• Luxury rates picture mixed in fight for occupancy

Growth of rates in the luxury sector was mixed in the third quarter, as the focus on corporate business benefited Hyatt Hotels and Strategic Hotels, over Orient-Express, which maintained its leisure-oriented strategy.

All three operators reported improvements in revpar, which were reached through increases in rate for Hyatt and Strategic and discounting rates to bolster occupancy for Orient-Express.

The three were happy with their respective strategies, with Orient-Express CEO Paul White commenting as the group saw a 14% revpar increase: "The third quarter has traditionally been our strongest trading quarter, and this has proven to be the case in 2010.

"The story of the quarter in line with previous quarters this year was one of occupancy growth with occupancy growing 16%. Rate in local currency was 1% down this repeats the story for 2010 in general as we intended to recover the lost room nights of 2009."

White said that, looking into 2011, the group expected to see the opportunity to grow rate, adding: "The key market to watch for our company in 2011 is the UK market. If the economies are right and the UK is lagging the US by one year to 18 months, then we'll definitely hit our targets."

The priority for Orient-Express remains debt, which the group aims to achieve through asset sales. White has previously commented that he was pleased with the multiples the group has seen in its sales so far.

The company is also this month due to raise $102.1m through issuing new class A shares priced at $10.75.

Strategic, which reported third quarter revpar growth of 7.3%, on a 1.3 percentage point increase in occupancy and 5.4% increase in average rate. Laurence Geller, president and CEO, said: "Our strategy of aggressively pushing rates continues to succeed even at the limited expense of some occupancy."

The REIT is also looking to sell sites, as part of its strategy to become a North American-centric company.

During the quarter, the company announced the sale of the InterContinental Hotel in Prague for a total of Eu110.6m, nearly Eu300,000 per key, which represented an 18.1 times multiple on forecasted 2010 EBITDA.

Geller added: "More importantly, this removes a Eu102m mortgage from the balance sheet in addition to the attendance swap liability. This hotel has substantial deferred non-revenue producing capital cost projected in the immediate future. So, the timing of this very well executed sale is clearly advantageous to us."

Unlike Orient-Express, the group does not need to make sales. Geller said: "Given our comfortable liquidity position, the goal remains to maximise proceeds from these sales. As our asset in London (the London Marriott Hotel Grosvenor Square) is outperforming our expectations and we believe we can be the beneficiary of selling this hotel into a more bullish investment market than today as cash flows continue to improve and we see evidence of strong future earnings."

At Hyatt, which saw revpar at the group's owned and leased hotels up by 6.9% and occupancy up by 4.4%, rate grew by 0.7%. At the company's international managed and franchised business rate increased 6.5%, with North American managed and franchised hotels up 2.3% in full-service hotels and 1.6% in select service sites.

CEO Hoplamazian said: "Higher levels of corporate and group business resulted in improved performance at convention and business hotels in particular."

The group is looking to expand, after announcing plans last week to increase its properties in New York from one to six. However, despite the group's strong cash position after its IPO, funding for this is likely to come through sales, with Hoplamazian telling a conference call that the group was likely to sell three to five properties over the next few months to raise money for other projects.

White has previously commented that he was pleased with the multiples on the sales which it has undertaken so far, suggesting that values have held up. This was confirmed by Geller, who commented: "If you look at the incremental earnings we're driving, in our high-end sector, you've got so much growth to go that I would argue some of the multiples being paid actually aren't terribly high. So, I hear the noise people are paying too much for this or that asset … but a cap rate of three or four times might be very low when you look at our EBITDA expansion."

While the group is not considering selling sites in the US, Geller added: "We have not been on the market at the moment in the US, having said that, we are a spirited entrepreneurial group as well as a corporate organisation and if something came over with an incredible number that would make us lie on the floor laugh, we take it."


HA Perspective: The rebound in the luxury sector so far this year has been phenomenal. The key driver has been the appetite for business travel as company profits recover and new business is sought.

It remains far from clear that this rebound will continue its current pace – early economic indicators are already weakening – and this may yet dampen values. Scarcity, more than robust trading, has helped prop up values so far. The situation remains delicately balanced.

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