Establishing beachheads

/ The Edge Property |

April 12, 2015 12:00 AM SGT

SINGAPORE: After close to 30 years, Amara Holdings opened its first overseas hotel in Bangkok last month, with another in Shanghai to open by year-end. A deal has been signed for a hotel in Yangon.Equally active at home, the property group has been buying back its shares and bidding for development sites in Singapore.

Tanjong Pagar has public flats worth more than $1 million at the landmark Pinnacle @ Duxton and some of the tallest condominium towers in Singapore.

It also has a cluster of business hotels, trendy restaurants in the shophouses along Tras Street, and a landmark $3.2 billion large-scale integrated development, Tanjong Pagar Centre, with Grade-A office space, luxury residences, a five-star hotel and a retail mall linked to the Tanjong Pagar MRT interchange station.

However, 60 years ago, when Lee Kuan Yew chose to stand in Tanjong Pagar in the 1955 Legislative Assembly general election, it was a working- class area.

Of the 25 constituencies he could have picked, Lee chose Tanjong Pagar.

“No other division has such a high proportion of workers, wage earners, small traders and such a low proportion of wealthy merchants and landlords living in it,” Lee had said in a speech.

“I wanted to represent workers, wage earners and small traders, not wealthy merchants or landlords.

So, I chose Tanjong Pagar, not Tanglin.” Lee’s recent passing has once again shone the spotlight on Tanjong Pagar, where he was MP for almost six decades.

“It has been transformed from the docklands of Singapore to a really trendy, hip place,” says Albert Teo, the distinguished-looking 65-year-old CEO of Singapore-listed Amara Holdings.

“If not for LKY, we won’t be seeing [such property] values.” The reason Lee chose Tanjong Pagar reminded Teo of his own father’s big bet 36 years ago.

It was in 1979 when the late Teo Teck Huat brought his eldest son to visit the vacant site in Tanjong Pagar that he wished to buy.

In the vicinity were old, dilapidated shophouses.

“I said, ‘Hey dad, are you sure you want to come here? Wow, this place is shocking!” recounts Teo.

However, his father reminded him that he should not forget his roots, as his grandfather had squatted in an opium den on Craig Road, just off Duxton Road.

He wasn’t even an opium smoker.

In the late 1800s to early 1900s, the Duxton area was notorious for opium and gambling joints, brothels and slums inhabited by rickshaw pullers.

The elder Teo foresaw that it would be just a matter of time before the CBD expanded towards Tanjong Pagar.

And he reckoned that if nobody was interested in the site, he could get it at a cheaper price.

He was right.

The tender drew just two or three bids, and he won the site, which has since been developed into the flagship Amara Singapore hotel.

The revamped 100 AM has been transformed into a retail and F&B destination

Oversupply When it first opened in 1986, Amara Singapore was the first of just two business hotels in Tanjong Pagar.

The other hotel, which opened just a few months before Amara Singapore, was the 413-room M Hotel (former Daichi Hotel) owned by CDL Hospitality Trust.

Teo joined Amara in 1984.

“I really struggled,” he says.

“There was an oversupply [of hotel rooms] then.” Hotel occupancy rates languished at 20% to 30%.

The dismal performance in the hotel industry was attributed to a surge in the supply of rooms with the opening of several large-scale projects with multiple hotels in the mid-1980s.

One was Raffles City, with two hotel towers attached to it: the 1,261- room Swissôtel The Stamford (formerly The Westin) and the 769-room Fairmont Singapore (former Raffles The Plaza).

The other was Marina Square shopping mall, which opened in 1987 and connected to three hotels: the 527-room Mandarin Oriental, 575-room Marina Mandarin and 790-room Pan Pacific Hotel.

Singapore sank into a deep recession in the mid-1980s.

The result was that some of the hotels that could not survive were either closed down or were converted into condo blocks in the 1990s.

The Tanjong Pagar area has seen a hotel boom in recent years.

The 386-room Carlton City Tanjong Pagar opened in 2013, while the neighbouring 272-room Orchid Hotel opened in 2011.

The 314-room Oasia Downtown on Peck Seah Street will open at year-end, while the 222-room Clermont Hotel, which is part of Tanjong Pagar Centre, is expected to be completed by mid-2016.

This brings the total number of hotel properties in the Tanjong Pagar area to six, and the total number of hotel rooms to 1,999.

Teo says he is not overly concerned about the increase in the supply of hotel rooms in Amara Singapore’s immediate neighbourhood.

“I welcome the competition.

I like having a cluster of hotels here.

When we were the only hotel, it was a little lonely and we were always trying to think of ways to attract people to come to the area.

But now, with close to 2,000 hotel rooms, it’s a big enough cluster.

Someone should think about building a convention centre next.” In the Tanjong Pagar area, Amara Singapore is a pioneer when it comes to integrated development.

“We offer more than just a hotel experience per se.

We offer a lifestyle,” says Teo.

The property’s integrated model includes 100 AM, a retail and F&B destination.

With the lease renewal of tenants, the hotel is introducing new F&B concepts, including a wider variety of Japanese restaurants and an Italian pizzeria and tapas bar.

“Had it been a standalone hotel, it would not have the kind of reach and variety of outlets to extend hotel guests’ experience, which is really beyond just the rooms,” points out Teo.

“And that, to me, is one of our core strengths and a unique proposition.” What’s more, Amara hotel topped the list of most popular venue for companies’ annual general meetings in a recent report.

It is also the venue for property auctions for more than a decade.

Teo: I welcome the competition. Had Amara Singapore been a standalone hotel, it would not have the kind of reach and variety of outlets to extend hotel guests' experience, which is really just beyond the rooms.

Reinvesting, reinventing In 2003, when the plot ratio was increased to 4.2, Amara Singapore had added a six-storey office block called the Corporate Tower.

When the plot ratio was revised from 4.2 to 6.77 several years ago, Teo decided to bite the bullet and added more hotel rooms as well as converted part of the car park into retail space.

He spent another $32 million in a revamp of the former Amara Shopping Centre, which reopened in late 2012 as 100 AM.

If the plot ratio were to be enhanced to 10.5, which is the plot ratio of the new commercial sites near the Tanjong Pagar MRT station that were sold by URA in recent years, the existing Amara property will have to be knocked down and redeveloped, as the gross floor area has already been maximised under the current plot ratio, says Teo.

Despite Singapore’s visitor arrivals failing to hit its forecast of 16.3 million to 16.8 million last year, and instead, falling 3.1% y-o-y to 15.1 million, tourism receipts stayed flat at $23.5 billion.

The drop in visitor arrivals — the first decline since 2009 — was due to a decrease in the number of visitors from markets such as China and the depreciation of certain regional currencies against the Singapore dollar.

However, Amara Singapore’s revenue per available room (RevPAR) actually rose to $172 in FY2014 from $154 in FY2013.

The occupancy rate was in the mid-80% range, as business travel wasn’t that badly affected, says Teo.

The forecast for tourist arrivals this year is 15.1 million to 15.5 million, and tourism receipts is expected to range from $23.5 billion to $24 billion.

For the first two months of 2015, the average occupancy rate was 83.8%, down 1.1% from the same period last year, according to the Singapore Tourism Board (STB).

Meanwhile, the average room rate was $248.50, down 5.2%; while RevPAR was $208.20, a fall of 6.4% from last year.

On April 1, Changi Airport Group and STB announced that they were investing a total of $35 million to boost visitorship to Singapore and Changi Airport.

STB also revealed a $20 million global marketing campaign to boost tourist arrivals.

An aerial view of the newly opened 250-room Amara Bangkok in the Surawong area in the Bangkok CBD

Overseas forays In March, the group had a soft opening of its first overseas hotel, the 250-room Amara Bangkok.

The hotel is expected to be fully operational within the next few months.

The property is located in the Surawong neighbourhood, flanked by Silom and Sathorn Roads, in the heart of Bangkok’s CBD.

It is across the road from popular seafood restaurant Somboon Seafood Surawong and within easy access to the night market and shopping district, as well as two BTS stations.

For the month of April, the hotel is offering a promotional rate of THB2,558 ($106) a night.

Like the Amara Singapore, the Amara Bangkok is positioned as a business hotel.

The group had purchased the site on a 60-year lease from the Crown Property Bureau, which manages the real-estate assets of the Thai monarchy.

The purchase was made in July 2010, just a few months after a series of prolonged protests between the red-shirts and yellow-shirts.

“Nobody wanted the site then,” recalls Teo.

“But I dared to buy it, so I got a very good deal.” The company is able to own a 100% stake in the Amara Bangkok, as it had obtained a Thailand foreign business licence from the Board of Investment (BOI).

As at end-December 2014, the group had invested THB936 million on the property.

Teo is confident that the tourism industry in Thailand will continue to see healthy growth.

Last year, there were 24.78 million visitor arrivals in Thailand, which was a 6.7% dip from the record high of 26.7 million in 2013.

Even though visitor arrivals fell 10.28% in the first three quarters of 2014, the last quarter saw an increase in arrivals compared with the previous year.

Anti-government demonstrations, followed by a bloodless military coup d’état and a declaration of martial law, may have deterred some visitors in 1H2014.

However, with the lifting of martial law last month, tourist arrivals are expected to pick up.

Amara Signature Shanghai will be the next overseas hotel property to come onstream.

It is scheduled to open its doors by year-end.

The property, located in Puxi, Shanghai, is a mixed-use development and similar in size to Amara Singapore.

It comprises a three-storey shopping mall, an office building and a 338- room hotel.

Two years ago, Teo inked a memorandum of understanding with Myanmar’s Youth Force Hotel Co Ltd and Youth Force Construction Co Ltd to develop and operate a hotel in Dagon township in Yangon.

The proposed investment is estimated at US$50 million ($67.7 million).

“It’s a beachhead investment,” says Teo.

“We know the hotel business, and by operating a hotel there, we will ride on the economy.” Like other Singapore property players, Amara is also looking at opportunities in Australia and the UK.

However, this doesn’t mean that the company is no longer interested in Singapore.

In fact, it has been actively looking for development sites and has participated in several government land tenders, most recently that for the 65,784 sq ft, 99-year leasehold site on Sturdee Road off Jalan Besar.

The tender drew 16 bids and was won by Sustained Land.

Last year, Amara was also one of the 11 bidders for the hotly contested condo site on Lorong Puntong, off Upper Thomson Road.

Cheung Kong (Holdings) won the site.

“We are actually bidding for sites — both mass-market condos and executive condo (EC) sites,” says Teo.

“We have been quite competitive with our bids and we will buy at the right price.” Amara’s residential project, the 30-unit Killiney 118, is now fully sold, with the last unit sold in February at a median price of $1,782 psf.

The developer was also one of the joint-venture partners behind Citylife@Tampines (EC), where all 514 units were snapped up within months of its launch and its biggest penthouse was sold for $2.05 million.

Citylife@Tampines is expected to be completed in 2H2015 and to contribute to an increase in Amara’s earnings in FY2015, says Phillip Capital in its report.

Amara still has two residential developments in its portfolio.

One is 5M on Jalan Mutiara, off River Valley Road, which was recently softlaunched.

As at end-February, one of the 30 units at the project was sold.

The other development is another boutique condo project with some 30 units at 29 Newton Road, which has yet to be launched.

“When the [property] policies will be unwound, we don’t know,” says Teo.

“But with the policies still in place, people are holding back, recalibrating their price expectations and speculating on the timing of the easing of the measures.”

The infinity swimming pool and roof terrace at Amara Bangkok

‘Shares undervalued’ Even though Amara’s full-year revenue in FY2014 dipped 6% to $75.9 million, its earnings were up 32% to $35.3 million.

Caroline Tay, an analyst with Phillip Capital, writes in a Feb 27 report that the earnings achieved “beat our expectations”, owing to lower costs of properties sold and a $19 million fair-value gain in investment properties.

Since December, Amara has been buying back its shares.

The Teo family has a 53.5% stake in the company through its holdings in Firstrust Equity Pte Ltd (53.5%) and another 18.85% that is held by individual family members.

Hence, the Teos’ direct and deeemed interests amount to 72.35% of the company’s shares.

That has sparked rumours that Amara is planning to take the company private.

“A lot of people have done it, but that doesn’t mean that we have to follow suit,” says Teo.

The reason the company has been buying back its shares is because “our shares are very undervalued”, laments Teo.

The company’s stock is currently trading at 8.9 times priceto- earnings ratio.

As at end-December 2014, the company’s net asset value was 58.64 cents a share.

Phillip Capital has estimated Amara’s revised net asset value (RNAV) at $1.08 a share.

Based on its closing share price of 54.5 cents on April 9, the stock is trading at a 49.5% discount to RNAV.

Teo says he has his ear to the ground and is on the lookout for investment opportunities in Singapore.

While the last property boom in 2007 and early 2008 induced a feeling of euphoria, price levels now have become “more realistic”, he adds.

“In the medium to long term, things will improve, but it won’t be like before.”

This article appeared in the City & Country of Issue 672 (Apr 13) of The Edge Singapore.

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