Stronger sterling and Mayfair closure take shine off Millennium & Copthorne first half

Millennium & Copthorne Hotels issued its interim management report for the six months ended 30 June on Friday, reporting a 4.3% fall in group revenue per available room (RevPAR) to £75.29 in reported currency.

The FTSE 250 accommodation operator said that in constant currency, it grew by 0.5%, while like-for-like group RevPAR for the six months of 2018 increased 2.0%.

RevPAR for the company’s London hotels in the first half was down by 15.1% year-on-year, mainly because of refurbishment work at its Mayfair hotel.

Having been partially closed since November, the property closed completely at the beginning of July to facilitate the ongoing refurbishment work, which the board said would reposition the property as its flagship property within a new luxury competitive set.

Reported hotel revenue for the half-year fell 3.3% to £404m, although in constant currency, hotel revenues increased 1.3%.

A stronger sterling during the period had the effect of reducing its revenue from overseas hotels by £19m.

Higher contributions from Millennium Hilton New York One UN Plaza - rebranded in August last year - and M Social Auckland, which opened in October last year following a lengthy refurbishment from the Copthorne brand, were said to have been partially offset by lower revenue from the Mayfair hotel and London hotels.

Total revenue for the first half fell £8m, or 1.6%, to £477m, although in constant currency, total revenue was ahead £14m, or 3.0%.

Increased residential section sales in New Zealand added £5m, whilst CDLHT added £3m, helped mainly by recently acquired hotels.

In the second quarter specifically, group RevPAR fell 5.3% in reported currency and by 1.7% in constant currency, while like-for-like group RevPAR increased slightly by 0.8%.

In reported currency, pre-tax profit for the first half of 2018 increased £2m to £65m, while in constant currency, it was up £4m to £65m.

Pre-tax profit in the second quarter specifically was down on a constant currency basis by £9m year-on-year.

The board said that decline largely resulted from weaker hotel performance, notably in London, as well as a £3m reduction due to the timing of one-off gains.

Millennium & Copthorne declared an interim dividend of 2.08p per share.

“Results in the first half of 2018 were mixed,” commented chairman Kwek Leng Beng.

“Whilst North Asia and New Zealand saw higher revenue, our London hotels under-performed partly due to their slow adjustment to competitive market conditions in addition to the impact of refurbishment at our Mayfair property.”

Kwek Leng Beng said that although New York RevPAR was up, mainly due to improvements at Millennium Hilton New York One UN Plaza, the region remained unprofitable, with Singapore also down slightly.

“I am pleased to welcome Jennifer Fox as group CEO,” the chairman added.

“I am working with her closely to expedite the changes we agree are necessary to improve performance as a niche owner-operator of hospitality assets.

“I am confident that her expertise in branding and marketing will bring benefits to the group.”

Kwek Leng Beng said that since the close of the second quarter, the board underlined its commitment to stepping up investment in group assets by closing the Mayfair hotel entirely at the beginning of July.

“We look forward to its reopening as our flagship property in Q1 next year.

“Additional refurbishment projects in London and New York will be announced in due course.”

The chairman added that, given current “volatile” political and economic conditions - especially Brexit and the unfolding trade tensions between the United States, China and Europe - the group was continuing to be cautious about the immediate future.

“However, this will not affect our plan to step up investment in our hotels, which we regard as essential to the group's long-term health.”