Investors at HICAP talk pricing, development, green financing

SINGAPORE — The low-interest-rate environment in Japan has certainly been a strong magnet for hotel investment, but the fact that everyone loves Japan right now can also create some challenges.

“The pricing is very tight. So very often, you have to be able to ask yourself whether that price works for you,” said Hoe Kit Mak, managing director of Lodging Private Equity Fund for Singapore-based CapitaLand Investment. “More importantly, many times, we can add a lot of value.”

Mak was on an “Investment Insights” panel at the Hotel Investors Conference Asia Pacific (HICAP) last week in Singapore, which is run by Northstar Travel Group’s The BHN Group. Other panelists included Han Khim Siew, CEO and executive director for Singapore-based OUE REIT Management Pte. Ltd.; Paitoon Wongsasutthikul, chief investment officer for Bangkok, Thailand-based Asset World Corp.; and Angeline Tan, senior vice president for Singapore-based SingHaiyi Hospitality. The panel was moderated by Ling Wei Tan, senior vice president for JLL’s Hotels &Hospitality Group in Singapore.

Speaking of the investment market in Japan, where CapitaLand Investment (CLI) has been doing a lot of buying and selling lately, Mak said the value-add portion of CLI’s investment philosophy for hotel assets allows the company to do things a little differently.

“We dare to make changes to the asset in order to do what works for us and bring in the appropriate brand to serve the price point of what the customer in that locality will pay,” he said. “Even though we may have to pay tighter pricing, by bringing in value, we are able to add incremental yield to what we buy, which is why we have been selling.”

Mak brought up as an example the 140-key lyf Ginza Tokyo, which CLI recently sold to Singapore-based Invictus Developments for JPY10.5 billion ($93.02 million).

“You have to be prepared to go up your sleeve and do all this additional value-add work, which sometimes is definitely not easy. Not everyone can do that,” Mak said. “The issues may be simple, but I think solving the issues requires a lot more experience and a skill set of putting solutions around these problems.”

Preference between old and new

When asked whether newer and old properties provide the best return for Asset World Corp. (AWC), Wongsasutthikul said it depends on your strategy. He brought up the Grand Mercure Bangkok Windsor, which AWC acquired for $97 million in January 2023 and is spending another $65 million to convert it into what will be the first Fairmont in Thailand.

“Let’s say post-COVID because we know there’s going to be pent-up demand, and people are going to rush out to start to travel wherever they want, which they couldn’t do during COVID,” he said. “At that time, our strategy is to look for a brownfield asset like [the Grand Mercure], where we can do a conversion and you can do value-add… With that quick turnaround, let’s say one to two years, you can get the hotel up and running and start generating cash flow.”

Wongsasutthikul said the situation can be quite different for a greenfield project. “That provides you with an arena where you can be creative. You can adjust and do whatever shape and form you decide that you want,” he said. “At the same time, it will take you longer before the assets start generating [cash flow] for you.

“Luckily for us at AWC, we are looking long term… We try to balance between the operating asset and the developing asset… We’ve found a good proportion that we are comfortable with, such that the development asset will not load the portfolio, the cash flow and the company too much. So we’ll try not to exceed that threshold level.”

Green financing

OUE REIT issued a pair of green bonds in 2024 (a seven-year SGD green unsecured note at the initial guidance price of 4.15% in September and a three-year SGD senior unsecured green bond at the initial guidance price of 4.35% in June) and Siew said both have seen a lot of demand.

The wallet for green financing is growing, and because of that, the institutional investor coming in will drive that cost of debt down. We see that as a space to be moving into, but what that means is our assets have to be green-certified.

Paitoon Wongsasutthikul

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“For both bonds, the institutional investors’ allocation was north of 70%, so there was a lot of demand. But the investors are much more discerning and very concerned about greenwashing,” he said.

Siew said the REIT has a green finance framework for what it can or can’t do with green financing. “The wallet for green financing is growing, and because of that, the institutional investor coming in will drive that cost of debt down,” he said.  “We see that as a space to be moving into, but what that means is our assets have to be green-certified.”

Moving into the Maldives

Tan was asked about SingHaiyi’s first two investments, both in the Maldives, the Grand Park Kodhipparu and the forthcoming Hyatt Regency Samarafushi Maldives. She said the location is a fantastic starting destination for anyone.

“The first resort that we opened in 2017 has been pretty successful and that gave us the opportunity to open another resort, which we recently announced designing with Hyatt,” she said. 

While the Grand Park property was more of a turnkey project, the Hyatt Regency project is pretty much being built from scratch.

“We just completed the reclamation of the entire lagoon. Construction is going to commence sometime in the first quarter of next year. It’s pretty challenging because it depends on the monsoon season,” she said. “There is bleaching of corals that we need to be mindful of, so we are working with the tourism agencies and the contractors, and we just have to manage the timeline, taking environmental and climate considerations into consideration.

“It’s never easy because it’s not on the mainland, so we are building from scratch, from reclamation of the entire lagoon. Whether it’s a beach villa or the water villa, all this planning comes in place.”