Hotel industry’s defining moment

OF the many businesses being pummelled by the pandemic globally, the hotel industry is an obvious victim.

The industry is already running on massive losses due to low occupancy rates throughout 2020 until now.

Compounding matters is that there is little visibility in sight of when movement and travel bans will be lifted due to the third wave of the Covid-19 pandemic resulting from new highly transmissible and airborne variants.

Like many businesses that face challenging times, mergers and acquisitions deals involving hotels are popping up as owners opt to sell out rather than incur more losses. Meanwhile opportunistic buyers with fat wallets are scouring the scene.

Listings of hotels for sale in Malaysia have jumped 40% year-to-date due to rising interest from both local and overseas investors, says Previndran Singhe of Zerin Properties, adding that prices for hotel properties have dropped by as much as 35% as compared to pre-lockdown times.

He notes that interested buyers, both local and foreign, are looking at hotels in places such as Kuala Lumpur, Penang, Langkawi, Kota Kinabalu, Johor Bahru and Desaru.

In the past two months, Previndran says his firm has been seeing more hotel owners approach them to sell their properties, clearly indicating a sign of the times.

Malaysian Association of Hotels (MAH) chief executive officer Yap Lip Seng (pic below) puts it another way: “While we have not seen any of such mergers and acquisitions directly affected by the pandemic, there has been growing hotel investment interest in Malaysia mostly targeting distress sales caused by the economic situation,” he tells StarBizWeek.

Trying times: Yap says the industry lost RM5bil in revenue in the first half of the year.Trying times: Yap says the industry lost RM5bil in revenue in the first half of the year.

So how bad is the situation for hotels in Malaysia?

According to the MAH, average hotel occupancy rates for last year stood at 32%. This compares with pre-pandemic times of around 64.2% in 2019 and 60.7% in 2018 for hotels in Malaysia.

MAH reckons that for this year, the occupancy rate would drop further to 23%.

“When asked what is expected of the third and fourth quarter of 2021, the association said hotels are putting hopes for occupancy levels of 21% and 28% respectively. This puts the year 2021 at an average of 23%, an unprecedented yearly low, even when compared with pandemic year 2020,” MAH recently stated.

MAH had earlier pointed out that the hotel industry in Malaysia was estimated to have lost at minimum RM300mil in revenues for every two weeks of the movement control order last year. This means a total loss of over RM6bil for the year 2020, the association had said.

“Based on the same calculation, the hotel industry is estimated to have lost over RM5bil in revenues just in the first half of 2021,” MAH said.

MAH’s Yap reckons that even if domestic travel is allowed, the hotel industry’s average occupancy rate for next year will only hit 35%.

“This again is a bad sign, as it would also mean another year of losses for the industry overall,” he says. Besides that, the country’s hotels average daily rate for this year is likely to hover between RM180 to RM190, which is a drop of between 20% to 30% compared to the pre-pandemic levels, notes MAH.

The mid to upper luxury hotels average rates slumped by a minimum of 50% due to the closure of international borders, as international travellers typically have higher spending power.

No wonder there have been closures of hotels. Perhaps the biggest names to shut their doors recently are Hotel Istana Kuala Lumpur and Hotel Equatorial Penang.

Hotel Istana on Jalan Raja Chulan (pic below) will cease operations on Sept 1. The 23-storey five-star hotel first opened its doors in 1992. While the pandemic had a major impact, the hotel cited other issues that it faced.

Feeling the pinch: Hotel Istana Kuala Lumpur is set to cease operations on Sept 1.Feeling the pinch: Hotel Istana Kuala Lumpur is set to cease operations on Sept 1.

“The hotel had lost its competitive advantage over the years with the insurgence of new or neighbouring hotels and serviced apartments,” an official was quoted as saying.

Interestingly, the official also said that even as a quarantine hotel, they had incurred monthly operational losses.

Hotel Istana is owned by Tradewinds Corp Bhd, which delisted from Bursa Malaysia in 2013. The group also owns the Hilton in Petaling Jaya and Kuching and the Pelangi Beach Resort and Spa in Langkawi.

The Equatorial Hotel Penang in Bukit Jambul was a 650-room property set up in 1990 is owned by businessman Datuk Lim Kong Wai. The group also has a hotel in Ho Chi Minh City. The closure of the Penang hotel will see its 300 odd employees given a severance package, news reports have indicated.

A good indication of the state of hotels can be seen from the reports of listed companies involved in the hotel business. Shangri-la Hotels (Malaysia) Bhd saw its revenue slide by a massive 74% in the first quarter ended March 31 (Q1’21), to RM22.7mil from RM88.5mil previously.

It also posted a loss of RM19.6mil for that period compared with profit of RM2mil previously.

According to its Q1’21 report, the group’s hotel businesses saw a sharp deterioration in demand for both room and food and beverage business from the domestic market.

As such, the hotel group expects occupancy rates to soften throughout 2021 “dragged by the subdued level of demand in a challenging market environment.”

Among the hotels that Shangri-La owns include Rasa Sayang Resort, Shangri-La Hotel Kuala Lumpur, Hotel Jen Penang and Golden Sands Resort and Rasa Ria Resort. Of all the hotels owned by Shangri-La, Shangri-La Hotel Kuala Lumpur’s occupancy was the lowest, slipping to 7% in the Q1’21 from 35% a year ago.


Similarly, Impiana Hotels Bhd’s revenue fell more than 63% to RM1.06mil from RM2.89mil for the third quarter ended March 31 (Q3’21).

The group’s net losses widened to RM3.22mil in the quarter compared to RM2.21mil in the corresponding period a year ago mainly due to lower occupancy rate by its hotels and resorts resulting in lower hotel management income.

Impiana has a total of three hotels in Malaysia including Impiana KLCC, Impiana Hotel Senai and Impiana Hotel Ipoh. The group also has another 5 hotels abroad.

Landmarks Bhd, that temporarily closed its resorts and leisure operations in Malaysia and Indonesia last year, saw its revenue plummeting over 92% to RM1.95mil in the first quarter ended March 31 (Q1’21) from RM25.8mil a year ago.

Its net losses narrowed for the quarter to RM237,000 compared to RM12.3mil a year ago due to lower operating loss by Treasure Bay Bintan from costs rationalisation as well as insurance claims received from the fire incident early this year at its hotel resort, The Andaman in Langkawi.

It should be noted that there are a whopping 4,500 odd hotels registered with the Malaysian Ministry of Tourism, Arts and Culture. However, many of these are smaller operators. There are around 140 five star hotels and 220 four star hotels in Malaysia, according to the MAH.

A survey of 320 hotels by MAH shows that as of last month, 91 of them closed temporarily, while 2 closed permanently.

In Johor, 13 hotels suspended their operations last year, according to Tourism, Youth and Sports Committee chairman Datuk Onn Hafiz Ghazi.

As of March this year, a total of 23 hotels closed down in Langkawi, citing the ban of inter-district and interstate travel.

However, 71% of the 320 hotels surveyed say they are staying afloat, with many dependent on serving quarantine needs. Others are catering to guests from essential services sectors.

According to the MAH, there are at least 50 hotels in Malaysia playing the role of quarantine centres, where most of the stays are borne by the guests themselves, albeit at discounted rates.

Not all hotels have the criteria to become quarantine centres because they are located in cities that have no airports, as most people paying for quarantine stays are returning from overseas.

Hotel owners have also been ‘re-strategising’, lowering their operational costs and consolidating resources, says an industry official.

Those with more means have taken this time to refurbish and renovate the hotel assets although this group is likely to be a very small minority of hotels.

For the first time some 5-star hotels are offering exclusive meals for home delivery, including sumptuous cocktails.

For example, Le Meridien in Kuala Lumpur is providing free delivery of meals for areas within 7km.

Even Four Seasons has come out with its new delivery menu for the first time, with cuisines from India, China, Europe and the Middle East.

Its executive chef Junious Dickerson says “guests may be unable to visit our hotel for now, but there’s no reason for them to miss out on our delectable international cuisine.”

But are these moves enough to save the industry and hotels from going under?

Loan moratorium a big help

For hotels that have outstanding debt with financial institutions, one big help has come in the way of the moratorium on bank loan repayments.

The first moratorium on bank loan repayments was announced in March last year to cover the period from April to Sept 2020. Subsequently, last month, the government has announced an extension of the moratoriums, to cover the period from July to Dec 2021.

According to a corporate finance executive who specialises in debt resolution, the moratorium has been a great help for hotels as it has given them access to the little cash flows they have to manage their operational costs.

He also reckons that banks are likely to give more breathing space to hotels that had performed well prior to the pandemic.

“Conversely, if the hotel had not been faring well for a long time, creditors are inclined to cut their losses, which explains some of the hotels being put up for sale,” he says.

He does add, however, that some banks would be hesitant to call it a default because they would have to sell the property below the market price.

“Bank loans are typically secured by the value of the hotel. The bank would have to sell at below market price now,” he explains.

Meanwhile, other operating costs of hotels are piling up and not being able to be matched by their declining cash flows.

These include utility bills, staff costs and taxes including quit rent and corporate taxes.

“Whether the hotel has occupancy or not, restaurants need to have food stock that is fresh. There will still be power usage. - Datuk Naresh Mohan“Whether the hotel has occupancy or not, restaurants need to have food stock that is fresh. There will still be power usage. - Datuk Naresh Mohan

Datuk Naresh Mohan, (pic above) who has more than two decades of experience in managing hotels, opines that hotels need some leeway on electricity bills.

He says the 10% discount on electricity bills is not enough because utility bills form the bulk of operating costs for hotels.

Under the Pemerkasa Plus initiative launched by the government on May 31, and which was aimed at supporting business continuity, six business sectors were given a 10% discount on their utility bills. This was for a period of July to Sept and extended until December this year.

The business sectors are hotel operators, travel and tour agencies, shopping centres, convention centres, theme parks and local airlines companies.

But explains Mohan:“Whether the hotel has occupancy or not, restaurants need to have food stock that is fresh. There will still be power consumption by hotels, that doesn’t go away.”

Mohan is the chief executive officer of Hospitality 360 Sdn Bhd, which manages most of the Ramada hotels in Malaysia.

Lifting movement restrictions

Almost every player in the hotel industry is banking on one thing -- for movement restrictions, both locally and internationally, to be lifted.

That, however, is something that is difficult to expect, considering the ongoing pandemic and how the new variants of the virus spread. Movement controls are seen as a necessary cost to contain the virus. The hope of increased vaccinations among the public and the promise of herd immunity are what hoteliers are banking on.

If not things would get ugly. “We may be forced to shut down. We are hobbling along but may be forced to give up the battle if things do not improve,” says Mohan.

MAH’s Yap echoed a similar view, noting that should the pandemic and restrictions persist, the industry will be forced to shut its doors.

“A forward-looking blueprint is much needed. The industry can no longer be led blindly into the future,” he says.

Compounding matters is that when hotels are able to fully re-open, operational costs are expected to spike up due to additional maintenance, cleaning and staffing costs.

Mohan expects more mergers and acquisitions of hotels to rise next year as more hotels will be up for sale and even higher discounts than now. “It will surely be a buyer’s market then,” he says.

The survival of hotels in Malaysia for now will depend on how large their coffers are to hold on during low occupancy, and for those stuck with having to service a debt, whether their creditors will be able to give them more leeway.

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