Thailand’s top owner pays to get top spenders

The biggest hotel owner in Thailand, Asset World Corp., made the largest hotel transaction in the kingdom last year, buying the Grand Mercure Bangkok Windsor for $97 million (3,185 million baht). It will spend another $65 million (2,121 million baht) to uplift the hotel and is in the signing stage to turn the property into a Fairmont.

With a few more millions, that upgrading bill could buy AWC another hotel, as shown in its acquisition of the 264-key Westin Siray Bay Resort & Spa Phuket for $75 million (2,450 million baht), also transacted last year. Again, AWC will invest a big sum in relation to the purchase price – $34 million (1,101 million baht) – to reposition the hotel. “This will be a Marriott,” said AWC’s CEO and president, Wallapa Traisorat, in an interview with Hotel Investment Today on the sidelines of the 12th Thailand Tourism Forum in Bangkok.

The Grand Mercure deal was done despite Bangkok’s ADR failing to reach 2019 levels, as of November 2022, whereas all popular Thai beach destinations have hit or exceeded the mark, according to STR data. Most of AWC’s 19 hotels (5,201 keys) are in Bangkok.

HotStats data shows Bangkok hotels average occupancy was 53% in 2022 vs 79% in 2019. RevPAR was equally terrible, $65 in 2022 vs $95 in 2019.

As for the Westin Phuket, some analysts are skeptical. Said one, “This is a difficult property since day one due to the design – not sure if a change in the brand would solve this.”

Another said it’s the location.

But AWC’s CEO and President Wallapa Traisorat has a plan. She wants to drive more revenue by focusing on high-end and luxury hotels, a segment that has performed best for AWC since the pandemic, followed by meetings.

“Currently we have huge MICE [meeting and convention] hotels and resorts,” Traisorat said. “We are changing the model.”

The two transactions in 2022, along with a more modest buy of DusitD2 Chiang Mai for $13 million (435 million baht), account for nearly 60% of the volume of Thai hotel transactions worth $318 million (10.4 billion baht) last year, JLL Hotels & Hospitality Group figures show.

AWC will continue to figure heavily in Thai hotel deals market this year and beyond, not only because sentiments have improved since last year and Chinese travelers are returning, but because it has access to more funds.

The company is in a joint venture with Singapore’s GIC and holds a 51% share of the separate entity, AWC Hospitality Development, established in July last year.

This means on top of its five-year $3.1 billion (100 billion baht) investment plan 2020-2025, which includes new acquisitions, expansion and renovation of existing assets, there’s an amount of up to $391 million (12,800 million baht) to invest in hospitality projects in key Thai destinations for the joint venture.

Traisorat said the projects will all be hotel investments and, for the first time, AWC would also earn fees as the “fund manager” – another new model.

“We are working on different opportunities to put into the AWC Hospitality Development vehicle. There could be eight to 10 hotels, depending on the size,” she said.

Another aspect of AWC’s shifting strategy is to develop “unique” mixed-use projects comprising hotels, offices, retail and attractions, which will create an “integrated experience” and “attract higher-spending tourists to Thailand,” said Traisorat.

Hospitality generates 47% of AWC’s revenue, followed by office (38%), retail (11%) and wholesale (4%), based on its 3Q22 earnings report. The company is part of TTC Group, founded by her father, Thai tycoon Charoen Sirivadhanabhakdi.

Among mixed-use projects currently under development is the expansion of its shopping/dining destination Asiatique The Riverfront Bangkok. This will field the tallest building in Thailand designed by Adrian Smith + Gordon Gill Architecture, and three Marriott International luxury hotels among them a Ritz-Carlton Reserve.

In the heart of Pattaya, AWC is developing an integrated beach-facing lifestyle destination comprising wellness and retail centers, an aquarium, amusement parks, a convention center and high-end hotels including a Vignette Collection and an Autograph Collection hotel.

AWC is also revitalizing Bangkok’s Chinatown with a mixed-use development in historic Woeng Nakorn Kasem, the roots of Thais of Chinese heritage. It will feature hotels, including IHG's InterContinental and Vignette Collection, a retail mall and the largest underground retail store in Bangkok.

In the capital especially, the need for differentiation is becoming critical as more rooms are opening amid an oversupply.

Research by Krungsri, a Thai bank, shows that of 120 hotels (29,861 rooms) opening between 2022 and 2026, 47 hotels (12,089 rooms) are in Bangkok, followed by 16 hotels (3,383 rooms) in Phuket and 15 hotels (4,896 rooms) in Chonburi/Pattaya.

But this has not shaken Traisorat’s conviction that by working with the right operator to identify the right segment and brand in a market, all will be well.

AWC's 3Q2022 earnings report shows revenue from the hospitality division rose more than 100% over 3Q2021 to $55 million (1,789 million baht), and 38.6% over 2Q2022. It attributed this to the country’s reopening, along with a “strong global partners network” and quality assets “which are an edge in gaining access to high-to-luxury prospects.”

Overall occupancy in 3Q2022 was 53% while ADR, at $150 (4,920 baht), was higher than pre-pandemic, it said.

International chains – Marriott, Hilton, IHG, Hyatt, Melia, Okura, Banyan Tree, Nobu and most recently Accor – jostle to manage AWC hotels. Nobu even gave AWC the exclusivity to develop Nobu hotels and restaurants in Thailand.

Said Andrew Langdon, Accor’s senior vice president Southeast Asia, Korea and Japan, of Accor’s MOU with AWC, “It's a longterm partnership combining the development capacity of Thailand’s largest hotel owner/developer with Thailand’s largest international operator [Accor], to roll out a portfolio of truly inspiring hotels catering to a range of segments and hotel positioning in Thailand.”

Typically, an MOU is signed between the operator and AWC to develop hotels with more than 1,000 rooms, “strengthening Thailand as a global tourism destination,” an AWC media release said.

Asked why hotels are able to do that, Traisorat gave a pool villa example. The product might not be so unique anymore, but it is to some markets, thus creating new interest for these markets.

“I added Banyan Tree in Krabi and in Pattaya. Pattaya is generally a mass market destination but when we add a pool villa product, it is unique to Pattaya and it strengthens the competitiveness of the location,” she said.

Meanwhile, JLL forecasts an increase in Thai hotel transaction volume this year to $370 million (12 billion baht), from $318 million (10.4 billion baht) last year.

“That’s healthy – in line with the 10-year average,” JLL head of Thailand investment sales, Chakkrit Chakrabandhu Na Ayudhya, said at the forum.

But rising development and debt costs are dark spots. In a JLL survey of 120 investors from seven markets conducted last August/September, 65% said development costs have increased by more than 10%; 53% said debt cost has risen by up to 100 basis points (1%) versus 2021.

Nevertheless Thailand remains attractive as the spread between hotel yield and interest rate is still positive (see chart 2), said Chakrabandhu Na Ayudhya.

“It’s not as aggressive as Tokyo or Kyoto but it’s still up there. Along with fundamentals such as Chinese [travelers] coming back and strong key destinations, the outlook for Thailand is good,” he said.