HOCK LOCK SIEW

End of Hilton contract revives question of HPL's plan for its hotel on Orchard Road

Tue, Jul 28, 2020

Kalpana Rashiwala

https://www.businesstimes.com.sg/com...n-orchard-road

IN April, OUE Commercial Reit announced that it had appointed global hotel chain Hilton to manage the iconic Mandarin Orchard Singapore. This will become Hilton's flagship hotel in Singapore and its largest in the Asia-Pacific.

More important, however, was the pronouncement that when the hotel opens its doors in early 2022 as Hilton Singapore Orchard after a S$90 million revamp, it will be the only Hilton hotel along Orchard Road.

The timing was probably deliberate. According to the grapevine, Hilton's management contract with Hotel Properties Limited (HPL) for the Hilton Singapore hotel - also on Orchard Road, about 800 metres away - ends in late 2021.

Hilton has been managing the hotel since its opening in 1970. When the contract ends in December next year, it will bring to an end the long-running love-hate relationship between HPL boss Ong Beng Seng and Hilton. In 1988, HPL had tried to terminate the management contract with Hilton.

When they finally bid each other adieu, what will HPL do with the property, which is about 50 years old? Will it finally redevelop the property, possibly as part of a comprehensive redevelopment also involving its three other major neighbouring assets: Forum The Shopping Mall, HPL House and Four Seasons Hotel Singapore?

For about two decades now, there has been speculation of a mega development on the four plots, which add up to a land area of over 200,000 sq ft.

Back in 2005, the Urban Redevelopment Authority (URA) launched a scheme to spur the redevelopment of buildings on Orchard Road and revitalise Singapore's prime shopping belt - by allowing developers to apply for a higher gross floor area. But HPL had not embarked on redeveloping its prized corner of Orchard Road by the time the scheme ended in 2015.

HPL can now take a stab at the Strategic Development Incentive (SDI) Scheme that the URA rolled out last year. This encourages owners of adjacent commercial or mixed-use developments in strategic areas, including Orchard Road, to join forces and come up with redevelopments that transform the locale. Eligible building owners and developers may submit proposals seeking higher plot ratios as well as flexibility on land use and building height.

Unfortunately, the overall business mood has been dampened by the Covid-19 pandemic and resulting recession.

To better manage risks in the current climate, HPL could consider redeveloping just the Hilton hotel. The ideal plan would involve comprehensive redevelopment of all its assets in the precinct, but now may not be the best time.

On the other hand, HPL could do a quick refurbishment of the hotel after Hilton exits and keep the hotel running.

It could appoint a new hotel management company to run the property, although most operators would want a fairly long-term contract, preferably of at least 10 years.

HPL, however, may not want to be locked into such a long arrangement, as that may limit its ability to seize potential opportunities to embark on redeveloping its properties in the locale.

To give itself more flexibility, HPL could operate the hotel itself until such time when it is ready to embark on a redevelopment.

The group has enough expertise in hospitality under its belt. Not only does it own hotels, but under its subsidiary HPL Hotels & Resorts it manages 11 hotels in Singapore, Malaysia, Indonesia, Thailand and Maldives. Some of these are under well-established brands such as Hard Rock Hotels, and Concorde Hotels & Resorts.

HPL Hotels & Resorts has also minted its own brands, such as The Boutique Collection (for four hotels: in Melaka, Cameron Highlands, Langkawi and Phuket)) and Gili Lankanfushi (for a resort in Maldives).

Other hotels in which HPL has stakes are managed by chains such as Four Seasons, InterContinental Hotels Group, Six Senses Hotels, and Como Hotels and Resorts.

Notably, Como is a brand created by Mr Ong's wife, Christina; while some of the properties under this brand are resorts, there are also some city hotels such as in Bangkok and London. (Not all the hospitality assets managed by Como are owned by HPL).

In short, after its management contract with Hilton ends, HPL could park its Orchard Road hotel under one of its existing brands or even create a new brand for it.

Room rates at such a hotel might not be as high as those of a brand like Hilton. On the flip side, HPL would save on management fees. It can still tap global distribution systems to gain visibility in overseas markets.

When the time is right, HPL may team up with a joint-venture partner to redevelop its prime Orchard Road quartet of properties.

HPL may find a like-minded partner in substantial shareholder Wheelock and Company of Hong Kong. In the past, HPL has also partnered CapitaLand - including for The Interlace and d'Leedon condo developments.

Mr Ong could even draw the attention of a potential buyer for his stake in HPL - which may potentially trigger a general offer.

The group is attractive, not least because of its sizeable redevelopment landbank in Singapore's prime shopping belt and near the Singapore Botanic Gardens, a Unesco World Heritage site.

Connectivity to the locale is set to improve when the Orchard, Orchard Boulevard and Napier stations on the Thomson-East Coast Line open.

Mr Ong can bide his time.