Hotel leasing a lifeline for small hotel owners, cost effective for investors

Khoo Gek San

Kelantan FC and hotel chain owner Norizam Tukiman believes that leasing hotels is one way to help small establishments, which have been hit particularly hard by government movement restrictions. – Facebook pic, July 2, 2021.

HOTEL leasing is emerging as a new model for smaller and budget establishments struggling to survive the Covid-19 pandemic, said the Malaysia Budget and Business Hotel Association (MyBHA).

The association said 58 hotels were leased out in the past year for a 15-year term, 55 of them to the same investor, Kelantan Football Club owner Norizam Tukiman.

Under this model, the investor pays a monthly rent to the hotel owner/operator ranging from RM10,000 to RM25,000, depending on the scale of the business.

During the lease period, the investor also pays for the hotel’s maintenance costs.

After the contract ends or if it is not renewed, all facilities in the hotel building will be restored to their original ownership.

MyBHA Johor chairman Jarod Chia said hotel leasing is a new business model for smaller hotels.

“After reviewing the lease contract, many hoteliers feel that there is no loss.

“There will be monthly rent in their pocket, and there is no need to pay for the staff and hotel operating expenses, so why not do it?” Chia told The Malaysian Insight.

Cost-effective for investors

Norizam, 40, is taking the opportunity to add to his existing Hotel Zamburger chain. He already has 59 establishments nationwide.

The name follows his food manufacturing business that supplies airlines with hamburger patties and steaks. This business is now affected because of the pandemic, and so he offers his food products on the menu at his hotels.

The Kelantan FC owner eyes two-star and three-star small and medium-sized hotels, and plans to lease up to 120 business hotels in the next two years.

The former investment consultant said he believes in the development potential of the hotel industry after the tourism industry recovers.

Norizam said he has evaluated his financial ability and the risk assessment of the lease contract.

“With my current financial ability, it can be maintained for two years,” he said.

However, he added that this is on condition that Covid-19 cases are brought under control and there are no more lockdowns.

Norizam said the leasing model is better as setting up a low-cost hotel would require up to RM3 million, including applications for operating licences, documents and renovations.

“Yet, if I rent from a hotelier, I spend RM10,000 to RM20,000 per month, which is a rent of RM240,000 a year. A 15-year lease contract is RM3.6 million.

“Isn’t it more cost-effective than buying a hotel by myself?”

As for losses during the total lockdown period, he said the sum of RM240,000 a year would be regarded “not as a loss, but as development funds”.

“And my returns will be even more after two years,” Norizam said.

He estimates that if the pandemic is brought under control and hotels are allowed to operate as usual with interstate travel permitted, the daily turnover of his 60 existing hotels would be RM100,000.

His Hotel Zamburger chain is located mainly in shoplots in commercial areas, with a few near local tourist attractions.

He currently has 158 employees and expects to hire up to 200 by July, given his leasing activities.

“There are no pay cuts or layoffs as I understand that employees need to live and repay loans during the pandemic,” Norizam said.

The hotels in his chain will meet shariah specifications, he added, such as requiring couples checking in to show proof that they are legally married. The hotels will not sell alcohol either.

Currently, Norizam’s hotels are getting some income as Covid-19 quarantine hotels.

The leasing model may be the best lifeline for hoteliers, many of whom among smaller players are about to go bust, but buyers are not making offers either.

Malaysian Association of Hotels (MAH) chief executive officer Yap Lip Seng said there has been little interest to acquire hotel property assets, unlike before the pandemic.

However, he believes that Malaysia will still be an attractive investment target for tourism and hotels, after the pandemic.

“Hence at the moment, it is still not justified for owners to sell at below market value,” he said. – July 2, 2021.

Sign up or sign in here to comment.