U.S. hotel owners are seeing an increase in corporate travel while the number of leisure guests is not breaking any records. Generally, room rates and occupancy levels are on the rise. Yet not every hotelier across the country is raking in massive profits.
Of course, various high-profile hotel companies (Marriot, Hyatt) are showing improvement. Other hotel owners, however, have faced bankruptcy or foreclosure in recent years. New York City hotels are seen as a smart investment in an established market.
If entrepreneurs want to determine a company's risk for bankruptcy, they can use the Altman Z-Score (a formula developed by New York University professor Edward Altman in 1968). The Altman Z-Score measures varied aspects of a company's financial health - working capital, total assets, total liabilities, market capitalization, sales, retained earnings, and earnings before interest & taxes (EBIT). This measure can predict if the company will go bankrupt within two years. According to Investopedia, the Altman Z-Score has been 72% accurate in its predictions.
Usually, companies with a Z-Score above 3 are considered safe and have little risk of bankruptcy. Businesses with a score of 1.81 or lower are seen as distressed properties in danger of bankruptcy. The middle range is a gray area.
Of course, the Altman Z-Score is not the only indication of a company's financial state. The Z-Score does not come with any guarantee. Yet potential buyers have reason to be concerned about hotels below the safety zone or properties with a year-after-year declining score.
Starwood Hotels, a dynamic presence in the NYC hospitality industry, as well as elsewhere, stayed at a reading of 1.84 in the trailing 12 months. This measure puts Starwood Hotels within the gray area and not at risk for bankruptcy. Starwood operates hotels under several brands such as the St. Regis, W, Westin, Le Meridien, Sheraton, and Four Points.
On July 28, Starwood will release its financial results for the second quarter of 2011. Several analysts expect Starwood to announce a profit of $89.6 million (46 cents per share) on revenue of $1.41 billion. This profit would compare with last year's earnings of $114 million (61 cents per diluted share) on revenue of $1.29 billion. During April, Starwood announced that quarterly revenue exceeded expectations and increased by 9.2% to $1.3 billion. Luxury travel was behind the rise in profits.
Despite turmoil in North Africa and the Middle East and the earthquake in Japan, worldwide RevPAR (revenue per available room) rose 10.4 per cent. Within North America, the increase amounted to 11.1 per cent. RevPAR, a key metric in the hotel sector, multiplies an establishment's room rate by its occupancy rate. Within recent years, RevPAR has been lower as travelers decided against high-priced hotel rooms – even in luxury properties.
Starwood offered a better full-year profit guidance ($1.60 to $1.70 per share). Analysts had predicted these profits. Starwood CEO says that the outlook for the rest of 2011 looks promising for the company.
Wyndham Worldwide (WYNR)
With a Z-Score of 1.15, Wyndham ranked just inside the risky area. Yet Wyndham shows improvement from last year. Wyndham operates several hotel brands including Wyndham (such as Wyndham Garden Times Square South Hotel), Ramada, Days Inn, Super 8, Howard Johnson and Microtel, as well as other properties. On July 27, Wyndham will release its 2011 second-quarter results.
Industry analysts expect a profit of $95.4 million (56 cents per share) on revenue of $1.05 billion. Last year, the company's earnings came in at $95 million (51 cents per share) on revenue of $963 million. Recently, Wyndham saw a 44% increase in net earnings due to increased revenue in all business categories.
As of March 31, 2011 (the end of this year's fiscal quarter), Wyndham earned $72 million (41 cents per share). Excluding charges, its profit was 44 cents per share. This figure topped expectations by 4 cents. Revenue increased 7% to $952 million – almost $18 million shy of analysts' predictions. Wyndham's lodging showed a RevPAR rise of 7.4%.
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