• Mandarin looks to management

Mandarin Oriental used its first-half results to announce that it had signed five new management contracts.

The company was looking to new territories outside its domestic Hong Kong market, while also expanding its Residences.

The company reported a 29% increase on the year in underlying Ebitda, to USD79.6m, due, it said, to strong performances across the estate, notably in Hong Kong. Ben Keswick, chairman, said: “This positive trend is expected to continue in the second half of the year.”

Fire closed the Mandarin Oriental Hyde Park earlier this year, with the company working towards an anticipated partial reopening in the fourth quarter. The group said that, given its insurance cover, it was expecting the impact on profitability to be “modest”.

Elsewhere, the company said there were signs of recovery in Paris after several years of weak demand.  In the Americas, there were weaker performances in Boston and in Washington DC compared with the same period last year, with the latter having benefited from the Presidential Inauguration in 2017.  Overall results were impacted by the closure of Hotel Ritz, Madrid in February 2018 for a 19-month restoration.

Revenue from hotels in Hong Kong accounted for 38% of revenue for the half year, with other Asia making up 18%, Europe 25% and the Americas the remainder.

In addition to the hotel in Viña del Mar, Chile and Residences in Barcelona announced earlier this year, three other new management contracts have been signed in the first six months of the year.  A new hotel in Ho Chi Minh City, the group’s first property in Vietnam, was scheduled to open in 2020.  Two new properties, both with branded residences, in Muscat, Oman and Grand Cayman, will follow in 2021.

The company was looking to management contracts to drive an increasing proportion of growth, but said that owned assets remained at the core of its business, where it would consider “selective investment opportunities” while continuing to investment in its flagship hotels and grow its portfolio of Residences.

In the next 12 months, the group expected to open its first hotels in Beijing, Doha and Dubai, as well as The Residences at Mandarin Oriental in Bangkok. It added that it would continue to review the strategic options available at The Excelsior, Hong Kong. Last year the company said that it had received proposals from potential purchasers, but these had not led to a sale. The company said it was still considering all options for the site, including possible redevelopment as a commercial property.

At the end of the half the group had 31 hotels and eight residences open, with equity interests in a number of its properties and adjusted net assets worth approximately USD5.7bn.

At fellow luxury owner, operator, Firmdale Hotels, the company reported a 17% increase in revenue, to GBP148.3m for the year to 31 January 2018, driven by the opening of the Whitby Hotel in Manhattan in February last year.

The company’s eight London hotels saw a 6.8% increase in revpar, with average rate up 4.2% to GBP375 whilst average occupancy increased 2.1% to 87.3%.

In December last year Hermes Investment Management completed a seven-year, GBP120m loan to Firmdale Holdings to refinance debt secured by the Ham Yard Hotel in London, which opened in 2014.

Vincent Nobel, head of real estate debt, Hermes Investment Management, said: “Providing funding to help support Firmdale’s expansion following the success of Ham Yard Hotel, appeals to our investment strategy of delivering holistic returns. The hotel is a great destination created out of a previously disused part of central London. Firmdale’s track record as a best in class manager of boutique hotels gives us great confidence in its ability to manage this asset, while continuing to grow the group.”

Tim Kemp, CEO, Firmdale Holdings, said: “The Firmdale team is delighted to have an association with Hermes. Hermes has been thoroughly professional and supportive during the due diligence process and a pleasure to do business with. Firmdale can now look forward to carrying out further high quality developments.”

HA Perspective [by Katherine Doggrell]: While elsewhere this week Hilton was driving its growth through franchised conversions, Mandarin Oriental and Firmdale have remained true to ownership, with the former looking to a strong owned portfolio to drive growth in its management business. The one very much begets the other and the group has no intention of going asset light. In luxury, control is all.

And, with the all-consuming drive towards loyalty programmes linked to multi-brand stables, one wonders how long these luxury outriders can continue alone. Earlier this year saw the Mandarin Oriental in Las Vegas lose its flag, replaced with the Waldorf Astoria brand when the hotel was sold, which is the danger of not owning everything at all.

CEO James Riley said that the group would continue to expand globally, but the change over the door lost the company a pin in a territory where it was under-represented, with only six hotels in operation, five once the Las Vegas site joins the Hilton Worldwide loyalty programme. Mandarin Oriental has its own perk, rather than points, driven programme, if its members start to clamour for perks in more locations, might it find itself joining that other current hotel sector trend: M&A?

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