Wild west origins

By Jenny Ruth

Saturday 1st May 2004

Reason for being: The CDL Hotels group began as a product of New Zealand's "wild west" 1980s period when Bruce Judge and the late Sir Frank Renouf were wheeling and dealing. CDL Hotels was called Euro-National while 61.5% subsidiary CDI Investments was called Kupe Group. CDL Hotels is now a specialist hotel operator with 28 hotels around New Zealand and is 70.2% owned by London's Millennium & Copthorne (M&C) Hotels and ultimately controlled by the Singapore-based Qwek family which bought its stake in 1999. CDI Investments subdivides and sells residential sections and its other subsidiary, 50.7% owned Sydney-based Kingsgate International, has closed its only hotel in Kings Cross to turn it into luxury apartments, although it still has a shopping centre operating on the lower floors. Kingsgate has another apartment development in Birkenhead where it also operates a marina and shopping centre.

Vital Statistics: After a rocky beginning under M&C's control, CDL's profitability has progressively improved. Net asset backing per share has improved from 59.4 cents at June 30 1999 to 68.7 cents at the end of 2003. Its image has improved considerably in recent years but the company's structure is still viewed unfavourably. Part of this problem may be resolved when the Sydney hotel conversion is completed. The 97 apartments will be sold, realising much of Kingsgate's assets, put at a net $160.2 million at the end of 2003.

Management: Tsang Jat Meng, formerly Singapore Stock Exchange deputy chairman, became managing director in July 2000 in what was to be a six-month appointment. The company's performance has improved so much under Tsang's stewardship he has even earned the praises of stern critic Shareholders Association chairman Bruce Sheppard. Now Tsang says he's happy to stay on, despite approaching 72. He is backed by chief operating officer Gordon Wilson who joined the board last year and has been with the company since 1993.

Share price performance: Between January 2000 and January 2002, the shares mostly traded between 15 and 20 cents. Since then, they have climbed steadily, peaking at 50 cents in January this year, still well below net asset backing. Since the full-year results were released in February, the shares have sunk to the 40 cent level.

Current strategy: With its international tourist business disrupted by a global economic downturn, the September 11 attacks on the US in 2001, the Iraqi war and the SARS epidemic (retired chairman John Wilson told last year's annual meeting: "All I need now is a plague of locusts"), CDL is currently concentrating on boosting its business with the domestic corporates. Tsang says the latter are a much more lucrative market as the tourist business is driven by highly price-sensitive travel agents. CDL also negotiated the end of its franchise agreement with Choice Hotels International to operate the Quality hotels brand in New Zealand. Tsang says Choice wanted to take the Quality chain upmarket, an investment CDL wasn't interested in making. CDL already has the Copthorne brand in the segment Choice wanted to target and CDL also wanted to maintain a budget brand so it converted the Quality hotels to the Kingsgate brand.

Recent track record: The company's second half results were considerably lower than in the previous year (reflecting the decision to close the Sydney hotel and no more apartments to sell at the Birkenhead development), keeping the full-year result almost level with the previous year. Wilson says the underlying performance of CDL Hotels itself improved from $57 million in revenue and $10.4 million pre-tax profit in the first half to $58 million and $11.5 million respectively in the second half. Tsang says the recent fall in the share price may reflect disappointment that the company didn't increase its dividend. It doesn't pay first-half dividends and paid out only 1.4 cents a share as a final dividend compared with 4.87 cents in per-share earnings. Raising the payout will be considered, he says.

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