Newsletter -August 6, 2002  

Singapore's BIL International agrees to sell Thistle Hotels - report

Ananova.com  -  Singapore's BIL International gave its consent to sell London-based Thistle Hotels, in which it holds a 46% stake, the Business reported without citing sources.

Thistle is likely to fetch up to £750 million, with chief executive Ian Burke thought to be lining up a 720-stg million management buy-out bid, it said.

Rival hotel group Millennium & Copthorne is also said to have approached BIL over Thistle. Other likely bidders include US group Cendant, French hotel operator Accor and Six Continents PLC, the newspaper said. Thistle Hotels shares saw some speculative interest last Friday, after reports that the firm's management is said to be ready to take the group private at 150 pence per share.

Source:  Ananova.com

Marriott Balance of Power Shifts

Hotel Owner Asserts More Control Over How Its Properties Are Managed

A new agreement between hotel owner Host Marriott Corp. and management company Marriott International Inc. gives Host more control over how its properties are run and requires it to pay less.

Host's assertion of more influence in hotel management could become a model for similar business relationships in the hospitality industry, which still has not recovered fully from the slump that began after Sept. 11.

"The Host-Marriott deal shows that we've seen the balance of power switch away from the franchisors to the hotel owners," said William Crow, a hotel analyst with Raymond James & Associates. "You're going to see other parties attempt to renegotiate their contracts with companies like Marriott, Hyatt and Six Continents. They're going to want to get fees reduced and make sure the economics of the arrangements are fair."

According to a Host Marriott filing last week with the Securities and Exchange Commission, the agreement gives it more power over hotel operating budgets.

Host's cash flow is to increase $8 million this year under the agreement, the SEC filing said. The saving is to increase to about $25 million by 2006. One third of the amount, Host said, is attributable to lower fees to Marriott International, the rest to unspecificed "cost reductions and other benefits."

The agreement also allows Host access to $125 million, which had been held in escrow for working capital requirements.

"It's a positive for Host," Crow said. "The most immediate benefit to them is that they get back $125 million of working capital. It's basically getting cash back on their books that they can then use to pay down debt or buy other hotels."

The two companies disclosed in the spring that the contracts were being renegotiated, but did not reveal the financial details until last week.

Host officials could not be reached for a comment.

Marriott spun off the ownership of its hotels to Host in 1993, which put much of the companies' debt on Host.

Marriott, the largest U.S. hotel-management company, gets a cut from the revenue of the hotel. The manager also passes on to Host the costs of running the hotels, including some overhead expenses of the management company.

Host had asked its internal auditor, PricewaterhouseCoopers, to take a year-long look at whether it was overcharged by Marriott for managing Host's Marriott-run hotels.

It claimed that Marriott had unfairly passed on some of its corporate costs and failed to share profits derived from Host's hotels. That led to the new deals, which were reached July 25.

Under the new deal, Host would pay less to Marriott for such things as marketing or advertising planning, executives said.

Marriott is also prohibited under the new deal from managing hotels in 10 markets where Host owns hotels. Host can also sell more hotels without requiring the buyer to keep the Marriott brand.

Marriott International said the changes would be "immaterial" to its revenue and earnings. The hotel management company said it was losing an estimated $8 million in incentive management fees from Host and expects to trim costs by an estimated $17 million on such things as reservations, computer and marketing systems for Host owned properties.

"We give up $8 million, but we make [money] in cost savings," said Laura E. Paugh, Marriott's vice president for investor relations.

"Host getting something doesn't mean Marriott gave up something," she said. In the deal, Marriott said, it also got longer management contracts to run five of Host's hotels.

The two companies also agreed to terminate Marriott's right to buy up to 20 percent of Host's outstanding common stock in the event Host agrees to be acquired by another company.

The requirement, instituted when Host was spun off, makes it difficult -- by making it prohibitively expensive -- for a Marriott competitor to buy Host Marriott.

The two companies have also sought to separate themselves by having Host move out of its offices in Marriott's corporate headquarters in Bethesda last week.

Host Marriott Chairman Richard E. Marriott also left the board of Marriott International and his brother J.W. "Bill" Marriott Jr., chairman and chief executive of Marriott International, left the board of Host Marriott.

Source:  Washington Post

San Francisco Market Overview

Written By:  Suzanne Mellen & Madhuri Anji  HVS International

The San Francisco lodging industry has experienced a dramatic reversal of fortune over the last two years. In 2000, the San Francisco lodging industry was one of the hottest in the nation and posted its best performance ever. 

Smith Travel Research (STR) reports that San Francisco’s hotels finished the year with an aggregate average rate of $175.13 and an average occupancy of 80.8%, resulting in a RevPAR of approximately $142. Statistics for 2001 reflect a significant downturn, with an occupancy of 66.3% and average rate of $169.19 recorded; this resulted in a RevPAR of $112, or a 21% decline from the RevPAR of 2001. Based upon STR statistics through May, San Francisco is the most negatively impacted metropolitan area in the country in terms of hotel demand, with room demand through the year-to-date period through May down 14%, occupancy down 16.3%, average rate down 16.2%, and rooms revenue down 27.9%.  

The next most impacted markets, based on year-to-date data, are Boston, with rooms revenue down 19.1%; Oahu, Hawaii, down 15.3%; and New York, New York, down 14.6%. San Francisco city has had a “triple hit” this year, with weak international and domestic leisure demand, contracted commercial demand, and a poor 2002 convention calendar. 

Local hoteliers hopes for recovery are tied to opening of the Moscone Convention Center expansion in Spring 2003, and robust convention calendars for the next few years. Nonetheless, most local experts expect that it will be several years before the San Francisco lodging industry returns to its normal, healthy state. The primary reason is the fallout from the collapse of numerous dot-com and Internet-related enterprises. The virtual evaporation of high-rated commercial demand from this sector is having a significant impact on average rates within the city. Unlike many cities, where commercial demand is expected to recover when the U.S. economy turns around, in San Francisco most of the high-spending, dot-com demand is now permanently gone, and more traditional sources of business will have to establish themselves before we experience a return to the robust business of the mid- to late 1990s. 

This is unlike the San Jose/Silicon Valley hotel market to the south, where technology-related business has diminished but is still omnipresent. The decline in San Francisco's occupancy and average rate, coupled with the high cost of hotel development and operation, will render new hotel development challenging over the next few years. Thus, after the two hotels currently under construction open, the city will see a healthy reprieve from additions to supply.

San Francisco has historically enjoyed enviable strength in three market sectors: commercial, meeting and group, and leisure. In the early 1980s, many large corporations left San Francisco due to the high cost of doing business in the city. At that time the city’s market mix became almost equally dependent upon the three primary lodging demand sectors, commercial, meeting and group, and leisure. In the second half of the 1990s, the economic climate changed, with San Francisco becoming the epicenter of the high-tech, Internet, e-commerce industry. 

The staggering rise in office-space rental rates during those times reflected this trend. With the explosion of these industries, the city's commercial segment demand regained its strength. At the same time, while leisure and meeting and group demand were at all time highs, these lower-rated segments were often pushed outside the city by hotels seeking higher-yield demand sources. With the demise of many Internet-related businesses, some commercial demand is being replaced (again) with lower-rated sources of demand.

After several stellar years for the local office market, where rents reached as high as $80 to $100 per square foot for class A space and the citywide vacancy rate declined to 2%, according to Grubb & Ellis Research, the San Francisco office market experienced its worst year in history in 2001. Approximately seven million square feet of negative net absorption was registered last year, which is reported to have erased all positive demand for office space since the recession of the early 1990s. Resultant vacancy rates increased dramatically from 4.0%, or 2.3 million square feet, at year-end 2000 to nearly 19.0%, or 11.7 million square feet, by year-end 2001. Average asking lease rents finished 2001 at $37.71 for Class A and $26.27 for Class B, which were down 51.0% and 60.0%, respectively, from the prior year. In terms of the office space market’s recovery, the supply pipeline is expected to empty by year-end 2002;

thereafter, a slow market recovery is expected, as approximately 16 million square feet of vacant space will need to be absorbed. High unemployment and office vacancy rates have softened hotel demand in the commercial segment. In June 2001, 22 office projects of 100,000 square feet or more were under development in the city, while as of June 2002 that number has declined to just five such buildings, as developers have placed many office projects on hold. On a positive note, many businesses that left the city in the late 1990s due to high rental rates are now returning as the business environment becomes more favorable for traditional lines of commerce.

While meeting attendance dropped and events were cancelled following the events of September 11^th, 2001, most groups and events were rebooked for later dates. In anticipation of the opening of the Moscone West expansion, new bookings are ramping up at the new facility. Since large meetings are typically booked far in advance, convention room night figures lag economic trends. Hotel room bookings for Moscone Convention Center events in 2003 are already 22.2% higher than the figures for 2002. The new expansion has the potential of inducing additional demand in the San Francisco lodging market, as the city positions itself to compete with other major convention cities in the region, state, and the nation as a whole.

As far as tourism, the strength of the U.S. dollar in recent times has choked international leisure visitation to the country as a whole, including San Francisco. Passenger counts at the San Francisco International Airport decreased by 15.2% in 2001 from the prior year. This had a significant negative affect on the South San Francisco (airport) lodging market, which suffered a decline of 12.1 occupancy points, ending 2001 with an occupancy level of 65.2%. The decline in occupancy, combined with a 16.7% decline in average rate, resulted in a precipitous decline in revenue per available room of 29.7%.

In San Francisco, supply increased by approximately 744 hotel rooms in 2001 with the opening of the 362-room Omni, the 277-room Four Seasons, and the 105-room Orchard. Additional hotels currently under construction include the Proposed 400-room Club Quarters, located in the Financial District and scheduled to open in mid-2003; the 275-room St. Regis hotel, located at Mission and Third Streets and scheduled to open in early 2004; and the Kimpton Group’s historic 253-room, Argonaut Hotel in Fisherman’s Wharf. It should be noted, however, that completion of the proposed Argonaut Hotel has been postponed to mid-2003 due to a fire that occurred in March 2002. Approximately 11 other projects, totaling approximately 3,200 rooms, are planned for the city of San Francisco. These projects are in various stages of development and are now being re-evaluated due to the prevailing market conditions.  

While, the national economy is reportedly already showing signs of a moderate economic recovery, San Francisco’s recovery will lag behind those experienced by other major cities due to the weak convention calendar this year and the evaporation of many local commercial demand generators. Nonetheless, the San Francisco-Oakland-San Jose CMSA has a well-developed infrastructure and high standard of living that will attract new sources of commerce to the area.  

HVS International anticipates a bottoming out of the market this fall, with a rebound expected in 2003 due to a strong convention year and the opening of the Moscone Convention Center’s expansion. Gradual improvement in the commercial and leisure sectors is expected over the next several years. Despite its current challenges, San Francisco is a firmly established world-class destination and will no doubt recover to accommodate strong lodging demand in the future.  Additionally, due to the hotel market’s high barriers to entry and historical strength, San Francisco remains a desirable location for hotel investment

Contact: 
Suzanne Mellen
Madhuri Anji
HVS International

RFS Hotel Investors quarterly results slide

(Reuters) - Hotel real estate investment trust RFS Hotel Investors Inc. (RFS) on Wednesday said its quarterly funds from operations fell due to a downturn in business travel.

The Memphis, Tennessee-based company said its second-quarter funds from operations were $11.4 million, or 38 cents per share, compared with $16.9 million, or 62 cents per share, a year earlier.

The company said it expects 2002 funds from operations to be between $1.35 and $1.40 per share. The company also said it would begin to expense stock options in 2003.

Wall Street analysts on average were expecting earnings of 38 cents per share and expect earnings of $1.48 for the year.

In June, the company lowered its second-quarter expectations to 38 cents per share, from an earlier range of 40 cents to 45 cents per share.  

Far East Hotels to buy several 3-star hotels in Hong Kong, China, S.E. Asia

AFX News  -  Far East Hotels and Entertainment Ltd (37.HK) is  planning to
acquire various three-star hotels in Hong Kong, China and Southeast Asia,
the Hong Kong Economic Times reported, citing managing director Derek Chiu.

In Hong Kong, overseas businessmen will normally select luxurious hotels
while tourists from Southeast Asia would normally opt for lower-class hotels.
Consequently, there is room for survival for three-star hotels in the region, he
said.

He said the company is also planning to invest in other leisure businesses
such as building a holiday resort on Cheung Chau island.

He said the company currently has cash on hand of 100 Million HK Dollar

MeriStar sells three U.S. hotels

(Reuters) - MeriStar Hospitality Corp. (MHX), one of the top U.S. hotel owners, said on Thursday it has sold three hotels to pay down debt, marking a rare transaction in one of the slowest markets for hotel sales in recent memory.

Washington, D.C.-based MeriStar did not disclose the sale price or name of the buyer for the 293-room Hilton Houston Southwest; the 139-room Ramada Inn in Mahwah, New Jersey, and the 124-room Four Points by Sheraton Mount Arlington in Mount Arlington, New Jersey.

It said proceeds from the sale will be used to pay down debt.

"The disposition of these hotels is part of our continuing effort to sell non-strategic assets," Paul Whetsell, chief executive officer, said in a statement. "Our hotel ownership focus remains principally upscale, full-service properties concentrated in large, metropolitan markets where barriers to entry are high."

The sale marks a relatively rare event of late for the hotel real estate world, where transactions have slowed to a crawl despite low interest rates.

Analysts and hotel real estate specialists blame the lack of deals on a wide gap between buyers looking for discount prices amid an industry slump, and sellers asking for prices based on belief that recovery is on the horizon.

Furthermore, most owners are under little or no pressure to sell, since lenders have forced many to make major equity investments in their properties, giving owners a large cushion in the event of an economic slowdown.

Lenders made the switch after the economic downturn of the early 1990s, when many hotel mortgages went into default because they were built and purchased with a high percentage of borrowed money.

Jarvis Hotels 1st 16 wks turnover down 3%; still sees drop in H1 profits

AFX  -  Jarvis Hotels PLC said turnover for the first 16 weeks of the current financial year is running 3% below last year, adding it would be prudent to continue to anticipate a reduction in first half profits compared to last year.

It added with the peak summer trading season under way, it is not yet in a position to predict the full pattern of first half trading.

London hotels are showing a 6% decline - a major improvement on the position earlier in the year, it said.

The comparative decline for London in the second half of the 2001/2 financial year was running at 19%.

It added it has seen positive benefit from strong domestic bookings for the Commonwealth Games, the Farnborough Air Show and for Ascot and Goodwood.

UK regional hotels have experienced a turnover decline of only 2.5% over the same 16 week period.

Since reporting at the time of its preliminary announcement in early June, it said it has seen no real or sustained improvement in demand in the corporate market.

Turnover in this important segment is still down by 8% with the bulk of the shortfall in the South East.

Despite a continuing shortfall in overseas arrivals, its Group Travel business is currently down by only 4% against the equivalent 16 week period of last year.

It added it has made sustained efforts to replace the overseas shortfall, albeit at lower margins, by concentrating its marketing on the domestic leisure market.

This segment is now showing a 21% improvement in sales over the equivalent 16 weeks of last year.

South Pacific Tourism Update

eTurbo.com  -  Vanuatu visitor arrivals increase in May 2002 Latest report from Vanuatu's Statistics Bureau indicated that visitor arrivals in May 2002 was 4,023, an increase of 18.6% over April 2002, and an increase of 14.2% over May 2001. Of the 4,023 people that visited Vanuatu in May 2002, 3059 visited purposely for holiday, 609 came for business/meetings and conference, 293 visited friends and relatives and 62 as stopovers. Australia remains the prime market, with an increase of 6.8% over May 2001. Arrivals increased over the same period for New Caledonia at 164.8%, other countries at 34.0%, Japan at 25.4%, Europe 7.0%, New Zealand 1.7% while other Pacific countries showed a decrease of 27.2%. The National Tourism Office is optimistic, figures are on the increase in the months after May, due to various marketing activities and efforts. The NTO has embarked on a major television campaign "Think South Pacific, Think Vanuatu" currently running in Australia till December and till September in New Zealand

Director returns to Tonga Visitors Bureau The Director of the Tonga Visitors Bureau, Semisi Taumoepeau, has returned to his substantive post following a 19 month stint as Chief Executive Officer of Royal Tongan Airlines. Mr Taumoepeau, who was seconded to the airlines by the Government of Tonga, has been the TVB's Director since 1980. He stated that he was looking forward to be fully involved in the development and promotion of tourism to optimise benefits for the Kingdom. Mr Taumoepeau forecast that more than $T16 million would be brought into the country by the 40,000 plus visitors expected to Tonga over the next 12 months. He also wants to step up Tonga's tourism investment campaign and predicted that two or three multi million dollar tourism projects would be completed by the end of the financial year

PNG arrivals decline Papua New Guinea's visitor arrivals was 12,675 for the first quarter of 2002, a decrease of 2.6 per cent compared to the same period last year. Main reasons for visitation was business, which accounted for 8,568 arrivals (67.6 per cent); holidays 3,054 (24.1 per cent); and arrivals visiting friends and relatives 1,008 (8 per cent). The highest source markets were Australia and the USA, recording 47 per cent and 12 per cent respectively of the total arrivals. UK recorded 13 per cent increase followed by Australia (2 per cent), other European countries (1 per cent) and New Zealand (1.5 per cent). Markets that recorded decreases were Germany, a 65 per cent decline, followed by Japan (46 per cent), and Canada (10 per cent). Eighty-six per cent visited the Highlands provinces while 20 per cent visited the coastal areas for business purposes

Tonga signs air deal with Brunei The Kingdom of Tonga and Brunei have signed a landmark civil aviation deal. Royal Tongan Airlines and Royal Brunei Airlines have just signed an air service agreement. The deal is understood to enable Royal Brunei, through its partnership with Royal Tongan, to get access to route rights held by Royal Tongan. These are said to include a possible route to the USA. Royal Tongan in turn gets access to aircraft to boost its own international services. King Taufa'ahau said Royal Brunei is willing to lease Royal Tongan a Boeing 757-200 aircraft. Tonga and Brunei have agreed that sharing the aircraft with Samoa is an option. King Taufa'ahau also said that Royal Brunei Airlines wants to use a Boeing 767 aircraft, with plans to include Tonga-Honolulu-Los Angeles return flights. He added that this can also be used to upgrade flight connections from Tonga and Samoa to Europe.

Source:  eTurbo.com

Wyndham International's Golden Door Spas Considered ``World's Best'' by Readers of Travel + Leisure

The Boulders and the Wyndham Peaks Also Earn Top Hotel Accolades for 2002 on T&L's Top 100 List

Three Wyndham International (NYSE:WYN) Golden Door Spas and two resort properties have been honored among the top hotels and spas in the continental U.S. and Canada by discriminating readers of Travel + Leisure.

The magazine's August 2002 issue features its fourth annual readers' poll distinguishing hotels, spas, cities, islands, cruises and airlines with the world's best awards.

The current issue ranks the legendary Golden Door in Escondido, Calif., part of Wyndham Luxury Resorts, as the number one destination spa in the world on the Top Spas list. This standard in excellence has set the precedent for the satellite Golden Door Spas in key Wyndham resorts, resulting in the AAA Five Diamond Boulders Resort & Golden Door(R) Spa in Carefree, Ariz. and the Wyndham Peaks Resort & Golden Door Spa in Telluride, Colo. earning accolades on T+L's Top Hotel Spas list for 2002. In addition to this recognition, both of these resort properties have been honored as two of the Top 100 Hotels in the continental U.S. and Canada according to the 2002 readers' poll. A third Golden Door Spa at Las Casitas Village in Puerto Rico has also been a consistent award-winner.

Wyndham has a strong commitment to offer the finest guest experiences. The addition of the world-renowned Golden Door to our portfolio and the subsequent launch of Golden Door Spas at key resorts has added to our appeal, particularly to clientele who know what to expect from a premier spa, said Jay Litt, Wyndham's Senior Vice President of Resort Operations. We are thrilled to have been recognized among the world's best by the readers of Travel + Leisure.

An extraordinary desert property, The Boulders Resort & Golden Door Spa is part of Wyndham Luxury Resorts and is situated in the Sonoran Desert foothills of Carefree, Ariz. In November of 2001, The Boulders opened a brand new 33,000-square-foot Golden Door Spa which has quickly become recognized as one of the top spas in the United States.

The state-of-the-art spa combines the Zen-like influence of the original Golden Door in Escondido with the Southwestern influence of The Boulders. Guests can choose from a diverse menu of invigorating spa treatments, including the signature Native American-inspired options, or use a variety of added features such as the hydrotherapy tub, shiatsu room, classrooms for wellness and nutrition, Yoga studio, outdoor pool and Jacuzzi and full-service salon.

The Wyndham Peaks Resort & Golden Door Spa in Telluride, Colo., offers replenishment at an elevation of 9,500 feet with majestic views of the surrounding San Juan Mountains. Drawing inspiration from the ancient Honjin inns of Japan, the Golden Door Spa incorporates a variety of techniques and ingredients to rejuvenate the mind, body and spirit. With its 44 treatment rooms, saunas, Jacuzzis, steam rooms, indoor/outdoor pool, recreational facilities and full-service salon, the Golden Door Spa at the Wyndham Peaks offers the ultimate sanctuary for travelers in Telluride, earning its place among the world's best spas.