Having recently opened an office in Singapore, KFS Hotel Capital is actively pursuing hotel investments and acquisition opportunities in Southeast Asia, Japan and Korea.
Three Australian hospitality industry veterans – CEO Phil Kasselis, CFO Ed Faraguna and Chief Investment Officer Luke Sullivan – lead the company, with a combined experience of more than 80 years in fund and asset management. , transaction execution and hotel operation and development.
The three leaders previously worked together at Sydney-based Pro-invest Group. Kasselis was general manager, Faraguna was chief financial officer, and Sullivan was general manager of hotel asset management for the company.
Singapore’s reputation as a leading financial center and home to regional headquarters and major hotel investors and management companies was behind KFS’s decision to make the city-state its Asian base.
“Additionally, Singapore has a strong and transparent economy and a very attractive tax system that encourages foreign investment and ownership. There is also a strong pool of local talent experienced in our industry,” Kasselis said.
Institutional investors, high net worth individuals and family offices showed “a high level of interest” with a “strong appetite for direct investments in single or multiple assets via separately managed account structures or investments via blended funds “, said Kasselis. .
Focusing on the high end of the upscale to luxury hotel sector, KFS Hotel Capital focuses on acquiring hotels and resorts with the potential for refurbishment, rebranding or repositioning.
The company’s strategy is to deploy capital to transform hotels so they are “more competitive, market-ready, sustainable and more profitable in a post-COVID 19 market recovery,” Kasselis said.
Kasselis said the pandemic has made many hotels obsolete and less attractive to guests due to insufficient or poor maintenance.
This, he said, has serious business implications in a highly competitive market.
“Many owners run the risk of their hotels becoming uncompetitive, or worse, ending up obsolete,” he said.
Kasselis said that before the pandemic turned everything upside down, the hotel investment market “could best be described as ‘foamy’ due to the low cost of debt, the sheer weight of capital looking for yield and the hotels increasingly recognized as an attractive alternative asset class, offering attractive risk-adjusted total returns and favorable fundamentals for long-term demand.
Now, Kasselis said, trade in some Asian markets “will be negatively affected for several years.”
“Despite this, experienced investors such as Blackstone, GIC, Brookfield, Partners Group, KSL and [high-net-worth individuals] were active buyers in 2021 and [the first quarter of] 2022, with significant interest in large hotel portfolios and unique assets located in hub cities,” he said.
Asia-Pacific hotel transactions “remain at relatively low levels due to wide gaps between buyer and seller expectations,” which Kasselis says reflects the long-term strategy of hotel owners and investors to to retain their assets, a favorable environment for existing businesses. borrowers and attractive medium- and long-term prospects for the region’s hotel markets.
He added that markets such as Japan, Thailand, Malaysia and Indonesia “show signs of increasing liquidity, with some owners rebalancing their investment portfolios, recycling capital from hotel assets or looking to exit. non-essential or non-strategic investments in response to changing market conditions or the prospect of rising interest rates.
Kasselis said he believes “the opportunities presented by the current weak business environment in some markets and the plethora of unbranded, undercapitalized and underperforming, inefficient hotels…provide opportunities for investors to capitalize on pent-up travel demand and changing consumer trends once the travel and tourism industry recovers from the pandemic, combined with the implementation of active asset management strategies and ESG initiatives.
Despite varying investor preferences and other factors, established markets such as Singapore, Japan and Korea remain attractive destinations for large institutional investors, Kasselis said.
Other destinations such as the Maldives, Thailand, Indonesia and Vietnam have also attracted local and international institutional capital, although interest in these markets has come mainly from high net worth individuals and local investors based in Asia.
“Ultimately, the attractiveness of an investment market will depend on the availability of quality hotels for sale, prices, availability of debt, supply and demand fundamentals and liquidity on the way out,” he said.
The recovery in terms of revenue per available room will be uneven, driven by the diversity of the Asia-Pacific region and individual market demands and reliance on international tourism versus domestic tourism, he added.
Kasselis said that prior to the Ukraine invasion, the Asia Pacific region, excluding China, is expected to approach an 80% RevPAR recovery by Q1 2023.
“Given the significant uncertainty posed by [the Ukraine invasion]one can only think that any recovery will be prolonged,” he said.
But despite these concerns, Singapore is well positioned for a faster recovery compared to some other markets due to its “prominence as an attractive stopover destination for long-haul travelers and [being] a major intra-regional hub for business and leisure travellers.”
“[It] is within a seven-hour flight radius of 4 billion people and is perceived as a relatively safe destination,” Kasselis said.
He added that relaxed quarantine measures in source markets will also help improve mobility and economic recovery.
“Like many other hotel markets, labor availability, wage inflation and rising utility costs pose immediate challenges for Singaporean hoteliers and hotel owners, putting increased pressure on customer service standards and hotel operating margins,” he said.
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