• Management ‘crucial’ for Mandarin Oriental

Mandarin Oriental said that expansion through management contracts was “crucial” to maintaining expansion targets of three to four new properties per year.
Group CEO James Riley said that the company had seen profits for the half-year period “substantially lower” as a results of closures and renovations, but remained confident of the group’s long-term prospects.
Mandarin Oriental reported a pipeline of 15 hotels and 13 residences, all of which were expected to open in the next five years and all of which were under management contracts. Riley said: “I would expect this to be the case for all future developments. The group does have the finance strength to deploy to acquire hotels on a selective basis, but if we are to sustain the growth and vibrancy of the brand, management contracts will be crucial. Ideally we would look to open three to four new properties per year in the coming years. Our plan is to open hotels and resorts and linked residences.”
During the half year the company opened four new hotels, in Beijing, Doha, Lake Como & Dubai and signed one new hotel management contract, for a second site in Istanbul.
Riley said: “We achieved a milestone this year by opening four new properties, five by the end of the year. I am looking forward to the prospect of additional hotels in 2020. Several markets are facing political and financial uncertainties, making challenges for these properties. 2019 earnings will benefit from the opening of the London hotel, compared to 2018, 2019 will be impact by the closure of the Excelsior. With five new properties open in 2019, I remain confident that we are building a strong platform for long-term growth.”
The company reported underlying Ebitda down 18% on the year to USD69m, due to the loss of earnings from The Excelsior in Hong Kong, which closed for redevelopment in March, and start of renovations and its Bangkok hotel. The remainder of the portfolio was described as “broadly flat”.
At Millennium & Copthorne, the company was also undergoing a series of refurbishments, including London and Singapore. The group reported a 0.9% fall in group revpar for the first quarter, with group Ebitda was GBP38m for the period, down from GBP45m in the same period last year
Kwek Leng Beng, chairman, commented: “Despite the uncertainties and challenges in the global economy, we remain focused on making the best use of our hospitality assets. The group is prioritising the refurbishment of our key gateway city properties to reposition our hotels, whilst seeking to minimise the short-term negative impact on our trading results.
“Operationally, we must successfully manage the refurbishment process and re-focus our sales efforts so as to improve yields. To that end, the affiliation agreement with Hilton for the Millennium Times Square New York will allow us to continue to manage one of our most significant hotels and help us to turn around the performance of the hotel more quickly.”
The search for a permanent group CEO has been suspended pending the outcome of the conditional offer by CDL.
June saw CDL make what it described as a “final offer” for M&C of 685 pence per share, valuing the group at GBP2.23bn. The offer came after last year’s prolonged effort by CDL to take the company private.
The new offer price, which CDL said would not be increased, represented a premium of about 37% to M&C’s closing price of 500 pence, ahead of the announcement. The offer was increase of 65 pence per share from the previously recommended final cash offer of 620 pence per share, made in December 2017.
CDL owned 65.2% of M&C and, if successful, would pay a maximum cash consideration of GBP776.29m, funded through internal cash resources and funds made available to it under a credit facility. The company said that it had secured irrevocable undertakings for 43.6% of the M&C shares it did not own.
Sherman Kwek, group CEO, CDL, said: “We believe that a privatised M&C will be in the best position to navigate the increasingly challenging and competitive global hospitality landscape with agility and nimbleness. M&C will be able to leverage CDL’s significant resources, comprehensive real estate capabilities and global network to reposition its assets and drive sustainable hotel performance.”

HA Perspective [by Katherine Doggrell]: Riley wasn’t afraid to describe Mandarin Oriental as the best hotel company in the world, adding that, with the London site now reopened after last year’s fire, he expected to be the best hotel in the city. And all the while his tone not boastful, but matter of fact.
It’s comments like that which will have those looking to bolster their luxury offerings – just about every global operator – looking for a few sacks of gold with which to scoop up a spot of Mandarin Oriental, which, in addition to its hotels, has that must-have alternative offering – the branded residence.
The good news for buyers is that, with the move into management contracts, it is getting relatively cheaper with each addition, now that there isn’t a chunk of real estate with every expansion. But when to swoop? In five years’ time it will have 15 more sites and the proof of whether it’s capable of management. But don’t wait too long, others are hungry.

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