• Owner-operators drive rate but refurbs hit profits

Orient-Express Hotels, Hyatt Hotels and Millennium & Copthorne have all reported first-quarter rate increases although some profit growth is being hampered by refurbishment work.

Hyatt in particular saw renovations damage its earnings while M&C said "asset management activity" curbed some growth.

Orient-Express said that it would continue to cut its debt through non-core asset sales. In contrast, Hyatt planned to use its balance sheet to expand, particularly with its select-service brands.

Mark Hoplamazian, Hyatt president and CEO, told an earnings call that contributing loans, sliver or larger equity was "applying really good money after really good money". He added: "I'm really happy with how Hyatt Place and Hyatt Summerfield Suites are developing as brands. We really feel confident about further investment behind the brands. We will continue to remain flexible, because the market does change and has changed."

The group was looking at conversions and new-build projects, commenting that it expected to open a "significant number of new properties in the future". At the close of the quarter the group had executed contracts for approximately 145 hotels, of which 70% were outside North America.

At Hyatt, the group had also seen rate growth. In North America, full-service revpar for hotels open at least a year increased 8.1%, with occupancy increasing 240 basis points and ADR up 4.1%. Internationally, revpar rose 11%, with occupancy rising 500 basis points and ADR increasing by 3.7%.

Nomura analyst Harry Curtis, said: "Renovation disruptions at Hyatt … drag on results through Q4 with upside being limited until then. We've adjusted our quarterly revpar forecast to reflect the timing and extent of renovations. We're tempering our Q2 and Q3 outlooks and increasing the Q4, which should benefit from the completion of several renovation projects."

At Orient-Express, while president and CEO Paul White told analysts that the group would always consider using its own money when looking at exceptional properties, it remained committed to reducing gearing through property disposals.

In addition to sales, the group has also looked to refinancing. Martin O'Grady, CFO, said that the group was "very close" to getting credit approval for a new loan on La Residence. However, the group was unable to secure an extension on its last La Samanna loan. O'Grady said: "We had hoped to repay $5m and get a one-year extension for $12m, but this has not been possible. We're now in the market seeking a new lender on these assets and it remains a reasonable possibility that we can put some other securing on this asset later this year."

The first quarter is traditionally the low season for the group, however, it recorded a 13% increase in revenue from owned hotels and saw revpar up by 6%. Despite this, White said: "I think our conversion in certain parts of world could have been better in the first quarter. To see revenues up by $14m and adjusted ebitda by only $1.1m did not meet my expectation. Of course there are reasons: foreign exchange, energy costs, but the numbers are the numbers. The target for our company this year is 50% conversion – for every dollar of incremental revenue we expect $0.50 of ebitda."

White said he was seeing "the first signs now that we can start to drive rate" after five quarters of occupancy-driven revpar increases, as the outbound US traveller started to return. He added that Europe was growing "nicely" although in North America it was "tough" to move rate.

Looking into April, White said that the group had seen 25% revpar growth in Europe, of which two-thirds were occupancy and one-third was rate.

Millennium & Copthorne, which reported a rate-driven 4.8% increase in first-quarter revpar, was also currently undertaking renovations projects, with chairman Kwek Leng Beng commenting: "Quarterly financial performance slowed, in part as a result of the short term impacts arising from our asset management initiatives, but overall trading to date is in line with management expectations."

The strongest increase in rate was seen in London, with a 10% increase, followed by 7% in New York, in both cases at the cost of occupancy, which fell by 0.7 percentage points and 2.1 percentage points respectively.

The group, which has yet to appoint a successor to CEO Richard Hartman, said that, for April group revpar had increased by 3.2% with New York increasing by 9.8%, Singapore by 4.2% and London by 6.9%. The chairman said that improvement in the global hospitality market would be "less marked in 2011 than last year, with economic recovery remaining mixed away from the big global gateway cities, particularly in Europe and the US".

The company was affected by the earthquakes in New Zealand and Japan, but said that it would maintain cost controls as the year progressed.


HA Perspective: Bankers are described as people who will only lend you an umbrella when the sky is clear. Likewise, hoteliers seem able to only renovate when their hotels are full.

This is not surprising as during a downturn the priority is conserving cash and axing capital programmes is an easy win when it comes to reining in costs. It is somewhat unfortunate however for both investors and guests that sufficient reserves are not set aside to complete such work during trading troughs. Well capitalised and canny owners will certainly enjoy better returns if they are able to play the cycle this way.

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