Singapore-based service residence firm The Ascott Ltd, a subsidiary of real estate firm CapitaLand, recently opened its second property in Chennai, the 269-unit Citadines in the IT hub of OMR (Old Mahabalipuram Road). With this launch, The Ascott, which has a presence in 100 cities in 29 countries and 30,000 operating serviced residence units worldwide, now has two operational brands, Somerset and Citadines in Chennai. Globally, the Ascott brand portfolio includes flagship Ascott, an upmarket brand, Somerset an upscale offering catering to executives with families, mid-scale Citadine targetted at young executives, The Crest Collection and a new brand called Lyf targetted at millennials. Excerpts from an interview with Ajit Koushik, Area General Manager India for The Ascott.

What are Ascott’s expansion plans for India?

We have a new property opening up in Gurgaon on April 1, 2018, at Ireo City Gurgaon. That’s going to be our flagship Ascott brand, the first in India. We have three more under development – two Citadines in Hyderabad and Sri City and a Somerset in Bellandur, Bengaluru. These are pure management contracts. Other than that, we have a management contract for a Somerset in the Diplomatic Greens area on the Dwarka Expressway, though that development has been stalled due to access issues on that corridor.

You started with owned properties , yet seem to be going the managed route now? Is the strategy changing?

We still are very keen to own. Remember, Ascott is a real estate company in the business of hospitality. Whether we own and invest right at the inception stage or at the operation stage when our REIT comes along and buys it, Ascott would always would want to have a real estate play. In the properties that are managed, once it is up and running, and has achieved stable occupancy, our REIT, which is our divestment vehicle, and it is an internally managed one, sitting on the Singapore stock exchange – comes and knocks on the doors of the property, whether it is a JV, whether is owned by us or by a third party, and offers to invest.

The REIT currently sits on 100-plus properties, with a massive base of 4.9 billion Singapore dollars (approximately $3.6 billion).

What’s the investment you have made in India so far?

In India, once we open all our properties, we will have $100 million invested. We actually have land parcels we bought in India but are slowly moving out of them. The development of greenfield assets in India has challenges. The result is the asset is not viable if it is not delivered within a time frame.

So you think a better strategy is to manage and then slowly acquire the property later?

That’s one option. The second option is to look at brownfield assets that have conversion possibilities. These could be hotels with slightly larger rooms, where there is a possibility of creating kitchens and more storage spaces and make into a studio apartment suitable for long-stay guests.

Have you identified any?

We have been looking at it. The issue with hotels in India is most properties carry humungous amounts of space for MICE – banquet spaces and allied facilities. Typically, 50 per cent of saleable area in Indian hotels is allied facilities. Whereas we are a rooms focused operator, and usually outsource F&B to a third party. Paying top dollar capital into such spaces and having that space outsourced to a third party makes no sense. At the end of the day a major factor in investments is the Ebitda it will generate. As long as the yield meets a typical hurdle rate, which is a combination of the country’s weighted cost of capital plus country’s risk rate (factor of currency and political risks), it's okay. Whenever an FDI like us wants to invest in India, we look at whether this hurdle is crossed and the investment is viable.

Given that you operate in nearly 30 countries, do you find India’s risk rate higher?

Yes, certainly. Look at debt. Debt in Singapore is 2-3 per cent. In India it is anything from 8.5 to 11 per cent. When we invested in India , the exchange rate was 30 (1 Singapore dollar = Rs 30). Today, it is 45. Imagine, if we put our money in at 30 and it becomes 50 by the time we want to repatriate, we have lost nearly 50 per cent of our value. More the fluctuations, higher the risk. Fortunately, India is seeing some stability in currency now.

Today, hotels are also offering long-stay service residences. How will you compete against them and make your product stand out?

We cater to the "pure" long-stay segment and so the product is very differently modelled from hotels. Our staff strength is very less, F&B is outsourced. Wherever service residences have opted for getting retail, the product becomes diluted. You can’t have a mix of both. We attempted this at times, trying to attract short-stay groups, but then we realised you destroy your core segment. Currently, over 80 per cent of our guests are long-stay, which we define as at least a month.

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