Asian outbound capital focuses on yields, value-add
 
Asian outbound capital focuses on yields, value-add
03 DECEMBER 2019 8:49 AM

Asian capital might be looking at brand scale in Asia itself, but its increasing outbound muscle is instead putting a focus on yield, self-management and fewer brands.

HONG KONG—The future for Asian hotel owners looks very bright, according to sources at the recent Hotel Investment Conference Asia Pacific.

Tony Ryan, managing director, global mergers and acquisitions, hotels and hospitality, JLL, and the moderator of a panel titled “What is the future, and where are the opportunities?” said for full-year 2018, capital flows into Europe from Asia totalled $4.9 billion, dwarfing the $3.1 billion out of North America and the $0 from the Middle East.

Since the panel was held on 25 October, one Chinese hotel firm, Huazhu Group, put its money where its mouth was and spent €700 million ($771.5 million) on 120-asset Deutsche Hospitality from Germany on 8 November.

Fei Ye, VP of strategic investment, Huazhu Group, knew that was coming, of course.

“We are thinking of buying an upscale brand in Europe and bringing it back to China,” Ye said at the panel.

He also saw a big opportunity in the midscale and economy segments, which he said would fit well into his portfolio.

Robert Williams, partner at business consultancy Withersworldwide and the panel’s co-moderator, said it is a myth that all hotels in China are “five-star” ones.

“The move to an asset-light strategy may have reached its peak, it may be over, and now there is a more nuanced approach with brands having to speak to consumers as we go over the top of the cycle,” Ye added.

Ye said despite the cash being splashed, he believes hoteliers will become more selective over what they acquire.

“Things are going south very clearly. We are long-term capital. We take on real estate and long leases and sell down over time,” she added.

Brand stand
Another change in mentality, panelists said, was that a branded hotel or portfolio is not so much attractive due to the heightened distribution that provides but because access to capital is easier that way, and because debt is so cheap.

Abbas Rangwala, head of mergers and acquisitions, InterGlobe Enterprises, an Indian conglomerate with a hotel division, said his firm loves the macroeconomics of Europe.

The firm currently has 17 hotels, including the K+K Elisabeta in Bucharest that it bought in September, he said.

“There is more fiscal stability, and (European portfolios are) still manageable from here. Plus, we are also seeing a growing level of travel to Europe,” Rangwala said.

Asian capital is concentrating on operational excellence and cash flow, not so much on real-estate yields, panelists said.

Rangwala said InterGlobe implemented its international strategy in 2017.

“We are searching for yield, looking at a good (market capitalization) rate of 8% and at more value-add,” he said.

Rangwala said he does not intend putting a franchise on top of European buys.

“Yes, big brands have the distribution, but there is a big cost on that. We feel it is better to have white-label (management), although we might put our own management in at some time,” he said.

He added that European buys still are very competitive buys.

“There is not so much private equity, some institutional, also some other Asian capital. I think we offered a longer-term hold than other proposals, and we could justify the pricing,” Rangwala said.

Huazhu is a much larger company, with a market capitalization of approximately $10 billion, Ye said, and with more than 5,000 hotels and 500,000 rooms. In China, it has the master franchise for Accor’s brands Mercure and Ibis as well as its new Deutsche purchase.

“Capital in China is now all looking at third- and fourth-tier cities of China,” Ye said.

That is helped by how difficult it is for foreigners to buy real estate in China, Ryan said.

“China shows low (revenue per available room) and high interest rates, and real-estate funds are set up separately. It is access to and knowledge of local owners that allow expansion,” Ye said.

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