Millennium & Copthorne Hotels Ltd has offered a glimpse of its recovery strategy after a 12-month period that witnessed an ill-timed privatisation, a sector-wrecking pandemic and boardroom upheaval.
After the hospitality division of Singapore-listed City Developments Ltd (CDL) reported a pre-tax loss of S$208.2 million ($155 million) for the first half of 2020, M&C highlighted “green shoots” of improvement in second-half occupancy and operating profit in a statement released this week. Despite the promise of better days ahead, the 125-hotel company plans to sell assets and cut staff in a bid to right the ship amid a COVID-19 crisis that saw M&C’s global occupancy fall to 30 percent at its June trough.
“We have improved processes, cost structure and digital marketing, amongst other efforts, as we prepare for improvements in business sentiment and confidence to travel,” said Lee Richards, vice president for operations in Southeast Asia at M&C’s Millennium Hotels and Resorts unit. “By streamlining our global portfolio in line with the strategy of our parent, M&C will emerge stronger and better positioned to benefit from a post-COVID-19 environment.”
Entertaining Offers for Assets
As part of its streamlining strategy, M&C is “reviewing its global footprint” and assessing at least three offers, the company said. The goal is to reap gains such as the S$26.4 million ($19.6 million) which the company earned from the S$49 million sale of the Millennium Cincinnati in February.
The announcement of the asset sale plan comes after CDL’s hotel division reported a pre-tax loss of S$208.2 million for the first half of 2020, as only 28 percent of M&C’s hotels were operational as of 30 June, according to CDL’s interim financial report.
With the company currently operating hotels in 29 countries globally, M&C now says it will focus on gateway cities like Singapore, New York and London, where the company is headquartered and was publicly listed until November 2019. The company also said that, apart from a few high-end flagship properties in key cities, it would focus its efforts on the four-star market segment. To lower its cost structure, the group has cut its global workforce by 36 percent compared with year-end 2019 levels.
While it has yet to announce the sale of any properties from its portfolio, M&C indicated that, based on current offers it expects to dispose of at least one property during 2021. Following the planned disposals, its global inventory is likely to fall slightly from the more than 40,000 rooms it was operating in 29 countries at the end of 2019, according to the company. Hotels proving their ability to return to sustained levels of profitability may be seeded for acquisition by CDL Hospitality Trusts, a S$1.4 billion REIT in which CDL holds a 37.8 percent stake.
An Untimely Takeover
CDL had the misfortune of completing a buyout and privatisation of M&C last November, one month before the coronavirus outbreak began upending the hotel industry. The Singaporean developer paid £776 million ($989 million) for the remaining 34.8 percent of the company it did not already own.
M&C CEO Clarence Tan quit in July of this year after just four months at the helm, and CDL reported in August that it barely broke even with a S$3 million net profit in the first half. October brought more unease as CDL director Kwek Leng Peck left the company after more than three decades in the role.
Kwek, the cousin of CDL executive chairman Kwek Leng Beng and the uncle of CDL group chief executive and executive director Sherman Kwek, took issue with the company’s investment in mainland Chinese developer Sincere Property Group, as well as “his reservations with the Group’s approach in the management of Millennium & Copthorne Hotels Limited.
This month, CDL appointed Deloitte and Touche to help evaluate and review the investment in Sincere. The company has described its S$1.9 billion interest in Sincere as a “strategic investment” that provides the group with a platform comprising different asset classes across 18 cities in China.
For its part, M&C plans to continue reviewing and fine-tuning its hotel portfolio to better suit future market conditions. The company “is strengthening its foundations to prepare for a recovery in hotel operations from as early as 2021”, said MHR’s Richards.
The hotel industry has stood out as the gloomiest property sector in COVID-hit 2020. Hotel acquisitions in Asia Pacific plunged 59 percent year-on-year to $1.7 billion in the third quarter and fell 44 percent year-on-year to $6.3 billion in the first nine months, according to a report on APAC capital trends released last week by Real Capital Analytics.
“Loss-averse owners have largely avoided offloading their properties, with the majority of assets transacted being those developed or acquired at a fraction of the selling price from many years back,” RCA said.