Heeton Holdings is ramping up its hospitality business with plans to more than double its 245 rooms to over 600 by year end - and far more down the track.
The move has been prompted by the potential of hospitality to provide recurrent income, chief operating officer Danny Low told The Straits Times yesterday.
"It's to balance out the times that real estate development is impacted,'' he said.
"Also, in property development, profit comes in bits and pieces on a portfolio progress basis; but recurring income is always there and can take care of most of the working capital costs."
Overall, the company is targeting 1,500 room keys by the end of financial year 2016.
By then, hospitality is set to account for 10 to 15 per cent of the company's portfolio, up from a small percentage now.
The company's hospitality push first started in late 2011, when it took an 87 per cent stake in 245-room Mercure Hotel in Pattaya, Thailand.
In February, it snapped up an 80 per cent stake in 100-room Enterprise Hotel in Kensington, London, which it is refurbishing and expanding to 150 rooms by the end of this year.
Last week, it also announced it will be taking a 70 per cent stake in a hotel in Brisbane. The hotel, part of a mixed-use site that Heeton is co-developing, will be ready in 2018.
Given such rapid expansion, is an H-Reit on the cards?
"We are always on the lookout to realise more shareholder value through further unlocking value in our assets," said Mr Low.
One benefit to hospitality assets is exit value - all the land Heeton has purchased is freehold, and in "key destinations", he added.
For example, the value of Mercure Hotel's land site has appreciated by about 20 per cent since the site was acquired by Heeton.
The firm is focusing on destinations in Europe, Australia, Asia and ASEAN, and acquiring where it believes it can add value and improve yield, Mr Low said.
For the Mercure Hotel, yield was boosted from 7 per cent to more than 10 per cent through cost-cutting measures such as lowering headcount and encouraging higher-yielding guests such as corporates to stay.
Mr Low said he will take similar measures to boost the company's other assets.
Broadly, Heeton is focusing on the three- to four-star market.
"The costs are easier to manage. When there are travel advisories issued, or political unrest, five-star hotels are severely affected and prove expensive to keep."
Still, the company's focus on hospitality does not mean it is withdrawing from the local development scene.
In fact, it acquired two Government Land Sales sites this year, in joint ventures: An executive condominium site in Westwood Avenue in Jurong West, and two parcels in Fernvale Road in Sengkang.
"Development is our core business. We are just looking for new growth areas," said Mr Low.
This article was first published on August 26, 2014.
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