Ascott partners Qatar Investment Authority in S$809m fund

Serviced residence operator The Ascott has entered into a joint venture with Qatar Investment Authority (QIA) to set up a US$600 million (S$809 million) serviced residence fund.

According to a press release by Ascott’s parent company CapitaLand on Monday (Jul 13), the fund will have an initial focus on Asia Pacific and Europe regions for a term of 10 years with an investment period of three years. CapitaLand will also target to launch six new funds with total assets under management of up to S$10 billion by 2020.

The property developer said its fund management business will remain important in helping to build scale in key growth areas.

President and Group CEO of CapitaLand Lim Ming Yan said: “If we want to continue to strengthen our presence in key gateway cities, we need more capital partners. We want to continue to invest without having to come back to our stakeholders for more equity all the time. That is why I think fund management business will play an increasingly important role in the overall CapitaLand landscape.

“A lot of this capital would have to go back to integrated development and perhaps some of the bigger shopping mall projects. A typical size would be anywhere between S$1 billion and S$2 billion. So this is the kind of investment where it makes a lot of sense for us to work with capital partners. Especially long-term capital. It is not easy to get investors with long investment horizon.”

The fund will invest in serviced residences or rental housing properties, whether it is in development, redevelopment or acquiring projects for asset enhancement, according to the press release. Ascott will have a first right to manage the properties the fund acquires.

“I do not think there is any predisposition to Asia or Europe,” said Chief Investment Officer at the The Ascott Gerald Yong. “Europe, despite all we know being sluggish or developed economy, actually might be quite opportune for investment.

“There is an undersupply of serviced-apartments in Western Europe countries. In the Pacific Rim on the other hand – while we all know Asia is growing, urbanisation – there are also pockets of oversupply. So both markets have their pros and cons. So we will remain open.”

As for the US, Mr Yong said: “Ascott is not fully operational in the US except for the acquisition by the real estate investment trust (REIT), which is more of an asset manager. I think we are not that ready for the US yet.”

Under the tie-up, Ascott and QIA will each contribute about S$405 million of equity funds to the joint venture.

One market watcher said CapitaLand’s six new funds could enable it to pursue higher yielding projects, and raise overall return on equity.

“If you were to look at the entire spectrum of projects, you have, on one hand, REITs that deliver say 5 to 7 per cent annual return,” said lead analyst at Voyage Research Liu Jinshu. “And there is the other side of the spectrum where the company goes in, develops a property and gets 15 to 30 per cent returns.

“So you have a spectrum of different types of projects, and investments with different rates of returns, and one way to raise overall at the group level return on equity is to allocate more capital or resources towards those higher yielding projects.”

“With Ascott’s newly-set-up global serviced residence fund, CapitaLand now manages 17 real estate private equity funds and five REITs with AUM worth over S$43 billion,” said Mr Lim in the press release.

“This Ascott global serviced residence fund brings us a step closer towards our goal of raising five to six funds with total AUM of S$8 billion to S$10 billion by 2020.”

Ascott currently manages 40,943 serviced residence units globally. It aims to grow this number to about 80,000 by 2020.

Source : Channel NewsAsia – 13 Jul 2015

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