• Slowing US growth signals international push

With the big three US brand owners – Marriott, Hilton and Starwood – having checked-in with their third quarter numbers, there is a growing sense in the US that the hotel cycle domestically is close to the summit.

While there remains steady profit growth in the US, the big push for all three is now international, both to grow their system size and to increase the rate of growth of profits.

Starwood gave the starkest warning that expectations were now getting ahead of reality when it issued earnings per share guidance of between $2.40 and $2.46 for 2007, below the $2.69 average of Wall Street analysts’ estimates, as recorded by Reuters.

It is not a question of the cycle turning, growth is continuing but at a slightly more subdued rate than in the last couple of years. Revpar guidance was among the highest issued by hotel companies, at between 7% and 9% for 2007.

Steve Heyer, Starwood CEO, argued that the fundamentals of the business were still “very strong”, pointing out that pricing power is now in the hands of hoteliers. “Supply growth is below its long-term trendline and the demand outlook is favourable,” he said in a statement.

The third quarter saw management and franchise fees increase 71.4%, including Le Meridien and the hotels sold to Host. Worldwide revpar was up 9.2% with a 16.8% increase in Europe, the strongest territory.

The quarter saw 33 new contracts signed covering 7,400 rooms. The pipeline currently stands at 330 hotels with almost 90,000 rooms. During 2006, more than 50 hotels with around 14,000 rooms are expected to open.

The recycling of assets is to continue with 27 currently up for sale. These hotels, which generate around $45m of EBITDA, are expected to be sold by the first quarter of next year.

Hilton, meanwhile, said net income for the third quarter was up 31.5% to $117m, thanks to both a booming domestic market and the impact of the acquisition of Hilton International.

The pipeline, which Hilton claimed was the largest of any US-based hotelier, stands at 775 hotels with 110,000 rooms. About 90% of these are in the Americas but Hilton says that “international development is expected to comprise an increasingly larger percentage” over the next two years.

The key strategy is taking Hilton’s mid market brands to new markets around the world. “We are in active discussions with potential owners in many of the world’s hottest growth markets and have already introduced Hilton Garden Inns in Germany and Italy and announced plans for Doubletrees in Thailand and China,” said CEO Steve Bollenbach in a statement.

In Europe, the plan is to more than double the portfolio by 2010 from 180 currently to 450. The plan in China is for similarly spectacular growth with the addition of 100 hotels over the next three to five years once a partner has been obtained.

Five US hotels are about to be put on the market, joining the Hilton Washington and the Hilton Caledonian in Edinburgh.

There was no concrete news on the sale of Scandic although it is understood to have attracted 30 bidders and may be sold in months. A price of as much as $1.2bn is being touted in some quarters. Private equity buyers are thought most likely to win the auction.

During the third quarter, adjusted EBITDA was up 58% to $440m. Fees were up 47% to $175m. Worldwide revpar was up 9.8% on a comparable basis.

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