ANZPHIC 08 Confirms Australian Hotel Market Still Up, Up & Away

Spurred on by hotel profits that are at the highest level recorded in over 20 years according to leading hotel consultants Horwath HTL, hotel owners, operators and other industry stakeholders at the conference painted a positive outlook for the industry in the period ahead despite current economic challenges.

Asked whether the operating peak for hotels had already been reached - and if not, when it would peak - only one third of delegates declared the industry had peaked, whilst over 50% of delegates expected the peak may still be between one and three or more years away.

The outlook for revenues in individual hotel markets, as nominated by a hotel industry leaders panel support the positive outlook. Koos Klein (Hilton Hotels), Michael Issenberg (Accor Asia Pacific), Keith Barr (InterContinental Hotels Group), Bob East (Stella Hospitality Group) and Sean Hunt (Starwood Pacific Hotels) forecast further growth in revpar for the year ahead after a strong 2007, confirming that the trading outlook remains strong:

Sources:
(1) Horwath HTL Survey of Operations 2008 (data year 2007)
(2) Majority of Hotel Industry Leaders panel

Reflecting the positive operating conditions, conference delegates also declared that hotel investment sentiment remains high, with over 70% of delegates suggesting a capitalisation rate for Sydney five-star hotels of below 7.5% - and over a quarter of delegates suggesting a rate of below 6.5%. These results were similar to the findings from a HTL Capital Advisers survey of investors released at the conference that suggested a capitalisation rate of 7.3% for this market.

The preferred investment sectors according to conference delegates were four-star hotels and serviced apartments, whilst three star hotels also scored well. Resorts were voted the highest risk category, followed by five-star hotels.

Market concern about the ageing of many of Australia's major resorts and an increasing loss of leisure tourism to overseas destinations, was reinforced in an interesting presentation given by leading European consultant, Eulogio Bordas (President of THR International) on the need for differentiation in resort concept and design. Mr Bordas explained the need for fresh thinking and new concepts to create resorts that can meet the demands of resort guests searching for new experiences within a highly competitive global resort market.

The shortage of new resorts in Australia was also highlighted in a delegate assessment of product needs, with resorts rated the sector with the second greatest need for new room supply, after urban hotels. The resort sector was also rated by delegates as being the most in need of new brands. Informative sessions on fractional ownership and the success of the luxury lodge sector in New Zealand highlighted possible opportunity areas for Australian resort developers to pursue.

Whilst an informative session on the economy highlighted the potential fallout for the hotel industry from emerging economic problems in some major source markets, the conclusion was for a soft landing scenario in which opportunities would emerge. Consistent with this finding, delegates ranked highly the likelihood of an increase in investment activities overseas to take advantage of reduced pricing. About the same number of delegates expected investors to defer hotel investment in view of current global economic uncertainties.

A panel of capital providers, including Ben Keeble, a senior executive from CVC (that recently secured a controlling interest in Stella Hospitality Group) confirmed that whilst increased challenges now existed for raising equity and debt for future acquisitions, investor appetite nonetheless remained and deals would continue to be done. Jones Lang LaSalle Hotel's Mark Durran reported that foreign investor interest had returned to the Australian market and one investor on the transaction panel, Mark Etherington (Australian Property Trust) who only recently had begun to invest in the industry, confirmed that opportunities still existed to acquire assets for upgrading and repositioning in order to improve revenues, profits and values.

In recognition of its contribution to the hotel industry, Abacus Property Group (that has acquired eight hotels in Australia and New Zealand over recent years) was awarded the prestigious Hotel Investor of the Year award. The inaugural Hotel Developer of the Year award was given to the Raptis Group in recognition of both its long-term contribution to the development of the Gold Coast accommodation sector, as well as its specific recent achievement in successfully developing the Hilton Surfers Paradise Hotel & Residence.

Summing up the mood of the ANZPHIC 08 audience, conference chair, John P. Smith, Managing Director of Horwath HTL Australia and HTL Capital Advisors, declared that delegate feedback was consistent with findings from the HTL Capital Advisors investor sentiment survey in June in which 75% of the respondents declared the industry outlook to be "reasonably to very positive".

Mr Smith paid tribute to the hotel leaders that had taken the industry from the parlous state it was in 20 years ago to its present highly profitable condition and suggested that under their stewardship, the industry was well placed to navigate through the challenges ahead.