Singapore Property | Royal Group eyes more hotel buys in Asia, Europe

It is focusing on key locations in gateway cities.

By Kalpana Rashiwalakalpana@sph.com.sg@KalpanaBT

"Our skill is that we can move very fast," says Mr Wilding (right), seen here with Royal Group co-chairman Bobby Hiranandani.

Apr 4, 20165:50 AM

ROYAL Group, a property group with an enterprise value of more than S$3.5 billion, is looking to make hotel acquisitions in Kuala Lumpur, Sydney, London and continental European cities, among others.

In an interview with The Business Times, the group's managing director Peter Wilding also revealed that other potential acquisition markets include Jakarta, Bangkok and Hong Kong.

"We see significant growth in the hospitality business; we generally remain bullish on tourism globally, which is being aided by cheaper airline travel. We focus on key locations in gateway cities - and our primary target market would be business travellers."

Mr Wilding added, however, that the group is also eyeing opportunistic acquisitions catering to leisure travellers.

The group currently owns six hotel assets, of which four are in Singapore. These include Sofitel So along Robinson Road and Sofitel Singapore Sentosa Resort & Spa. There are also two boutique budget hotels in Chinatown which are operated by tenants that have leased space in Royal Group's conservation shophouse properties along Trengganu Street.

Overseas, the group's portfolio comprises DoubleTree by Hilton Kuala Lumpur and InterContinental Sydney Double Bay.

Most of the group's hospitality assets were bought in the past five years - an expansion wave made possible by strong rental income from investment properties, including a large but scattered portfolio of retail units.

This includes about 20,000 square feet in the basement of Lucky Plaza along Orchard Road, said Bobby Hiranandani, co-chairman of Royal Group. The space is leased to tenants such as McDonald's, Watsons and Asian Food Mall.

The group also owns space in the basement of Peninsula Plaza along North Bridge Road that has been leased to a food court operator. Other strata retail units held by the group are in places such as Far East Plaza on Scotts Road and The Arcade in Collyer Quay.

Recurring income

Royal Group also owns strata offices (for example, at 6 Raffles Quay and Grand Building) and industrial units at Pantech Business Hub in Pandan Loop in addition to a few apartments and penthouses.

The group owns two office buildings at 1 and 3 Phillip Street in Singapore's CBD.

Mr Wilding said that the group reaps an annual recurring income of slightly more than S$100 million - comprising rental revenue from retail, office and industrial properties, and gross operating profit from hotels. "I think many companies would be envious of having that recurring income. It looks as though now a lot of public companies are going back and revisiting that strategy and looking for recurring income - whereas we have been building it for over 30 years," he added.

Royal Group was established by Mr Hiranandani's father, Asok Kumar, in 2011. That was also the year when the senior Mr Hiranandani and his brother, Raj Kumar, separated their business as part of a restructuring of the Royal Brothers Group, which the duo had built up since the 1980s. The family business, however, dates back to 1947 when their parents started a retail business trading in textiles and garments.

Despite Royal Group investing heavily in the hospitality segment over the past five years, its gearing level is conservative at less than a third, said Mr Bobby Hiranandani. "This is a historic company. So there are a lot of historic assets in there that are at almost negligible gearing."

Of the group's six hotel assets, only Doubletree by Hilton Kuala Lumpur was a "ready-made" asset. All the others, including the two Chinatown budget hotels, involved the group undertaking significant refurbishment or development.

In 2013, the group picked up a distressed hotel asset in Cross Street, Sydney, that had been out of operation for seven years. It took Royal Group nine months to refurbish the property before reopening it as the InterContinental Sydney Double Bay.

In Singapore, Royal Group bought the Sentosa Resort & Spa (formerly known as The Beaufort Singapore) in 2013, which it refurbished while the hotel continued trading. The property was relaunched last October as a Sofitel.

Opposite Lau Pa Sat in the CBD, the group clinched a landmark conservation building (formerly Ogilvy Centre) at a state tender in 2011 - which it developed (adding an extension) into a hotel. The Sofitel So Singapore opened its doors in 2014.

The 134-room property trades consistently at 95 per cent occupancy and is often full. The average room rate is close to S$400 per night and guests are predominantly in the financial industry.

Currency exchange rate volatility is a major headwind facing the group's hospitality business, especially as it enters new markets, said Mr Wilding. Of course, one way to mitigate the impact of forex volatility for hotel owners is to borrow in the local currency when buying a hotel, which acts as a natural hedge.

Nimble

Mr Wilding also noted that prices of Australian hotels have risen sharply in recent years, resulting in a compression in capitalisation rates. In some instances, these cap rates are very close to the cost of borrowing for the investor.

"We then take our focus out of such markets and move into a different market - in pursuit of a better investment outcome . . . Our strength is that we are nimble enough to be able to move in and out of markets without constraint."

A civil engineer by training, the Australian's previous posts include executive director of Abu Dhabi- based Mubadala Real Estate and Hospitality and managing director of Lend Lease's Asian project management and construction unit.

In 2014, he joined Royal Group. Initially he was the managing director of its Australian subsidiary and oversaw the repositioning of the property at Cross Street in Sydney that Royal Group had acquired in April 2013. When that task was completed and the hotel reopened as the InterContinental Sydney Double Bay in November 2014, Mr Wilding soon moved back to Singapore and assumed his current post in February 2015.

Royal Group, he said, is very careful in making investments. "But our skill is that we can move very fast."

Mr Bobby Hiranandani said that for now, the group is not looking at going public; market conditions are not conducive as reflected in the significant discounts to net asset value at which most property groups are trading on the local bourse. "But you never know what the future holds."