Deep-valued stock with two strong pillars of growth

  • Cost efficiencies with centralised labour forces in Singapore and Australia 
  • Focused on expanding the Hospitality business in regions with a strong domestic tourism market
  • PBSA acquisitions will be focused on higher-tariff universities in the UK
  • Non-core assets provide additional stability in their recurring income portfolio

Question 1: Are there any new hotels currently being developed? What is in the pipeline and what is the plan for the next 1-2 years?
We have not announced the signing of any new deals. We currently have a third-party management agreement in Vietnam, with 86+ properties in the pipeline. The opening has been delayed to next year.


Question 2: What are the cap rates for PBSA and what kind of room rate growth are you expecting?
The cap rates for PBSA assets in the UK have compressed by 25-50bps in the last few years. In London, it is about 5% and in other cities that have high-tariff universities, it can range between 5.5-6.0%. The situation is dynamic and we remain confident of the UK PBSA market because of the strong growth in demand for higher education. We are currently focused on PBSA assets near higher-tariff universities.

Question 3: Would you consider recycling the PBSA assets which cap rates have compressed?
Yes, we are constantly reviewing our portfolio, but it is unlikely as we are still in the growth mode for the PBSA as well as the Hospitality segment.

Question 4: Are there any significant increases in operating costs for hotels due to COVID-19?
We are operating a lot more efficiently and there have been many cost containment initiatives. Examples include a centralised labour force as well as opportunities for staff to multitask. We understand the cost efficiencies in achieving scale as we have been able to centralise our labour force in Singapore and Australia due to our size in these countries.

Question 5: Is it harder to hire hotel staff and is labour cost higher?
It is a trend to expect going forward. A lot of employees have left the workforce by choice or not by choice (e.g. employees moving back to their home countries). But we have worked on staff retention and have a steady pool of workforce that stays with us.


Question 6: What is the proportion of the hotels is dedicated to the government isolation business and what are your expectations for occupancy rates in FY22?
In Singapore, more than 50% is dedicated to the government isolation business. Occupancy rates in FY22 will depend on VTL lanes and VTL caps. The current VTL caps are still small compared to pre-COVID levels.

Question 7: Is management’s preference to acquire or manage additional hospitality properties? What are the trade-offs under consideration?
Our current preference is to operate as it is asset light. It will also allow us to produce alpha. Owning properties is dependent on the deployment of capital and whether we can get the returns. We are currently focused on achieving scale in additional regions so as to achieve a centralised model for our workforce. We are also focused on countries with a large domestic tourism market such as Japan.


Question 8: What are management’s plans for its non-core properties such as its medical suites, Woods Square, and Westminster Fire Station?
The medical suites have been able to provide a steady stream of income and is especially important when the hospitality sector is under siege. We are looking at it now as a recurring income asset class. While we are not in a “fire-sale mode”, we are happy to sell it if there are good offers.

For Woods Square, we will be selling units in Tower 1. We have currently sold 70% of the units there. The retail segment has been doing well as it is currently 100% occupied. For Tower 2, we will be retaining it on lease as a recurring income asset class.

For Westminster Fire Station, it has been recently completed and we are currently doing the sales marketing for it.