Hotel investors get performance index

By Andrew Sangster

A report launched last week will enable investors in the hotel industry to compare the performance of hotel companies in a meaningful way for the first time, according to the leader of the investment bank team that wrote it.

Paul Slattery, head of research at Kleinwort Benson Securities (KBS), told Caterer that his study, Quoted Hotel Companies: the World Markets 1996, establishes for the first time the relationship between hotel portfolios, the demand they attract and the profits they earn.

"Previously, investors had not known whether the performance of a hotel company was good enough compared with its competitors," Mr Slattery said.

The properties within each hotel company are examined by considering eight factors, such as market level and hotel size, with the heaviest weighting given to location.

This analysis is used to construct a portfolio index which is considered to represent supply. The index ranks the potential of the hotels run by each company and is split into different divisions for comparative purposes.

A ranking of demand is then obtained by looking at rooms yield and turnover per room from non-room activity such as food and beverage sales.

(The KBS analysis shows that bedroom occupancy grew in line with expectations last year, with 31.35 million room nights sold, a rise of 3.7% on 1994 levels.)

Finally, a measure of performance is constructed by looking at trading profit per room and trading.

"The mechanism means that for the first time apples can be compared with apples," Mr Slattery said.

Stakis was ranked 17th out of the 51 hotel companies in the whole UK index. But it beats companies placed higher in the index, such as Bass, Greenalls, Vaux and Queens Moat Houses, when trading profit per room is considered.

And Stakis's 26.6% trading margin puts it ahead of companies such as the Savoy Group, which is ranked third in the index.

The report comments that the investment community believes that Stakis has a high-quality management and its performance reinforces that view.

Demand for hotel bedrooms provided by the 51 listed hotel companies will be strongest in big towns and cities, particularly London, predicts the report.

This will result in hotels in the best locations enjoying average room rates that increase at above the rate of inflation but hotels in poorer locations struggling to raise rates in line with inflation.

Overall, these developments in supply and demand will see the performance of the 51 UK hotel companies improving, with trading margins and trading profit per room increasing.

Quoted Hotel Companies: The World Markets 1996 costs £500. Tel: 0171 956 8581.