• Orient-Express maintains debt focus

 

Orient-Express Hotels is to continue to focus on de-leveraging, with further sales of non-core assets and earnings growth key to its current debt reduction strategy.

As the company reported its second successive quarter of double-digit revpar growth, it said that it was on target to cut net debt to between four and five times Ebitda by the end of 2011.

In the second quarter, net debt to adjusted Ebitda (pre-real estate revenue), was 8.4 times, down from 9.9 times in the previous quarter. Total net debt was down 8% to $640.7m (£409m), with Ebitda up 22% to £32.4m, aided in part by an insurance payment of $2.8m from PeruRail, which was hit by damage to tracks caused by floods in the region during the first quarter. 

The company said that it had refinanced 88% of the loans due to mature in 2011, ahead of its 75% target at this stage.

This payment, and growth in the hotels business, saw Orient-Express narrow its second quarter net loss to $800,000, from $24.3m in the same period last year. Excluding real estate, the group reported a 13% increase on the year in revenue to $146m.

Revenue from hotels was up 15% to $118.1m, with rate flat but revpar up 12% in local currency for the group, driven by strong, but varied international growth, indicating the group's heavy dependence on the luxury leisure market.

South Africa, which performed well as a result of hosting the World Cup, reported a 57% increase in revpar, followed by South America with 32%, North America with 16% and Asia-Pacific with 12%.

The group saw revpar up by only 1% in Europe, causing some concern going into the historically-strong third quarter, given the group's reliance on the region. White, who has now been in the role for three years, attributed the low figure to "pretty aggressive" pricing needed to drive occupancy, telling a conference call: "Quarter two really is a shoulder season in Europe and our strategy in the low and shoulder seasons it designed around volume growth." The strategy led to a 7% increase in demand.

The company said that revpar gains in the UK, Russia and France – all reporting greater than 15% growth in local currency  – was "somewhat offset" by Spain and Portugal, which were both down by more than 10%, with Italy "slightly down" in the quarter.

White was more confident going into the third quarter, commenting that, in July, revenue was up more than 10% in Europe, led by Italy, which was benefitting from a resurgence in tourists from the US and the UK. At the start of this year the group added to its holdings in Europe with the acquisition of the Grand Hotel Timeo and the Villa Sant'Andrea in Taormina, Sicily, for a combined price of Eu81m (£52m) which re-opened in May after renovations.

Despite the ongoing sale of non-core assets, the company maintained that its long-term plan was to continue to acquire properties throughout the world "as market conditions improve".

For the whole group, revpar in July grew by 19%, with White adding that over 80% of the group's businesses around the world were reporting growth. He said: "Looking ahead bookings for the third quarter which is actually the low season in most of the rest of the world is 21% ahead of this time last year and we are 5% ahead on a forward 12 months basis."

However, he added: "It will only be in the high season in 2011 when you should expect to see it start to really be able to push on rate again."

The group said that, for hotel bookings, the lead time was around half what it was two years ago, but was starting to push back.

The group's second strand to cutting its debt, running alongside improving performance, is the sale of non-core assets. During the quarter the group closed on the sale of La Cabaña restaurant in Buenos Aires, for $2.7m, bringing the total raised from asset disposals to around $110m.

White said that the company was in discussions on the sale of two further assets with the aim of reaching $150m in sales by the end of 2011. Contradicting recent concerns expressed around valuations in the hotel market, White said that the group's four recent sales had been at "very attractive multiples of not just the current earnings but of peak earnings, which I believe underpins the multiples true luxury assets trade at".

The CEO concluded that the world was "clearly a more settled place than it was a year ago. Business trends are returning to more normal pattern and visibility or at least bookings space seems to be more consistent. I'm encouraged to see the US traveller returning in good numbers and we are seeing the first signs of the recovery in the UK."

 

HA Perspective: The Orient-Express numbers give further evidence to a number of conclusions about the recession and recovery.

Firstly, it seems that the bounce back for luxury hotels has been pronounced in the first half of this year, even if we are still some way off the peak levels of 2007.

Secondly, the recovery is stronger outside of Europe. And where there is recovery in Europe it is predominately in the North with the South still suffering.

Finally, asset prices for luxury properties have not collapsed anywhere near to the extent that trading has dropped. What selling is being done is at multiples taken over the long-term and not just the sharp drop of the last couple of years.

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