The hospitality business of Singapore’s City Developments Limited (CDL) arguably took a turn for the better when the group took private its sizeable Millennium Hotels & Resorts platform in 2019.
The journey to full control included an important lesson about the underlying value of real estate assets, according to David Ling, CDL’s global head of hospitality investments. “Why did we take it private? Because CDL grew up from real estate – and we know there is tremendous real estate to unlock in hospitality assets,” Ling says.
Ling references a deal the group struck in Seoul in 1999, acquiring the Hilton Hotel for around US$250 million. “In 2022, a buyer walked in and paid over US$900 million for the asset,” he says. “If you look at some of the hotel locations we have – in High Street Kensington, Chelsea Harbour – they are big and extremely valuable plots of land, whatever the future use-case.”
Being real estate investors first and foremost continues to stand the business in good stead when it comes to striking deals. In March, the company agreed to acquire the Hilton Paris Opéra from Blackstone Real Estate Partners (BREP) Europe IV for €240 million. Says Ling: “If we buy to hold long-term in Paris, we can’t go wrong,” he says. “The hotel is smack bang in the city centre on a freehold island site. If it doesn’t stay a hotel, it can be an office building in the future. Also, we got a really good yield.”
Ling adds: “For so many years, hospitality was the poor cousin of the office industry when it came to commercial real estate investing. Now, it’s regarded as one of the better use cases if you know what you’re doing. That said, in Europe we are also diversifying into student housing and developing projects in Liverpool and Birmingham.”
Hospitality tailwinds
CDL is perhaps best known today for its legacy mixed-use developments and residential pedigree, now part of a growing living asset class strategy. Yet while hotels only make up around 25 percent of its total assets, across some 150 properties, its hospitality business is most definitely enjoying the tailwinds of the trade to make a significant impact on the group’s outlook.
In the company’s 2023 annual report, as the group’s net profits plunged by 75 percent year-on-year while revenues reached a record S$4.9 billion, hotels stood out. Reasonably healthy residential sales in Singapore and improved recurring income streams for its purpose-built student accommodation (PBSA) and private rented sector (PRS) divisions were positive, but CDL’s hotels division saw revenues surge as air travel and vacation bookings bounced back. Global RevPAR’s soared by 25 percent year-on-year and global average room rates improved by 10 percent, while occupancy figures rose a healthy 9 percent.
According to management, a “harmonisation” of CDL’s hospitality portfolio is the group’s current goal, with CDL still balancing the composition of its Millennium Hotels & Resorts arm and its REIT, CDL Hospitality Trusts, largely via selective divestments. In the last year or so, these have included the sale of Millennium Hilton Seoul and Millennium Harvest House Boulder. On top of this, in 2022, the group distributed CDL Hospitality Trusts units to pursue the further deconsolidation of the REIT. This in turn has unlocked gains from key sales.
The Millennium story
CDL’s establishment of Millennium & Copthorne (M&C), now Millennium Hotels & Resorts, marks a chapter nearly five decades long, linked to the company’s Singaporean roots and its global ambitions.
CDL’s parent company, Hong Leong Group, entered the hospitality trade in the early 1970s with the launch of King’s Hotel in Singapore, under the direction of Kwek Leng Beng, son of the Hong Leong founder. The land on which the hotel stood had been acquired by the firm in 1967 from the Singapore government, as part of a new initiative to encourage the country’s industrial diversification and the development of its tourism industry.
While Beng was inexperienced in hospitality up until that point, that soon changed. A raft of global acquisitions followed, including London’s Gloucester and Bailey’s Hotels, New York’s Millennium Hilton and The Macklowe at Times Square (now Millennium Times Square New York).
Growth continued in the early 90s with the acquisition of several hotels in New Zealand and high-profile deals such as the purchase of New York’s Plaza Hotel from Donald Trump. In 1992, Millennium planted further flags in the UK and Europe with the acquisition of the Copthorne Hotel group. M&C’s listing on the London Stock Exchange in 1996 was a first for a Singapore-controlled firm.
The group would later argue that the listing shielded the firm from macroeconomic headwinds and diverse black swans that sailed into view, such as the Asian economic crisis of the late 1990s, the dot.com crash, the 911 attacks of 2001, the outbreak of SARS in 2003 and 2008’s global financial crisis.
However, further decades of growth – including expansion into China from 2006 onwards – created an increasingly capital-hungry business model. The same year that the company ventured into China, M&C spun off several of its Singapore hotels to create the first Singaporean hotel REIT, CDL Hospitality Trusts (CDLHT). It was listed on the Singapore Exchange on 19 July 2006, with a remit to invest in hospitality real estate globally.
By 2017, CDL had determined that the best way forward to increase the profitability of M&C would be to privatise the businesses, in which it held a 65.2 percent stake. While its initial bid was rejected by key shareholders, they accepted the terms offered in 2019, namely a maximum cash consideration of £776.29 million.
European markets
As CDL moves forward, expect to see its ambitions flanked by pragmatism and experience. When asked why CDL likes European hotels, Ling says: “Well, we’re really looking at very big, well-established markets like London, Paris, Rome, Munich. We don't have anything in Barcelona yet – that’s one area where we’d love to be.
‘If you look at their history, these markets deliver in terms of performance but also in terms of asset value. If you look at 30 years ago when we bought into London, asset values have tripled, quadrupled even. Paris is similar.”
Ling notices interest in Europe from CDL’s Asian peers, “from Archer Capital to GIC”, he notes. “But some of these are coming in to buy, fix and sell – that’s not our model.” He says that Indonesian investors are also looking at Europe and many would ultimately be keen to partner with CDL to drive the growth of their own hospitality platforms.
Going forward, CDL is pursuing the expansion of its M Social brand with selective brand conversions. After launching its Millennial-focused hotel chain into cities as diverse as Paris, London, Phuket and Suzhou in the last couple of years, further growth in China is likely to be on the cards. Asia too will see further hotel acquisitions, after CDL pounced on key assets in gateway cities in 2023 across Japan, Australia and South Korea.