Hotel Grand Central

[ghchua]

Hotel operations and ownership is a cash intensive business. To be fair, the Mgt is pretty aligned to OPMIs and the latter have been rewarded with special dividends from past asset sales. During those asset sales, Mgt did not have their salaries running to the roof (as many others did) but they benefitted from the special dividends.

So if OPMIs tag along, they have to acknowledge ownership is part of HGC's business model and accept that low ROE is the feature.

Hi weijian,

Though minorities can accept that HGC is a low ROE business, they were puzzled with the reduction in dividends. Remember during pre-Covid days, HGC was paying around 4c to 5c per share yearly dividend (with a scrip option, which some minorities were unhappy about it as they view it as an indirect way for the controlling shareholders to increase their stake in the company). What I am comparing here is the normal yearly dividend payouts, excluding special dividends from asset disposals.

After Covid, even when the World resume physical travelling, HGC had not restore their dividend payout back to those levels. What we have seen is that dividend payout had been around 2c per share, or only 50% of what it was previously. This despite the company having a healthy cash balance of around the same or even better than pre-Covid days. Although operating profits had came down, they certainly have the reserves to pay out more.

[ghchua]

That's why hotel stocks generally don't have good dividend and becomes deep value over time unless you pump into a REIT (or sell the asset) which the REIT manager will consistently keep the leverage optimal as that is their performance indicator.

Hi specuvestor,

You don't buy hotel stocks listed on SGX for good dividends. If you adopt that strategy, you will generally be disappointed.

From my experience, hotel stocks are mostly privatisation plays in our local market. There are many that had been taken out previously and those left are mostly majority owned by controlling shareholders.

[specuvestor]

Hi ghchua

I digress but actually I was referring to more general hotel stocks business model than just SGX. For one there are many such deep value stock in HK as well

And indeed it gets privatised cause it becomes deep value over time as I explained above. Owner's purpose is on the capital appreciation not the cash flow so make sense for them to privatise and reap the capital gains.

[weijian]

Hi weijian,

Though minorities can accept that HGC is a low ROE business, they were puzzled with the reduction in dividends. Remember during pre-Covid days, HGC was paying around 4c to 5c per share yearly dividend (with a scrip option, which some minorities were unhappy about it as they view it as an indirect way for the controlling shareholders to increase their stake in the company). What I am comparing here is the normal yearly dividend payouts, excluding special dividends from asset disposals.

After Covid, even when the World resume physical travelling, HGC had not restore their dividend payout back to those levels. What we have seen is that dividend payout had been around 2c per share, or only 50% of what it was previously. This despite the company having a healthy cash balance of around the same or even better than pre-Covid days. Although operating profits had came down, they certainly have the reserves to pay out more.

hi ghchua,

For a start, were the prior years before covid-19 actually over-aggressive? Well, it is probably "sustainable" per say due to its cash hoard. But it does seem that HGC isn't enjoying as much of the upside from the post-covid tourism boom (which should pretty much moderate out this year) as one would hope?

Does Mgt sees more headwinds to their Aus/NZ business ahead? After all, everyone is fighting for the Chinese Tourist dollar - from their own to North Asia and Southeast Asia. This does not exclude the occasional political spat.

From my earlier notes on HGC, most minorities have taken up scrip with the majority shareholders. So the bulk have patience with a long term view. Normally when there are special dividends declared after asset sales, the next cycle will take some time to come again. After all, real estate is a long term game as specuvestor aptly mentioned and if done right (location, location and location), will be lucrative for OPMIs as long as the majority shareholder has a track record of sharing.

[weijian]

Unfortunately, Hotel Grand Central is another hotel that has underperformed on a YoY basis for 1H, even though 1H24 Spore was blessed with marquee concerts and visa-free PRCs.

Are such small and independent hotel operators slowly losing competitiveness?

Unaudited Condensed Financial Statements as at and for the Half Year Ended 30 June 2024

(,000)
1H24 (Spore) - Revenue=13,555, Operating profit=2,273
1H23 (Spore) - Revenue=15,333, Operating profit=4,275

1H24 results:
https://links.sgx.com/FileOpen/HGC-Annc-...eID=815702

[ghchua]

Hi weijian,

I don't think it is small and independent hotel operators are slowly losing competitiveness. I had a look at Shangri-La Asia Limited recent half year results which just came out last week. Their Singapore numbers also suffered, both in terms of revenue and profit in 1H24.

I think the pent-up travel demand post pandemic had already cooled down, despite having more events. People are getting more selective on where they want to travel and also how much it costs.

[weijian]

Hi weijian,

I don't think it is small and independent hotel operators are slowly losing competitiveness. I had a look at Shangri-La Asia Limited recent half year results which just came out last week. Their Singapore numbers also suffered, both in terms of revenue and profit in 1H24.

I think the pent-up travel demand post pandemic had already cooled down, despite having more events. People are getting more selective on where they want to travel and also how much it costs.

Hi ghchua,

I thought you would be using Hotel Royal's recent results as the counter-weight.

Anyways, we are in agreement with the cooling of pent-up travel demand. But on the other hand, THG Dr Henry Tay has said that experiential consumption is providing stiff competition with retail consumption, so I would assume the truth is much more nuanced than what both of us think.

Shangri-La's 1H24 ARR (avg room rate) increase was pegged back by lower occupancy, resulting in the low single digit REVPAR drop YoY. Shangri-La has total of 5 hotels in Spore - 2 Shangri-Las, 2 Jens and 1 serviced apartment. Since the mix is diverse and drop is small, OPMIs are none the wiser as Mgt only used "new competition" as the reason without elaborating further.

Well, I like to pride myself to have some knowledge in statistics. So 1-2 data points is not going to be too conclusive. However, i think it is fair to say that the majority of listed companies have enjoyed higher revenue YoY (higher profit is another thing since cost escalations is a big hurdle this year) for their Spore hotel ops in 1H24 due to tailwinds I described earlier. A lot of hard questions if one belongs to the minority who didn't.

[edragon]

About Chinese Tourist dollar, air tickets data of year 2023; Domestic Travel by Domestic Commercial airlines have reached 100.59% of year 2019.

International travel by China Domestic Commercial airline was -58.56%, and by international and Regional Commercial airlines was -58.35% of year 2019.

Chinese in year 2023 preferred domestic travel as compared to overseas.

https://www.eiu.com/n/in-charts-chinas-o...m-in-2024/

[weijian]

About Chinese Tourist dollar, air tickets data of year 2023; Domestic Travel by Domestic Commercial airlines have reached 100.59% of year 2019.

International travel by China Domestic Commercial airline was -58.56%, and by international and Regional Commercial airlines was -58.35% of year 2019.

Chinese in year 2023 preferred domestic travel as compared to overseas.

https://www.eiu.com/n/in-charts-chinas-o...m-in-2024/

hi edragon,

The statistic above is too general since the scope of discussion here is local tourism in Spore. A quick search and we can see that Chinese tourist arrivals in Singapore for 1st quarter 2024 is at 82% of 2019 levels, and has outperformed the average:

First-quarter arrivals from China in 2024 stood at 786,000, with tourists staying an average of 3.92 days, he added. In comparison, STB figures show that Singapore saw 960,000 incoming Chinese visitors in the first quarter of 2019

https://www.straitstimes.com/singapore/s...olden-week

And to put things into perspective for 1H24 (source from STB at Singstats: https://tablebuilder.singstat.gov.sg/table/TS/M550071) based on SG Arrival Stats for International tourists into Spore:

Jan-June 2023
Total arrivals: 6.03mil
Avg of 6 months' length of stay: 3.93days
Total tourist days = 6.03mil*3.93days=23.7mil days

Jan-June 2024
Total arrivals: 7.93mil (+31.5% YoY)
Avg of 6 months' length of stay: 3.53days (-10% YoY)
Total tourist days = 7.93mil*3.53days=28mil days (+18% YoY)

So while there is increased competition YoY, but this is on the context of a +18% tailwind in terms of tourism days. So surely, underperformers need to ask some hard questions. For example, the guys at YOTEL Singapore Orchard Road are trying to improve.

Of course, we have to continue to observe how things pan out. In July2024, total arrivals is a +12% YoY increase and that bodes well for the current peak travel season. The 2H24 results will be another data point on these "underperformers".