Heated hospitality segment for M&As
Heated hospitality segment for M&As
Merger and acquisition activity is growing across Asia Pacific's real estate market, and in Vietnam there are signs that institutional investors are continuing to increase their allocations in the industry.
Figures released from real estate consultancy JLL this month have revealed that Asia Pacific’s hotel transaction volumes are expected to increase from 25 to 30 per cent on-year, to more than $11 billion in 2019.
Vietnam in particular has become an alluring destination for many financiers, largely due to the country’s friendly policies encouraging foreign direct investment, along with its political stability and strong economy.
Furthermore, the country has taken the initiative to improve transparency to the next level, according to JLL’s Global Real Estate Transparency Index freshly released. As a result, Vietnam remains one of the most favoured destinations for foreign investment in the region.
The Vietnamese hotel transaction market has shown exciting signs this year. Notable successful transactions in 2019 alone include The Grand Ho Tram Strip resort, which has been sold to Warburg Pincus, and JLL successfully consulting on a 5-star hotel transaction in the central city of Nha Trang.
According to JLL’s observations, both international and domestic investors are showing a difference in their tastes. While foreign investors are actively seeking opportunities with higher returns in Vietnam via operating hotel assets with in-place cash flow, the majority of domestic equivalents are interested in developing hotels and resorts from vacant land banks.
“In Vietnam, realistically, the selling price is more expensive given the amount of capital that there is to be allocated the market, especially from those still able to achieve cheap corporate debt from 2 to 4 per cent in markets such as Japan, South Korea, Hong Kong, and Singapore,” said Trang Vo, vice president of JLL Hotels and Hospitality Asia Pacific.
“In the current market situation, the yield recorded in successful transactions could be compressed to 7-8 per cent dependent on the asset types and investment strategy. It is noted that the 8 per cent is lower than the loan in Vietnam though and hence most local groups focus on development where returns may be higher,” Trang said.
“We also witnessed domestic demand in hotel investment has been growing in recent years. With the advantages of geographic and economic understanding as well as the national political situation, domestic investors are willing to pursue deals of great transaction value, bringing fierce competition to overseas investors,” Trang added.
Regarding lucrative locations within Vietnam, Hanoi and Ho Chi Minh City are expected to remain as the top two cities on the radar, followed by the two popular coastal destinations of Danang and Nha Trang. It is recognised that hotels in city centres will bring higher and more stable cash flow than coastal resorts and hotels.
Meanwhile, Ho Chi Minh City and Hanoi are the main markets in Vietnam for mergers and acquisitions in the hospitality industry.
Since 2006, Ho Chi Minh City has accounted for a quarter of all M&A deals, followed by Hanoi at 23 per cent.
Danang and Phan Thiet, two resort cities on the central coast, accounted for 7 per cent each, while Phu Quoc and Dalat reached less than 3 per cent each.
Other tourist destinations such as Haiphong City, Quy Nhon Province, Con Dao island, Lao Cai and An Giang provinces, Hue and Can Tho cities accounted for around 1.4 per cent each.
The last decade witnessed a series of hotel M&A deals in Ho Chi Minh City, mostly in the downtown area and near Tan Son Nhat International Airport.
Some of the big names on the list include the Mövenpick, Riverside Serviced Apartments, New World Saigon Hotel, Renaissance Riverside Hotel, Novotel Saigon Center, Duxton Hotel, Intercontinental Saigon Hotels & Residence, and Senla Boutique, all in Ho Chi Minh City.
In 2016, Singaporean property developer Mapletree Investments bought out the Kumho Asiana Plaza, a landmark building in the downtown area, from South Korea’s Asiana Airlines and Kumho Industrial Co., Ltd. for $215 million, along with the InterContinental Saigon Hotel & Residence.
The hotel costing $74.9 million and was one of the 10 biggest hotel M&A deals in the first half of that year across the whole Asia-Pacific region.
Elsewhere in last December, Berjaya divested its 75 per cent stake in TPC Village to Hanoi Hotel Tourism Development for a cash consideration of VND1.245 trillion ($54.1 million). TPC Village is involved in the operation of the five-star InterContinental Hanoi Westlake Hotel.
JLL estimates that 118 hotels are going to be completed by 2022, adding nearly 37,000 rooms to the existing 81,000 rooms in almost 750 hotels across Vietnam as of 2018.
