• Sun shines on Spain as clouds gather

Spanish hotel markets enjoyed a hot summer, buoying the performance of leading locally-based groups Melia and NH Hotels.
The home market strength offset issues elsewhere, and at Melia meant a net 0.2% improvement in revpar across the portfolio. Revpar was up 9.2% in Spanish cities in the third quarter, with strong performances too from hotels in Milan, London and Paris. Mediterranean hotels suffered from stronger competition from Turkey and North Africa, sending revpar slightly down.
In the Dominican Republic, where revpar fell 32%, Melia CEO Gabriel Escarrer said fake news “caused a fall in business even greater than that experienced in real crisis situations such as hurricanes or health alerts”.
Overall, net profits of EUR96.8m were down 23.7% year on year, while nine month edbitda at EUR373m is down just 3.7%, excluding capital gains.
Similarly, NH hailed its properties in Madrid and Barcelona for driving up the metrics. And it was properties in Latin America that dragged overall performance down, with a 10% like for like fall, at constant exchange rates. One particular challenge was Argentina, where hyperinflation has played havoc with accounting.
NH has started to benefit from integrations with the operations of its new parent, Thai-based Minor International. Properties from the Tivoli portfolio, previously acquired by Minor, in Portugal and Brazil, have been integrated into NH’s management; they effectively contributed around half of the 7.8% growth in quarterly revenues, to EUR435.9m.
The pair are also working together to expand Minor’s brands. Its Anantara flag has been placed on a hotel in Marbella, while more recently a deal has been struck to reflag the Marker hotel in Dublin, Ireland. Both properties are being managed by the NH team from Spain.
Thanks to its new master, NH’s debt has been upgraded by ratings agencies. Currently the group is sitting on more than EUR260m of cash, and a further EUR304m of credit lines, against which EUR250m is due to be repaid in 2021, and a further EUR393m is maturing in 2023.
Melia has taken advantage of recent weakness in its share price, which it dismissed as an over-reation, to buyback up to EUR60m of shares. Escarrer said the business has strong fundamentals, with any setbacks being “temporary and non-structural, ignoring the sustained growth in demand and investment in the industry as well as the strength of the US economy, the leading market for Caribbean destinations where Meliá is a major player”.
The group increased direct sales online by 1.7%, and says sales for future dates are up 10.6% over 2018. Looking ahead, it expects the problem areas of the last few months should improve, providing a calmer and more positive outlook into 2020.

HA Perspective [by Andrew Sangster]: Both Melia and NH make much more money from hotel ownership than from hotel operations. At Melia, owned and leased hotels made EUR1.2bn revenue in the first nine months against the EUR232m made through managing hotels.
The situation at MINT, the owner of NH, is similar to Melia, given that 55,474 rooms were owned or leased at the end of Q3 against 21,493 rooms that were managed.
MINT’s timing of the NH consolidation was fortuitous as its existing Thai hotels endured a difficult period with revpar down 10% year-on-year in the Thai provinces.
But NH’s portfolio has a lower revpar than MINT’s other properties, which, together with a strengthening Thai Baht, meant that the system wide revpar dropped 27%.
Nonetheless, MINT was bullish on the deal, pointing out the “attractive price” it paid and the ability to rotate some assets “taking advantage of Europe’s low interest rate and high liquidity environment”.
Given the heavy asset exposure of both Melia and MINT, the question that always arises is what the longer-term objectives are in terms of brand and distribution. Were both companies just focused on city centre properties, I think this question would be even more pronounced. But the heavy resort exposure means that how distribution shakes out over the next few years for the resort market gives more leeway.
Nonetheless, staying at their current size does not look a sustainable option if they want to be an effective brand company player. MINT has shown clear growth ambitions with the NH deal but its next step looks unclear. For Melia, continuing its current growth rate looks untenable – it added 478 rooms in Q3 and lost 290 giving it a net unit growth of just 188 rooms.

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