• M&C holding onto real estate


Millennium and Copthorne Hotels said that it would consider selling hotels to generate "superior" returns for its shareholders, but that there were no profitable opportunities in the current property market.

Kwek Leng Beng, chairman, said that the company would instead continue to pursue its strategy of keeping "a tight rein" on costs "mindful of the considerable macro-economic uncertainty over the next 12 to 18 months, especially in Europe and the US".

CEO Richard Hartman said: "There is an awful lot of things that we can do with our assets to make things more accretive to the company."

The group takes around 90% of its earnings from 20% of its 120 hotels, which are located in key cities around the world. The company has undertaken reviews on 23 of its assets, but said that it had not received any offers for the sites. However, with Hartman commenting that they represented only 3% of the balance sheet, the need to sell was not pressing. M&C will instead focus on the hotels which bring in the majority of its earnings.

The company is, however, to continue to evaluate options for a piece of land it owns in Kuala Lumpur, commenting after a press report in Singapore said that the land was to be sold for a "new record price".

The company has, during the period, broadened its estate with the introduction of its "loft-style" Studio M three and four star brand, in Singapore. The brand traded "above expectations" since its launch in June, attaining the highest occupancy of the group's six Singapore hotels in the second quarter, at 88.4%, with an average room rate of S$168.71. The hotel was cash positive in the second quarter.

The group did not update on further expansion of the brand, but has previously said that it had taken enquiries from the Middle East and planned to take it global.

Signs of a global recovery have also encouraged the company to approve plans to start construction on a 110-room limited service hotel at Chennai in India, which was the result of a joint venture formed in 2007, which was then suspended in 2009. M&C's worldwide pipeline currently has 30 hotels offering 8,818 rooms.

M&C reported a 14% increase on the year in second-quarter revenue to £190.0m, in constant currency terms. Revpar was up by 14.7% for the group, with profit before tax up 55.7% to £31.6m, from £19.5m in the same period last year.  The group continued to strengthen its balance sheet, reducing net debt by £20.4m to £182.1m at the end of the first half and reducing gearing to 9.8%.

Kwek said: "Group performance accelerated over the first half of 2010, with strong improvement in revenue and profits, especially during the second quarter."

In line with other hotel groups reporting this results season, the company has seen performance accelerate in the second quarter, after growth in the first. Recovery in Asia Pacific has also been a theme, as it was for M&C, where the biggest gains were seen in Singapore, where revpar grew by 49.1% in the second quarter and by 33.3% over the six months as a whole.

Revpar growth was greater in the second quarter – at 14.7% – than the first, when it was up 3.2%, across the group's trading regions.  Second quarter growth was driven by a combination of improvements in occupancy, which was up 5.3 percentage points, and room rate, which rose by 6.4%.

For the second quarter, New York 16.6% saw revpar increasing by 16.6%, the Rest of Asia up 18.0%, New Zealand 14.0% and London lagging behind at 5.6%. 

However, performance in London, one of the group's key gateway cities, accelerated over the first half, with revpar up by 1.7% over the first six months, with 5.6% growth in the second quarter.

This partly reflected London's relatively strong performance during the first half of 2009, when revpar fall was minimal. London's slower growth was attributed to the residual impact of the reduction in aircrew business. Excluding airline business in the region for both years, London revpar grew by 10.3% in the first six months compared to the same period last year. In July the group said that revpar had risen by 14.3% with the Farnborough Air Show pushing London up by 23.7%.

In the regional UK first half revpar fell by 3.0% driven by rate, which fell by 5.9%. Pressure on rate from corporate customers was most intense at Group hotels in Gatwick, Aberdeen, Plymouth and Manchester, especially during the first quarter of the year.  Rate pressure was partially offset by occupancy, which increased by 2.1 percentage points to 70.8% during the six months.

The two properties in the Midlands were the only UK regional hotels to achieve significant revpar growth. Modest growth in the second quarter saw revpar increase by 1.1% to £47.06. 

The group has formally begun its search for a replacement for Hartman, who will leave M&C later this year.


HA Perspective: Many of M&C's assets were acquired by Kwek during the property slump of the early 1990s. He does not look likely to repeat that acquisition spree this time around.

But the company retains the lack of focus that characterised most hotel groups back then. It seems unable to decide between being a management company or an ownership company. And like the old style hoteliers of the 1990s, it seems unable to shed non-core assets.

Peripheral assets should go. Stating how peripheral they are only makes it a more compelling argument for them to be shed.

This is an urgent issue to address. Possibly just below the need to address why the company struggles to retain senior executive talent.

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