Ascott Becomes One of London’s Largest Serviced Residence Chains With Joint Venture
November 20, 2001 Singapore - The Ascott Group, Asia Pacific’s largest serviced residence company, has become one of the largest serviced residence chains in London through its joint venture with a UK developer.
The group has teamed up with medium-sized residential developer Crown Dilmun Holdings to form a 50-50 joint venture serviced residence company called Ascott Dilmun. The entity will acquire Crown Dilmun’s six serviced residences with 461-units and The Ascott Group’s 56-unit The Ascott Mayfair in London with a total portfolio value of £146.5 million.
In the tie-up, where each partner focuses on its business strengths, The Ascott Group will manage the serviced residences under its The Ascott and Somerset brands. Crown Dilmun will oversee the development of new properties that the joint venture company seeks to acquire.
The joint venture company has also been granted the call options to acquire the developer's 116-unit serviced residence in Manchester which is operational, and 102-unit serviced residence in Glasgow, which is being built and due for completion in August next year. The acquisitions will be at the total agreed valuation of £30.3 million, subject to agreed terms within two weeks of the main joint venture agreement.
With these additional properties, the group will operate a total of 783 units in the UK, with 565 units in London. This gives it 12 per cent market share in the capital, making it a significant serviced residence operator in the city. Besides The Ascott Mayfair, the group currently manages the 48-unit Somerset Bishopsgate in London.
Joint Venture Transaction
The joint venture transaction will be in two phases. In the first phase, the group will sell to the joint venture company its The Ascott Mayfair for £27.4 million, which is above the book value of £24 million. The £1.6 million gain, after sale costs and tax provisions, will be recognised next year.
The joint venture company will also purchase Crown Dilmun’s London serviced residences that are operational at the agreed valuation of £36.4 million. These comprise the 94-unit Roland House in South Kensington and 37-unit Princes Square in Bayswater. Completion of the first phase is scheduled for January 3 next year.
In phase two, the company will acquire the developer’s 78-unit Chequers serviced residence which is operational, and its 29-unit extension which will be built by October 2002 in South Kensington.
It will also purchase Crown Dilmun’s 40-unit and 183-unit serviced residences under development in Bayswater which are due for completion in March 2002 and 2003. The total agreed valuation for the phase two properties is £82.7 million once completed.
Ascott and Crown Dilmun will each inject £10 million into the joint venture company under phase one, and £11 million under phase two. The Ascott Group will finance its equity in the joint venture through proceeds from its sale of The Ascott Mayfair.
Leadership in London
The Ascott Group’s chief executive officer, Mr Kee Teck Koon, said: "The joint venture presents an exceptional opportunity for us to work with a respected local partner to establish leadership in the London serviced residence market, with a portfolio of quality properties in West End’s prime areas.
"Our critical mass and presence in this strategic global financial centre will serve as an excellent springboard for our expansion into the rest of the UK, and major European cities such as Paris, Frankfurt, Brussels and Milan."
Crown Dilmun's chief executive officer, Mr Nick Sutton, said: "Ascott's service, quality branded properties and approach to creating high yielding operations, make them an ideal partner in our plans to grow what is already one of the UK's largest serviced residence portfolios, into the industry leader."
Mr Kee said that the stabilised joint venture properties will have attractive EBITDA yields averaging nine per cent, with gross operating profit margins of 65 to 70 per cent.
"As our joint venture equity is funded from the sale proceeds of The Ascott Mayfair, our expanded UK presence is being achieved without impacting our gearing. Instead, we have restructured our UK asset for significantly improved capital productivity," he added.
Mr Kee said that the joint venture will increase the group’s allocation in the UK to 11 per cent of its total portfolio, and its exposure in developed markets to 36 per cent of its portfolio, from 29 per cent.
This is in line with its strategy to increase its allocation in developed markets, such as Europe and the United States, to 65 per cent by 2005. Mr Kee said that the more stable earnings from these mature economies will replace income from the non-core properties it is divesting.
He added that with the higher profile in London, the group’s The Ascott and Somerset brands will be able to achieve faster market penetration, to secure more leases or management contracts. This fits its plans to become more asset-light with improved capital productivity.
He said that with the re- branding of the Crown Dilmun joint venture properties as Somerset, the group will expand its presence in UK’s mid-tier four-star serviced residence segment. This sector has continued to show resilience despite the slowdown in global travel since the US September 11 incident.
The expanded portfolio will also enable the group to achieve greater economies of scale and operational synergies for its UK operations.
Mr Kee added: "There is good opportunity for us to establish market leading brands in the UK, as there is no clear leader in the country’s serviced residence industry. We aim to expand our joint venture to 2,500 serviced residence units in five years.
"We see good growth potential. The 4,600 serviced apartments in London form only two per cent of temporary accommodation in the capital. There is potential for this to more than double to five per cent, as in the developed serviced residence markets of major cities in the US."
He added that serviced apartment supply in London is limited by difficulties in obtaining building conversion and planning approvals.
However, demand for serviced residences is robust as such apartments are generally preferred by business travellers and corporate tenants. The serviced apartment occupancy in London has been rising from 82 per cent in 1998 to 85 per cent in 2000. The sector has consistently outperformed others in the accommodations industry.
The impact of the September 11 incident was less severe for UK serviced residences than for hotels. Serviced apartments saw a five to 15 per cent drop in room rates, with the more resilient mid-tier properties dipping only five per cent. Hotel rates fell 15 to 30 per cent for the same September and October period.
Joint Venture Completion
As phase one of the joint venture will only be completed in 2002, there will be no impact on the group’s earnings per share or net tangible assets per share for the current financial year ending December 31, 2001.
A. The Ascott Group-Crown Dilmun Joint Venture
Phase One Acquisition (Completion Jan 3, 2002)
|Units||Acquired From||London Location||Unit Type|
|94||Crown Dilmun||South Kensington||Executive studio, one to two-bedroom|
Princes Square 1
|37||Crown Dilmun||Bayswater||Executive studio, one to two-bedroom|
The Ascott Mayfair
|56||Ascott||Mayfair||Studio, one to three-bedroom|
Phase Two Acquisition
|Units||Completion Date||Acquired From||London Location||Unit Type|
|Chequers and new extension||107||78 units - operational
29 units - to be completed October 2002
|Crown Dilmun||South Kensington||Studio, one to three-bedroom|
Princes Square 2
|40||March 2002||Crown Dilmun||Bayswater||Executive studio, one to two-bedroom|
|183||March 2003||Crown Dilmun||Bayswater||Studio, one to three-bedroom|
B. Call Options
The joint venture company has also been granted call options to acquire two other Crown Dilmun properties
|Property||Units||Completion date||Location||Unit Type|
|The Atrium||116||Operational||Manchester||Executive studio, one to two-bedroom|
|Property at Albion Street
|102||Completion August 2002||Glasgow||Executive studio, one to two-bedroom|
C. The Ascott Group's Other Managed Serviced Residence in UK
|Property||Units||London Location||Unit Type|
|Somerset Bishopsgate||48||Bishopsgate||Studio, one and two-bedroom|
About Crown Dilmun
Crown Dilmun has established itself as a developer of quality residential developments with a track record of over 1,750 apartments in several UK cities. It is also a specialist in refurbishment projects. In 1999, Crown Dilmun set up a serviced residence business operating under the Central Apartments brand.
About The Ascott Group
The Ascott Group is Asia Pacific's largest serviced residence company. Its The Ascott and Somerset serviced residence brands are market leaders in the region.
The group aims to enrich the well-being of its residents who live and work away from home. Its serviced residences span over 6,400 units in 17 cities in 10 countries across Asia, Australasia and the UK.
Its luxury The Ascott brand projects an elegant lifestyle that appeals to top executives. Its Somerset brand offers stylish living for senior to upper management executives.
Headquartered in Singapore, The Ascott Group's shares trade as 'Ascott' on the Singapore Exchange. The group is the serviced residence arm of CapitaLand Limited, Southeast Asia’s largest listed property company.