Photo: Viet Tuan
M&A deals are becoming an increasingly common means of investors entering Vietnam’s hospitality real estate market.
Vietnam’s hotel sector has seen a great deal of activity in recent times as more foreign players have become involved in merger and acquisition (M&A) deals.
Singapore’s Pan Pacific Hotels Group (PPHG) announced in June that it has officially arrived in the country. It will launch the Pan Pacific Hotels and Resorts brand in Vietnam in the fourth quarter of this year with the introduction of Pan Pacific Hanoi on October 1, which is currently the Sofitel Plaza Hanoi. “We have invested $1.5 million in refurbishing the hotel lobby, the lobby bar, the all-day dining restaurant and the meeting spaces,” Mr. Bernold O. Schroeder, CEO of PPHG, told VET. “We will maintain our competitive edge by ensuring that our service delivery is consistently top-notch.”
The property was acquired by PPHG in 2001 via a joint venture with the Hanoi Construction Corporation and has been managed by Accor Hotels as the Sofitel Plaza Hanoi. The hotel is located in a prime spot by West Lake and its central location also offers convenient access to the CBD. It boasts 273 guestrooms and 56 serviced suites, all of which are meticulously designed to embody a blend of modern Parisian aesthetic with Vietnamese charm. PPHG’s deal is just one of a host of recent M&A deals in Vietnam’s hospitality sector as more and more developers begin to view the country as an ideal destination when expanding their property investment portfolios. “M&A deals in the hospitality property segment were a major trend over the last year and will continue to be so over the next few years,” according to Ms. Nguyen Hoai An, Director of Research and Consulting Services at CBRE Vietnam. Hanoi and Ho Chi Minh City remain the scene of the most notable deals.
Among major hotel M&As in the second quarter of 2016, Low Keng Huat, a Singapore-based group, sold the Duxton Hotel Saigon in District 1, Ho Chi Minh City to New Life RE for approximately $49 million. The four-star hotel is located on Nguyen Hue, one of the most prestigious addresses in the city, and has 191 luxurious guest rooms and suites, 16 meeting rooms, and a wide range of amenities. Savills acted as the exclusive agent for Low Keng Huat, according to a press release in June.
The Keppel Corporation Limited (KLL), meanwhile, sold 70 per cent of the charter capital of the Quang Ba Royal Park Joint Venture Company Ltd (QBRP), including Sedona Suites Hanoi in Tay Ho district, to the BRG Group Joint Stock Company for approximately $22.3 million, subject to post-closing adjustments, according to KLL’s press release in April. Sedona Suites is located in a particularly favorable area near West Lake with 155 apartments and 20 luxury villas. The M&A deal was conducted in line with KLL’s strategy of continually recycling assets for higher returns.
In other M&A deals, the Thang Loi Hotel JSC and Hilton Worldwide signed a five-star management agreement, with the Thang Loi Hotel in Hanoi to be renovated and become Hilton Hanoi Westlake under the Hilton Group. The hotel is located on an area of about 4.5 ha on Yen Phu Street in Tay Ho district and will become the third in the capital bearing the Hilton brand, following the Hilton Hanoi Opera and the Hanoi Hilton Garden Inn, and will have 250 rooms when it welcomes guests in 2018. With a prime location in the city and under the management of the Hilton Group, the hotel will contribute to changing the local landscape and boast advanced facilities and services, according to Ms. Nguyen Thi Nga, Chairwoman of the Board at the Thang Loi Hotel JSC.
Foreign investors and developers will continue to be interested in Vietnam. “We are committed to Vietnam as a strategic growth market as it ushers in a new phase of exciting developments in travel and tourism,” said Mr. Schroeder from PPHG. In recent years the country has become one of the fastest growing tourism destinations in Southeast Asia. Hanoi and
Ho Chi Minh City are both still regarded as holding potential for hospitality property.
International arrivals to Vietnam reached 4.7 million in the first six months of this year, an increase of 21.3 per cent against the same period of 2015, according to the Vietnam National Administration of Tourism (VNAT). There were approximately 2.05 million international visitors to Hanoi in the period, up 34 per cent year-on-year. Ho Chi Minh City welcomed more than 1 million international visitors in the second quarter, an increase of 9 per cent against the same period in 2015 and accounting for 46 per cent of arrivals to Vietnam, according to a second quarter review from Savills Vietnam released in June. The number of domestic tourists is also growing, at a phenomenal 48 per cent in 2015 and approximately 14 per cent per annum on average over the last ten years.
Investors have demonstrated a growing attraction to the hospitality market and have adopted different strategies. “With the management contract expiring at the end of this year it was opportune for PPHG to take over the management of Sofitel Plaza Hanoi,” said Mr. Schroeder. “We also want to introduce our Pan Pacific brand to Vietnam, which we consider a strategic growth market.” Pan Pacific Hanoi will be the Group’s second property in Vietnam, following the award-winning Park Royal Saigon in Ho Chi Minh City.
The hospitality real estate market is expected to continue growing and the trend of hotel M&As is forecast to continue. From the third quarter onwards, 33 future projects are to enter the market in Vietnam, including 15 projects supplying approximately 4,700 rooms in Hanoi. Some projects are yet to quantify their supply. A single new project will supply approximately 64 rooms to the end of 2016, according to a recent press release from Savills Vietnam. In Ho Chi Minh City, from the third quarter of 2016 to 2018, more than 3,100 rooms from 14 projects will be added to supply. Savills also expects the recent interest from investors to continue, with a number of new hospitality transactions due to be completed this year.
Vietnam’s tourism sector is gaining momentum from the country becoming a party to the TPP and free trade agreements, which increases demand for hospitality. “Buyers are looking for properties with stable cash flows and revenue,” said Ms. An. “Investors, meanwhile, need capital flows to reinvest and M&A deals are one way to turn over capital.”
Foreign investors also face obstacles in the process of investing in hospitality property in Vietnam, primarily relating to transparency in managing projects and implementing transactions, according to Mr. Marc Townsend, CEO of CBRE Vietnam. “Similar to other property segments, the development of hospitality will be influenced by the market and policy adjustments,” he said.