Hotel Royal

[¯|_(ツ)_/¯]

Hotel Royal@310
announce that due to the Covid-19 pandemic, the Group is undergoing an internal group restructuring exercise which will cause the Group to close the hotel operations in Penang. Along with the closure, the hotel will be conducting a full retrenchment exercise. The restructuring cost will be approximately RM2.5 million (S$0.8 million) which will be funded by the Group through its internal resources.
https://links.sgx.com/FileOpen/Announcem...eID=683664



Stay home and stay safe, everyone.

[dydx]

It is very strange to close the entire operations of Hotel Royal Penang, as the related payroll and operating costs estimated to be about MYR4.0m a year is certainly within the financial capacity of the group, even assuming the hotel derives no revenue at all.

Maybe Hotel Royal's BOD is exploring ways to enhance or unlock the value of the hotel's freehold land together with that of the adjoining Penang Plaza - total combined land area : 8993 sq m - which has a very nice and strategic frontage at the junction of Jalan Laut and Jalan Burma in Penang..
https://www.google.com/maps/place/Hotel+...00.3254891

[Ben]

Unlike tourism industry which has suffered a severe blow caused by the pandemic, the property market is experiencing a period of rapid growth due to abundant liquidity and cheap credit cost. I do hope Hotel Royal is indeed taking the opportunity to unlock the value of its properties in Penang. Perhaps, they should also consider unlocking the value of its hotel at Newton road, which is in a FH land and located in a very prime area.

[CY09]

https://links.sgx.com/FileOpen/Announcem...eID=733734

This is one of the weirdest equity raising exercise.

On one hand the company says its working capital is sufficient, however, it is now raising rights of which 25% is used to repay borrowings and 75% is used for working capital. They have 15 mil on hand and 4.7 mil in short term bond, so raising another 30 mil gives them a working capital of 50 million.

To me, it dont make sense. This is undervalued company who holds freehold hotel land in Singapore which i think should be monetised. Their flagship hotel at Novena is ancient and is a 3 star hotel. Selling it off will definitely yield a lot of money or repurpose the hotel into a new 4/5 star hotel

[¯|_(ツ)_/¯]

Yes, really strange, so I took 1 hours to look thru it's historical records.

Maxwell house was disposed $10.7m and Royal Penang restructuring and brought a KL hotel for $65.4m.

Loss $20.1m in FY2020 and loss $3.4m in FY2021 and loss $3.8m 1HFY2022

After looking thru it's cashflow etc, I think there are few reasons for the rights:
1. paying off debt - it's clear that Hotel Royal is trying to pare down it's debt as the Finance charges is going up.
2. pay dividend - it's clear that Hotel Royal will continue to pay the usual dividend.
3. Working capital - this is not sure. I think the working capital should be enough, so there is no good reason to raise further working capital - unless, they wanted to have ready bullet to buy more hotel?

With this, I think that an opportunity had opened up.  Thank you CY.

Gratitude.

[CY09]

I would rather the company demolish Hotel Royal @ Newton and rebuild a new hotel.

It is a freehold land so they can keep upgrading their hotel without worry about leashold. The current hotel is very dated and I have visited before, it is a completely 1970-80s looking hotel with a KTV like place at the ground floor. The current hotel utilisation rate is dismal and it is not picking up despite Singapore's reopening. Urgently needs refurbishment and unlocking of this prime property believe if the management does it right, the share price can double

Also it did an equity raising in 2018 at the same ratio at $3 for a new share. The current rights is $2. The rationale is the same --> for working capital + debt repayment.

Over the years, shareholders have been returning more money than the dividends they have obtained.

Do note this is a family run business, with the second generation now running it which to me is a red flag in Singapore's investing environment for listed companies. The track record for such model has been disastrous

To me, this business is a cigar butt puff- company admits defeat, sells off its freehold hotels; Given that the family are controlling holders, it is unlikely they will be kicked out of their managment position.

[ghchua]

Hi CY09,

Yes. They did a rights issue in 2018 and pay down some of their loans. But as you can observe, their borrowings had gone up again after 2018 and even above FY17 levels. This is due to new loan drawdowns for the acquisition of Hotel Royal Bukit Bintang, the redevelopment of Baba House and upgrading of Grand Complex in New Zealand.

With interest rate going up and regional currencies like Malaysia ringgit, NZ dollar, Thai baht etc weakening, resulting in some currency translation losses on balance sheet, it certainly looks prudent to pay down some borrowings again.

[¯|_(ツ)_/¯]

Thank you ghchua

I spend another one hour, flip thru vb.com posts and these are common comments:
1. Hotel Royal is a value-trap.  No doubt about it, every valuebuddies felt that it's super under value.  The conclusion - unfortunately - is only unlocked by selling it's hotel.

2. Hotel Royal is family operated - now 2nd Gen.

3. Hotel Royal grow buying under-value hotels, retrofit and operated for profit.  Each time it buy a hotel, it goes into debt which requires it to issues rights to get $$$ from it's shareholders.
*** all the dividend given is not enough to cover the rights 

---

chit chat a bit.
I went to the newton HR for dinner - a primary school re-union.
The restaurant was full house, food is great (value) and the waitress was really friendly (aunties). 

Totally enjoy the rare chance of gathering. 

Gratitude.

[weijian]

Is Hotel Royal a 'value trap' stock?

First, let's understand the definition of a 'value trap' stock…..
http://www.investopedia.com/terms/v/valuetrap.asp

What we know as facts:
(1) Under the present management, Hotel Royal has been growing the company's hotels portfolio through acquisitions, mainly buying under-priced 3- to 4-star mid-size hotels located on freehold land. After buying the hotels, the company would incur appropriate asset enhancement capex on them and thereafter operate the properties themselves with the view to raise their profitability and FCF. Over time, the company has benefited from substantial increase of the market value of its hotel and other properties, which has added to the company's comprehensive income and shareholders' equity especially in the last 2 FYs, and this has been reflected in the very sharp rise in the group's NAV/share to a new record high of $6.05 as at 31Dec13.

(2) Hotel Royal holds at least 2 very valuable freehold land sites and hotels in Singapore - the old Hotel Royal on Newton Road, and Hotel Royal @ Queens - which if sold or redeveloped will yield and realise very substantial gains. While we don't know the corporate actions that the company may undertake on these assets or their timings, we already know that these assets are highly valuable based on the latest fair value revaluation as reflected in Hotel Royal's 31Dec13 financial accounts, and that the assets can be quite easily sold.

It has been 10 years since dydx posted about Hotel Royal. 100% hindsight bias:

- Minority shareholders have lost ~50% over the last 10years. Mini panadols in the form of 1-2% dividends annually.

- The hotels are almost still as old but of course land value has surely appreciated. Can see but cannot touch.

- How many 10years do minority shareholders have?

[sgpianolessons]

There is also a rights issued on Nov 2022 at $2. If shareholders have supported the rights then, they are losing more since price is only $1.75 now.