviced Park Tower in Ho Chi Minh City is 3 Apartment in Dalian, Liaoning Southeast Asia under contract for a total transaction province for RMB571 million Hotel investment activity in Southeast price of approximately VND300.8 (US$91.6 million), or RMB2.9 million Asia, excluding Singapore, slowed billion (US$14.3 million). (US$469,807) per room, with a cap in Q2 in terms of total transaction volumes, with a few deals still in the rate of 5.5%. Meanwhile, Guoson Demand from local and international closing stages. Centre (Guofeng hotel) in Shanghai investors declined dramatically was sold for a total of RMB588.2 amid political instability in the Thai In the Philippines, supported by million (US$94.8 million) or RMB1.8 capital. However, demand for holiday robust economic growth, the million (US$287,209) per room. destinations in Thailand remains 3 Thailand, Viet Nam, Malaysia, Singapore, Indone- 2 China, Macau, Hong Kong and Taiwan. sia and Philippines. resilient, with more deals expected

TABLE 1 Selected Asia Pacific hotel investment transactions, Q2/2014

Approximate sale price Approximate price Hotel Location Buyer (US$ million) per room (US$)

Fortress Hotel portfolio Various cities, Japan 443.3 65,464 Invincible Investment Corporation

Sofitel Wentworth Sydney Sydney, Australia 187.6 430,351 Frasers Centrepoint

The b Roppongi Tokyo, Japan 35.4 465,790 United Urban Corporation

La Palazzo Hotel, Maoming Guangdong, China 93.4 312,499 Ceneric (Holdings) Ltd

Pullman Ambassador Changwon, South Korea 70.0 217,949 Hanlim Engineering & Construction Changwon City

Source: Savills Research & Consultancy JPY/US$ = 102.4; A$/US$ = 1.07; RMB/US$ = 6.23; KRW/US$=1,016.27

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to be concluded in the second half GRAPH 3 of 2014, such as the acquisition Asia Pacific hotel sales transaction volumes by source of investment, of Movenpick White Sand Beach Q2/2014 Pattaya and The Hilton Hua Hin. China US 1% Q2 was another quiet quarter for 8% the hotel investment market in UK New Zealand 6% Singapore. By the end of the quarter, 0.3% the owner of Grand Chancellor Hotel, Sri Lanka UAE Singapore 4% a 328-room three-star in Singapore, 1% 20% Little India, had entered into a sale South Korea 4% Hong Kong and purchase agreement with an 2% unnamed party for S$248 million Australia (US$198.9 million). The transaction 3% is expected to be completed on or before January next year.

Frasers Hospitality Trust registered Japan an initial public offering of S$367.9 51% million in June, and has reported strong demand from institutional investors. Frasers Hospitality, which is sponsored by Singapore property Source: Savills Research & Consultancy giant Frasers Centrepoint Ltd, will have an initial portfolio of six hotels and six serviced residences valued Overseas investors maintain their believes that from Q2/2014, cap at around S$1.7 billion. The six strong appetite for Australian hotels, rates will continue to tighten over the hotels, from Frasers Centrepoint's contributing A$1.9 billion (US$1.7 next 12 to 18 months. Thai parent TCC Group, are the million) of transactions over the last InterContinental Singapore, 12 months. The Sofitel Wentworth Business conditions are improving Rockford Darling Harbour, Park Sydney was the largest transaction around the country, which should International London, Best Western in both the second quarter and the lead to increased demand for hotel Cromwell London, ANA Crowne first half of the year. The property accommodation as a result of a Plaza Kobe and Westin Kuala was acquired by Singapore’s Frasers pick-up in business travel. Savills Lumpur. The six serviced residences Centrepoint for A$202.7 million is currently expecting total sales of are Fraser Suites Singapore, Fraser (US$187.6 million), or a price per hotels in Australia to reach A$1.5 Suites Sydney, Fraser Place Canary room of A$464,908 (US$$432,644). billion for the 2014 calendar year. Wharf, Fraser Suites Queens Gate, Additionally, the Sheraton on the Although lower than the preceding Fraser Suites Glasgow and Fraser years, this will be considerably higher Suites Edinburgh. Park, which is currently on the market, is expected to sell to an than the ten-year average (A$1.1 Australia and New international investor and fetch in billion) and will round off a strong excess of A$450 million. period of investment in hotels in the Zealand country. Savills recorded 11 hotel transactions totalling approximately A$330.2 According to the latest data available In New Zealand, there was only one million (US$306.1 million) in Australia from IPD Australia, weighted average hotel transaction for a 17-unit limited for the reviewed quarter. This was a cap rates for Australian hotels in service hotel in Auckland, which sold 30.2% drop from the same period of March 2014 sit at 8.01%, a decline for NZ$6.2 million (US$5.3 million). the previous year, primarily due to the of 36 basis points over the three sale of three Rendezvous hotels for months to March 2014. Driven by a combined A$153.0 million in May the current levels of demand from 2013. overseas investors, Savills Hotels

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OUTLOOK The prospects for the market

 Given the ongoing pressure  Regional cross-border investors pricing in recovering regions, solid on prime core market yields, a have increased their share to secondary cities and core-plus or search for higher returns has 20% of total investment. They are value-add opportunities. been observed for some quarters particularly active in Australia and now. Although demand for core Southeast Asia, where they are assets in Tokyo, Hong Kong, playing an important role in the Singapore and Sydney is still recovery of the investment markets. high, the limited availability of stock and high prices are fuelling  We believe that while the market interest in either non-core areas for core assets will remain highly or those completely outside the competitive, investors will continue main investment markets. to seek value through attractive

Please contact us for further information Savills Hotels Savills Research

Raymond Clement Nathalia J. Wilson Julien Naouri Zoe Zhou Simon Smith Managing Director Director Associate Director Manager Senior Director Asia Pacific Asia Pacific Asia Pacific Asia Pacific Research, Asia Pacific +65 6415 7570 +65 6415 7589 +65 6415 7583 +65 6415 3873 +852 2842 4573 [email protected] [email protected] [email protected] [email protected] [email protected]

Michael Simpson Louise Tabone Angel Chen Managing Director Associate Director Associate Director Australia & New Zealand Australia & New Zealand China +61 2 8215 8831 +61 2 8215 8825 +86 21 6391 6688 [email protected] [email protected] [email protected]

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