Asian investors cash in on Aussie hospitality

As China’s growing middle class looks further afield for leisure travel, Asian investors are snapping up Australian hotels on a bet that our shores will be in hot demand.

In recent months, Asian investors have stepped up hotel acquisitions in Australia – a country they see as the next big frontier for Chinese tourists.

The thinking is that, while most first-time Chinese tourists visit neighbouring South East and North Asia, they will venture further afield to countries like Australia, which is already a sought-after destination for wealthier Chinese.

Sensing the potential, Chinese airlines have dramatically increased flight frequencies to Australia, building on the strong VFR (visiting friends and relatives) market here – and growing business travel between China and Australia.

According to the World Travel and Tourism Council, the Chinese outbound travel market is expected to reach 200 million a year by 2020 – up from 84 million in 2012.

Offshore groups snapping up Australian hotels come mostly from Singapore, Hong Kong and Thailand – each of which has benefitted from the growth in global tourism.

Collectively, offshore investors accounted for some 80 per cent of the $2.6 billion in sales of Australian hotels since 2012. More deals are pending.

Hotel industry experts estimate that possibly as high as 85 per cent of Australian investment grade hotels, valued by Jones Lang LaSalle Hotels at $38.4 billion at December 2011, are in foreign hands – mostly savvy Asian groups.

Trophy hotels like the Shangri-la and Park Hyatt in Sydney, Grand Hyatt and Park Hyatt in Melbourne, Westins in Sydney and Melbourne and the Four Seasons Hotel in Sydney are already foreign-owned.

But noone has come with a more ambitious plan than Tony Fung: a $4.2 billion mega resort with nine luxury hotels, casino and apartments to be built outside Cairns, at Yorkey's Nob, close to the Great Barrier Reef in northern Queensland.

Cairns property sources say Fung's proposal fits well with the vision of the Newman government to turn tourism into a major economic driver in northern Queensland.

A spokesperson for Jeff Seeney, Queensland's deputy premier and minister for state development, infrastructure and planning, says the government is treating Fung's proposal as a co-coordinated project, requiring "whole-of-government" assessment.

Another Hong Kong buyer, Benny Wu, recently acquired the 150-room Acacia Court Hotel in Cairns for around $18 million, taking his total portfolio in far north Queensland to $150 million.

And a Chinese company known as Fullshare Group is moving full steam ahead with a $20-million renovation of the dated Mirage Port Douglas.

Fullshare Group backed Melbourne businessman David Marriner in his purchase of the hotel for $35 million in 2011, but local sources say that the Chinese investors have now bought out Marriner's interest.

Cairns was the playground of Japanese tourists in the 1980s. Locals now hope that the Chinese tourists will find their way there in coming years.

They suggest that direct flights operated by Cathay Pacific and two Chinese airlines – China Southern and China Eastern – will pave the way for Chinese tourist dollars to flow their way.

The buying cycle has coincided with an expansion spree by Asian hospitality and other groups.

Some of the new arrivals see Australia as a springboard to a new market, or to establish a hotel management business.

Singapore's SilverNeedle Hospitality recently took over Sydney-based hotel management company, Constellation Hotels, giving it entry to Australia and geographical diversification.

Elsewhere, large Singapore developer, Far East Organisation, formed a $450 million joint venture with major Australian privately-owned hotel company, Toga Group, in May this year, giving it the opportunity to expand its footprint to a new market.

The Singapore government-linked industrial property developer Ascendas bought hotels from Mirvac Group for $340 million last year to seed its Ascendas Hospitality trust, now listed on the Singapore Stock Exchange.

In fact, the allure of Australian hotels as investment assets is not a transient affair.

Back in 1989, Singaporean Khoo Teck Puat paid $540 million for the Southern Pacific Hotel chain of 44 hotels with 6,200 rooms.

That record was broken this year when the Abu Dhabi Investment Authority (ADIA) paid $800 million for Tourism Assets Holdings' hotel assets.

Industry sources say offshore investors, particularly Asian buyers, come with a long-term mindset. They are prepared for the volatility of the global tourism industry, and convinced of capital growth over time.

They have stepped into the void left by Australia's listed owners – Mirvac Group, GPT Group and Stockland – which chose to jettison their hotel operations in the wake of the global financial crisis.

Some hotels, like the Four Seasons in Sydney, were owned by unlisted funds, and were sold to recycle the capital, says Jones Lang LaSalle’s veteran hotel specialist Mark Durran.

Four Seasons Hotel, built by a Japanese group in 1980s, was sold to Korea's Mirae Asset Global Investments for $340 million this year.

Durran sold three Marriott Hotels to the Malaysian conglomerate, YTL Corp, for $415 million this year. They were previously held in an unlisted Colonial First State Global Asset Management fund.

YTL bought the Marriott Hotels to grow its listed Kuala Lumpur-listed Starhill REIT.

Colliers International's managing director hotels Asia Pacific, Stephen Burt, the former chief executive of Mirvac Hotels, says the Australian market is too small for a listed Australian company to have a "scalable" hotel business. By scalable, he means, a portfolio of around $3 billion worth of hotels.

In contrast, offshore buyers are happy to be able to buy a hotel for, say, $200 million to fit into a regional chain, says Burt.

The Singapore-based Robert McIntosh, executive director of CBRE Hotels, Asia Pacific, says returns in Australia are higher than in Asia.

Also, supply is somewhat static in Australia, compared to a country like Singapore, which has a target to increase the number of hotel rooms by 10-15 per cent each year over the next three years.

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