MCK - Millennium & Copthorne Hotels.

[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

DEA6CB18-88BA-49A1-96E1-37E00C8D83F3.jpg

[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)