M&L Hospitality doubles portfolio in five years

/ EdgeProp
April 9, 2018 7:16 AM SGT

The Kum family-owned hotel group is extending its footprint across Australia, Europe and the UK, and exploring opportunities in South America

Last year, hotel magnate Michael Kum, 73, was said to have a net worth of $905 million and ranked Singapore’s 32nd richest person by Forbes. The self-made tycoon grew up in an attap house on stilts perched on the swampy banks of Kallang River. Kum’s family of five also reared chickens and pigs for their livelihood. Today, he lives in a landed property in Holland Road in prime District 10.
Kum made his fortune in offshore marine services when the company he co-founded in 1976 was eventually listed on the Australian Stock Exchange as Maclyn Express in 2010.
He had entertained thoughts of retiring and focusing on investing in real estate when he formed Grandline International in 2009. It is now the parent company of M&L Hospitality, a wholly-owned subsidiary set up to hold the group’s portfolio of hotel assets. Incidentally, “M&L” are the initials of Kum’s first name and that of his wife, Lynda Ong.
As executive chairman of M&L Hospitality, Kum runs the business with eldest daughter, Jocelyn, the firm’s executive director, and Neil Maxwell, the CEO.
Kum (with Jocelyn and Maxwell): It’s important to know not only when to buy, but also when to sell (Credit: Albert Chua/ The Edge Singapore)
M&L Hospitality’s first purchase was the former Four Points by Sheraton at Sydney’s Darling Harbour in 2009. The deal was said to have been concluded in three days. Having purchased the 672-room hotel from GPT Group for A$185 million, the group spent another A$250 million to redevelop the property. It reopened in 2016 as the 892-room Hyatt Regency, a mixed-development that includes a new commercial tower containing office and retail space as well as a convention centre. It is one of the largest hotels in Sydney today.
Strong pipeline of projects
From just one hotel, M&L Hospitality’s portfolio grew to 12 hotels valued at $1.3 billion in 2013. Today, the portfolio has 18 hotels and the value has doubled to $2.7 billion over the past five years.
“In addition to the $2.7 billion portfolio, we have a strong pipeline of hotel development projects worth $600 million to $800 million,” says Jocelyn. “We will continue to see strong growth within the portfolio over the next few years.”
The hotels are in key cities such as Sydney, Melbourne and Perth in Australia; Auckland and Christchurch, New Zealand; Manchester and London in the UK; as well as Amsterdam, The Netherlands; Brussels, Belgium; and Prague, Czech Republic. According to Kum, the group will continue to hunt for assets in these cities, as well as explore new opportunities in South America. “We’re open-minded,” he says.
The 892-room Hyatt Regency Sydney, one of the biggest hotels in Sydney, is M&L Hospitality’s flagship property (Credit: M&L Hospitality)
The latest hotel to open in M&L Hospitality’s stable is the 182-room West Hotel in Sydney. Launched in January, it marks the second new hotel to be built in Sydney’s CBD in the last 17 years. Most of the hotels in the city’s CBD are either refurbishments or redevelopments of existing hotel properties.
M&L Hospitality also owns the 369-room Swissotel on Market Street in Sydney, the 256- room Novotel in Perth and the 180-room Double Tree by Hilton on Flinders Street in Melbourne, where the group has two development sites.
One of the sites is for a mixed residential-and-hotel development and located on the banks of the Yarra River in Southbank. The development will have one- to three-bedroom upscale apartments on the lower floors, with the hotel rooms on the 57th to 71st levels of the 73-storey tower.
The 182-room West Hotel Sydney opened in January (Credit: M&L Hospitality)
Planning is still underway for the second development site in Melbourne, says Maxwell. He sees mixed developments such as M&L’s Hyatt Regency Sydney and the upcoming development in Southbank, Melbourne providing diversification in income streams.
New acquisitions and divestments
M&L Hospitality is currently refurbishing the 303-room Hilton Prague Old Town, an upper-scale hotel in the historic centre of Prague. The hotel should reopen in June, says Maxwell. When the company purchased the Hilton, it also purchased the adjacent site for the development of a second hotel.
“We are focused on more upper-scale hotels, and we think that’s where demand is in the markets we’re in,” says Maxwell.
To further differentiate itself from its competitors, M&L Hospitality has also undertaken more development projects instead of just buying operating assets, says Jocelyn. Hotel developments also provide a higher return, she adds.
One of the rooms at Hilton Prague Old Town hotel (Credit: M&L Hospitality)
M&L Hospitality has also divested some of its assets over the years. In March 2013, for instance, it sold the 241-room Ibis Novena to Keppel Land’s fund management arm, Alpha Investment Partners, for $150 million, or $622,000 a key.
Last year, the group sold its portfolio of hotels in Japan, including the Hilton Nagoya. “Cap rates are compressed in Japan, and an opportunity came up to sell the portfolio, so we took it,” says Jocelyn. In 2017, M&L Hospitality divested the Travelodge in Melbourne’s Docklands.
Kum estimates that the divestments reaped $600 million to $700 million in total proceeds. “It’s important to know not only when to buy, but also when to sell,” he says.
Jocelyn adds: “The proceeds have been very healthy, and allowed us to grow our portfolio.”
Ibis on Bencoolen for sale — ‘if there’s a good offer’
In Singapore, M&L Hospitality’s sole property today is the 538-room Ibis on Bencoolen, which it purchased for $210 million ($393,334 a key) in July 2010. The hotel opened in 2009 and was considered the first international-brand budget hotel in Singapore. Since then, competition in this segment of the market has intensified. Still, the Ibis on Bencoolen continues to enjoy high occupancy rates of 89% to 91%.
Ibis on Bencoolen (Credit: Samuel Isaac Chua/ The Edge Singapore)
“The Ibis on Bencoolen accounts for 15% of our portfolio and, therefore, has a relatively large weightage,” says Jocelyn. “It’s our group’s flagship property in Singapore, and our sole property here. We will take these factors into consideration when it comes to diversification.”
M&L Hospitality has been receiving unsolicited offers for Ibis on Bencoolen. “We will sell it if there’s a good offer on the table,” says Kum. “From my perspective, that’s more than $900,000 a key.”
Last year, Hotel Chancellor@Orchard on Cavenagh Road was put on the market at $900,000 a key via marketing agent JLL. The hotel, owned by Singapore-listed Hotel Grand Central, opened four years ago. The property has less than 60 years left on the lease of its site. It will be sold with vacant possession, allowing the new owner to rebrand and reposition the asset.
Meanwhile, Grand Park City Hotel on Coleman Street was reported to be on the market for at least $1 billion, or $1.7 million a key. Savills is the marketing agent for Grand Park City Hotel.
New supply in Singapore tapering off
After 2017, new supply in the Singapore market is expected to taper off, as most of the inventory has come onstream in recent years, according to CBRE. Robert McIntosh, executive director of CBRE Hotels Asia Pacific, says: “Although some downward pressure in occupancy might be felt in the short term, the slowdown in new supply will help rebalance existing hotel performance in the next three to five years.” He sees the hotel industry further consolidating, with occupancy rates improving in view of strong visitor arrival figures.
The 182-room West Hotel Sydney opened in January (Credit: M&L Hospitality)
The expectation is that the market will recover by 1Q2019, says Kum. “In Singapore, even in an improving market, it’s hard to purchase a hotel. Sellers want to sell high, buyers want to buy low. We’re certainly open to opportunities, and if the numbers make sense, we will act on it.”
Kum’s forecast is that the market outlook for Singapore over the next three years from 2019 to 2021 “should be fine”, given that supply and demand are now aligned. This is provided the tourism market and business sentiment are not affected by “external factors”, he adds.
Expanding in Manchester
In the UK, M&L Hospitality’s hotels have not been hit by the “Brexit effect” and the group has been expanding its portfolio there. It has two hotels in London: the Holiday Inn Stratford City and Staybridge Suites Stratford City. The group purchased a third hotel in Heathrow, which was refurbished and rebranded the Hyatt Place London Heathrow Airport. It reopened 12 months ago.
“Our hotels in Stratford have been trading well since opening five years ago,” says Maxwell. “Stratford used to be a small place, but now it’s a big city, with a lot of new commercial developments around the Westfield Stratford City shopping centre, including a few other new hotels. Our business there is still going strong with occupancy rates in the high 80s.”
The group has two other hotels in Manchester that will open at end-2Q2018: the 212- room The Crowne Plaza Manchester and the adjoining 116-room Staybridge Suites. These hotels are part of a new hotel complex built on a site with a long-term lease from The University of Manchester. It is located on the main university campus, adjacent to the Manchester Business School and a new executive centre, says Maxwell.
The 212-room The Crowne Plaza Manchester and the adjoining 116-room Staybridge Suites are a new hotel complex built on the main campus of The University of Manchester, with a long-term lease from the university (Credit: M&L Hospitality)

Sydney, Melbourne still of interest

In Australia, Kum sees the Sydney and Melbourne hotel markets continuing to do well over the next three to four years. “Perth will pick up if the mining and oil and gas sectors recover,” he says. The group is therefore not expanding beyond the one hotel it already owns. “There’s still a lot of supply entering the market,” he adds.
He also sees the hotel market in Auckland and Queenstown in New Zealand performing well in the coming years. “Location is very important,” he says. “We also have a hotel in Christchurch, and it’s doing reasonably well.” It is the 192-room Chateau on the Park — a Double Tree by Hilton, located on five acres of landscaped gardens. “It’s a quiet area and popular with corporate clients,” says Kum.
M&L Hospitality’s 166-room Hilton Auckland has also been doing well since the hotel was purchased in 2012 and recently refurbished. “We have seen occupancy rates in the 90% range, which is higher than the market average of 85% to 86%,” says Kum. “We also command higher average daily room rates and lead our closest competitor by about $40 a night.”
One of the suites at Hyatt Regency Sydney, which overlooks Darling Harbour (Credit: M&L Hospitality)
Maxwell attributes the strong performance of the group’s hotels in New Zealand to the dearth in new supply. “There haven’t been many new hotels built for a long time,” he says. “While there are some hotels now under construction, they are mainly mid-scale products.”

Oversupply in Southeast Asia, China

The group’s absence in Southeast Asia except Singapore, and in North Asia, especially China, has been a deliberate strategy. “There’s oversupply in many of these markets,” says Jocelyn. “And in China, you’re faced with a 50-year lease on commercial sites, which isn’t appealing to us.”
M&L Hospitality will be celebrating its 10th anniversary in 2019. The group remains lean with 28 people. Besides the head office in Singapore, it now has a full-service office in Sydney and a small office in Amsterdam. “We are expanding because we now have nine hotels in Europe,” says Jocelyn. “And it’s quite a sizeable chunk of our portfolio today.”