MCK - Millennium & Copthorne Hotels.

[LaserEyeKiwi]

The problem is basically the entire company is owned by some wealthy Malaysian family (by memory). 90% ownership sort of thing. So you can invest at low levels and only hope they complete a full takeover. Otherwise the shares a barely traded.

Not really a factor - each share has the same entitlement to future cashflows and dividends, regardless of how many shares the majority owner holds, just like any other company with a large majority owner (see NZ power companies and airNZ etc - all majority owned by government)

When MCK returns to normal level of operations and profitability and returns to paying out majority of cashflow as dividends - no one is going to care how many shares the majority owner has - instead they will be looking at the cold hard cash return.

[Rawz]

Not really a factor - each share has the same entitlement to future cashflows and dividends, regardless of how many shares the majority owner holds, just like any other company with a large majority owner (see NZ power companies and airNZ etc - all majority owned by government)

Well sit around and take the dividend but I wouldn't hope for large capital gain. Air NZ and power co share floats are like chalk and cheese when comparing to MCK

[LaserEyeKiwi]

Well sit around and take the dividend but I wouldn't hope for large capital gain. Air NZ and power co share floats are like chalk and cheese when comparing to MCK

It is simple math: With $160 million net cash on the books and future earnings continuing in $50 million+ range (once hotel operations return mostly to normal), dividends are going to start gushing (otherwise the net cash will quickly surpass the current $350 million market cap)

[LaserEyeKiwi]

Well sit around and take the dividend but I wouldn't hope for large capital gain. Air NZ and power co share floats are like chalk and cheese when comparing to MCK

Also worth remembering that MCK has traded at its NTA in the past pre-pandemic. no reason why it shouldn't trade up to its NTA (Currently $4.70) post-pandemic as well.

[invest]

They are extremely conservative, hence preferring to hold cash during an uncertain period instead of dishing out dividends. In fact, this is why they are also taking up CDL's DRP instead of adding more cash to their lazy balance sheet. Now is the time to invest in refurbishing hotels and preparing for the return of tourists. Even with hotels closed down and low occupancy, they have managed a decent result (compared with other tourism businesses suffering massive losses). Their performance will continue to be underpinned by CDL. The market is not fully factoring in that NTA is in fact understated as CDL is not marking their landbanks to market on BS. I think the CDL shareholding alone would justify their current share price. Unlike tourist attractions, MCK's revenue from domestic customers and MIQ are significant. Therefore massive upside, but shareholders will have to be patient. I think we'll see the SP move up once the bubble with Aus is announced and vaccines deployed.

[Rawz]

It is simple math: With $160 million net cash on the books and future earnings continuing in $50 million+ range (once hotel operations return mostly to normal), dividends are going to start gushing (otherwise the net cash will quickly surpass the current $350 million market cap)

I hear ya. I bought into the narrative last year when MCK was a trending stock on all the FB share groups. Did a nice little trade from $1.80 to $2.20. But if you look into it a bit more their dividend yield has averaged 2-2.5% for the last 8 years. That cash mountain will never get returned to shareholders until wealthy family shareholder says so. MCK is basically a vehicle for them to park funds. Also, a lot of their properties need to be upgraded so capital spend could go very high for a few years if the decision was made to do so.

[LaserEyeKiwi]

I hear ya. I brought into the narrative last year when MCK was a trending stock on all the FB share groups. Did a nice little trade from $1.80 to $2.20. But if you look into it a bit more their dividend yield has averaged 2-2.5% for the last 8 years. That cash mountain will never get returned to shareholders until wealthy family shareholder says so. MCK is basically a vehicle for them to park funds. Also, a lot of their properties need to be upgraded so capital spend could go very high for a few years if the decision was made to do so.

The premium properties are already being upgraded: M social is of course near new, and the 2nd Queenstown resort is now currently being refurbished after the first one was just finished, with the Rotorua resort the next to likely be done. You might be right about the "funds parking" but I don't mind that as I don't think there are many instances of company parking money that doesn't eventually get realised in the share price one way or another.

[LaserEyeKiwi]

I'm seeing the initial plans for a "Covid vaccine passport" now being rolled out around the world, which should enable quarantine free travel for those that have been vaccinated (perhaps combined with a rapid result airport test on arrival - vaccines are only 95% effective after all). This should be the big major step back to normal by the end of 2021 - and NZ is for sure going to be a popular holiday destination no doubt given our CV-free status (present tiny outbreak notwithstanding).

[Snoopy]

Actually unless I'm missing something, the ex-cash PE ratio is now 4x.

there is $160 million net cash ($198 million cash minus $38 million in debt), and with only 158 million shares outstanding that equals a net cash amount of $1.01 per share!

With shares at $2.20, the ex-cash share price is $1.19c, so with 29c eps the PE multiple is just 4.1x currently.


This is flawed thinking. There is no recognised financial statistic called 'ex-cash PE'. If the cash was really surplus it would be returned to shareholders. The dividend has been cancelled which is an indication the company considers itself, if anything, short of cash.

The cash is needed to redevelop the hotels and allow for an uncertain outlook in the tourism sector where salaries to staff are certain, and room nights to pay for those salaries are not.

SNOOPY

[LaserEyeKiwi]

This is flawed thinking. There is no recognised financial statistic called 'ex-cash PE'. If the cash was really surplus it would be returned to shareholders. The dividend has been cancelled which is an indication the company considers itself, if anything, short of cash.

The cash is needed to redevelop the hotels and allow for an uncertain outlook in the tourism sector where salaries to staff are certain, and room nights to pay for those salaries are not.

SNOOPY

Valuing companies on an ex-cash multiple is common practice for companies with large amounts of cash sitting on the balance sheet which are far in excess of working capital needs. In the case of MCK this is indeed the case, with hotel refurbishments having already been carried out on large properties (and the cash balance has increased during that time).

[LaserEyeKiwi]

Whats more I would also note that MCKs current 66% holding of CDL is worth ~$190 million (and they are now increasing their percentage holding in CDL by taking shares in lieu of cash dividend this year). That means MCKs NZ hotel operations, and their Sydney residential portfolio, is currently only being valued at approximately $160 million.

(Note: CDL value is based on CDL shareprice, not the underlying asset value of CDL which accounts for its major asset base - development land - on a cost basis rather than on market value).

[Snoopy]

Valuing companies on an ex-cash multiple is common practice for companies with large amounts of cash sitting on the balance sheet which are far in excess of working capital needs. In the case of MCK this is indeed the case, with hotel refurbishments having already been carried out on large properties (and the cash balance has increased during that time).


The only time I have seen "ex.-cash PE" mentioned before was on the A2 Milk thread when some shareholders were desperately trying to justify an overvalued share price. The cash was not surplus there, and it is not surplus here. It is the board that decides whether cash is surplus or not. There is no sign of either the A2 board or MCK board doing so.

You have said yourself that:

"The 2nd Queenstown resort is now currently being refurbished after the first one was just finished, with the Rotorua resort the next to likely be done."

So you are aware that in reality there is more work to be done. How do you know the cash on hand is 'far in excess of working capital needs'? There are 'refurbishments' and 'refurbishments'. Do you sit around the MCK board table? They may be eyeing an acquisition for all you know. I don't claim to know any more or as much about the hotel business as you do LaserEyeKiwi. But I do know that returns on capital invested are historically not great, and Covid-19 has not improved those returns. So there is a need to keep financials conservative.

Let's be clear, I am not arguing that MCK is a dud investment. I can see value here. But there is no need to make up financial statistics to measure it.

SNOOPY

[LaserEyeKiwi]

The only time I have seen "ex.-cash PE" mentioned before was on the A2 Milk thread when some shareholders were desperately trying to justify an overvalued share price. The cash was not surplus there, and it is not surplus here. It is the board that decides whether cash is surplus or not. There is no sign of either the A2 board or MCK board doing so.

You have said yourself that:

"The 2nd Queenstown resort is now currently being refurbished after the first one was just finished, with the Rotorua resort the next to likely be done."

So you are aware that in reality there is more work to be done. How do you know the cash on hand is 'far in excess of working capital needs'? There are 'refurbishments' and 'refurbishments'. Do you sit around the MCK board table? They may be eyeing an acquisition for all you know. I don't claim to know any more or as much about the hotel business as you do LaserEyeKiwi. But I do know that returns on capital invested are historically not great, and Covid-19 has not improved those returns. So there is a need to keep financials conservative.

Let's be clear, I am not arguing that MCK is a dud investment. I can see value here. But there is no need to make up financial statistics to measure it.

SNOOPY

I usually invest in US companies. Ex-cash valuation metric is fairly common in US market for fundamental investors looking for undervalued names to see there true valuation multiple. In particular Apple was for a long time valued on an ex-cash basis (levering up with options when ex-cash PE fell below 10 was the best investment I ever made)

[Snoopy]

I usually invest in US companies. Ex-cash valuation metric is fairly common in US market for fundamental investors looking for undervalued names to see there true valuation multiple. In particular Apple was for a long time valued on an ex-cash basis (levering up with options when ex-cash PE fell below 10 was the best investment I ever made)


Fair enough. The rules for dividends in the US are different to here. IIRC company profits are taxed, then shareholders are taxed again when dividends are paid. This 'double taxing of profits' is a good reason for US companies to retain their earnings rather than pay them out. So you may indeed find that some US corporations carry 'surplus cash'. That situation does not apply in NZ though. The imputation credit system here means that it is 'cash neutral' for shareholders if profits are retained or paid out, as a rule. Thus there is no impediment there for directors of NZ listed companies to pay out their surplus company funds. In fact some might argue it is their fiduciary duty to do so! I would carry the argument further. If you think an NZ company has 'surplus cash', what you are really saying is that you know better than the company directors.

SNOOPY

[LaserEyeKiwi]

Fair enough. The rules for dividends in the US are different to here. IIRC company profits are taxed, then shareholders are taxed again when dividends are paid. This 'double taxing of profits' is a good reason for US companies to retain their earnings rather than pay them out. So you may indeed find that some US corporations carry 'surplus cash'. That situation does not apply in NZ though. The imputation credit system here means that it is 'cash neutral' for shareholders if profits are retained or paid out, as a rule. Thus there is no impediment there for directors of NZ listed companies to pay out their surplus company funds. In fact some might argue it is their fiduciary duty to do so! I would carry the argument further. If you think an NZ company has 'surplus cash', what you are really saying is that you know better than the company directors.

SNOOPY

you are correct about that awful double taxation on dividends situation in the US - which is why Share buybacks are so popular for capital return.

[LaserEyeKiwi]

President Biden just announced that USA will have enough vaccinations to cover every American adult by end of May, 2 months earlier than previously planned.

This bodes well for MCK as inbound tourists from USA & Australia now look more likely by year end - America vaccinating quicker than expected mean a lot more supply for other nations like NZ & Australia sooner than expected.

[LaserEyeKiwi]

some heavy selling today - possible good entry here

[LaserEyeKiwi]

Multiple media reports this morning that NZ will introduce Australian travel bubble in mid/late April. Potentially announced as soon as Monday afternoon (following cabinet meeting).

This of course would be very good news for MCK, with Australia being by far the largest source of international customers.

https://www.rnz.co.nz/news/national/438615/plans-under-way-for-trans-tasman-bubble-by-end-of-april

[LaserEyeKiwi]

April 6th announcement will set the start date of the Australian quarantine free bubble. Sounds like it will be in place by some point in late April / Early May.

Expect money to flood in too tourism related stocks like MCK once the date is announced as it becomes clear 2021 will be a much better year than expected.

[LaserEyeKiwi]

Todays the day - place your bets ladies & gentlemen!

The impact of reopening to our largest tourist market are going to be significant, especially with something close to one third of Auckland hotel rooms being unavailable as they are part of the continuing MIQ pool. That means the two thirds of rooms that aren't in the MIQ pool will see an outsized demand pop from the Australian travel bubble.

[stoploss]

Todays the day - place your bets ladies & gentlemen!

The impact of reopening to our largest tourist market are going to be significant, especially with something close to one third of Auckland hotel rooms being unavailable as they are part of the continuing MIQ pool. That means the two thirds of rooms that aren't in the MIQ pool will see an outsized demand pop from the Australian travel bubble.
Is the Australian demand going to make up for all the missing Chineses,American,British,German,French ,Japanese tourists etc .....

[BlackPeter]

Is the Australian demand going to make up for all the missing Chineses,American,British,German,French ,Japanese tourists etc .....

Not sure you realize that MCK is basically a property game, not just due to its majority ownership of CDI .. and a number of Australian apartment blocks?

Lets face it - FY2020 brought them despite zero tourism still 29 cents EPS, not bad for a terrible year, isn't it? Whatever this year brings, it is on the hospitality front likely to be better with Ossie's starting to return ... and who knows, maybe China, Taiwan, Singapore and South Korea (arguably all doing better on the Covid front than Australia) are next? In my view only political games could hold their return back.

Ah yes, and the property front - do you expect real estate prices to crash? I don't.

[LaserEyeKiwi]

Is the Australian demand going to make up for all the missing Chineses,American,British,German,French ,Japanese tourists etc .....

Eh...The Australian demand is going to make up for all the missing demand from Australian tourists, which is by far the largest part of the NZ tourism market, accounting for almost 50% of international visitors.

Form tourism NZ:


Prior to COVID-19, Australia was New Zealand’s largest international visitor market, accounting for almost half of all international visitor arrivals and spent $2.7b in 2019.

Between domestic and Australian tourists, and with a big chunk of hotel capacity still being allocated to MIQ, the hotel occupancy rate for MCK will be looking very nice indeed given the current global situation.

And of course also worth noting that NZ will be a much more popular tourist destination for Australians than usual, given the simple fact of a lack of other choices.

[LaserEyeKiwi]

BOOM!

April 19th is the day!

Let the flood of tourists begin!!

[LaserEyeKiwi]

Good share price reaction so far - up over 10% this week. Still a LOT of room to run, and I expect a statement from MCK at some point soon with details on initial booking surge for April 19th onwards.

[LaserEyeKiwi]

Qantas reporting very strong demand for Australians travelling to NZ for Ski season. MCKs three Queenstown Hotels (and possibly its Taupo hotel) are poised to do very well this winter. Hopefully the 2nd Queenstown hotel currently undergoing refurbishment (one has already just been done) can be ready in time to catch most of the season.

[LaserEyeKiwi]

Interesting AGM update today:

- Hotel operations currently cashflow positive
- MCK Queenstown hotels getting a significant boost from the opening of trans Tasman bubble,
- Increasing bookings from regional corporate conferences, and 4 other regions performing above last year.
- CDL property sales also way up on last year.
- Choosing to make more significant refurbishments now to increase opportunity for growth once borders re-open

Looks like there is the possibility it could be another profitable year if CDL continues performing and hotels remain cashflow positive (IMO)

Still trading at a ridiculous discount to NTA (HALF)

[LaserEyeKiwi]

Air NZ update today seems bullish for MCK hotel operations:

from Air NZ:


The Tasman market is building following the opening of the Trans-Tasman bubble in late April 2021, with capacity currently at around 70% of pre-Covid levels.

and:


Domestic capacity is now at approximately 90% of pre-Covid levels, and corporate demand continues to show strong signs of recovery, averaging around 80% of historical levels for the past three months. Importantly, our Domestic load factors are also tracking in a similar range.

[ratkin]

Air NZ update today seems bullish for MCK hotel operations:

from Air NZ:



and:

Lets hope the hotels can find the staff. Many of the old staff were given the boot, and have moved on to other employment, and not too many replacements about.

[thebdogg]

MCK balance sheet

Would someone be able to explain to me exactly how/where the 66% stake in CDL is represented here?

12731

[thebdogg]

duplicate post

[LaserEyeKiwi]

MCK balance sheet

Would someone be able to explain to me exactly how/where the 66% stake in CDL is represented here?

12731

it’s all consolidated in those financial statements. You’ll notice if you dig deeper into the annual report that one operating segment is “residential land development” (CDL).

the market value of CDL (eg the share market market cap) is not reflected in the accounts.

12734

I’m of the opinion that MCK is drastically undervalued, especially given CDL market cap.

[thebdogg]

To me it looks like the full values from CDL's balance sheet are included in the MCK balance sheet.

However, MCK only owns 66%, so the remaining 34% needs to be netted out somewhere. The only obvious place is non controlling interests in Equity (which technically seems incorrect to me, but like I said, the only obvious place I can see).

[LaserEyeKiwi]

To me it looks like the full values from CDL's balance sheet are included in the MCK balance sheet.

However, MCK only owns 66%, so the remaining 34% needs to be netted out somewhere. The only obvious place is non controlling interests in Equity (which technically seems incorrect to me, but like I said, the only obvious place I can see).

yeah that s right - the “non-controlling interests” is the portion of subsidiaries that MCK doesn’t own. This is standard accounting practice for companies that own more than 50% (controlling interest) in another company, nothing incorrect about it at all. All the metrics reported for the company (EPS, Net Assets per Share etc) are after the non-controlling interest portion has been removed.

So for instance the net assets per share of $4.70 reported 6 months ago includes only the ~66% portion of CDL assets that MCK owns.

[thebdogg]

How does this work for the cashflow statement? It's accounting for 100% of CDI cashflows too (since the cash figure on the balance sheet and cashflow statement match), but there's no where to net out the 33% unowned portion. I would think this is significant, because if you were in a situation where MCK's cashflow was negative and CDI's was positive, or MCK had no cash and CDI had a lot, the distinction would be important to know.


The way the accounts are prepared, it seems we're unable to know how much of the cash position belongs to each company without reconciling with the CDI annual report?

[Scrunch]

yeah that s right - the “non-controlling interests” is the portion of subsidiaries that MCK doesn’t own. This is standard accounting practice for companies that own more than 50% (controlling interest) in another company, nothing incorrect about it at all. All the metrics reported for the company (EPS, Net Assets per Share etc) are after the non-controlling interest portion has been removed.

So for instance the net assets per share of $4.70 reported 6 months ago includes only the ~66% portion of CDL assets that MCK owns.

The $4.70 Net assets calculation is $743.6m / (105.578m ord shares + 52.740m pref shares). The $99.4m of non-controlling interests is not part of this calculation.
As noted by LaserEyeKiwi, this is the standard way of doing things when you have a controlling interest.

[LaserEyeKiwi]

How does this work for the cashflow statement? It's accounting for 100% of CDI cashflows too (since the cash figure on the balance sheet and cashflow statement match), but there's no where to net out the 33% unowned portion. I would think this is significant, because if you were in a situation where MCK's cashflow was negative and CDI's was positive, or MCK had no cash and CDI had a lot, the distinction would be important to know.


The way the accounts are prepared, it seems we're unable to know how much of the cash position belongs to each company without reconciling with the CDI annual report?

yes if you are really concerned how much cash CDL has then you can always check the CDL account. MCK has plenty of cash though - so much so that they didn’t need to take any cash from CDL by way of dividends and took new shares instead (upping their ownership percentage in CDL).

MCK effectively run both companies anyway, anyone holding CDL shares is effectively investing in MCKs residential land property development operation, and have no exposure to the hotel operations or the Zenith property sales in Sydney. I prefer to have the full exposure to MCK as CDL is closer to fully valued, whereas the hotel operations (and zenith) are trading well below half where they should be.

[thebdogg]

The biggest risk I'm seeing is that the parent (MCK UK) owns 70% of the stock meaning they completely run the show. Essentially your voting rights are useless? Let's say they need cash, they could sell off properties and pay it out in divs, or use intra company loans. Nor do we get to vote on directors? This bonehead deal they made in China where they ended up having millions of shareholder funds stolen is a good example of why this can be important - https://www.nzx.com/announcements/193641

Possibly this is why the stock trades so far below NTA -if you look back to 2012/2013 when the share price was 70 cents, the book value was $1.33 - a similar discount to today. I think the discount provides good downside protection, but even after 10 years the market hasn't realised book value.

[BlackPeter]

The biggest risk I'm seeing is that the parent (MCK UK) owns 70% of the stock meaning they completely run the show. Essentially your voting rights are useless? Let's say they need cash, they could sell off properties and pay it out in divs, or use intra company loans. Nor do we get to vote on directors? This bonehead deal they made in China where they ended up having millions of shareholder funds stolen is a good example of why this can be important - https://www.nzx.com/announcements/193641

Possibly this is why the stock trades so far below NTA -if you look back to 2012/2013 when the share price was 70 cents, the book value was $1.33 - a similar discount to today. I think the discount provides good downside protection, but even after 10 years the market hasn't realised book value.

Actually - MCK.UK is as well only a strawman - they are majority owned through a number of other companies and funds by the Kwek family in Singapore. Google "Hong Leon group" - and you will find as well CDL Singapore (https://www.cdl.com.sg) as majority shareholder upstream. CDI (NZ) is as part of MCK (NZ) through MCK (UK) part of the world wide CDL empire. If you don't like it, better don't invest with them. Other people don't like to invest with Warren Buffett - same thing.

And yes - our vote has exactly the weight it should have (in proportion to capital invested), but as with any other company with a firm majority holder, this is not a lot. Many companies (e.g. all our gentailers, AIR and similar) do have majority shareholders. Not a biggie, if you can trust them, and I would rate Hong Leon in that regard higher than the fickle whims of some NZ government of the day.

Any concerns re cashflow in this empire are on a similar base as if you would express concerns that Berkshire Hathaway might need to do financial acrobatics to cover up some lack of cash flow. This is a very conservative company owned and run by people with gigantic reserves who know what they are doing. Obviously - their interests (like e.g. hiding wealth) might not be always well aligned with the interest of minority retail share holders.

Discl: holding both CDI and MCK as long term (buffett-type) investment. So far none of the companies did disappoint me. However - this is not a share for a quick trade or for a get rich quick scheme. Very suitable however in my view to get rich slowly :):

[thebdogg]

Interesting info thanks.

I find it strange how uber rich families/empires have small listed companies like this floating around, especially in a foreign country. CDL Singapore has 12.5b in net assets and I'm guessing this Kwek family has several billions more. MCK is worth 700m which is pocket money, surely it's far less headache to just take it private? Much like Buffett pretty much owns all his smaller subs outright.

I'm guessing there must be some tax/legal advantage the companies have when they're NZX listed as opposed to being 100% foreign owned.

[clearasmud]

Majority control may give them more options.

[BlackPeter]

Interesting info thanks.

I find it strange how uber rich families/empires have small listed companies like this floating around, especially in a foreign country. CDL Singapore has 12.5b in net assets and I'm guessing this Kwek family has several billions more. MCK is worth 700m which is pocket money, surely it's far less headache to just take it private? Much like Buffett pretty much owns all his smaller subs outright.

I'm guessing there must be some tax/legal advantage the companies have when they're NZX listed as opposed to being 100% foreign owned.

You might have noticed that NZ is a quite small nation compared to the world ... and subsequently is CDL (NZ) quite small compared to the reminder of the rest of the CDL empire. New Zealand is not the only country in the world where they have exchange listed branches (or however you might want to call them). Others are in Singapore, the UK and China. There might well be others.

You need to ask them why they listed in NZ. Just send them an email or call :): Some companies list to have a governance framework to follow. Others list to easier determine market value of their properties or alternatively to hide wealth in their books (utilizing the difference between NTA and market value). Some might list to have a low risk training ground for young board members, to have a local address or to have easy access to local capital markets. I recon for the Kwek family its not the last of these reasons, but who knows?

[LaserEyeKiwi]

I would also imagine there may be some OIO issues for CDL property transactions if it was not a NZ entity.

These types of company structures are actually very advantageous. MCK & CDL are 4th and 5th level companies, with all the intervening levels allowing the originating parent company to control significantly larger amount of assets than they own themselves, using additional shareholder funds on each step up the ladder.

I don’t really think there is any danger in the company structure in NZ, any fears they would withdraw large amount of funds via dividends would also enrich all other shareholders to the same degree, and the value of the underlying property assets wouldn’t change.

[LaserEyeKiwi]

Market value of MCKs 66.6% holding in CDL jumped to ~$230 million today.

this compares to MCK total market cap of ~$382 million, or just $152 million for the entirely of the hotel operations, cash on hand, and the remaining Sydney apartment holdings.

To add to that, the Sydney properties were valued at $74 million in the last Annual report, so that means the hotel operations you could say are being valued at just $76 million - despite the hotel net assets being valued at over $500 million.

[thebdogg]

What do you think is the reason(s) for MCK trading below book value by 30-50%, not only today, but almost constantly since 2013? (maybe even longer but I don't have the accounts further back than that). I know it's not uncommon for companies to trade under book value, but a discount that big for a company with solely property assets is quite odd? At least the first one I've seen.

[Scrunch]

What do you think is the reason(s) for MCK trading below book value by 30-50%, not only today, but almost constantly since 2013? (maybe even longer but I don't have the accounts further back than that). I know it's not uncommon for companies to trade under book value, but a discount that big for a company with solely property assets is quite odd? At least the first one I've seen.

Its basically become the accepted norm. Also the free float isn't enough to get brokers interest so the pathway to a higher valuation from bullish brokers doesn't happen. The owners haven't shown any interest in special dividends or share buybacks so neither of these channels correct the gap.

[Snoopy]

What do you think is the reason(s) for MCK trading below book value by 30-50%, not only today, but almost constantly since 2013? (maybe even longer but I don't have the accounts further back than that). I know it's not uncommon for companies to trade under book value, but a discount that big for a company with solely property assets is quite odd? At least the first one I've seen.


Hotels are a tough business. There is a large capital expense when constructing a new hotel. Then every 5 to 10 years there is the cost of refurbishing rooms, not only to repair wear and tear but also to bring them up to current 'tech spec'. The latest spend up will probably concentrate on updating the ventilation systems for a Covid-19 world. The other problem is that no matter how good a standard you keep your hotel, it will only be a short time before the new hotel down the road usurps it as 'the place to go'. Existing hotels must then reposition themselves by discounting their room rates.

On the income side, tourism is a fickle and seasonal business. A hotel's earning capacity is not constant throughout the year. So sizing the staff payroll for peak tourist season will leave you overmanned for the off season. The solution to that is casual labour, but that has its own disadvantages: higher staff turnover and more time required for training. This means that 'Return on Assets' or 'Return on Equity' for hotels will be comparatively low, because the sub optimal use of assets when viewed over a whole year of use. Low ROE/ROA feeds back to investors, as those investors only willing to pay less for the asset up front to get an acceptable return. This is where the large market discount to NTA comes in. It is a reflection of the below average earning power of the asset.

Business travel is not so seasonal. Bot the coming of Covid-19 has shown how much can be achieved with 'Zoom' meetings over the net.

Buying something below NTA can be an indicator that repositioning the use of those underlying assets might be commercially rewarding. IIRC one of those MCK controlled hotels in Sydney is being repurposed as for sale apartments to the private market? But not every hotel can be repurposed in this way. There are council zoning and planning rules to work around, not to mention a considerable amount of work repurposing the inside space.

In summary, the answer to your question is that building and running hotels generally ends up being a poor use of capital, so the price ends up being discounted. The golden investment boy of the 1980s, Brierley Investments, came unstuck when it bought the Mt Charlotte Hotel Chain based in the United Kingdom at a 'bargain price', but then found extracting the value from that purchase was far from easy. Trawling the sharemarket for looking for more assets for your buck is not a new game, and often it is hotel companies that are trawled out of your company search net. The returns from such fishing expeditions, as regards hotels, have not improved over the decades.

SNOOPY

[Getty]

Very wise insight, thanks Snoopy.

[LaserEyeKiwi]

Hotels are a tough business. There is a large capital expense when constructing a new hotel. Then every 5 to 10 years there is the cost of refurbishing rooms, not only to repair wear and tear but also to bring them up to current 'tech spec'. The latest spend up will probably concentrate on updating the ventilation systems for a Covid-19 world. The other problem is that no matter how good a standard you keep your hotel, it will only be a short time before the new hotel down the road usurps it as 'the place to go'. Existing hotels must then reposition themselves by discounting their room rates.

On the income side, tourism is a fickle and seasonal business. A hotel's earning capacity is not constant throughout the year. So sizing the staff payroll for peak tourist season will leave you overmanned for the off season. The solution to that is casual labour, but that has its own disadvantages: higher staff turnover and more time required for training. This means that 'Return on Assets' or 'Return on Equity' for hotels will be comparatively low, because the sub optimal use of assets when viewed over a whole year of use. Low ROE/ROA feeds back to investors, as those investors only willing to pay less for the asset up front to get an acceptable return. This is where the large market discount to NTA comes in. It is a reflection of the below average earning power of the asset.

Business travel is not so seasonal. Bot the coming of Covid-19 has shown how much can be achieved with 'Zoom' meetings over the net.

Buying something below NTA can be an indicator that repositioning the use of those underlying assets might be commercially rewarding. IIRC one of those MCK controlled hotels in Sydney is being repurposed as for sale apartments to the private market? But not every hotel can be repurposed in this way. There are council zoning and planning rules to work around, not to mention a considerable amount of work repurposing the inside space.

In summary, the answer to your question is that building and running hotels generally ends up being a poor use of capital, so the price ends up being discounted. The golden investment boy of the 1980s, Brierley Investments, came unstuck when it bought the Mt Charlotte Hotel Chain based in the United Kingdom at a 'bargain price', but then found extracting the value from that purchase was far from easy. Trawling the sharemarket for looking for more assets for your buck is not a new game, and often it is hotel companies that are trawled out of your company search net. The returns from such fishing expeditions, as regards hotels, have not improved over the decades.

SNOOPY

This ignores the basic facts that most listed hotel companies trade far above their NTA values, and with long term PE ratios reflecting the healthy yields the assets return.

the simple fact is that MCK market valuation plummeted during the covid crisis and has yet to recover, despite the fact a large fraction of their earnings come from their non-hotel operations aka residential land development (CDL) & residential property sales/rentals (Zenith), meaning they have no cashflow concerns (even choosing to forego the regular large cash contribution from CDL).

MCK was consistently providing extremely good earnings per-covid (47c EPS), very low debt, and $500m+ In net hotel assets in the most highly valued property markets in New Zealand (queenstown, Auckland, Wellington). Yet the hotel operation is currently valued at just $76 million (per my observations in my last post). Any 2 of MCKs hotels in top locations would be worth more than $76m alone, yet they have more than a dozen hotels.

[percy]

I think Snoopy's post is one of the best posts ever posted on Sharetrader.
I am in total agreement with it.
I would add that MCK's hotels seem to have relied too heavily on Chinese/Asian tourist groups..

[LaserEyeKiwi]

I think Snoopy's post is one of the best posts ever posted on Sharetrader.
I am in total agreement with it.
I would add that MCK's hotels seem to have relied too heavily on Chinese/Asian tourist groups..

MCK hotels were back to being cashflow positive in First quarter (before Aussie travel bubble opened), and needless to say there were zero Chinese/Asian tourist groups. MCK management says bulk of pre-covid bookings have always been domestic travelers (either domestic tourists or business travelers), next biggest was Australian inbound tourists, so no they weren’t overly reliant on Asian tourist groups.

[LaserEyeKiwi]

I find the notion that someone could describe all hotel business as somehow bad investments as quite frankly idiotic.

for the record, before the current covid inspired drop in market value, long term MCK investors had almost 1000% gain over the last decade, from 34c to $3.40 share price, due to superb management.

[thebdogg]

I don't think anyone is investing in MCK because they are so incredibly bullish on the hotel business, because MCK's hotels outperform, or because their property development business is so superior to anyone else's. The thesis for every buyer seems only that it's a reasonably sound business trading at 50% NTA (if it was trading today at book value, $4.70-$5, would there be buyers? Market obviously is saying no).

Under most circumstances the discount would be compelling, but when you add in the fact this company ALWAYS trades at 30-50% of NTA, consistently for 10 years, it's reasonable to assume market may never realise book value. Hence the perceived upside from such a big discount is probably not there.

[percy]

I don't think anyone is investing in MCK because they are so incredibly bullish on the hotel business, because MCK's hotels outperform, or because their property development business is so superior to anyone else's. The thesis for every buyer seems only that it's a reasonably sound business trading at 50% NTA (if it was trading today at book value, $4.70-$5, would there be buyers? Market obviously is saying no).

Under most circumstances the discount would be compelling, but when you add in the fact this company ALWAYS trades at 30-50% of NTA, consistently for 10 years, it's reasonable to assume market may never realise book value. Hence the perceived upside from such a big discount is probably not there.

Agree...................................

[Snoopy]

This ignores the basic facts that most listed hotel companies trade far above their NTA values, and with long term PE ratios reflecting the healthy yields the assets return.


What NZ listed hotel groups trade above NTA?



the simple fact is that MCK market valuation plummeted during the covid crisis and has yet to recover, despite the fact a large fraction of their earnings come from their non-hotel operations aka residential land development (CDL) & residential property sales/rentals (Zenith), meaning they have no cashflow concerns (even choosing to forego the regular large cash contribution from CDL).

MCK was consistently providing extremely good earnings per-covid (47c EPS), very low debt, and $500m+ In net hotel assets in the most highly valued property markets in New Zealand (queenstown, Auckland, Wellington). Yet the hotel operation is currently valued at just $76 million (per my observations in my last post). Any 2 of MCKs hotels in top locations would be worth more than $76m alone, yet they have more than a dozen hotels.


Despite my 'downbeat post' on hotels in general, at some point the price of hotel shares will get so low that value is there - I grant you that. I don't count myself, these days, as a student of hotels, for the very reasons I espoused in the post of mine you have quoted. However, in case you haven't figured it out LEK, we are still very much in the 'Covid crisis' particularly as far as tourism is concerned. I think there is still a lot of uncertainty around when the NZ border will open to overseas tourists from further away than Australia, and what the hotel demand take up will be like when that happens. Some of the older hotels may yet end up as 'stranded assets', producing no income and unable to be sold for anything approaching their book value. That and Covid-19 era capex catch up for the hotels that remain operational are two very good reasons why the MCK hotels should be valued at a good discount to asset backing. The Zenith property development in Sydney is really a reflection of what can go wrong when an old hotel falls below today's consumer expectations. You may yet find this apartment development model being put to use in New Zealand next. In the interim that would be another drain on cash. Incidentally I don't consider MCK short of cash. Given the uncertainty of the timing of future CDI development sales, I would argue there is some uncertainty on the timing of future cashflows though.

I take your point about backing out the CDI property development shareholding to get a better grasp of the hotel part of the MCK group. And if the calculated discount to hotel asset value is, as you say, with the share price valuing two hotels for the price of twelve, we may very well be at enough of a discounted value to make MCK a good investment at today's market price.

My original response was in answer to the question from 'thebdog' on the general low value of hotel groups in relation to their asset backing over long periods of time. I wasn't challenging the thesis that the price of MCK may indeed have got so low that it offers value on the market today.

SNOOPY

[Sideshow Bob]

Under most circumstances the discount would be compelling, but when you add in the fact this company ALWAYS trades at 30-50% of NTA, consistently for 10 years, it's reasonable to assume market may never realise book value. Hence the perceived upside from such a big discount is probably not there.

Back 10 years ago, share price was approximately 44c. If said always traded at 30-50% discount to NTA, then while same in % terms, as the share-price in the mid $2's, the difference in $ terms becomes much more significant.

With CDL owning over 70%, float of only about 30m shares/$75m - can ask why not have it rolled into CDL.

Anyway, some interesting posts by a number of posters on this and the CDL thread and good discussion.

[LaserEyeKiwi]

What NZ listed hotel groups trade above NTA?



Despite my 'downbeat post' on hotels in general, at some point the price of hotel shares will get so low that value is there - I grant you that. I don't count myself, these days, as a student of hotels, for the very reasons I espoused in the post of mine you have quoted. However, in case you haven't figured it out LEK, we are still very much in the 'Covid crisis' particularly as far as tourism is concerned. I think there is still a lot of uncertainty around when the NZ border will open to overseas tourists from further away than Australia, and what the hotel demand take up will be like when that happens. Some of the older hotels may yet end up as 'stranded assets', producing no income and unable to be sold for anything approaching their book value. That and Covid-19 era capex catch up for the hotels that remain operational are two very good reasons why the MCK hotels should be valued at a good discount to asset backing. The Zenith property development in Sydney is really a reflection of what can go wrong when an old hotel falls below today's consumer expectations. You may yet find this apartment development model being put to use in New Zealand next. In the interim that would be another drain on cash. Incidentally I don't consider MCK short of cash. Given the uncertainty of the timing of future CDI development sales, I would argue there is some uncertainty on the timing of future cashflows though.

I take your point about backing out the CDI property development shareholding to get a better grasp of the hotel part of the MCK group. And if the calculated discount to hotel asset value is, as you say, with the share price valuing two hotels for the price of twelve, we may very well be at enough of a discounted value to make MCK a good investment at today's market price.

My original response was in answer to the question from 'thebdog' on the general low value of hotel groups in relation to their asset backing over long periods of time. I wasn't challenging the thesis that the price of MCK may indeed have got so low that it offers value on the market today.

SNOOPY

apologies at the dismissive tone of my previous post.

As to hotel chains trading above NTA, was referring to the large international chains listed overseas, there are no other hotel operators listed listed on NZX.

[LaserEyeKiwi]

Some stats on long term performance 12750

[LaserEyeKiwi]

I don't think anyone is investing in MCK because they are so incredibly bullish on the hotel business, because MCK's hotels outperform, or because their property development business is so superior to anyone else's. The thesis for every buyer seems only that it's a reasonably sound business trading at 50% NTA (if it was trading today at book value, $4.70-$5, would there be buyers? Market obviously is saying no).

Under most circumstances the discount would be compelling, but when you add in the fact this company ALWAYS trades at 30-50% of NTA, consistently for 10 years, it's reasonable to assume market may never realise book value. Hence the perceived upside from such a big discount is probably not there.

you are incorrect here - MCK traded at 80%+ of NTA a couple of times over last few years. Hitting that same level today would reasonably put it over $4.

Plus this company is a very different beast today compared to even just 5 years ago, with residential land development now accounting for a large portion of its revenue & profits now (even pre covid).

also worth reminding for those that are unaware, back in 2015 MCK spun off its China operations and shareholders received shares in a new Singapore listed company (or were paid for their shares if they did not want to Hold them) - that is not reflected in the share price history.

I also don’t know why people malign the Sydney Zenith operations - MCK has had a handsome return from this operation in the form of consistent rent and also frequently selling off units at large margins compared to their initial cost.

[Snoopy]

apologies at the dismissive tone of my previous post.


No worries. I think it is by product of having 'skin in the game' and a natural reaction defensive reaction to interpreted criticisim. Anyone who has been in the market for a while suffers from this syndrome, including me.



As to hotel chains trading above NTA, was referring to the large international chains listed overseas, there are no other hotel operators listed listed on NZX.


There is at least one other NZX listed hotel chain trading well above NTA. I know because I hold it. It is called 'Sky City'. Of course most SKC shareholders do not think of it like that. I myself, think of SKC as a casino operator that has strategically placed some hotels nearby for the convenience of punters. I think equally important to the accommodation is the hospitality side of the business too. I mention this, because I think there is a lesson here regarding strategic placement of hotels.

If you can build your hotel next to an iconic asset you are likely to do well. In the case of SKC they own the 'iconic asset' (the casino and in the case of Auckland the to be completed National Convention Centre), so they get to clip the ticket twice. I also think that going after the business market, not just tourism, spreads the risk. Post Covid-19, I do feel both the business market and the tourism markets may end up being permanently weakened. But as long as you don't overpay for assets, and I was happy helping SKC out with their $2.50 share issue last year, I think it is still a class of asset that is worth retaining a presence in. I will be watching to see to what extent domestic tourism in local hotels is able to fill the gap left by the decline in the overseas visitor tourist market. My impression, so far, is that iconic destinations like Queenstown, Rotorua and dare I say it Auckland will do O.K. . But secondary stops on the tourism trails will suffer. Do you have any thoughts on how MCK will 'benefit' / 'tough it out' if such a paradigm unfolds? I also wonder about how hotels will 'recover' from being quarantine units. I know it is irrational because coming out of the worst of the pandemic, all hotels will be thoroughly cleaned. But will tourists be lining up to go there, when there are plenty of untainted hotels to stay in? The earnings breakdown graph in your post 308 is pretty damning. It is showing hotel profits halving, and property development holding steady but in proportion now starting to dominate MCK earnings. That looks like a good reason to maintain that big discount to NTA to me.

On the subject of overseas hotel chains trading above NTA. There is probably greater opportunity to stay near iconic assets in carefully selected overseas locations (see my comments earlier in this post) as one explanation. But how many of those chains own their hotels and how many are franchise holders that collect franchise fees from other hotel owners? I expect the franchise model is more profitable than ownership.

SNOOPY

[Waltzing]

"I do feel both the business market and the tourism markets may end up being permanently weakened. "

what may well be weakened is the IB sector as china is now fast becoming a serious Soviet style prison camp.

Speakers blaring out propaganda in villages. All business now required to hold training sessions for mind control. The CCP must have been appalled at the lack of attendance at it commemorative movies.

The gambling centres might be at risk of being shut down next if they cant control the population. Unlikely but the CPP could start restricting travel abroad and who knows where its all going next.

[greater fool]

13588


Change of content.

[BlackPeter]

Half year results are out. Very satisfactory, particularly given the circumstances :):

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCK/376522/351339.pdf


MCK as a group made an unaudited profit before tax and non-controlling interests of $41.36 million for the six month period ended 30 June 2020 (2020: $26.26 million). The main contributors to these results were sales of residential sections from our majority-owned subsidiary CDL Investments New Zealand Limited which continues to trade strongly and the sale of the Copthorne Hotel Christchurch Central land in May 2021. Four apartment sales at the Zenith Residences in Sydney settled during the last six months also contributed to this result.
MCK has therefore recorded a profit after income tax and non-controlling interests of $25.34 million (2020: $34.09 million) on group revenue for the period of $98.36 million (2020: $84.74 million). Our earnings per share for the period decreasing to 16.02 cents per share (2020: 21.55 cps) reflecting the impact of last year’s one-off tax credit from the Government’s COVID-19 Business Continuity Package. MCK’s Net Tangible Assets per share as at 30 June 2021 which was $4.86 per share (2020: $4.44 per share).


Clearly - not just a boring hotel chain ... the real money is in real estate - and that's more than just their CDL gem.

[LaserEyeKiwi]

Yes very well managed. The stock in my option continues to be one of the biggest bargains on the NZX.

Some highlights for me after a first run through the result:

- Upbeat guidance:


"Looking at the second half of 2021, MCK said that it was aiming for an overall result which was an improvement on the previous year.

“CDL Investments is well on track to better its 2020 performance and we are also looking at more sales at the Zenith Residences in Sydney which will all ensure that MCK as a group remains profitable”, said Mr. Chiu.


“We have also assumed one or two changes of alert levels or mini-lockdowns in our planning before the end of the year and we believe our targets are still achievable even if such an event or events were to happen”, he said."




- Hotels continue to operate above breakeven despite virtually no international tourism and ~40% average occupancy (even while impacted by some short NZ alert level changes/lockdowns during 2021). The company operations are now extremely efficient and once inbound travel restrictions start to ease up the company will undoubtedly be more operationally efficient than pre-pandemic.

- Net Tangible Assets (NTA) per share increases to $4.86 from $4.70 in last 6 months (and up from $4.44 12 months ago).

- Massive cash & cash equivalents holdings at reporting date: $93.4 million cash in 100% owned MCK segments, and $132.5 million cash in 67% owned CDL. (CDL announced a giant land acquisition after balance date which is included in the $56 million of future contractual commitment under "land purchases" in MCK results page 11). MCK shareholders share of cash at balance date is $182.2 million or $1.15c per share in cash.

- Looks like a nice gain on sale from the former Copthorne hotel land in Christchurch Central (abandoned since 2011) - $10.2 million above the book value.

- New reporting segment (!) "Investment Property - comprising rental income for the ownership and leasing of retail shops" $8.4 million of assets. Future contractual commitments for Capex on investment in Investment Properties is $24.7 million.

- Zenith apartment sales (and rental) continue to bring in a steady stream of income and prospects looking better than expected with comment: "buyers are showing renewed interest in inner city apartments" Despite the steady sales rate, the total Zenith assets continue to appreciate in value, increasing by $4 million over last 12 months.

[thebdogg]

you are incorrect here - MCK traded at 80%+ of NTA a couple of times over last few years. Hitting that same level today would reasonably put it over $4.



Not seeing any evidence of this. Based on QuickFS numbers the book ratio has never gone over .52 since 2011:

Price-to-Book at year end 2011 to 2021: 0.26 0.31 0.44 0.46 0.52 0.50 0.46 0.44 0.37 0.45

[thebdogg]

Just as a comparison, same numbers for CDI:

Price-to-Book 0.80 0.78 0.72 0.66 0.61 0.53 1.33 1.10 1.10 1.15

[LaserEyeKiwi]

Not seeing any evidence of this. Based on QuickFS numbers the book ratio has never gone over .52 since 2011:

Price-to-Book at year end 2011 to 2021: 0.26 0.31 0.44 0.46 0.52 0.50 0.46 0.44 0.37 0.45

Not sure what figures you are using, but in July 2018 MCK traded at $3.30c per share when NTA was $3.72c per share, so P/NTA was 89%.

[greater fool]

13599

An unfinished pyramid............................

[LaserEyeKiwi]

Some good news today for MCK, with the news that borders will be reopened in “early 2022”, with trials starting from October 2021.

The new rules are good for MCK in two ways: There will be an increase in visitors obviously (and with it an increase in demand for hotel rooms), and the MCK properties currently in the MIQ hotel pool will still be required for MIQ as the 14 day MIQ requirements remain for those coming from high risk countries and/or those who are unvaccinated.

[LaserEyeKiwi]

https://www.nzx.com/announcements/378272

pretty much what you would expect for level 4, and good to see them stating they are on sound financial footing and also taking full advantage of wage subsidy again.


--Cancellations received to date exceed 9000 nights across all of our properties. The current estimated revenue that has been lost due to these cancellations does affect the profitability of MCK’s hotel operations but is not currently expected to affect MCK’s group financial position in a material way. We will continue to keep the market updated;

An application for the wage subsidy has been submitted for employees located at the hotels and corporate offices which are closed.

[WAIKEN]

CDI is going gangbusters. The hotels will probably make a small profit as we have a modest income and when the buildings are shut
down there are wage subsidies, probably rent relief where we are leasing. The other overheads should be covered by MIQ fees and other rent. We have no debt. The owned properties plus the CDI land will be inflating with other NZ property.
I estimate the NTA has reached 5.00 atm. This is a hold for the patient.

[Justin]

Hi all, what’s diffident between mck ordinary share and mckpa pref share? Seems like pref share cheaper than ordinary share. Thanks.

[LaserEyeKiwi]

Hi all, what’s diffident between mck ordinary share and mckpa pref share? Seems like pref share cheaper than ordinary share. Thanks.

technically preference shares they have a slight advantage in the event of a company liquidation (I think), but other than that I don’t think there is much difference. With MCK I have seen the price difference between the two share listings swing between one and the other being worth more - usually driven more by light trading I think.

[Snoopy]

Hi all, what’s diffident between mck ordinary share and mckpa pref share? Seems like pref share cheaper than ordinary share. Thanks


Here is what was announced to the market back when the MCKPA preference shares were issued:

https://stocknessmonster.com/announcements/mck.nzx-247352/

The key points are:

Redemption of Preference Shares:

All or part of the Preference Shares may be redeemed by MCK at any time after receiving approval by at least 75% of the holders of Preference Shares by way of special resolution.

Redemption Price:

The higher of:
• the 20 day volume weighted average price of the Preference Shares; and
• the Issue Price of $0.64.

Most preference shares have an 'expiry date', but these ones apparently don't. The other key difference is that preference shares have no voting rights.

SNOOPY

[Justin]

Wow that’s almost 4 times gain since it issued on 2014

[Southern Lad]

The other key difference is that preference shares have no voting rights.

SNOOPY

Some further context on why the preference shares exist separately from the ordinary shares and are non-voting. The 2014 Offer Document notes:

"Participation by the majority Shareholder in a non-underwritten offer of new Ordinary Shares would have resulted in the majority Shareholder’s percentage holding of Ordinary Shares increasing (because some Shareholders would, inevitably, not have taken up their Rights). Any increase in the majority Shareholder’s holding of voting shares (such as Ordinary Shares), however small, would have required approval under New Zealand’s Overseas Investment Act. Such a process is lengthy, time consuming and expensive. For that reason, an offer of non-voting Preference Shares is preferable for us as it enables our majority Shareholder to participate without having to obtain such an approval and therefore provides us with more funding and timing certainty".

[Sideshow Bob]

MCK's Managing Director to leave in 2022 - NZX, New Zealand’s Exchange (https://www.nzx.com/announcements/382354)

MCK advises that its long-serving Managing Director BK Chiu has announced his decision to leave the group in July 2022.

“I joined MCK in 2005 and was given a very clear mission – grow the New Zealand companies, make our product better, invest in our people and create a sustainable platform for growth and profitability. Over the last sixteen years I’d like to think I’ve achieved many of those targets and more and so it’s time to vacate the role to someone else”, said Mr. Chiu.

MCK’s majority shareholder, City Developments Limited paid tribute to Mr. Chiu’s work over the past sixteen years. Group Chairman Mr. Kwek Leng Beng said that Mr. Chiu had navigated the company through many challenges.

“BK has guided our New Zealand companies and management through the best of times and the worst of times. From his leadership most recently through the pandemic and through the Canterbury earthquakes and before that, the GFC, we have been the beneficiaries of his calm and thoughtful approach to our hotel and the property development businesses of CDL Investments New Zealand Limited. He has ensured that MCK will continue as a significant enterprise and we wish him good health and happiness for the future”.

MCK Chair Colin Sim also expressed his gratitude on behalf of the MCK Board.

“BK has been an outstanding leader of the Management team and a vital part of the Board. All of the directors, past and present, owe him a significant debt of thanks for his commitment to the company over so many years”, he said.

MCK advised that it had commenced a process to appoint a new Managing Director / Chief Executive Officer in the coming months. An announcement would be made at the completion of the process and would be made before Mr. Chiu’s departure from the company.
-ENDS-

[LaserEyeKiwi]

MCK welcomes court decision to invalidate APTR

10/11/2021, 3:10 pm MKTUPDTEMCK welcomes Court of Appeal’s decision to invalidate Accommodation Provider Targeted Rate (APTR)
Millennium & Copthorne Hotels New Zealand Limited (NZX:MCK) is pleased with today’s Court of Appeal decision relating to the Accommodation Provider Targeted Rate (APTR). The decision rules the APTR to be invalid and overturns the High Court judgment.

MCK Managing Director Mr. BK Chiu welcomed the decision for MCK and all accommodation providers in Auckland. “We’re very pleased that the Court of Appeal reviewed Auckland Council’s decision making process thoroughly and found that the fundamental issue was the lack of direct benefits that would come to accommodation providers who were paying the APTR. Along with the other rate payer appellants, we have maintained that this was the critical issue from the very beginning and we are therefore very happy that the Court of Appeal agreed with this concern”.

As the implementation of the Court of Appeal decision will require further hearing in the High Court, MCK is not able to assess currently whether the impact of the decision will be material to its 2021 results. Currently, Auckland Council has suspended the APTR and MCK’s expectation is that this suspension will become permanent in view of today’s decision.

“We thank our fellow accommodation rate payers for their support since the APTR was imposed and we all hope that Auckland Council do not appeal this decision but we cannot rule that out”, said Mr. Chiu. “At a time when the tourism and accommodation industries are still badly affected by the pandemic and given that Council’s finances remain stretched, we need to do what’s best for all Auckland ratepayers and focus on solutions to help everyone on the path to recovery”.

[LaserEyeKiwi]

Some great news for MCK, from a report on interest.co.nz today:

RECORD HOLIDAY BOOKINGS
Domestic holiday accommodation providers around NZ have seen an immediate lift in bookings following yesterday’s Government announcement, according to new data from Bachcare. Bookings within a 12-hour period was the highest since the country moved to Alert Level 1 in June 2020. With accommodation in several regions now close to capacity over the peak season, the industry is predicting a record-breaking summer for the domestic sector.

[LaserEyeKiwi]

Good choice:


MCK: Covid-19 vaccination policy for hotel guests

26/11/2021, 8:30 am
Millennium & Copthorne Hotels New Zealand has made the decision to require all persons who stay or visit their hotels and who can be vaccinated to be fully vaccinated before they enter an MCK hotel, restaurant or bar or meeting venues. Children aged under 12 who cannot be vaccinated will be exempted.

“We want to give everyone who stays, visits or works at a Millennium, Grand Millennium, M Social, Copthorne or Kingsgate hotel in New Zealand certainty about what our vaccination policy is and our decision today provides that. We have looked at the Covid Protection Framework carefully and we believe that this is the right decision at the right time to keep our guests safe but also keeps our employees safe”, said MCK Managing Director BK Chiu.

Vaccination status would be monitored through the use of the NZ Pass Verifier App and guests would be required to present their My Vaccine Pass on arrival at an MCK hotel. The policy will take effect from when the Covid Protection Framework comes into effect on 3 December 2021.

MCK also announced that all of its hotel-based employees will also be required to be fully vaccinated by 17th January 2022. This policy would also apply to contractors coming on to any MCK hotel as well.

“We have been conducting a consultation process with our employees over the last few weeks and the very clear feedback from that process was that our team are determined to provide the best possible hospitality to everyone that visits our hotels and that it was essential that we make sure that each of our hotels are as safe as they could be”, said MCK’s Vice President Operations Ken Orr. “From check in to check out, our teams do come into contact with our guests during their stay whether that be front of house or behind the scenes. Our guests expect the best personal service from us and they also expect that our employees also do the right thing to keep everyone safe from COVID-19”, he said.

Mr. Chiu also said that MCK was looking forward to welcoming visitors to its hotels over the upcoming Festive Season despite the international borders still being closed.


“After another challenging year for tourism and accommodation, we hope that Kiwis across the country will be able to spend the Christmas and New Year break with whanau and friends wherever they may be in New Zealand and that they choose to stay with us as part of their travels. We’re looking forward to welcoming you over the coming weeks and months and being part of a great start to your 2022”.

[peat]

there is no real choice

[LaserEyeKiwi]

CDL (Majority owned by MCK) sounding optimistic in its latest market update:

https://www.nzx.com/announcements/384061

[LaserEyeKiwi]

MIQ is coming to an end with the announcement of a phase-out over next couple of months!

Will be a little bit of a unknown environment for MCK, as when the current MIQ contract with government ends (not public knowledge as I understand it) there will possibly be a short period before tourists/international arrivals begin to arrive (Australians, our biggest source of visitors, are allowed in first by July at the latest). Or maybe its the opposite and tourists begin arriving before the MCK contract for MIQ hotels finishes meaning the switchover will be easy. There may also be some demand for hotel rooms as family members choose to isolate from their families, but having family members away form home in hotel rooms.

[ralph]

MIQ WAs a lucky lifeline for them ,unless they get more government support it will be a long winter wait for mass tourism again, if ever.
,

[LaserEyeKiwi]

MIQ WAs a lucky lifeline for them ,unless they get more government support it will be a long winter wait for mass tourism again, if ever.
,

indeed - luckily their profits from property development still keeping them well in the green.

[LaserEyeKiwi]

CDL & MCK have announced results between Feb 8th - 17th over the last 5 years (17th, 8th, 13th, 10th, 17th for 2016-2021 results) so if that is a guide we might get them this week, and very likely by the end of next week.

[LaserEyeKiwi]

CDL results are out, so MCK shouldn’t be too far behind this afternoon.

here are CDLs results (MCK owns 67% of CDL):

Summary of results:
-- Profit after tax $31.3 million (2020: $30.1 million)
--Profit before tax $43.4 million (2020: $41.8 million)
--Property sales & other income $92.1 million (2020: $88.8 million)
--Shareholders’ funds $286.4 million (2020: $257.1 million)
--Total assets $297.6 million (2020: $265.0 million)
--Net tangible asset value (at book value) 99.6 cents per share (2020: 91.7cps)
--Earnings per share 10.96 cents per share (2020: 10.75cps)

[LaserEyeKiwi]

MCK results are out:

https://www.nzx.com/announcements/387508

Summary of results:
--Profit after tax and non-controlling interests $40.0 million
(2020*: $48.5 million)
--Profit before tax and non-controlling interests $64.6 million (2020*: $54.4 million)
--Group revenue $164.8 million (2020: $172.0 million)
--Shareholders’ funds excluding non-controlling interests $514.2 million (2020*: $474.7 million)
--Total assets $680.8 million (2020*: $664.1 million)
--Earnings per share (cents per share) 25.31 cents (2020*: 30.64 cents)

[*note: The 2020 comparative figures are restated due to the fact that during 2021, MCK changed its accounting policy relating to the measurement of land and buildings. Land and buildings have now been restated at cost. Further information can be found in the Notes to the Financial Statements].

[BlackPeter]

MCK results are out:

https://www.nzx.com/announcements/387508

Summary of results:
--Profit after tax and non-controlling interests $40.0 million
(2020*: $48.5 million)
--Profit before tax and non-controlling interests $64.6 million (2020*: $54.4 million)
--Group revenue $164.8 million (2020: $172.0 million)
--Shareholders’ funds excluding non-controlling interests $514.2 million (2020*: $474.7 million)
--Total assets $680.8 million (2020*: $664.1 million)
--Earnings per share (cents per share) 25.31 cents (2020*: 30.64 cents)

[*note: The 2020 comparative figures are restated due to the fact that during 2021, MCK changed its accounting policy relating to the measurement of land and buildings. Land and buildings have now been restated at cost. Further information can be found in the Notes to the Financial Statements].

Yes, quite shocking to see the NTA dropping down from nearly $5 per share (at fair value) to $3.25 per share (at cost) ... they clearly like to hide their wealth ... and all this beauty is available for $2.23 per share;

Clearly a deep value game ... they can live nicely off their property development business (CDL) while tourism is in the doldrums ... and they will have a head start (currently renovating their hotels) when it comes back; Only some patience required :):

[LaserEyeKiwi]

Yes, quite shocking to see the NTA dropping down from nearly $5 per share (at fair value) to $3.25 per share (at cost) ... they clearly like to hide their wealth ... and all this beauty is available for $2.23 per share;

Clearly a deep value game ... they can live nicely off their property development business (CDL) while tourism is in the doldrums ... and they will have a head start (currently renovating their hotels) when it comes back; Only some patience required :):

Yes they now have 3 other income streams to cover the approximately break-even hotel operations at present:
- CDL land sales,
- CDL’s new commercial investment property business (rental income from new commercial properties being built),
- and the continued sell down of Residential sales (Zenith apartments in Sydney, still tens of millions dollars worth of apartments left to sell).

The massive restatement of the hotel assets is fascinating, considering most were purchased decades ago and have also had depreciation charges applied to them. The new stated value of all hotels is likely less than the market value of just two or three of their more valuable ones (ie: The M Social on Auckland’s Waterfront & the Copthorne Oriental Bay in Wellington).

the fact the company is still trading at a large discount to the already large discount to fair value that the company now states just amazes me.

I do wonder if there is a possibility of some sort of corporate action, with a possible takeover offer from the UK parent company OR a sell off the hotel division to them and MCK / CDL get rolled up together as one listed entity.

[Rawz]

I thought some Singaporean rich lister family control MCK? (EDIT BP answered below)

I stayed in the Copthorne Oriental Bay a few weeks ago. Very tired hotel that one.. needs a lot of money spent on it to bring it up to scratch.

[BlackPeter]

I do wonder if there is a possibility of some sort of corporate action, with a possible takeover offer from the UK parent company OR a sell off the hotel division to them and MCK / CDL get rolled up together as one listed entity.

Who knows, but given that MCK / CDI are only chump change to the Kwek family in Singapore (they are the majority owner if you work yourself through the various holding companies and funds) would I be surprised if the minor NZ appendix of their world wide empire appears on their radar screen anyway.

Probably really just an alignment of the accounting policies in the CityDev Empire.

[LaserEyeKiwi]

Who knows, but given that MCK / CDI are only chump change to the Kwek family in Singapore (they are the majority owner if you work yourself through the various holding companies and funds) would I be surprised if the minor NZ appendix of their world wide empire appears on their radar screen anyway.

Probably really just an alignment of the accounting policies in the CityDev Empire.

That was the reason quoted at least - and CDL operated that way for some time I believe in regards to their land holdings.

[LaserEyeKiwi]

I thought some Singaporean rich lister family control MCK? (EDIT BP answered below)

I stayed in the Copthorne Oriental Bay a few weeks ago. Very tired hotel that one.. needs a lot of money spent on it to bring it up to scratch.

Copthorne Oriental Bay is 118 rooms + function rooms etc, in a location where even one bedroom apartments sell for over $750k each. So in terms of what it is “worth” - even if one assumes it would need to be converted to residential by combining two hotel rooms down into one apartment - you are still looking at a market valuation of $40-$50m for that property.

M Social Auckland is almost 200 newly renovated rooms right in the heart of Auckland waterfront. $100m easy valuation.

Two hotels in central queenstown with ~300 rooms, one hotel newly renovated, the other in progress of renovations:
- Millennium Queenstown with 220 rooms
- Copthorne Queenstown with 66 rooms plus another 19 x 2 bedroom apartments
(Another $100m easy valuation there)

Now add the 10 other hotels….

(I’m not at all saying the MCK hotels should be converted into residential, but just pointing out that in a worse case scenario where international tourism never returns and kiwis don’t even travel domestically, there is always a lot of value in MCK hotel assets when thinking of alternative uses)

although now that I think about it Copthorne Auckland might be a good candidate for residential conversion.

[stoploss]

Copthorne Oriental Bay is 118 rooms + function rooms etc, in a location where even one bedroom apartments sell for over $750k each. So in terms of what it is “worth” - even if one assumes it would need to be converted to residential by combining two hotel rooms down into one apartment - you are still looking at a market valuation of $40-$50m for that property.

M Social Auckland is almost 200 newly renovated rooms right in the heart of Auckland waterfront. $100m easy valuation.

Two hotels in central queenstown with ~300 rooms, one hotel newly renovated, the other in progress of renovations:
- Millennium Queenstown with 220 rooms
- Copthorne Queenstown with 66 rooms plus another 19 x 2 bedroom apartments
(Another $100m easy valuation there)

Now add the 10 other hotels….

(I’m not at all saying the MCK hotels should be converted into residential, but just pointing out that in a worse case scenario where international tourism never returns and kiwis don’t even travel domestically, there is always a lot of value in MCK hotel assets when thinking of alternative uses)

although now that I think about it Copthorne Auckland might be a good candidate for residential conversion.

LEK, Do they own all the hotels you mention ? I was under the impression they leased some ?

[LaserEyeKiwi]

LEK, Do they own all the hotels you mention ? I was under the impression they leased some ?

They own 13 outright, and have a half share in another.
3 are “franchised”
2 are management contracts.

OWNED

Millennium Hotel New Plymouth Waterfront
Millennium Hotel Rotorua
M Social Auckland
Copthorne Hotel & Resort Bay of Islands (49%)
Copthorne Hotel & Resort Queenstown Lakefront
Kingsgate Hotel Greymouth
Kingsgate Hotel Te Anau
Millennium Hotel Queenstown
Copthorne Hotel Auckland City
Copthorne Hotel Rotorua
Copthorne Hotel Palmerston North
Copthorne Hotel Wellington Oriental Bay
Copthorne Hotel & Apartments Queenstown Lakeview
Kingsgate Hotel Dunedin

FRANCHISED

Millennium Hotel & Resort Manuels Taupo
Copthorne Hotel & Resort Solway Park Wairarapa
Kingsgate Hotel The Avenue Wanganui


MANAGED

Grand Millennium Auckland
Kingsgate Hotel Autolodge Paihia

[LaserEyeKiwi]

Of course one must remember that MCK accounts for its CDL assets on a book basis as well, and not at all on its market value.

At close of business today CDL was valued at $345m Market Cap, and MCK has a two thirds share of that meaning its stake is worth $230m.

Meanwhile MCKs market cap finished the day at $350 million.

So if we removed MCK’s two thirds CDL holding (market cap value) from MCKs market cap value, we are left with a value of just ~$120 million for all of MCKs non-CDL assets! This includes all its hotels, the Sydney residential holdings, and the net cash on hand.

Madness.

see the calculation below

13528

[Rawz]

Hey LEK I think the market will only ever look at this stock from a dividend yield point of view.

Yes it’s valued at well below book value but that value will never be realized until the Singaporean family decide to realize it.. and that could be decades.

What is the yield on this?

[LaserEyeKiwi]

Hey LEK I think the market will only ever look at this stock from a dividend yield point of view.

Yes it’s valued at well below book value but that value will never be realized until the Singaporean family decide to realize it.. and that could be decades.

What is the yield on this?

MCK has historically been valued on its growing retained earnings balance & growing EPS, not on its dividend yield. For instance pre-covid it was only paying out a small fraction of its ~30c EPS as a dividend (7.5c annual dividend).

Since early 2020 CDL has grown significantly in size and profitability as well, with MCKs two thirds holding increasing in market value by over $75m since then (this is market value measured by CDL share price, not by MCKs book value of its share of CDL assets which bear no relation to fair value).

Once hotel operations return to somewhat normalcy, even at a new lower “new normal” level of international tourism, the increased profitability of CDL will ensure a nice return to previous levels of EPS (or better).

in terms of the dividend, it is notable MCK re-instated it yesterday despite its outlook indicating Hotels are still going to be impacted heavily in the near term (6-12 months).however given the huge cash pile on the balance sheet, the dividend is easily covered many times over.

[LaserEyeKiwi]

Another way to look at the non-CDL assets MCK owns, which the market currently is assigning a $120m value too:

This $120m value is an outrageously low valuation for the following assets:


1. These 14 owned hotels (and the land they sit on):

M Social Auckland
Copthorne Hotel Auckland City
Millennium Hotel New Plymouth Waterfront
Millennium Hotel Rotorua
Copthorne Hotel Rotorua
Copthorne Hotel Palmerston North
Copthorne Hotel Wellington Oriental Bay
Kingsgate Hotel Greymouth
Kingsgate Hotel Te Anau
Millennium Hotel Queenstown
Copthorne Hotel & Resort Queenstown Lakefront
Copthorne Hotel & Apartments Queenstown Lakeview
Kingsgate Hotel Dunedin
Copthorne Hotel & Resort Bay of Islands (49%)

2. The franchise & management fee value from these 5 hotels:

FRANCHISED
Millennium Hotel & Resort Manuels Taupo
Copthorne Hotel & Resort Solway Park Wairarapa
Kingsgate Hotel The Avenue Wanganui

MANAGED
Grand Millennium Auckland
Kingsgate Hotel Autolodge Paihia

3. $32.5 Million in Sydney real estate (apartments they are selling off)

4. ~$47m net cash on hand (this is just the cash on the MCK books, excludes the cash sitting on CDL books)

[Rawz]

LEK do you happen to have on hand the 5 or 10 year NTA CAGR?

Like the real NTA…?

[LaserEyeKiwi]

LEK do you happen to have on hand the 5 or 10 year NTA CAGR?

Like the real NTA…?

Here is the previous NTA (which used fair values for hotel assets, but only book value for CDL assets)


13531

[LaserEyeKiwi]

Another way to look at the non-CDL assets MCK owns, which the market currently is assigning a $120m value too:

This $120m value is an outrageously low valuation for the following assets:


1. These 14 owned hotels (and the land they sit on):

M Social Auckland
Copthorne Hotel Auckland City
Millennium Hotel New Plymouth Waterfront
Millennium Hotel Rotorua
Copthorne Hotel Rotorua
Copthorne Hotel Palmerston North
Copthorne Hotel Wellington Oriental Bay
Kingsgate Hotel Greymouth
Kingsgate Hotel Te Anau
Millennium Hotel Queenstown
Copthorne Hotel & Resort Queenstown Lakefront
Copthorne Hotel & Apartments Queenstown Lakeview
Kingsgate Hotel Dunedin
Copthorne Hotel & Resort Bay of Islands (49%)

2. The franchise & management fee value from these 5 hotels:

FRANCHISED
Millennium Hotel & Resort Manuels Taupo
Copthorne Hotel & Resort Solway Park Wairarapa
Kingsgate Hotel The Avenue Wanganui

MANAGED
Grand Millennium Auckland
Kingsgate Hotel Autolodge Paihia

3. $32.5 Million in Sydney real estate (apartments they are selling off)

4. ~$47m net cash on hand (this is just the cash on the MCK books, excludes the cash sitting on CDL books)

Just realized the more obvious valuation point to make here:

if you subtract the Net cash on hand & Sydney Real Estate assets from the $120m non-cdl valuation of MCK assets - it comes to only $40 million! Keep in mind that the Hotel Operations were generating a net profit of ~$25 million per year before the pandemic.

[startingout]

Sorry if this is a noob question but at what stage will the share price reflect the real value of the assets? Thanks

[BlackPeter]

Just realized the more obvious valuation point to make here:

if you subtract the Net cash on hand & Sydney Real Estate assets from the $120m non-cdl valuation of MCK assets - it comes to only $40 million! Keep in mind that the Hotel Operations were generating a net profit of ~$25 million per year before the pandemic.

Quite right. I guess it still requires lots of patience and it is not an investment where you want to park money you might need on short notice ... but it clearly looks like a deep value play :) ;

Investing on the side of the Kwek family is a bit like investing together with Warren Buffet. Both know what they are doing, and neither of them will worry about tomorrows share prices, but about underlying value. And yes, both made mistakes as well, but well recovered from them. Good way to get rich slowly ...

[percy]

Quite right. I guess it still requires lots of patience and it is not an investment where you want to park money you might need on short notice ... but it clearly looks like a deep value play :) ;

Investing on the side of the Kwek family is a bit like investing together with Warren Buffet. Both know what they are doing, and neither of them will worry about tomorrows share prices, but about underlying value. And yes, both made mistakes as well, but well recovered from them. Good way to get rich slowly ...

5 years ago BRK-B shares were $170.15.......today $314.80 ............Positive return 85%
5 years ago MCK shares were $3.03.............today..$2.22................nega tive return 26.74%

[LaserEyeKiwi]

5 years ago BRK-B shares were $170.15.......today $314.80 ............Positive return 85%
5 years ago MCK shares were $3.03.............today..$2.22................nega tive return 26.74%

Can’t beat the Oracle! Love that guy and have a long term (kiwisaver) investment allocated to BRK as well.

The thing about MCK management is they haven’t done anything wrong - have been steadily growing the business assets year after year while keeping a large net cash balance (ditto their CDL management) while also paying dividends. I struggle to assign any blame to management for how the market is valuing the shares.

The only change I would be making if I was them would be to introduce a share buyback scheme.

[BlackPeter]

5 years ago BRK-B shares were $170.15.......today $314.80 ............Positive return 85%
5 years ago MCK shares were $3.03.............today..$2.22................nega tive return 26.74%

Just shows that MCK is currently on sale (high value, low price, while BRK is at best the regular price :p; I prefer to buy shares when they are cheap, but each for themselves.

Actually - a bit disappointed by your post. Quite cheap shot.

You normally demonstrate better understanding of the financial sector than picking a random comparison of two stocks which are not even comparable. Comparing BRK-B (which is basically the Buffet index) with the one single component of the Kwek portfolio which is hardest hit by Covid makes Buffet really standing out, whether the comparison makes sense or not. Just wondering why you didn't included other Kwek investments into your comparison, if you took all of Buffets? How did Buffets airlines do during Covid? ... but actually - I think I prefer deep value real estate anyway.

[percy]

Each to their own.
Do what ever works for you.

[LaserEyeKiwi]

Ok - so after looking a bit closer at the CDL accounts, it appears that company is also trading well below fair market value (using CDLs own market valuation figures)

Official book value for CDLs property assets are valued “at cost” at $209.1 million.
However CDL had an independent market value valuation on those same property assets of $359.7 million
Add to that the net cash balance on CDL books that exceeds $70 million - the overall fair market value of CDL is above $430 million.

MCKs two thirds stake in CDL then is worth over $286 million.

MCKs entire market cap is $351 million.

Therefore the non-CDL portion of MCK assets can be said to be worth $65 million at the current share price (if we are valuing CDL assets at their fair value minimum).

Of that $65 million value, we can subtract $47 million in net cash and come to a value of $18 million.

From that $18 million value we can subtract the value of the Sydney real estate worth $32.5 million and come to a value of NEGATIVE -$14.5 million.

So that -$14.5 million value is supposed to represent the hundreds of millions of dollars worth of prime real estate & Hotel assets MCK owns.

:ohmy:

MCK is not just trading for the proverbial “pennies on the dollar”, but for “negative pennies on the dollar”

[clearasmud]

Ok - so after looking a bit closer at the CDL accounts, it appears that company is also trading well below fair market value (using CDLs own market valuation figures)

Official book value for CDLs property assets are valued “at cost” at $209.1 million.
However CDL had an independent market value valuation on those same property assets of $359.7 million
Add to that the net cash balance on CDL books that exceeds $70 million - the overall fair market value of CDL is above $430 million.

MCKs two thirds stake in CDL then is worth over $286 million.

MCKs entire market cap is $351 million.

Therefore the non-CDL portion of MCK assets can be said to be worth $65 million at the current share price (if we are valuing CDL assets at their fair value minimum).

Of that $65 million value, we can subtract $47 million in net cash and come to a value of $18 million.

From that $18 million value we can subtract the value of the Sydney real estate worth $32.5 million and come to a value of NEGATIVE -$14.5 million.

So that -$14.5 million value is supposed to represent the hundreds of millions of dollars worth of prime real estate & Hotel assets MCK owns.

:ohmy:

MCK is not just trading for the proverbial “pennies on the dollar”, but for “negative pennies on the dollar”
LEK, as suggested before on the CDI thread that market value of the land is a before tax figure as they are in the business of selling land.

[Snoopy]

Yes, quite shocking to see the NTA dropping down from nearly $5 per share (at fair value) to $3.25 per share (at cost) ... they clearly like to hide their wealth ... and all this beauty is available for $2.23 per share;

Clearly a deep value game ... they can live nicely off their property development business (CDL) while tourism is in the doldrums ... and they will have a head start (currently renovating their hotels) when it comes back; Only some patience required :):


I wonder if the change to valuing property at cost is actually a 'heading off at the pass' exercise? I saw LEK's post 532 on the relentless rise in net tangible assets, particularly since 2013. I was surprised the NTA continued to increase over FY2020, the year that Covid-19 struck. I guess one wingless swallow doesn't squash a summer? Perhaps the falling interest rates that accompanied Covid-19 were what boosted that FY2020 valuation? But with rising interest rates, the phasing out of MIQ contracts, and the difficulty of getting overseas tourists back, how on earth can these hotel assets be worth anything like they were 2-3 years ago, let alone more?

A headline of hundreds of millions of dollars of losses from hotel devaluations at annual result time would not have looked good. But using the stealth method of changing the way hotels are valued to cost, creates a much less dramatic headline?

SNOOPY

P.S. How did they do their NTA calculation under the old system anyway? I tried for FY2020 and got:

$842.999m / (105.478m+52.739) = $5.33 (not $4.70 as LEK quoted)

[Rawz]

Interesting post Snoopy thanks

[LaserEyeKiwi]

I wonder if the change to valuing property at cost is actually a 'heading off at the pass' exercise? I saw LEK's post 532 on the relentless rise in net tangible assets, particularly since 2013. I was surprised the NTA continued to increase over FY2020, the year that Covid-19 struck. I guess one wingless swallow doesn't squash a summer? Perhaps the falling interest rates that accompanied Covid-19 were what boosted that FY2020 valuation? But with rising interest rates, the phasing out of MIQ contracts, and the difficulty of getting overseas tourists back, how on earth can these hotel assets be worth anything like they were 2-3 years ago, let alone more?

A headline of hundreds of millions of dollars of losses from hotel devaluations at annual result time would not have looked good. But using the stealth method of changing the way hotels are valued to cost, creates a much less dramatic headline?

SNOOPY

P.S. How did they do their NTA calculation under the old system anyway? I tried for FY2020 and got:

$842.999m / (105.478m+52.739) = $5.33 (not $4.70 as LEK quoted)

CDL assets & retained earnings accounted for the big increase in recent NTA since pre-pandemic (despite Covid), but also teh increasing value of real estate around New Zealand in the palaces the hotels are located no doubt also boosted the hotel asset prices.

In regards your NTA equation for 2020 - are you subtracting the minority interests of the CDL assets from the consolidated group accounts?

Everything labeled “Residential Land Development” is CDL assets whcih MCK only owns two thirds of (CDL shareholders own the other third). The new segment labeled “Investment Property” in latest earnings report is also CDL asset. “Residential Property Development is 100% MCK owned and is the Sydney Apartments they are steadily selling down AND also contains a huge net cash amount which is 100% MCK owned.

13539

[BlackPeter]

looks like LEK found the answer already (cheers), making my post somewhat superfluous. Deleted.

[LaserEyeKiwi]

Maybe, though I never had the impression they really care about the share price ... but anyway, their new accounting policy is now consistent with what CDI (NZ) is doing as well as with the other parts of their empire.

The $4.70 have been in last years annual report ... I haven't checked that number, but I am sure there is a way to get to it (from 2020 announcement):



... but you are right - if we divide net assets by outstanding shares, the result is $5.33. Hmm ...

Maybe they have intangible assets they don't report on?

Interesting - maybe another hint they like to hide their wealth?

See above - you need to take out the one third of CDL assets that belong to other CDL shareholders from the group consolidated balance sheet.

For example, the current situation (using the new “cost” value for hotel operations and sydney real estate holdings):

Group assets: $680,796,000
Group liabilities: $62,997,000
Group Net Assets: $617,799,000

CDL assets: $274,290,000 (residential land development) + $23,332,000 (Investment Property) = $297,622,000
CDL liabilities: $11,242,000
CDL Net Assets: $286,380,000

(MCKs holds 66.29% of CDL shares)
33.71% of CDL Assets belonging to CDL shareholders: $96,538,000

Group Net Assets less CDL shareholders minority interest: $521,261,000

[BlackPeter]

See above - you need to take out the one third of CDL assets that belong to other CDL shareholders form teh group consolidated balance sheet.

cheers ... I could save myself lots of time by just waiting for your responses :):

[hyinvest]

See above - you need to take out the one third of CDL assets that belong to other CDL shareholders from the group consolidated balance sheet.

For example, the current situation (using the new “cost” value for hotel operations and sydney real estate holdings):

Group assets: $680,796,000
Group liabilities: $62,997,000
Group Net Assets: $617,799,000

CDL assets: $274,290,000 (residential land development) + $23,332,000 (Investment Property) = $297,622,000
CDL liabilities: $11,242,000
CDL Net Assets: $286,380,000

(MCKs holds 66.29% of CDL shares)
33.71% of CDL Assets belonging to CDL shareholders: $96,538,000

Group Net Assets less CDL shareholders minority interest: $521,261,000

I'm learning a lot from your detailed and informative posts. I appreciate the time and effort you put into this. Thank you so much.

[LaserEyeKiwi]

That’s how I like to see the stock price:

13540

[Snoopy]

See above - you need to take out the one third of CDL assets that belong to other CDL shareholders from the group consolidated balance sheet.

For example, the current situation (using the new “cost” value for hotel operations and sydney real estate holdings):

Group assets: $680,796,000
Group liabilities: $62,997,000
Group Net Assets: $617,799,000

CDL assets: $274,290,000 (residential land development) + $23,332,000 (Investment Property) = $297,622,000
CDL liabilities: $11,242,000
CDL Net Assets: $286,380,000

(MCKs holds 66.29% of CDL shares)
33.71% of CDL Assets belonging to CDL shareholders: $96,538,000

Group Net Assets less CDL shareholders minority interest: $521,261,000

$842.999m / (105.478m+52.739) = $5.33 (not $4.70 as LEK quoted)

(($842.999m - 0.3371($286.380) )/ (105.478m+52.739) = $4.70 (as LEK quoted)

That makes sense. Thanks.

SNOOPY

[Sideshow Bob]

So presumably better to own MCK than CDL? MCK owns 2/3 of CDL and then have the benefit of the hotel operations/asset value.

Own a few of each. ;)

[BlackPeter]

So presumably better to own MCK than CDL? MCK owns 2/3 of CDL and then have the benefit of the hotel operations/asset value.

Own a few of each. ;)

Hard to say. MCK clearly looks deeper value than CDI, but one never knows if & when the hotels get rid of the "negative hype" factor. Markets don't like the uncertainty around the future of Covid and the ramifications for tourism and does not seem to appreciate the significant real estate component of MCK.

I found it difficult to decide and own both of them for longer than Covid is around - I invested (though not at the same time) roughly the same amount into CDI and MCK and hold now (in value) roughly twice the amount in CDI than in MCK.

One could say now is the time for MCK to shine (and it probably is when tourism returns) ... or alternatively - history might repeat and CDI keeps outperforming its mother ... who knows?

[LaserEyeKiwi]

Well in my mind if you currently buy MCK you are effectively getting the Hotel operations for free.

One way or another the Hotel assets will provide a return, with the most likely scenario being that they return to profitability as New Zealand reopens its borders with no/very short isolation periods later this year, and continue to grow back to something approaching somewhere not to far below from their previous pre-pandemic level. That profitability will generate cash that either is distributed to shareholders via larger dividends, or will continue to grow the cash balance on the books. In an absolute worst case scenario where tourism for some reason never returns to New Zealand, the MCK Hotel assets still hold hundreds of millions in value as residential conversions that could be sold, and/or as company owned build-to-rent style residential properties.

A reminder that the hotel segment was generating $25 million in net profits by itself annually before the pandemic started.

MCKs share of CDL net profits was $20.75 million in the just reported year.
Add to that the sell down of the Sydney real estate assets generating ~$5million+ per year for a few more years yet (and continuing to build a large cash balance from the sales), and I think it’s likely that within 18-24 months time Net Income should be back in the $40-$50 million region run rate (assuming hotel operations regain even just 80% of their previous levels).

Profit was $40m this year, but that included a large $15m one off gain of some former hotel land in Christchurch (destroyed a decade ago in the earthquakes). That gain does go to show the underlying value of the hotel assets however. Just the land value of one of its former hotel sites was worth $15m+ alone!

[LaserEyeKiwi]

Here is the last 5 years worth of results / net asset status, with the CDL minority-interest value stripped out to show the MCK share of revenue, profits and net assets (note that the 2021 net asset value reflects the new “cost” basis for assets, rather than the previous years which used fair market value).

Also the MCK value of the CDL Revenue/Profit/Net Assets is calculated at current 66.29% level for all the previous years, whereas in those years at the time MCK had slightly smaller ownership in CDL (the last couple of years they took their CDL dividend in shares instead of cash, which has slowly grown their CDL stake slightly larger.

(Edit: this forum doesn’t seem to allow high resolution photos to be uploaded, had to cut the chart in two to make it readable as two separate files)

1354913550

[LaserEyeKiwi]

Big news just mentioned in the live health briefing: possibility that self isolation requirements for people entering New Zealand may disappear altogether within the month (minister: “expecting to receive advice on that within the next week or two”)

This would be a significant event for the restart of international tourism into NZ.

[Snoopy]

Big news just mentioned in the live health briefing: possibility that self isolation requirements for people entering New Zealand may disappear altogether within the month (minister: “expecting to receive advice on that within the next week or two”)

This would be a significant event for the restart of international tourism into NZ.


.....and the end of the government MIQ contracts (or are they locked in until October)? Doesn't sound that attractive to tourists yet though. Would you want to stay in a contaminated hotel? There is still a requirement for self isolation if infected. And you may not get on the plane home if you test positive just before you want to go back,......

SNOOPY

[LaserEyeKiwi]

.....and the end of the government MIQ contracts (or are they locked in until October)? Doesn't sound that attractive to tourists yet though. Would you want to stay in a contaminated hotel? There is still a requirement for self isolation if infected. And you may not get on the plane home if you test positive just before you want to go back,......

SNOOPY

MIQ contracts are non-disclosable by the sounds of it (with the government contract rates & lengths never disclosed to press), with all that MCK has said I that it's two MIQ hotels are "Presently contracted for part of 2022".

MCK only has one owned hotel in the MIQ system (M Social Auckland), with the other being the Millennium Grand (which MCK has a management contract relationship on), so while those two facilities will see less room occupancy (MIQ takes 100% obviously), MCKs other 17 hotels will see higher occupancy rates from the end of MIQ/self-isolation requirements.

MCKs major source of bookings (after Kiwi domestic bookings) is overwhelmingly from Australia, and even just the end of self-isolation for Australian tourists would be a big benefit to MCK.

Isolation free travel into New Zealand is going to be the largest step towards the tourism industry returning to normal. Yes it isn't going to return to pre-pandemic levels overnight - (I am not keen to travel at all for now) - but there are a sizeable fraction of the market still keen to travel, whether to visit friends/family, weddings/funerlas etc - for work, for leisure, etc, and everyone one of those travellers will of course be a boost to the current level of basically zero international tourists.

The last thing to note is that the end of MIQ/self-isolation rules will also lead to a bump in domestic hotel bookings, as it means international music performers, sports teams, conference speakers etc will be free to enter, leading to plenty of kiwis travelling domestically for events.

[LaserEyeKiwi]

https://www.stuff.co.nz/national/politics/300525636/covid19-nz-border-rules-government-reviewing-selfisolation-for-travellers-as-cases-mount


Tourism Industry Aotearoa (TIA) spokeswoman Ann-Marie Johnson said it was reassuring to hear the Government was reviewing self-isolation requirements for international arrivals.Having isolation requirements in place meant New Zealand was off the radar for international tourists, she said.

“With the move to phase three of the Omicron response, the rationale for keeping self-isolation rules in place no longer exists,” Johnson said.

TIA was working on an evidence-based case for removing self-isolation requirements and would provide it to the Government as soon as possible, she said.

[LaserEyeKiwi]

Decision incoming this afternoon:


Cabinet will discuss and make decisions about the future of border restrictions today, Prime Minister Jacinda Ardern says.

[winner69]

Decision incoming this afternoon:

Got ‘health advice’ late last night so prob no home isolation needed ….could have worked that out a few weeks ago ….slack as

[LaserEyeKiwi]

Got ‘health advice’ late last night so prob no home isolation needed ….could have worked that out a few weeks ago ….slack as

Well the only purpose of MIQ would be to isolate any new unknown variants from entering through the he border (like how Omicron had spread all over the world before it had even been identified. But as soon as the government said Australians coming in could self isolate then it essentially rendered MIQ absolutely worthless for everyone (as the self isolation process is useless at preventing any transmission leaks).

[Snoopy]

Well the only purpose of MIQ would be to isolate any new unknown variants from entering through the he border (like how Omicron had spread all over the world before it had even been identified. But as soon as the government said Australians coming in could self isolate then it essentially rendered MIQ absolutely worthless for everyone (as the self isolation process is useless at preventing any transmission leaks).


There is another purpose for MIQ. That is to isolate the healthy vulnerable - not travellers, people living in NZ- , while the rest of the household recovers. I think MIQ is being used for that right now.

SNOOPY

[LaserEyeKiwi]

There is another purpose for MIQ. That is to isolate the healthy vulnerable - not travellers, people living in NZ- , while the rest of the household recovers. I think MIQ is being used for that right now.

SNOOPY

Yes - no reason not to do that. Not sure that omicron will lead to too much of that given that by the time a household member tests positive, most likely the rest of the household also has already contracted it (was talking to someone today whose entire household of 8 had all tested positive on the same day). In other words by the time symptoms occur in one person, the rest of the household is almost certainly infected.

[LaserEyeKiwi]

BOOM! Self Isolation is gone as of this Wednesday! (March 2nd) (for people coming from Australia)

MIQ remains only for unvaccinated arrivals.

Also: Borders will reopen for non-kiwis earlier than previously stated.

[LaserEyeKiwi]

Here we go, the good news (much earlier than expected reopening of border to international tourism), will be announced this week:

13618

[Sideshow Bob]

Here we go, the good news (much earlier than expected reopening of border to international tourism), will be announced this week:

13618

An announcement of an announcement......

Makes sense to open earlier.

[Rawz]

An announcement of an announcement......

Makes sense to open earlier.

my exact thoughts.

This govt is very gun shy to make big decisions to help this country. sad!

Guess we will just drift along for another couple of years until Nationals turn

[LaserEyeKiwi]

New border opening dates (for international tourists etc) will be announced on Wednesday.

[LaserEyeKiwi]

PM implied it will be in place before Aussie school holidays which starts near end of April as well, which might be on the cards.

[LaserEyeKiwi]

Both stuff.co.nz & NZ Herald saying a border reopening is just weeks away (stuff says “early April” & Herald says it’s “April 12th”).

Going to be far earlier than what MCK expected just 4 weeks ago when it gave its full year outlook (which assumed a border reopening in late 2022).

[LaserEyeKiwi]

13625
Just in case anyone missed it, Border reopening confirmed for tourists: April 12th for Australia, May 1st for all Visa-waiver countries (which includes Europe & North America).

https://www.sharetrader.co.nz/blob:https://www.sharetrader.co.nz/279c6ee0-3270-4f43-a995-a460a2081c2a
https://i.stuff.co.nz/national/politics/300542192/nz-to-open-to-australian-tourists-first-on-april-12-then-visawaiver-countries-in-may

Needless to say this is highly positive for MCK, with their Queenstown hotels in particular going to be very busy over the forthcoming Ski Season.

[invest]

Expected a share price bump given the significance of the border reopening. Should be immediate cashflow and revenue impact as Australia is our biggest market, and heaps of people are waiting to come in.
Vaccinated Australians, including permanent residents, will be able to come to New Zealand without isolating from 11.59pm on Tuesday, April 12.
Fully vaccinated travellers from visa-waiver countries will be able to enter the country from 11.59pm on May 1.
About 60 countries and territories, including Canada and the United States, are on the visa waiver list.
https://www.nzherald.co.nz/nz/covid-19-omicron-prime-minister-jacinda-ardern-announces-border-reopening-dates-for-tourists-and-other-travellers/EO6LOS6XVCNHIJAVZYREUFH7WU/

[LaserEyeKiwi]

Expected a share price bump given the significance of the border reopening. Should be immediate cashflow and revenue impact as Australia is our biggest market, and heaps of people are waiting to come in.
Vaccinated Australians, including permanent residents, will be able to come to New Zealand without isolating from 11.59pm on Tuesday, April 12.
Fully vaccinated travellers from visa-waiver countries will be able to enter the country from 11.59pm on May 1.
About 60 countries and territories, including Canada and the United States, are on the visa waiver list.
https://www.nzherald.co.nz/nz/covid-19-omicron-prime-minister-jacinda-ardern-announces-border-reopening-dates-for-tourists-and-other-travellers/EO6LOS6XVCNHIJAVZYREUFH7WU/

I find the New Zealand market takes a little bit of time to react to this sort of news when it comes to the more thinly traded names like MCK. I would expect the share price to be higher by the end of this week (unless Putin/China cause more chaos that drags everything down).

[LaserEyeKiwi]

https://www.nzx.com/announcements/388965

MCK welcomes earlier reopening of NZ’s international border

16/3/2022, 3:30 pmMKTUPDTE

Millennium & Copthorne Hotels New Zealand Limited (NZX:MCK) is pleased with the announcement from the New Zealand Government earlier today that the international border restrictions currently in place will be relaxed earlier to allow fully vaccinated visitors from Australia into New Zealand from April 13 and from visa waiver countries such as the UK and the United States from May 2
.
MCK Managing Director Mr. BK Chiu welcomed the decision to bring the dates forward.
“We have been patiently holding our breath for this moment and we are delighted that the international borders will be reopening over the next few weeks. We are very much looking forward to welcoming our international friends and family back to New Zealand after such a long time”, he said.

MCK’s Vice President Operations Ken Orr said that MCK’s hotels would be accelerating their plans to match the new reopening dates.
“The announcement is heartening news and is very welcome for all hotels and tourism operators across New Zealand who have suffered great hardship over the last two years. Having international visitors back in New Zealand is great news for the country and will definitely make a difference to our trading performance particularly in the second half of this year”, he said.

-ENDS-
Issued by Millennium & Copthorne Hotels New Zealand Limited

[LaserEyeKiwi]

https://www.rnz.co.nz/news/national/463526/miq-hotels-sit-empty-workers-depart-as-system-winds-down

MCK’s M Social hotel in Auckland will remain in the MIQ pool until the end of June.

Millennium Grand, the company’s biggest hotel (management contract rather than outright owned), seems like it will be available - along with every other MCK hotel other than M Social - for the border reopening next month.

[LaserEyeKiwi]

Annual Report released today.

Important to note that the forward looking statements made in the chairman’s letter were prepared on Feb 16th, BEFORE the expedited border reopening was announced this month (MCK released a market update to address the positive impact from that on March 16th https://www.nzx.com/announcements/388965)
However what im interested in is the “Market Value of NZ Hotel Properties” listed in todays annual report on page 2: $567.6 million !!!

As a referesher, MCKs non-hotel assets include:
1. 66.29% ownership of listed company CDL Investments, current value: $209.6 million ($316,264,000 x 0.6629)
2. Australian property being sold (Zenith Apartments), current value: $61.7 million (listed on page 2 of annual report)
3. Net cash (form hotel & Australia property segments), current value: $96.6 million $50.264m in Hotel segment + $46.350 in Australian property segment)

Total value of MCK non-hotel operations: $368 million

MCK Total market cap (MCK + MCKPA) = $364 million

So currently MCK is trading at $4 million less than the value of just its non-hotel assets.

When you add the market value of the Hotel assets at $567.6 million, and exclude all non-CDL liabilities of $52 million (WITHOUT including other assets like accounts receivable) - MCK is trading at a ~$520 million discount to its underlying fair market value of its $884 million+ in net assets. The current share price reflects a 59% discount.

NTA at Market Value is $5.59 per share (vs current share price of $2.30)
​Annual Report link: http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCK/389508/367432.pdf

[BlackPeter]

Annual Report released today.

Important to note that the forward looking statements made in the chairman’s letter were prepared on Feb 16th, BEFORE the expedited border reopening was announced this month (MCK released a market update to address the positive impact from that on March 16th https://www.nzx.com/announcements/388965)
However what im interested in is the “Market Value of NZ Hotel Properties” listed in todays annual report on page 2: $567.6 million !!!

As a referesher, MCKs non-hotel assets include:
1. 66.29% ownership of listed company CDL Investments, current value: $209.6 million ($316,264,000 x 0.6629)
2. Australian property being sold (Zenith Apartments), current value: $61.7 million (listed on page 2 of annual report)
3. Net cash (form hotel & Australia property segments), current value: $96.6 million $50.264m in Hotel segment + $46.350 in Australian property segment)

Total value of MCK non-hotel operations: $368 million

MCK Total market cap (MCK + MCKPA) = $364 million

So currently MCK is trading at $4 million less than the value of just its non-hotel assets.

When you add the market value of the Hotel assets at $567.6 million, and exclude all non-CDL liabilities of $52 million (WITHOUT including other assets like accounts receivable) - MCK is trading at a ~$520 million discount to its underlying fair market value of its $884 million+ in net assets. The current share price reflects a 59% discount.

NTA at Market Value is $5.59 per share (vs current share price of $2.30)
​Annual Report link: http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCK/389508/367432.pdf

Yep, I noticed that as well ... though obviously - a hotel might not always return the full estimtated value when sold. Suppose however that opening the borders will help :) ;

Anyway - getting more than 500 million dollars worth of hotel assets basically as free bonus on top of their other assets when buying the company looks like a bargain. Great buying!

Obviously - the usual terms & conditions apply ... This company clearly would be a takeover game IF it would not be controlled by a roughly 75% majority share holder who clearly has no interest in selling (CDL are a real estate empire designed to grow wealth without showing it. The Kwek family clearly does not need cash and compared to some other billionaires are they not interested in bragging about their wealth either.

So - yes - great value, but realising this value is nothing the minority shareholders will be able to control.

[percy]

Yep, I noticed that as well ... though obviously - a hotel might not always return the full estimtated value when sold. Suppose however that opening the borders will help :) ;

Anyway - getting more than 500 million dollars worth of hotel assets basically as free bonus on top of their other assets when buying the company looks like a bargain. Great buying!

Obviously - the usual terms & conditions apply ... This company clearly would be a takeover game IF it would not be controlled by a roughly 75% majority share holder who clearly has no interest in selling (CDL are a real estate empire designed to grow wealth without showing it. The Kwek family clearly does not need cash and compared to some other billionaires are they not interested in bragging about their wealth either.

So - yes - great value, but realising this value is nothing the minority shareholders will be able to control.

Your bottom line is really the bottom line.

[LaserEyeKiwi]

Yep, I noticed that as well ... though obviously - a hotel might not always return the full estimtated value when sold. Suppose however that opening the borders will help :) ;

Anyway - getting more than 500 million dollars worth of hotel assets basically as free bonus on top of their other assets when buying the company looks like a bargain. Great buying!

Obviously - the usual terms & conditions apply ... This company clearly would be a takeover game IF it would not be controlled by a roughly 75% majority share holder who clearly has no interest in selling (CDL are a real estate empire designed to grow wealth without showing it. The Kwek family clearly does not need cash and compared to some other billionaires are they not interested in bragging about their wealth either.

So - yes - great value, but realising this value is nothing the minority shareholders will be able to control.

Depends what you mean by ‘“realising value”. In my mind the dividends will only grow as the hotel operations return to something approaching normality, while CDL profits continue pouring in and the cash pile grows ever larger from the sell down of Zenith assets.

also, the theory about a majority shareholder suppressing the stock price by 60% below market value of assets doesn’t hold for any other companies with majority shareholders, including the obvious example here of CDL investments, which trades at a 10-11x multiple despite its majority holder also having no intention of ever selling. MCK trading at a 10x multiple once hotel operations return to some sense of normalcy would see a share price above $4.

im still in accumulation mode so I don’t mind if share price remains depressed for a while longer - hopefully I will have reached my allocation limit before the earnings have returned to pre-pandemic levels. (probably 11 months time I would think)

[thebusinessman]

im still in accumulation mode so I don’t mind if share price remains depressed for a while longer - hopefully I will have reached my allocation limit before the earnings have returned to pre-pandemic levels. (probably 11 months time I would think)

What's a reasonable accumulation for you?

[LaserEyeKiwi]

What's a reasonable accumulation for you?

Absolute maximum for myself these days is 20% allocation of my equities portfolio (usually try to limit to 15%, unless the opportunity is too good to pass up)

[LaserEyeKiwi]

Nice response from the market so far, up 18c / 8% in 3 days.

[Rawz]

Nice response from the market so far, up 18c / 8% in 3 days.

All thanks to you LEK. I reckon you have whipped up a chunk of the shareies army to add a position via your posts

Well done

[LaserEyeKiwi]

All thanks to you LEK. I reckon you have whipped up a chunk of the shareies army to add a position via your posts

Well done

well that would be pretty strange if true…

[LaserEyeKiwi]

Well someone is having a decent bite on their lunchbreak:

13657

[buy_high_sell_lo]

Largest volume in the last year, how interesting.

[Sideshow Bob]

Largest volume in the last year, how interesting.

Still a month away from the dividend record date.

[winner69]

Hotels need to wait to summer before things pick up

https://www.rnz.co.nz/news/business/466180/hotels-won-t-recover-from-covid-19-until-summer-colliers-research

[LaserEyeKiwi]

Hotels need to wait to summer before things pick up

https://www.rnz.co.nz/news/business/466180/hotels-won-t-recover-from-covid-19-until-summer-colliers-research

Thanks for linking.

My comments:

1. That report is saying summer will see “a semblance of PRE-PANDEMIC levels”. That doesn’t really mean anything to me - what is a “semblance” exactly? Hotels have still had some level of bookings during the pandemic after all, since domestic tourism accounts for a large portion of bookings. It would be an absolutely massive result that would exceed all previous expectations if next summer saw anything close to pre-pandemic levels. Truly would be a fantastic outcome, but no one is expecting that (see AirNZ expectations of tourism activity), so would be a big positive surprise. One wonders if this report is more about Colliers trying to manufacture a positive narrative to shore up hotel real estate transaction activity.

2. Hotels have already very much picked up in bookings since borders started reopening with Australia this month (Australia accounts for the majority of international tourists to NZ). The colliers report the story is based on only covers the march quarter (before borders with Australia opened) & also covers the Omicron outbreak. Despite that it reports a year on year increase in hotel occupancy in Queenstown, Wellington, Rotorua & Christchurch, which is an unexpected result (to me at least).

[LaserEyeKiwi]

Some interesting tidbits releases on visitor numbers today by PM:


Ardern says 21 international flights are landing today at Auckland airport after international travel from the visa-waiver countries resumed. She says those holding existing visitor visas from anywhere in the world can also travel here from today, with more than 500,000 such visas held.Data from Worldline (formerly Paymark), shows spending hit $420 million - some 8 percent higher than the spending at Easter from 2019.

"Our regions benefited the most, as people travelled the country, with Easter spending in Taranaki up by a quarter on 2019, 22 percent in Wairarapa, 18 percent in Whanganui, and 10 percent across Canterbury."

She says increased tourism has meant demand for workers, and more than 5000 applications have now been approved under the Working Holiday Visa category which reopened in mid-April. This is on top of over 18,000 visas reissued to people who applied pre-Covid but were unable to use.

"We know things will take time to fire back up, but the recovery has begun and well ahead of our peak tourism season which begins from October, when our border will open to the entire world."
"Our tourism industry have felt the effects of the global pandemic acutely and are working hard to prepare for the return of higher volumes of international tourists."

She says more than 4000 people with Working Holiday Visas are already in the country. We are currently seeing about 33,000 arrivals per week from overseas, she says

[LaserEyeKiwi]

Things looking good in Queenstown - July apparently shaping up to being close to pre-pandemic levels.

(MCK has two large hotels in Queenstown)

https://i.stuff.co.nz/travel/news/128509712/queenstowns-winter-flight-schedule-almost-at-prepandemic-level

[Sideshow Bob]

Things looking good in Queenstown - July apparently shaping up to being close to pre-pandemic levels.

(MCK has two large hotels in Queenstown)

https://i.stuff.co.nz/travel/news/128509712/queenstowns-winter-flight-schedule-almost-at-prepandemic-level

But no staff…..

https://www.odt.co.nz/regions/queenstown/no-staff-match-demand

[LaserEyeKiwi]

New Company leader announced, with extensive experience in property/REIT management.

MCK appoints Stuart Harrison as Managing Director

https://www.nzx.com/announcements/391646

[LaserEyeKiwi]

Trio of good news for Hotel sector today:

1) Border reopening brought forward to July 31st for all remaining countries (those not on the visa-waiver list) - from previous date of October.
2) Pre-departure testing removed from July 31st
3) Hotels will have a special lwoer wage rate vs. the new “minimum wage” being brought in for immigration work visas for “the time being” - meaning that if needed they can bring in overseas workers at a lower wage rates than previously expected.

[LaserEyeKiwi]

Very nice seeing the MCK dividend arrive in my account today!

[LaserEyeKiwi]

Notes from the MCK AGM today:

- Christchurch land sale was not planned, but received an unsolicited offer they could not refuse (because it was so good) $2m book value, $18m sale price. Company still has option to re-enter Christchurch market in future if it pleases at many other locations in the city would suit.
- Millennium Queenstown highest EBITDA contributor - struggle finding staff. Pooling resources of 3 Queenstown hotel assets to optimize operations in low staffing environment, and to attract conferences etc.
- Staffing the toughest issue by the sounds of it.
- Grand Millennium Auckland reopens in June, M Social Auckland reopens July (both undergoing deep cleaning and odd bit of minor refurb following leaving MIQ pool.
- very strong financial position. Notes a lot of financial stress elsewhere in industry (which may present opportunity for MCK I think being the underlying implication)
- $15k marketing campaign generates $3 million in bookings (!), all advertising budget dedicated to social media.
- the Kingsgate to Copthorne (4-star) conversions achieves a 20% increase in rates, payback time for conversion cost is very short: 2-4 years. Greymouth conversion latest example: Rooms now $150 per night , used to be $105 average as kingsgate.
- much cheaper to upgrade existing hotels than to buy new ones, very capital efficient and great returns on conversion costs.
- Conferences big key to recovery: MCK is preparing & refurbishing its conference focused hotels (Millennium Queenstown, Rotorua, Bay of Islands etc) to be ready for summer conferences. Conference Bookings already growing. in house sales team very experienced with landing domestic & international conferences, has best conference facility in beautiful NZ locations that conference attendees want to go.
CDI: (MCK owns 66% of CDI)
- CDI doing very well, along with Sydney operation is a very good buffer for MCK while Hotel industry recovers. Year to date sales in first 4 months of year at CDI already generated enough gross margin to comfortably cushion any potential slowdown in residential land sales in 2nd half of year if that eventuates.
- CDI move into recurring income assets (commercial warehouses) already generating good returns, also chance in time to sell warehouses once it becomes tax free for sale profits (not intent to sell, but good option to have)
- CDI extended land holdings in Hamilton (124 hectares), now in position to build an “integrated development” - residential, retirement villages & healthcare centre. Same option for the new large Havelock North landholding.
- CDI has enough new landholdings for next decade of CDI land development/sales and continued revenue diversification with further commercial developments.
- Both companies (MCK & CDI) very well positioned for “new opportunities” generated by current industry turmoil. Plenty of cash, zero debt.

(I am going to miss BK’s presentations - I love his style).

I can’t believe there were zero questions!

[clearasmud]

Thanks for that LEK!
How come CDI warehouses become capital gain tax free on sale?

[LaserEyeKiwi]

Thanks for that LEK!
How come CDI warehouses become capital gain tax free on sale?

Not sure the specifics but BK mentioned it a couple of times. Perhaps a certain amount of time where they are not determined to have been assets built with the intention to sell, but rather were long term assets to generate income.

[clearasmud]

That sounds great.

[DarkHorse]

Any current thoughts on this? Does anyone have any clue whether Ozzies are starting to flock to their hotels - or are likely to soon - or whether airbnb type sites continue to take market share... ?

[LaserEyeKiwi]

MCK interim results for the 6 months ending June 30th should be released this week (last year it was released Aug 2nd).

Will be a bit of a transition 6 months, with the border reopening during the period to visa waiver countries, but not fully reopened to all (that happened yesterday on Aug 1st). And during the same period the MIQ system was essentially closed, with MCKs two MIQ Auckland hotels exiting that, and reopening for normal bookings. The period also covered the period when covid became widespread in NZ, and while most have acclimatized to “Covid -everywhere” by now and are back to regualr travel plans, that was a little different earlier this year.

(The bumper bookings for the Aussie school holidays in Queenstown Hotels will be in the next 6 months results)

MCK subsidiary CDL (MCK owns 67%) will still be chugging along as usual generating plenty of cash, so that will buttress the hotel operations transition period for the most part, and Zenith (the Sydney apartments being gradually sold down) will likely provide some cash depending on how many more units have been sold.

I’m not expecting an interim dividend (MCK historically paid dividends once a year) - but who knows, MCK has plenty of cash.

Big thing to pay attention to will be the outlook going forward.

[LaserEyeKiwi]

Interim Results are out, for 6 months ending 30th June:

(mandatory reminder that the MCK/CDL group has over $1 Billion in net assets at fair market value, that is hidden behind a “cost basis” accounting method, and a stock currently trading at $2.26 has a fair market value of above $6.60 per share.)

Net Profit: $15.4 million
EPS: 9.74c
NTA gain of 13c per share
Cash on hand: $157m (zero debt)

Operating segments & notes:

- Hotels Operations: ($2.896m) net loss

Obviously still heavily impacted by Covid and closed borders during 6 month period, as well as Omicron wave hitting NZ domestic market, but outlook improving with solid forward bookings for the summer.

- Residential Property Development (Zenith Sydney apartments): $2.934m net profit

4 apartments sold, still plenty of apartments left to sell ($29m worth on a cost basis)

=== CDL operations (which MCK gets 66% share) ===

- Residential Land Development: $23m profit

Strong performance continues from the residential land sales, despite the softening market. Guidance is for full year net income in line with last year. Added to its land portfolio during the period.

- Investment Property: ($0.08m) loss

First warehouse was completed during the period, with tenant occupying in last month of reporting period (hence hardly any income recorded for this segment). 2nd warehouse due to be completed and occupied this month. Good to see an alternative revenue stream emerging.

Cash & cash equivalents:

Gigantic cash pile: $181.8m across the group (MCKs share of that is $157m). Cash generated $1.058m in interest income for the group in the 6 month period.

Net Tangible Assets: Important to remember the company restated its NTA values on its “land and building” assets to a “cost basis” last year (as opposed to the fair market value, which they still listed in the annual report earlier this year as being worth ~$1 Billion). On their cost basis method, the groups net assets increased to $635.5m (up from $617.8m 6 months ago).

MCKs portion of net assets (cost value) is as follows:

Hotel Operations: $252.59m
Res. Property Dev: $82.328m
Res. Land Development: $176.528m (65.99% of $267.508m)
Investment Property: $21.832m (65.99% of $33.084m)

MCK Net assets (cost basis): $533.278m
Divided by 158,218,286m shares = $3.37 per share
MCK have the NTA updated to $3.33 per share today, so not sure where that 4 cents difference comes from, but probably some accounting explanation.

Using the fair market value from the March annual report, along with the latest cash balance and added proeprty assets the fair market Net tangible asset per share value is over $6.60 per share

[WAIKEN]

Great analysis Laser
Both MCK and CDL are trading at a massive discount to market value NTA

[Rawz]

Probably best to price these on a yield basis

what sort of yield are these bad boys giving holders?

[Sideshow Bob]

Probably best to price these on a yield basis

what sort of yield are these bad boys giving holders?

$0.035 dividend the most recent FY, fully imputed.

$2.19 as of now. 1.6% yield.

No divvy in 2021. 2020 it was 7 cents.

[Rawz]

What is the point of this company? Their return on assets and return on equity is consistently Low. Dating back last 8 years the ratio sits between 5-8%
The highest dividend yield ever was 2.78% in 2019.

They should sell everything and give the funds to shareholders. wonder if they sold up they would get LEKs $6.60 per share?

[Gerald]

What is the point of this company? Their return on assets and return on equity is consistently Low. Dating back last 8 years the ratio sits between 5-8%
The highest dividend yield ever was 2.78% in 2019.

They should sell everything and give the funds to shareholders. wonder if they sold up they would get LEKs $6.60 per share?

Not really. Compared to NZX listed property companies ROA is very high, ROE is naturally not as high due to the lack of debt. If you want more exposure you could simply borrow and buy more MCK.

Paying out large dividends isn't the most tax efficient option and in the best interests of long term shareholders one could argue. Reinvesting to grow the BV is fine as sooner or later or very later it will be realised.

If you look at some of the assets they sold recently they were well above book value, so unless you think they are selling the best stuff, this should be reflective of the rest. They have no interest in pumping up the share price as they probably eventually want to take it out at a discount.

[DarkHorse]

Would be interesting to hear views on long-term scenarios and the odds of each.
There must be some plan to realise intrinsic value surely?

Albeit they have done OK for shareholders so far it appears? (or consolidations??)
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[Rawz]

....
Net Tangible Assets: Important to remember the company restated its NTA values on its “land and building” assets to a “cost basis” last year (as opposed to the fair market value, which they still listed in the annual report earlier this year as being worth ~$1 Billion). On their cost basis method, the groups net assets increased to $635.5m (up from $617.8m 6 months ago).

MCKs portion of net assets (cost value) is as follows:

Hotel Operations: $252.59m
Res. Property Dev: $82.328m
Res. Land Development: $176.528m (65.99% of $267.508m)
Investment Property: $21.832m (65.99% of $33.084m)

MCK Net assets (cost basis): $533.278m
Divided by 158,218,286m shares = $3.37 per share
MCK have the NTA updated to $3.33 per share today, so not sure where that 4 cents difference comes from, but probably some accounting explanation.

Using the fair market value from the March annual report, along with the latest cash balance and added proeprty assets the fair market Net tangible asset per share value is over $6.60 per share

Hey LEK, great post!

Do you know how that fair market value is calculated? Do they use a cap rate similar to what the reits get? Or is it just pie in the sky stuff?

[DarkHorse]

They seem to have done OK long term (or have consolidations inflated nominal share price gains?)

But surely the majority holders must have some plan to realise the intrinsic value.

Love to hear people's thoughts about options and how likely they are (apologies if this is old ground - haven't read back too far...)

[LaserEyeKiwi]

Hey LEK, great post!

Do you know how that fair market value is calculated? Do they use a cap rate similar to what the reits get? Or is it just pie in the sky stuff?

From the 2020 annual report (when hotel assets were still recorded as fair value):


Land and buildings are shown at fair value less subsequent depreciation for buildings. Fair value is determined by management using valuation models, and confirmed by independent registered valuers on a staged triennial basis. In the intervals between each triennial cycle an internal valuation and impairment assessment is performed for each hotel asset to ensure its carrying value continues to reflect its fair value.

[LaserEyeKiwi]

They seem to have done OK long term (or have consolidations inflated nominal share price gains?)

But surely the majority holders must have some plan to realise the intrinsic value.

Love to hear people's thoughts about options and how likely they are (apologies if this is old ground - haven't read back too far...)

I’ll post a more detailed deep dive later today or tomorrow.

[Rawz]

If you look at the 7 year period of 12/2013 to 12/2019 which is before MCK changed the way they value their property holdings and prior to covid it paints the following picture:

The 7 year CAGR in book value is 5.7%
The avg dividend yield during that period was 2.18%

Its not exactly setting the world on fire?

Avg price/book ratio over the 7 years was 0.44. If you apply that to LEKs $6.60 fair value price per share then maybe one could say the SP is worth $6.60*0.44= $2.91.

Disc. Not a holder. Not looking to buy as better fish in the sea imo.

[LaserEyeKiwi]

If you look at the 7 year period of 12/2013 to 12/2019 which is before MCK changed the way they value their property holdings and prior to covid it paints the following picture:

The 7 year CAGR in book value is 5.7%
The avg dividend yield during that period was 2.18%

Its not exactly setting the world on fire?

Avg price/book ratio over the 7 years was 0.44. If you apply that to LEKs $6.60 fair value price per share then maybe one could say the SP is worth $6.60*0.44= $2.91.

Disc. Not a holder. Not looking to buy as better fish in the sea imo.

Ill dive deeper later - but consider the earnings multiple is ridiculously low, especially when you take out the cash.

[LaserEyeKiwi]

Ill dive deeper later - but consider the earnings multiple is ridiculously low, especially when you take out the cash.

Also, some parts of the business were already valued on a cost basis before they changed the policy for the hotels (CDL operations & Zenith were both already not valued at fair market value)

[traineeinvestor]

Also, some parts of the business were already valued on a cost basis before they changed the policy for the hotels (CDL operations & Zenith were both already not valued at fair market value)

I know this has been discussed before on the CDI/CDL thread, but the development properties should not be included in the accounts at fair market value. The nature of their business means that these properties will be sold and, as developers, they will eventually have to pay tax on the difference between cost and sale price (and less relevant expenses). Including those properties at current fair market value would therefore overstate the value of the assets to shareholders by the amount of the tax.

The investment properties which CDI/CDL is adding to its balance sheet are, of course, another matter entirely. They're currently included at cost but IMHO should be restated to fair market value in line with property investment companies. Right now it's (probably) not particularly significant but I hope this part of CDI/CDL's business will grow over time.

[LaserEyeKiwi]

I know this has been discussed before on the CDI/CDL thread, but the development properties should not be included in the accounts at fair market value. The nature of their business means that these properties will be sold and, as developers, they will eventually have to pay tax on the difference between cost and sale price (and less relevant expenses). Including those properties at current fair market value would therefore overstate the value of the assets to shareholders by the amount of the tax.

The investment properties which CDI/CDL is adding to its balance sheet are, of course, another matter entirely. They're currently included at cost but IMHO should be restated to fair market value in line with property investment companies. Right now it's (probably) not particularly significant but I hope this part of CDI/CDL's business will grow over time.

I agree with that to some degree (essentially treating the land holdings for CDL residential section developments as “inventory”), although the land holdings at CDL do change in value quite significantly over the very long holding period (years) before they are finally settled on as separate titles, both from the advancement in consenting & development stages, but also from the change in the value of raw undeveloped land values.

Agree 100% on the new CDL long term investment property holdings (industrial/commercial/retail land & buildings) - any other listed property company would be revaluing those assets annually at a minimum.

[LaserEyeKiwi]

Good news for MCK:

https://www.rnz.co.nz/news/business/474391/lack-of-hotel-developments-outside-biggest-city-could-impact-tourism

[Sideshow Bob]

Interim Report

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCK/398901/378764.pdf

MCK as a group made an unaudited profit before tax and non-controlling interests of $32.05 millionfor the six month period ended 30 June 2022 (2021*: $47.55 million). The main contributors to theseresults were sales of residential sections from our majority-owned subsidiary CDL Investments NewZealand Limited which continues to trade strongly and the sale of three apartments at the ZenithResidences in Sydney settled during the first six months also contributed to this result.

MCK has therefore recorded a profit after income tax and non-controlling interests of $15.40 million(2021*: $31.34 million) on group revenue for the period of $83.66 million (2021: $98.36 million). Ourearnings per share for the period decreased to 9.74 cents per share (2021*: 24.47 cps) with the prioryear reflecting the impact of a one-off gain of $15.87 million (10.03 cents per share) on disposal fromthe sale of land in May 2021 (described as other income). MCK’s Net Tangible Assets per share as at30 June 2022 was $3.33 per share (2021*: $3.20 per share).

[LaserEyeKiwi]

Interim Report

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCK/398901/378764.pdf

MCK as a group made an unaudited profit before tax and non-controlling interests of $32.05 millionfor the six month period ended 30 June 2022 (2021*: $47.55 million). The main contributors to theseresults were sales of residential sections from our majority-owned subsidiary CDL Investments NewZealand Limited which continues to trade strongly and the sale of three apartments at the ZenithResidences in Sydney settled during the first six months also contributed to this result.

MCK has therefore recorded a profit after income tax and non-controlling interests of $15.40 million(2021*: $31.34 million) on group revenue for the period of $83.66 million (2021: $98.36 million). Ourearnings per share for the period decreased to 9.74 cents per share (2021*: 24.47 cps) with the prioryear reflecting the impact of a one-off gain of $15.87 million (10.03 cents per share) on disposal fromthe sale of land in May 2021 (described as other income). MCK’s Net Tangible Assets per share as at30 June 2022 was $3.33 per share (2021*: $3.20 per share).

FYI - this is a rehash of the results already announced last month. Not sure why they don’t release this on the same day to be honest.

[Rawz]

Interim Report

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCK/398901/378764.pdf

MCK as a group made an unaudited profit before tax and non-controlling interests of $32.05 millionfor the six month period ended 30 June 2022 (2021*: $47.55 million). The main contributors to theseresults were sales of residential sections from our majority-owned subsidiary CDL Investments NewZealand Limited which continues to trade strongly and the sale of three apartments at the ZenithResidences in Sydney settled during the first six months also contributed to this result.

MCK has therefore recorded a profit after income tax and non-controlling interests of $15.40 million(2021*: $31.34 million) on group revenue for the period of $83.66 million (2021: $98.36 million). Ourearnings per share for the period decreased to 9.74 cents per share (2021*: 24.47 cps) with the prioryear reflecting the impact of a one-off gain of $15.87 million (10.03 cents per share) on disposal fromthe sale of land in May 2021 (described as other income). MCK’s Net Tangible Assets per share as at30 June 2022 was $3.33 per share (2021*: $3.20 per share).

that doesnt read well

[BlackPeter]

that doesnt read well

What bit are you referring to?

[LaserEyeKiwi]

I dont think i have ever seen such a bonkers difference between the price of the shares & preference shares, which is entirely unwarranted given the company is not facing any liquidity or ongoing concerns.

MCK Share price: $1.91
MCKPA share price: $2.20

[LaserEyeKiwi]

Stamford plaza Hotel is Auckland was just sold for $170m. Just in case anyone was doubting the value of a hotel portfolio.

[thebusinessman]

Are you still buying, LEK?

[buy_high_sell_lo]

Too cheap not to add to your portfolio at these prices.

[LaserEyeKiwi]

Are you still buying, LEK?

Tempted - but at my self imposed max position size.

[Sideshow Bob]

https://www.stuff.co.nz/business/industries/130269773/millennium--copthorne-hotels-to-pay-252k-to-12-staff-redundant-after-covid-hit?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Wednesday+2 6+October+2022

[Sideshow Bob]

https://www.nzx.com/announcements/406810

**MEDIA RELEASE**

MILLENNIUM & COPTHORNE HOTELS NEW ZEALAND RECORDS A PROFIT DESPITE “TOUGH” 2022

Millennium & Copthorne Hotels New Zealand Limited (NZX: MCK) announced its 2022 results earlier today having recorded a profit after tax and non-controlling interests of $21.7 million.

“2022 was another tough year for everyone in the tourism and accommodation sectors and our results reflected that. Unlike last year, there were no one-off gains or events to help our results so as in 2021, the contribution to our profit came from property development activities”, said MCK Chair Colin Sim.

He noted that while the New Zealand hotel operations recorded a loss for the year, that result was not a true reflection of the work done to address the multiple challenges that the company had to face over the past twelve months.

“Staffing remains our biggest challenge and we asked a lot of our people last year. We had to overcome tremendous challenges in 2022 especially during those times during our high season when parts of New Zealand were still very much under Covid restrictions. Many of those challenges are still here but we believe that we are over the worst of it and can work towards profit and revenue growth once more”, he said.

MCK declared a dividend for 2022 of 3 cents per share payable on 12 May.

“The Board felt that we should reward our shareholders for sticking with us especially in tough times and sharing our belief that better days are ahead”, said Mr. Sim.

MCK also signaled that it had started 2023 positively but like a lot of New Zealand it has been affected by recent weather events in Northland and Auckland. Its hotels had escaped serious physical damage but had received multiple cancellations which would affect its February revenues. Despite these unforeseen events, MCK said that it was looking forward to increased business from events such as the FIFA Women’s World Cup and an uptick in conferencing and the return of international visitors later in the year
“We’re seeing good demand in key market segments and we are looking to add as much business as we can sustain in our hotels which have the right facilities”, said MCK Managing Director Stuart Harrison. “With our refurbishment programme well underway, we are very excited to welcome guests to our new rooms at Millennium Hotel Queenstown and in the near future to our new rooms at Millennium Hotel Rotorua and Copthorne Hotel & Resort Bay of Islands. We are also working on our programmes for other hotels which we are planning to commence later this year”, he said.

Summary of results:

--Profit after tax and non-controlling interests $21.7 million
(2021: $40.0 million)
--Profit before tax and non-controlling interests $44.8 million (2021: $64.6 million)
--Group revenue $144.2 million (2021: $164.8 million)
--Shareholders’ funds excluding non-controlling interests $531.0 million (2021: $514.2 million)
--Total assets $709.2 million (2021: $680.8 million)
--Earnings per share (cents per share) 13.72 cents (2021: 25.31 cents *) * Amount includes one-off gain from sale of land

ENDS

[clearasmud]

Purchase Agreement for Sofitel Brisbane Central Hotel

Exciting announcement!

[Southern Lad]

Hopefully we will see a presentation from MCK on the proposed acquisition and the expected returns.

Based on the segment disclosures in Note 1 to the December 2022 Annual Report, I see that the Australian geographical segment (which is also the residential property development operating segment) had cash on hand of NZ$56.4 million as at 31 December 2022. Additionally the Hotel operations segment (which is currently solely NZ based) had cash on hand of NZ$45.1m, so all up MCK excluding CDI had cash on hand of NZ$101.5m. This is more than enough to fund the purchase price of 50% of the property for A$88.85m (or approximately NZ$95.9m at today's exchange rate). No doubt some debt will be raised to cover other capex and provide some operating cashflow cover, but presumably not a large amount.

MCK could always tap CDI for a special dividend, however I assume there will be plenty of good bare residential development land purchase opportunities out there over the coming months.

[Sideshow Bob]

MCK slides and address

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCK/411877/394903.pdf

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/MCK/411877/394904.pdf

[Sideshow Bob]

https://www.nzx.com/announcements/415969

Summary of Unaudited 1H23 results:

• Strong progress on Revive and Thrive strategy; Hotel operations on track for profit
• Average hotel occupancy across the Group 59.8% (2022: 38.3%)
• Group revenue $60.05 million (2022: $83.66 million)
• Profit before income tax and non-controlling interests $11.47 million (2022: $32.05 million)
• Profit after tax and non-controlling interests $6.18 million (2022: $15.40 million)

New Zealand hotel owner / operator, Millennium & Copthorne Hotels New Zealand Limited(NZX:MCK), has today announced its unaudited results for the six months to 30 June 2023, with itsNew Zealand hotel operations showing a positive recovery to near pre-pandemic levels, and currentlyon track for a return to profit in FY23.

MCK Chairman Colin Sim said that this was encouraging after a very challenging environment over thelast three years.“A tremendous amount of work is being done on the hotels’ side of the business as part of our Reviveand Thrive strategy, and our performance and improving results confirm that we are on the right track.We have seen a healthy increase in hotel occupancy over the past year as tourism has resurged.

Whilevarious challenges remain, we are expecting our hotel operations to return to profitability this year. Weare continuing to progress the acquisition of Sofitel Brisbane Central Hotel, with a number of conditionsnow met. This will provide MCK with a beachhead into Australia which we have sought for some timeand we consider it to be an important part of our future growth strategy.”

“On the property development side, CDL Investments (CDI) did not have the benefit of any uplift fromland sales as it did last year. Our prior year results included a one-off contribution from CDI from a highvalue land sale which boosted the results by $29.0 million. CDI’s results for 2023 reflect the downturnwhich started last year and has continued into 2023.”

MCK Managing Director Stuart Harrison said that MCK’s New Zealand hotel operations were on track tobe independently profitable by the end of the year.“Ensuring that our hotels are able to make and maintain consistent profitability is a key pathway to oursuccess over the next two years. Pleasingly, we are seeing increases in our revenues and occupancy,however, ongoing staff shortages continue to limit our ability to maximise occupancy and parts of ourfood and beverage operations. Our expectation is that there will be some improvement of theseconstraints by the end of the year”.

“We saw a further resurgence of business into leisure locations such as the Bay of Islands, Rotorua,Queenstown and Te Anau, and we expect to see an additional uplift across our hotel network as wehead towards summer. Considering the effects of the severe weather incidents which affected ourAuckland and Northland hotels in January and February, the 1H23 performance was a good result inunexpectedly challenging circumstances”, he said.

Highlights for the six months include the condiJonal acquisiJon of Sofitel Brisbane Central hotel, forAUD$177.7 million as a 50:50 joint venture with MCK’s parent company, Millennium & CopthorneHotels Limited; and conJnued investment into the refurbishment of the New Zealand hotel network.

While there were no new sales of the Zenith Apartments in Sydney in the last six months, contractshave been exchanged for the sale of one sub-penthouse apartment with seNlement scheduled forSeptember 2023. MCK’s aim is to complete sales of the remaining apartments over the next twoyears as the operaJonal focus shiOs towards the Brisbane investment.

Results SnapshotFor the six month period ended 30 June 2023, MCK has reported an unaudited profit before tax andnon-controlling interests of $11.47 million (2022: $32.05 million). Group revenue for the period was$60.05 million (2022: $83.66 million), with profit after tax and non-controlling interests of $6.18 million(2022: $15.40 million). The reductions are primarily due to lower sales activity recorded by MCK’smajority-owned subsidiary CDL Investments New Zealand Limited (“CDI”) which reported revenue of$11.97m (2022: $47.81m); and no one-off apartment sales (2022: $8.58m).Earnings per share for the period was 3.90 cents per share (2022: 9.74 cps). Net Tangible Assets pershare as at 30 June 2023 remained stable at $3.37 per share (2022: $3.33 per share).

Update on Sofitel Brisbane Central acquisitionIn relation to its purchase agreement for the Sofitel Brisbane Central hotel, MCK notes that approvalfrom Australia’s Foreign Investment Review Board has been obtained and that the parties are makingprogress towards settlement.“There are still a number of conditions that need to be completed before we can settle the transactionbut we believe that we remain on track to do so before the end of the calendar year”, said Mr. Harrison.

“We are excited to complete the purchase and to provide more information when we can on how thispurchase will benefit all of MCK’s shareholders”.

Outlook

MCK’s board and management remain focused on building on the positive momentum now being seenby the New Zealand hotel operations and maximising returns over the coming months.“We are targeting our New Zealand hotel operations to be profitable in their own right for the year.

Thiswill be critical as we expect profit contributions from CDI and our Zenith Apartments sales to be softerthan previous years. CDI are optimistic that sales will increase in the second half of this year butrecognise that the total number of section sales for 2023 will be below the number seen in previousyears.

CDI are actively looking at opportunities to add to their land portfolio including projects whichcan be brought to market relatively quickly”.“One-off events this year will provide a timely influx of overseas visitors across our hotel network andthe addition of new air services from later this year from key destinations in North America and Asia willalso help boost occupancies around the country”, he said.

“We have initiatives in place to manage market and economic challenges and we believe thatshareholders should be optimistic about MCK’s future as we look to revive and grow our core business.”ENDS

[Sideshow Bob]

https://www.nzx.com/announcements/426801

MCK’S FY23 RESULT DELIVERS RETURN TO PROFIT FOR HOTEL OPERATIONS

Millennium & Copthorne Hotels New Zealand Limited (NZX: MCK) announced its 2023 results today and recorded a profit after tax and non-controlling interests of $21.6 million.

Mr. Sim noted that the New Zealand hotel operations had made real progress on its “Revive and Thrive” strategy, returning to profit after recording a loss for the 2022 financial year.

“2023 was a year of trading uninterrupted by Covid lockdown measures”, said MCK Chair Colin Sim. “The increased number of international flights returning to New Zealand has improved the visitor numbers and has translated into more demand, additional revenue and more profit but we are still short of the pre Covid level of tourists”, he said.

“We are particularly pleased that we were able to increase the hotel operations’ profit by 69% this year. That figure reflects better trading conditions from a 17.5% year-on-year overall increase in occupancy (to 61.2%) but it also reflects the hard work that has gone in to making each room as profitable as possible”, he said.

Highlights during the year included:

• Settling the acquisition of the Sofitel Brisbane Central Hotel in December 2023;
• Copthorne Hotel Palmerston North hosting the winning Spanish Women’s National Football Team during the key group stages of the 2023 FIFA Women’s World Cup held in New Zealand and Australia;
• Hotel room refurbishments with 132 rooms completed at Millennium Hotel Queenstown, and work continuing on the remaining 70 rooms plus commencing refurbishment of 99 rooms in Millennium Hotel Rotorua;
• Commencing the recladding, reglazing and installation of air-conditioning into the Copthorne Hotel Palmerston North;
• Renewal of bank facility through to January 2027 with an increased limit of $120.0m;
• Restaurant One80 (located in Copthorne Hotel Oriental Bay) winning the Burger Wellington competition, part of the annual Visa Wellington On a Plate food festival, beating over 200 entries from across the city.

--Financial Performance & Financial Position

For the year ended 31 December 2023, MCK recorded a profit attributable to owners of the parent of $21.6 million (2022: $21.7 million). Of particular note, MCK’s New Zealand hotel operations contributed a profit before tax of $11.6 million (2022: $4.0 million loss), as the 2026 Revive and Thrive strategy continues to be rolled out.

This positive turnaround reflects not only the return to open borders and uninterrupted trading, but also the sharp focus on improving profitability across our network during the year. Building on this profit growth will be key to our 2024 results. The results for CDL Investments New Zealand Limited (“CDI”), our majority-owned subsidiary, reflected a softness in the residential property markets which resulted in contributing $18.7 million (2022: $43.3 million) to our overall pre-tax profit numbers.

Our total revenue in 2023 was $145.7 million (2022: $144.2 million) and our earnings per share was 13.65 cents per share (2022: 13.72 cents per share). At 31 December 2023, MCK’s shareholders’ funds excluding non-controlling interests was $547.9 million (2022: $531.0 million). Total assets increased to $746.8 million (2022: $709.2 million) with net asset backing (with land and building at cost and before distributions) also increasing to 345.8 cents per share (2022: 335.4 cents per share).

--New Zealand Hotel Operations

In 2023, our New Zealand hotels recorded an operating revenue of $101.1 million (2022: $65.2 million) for the year. This increase is pleasing and reflects a return to pre-pandemic demand patterns both domestically and internationally.

Overall, we recorded an occupancy percentage of 61.2% (2022: 43.7%) across all of our hotels and we also saw a healthy increase in average RevPAR (Revenue Per Available Room) of $120.03 (2022: $76.59). The RevPAR increase is pleasing given our efforts to improve the profitability of each room sold. This had been particularly challenging at the commencement of the year with a shortage in staffing levels and severe weather events impacting the ability to sustain the business demand.

Ensuring that our physical product remains competitive is important to reviving our future revenues and profits. The second stage of our refurbishment at Millennium Hotel Queenstown was completed at the end of 2023 with a further 132 rooms completed. 2024 will see additional work done on the remaining 70 rooms and 18 suites which are expected to be completed by Q3 2024. The first stage of the guest room refurbishment at Millennium Hotel Rotorua of 99 rooms is reaching completion and will be ready before the end of Q1 2024.  

--CDL Investments New Zealand Limited (“CDLI”)

As noted above, CDLI’s 2023 results reflected some weakness in the property markets seen from the end of 2022 which carried over into part of 2023. Despite this, CDLI was still able to record an operating profit after tax for the year of $13.5 million (2022: $31.2 million).

CDLI has kept its dividend at 3.5 cents per share and is due to be paid in May.

--Australia Update

We were delighted to complete the acquisition of the Sofitel Brisbane Central in December 2023 after announcing the acquisition in March together with our immediate parent company Millennium & Copthorne Hotels Limited (UK). While there was minimal benefit to our 2023 results given the timing of completion, we are looking forward to seeing the hotel do well over the next twelve months given its strong performance in its key market segments and very positive occupancy and room rates. As announced previously, the hotel will continue to be managed under its existing hotel management agreement and branding.

MCK continues to sell down its Zenith Residency apartments in Sydney with a total of five (2022: 5) apartments sold during 2023. We continue to own and manage 31 apartments being predominantly one bedroom units with some two – three bedrooms units. MCK will continue to sell down its interest in the Zenith Residences in 2024 and utilize these funds within its Australian operations.

Dividend Announcement

MCK’s Board has resolved to declare and pay all shareholders a fully imputed dividend of 3 cents per share for 2023. The dividend, payable to all shareholders, will be paid on 17 May 2024 with a record date of 10 May 2024.
The Board has determined that the dividend balances provide a consistent level of returns to shareholders and retain sufficient cash resources required for ongoing refurbishment and other projects.

--Outlook

We are entering the 2024 year with a sense of optimism, with many things to look forward to. MCK remains on track with its “Revive and Thrive” strategy with the completion of key refurbishments in Queenstown and Rotorua. New refurbishment projects at Copthorne Hotel & Resort Bay of Islands (and others currently being assessed) will see commencement during 2024 and are expected to be completed within the year. We expect them to deliver additional revenue growth as soon as they become available.

Even though we have not noticed a meaningful return of Chinese visitors, with visitor numbers steadily improving and more flight capacity into New Zealand, particularly in the high seasons, we are expecting this growth in numbers to translate into additional demand for accommodation at our key properties. We are working hard across all of our business segments to maximise the number of confirmed bookings at our properties and improve our market share throughout.

We will also have the benefit of a full year’s trading from Sofitel Brisbane Central which we expect to be strong.

Our optimism is tempered with a note of caution – the cost of doing business continued to increase in 2023 and we expect these increases to continue to a lesser extent in 2024. While some of these increases can and will be partially offset by the ability to increase room rates in response to demand, we are conscious of optimising our business to ensure that our growth opportunities are not adversely affected.

We believe we are on track with our Strategy to Revive and shift to Thrive. We continue to be focused on reviving our people, products and profits throughout 2024.

--Thank you