Hotel Royal

[dydx]

Shareholders should note that the $0.05/share Final dividend will be paid on 31May11.....
http://info.sgx.com/webcoranncatth.nsf/V...1004464E9/$file/HRL-draftannouncement-BCDpayment.pdf?openelement
Based on the record date fixed on 19May11, the 'XD' date should be 16May11.

[freedom]

even if the company can re-develop its Hotel Royal to high end condo, i think they already missed the best time to do it. as to re-develop a new hotel, the company need to wait for a better timing since the tourism is quite good now and occupancy rate is high.

[dydx]

Q1 (ended 31Mar11)-FY11 results announcement (first released on 6May11, last Friday) makes interesting reading.....
http://info.sgx.com/webcoranncatth.nsf/V...7001F8808/$file/HRL_1Q2011_6May2011.pdf?openelement

The improved results are indeed commendable. Based on the latest numbers, Hotel Royal's group revenue and NP are now running at in excess of $45.0m and $10.0m a year, respectively. A NP of $10.0m in FY11 (vs. $5.048m in FY10) will bring an EPS of approx. $0.12, based on the latest 84.0m issued issues.

Of course, the most interesting about Hotel Royal is its rock-solid B/S and its grossly under-stated per share NAV.

I now look forward to the coming $0.05/share Final dividend for FY10.

[dydx]

Following the Q1-FY11 results announcement, yesterday (9May11) S&P released an update report....
http://research.sgx.com/reports/rpt_view.pl?id=6479

I am particularly comforted by the following para from the report...

"Maintain 2011 net profit forecast. 1Q11 net profit accounts for 22%
of our full year 2011 forecast. We expect Hotel Royal to continue to
perform better over the next three quarters in line with the
improvement in both hotel occupancy and room rates. According to the
Singapore Tourism Board, the average occupancy rate rose to 82%
(from 81% in January 2010) while average room rate rose by 18.3%
YoY in January 2011."

[dydx]

Checked my bank account today and noted a nice credit from Hotel Royal's $0.05/share Final dividend for FY11. Feeling good!

I now look forward to the Q2/H1 results expected by 15Aug11, and an early opportunity to visit or stay in Hotel Royal's 2 hotels in KL and Penang when I visit the 2 cities in Malaysia next.

[Nick]

Hi dydx,

I have long been fascinated by Hotel Royal portfolio of freehold assets in Singapore and Malaysia. I was wondering whether is it normal for a hotel stock of this caliber to be generating Core ROE of 2-4% annually for the past 7 years ? Is this one of the reasons why the share price trades at a significant discount to its NAV of $3.67 so as to bump up the real property yield ? Would value your inputs !

[dydx]

I was wondering whether is it normal for a hotel stock of this caliber to be generating Core ROE of 2-4% annually for the past 7 years ? Is this one of the reasons why the share price trades at a significant discount to its NAV of $3.67 so as to bump up the real property yield ? Would value your inputs !

Is the yearly ROE a good-enough measure for Hotel Royal's long-term success? I doubt it, and I also doubt that Great Eastern/OCBC Group uses the yearly ROE to evaluate and monitor their combined 11.97% stake in Hotel Royal as a long-term investment.

I suppose there are 2 key aspects investors should look at return from Hotel Royal -
(1) Recurrent after-tax profits and net FCF (i.e. adding back depreciation, but also accounting for maintenance capex) from (a) operations of the current 4 self-owned hotels, (b) rental income from the current investment & other properties, and © return from the available-for-sale investments portfolio (i.e. dividends received, nett revaluation gain/loss, and nett gain/loss from disposal). From this recurrent source of profits and FCF, Hotel Royal pays a yearly dividend (currently $0.05/share) to its shareholders, and retains a bigger portion of it to fund business growth, mainly by way of opportunistic acquisitions - usually only at a large-enough discount to current valuation - of older, completed hotel and commercial proprty assets which have good long-term potential for earnings growth and capital appreciation.

(2) Capital appreciation of the freehold hotel and property portfolios over time. For this, Hotel Royal management uses market value as the right basis and provides shareholders a yearly update on the Revised NTA per share - which stood at $4.85 as at 31Dec10 - in the AR. What this simply means is that should the mangement decide to sell the entire hotel and property portfolio, each Hotel Royal share should end up being represented by $4.85 -or more, if the hotel and property assets are sold at even higher prices than the current valuation - in cash. If and when this happens, the accounting ROE for that FY will be a very high number, and rationally there should also be a big cash payout to Hotel Royal shareholders.

As to Hotel Royal's current low share price relative to its accounting NAV/share or RNTA/share, I guess at this point Mr Market chooses to remain in a 'brain-dead' state or as a disbeliever, or just refuses to wake up. But something is quite certain, when the right catalyst events happen to a high-quality but grossly under-priced stock, Mr Market will almost always wake up - usually suddenly!

[redcorolla95]

To be more specific, when you're looking at income, there're 2 components of how it's classified

(1) Net income - also called profit attributable to shareholders. This includes room charges from the hotel, revenues from F&B, realized profits / losses, rents from other properties. So 2-4% return is basically your room rates & restaurants.
(2) Comprehensive Income - this is where the revaluation / devaluation of the properties or the so-called un-realized profits / losses shows up.

The reason why there are these 2 types of income is because of the idea that (i) net income i.e. room charges is usually more recurring recurring, whereas (ii) other comprehensive income like capital appreciation is not recurring - so it's helpful to separate the 2 components of return. Furthermore, capital appreciation of a hotel or office building is a whole lot more subjective because these are not being actively traded, so we make guesses at the 'market price' or 'fair value'.

So when you're looking at the return performance of a company that owns lots of hotels / buildings over a long period, you should be looking at total comprehensive income and not just the net income. Then the total return on equity will be a whole lot higher than 2-4% - something like 15% for Hotel Royal (if you think the valuations of their property are fair).

The much harder questions to answer are
1. how much are the hotels / buildings really worth now
2. how much are the hotels / buildings going to be worth in future. Can the underlying property keep appreciating by more than 10% each year

[dydx]

Do the accountants - both internal and external - who prepare the quarterly financial statements know how to invest in and build a hotel and property business for long-term success and wealth accumulation for its shareholders. The answer has to be "No". You need someone who has some special talents and experiences - and certainly more than accounting knowledge - to achieve that.

There is already ample evidence of that in Hotel Royal. From a humble beginning of only 1 hotel along Newton Road, the company now owns 4 hotels and quite a bit of investment/other properties - mostly bought are great prices, and all now are worth substantially more - plus a portfolio of listed securities.

To be able to appreciate the real wealth accumulation process in the business, we should not just pay too much attention to the yearly P&L numbers or ROE.

[freedom]

but asset play, the value might not be realized for a very long time. maybe one fine day, it will be realized, but no one knows when. could be 5 years, 10 years or even longer, or 1 year, 6 months or even shorter.