Mandarin may buy more brands: CEO

He says Asia, South America may have the best openings

Mandarin Oriental International Ltd, operator of 25 luxury hotels from Tokyo to San Francisco, may buy more brands as lodging companies struggle amid a decline in spending, chief executive officer Edouard Ettedgui said.

‘We probably can reach 80-100 hotels on our own, but if we want to get to 200, we have to do that through brand acquisitions,’ Mr Ettedgui said in an interview at the opening of the 392-room Mandarin Oriental in Las Vegas. ‘If a luxury brand becomes available at a reasonable price, we’re interested.’

Mandarin’s newest hotel enters a market where room rates have slumped because of the global recession and is part of a resort co-owned by MGM Mirage and Dubai World, the state company that’s in talks to restructure US$26 billion of debt. Mr Ettedgui said that Asia and South America may present the best opportunities and interested sellers have approached the hotel chain, which had US$563 million in cash as of June.

Hong Kong-based Mandarin, with properties in Asia, the Americas and Europe, is developing at least 16 hotels in cities including Beijing, Milan and Chicago.

Mandarin rose 1.6 per cent to US$1.27 at 12.10pm in Singapore trading yesterday. The stock has gained 30 per cent this year, trailing a 57 per cent increase for the Straits Times Index.

‘This is a crisis of solvency, but our balance sheet is strong,’ Mr Ettedgui said. ‘We have been approached’ by people looking for buyers, he said. ‘Definitely more so in recent months.’

Mandarin Oriental Las Vegas – which includes 227 wholly owned luxury residences – is part of the CityCenter resort, 67 acres of hotels, condominiums, gaming halls and shopping malls co-owned by Dubai World and MGM Mirage.

Dubai World, the state-owned investment company, borrowed more than US$4 billion buying US trophy hotels, including the majority of Mandarin Oriental New York, at the top of the market, according to data from Real Capital Analytics Inc in New York.

Mandarin still operates the New York hotel and owns a 25 per cent stake.

‘I am not concerned about our hotel in New York or here in Las Vegas,’ said Mr Ettedgui. ‘Dubai and MGM have isolated this project and the level of debt is not abnormally high.’

Marriott, Starwood Mandarin Oriental has no plans to sell assets, the CEO said. The hotel operator’s net debt-to-equity ratio was 11 per cent as of June, compared with Marriott International Inc’s 257 per cent in September.

Marriott, the biggest US hotel chain, has gained 39 per cent this year in New York trading. Starwood Hotels & Resorts Worldwide Inc, the third-largest, has climbed 86 per cent.

Mandarin, which also competes with chains including the Four Seasons and Starwood’s St Regis brand, plans to attract more leisure travellers. Revenue generated by that group has already risen to as much as 60 per cent of the total from about one-third 10 years ago, the CEO said.

Mandarin Oriental wants to hold at least a majority ownership in the hotels it operates in key cities including Hong Kong and Tokyo, as well as Paris, where it’s opening a property in 2011. The company is preparing to open hotels next year. ‘In key markets, you need sufficient control to be part of all decisions and to have 100 per cent control over your brand, at least in the first two to three years,’ said Mr Ettedgui, who has been in the job since 1998.

The Las Vegas hotel, which includes French chef Pierre Gagnaire’s first US restaurant, Twist, opens as casino resorts slash room prices and increase offers to lure visitors after companies cancelled conferences. Strip-gambling revenue is down about 12 per cent this year, after a record full-year drop of 11 per cent in 2008.

Loans of US$25.8 billion secured against more than 1,600 hotels in the US were added to Realpoint LLC’s watch list for performance-related issues as of the end of October. Many had either defaulted or were at risk of doing so, according to the credit-rating company.

Mr Ettedgui is relying on Las Vegas visitors looking for a luxury experience and said the company’s brand recognition in Asia may help attract customers. ‘Naturally, visitors from Hong Kong or Singapore would recognize our name,’ Mr Ettedgui said. ‘Las Vegas has changed its image so much, the international influx will increase more and more.’

Rates at the Mandarin Oriental Las Vegas hotel will average US$350-400 a night, about the same as the company’s hotels in Boston and Washington DC, Mr Ettedgui said.

The rooms, many of which look out onto the city’s surrounding mountains, are furnished with Asian decor, dark hardwood floors and oval bathtubs. Two floors are reserved for spa treatment rooms, some of which are suites with a view of the gambling strip below.

Mr Ettedgui said he doesn’t expect to raise rates in Las Vegas or anywhere else in the coming year and possibly the next. Occupancy is about 65 per cent across all hotels, he said. ‘Once you are back at maybe 70-75 per cent occupancy you can start thinking about increasing rates again,’ he said. ‘We may be able to raise rates again in 2011 but it’s optimistic to think that that may happen at the beginning of that year.’

Source : Business Times – 9 Dec 2009