Hawaii Hotels May Struggle to Repay Debt
Hawaii Hotels May Struggle to Repay Debt
A decline in tourists from Japan
after the earthquake and tsunami last month may reduce cash flow
at Hawaii's hotels, making it costlier for owners to refinance
debt coming due this year and next.
The disaster may have set back a recovery by the islands'hotels "by one to two years," Mary MacNeill, a managingdirector at Fitch Ratings in New York, said in a telephone interview. Talks to restructure an $848 million commercial mortgage-backed security that includes the Sheraton Waikiki, the largest Hawaii hotel loan tracked by Fitch, have been "sidelined," she said.
"Many CMBS loans in Hawaii will have difficulty refinancing without the borrower contributing significant additional equity," MacNeill said. "These hotel loans have experienced significant performance declines and have been performing well below their underwritten cash flows at
issuance."
Several Japanese group bookings have been canceled, said Honolulu-based Joseph Toy, president of Hospitality Advisors LLC, an industry consulting firm. They include the Amway Japan conference with 2,000 attendees that had been scheduled for later this month at the Sheraton Waikiki.
Besides cutting cash flow, the drop-off in tourism may put pressure on potential sale prices for some hotels, he said.
"There are loans that are maturing this year and there are some properties that were prepared to sell to third parties," Toy said. "The limited supply of Hawaii hotel rooms is going to help in the longer term, but right now there'll be more bias toward lower pricing or more conservative loan restructuring." Oahu Top Destination
About 1.2 million Japanese visited Hawaii last year,
accounting for 18 percent of tourists, according to the Hawaii
Tourism Authority. Most go to Oahu, the third-largest of the
eight islands and home to the capital, Honolulu. The group
expects year-over-year Japanese travel to the state to fall 45
percent this month, 35 percent in May and 30 percent in June.
Fitch rates 12 loans on hotels in Hawaii, with 11 greater
than $20 million and the majority of the debt maturing in 2011
or 2012, the company said.
The biggest, known as the Kyo-ya CMBS, was originally
backed by eight properties, including five in Hawaii, according
to an April 1 research note by the firm. It's set to be paid off
on July 9, Fitch said.
"The company's Hawaiian hotel properties are highly
attractive to national and international tourists and business
travelers, and global demand should significantly mitigate any
short-term disruption in Japanese tourism," Greg Dickhens,
president of Kyo-ya Hotels and Resorts, which is owned by New
York-based investment firm Cerberus Capital Management LP, said
in a statement. "Various alternatives including financing,
refinancing and dispositions are being considered.'
Four Seasons Maui
A $250 million loan, maturing on Jan. 1, 2014 and backed by
the Four Seasons Resort Maui, and a $387 million loan secured by
the Grand Wailea Resort Hotel Spa could also be affected by
the decline in Japanese tourism, according to Fitch. On Feb. 1,
the Grand Wailea was one of five luxury resorts that filed for
bankruptcy after lenders including Paulson Co., the New York-
based hedge fund run by John Paulson, seized them from Morgan
Stanley's real estate funds.
Japan Airlines Corp., the nation's flag carrier, on March
28 slashed flights to China, South Korea and Hawaii after the
earthquake and nuclear crisis caused a 25 percent drop in its
international passengers.
Cancellations Slowing
Marriott International Inc., the largest U.S. hotel chain
by revenue, operates 17 hotels in Hawaii, including the Waikiki
Beach Marriott Resort Spa and the Ritz-Carlton Kapalua. Laurie
Goldstein, a spokeswoman for the Bethesda, Maryland-based
company, said it was gathering information on its island
properties and wouldn't discuss details until it releases
earnings in two weeks.
Starwood Hotels Resorts Worldwide Inc. (HOT) manages 11
properties on the islands, including the Sheraton Waikiki and
the Royal Hawaiian Waikiki.
"Cancellations have slowed," Marsha Wienert, a
spokeswoman for the White Plains, New York-based company said in
an e-mail. "Thankfully, mainland (North America) demand is
strong."
Hotel occupancy on Oahu rose to 84 percent in the first two
months of the year, the highest level among the top 25 markets,
from 76 percent in the same period last year, according to Smith
Travel Research Inc. From March 20 to March 26, occupancy
slipped to 77 percent from 76 percent in the year-earlier
period, according to the Hendersonville, Tennessee-based
research firm.
"The growth rate was 10 percent, and it's definitely
slowing," said Jan Freitag, vice president at Smith Travel.
"That's still a very healthy occupancy."
Hotels with a focus on visitors from the U.S., like the
Four Seasons, may be able to weather the storm better than those
with a heavy Japanese visitor base, according to Toy of
Hospitality Advisors.
"These are trophy properties with a stronger reach to the
U.S. market," Toy said.
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