The largest serviced apartment owner-cum-operator in the world launched The Ascott Singapore Raffles Place last October in the midst of a global economic slump, but it is showing that flexibility is key in a difficult market.
IT SEEMS GLOOMY now but things were looking very good on Singapore’s property front just 24 to 36 months ago. The market at that time was, according to many property consultants, “firing on all cylinders”.
In the hospitality sector, there was a shortage of hotel rooms and serviced apartments were also fully occupied. The prospect of 17 million tourists by 2015, drawn here by the two multi-billion dollar integrated resorts, the Singapore Formula One Grand Prix, the transformation of Orchard Road into a world-class shopping strip, and the overall Singapore makeover story into a playground for the rich and famous proved too hard for may potential investors to resist.
In 2006, as part of its expansion drive in Singapore, The Ascott Group (a serviced residence arm of CapitaLand), easily the 800-pound gorilla in the serviced apartment segment, purchased two properties from The Asia Life Assurance Society Ltd. They were the landmark Asia Insurance Buildng in Finlayson Green across the street from Raffles Place, and Hotel Asia on Scotts Road. The company paid $109.5 million for the Asia Insurance Building and $108 million for Hotel Asia, which included $4.3 million for the hotel management company Hotel Asia Pte Ltd.
“At the time, going into real estate made a lot of sense,” says Gerald Lee, CEO of Ascott Hospitality, the hospitality management arm of The Ascott Group. “Right now, it’s not really the time to do it, but at some point, we will come back to it.”
Last year, CapitaLand completed the privatisation of The Ascott Group, and split the business into two units: the hospitality arm, headed by Lee; and the real estate arm, which takes care of real estate acquisitions and development, headed by CEO Chong Kee Hiong. The latter is also the CEO of CapitaLand’s hospitality real estate investment trust, Ascott Residences Trust (ART).
The Ascott Group is headed by president and CEO Jennie Chua, a veteran in the hotel business.
Ascott sold Hotel Asia in February 2007 to Hayden Properties, a new entrant to the Singapore luxury property market, for $147 million. The latter is planning to develop The Hamilton, a 30-storey super-luxury condominium with a private carpark for each apartment.
The Asia Insurance Building, on the other hand, underwent a $60 million retrofit programme and reopened last October as The Ascott Singapore Raffles Place. The former Ascott on Scotts Road was sold to Wheelock Properties in 2004 for $345 million to be redeveloped into Scotts Square, a 338-unit luxury apartment with a retail podium. The latter will be completed in 2011.
A year ago, most serviced apartment properties were enjoying occupancies of well over 90% while luxury hotels were running at 80% occupancy. According to Lee, The Ascott Group’s properties in Singapore have an average occupancy rate of around 80%. As for The Ascott Raffles Place, “in the current environment, if we can achieve a 70% occupancy [rate], that’s very good”, says Lee.
FLEXIBILITY
Unlike the other Ascott Group properties in Singapore, the The Ascott Raffles Place is both a hotel and a serviced residence, with the flexibility to take in daily bookings as well as extended stays. In Singapore, a typical serviced apartment can only accept stays of a minimum of seven nights.
The Ascott is a five-star brand within The Ascott Group’s portfolio. At the Raffles Place property, the early 1950s art deco façade of the structure has been preserved. Renowned interior design firm Hirsch Bedner Associates has also kept some of the other original elements of the building, like the 15-storey cutler mail chute, a letter collector found in most multi-storey buildings from the old days (even the Empire State Building has one). The latter has become a talking point and object of curiosity for guests.
The property is equipped with meeting rooms, Wi-Fi connectivity, an infinity pool, Jacuzzis, a fully equipped gymnasium, a fitness studio, a lounge bar and a fine-dining restaurant operated by award-winning chef Julien Bompard.
Given the location, in the heart of the CBD, the bulk of the 146 apartments at The Ascott Raffles Place are studios and one-bedroom units. For the luxurious one-bedroom 807 sq ft executive apartments at The Ascott Raffles Place, the published rate is $1,300 daily or $16,000 monthly. For the 1,162 sq ft one-bedroom premier apartments, the published rate is $1,600 (daily) or $18,000 (monthly). As a comparison, one can rent a black & white bungalow on Nassim Road (which received a top rental bid of $17,119 per month in Singapore Land Authority’s open tender on April 3) or a four-bedroom apartment in one of the luxury condominiums at Ardmore Park, Grange Road or Tanglin Road in the prime Orchard Road district for around the same monthly rental rate.
Recognising that the recession is hitting everybody hard, hospitality companies like The Ascott Group know the importance of helping clients stretch their dollar. The Ascott Raffles Place is offering its studio apartments at $238++ per night in a promotional package to its corporate clients, which is a 50% discount on the rack rate. “This is a high-end product, but we’re also finding ways to create value for our customers,” says Lee.
Apart from The Ascott Raffles Place, the group has six other properties in the country. Five of them are branded Somerset, of which three are located in Orchard Road (Somerset Compass with 72-apartments, Somerset Grand Cairnhill with 146 apartments, and the 88-unit Somerset Orchard). The 193- apartment Somerset Liang Court is situated in Clarke Quay, while the fifth is the 107-room Somerset Bencoolen. The sixth is the brand new 154-room Citadines Mount Sophia, its first Citadines property in Singapore. Citadines Mount Sophia is part of Wilkie Edge, a mixed development with office, retail and F&B outlets that’s owned by CapitaCommercial Trust, Capita- Land’s commercial REIT. All in, the group has seven properties with over 900 rooms.
In September last year, The Ascott Group sold the Somerset Orchard property to OG Pte Ltd for $100 million or $1,530 psf. The carrying value of the property was $57 million, and CapitaLand announced that it expected to recognise a gross gain of about $43 million from divesting the property. However, the group will continue to manage the property for another 15 years with an option to renew for another 10.
Generally, the rate gap for the different properties under the group is $100 per day between The Ascott Raffles Place and Somerset, and $50 between a Somerset and Citadines property. “Right now, the gap is definitely narrowing between The Ascott and Somerset properties because of the special offer at The Ascott,” says Lee.
DROP IN ARRIVALS
With the global economic slump, visitor arrivals to Singapore for the first two months of the year totalled around 1.46 million, a 14% drop from a year ago. Meanwhile, average hotel occupancy rates for January- February 2009 was 71%, a drop of 11.2% from a year ago. Average room rate was down 16% over the same period to $206.80, while total room revenue dropped 29% to $247.5 million.
It has been shown in the past that expatriates tend to opt for serviced apartments instead of condominiums in times of economic gloom. Increasingly, apartment landlords are seeing more tenants requesting for one-year leases due to the uncertain economic environment but “if they get relocated and are forced to move, they may be penalised”, says Lee. “We allow for pre-termination [of leases] if they have to, and we don’t impose a penalty, so there’s an advantage in staying in a serviced apartment,” he explains.
This is also a time for serviced apartment operators to accommodate the needs of their long-term clients. For guests that have been affected by corporate austerity drives — and there has been a noticeable increase in such cases since 2H2008 — Lee says there’s the flexibility of cutting back on some of the services to reduce their rental rates.
Lee reckons that The Ascott Group’s different tiers of products and room types across its properties will help to retain customers and accommodate their needs.
With studios and one-bedroom units all the way to three- and four bedroom apartments, clients have the option of moving from a larger apartment to a smaller one, or even to a different property within the group’s stable in order to enjoy lower rent.
While there’s no doubt that requests and enquiries from companies looking to relocate expatriate executives in Singapore have dropped, Lee says, “we will go where we see business and where our clients need this kind of product. It’s a business we’re focused on, and will continue to expand when we see there’s a demand for it”.
DIFFERENT APPROACH
To Lee, a dramatically different world requires a different approach to doing business. “We have to constantly look at new ways of doing business,” he says. “These days, when we talk to people in the human resource departments [of multinational companies], we try to provide a better and smarter option for them. If they really want to, they can put three guys into a three-bedroom serviced apartment rather than getting three hotel rooms. And as we’re operating serviced apartments, they only need to lock in for three to six months, and don’t have to lock in long-term leases of one to two years like for condominiums.”
To commemorate its 25 years in business, The Ascott Group is offering free stays and a 25% discount on the room rates for all its properties in 25 cities. As at end-2008, the group has a total of 25,000 serviced residence units in 190 properties around the world. In 2009, according to CapitaLand’s annual report, The Ascott Group plans to open 10 new properties with over 2,200 units in China, Georgia, Germany, Japan, India, Singapore and Thailand.
