YTL in expansion mode, eyes acquisitions

YTL Hotels, the hospitality arm of Malaysian conglomerate YTL Corporation Bhd (YTL group), is on the prowl to acquire more assets with the eventual goal of injecting them into the global hospitality Reit sponsored by the YTL group.

One of its existing properties that already looks ripe to be spun into the Reit is The Majestic Hotel Kuala Lumpur, a three-year-old property that derives 60 per cent of revenue from restaurants and banquet operations.

"We should be looking at Reit-ing it very soon," said Mark Yeoh, executive director of YTL Corporation Bhd and director of YTL Hotels.

"The numbers are there. The yield will be favourable to existing unitholders," added Mr Yeoh, who is also executive director of YTL Hospitality Reit.

The Reit's distribution per unit (DPU) yield - which has been hovering above 6 per cent - serves as a reference for the kind of hurdle rates or minimum expected rates of return that YTL Hotels looks at when it comes to acquiring assets, Mr Yeoh told The Business Times. Its distribution yield for the fiscal second quarter ended Dec 31, 2016 was 7.68 per cent, according to Bloomberg.

Mr Yeoh stressed however that YTL Hotels will go about picking assets in an opportunistic fashion - uninhibited by time - just as it had taken the hotel division some 20 years before finding the right assets in London.

Mr Mark Yeoh, Executive Director at YTL Corporation Berhad (YTL Hotels and Resorts). Photo: The Business Times

After the UK vote to leave the European Union last June triggered a slide in valuations and made acquisitions more palatable, YTL Hotels swooped in and bought three properties there last September and one this year. Its acquisition of Threadneedles Hotel in the City of London in February marked its fifth property in the UK and its second Autograph Collection property in the country.

To ensure desirable yields on a stabilised basis, YTL Hotels looks for target properties with the prospect of value-adding through asset enhancement and partnering with international brands like Marriott to lift occupancies.

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With YTL Hotels already quite entrenched in Malaysia, Mr Yeoh said the group is focusing on "first-world" markets when it comes to acquiring completed assets and prefers prime locations where it sees property values holding up better. There are opportunities in Europe, but timing is key, he added.

The lawyer-turned-businessman and youngest son of YTL Corporation's founder Yeoh Tiong Lay was asked to head the hotel division back in 1988.

From one property Pangkor Laut Resort, YTL Hotels now owns 32 hospitality assets either directly or through the Reit, with 11 existing hotels under management contracts with Marriott. About half of these assets are in Malaysia and the rest in Australia, Indonesia, Thailand, Japan, China, the UK, and France. It co-owns the Eastern & Oriental Express luxury train that travels from Singapore to Thailand with Belmond Ltd.

"Everything we do, it is always with the view that it must be Reit-able," he said. This means that the group must be able to own the assets 100 per cent in order to spin them into the Reit, which will in turn lease the assets to YTL Hotels under a master lease.

With that end goal in mind, certain markets with foreign ownership restrictions are invariably ruled out because holding assets under nominee structures will render the assets non-Reitable, Mr Yeoh explained. In Thailand, for instance, the group will only acquire assets if it is exempted from the 49 per cent foreign ownership cap by Thailand's Board of Investment.

Under the 2020 vision entrusted to Mr Yeoh some 15 years ago, YTL Hotels is shooting for 20 per cent growth in turnover and profit every year. This will be achieved through higher room rates, occupancies and productivity, lower costs, and more operating assets.

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Mr Yeoh also pointed out that due to translation effects in reporting earnings in the weak ringgit, he is more concerned about achieving 20 per cent cash growth or same-currency earnings growth.

A flurry of hotel openings or relaunches and a sustained development pipeline underpins that optimism. In February, YTL Hotels opened Stripes Hotel, a 184-room boutique hotel in the heart of Kuala Lumpur and a member of Marriott's Autograph Collection Hotels.

The Ritz Carlton hotel in Kuala Lumpur, which was opened back in 1997, has been given a makeover and relaunched with 364 rooms in March. Mr Yeoh pointed out that since the renovation, there has been some 200 ringgit increase in average room rate to RM650 (S$205). "The returns seem to be exceeding our expectations," he added. Renovations at JW Marriott in Kuala Lumpur are expected to be completed by September and it will have 570 rooms.

In the second half of this year, YTL Hotels is opening The Ritz-Carlton, Koh Samui in Thailand, which will have around 187 rooms, under management contract with Marriott International. Still on the drawing board are two hotel developments in Niseko Village in Japan that includes a 50-room Ritz-Carlton Reserve (a boutique resort).

Niseko Village, which spans 810 hectares in land size, was acquired by YTL Hotels from Citigroup Inc in 2010 after the Lehman crisis. YTL Hotels has since revised the original master-plan to comprise hotels, townhouses, condominiums and a shopping village and turned around the loss-making Hilton hotel there. Another hotel in Niseko Village called The Green Leaf has also started to generate "strong rates of return", Mr Yeoh said.

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In Kuala Lumpur, YTL group has some 300 acres of development sites from which a few prime plots have been selected for hotel development. These hotels will be branded as either Bulgari or Edition under Marriott Hotel Development. It also has a plot of land in Kuala Lumpur Sentral where YTL Hotels is exploring the possibility of a JW Marriott. Elsewhere in Sentul Raya, Kuala Lumpur, a piece of land owned by YTL group subsidiary YTL Land & Development Bhd is also considered for hotel development.

The Bursa-listed YTL group owns other businesses including construction, power, cement manufacturing, development, technology incubation, and carbon consulting. By leveraging on the group's construction and property delivery capabilities, YTL Hotels enjoys an estimated 30 per cent cost savings over its competitors, Mr Yeoh said.

He opined that being in the luxury hotel space, where service excellence matters and customers are willing to pay for that premium, shields YTL Hotels from the onslaught of home-sharing platforms like Airbnb.

But the need for scale in the hospitality sector is clear to him. "What I say is always the right horse for the right course. As a general rule of thumb, anything below 150 rooms we are pretty comfortable managing it ourselves. Beyond that, we need to partner with the likes of Marriott."

This article was first published on Apr 10, 2017.
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