Pursuing a passion for hospitality

'THE joy of giving from the heart. That is what true hospitality is all about,' says Vincent Yeo, CEO of M&C REIT Management Ltd.

The company manages CDL Hospitality Real Estate Investment Trust, which is stapled with CDL Hospitality Business Trust to form listed CDL Hospitality Trusts (CDLHT).

"When I hear about our hotels' staff going the extra mile or delivering a heart-warming experience to our guests, it is very gratifying. Those that have run restaurants or enjoy entertaining at home would understand this undiluted pleasure," says the 44-year-old, who has been in the hospitality business for 20 years.

Besides pursuing a passion for hospitality, what has given Mr Yeo great satisfaction on the job is building a "respectable track record" at CDLHT since its listing in July 2006 as Singapore's first hotel Reit. "People were initially skeptical of the investment merits but taking into account the distributions received over the years, as well as the stock price appreciation since our IPO, our shareholders have done very well." The counter's IPO issue price was 83 cents. It last traded at $1.675 last Friday.

"Although there have been economic vagaries, we have survived the trials and tribulations and have achieved appreciable growth in our distributable income since IPO. We have been a good custodian of our public shareholders' wealth," he added.

Since its IPO, CDLHT's hotel portfolio has tripled from four properties in Singapore to 13 (in Singapore, Australia, New Zealand and the Maldives). Its hotel room count has more than doubled from 1,915 to 4,420 and its total asset value risen from $857 million to $2.3 billion at end-June 2013.

Distribution per stapled security has appreciated from 8.98 cents for the year ended Dec 31, 2007 to 11.32 cents last year. Over the same period, gross revenue expanded from $91 million to $150 million and net property income, from $86 million to $139 million.

However, the group's results have slipped in the first half of this year compared with the same period last year, due largely to increased competition from additional new hotel room supply in Singapore along with weaker corporate demand.

In Australia, where the group has five hotels in Brisbane and Perth, it operated amid a slowing economy and mining sector - though this was mitigated by the fact that the hotels have a high fixed-rent component paid by the lessee.

Distribution per stapled security in the first half of 2013 was 5.41 cents, down 5.1 per cent year-on-year. Gross revenue declined 2.1 per cent year-on-year to $73.5 million and net property income fell 3.2 per cent to $67.9 million.

Positives ahead

Mr Yeo acknowledges some of the challenges facing the Singapore hospitality industry and CDLHT, but also points to the positives.

As new hotel room supply enters the market, it is inevitable that existing hotels will be under some competitive pressure as the new players seek some of their business.

"However, it is heartening to note that industry-wide, hotels in Singapore are still registering very healthy occupancy rates at 87 per cent for Jan-Aug 2013 - demonstrating the strong underlying demand that Singapore enjoys.

"The advent of the two integrated resorts has re-invigorated Singapore's tourism sector, lifting the island's 'excitement' quotient exponentially."

For one, the opening of the IRs has spawned a new generation of restaurateurs with appealing food concepts and bold designs, enhancing the island's dining landscape and visitation experience.

"I take my hat off to these F&B entrepreneurs who are opening new restaurants amidst an intensely competitive environment (with) labour shortages, increasing rents and rising food costs.

"Even the cognoscenti of lifestyle have adopted a higher level of recognition for Singapore. In the eyes of many travellers, Singapore has become an aspirational destination."

Well positioned

While the turbo boost that the tourism industry here enjoyed from the IRs' opening will be difficult to replicate with the opening of a string of smaller attractions, other elements provide a "supporting cast" - medical tourism, growth in cruise passenger arrivals, and not forgetting the meetings, incentives, conventions and exhibitions business.

A key problem faced in Singapore's service sector is an acute labour shortage arising from a tightening of foreign labour. Besides tapping government schemes and grants to assuage the situation, the hotel management companies that operate CDLHT's properties here are exploring the option of providing mobile check-in and check-out services for guests.

Millennium & Copthorne International Ltd, which manages five of the group's six Singapore hotels, is also looking into partnering local hospitality schools and institutes to develop trainee programmes aimed at nurturing future talent at the group's hotels.

While greater focus on training and asset enhancements will generate organic growth, acquisitions will remain an important plank of the group's growth strategy.

With recent four-star hotels on the island transacted at a whopping $900,000 to $1.1 million per room, though, making yield-accretive acquisitions would be problematic for many hospitality Reits.

Nevertheless, CDLHT's 29.7 per cent gearing ratio at end-June 2013 affords it significant debt headroom of about $400 million, assuming it is prepared to gear up to 40 per cent, a back-of-the-envelope calculation shows.

This, plus the low interest rate environment, means the group can still make (albeit marginally) yield-accretive acquisitions in Singapore.

But CDLHT is also looking at overseas markets for expansion. "We have more affinity for assets with exposure to the explosion of outbound travel arising from rapidly rising disposable incomes from the burgeoning Asian economies particularly China," says Mr Yeo. "This is a mega-trend that still has a substantial way to go.There is no question that hotel room demand in the region is going to grow significantly."

A bright spot for the group is the strong income base from Singapore, which is seen as a lower-risk environment. "Our Singapore assets' values are underpinned by strong investor demand for physical hotel assets of high quality," he says. Moreover, the group, backed by strong support from its sponsor, London-listed Millennium & Copthorne Hotels (M&C), and M&C's parent, Singapore-listed City Developments Ltd (CDL), is well positioned to grow, says Mr Yeo, who is a nephew of CDL executive chairman Kwek Leng Beng.

As at Sept 30, 2013, M&C had a stake of 35.41 per cent in CDLHT.

Looking back at the floating of Singapore's first hospitality Reit, Mr Yeo says: "I have had the privilege of seeing how Singapore hotels have progressively attracted more and more institutional investment interest. Hospitality assets have become a more established and 'sexy' asset class.

"With the IRs, there has been a structural change in demand for hotel rooms, resulting in significantly more depth in demand. Accordingly, the perception of risk associated with this asset class has also diminished. The activity in the physical hotel market bears testimony to this by the compression of capitalisation rates for hotel assets."

Culinary angle

Mr Yeo holds a BSc in Business Administration (finance major) from Boston University, graduating at the top of his class in 1988.

In addition to playing tennis and being a voracious reader, he dabbles in the culinary arts. "I like to discover new flavours and food combinations. I enjoy reading cookbooks and dining at notable restaurants all over the world."

In his kitchen at home, he "cooks vicariously by orchestrating preparation of dishes" by his wife Eunice. "I have actually penned some recipes. I recently concocted an uni (sea urchin) pasta recipe," he reveals.

Deciding on the menu, sequencing of food preparation and presentation of dishes when entertaining friends at home - these are a source of great pleasure for Mr Yeo.