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.