We wrote about Millennium & Copthorne Hotels New Zealand Ltd. (MLCTF, Financial)(MLCTY, Financial) three years ago and noted that it was trading at a discount to net asset value. Finally, the stock was bought out at a premium. Value investors can learn from this and use it as a model for future investment ideas.
City Developments of Singapore has offered 6.85 British pounds ($8.68) per share for the stock it does not already own. This represents a 37% increase over what the shares were trading for a few days earlier. This values the company at 2.3 billion pounds. City Developments is controlled by Kwek Leng Beng. Kwek made previous offeres of 6 pounds and 5.52 pounds. City Developments owns 65.2% of Millennium.
Millennium runs 137 hotels around the world. In the United States, most of the hotels operate under the Millennium brand. In Britain, Copthorne and Millennium are the main brands. The company has a large presence in New Zealand with 21 locations. That’s pretty amazing for a country with a population of only four million. The company also has a large presence in the Middle East.
I looked at some prices and occupancies for various locations. In Boston, everything is sold out except a suite which lets for almost $1,000 a night. I’ve been to the Millennium Biltmore in Los Angeles many times and see that the least expensive room available for tonight is well over $600. With enough notice, a standard room lets for $186 a night. That’s reasonable, but it looks like they go pretty quickly.
I first wrote about Millennium in January of 2016. I found the company when reading Third Avenue’s comments in its quarterly reports. At the time, I figured it was trading at a discount to net asset value of about 50%. At the time, the stock was trading at 4.22 pounds and now trades at 6.85 pounds. The stock, not counting dividends, is up 62% since we first examined it.
As I mentioned at the time, the great value fund manager Marty Whitman (of Third Avenue) used to say that in situations like this, you wanted to find some type of catalyst for a rise in the share price. Sure enough, there was one. Kwek made several lowball offers for Millennium before he had to finally pay up.
This type of value investing can take years to pay off. It can be lower risk (but not always) as the stock was trading for much less than the value of its hotels.
In the most recent fiscal year, revenues were 997 million pounds, down 1.1%. Earnings per share were 13.1 pence, down 65.6%. The dividend was cut to 4.23 pence, down 34.9%. Not a great year. The weak revenues were impacted, in part, by the strong pound and the refurbishment of its Mayfair property. Revenue per room was 81.57 pounds last year. In dollars, that’s $103.59. That’s not a cheap room considering this is the price for all of its locations across the world.
What is ironic is that Kwek is chairman of the board. The chairman represents all shareholders, yet is lowballing them at the same time. You can see the conflict of interest between management and shareholders.
So deep-value investing paid off this time. Investors just had to have some patience. This type of investing isn’t for everyone and it doesn’t always work. Still, there are lessons to learn for the buyout of Millennium.
Disclosure: We own Third Avenue.Â
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