Meet the Money always provides a wealth of insight into hotel finance. While the “money” part of the 19th annual conference was as elusive as ever, panelists provided guidance on everything ranging from leverage to dealing with receivership. Here are 10 take-home thoughts from the conference.
After the residential real estate market peaked in the summer of 2005 and the commercial market began to cool a year later, hotels enjoyed a brief period in which they were viewed as the hottest commodity in a rapidly shrinking real estate world. Developers of all dimensions announced plans for construction and deep-pocketed investors flew into the region to make big-dollar acquisitions.
By Derek Gale, Senior Editor | West Virginia businessman Jim Justice recently acquired The Greenbrier resort and 80% of The Greenbrier Sporting Club through a stock purchase agreement in which CSX Corp., The Greenbrier’s previous owner, transferred 100% ownership of its stock in The Greenbrier Resort and Club Management Co. (The Greenbrier Hotel Corp.’s holding company), to Justice’s company, the Justice Family Group LLC.
When NYLO Hotels unveiled its loft-style hotel brand in 2005, the plan was to have more than 50 properties open by 2010. Ambitions were so high that the company announced another brand, XP by NYLO Hotels, in early 2008. But so far, just two NYLO hotels have opened their doors to guests — in Plano, Tex., and Warwick, R.I. — with a third scheduled to open in a community in Irving, Tex., in late June.
InterContinental Hotels Group PLC, whose chains include Crowne Plaza and Holiday Inn hotels, reported Tuesday that first quarter net profit fell 56 percent to $27 million, hit by weaker consumer spending during the recession and strong competition, which depressed room charges. The profit figure included exceptional costs of $21 million for a final payment to the U.K. pension fund and $5 million for the relaunch of Holiday Inn. Revenue was down 24 percent to $342 million.
David Neff of Perkins Coie tells owners what they need to know before approaching lenders. Interviewed by Jeff Higley.
Starwood Hotels & Resorts Worldwide Inc.'s (HOT) first-quarter net income tumbled 82% on shrinking revenue per available room and a drop in timeshare sales. While the quarter's profit topped downbeat expectations, the company projected second-quarter earnings of 14 cents to 20 cents. Analysts' mean estimate, as surveyed by Thomson Reuters, was 23 cents. The weak economy has squeezed the hotel industry for some time, with timeshare businesses also under pressure. The outlook for 2009 is grim, despite efforts by hoteliers, including Starwood, to cut costs. A recent swine flu outbreak could raise cancellations and depress bookings.
Wyndham Worldwide Corp.'s (WYN) first-quarter net income rose 7.1% on lower costs while revenue fell as a result of continued spending declines by consumers and businesses. Still, results for the hotel and vacation timeshare group topped expectations. The hotel industry has been cutting costs after getting hammered last year, and the outlook for 2009 remains dire. Wyndham's expenses dropped 12% from a year earlier.
Fontainebleau Las Vegas LLC filed a $3 billion lawsuit against Bank of America Corp. and other lenders after they declined to provide the hotel operator with $800 million in funding. Fontainebleau, whose corporate parent owns a hotel on 22 acres of Miami Beach, Florida, also named JPMorgan Chase & Co., a unit of Deutsche Bank AG and seven other defendants in its complaint filed yesterday in Nevada state court, Fontainebleau said in an e-mailed statement. The banks pulled out of a written agreement to finance completion of Fontainebleau’s $2.4 billion casino-hotel being built in Las Vegas, according to the statement.
Marriott International Inc. (MAR) swung to a first-quarter loss on restructuring charges as revenue per room tumbled, a situation the hotel giant now expects to be worse than anticipated for the year. The hotel industry has been cutting costs after being hammered last year, and the outlook for this year is just as dire. Standard & Poor's Ratings Services predicts revenue per available room - an industry performance measure - may decline as much as 16% in the U.S. Revenue per available room, an industry measure of profitability, tumbled 20% globally in the first quarter and 16% domestically at Marriott. Chairman and Chief Executive J.W. Marriott said he was nevertheless encouraged that despite the drop, gross margin fell a less-than-expected 3.4 percentage points.
In San Francisco, prices of hotel rooms have “gone off a cliff,” said Karl Hoagland, chairman of Larkspur Hotels and Restaurants. Softening demand has led some luxury hotels to offer rooms for less than $100 a night. “It’s a great windfall for travelers,” said Mr. Hoagland, whose company owns three hotels in the city’s Union Square neighborhood. But it is anything but a windfall for Mr. Hoagland. His company paid about $100 million for the three hotels, in 2006 and 2007. “It was a pretty big bet on San Francisco,” he said.
A few weeks ago, Carlo Wolff wrote an article about the pros and cons associated with developing an independent hotel versus a branded one. It’s a good follow-up to examine the historical performance of independent hotels compared to branded properties throughout the United States. To set the frame of reference for the scope of the segment, independent hotels account for 42.7 percent of the hotel properties in the STR United States hotel census and 31.2 percent of room supply. The aggregate of independent properties has trailed branded hotels in absolute key performance metrics for the total United States during the past 15 years. More specifically, branded hotels have outpaced independents in monthly room rate and occupancy by an average of 3.2 percent and 4.1 percent, respectively. The real story in the numbers, however, is in the raw data behind the performance metrics – supply and demand.
Yesterday, Proskauer Rose LLP and Ernst & Young held a seminar attended by many of the top New York-based people in the industry. Here are the summary results of the panels, which mirrors what I’ve been saying in this column for the past several weeks: 1. Nobody is willing to predict the next year, but the consensus was RevPAR will be down 15 percent to 20 percent, or maybe more than 20 percent, in 2009. 2. 2009 already is a lost year and a wipeout. 3. There’s hope but no conviction 2010 will be better, but nobody is willing to predict.
The tanking economy has taken down many a high-profile business with it, and hotels are no exception. The owner of the historic Greenbrier Hotel in West Virginia announced yesterday that it is filing for bankruptcy and will sell the renowned property to a unit of Marriott International. CSX Corporation, parent company of The Greenbrier Hotel Group, said the sale was necessary because the iconic landmark had fallen victim to the recession and had racked up close to $500 million in debt. The Marriott deal was signed yesterday, though several other potential buyers were reportedly approached prior to that, including Donald Trump.
The nation's time-share industry is starting to find ways around the credit freeze that has cut off its growth for more than the past six months. Two major time-share companies based in Orlando, the nation's time-share capital, recently managed to convert some of their customers' mortgages into cash. It's a hopeful sign for a struggling industry that is largely based in Central Florida, which generates 10 percent of all U.S. time-share sales. Marriott International said it recently sold about a quarter-billion dollars' worth of time-share notes, while Wyndham Worldwide said earlier this week it had just completed a deal for $46 million worth of time-share securities.
The economic slowdown of the past year and a half now appears to be gaining momentum and dramatically deepening into what some are labeling as the Great Recession. This downturn appears on its way to being as long--if not longer--than any of the 11 economic slowdowns that have occurred since the 1930’s. The seeds of today’s recession sprouted in the summer of 2007 as the subprime mortgage crisis exposed pervasive weaknesses in both financial industry regulation and the overall global financial system. The rapid rise in unemployment throughout the nation, further eroded consumer confidence, which in turn exerts further negative pressure on businesses--truly a vicious circle.
More than half of the dozens of planned hotel openings in the Gulf over the next two years will be in the UAE, creating thousands of new hotel rooms that will put pressure on rates amid a global travel business decline. The organisers of a hotel industry exhibition in Dubai said on Saturday the UAE accounts for $6.1 billion (Dh22.4 billion) out of $8.8 billion being invested in the Gulf in 61 hotel properties that are scheduled to open by the end of next year.
EVEN in flush times, CityCenter was an ambitious undertaking. Sprawling over 67 acres on the Las Vegas Strip, it was to contain four hotels, one of them with more than 4,000 rooms, and hundreds of condominiums offering hotel services. The owners — MGM Mirage, the publicly held casino operator, and Dubai World, an investment arm of the Dubai government — have together spent nearly $9 billion on CityCenter, which they hope to open by December. But the demand for hotel rooms in Las Vegas has softened in the economic downturn, and MGM Mirage, which is controlled by the financier Kirk Kerkorian, is struggling to raise funds to complete the project. The company said in a recent filing with the Securities and Exchange Commission that it might default on some of its loans later this year.
Room revenue at Marriott International Inc (MAR.N) is running 17 percent below year-ago levels, at the lower end of the hotel operator's recent forecast, according to Chief Financial Officer Arne Sorenson. "I would not expect pronounced improvement in demand until we see improvement in the economy," he said at the Reuters Travel and Leisure Summit in New York.
Orient-Express Hotels Ltd. has told the New York Public Library that it is unable to complete the purchase of the Donnell branch, right, in Midtown for $59 million, the library said Monday. “We are now evaluating various alternatives to ensure that Orient Express honors its commitment to the library,” said Herb Scher, a library spokesman.