Newsletter - February 15, 2002

HOTELIERS HAVE MIXED VIEWS ABOUT RECOVERY/ AMERICAN LODGING INVESTMENT SUMMIT

By Marian Edmunds   -  Curtis Nelson,  president and chief executive officer of Carlson Hospitality called on delegates at the American Lodging Investment Summit held in in Los Angeles from February 3-5, 2002  to contact their senators as a matter of urgency over reforms to travel and tourism which are under consideration.  If the reforms are carried they are likely to raise the profile of travel and tourism and provide a boost to business travel with measures such as a tax credit of $1200 per couple for up to three trips.

Meanwhile, hotel occupancy is showing strong signs of recovery but this is not being matched in terms of the ADR, according Mark Lomanno, president of Smith Travel research. But the rebound in the ADR may be a long slow process with all of the global discounting  which is going on, said Mr. Lomanno.  In a comprehensive statistical presentation, Mr. Lomanno referred to 15 gateway cities  which have been severely impacted by the downturn. Atlanta, Boston, Chicago, Dallas, Honolulu and Las Vegas and San Francisco are among their number.  Smith Travel Research anticipates the  the industry will return to Year 2000 levels by 2003. 

However Bjorn Hanson, of PricewaterhouseCoopers, is less optimistic saying that any substantial recovery might take as long as  5-6 years.  Unsurprisingly the views of hoteliers and financiers are similarly mixed.  

As someone who focusses efforts at the badly impacted top end of the market Lawrence Geller, chief executive officer of Strategic Hotel Capital, is more pessimistic than most in his view that he thinks that a speedy return to work is unlikely for the thousands of  staff  who have been laid off.  Geller also has mixed feelings about measures taken by hotel companies since 9/11. “I am a critic and a fan of what happened after 9/11. I am a critic because across the country I have seen irrationality in cutting of rates and the haste to maintain revpar penetration without thinking of impact on bottom line.  There is a need for discipline to and forget revpar and to focus on that little discussed thing called profit,” he said.  

Juergen Bartels, chief executive officer of Le Meridien is channeling his efforts in other directions. He says that he is concentrating on converting his group from a traditional operations driven group to a marketing - driven company  with a new incentives scheme for the 100 strong sales force.  “This is a cyclical industry and even after September it is still cyclical,” said  Mr. Bartels.  

The toughest thing for all business since September ll, said Paul Whetsell, chairman and CEO of Meristar Hospitality Corporation, is to maintain a sense of business. “ We reacted quickly to reduce costs but from day one we focussed on what could come out of this that  we could incorporate  in our operations and what things would stay.”

"A great deal of focus is put on rates but the most demanding problem is labour", said Paul Whetsell. “We have cut out a whole layer of labour but we also have trained some members of our administrative staff to work front of house from time to time."

"But pricing  is on most peoples’ minds. We have discounted well beyond  the value of  the yield”, said Curtis Nelson. “With too many rooms being sold through wholesalers, when we give away the ultimate pricing decision that’s a very dangerous point - we are just admitting to be a commodity.” 

But  price cuts are not the answer, says Juergen Bartels. “Even if we took off £100 of a room in gateway city such as Rome it would not bring an extra traveler.” 

Instead the focus should be on cost, says Geller.  “By cutting out layers of management and some hotel services  which were not high yield, we have a wonderful opportunity not to put these things back,” said Lawrence Geller.

About the Author:

Marian Edmunds is a freelance journalist specializing in the travel, tourism, hospitality, travel distribution and airline sectors. She writes for leading newspapers  and specialist publications in Europe and the US. Contact her at mjedmunds@ftnetwork.com

INVESTORS BELIEVE EUROPE’S HOTELS MARKET NOT IN A PROLONGED DOWNTURN

London likely for Notable Turnaround over the Medium term

Following the events of September 11th, investor sentiment towards the European hotel sector has weakened according to Jones Lang LaSalle Hotels’ Hotel Investor Sentiment Survey (HISS), which targets the world’s 1,800 largest investors and owners of hotel/resort properties. 

The encouraging news for the industry is that it is only short-term performance which investors believe will suffer.  The majority of investors believe that the medium term outlook for Europe’s hotel markets is strong.  “Investors do have faith in the sector and believe the majority of markets will stage a recovery over the medium term, with London leading the way.  They don’t believe that we are in a prolonged downturn” stated Arthur de Haast, Managing Director, Europe at Jones Lang LaSalle Hotels.

As a result of the medium term optimism, initial investment yields have not shifted significantly since the last survey.  “Investment yields remained stable in London and Paris, and even lowered in some German markets, highlighting investor faith in the sector” said Mr de Haast.  Return requirements are slightly higher to price in the additional risk in the operating environment.

Occupancy and ADR

Not surprisingly, investors believe occupancy and ADR are set to fall further in the short term, with London being labelled as one of the worst performers.  London has borne much of the downturn in US travel, acting as a gateway for US visitors, not only to the UK, but also to Continental Europe.  The US market had already dropped off prior to the events of September 11th due to the foot and mouth disease and the general deterioration in the US economic outlook.

Other markets investors expect to perform negatively in the short term include Edinburgh, Budapest, Birmingham, Prague, Warsaw, Brussels and Berlin.  In contrast, Milan is the only market to have a positive outlook in the short term.

However, investors believe that Europe’s hotel sector will stage a recovery in the medium term.  Only two markets remain in negative territory over the medium term, being Warsaw and Budapest, both cities which are facing a situation of oversupply.

While London has suffered the most, it is expected to make the most notable turnaround over the medium term.  Paris too is viewed by investors to recover in 2002, having also suffered heavily from the downturn in transatlantic travel.

Frankfurt is thought to be the strongest European performer over the medium and Southern European hotel markets are also in favour with investors – particularly Madrid, Barcelona and Rome.

Investment Yields

Investors are demanding higher returns in most European markets as they price in the heightened risk and uncertainty in the operating markets.  Average IRRs across Europe stood at 16.7% in December 2001 compared to 15.6% in June.

Investment yields have not shifted significantly, despite the impact on the trading market, highlighting the fact that buyers remain for European hotel assets, as well as the low interest rate environment.  Average initial yields have shifted out slightly over the past six months to an average of 9.1%, compared to 8.6% in June 2001.  Despite this, Europe still shows the lowest initial yields in the world.

London’s initial yields were at 8.4%, demonstrating investors’ long-term faith in the market and its ability to attract hotel demand in the future.  Initial yields in Paris were similar at 8.0%, evidence of its position as a first tier investment destination.

All the German markets showed a tightening in yields over the past six months, which can be attributed to the lack of stock and the anticipation of further growth by many German investors.  Hamburg boasted the lowest initial yield in Europe at 8.1%. 

Market Cycle

Investors believe that over the past six months a number of European hotel markets have passed their peak and entered a downturn.  However, given their relatively positive outlook for the trading markets over the medium term, they don’t believe this downturn will be prolonged.  Markets to pass the peak since the last survey include Madrid, Barcelona, Paris, Berlin, London, Stockholm, Budapest and Warsaw. 

Other markets such as Amsterdam and Edinburgh fell earlier and are considered to be in the late downturn phase.

Investment Intentions

Investors do not intend to exit the European hotel sector on mass as a result of the challenging environment, with 50.4% of respondents intending to hold their assets and 30.1% stating they would make an acquisition over the next six months.

Markets high on the shopping list for investors are Rome and Milan.  They are also strong candidates for development, as are Barcelona, Madrid and Lisbon.

Global Comparison

The US hotel markets felt the biggest short-term shock in the wake of September 11th.  Investors and owners have clearly voiced their change in sentiment for the US hotel sector, with a sharp shift in the short-term outlook for occupancy and room rate to strongly negative. The strongest negative sentiment was found in the leisure markets of Hawaii and Orlando, whilst opinion is also firmly negative for New York, Boston and Chicago in the short term.  Of the 20 markets examined in the HISS, Washington D.C. had the most moderate negative sentiment.

Although all regions have been impacted, Asia Pacific is considered to be the least affected region in the short term, due to its geographic isolation and strength of certain economies. The stand out performers in the short term are Shanghai and Beijing and the resort market of Phuket. China has withstood the economic downturn of the region and continues to attract much of the investor interest. This is likely to accelerate in the lead up to the 2008 Olympic Games in Beijing.
 
Short Term Trading Expectations

Source: Jones Lang LaSalle Hotels

Contact:
Jones Lang LaSalle Hotels
Anna Town
22 Hanover Square London  W1A 2BN
tel +44 (0) 20 7399 5675
www.joneslanglasallehotels.com
anna.town@eu.joneslanglasalle.com

 
STARWOOD SEES W AS KEY DRIVER

While the brand was mainly in gateway cities in the US, he said new W Hotels were now being built in Mexico City and through a partnership in Seoul Korea, while Starwood was currently looking at the first W in Europe.


CNNfn TRANSCRIPT OF INTERVIEW WITH BARRY STERNLICHT, CEO OF STARWOOD HOTELS & RESORTS

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ALI VELSHI, CNNfn ANCHOR, BUSINESS UNUSUAL: Well, in New York it's a bit hard to stand out in Times Square the neon lights, giant ads, thousands of people, something like a hotel could easily pass unnoticed. That's exactly what the folks at (19:13:10) the new "W" want. Their flagship property is meant to be an island of calm in a sea of chaos. Barry Sternlicht is the CEO of Starwood Hotels and Resorts parent company of the "W," joins me (19:13:20) for a look at this new addition. Barry Sternlicht, welcome to the show.

BARRY STERNLICHT, CEO, STARWOOD HOTELS: Thank you.

VELSHI: This is the third "W" in New York?.

STERNLICHT: The fifth "W" in New York.

VELSHI: Fifth "W" I'm missing two.

STERNLICHT: It's a big city, Ali.

VELSHI: That's the point isn't it? There's all these "Ws" all over the (19:13:30) place. You don't see splashy ads for them. They're not splashy they're different. What are they? What do you describe them as?

STERNLICHT They're the "Banana Republic" of the hotel market. They're differentiated product. They have a very targeted focus in their market (19:13:40) demographic and there are 16 of them right now and three under construction. So, they've gone into the gateway cities primarily all over - across the United States. We're now building - of the (19:13:50) three they're building we're building in Mexico City. We're partners with somebody in Seoul Korea and we're looking at our first "Ws" in Europe now.

VELSHI: What's the sensation? What's someone supposed to feel when they go into (19:14:00) the "W?" I know I feel fat because everybody there is sort of slim and fashionable, but what's one supposed to feel?

STERNLICHT: Comfortable. We like all the "W" words that's why we call it (19:14:10) "W" hotels, welcome, warm, witty, whimsical, wow, wonderful, why hasn't anyone done it before. So, you know, "W" is an attitude. It's everything we did we did for the customer. It's a great restaurant, a great bar, a good health club, a great bed. I fixed all (19:14:20) of the problems I saw in other hotels in "W." We have a 27 inch TV, cordless phones you can wander the room with and usually a big shower. So.

VELSHI: This is the Times Square "W" we're (19:14:30) looking at?

STERNLICHT: I believe it is.

VELSHI: Yes. And that - the official opening for that is tonight, I guess. The opening party is tonight.

STERNLICHT: That's right.

VELSHI: At Starwood you embarked a few years ago in a branding exercise making it very (19:14:40) clear to the consumer where your various brands stand. Has that been successful?

STERNLICHT: It's an evolving evolution. I think we've been more successful with some brands than others and that's because some (19:14:50) are more difficult than others. St. Regis' clear position at the top of the market. There are about eight St. Regis today and we positioned them as the one or two best hotel (19:15:00) in the market that they're in. Luxury collection is an affiliation of Wonderful properties. Usually independent hotels like the Venetian which we own or some of our c(INAUDIBLE) properties in Europe like the Greedy Palace, the (19:15:10) Danielle the Excelsior in Rome and Florence, the Grande in Rome and Florence. So, it's a collection of magnificent hotels. The core branding expertise between Sheridan and Western.

VELSHI: Right. And there's still a little gray area there. Still .

STERNLICHT: Well, we've rolled out a (19:15:20) lot of products for Western like the heavenly bed, the heavenly bath and soon another innovation we're going to talk about and we've positioned Western as an upper upscale (19:15:30) brand. Sheridan is a much bigger brand and we own less of them. It's more of a cooperative influencing the design and the aesthetic of Sheridan because we don't own them (19:15:40) and that's an ongoing process. But we think of Sheridan as sort of conservative and not boring. We think of Western as sort of upscale Armaniesk (ph) but comfortable modern luxury.

"W" is a smaller niche. It's not (19:15:50) as broad. It's also for a business traveler but it's a younger skew. Western skews a little bit more affluent than Sheridan and targets more of a group and convention business.

VELSHI: Who makes (19:16:00) the most money? You're a public company. Which ones are the best?

STERNLICHT: Well, that's hard. I mean.

VELSHI: I know that's like a father talking about which one of his children is the best, but the fact is.

STERNLICHT: They all (19:16:10) make money. Even in this recession they all make money.

VELSHI: "W" seems to be getting a lot of attention right now.

STERNLICHT: "W" gets a lot of attention because it's different and that's (19:16:20) why we did it. It's different. It's not a me-too product. We make most of our money in Sheridan because we happen to own some of the biggest hotels in Sheridan's system in San Diego, in (19:16:30) New York in Val (ph) Harbor, Florida. We own a lot of the big urban hard to reproduce Sheridans, Boston, New Orleans..

VELSHI:. Super tankers.

STERNLICHT: Super tankers. We own the super tanker Sheridans and there's a lot of money there. The fastest growing part of our (19:16:40) company is "W." We've invested behind it and our return on capital has been the highest in "W." So we continue to either do them ourselves or in some situations (19:16:50) like San Diego we'll own 10 percent. In Mexico City we'll own half.

VELSHI: And in tough times when arguably the hotel industry is also going through tough times expanding opening up new hotels in landmark (19:17:00) places?

STERNLICHT: Well, we're watching our capital. As I'd like to say, we're planning for the worse and hoping for the best. So, we've cut back our capital expenditures. We have some issues. We want to refinance our debt (19:17:10) this year. So, until we get a firmer feeling for the recovery and the pace of the recovery it's not a question of if we'll recovery it's when (19:17:20) we'll recover and we want to keep our debt and keep our investment grade rating our (INAUDIBLE) investment grade rating and hopefully get the other agency to (19:17:30) rate us investment grade.

So, we're being cautious on our capital spending and we're expanding. We're actually signing up at a greater pace meaningful management contracts like we signed up (19:17:40) a $ 4 million contract for property in Japan called Sagai (ph). We signed recently two deals in Thailand. We're working on some things in Europe right now. We've actually added about two thirds as many contract (19:17:50) sin Europe as we have the United States and these are good contracts. We're not putting a lot of capital behind them and there aren't a lot of guarantees and we're (19:18:00) not creating new supply, which in many markets is not needed.

VELSHI: All right. Barry Sternlicht, thanks so much for being with us tonight.

STERNLICHT: Thanks for having me.

VELSHI: All right. Barry Sternlicht is the CEO of Starwood Hotels & Resorts.

DISCOVER THE NEW "YOU"  AT LE ROYAL MERIDIEN BAHRAIN

Since it was opened in 2000, the luxurious Royal Spa at Le Royal Meridien Bahrain has already become a haven of well being for mind and body for thousands of women. Decorated by famous French designer Pierre-Yves Rochon, the spa, as part of the sprawling Royal Meridien Hotel and Resort on the shores of the Gulf, makes use of ancient treatments involving properties of the sea, like employing thalassotherapy, hydrotherapy and aromatherapy to bring healing powers.

The first of its kind in the Middle East, the Royal Spa sprawls over 2,000 square meters on two floors. Private, fully equipped treatment suites, a steam room and a sanatorium make up the hydrotherapy department.

A marine-therapy treatment employs seawater to bring new vitality and rejuvenation to the body. Those suffering from stress at home or in their career find aromatherapy, Thai and synchronized massages an ideal way to unwind. Professional, attentive staff  look after guests in a caring manner.

The first place tension generally takes its toll is on the face, and the spa offers a wide selection of face and body treatments using top-of-the-range E’spa beauty products. When arriving at the Royal Spa, the client enters a haven which in itself puts one at ease. In a one-on-one talk, a fitness instructor is able to assess the client’s needs and requirements, how she lives, what she eats and in what manner she relaxes.

Subsequently, a programme is proposed, tailor-made to the individual. A thalassotherapy treatment is usually a basic step in a programme as it benefits both beauty and physical health. Other options are also open including aerobics sessions, yoga courses and workouts at the gymnasium.

Body and facial treatments may also be proposed in the initial assessment. But the Royal Spa’s finishing touches help to add a culmination of beauty to the programme: waxing, tinting, manicure and a pedicure. Those coming for a weekend, a week or more will discover that Le Royal Meridien has all the services and facilities to complement a client’s stay.

A five-star deluxe hotel, it offers spa-accommodation packages that respond to your requirements. Open in 1995, Le Royal Meridien is a member of the Leading Hotels of the World. Located in lush gardens with a lagoon with ducks and flamingoes on the banks, the hotel is just nine kilometers from the airport and three kilometers from the city center

Nearby is the Bahrain International Exhibition Center  which often holds key shows spotlighting jewelry, fashion and health services. In Bahrain—and perhaps in the entire Gulf—Le Royal Meridien is the sole hotel to be positioned on the shores of the turquoise waters of the Gulf with its own private beach, lagoon, private islet, fitness club, marina and spa.

The hotel has a dozen restaurants and lounges to choose from including the Polynesian-style Trader Vic’s as well as Italian, Indian and Tex-Mex. At the spa, dozens of specialized treatments are on offer though most clients come with a very specific programme in mind which includes weight loss, energizing and body conditioning, pre- and post-natal treatment, remedial therapy, anti-stress and even preparation for a wedding day.

The spa’s Tiare is a restaurant which underscores healthy, nutritional eating, and, besides à la carte dining, it is the perfect place to relax in the dining room or outdoors on the deck to have a morning tea, pause for lunch or have a full dinner. Four different buffets are available during the day.  

MARRIOTT EARNINGS FALL SHORT

Lowered first quarter projections, yet optimistic about 2002

Associated Press  -  Marriott International says its fourth-quarter profits were hurt by the drop in travel following September eleventh, as well as by weakness in the global economy and fluctuations in foreign currency rates.

PROPERTY GROUP MIRVAC THINKS WORST IS BEHIND AUSTRALIA'S HOTEL SECTOR


AAP -  Property group Mirvac Group Ltd today said
it believed the worst was now behind the Australian hotel sector,
which was hit by a downturn in tourism after September 11 and the
Ansett collapse.

The comments came after Mirvac posted an 18.8 per cent increase
in net profit to $ 90.42 million for the six months to December 31,
2001.

Profit from Mirvac's hotel division fell 21.7 per cent to $ 5.4
million in the first half.

Chief executive of Mirvac's hotel division, Andrew Turner, said
the previous corresponding period was buoyed by the Sydney Olympics
and included revenue from The Chateau Hotel, since sold, and the
Sebel Townhouse which is being redeveloped.

He said a big downturn in inbound tourist numbers in the
aftermath of the September 11 terrorist attacks and a subsequent
decrease in the amount of domestic leisure and corporate travel
following the collapse of Ansett Airlines had hit the Australian
hotel sector.

"We think the worst is behind us and things have recovered more
quickly than we anticipated in September last year," Mr Turner
said.