Tue | Dec 12, 2017

Pricey Hilton brand is worth it - Byles

Published:Sunday | June 25, 2017 | 12:00 AMAvia Collinder
In this September 2013 Gleaner file photo, CEO of Sagicor Real Estate X Fund Limited Rohan Miller (left) and X Fund Chairman Richard Byles (right) look over a document at an investor briefing hosted by the property fund at The Jamaica Pegaus hotel in New Kingston.

Chairman of Sagicor Real Estate X Fund Limited, Richard Byles, said last Friday that the multimillion-dollar fees paid to Hilton hotel group for the use of its brand is a good deal.

The real-estate investment company owns two hotels outright, for which franchise fees amounted to just over US$4 million last year, based on a computation of X Fund's disclosures. That figure translates to more than $500 million in local currency.

Sagicor X Fund is invested in six properties overall, four of which operate under Hilton brands, including the two it owns directly - the 742-room Hilton DoubleTree in Orlando, Florida, and the home-based 489-room Hilton Rose Hall in Montego Bay.

The others are Jewel Paradise Cove and Jewel Dunn's River, which operate as Hilton Curio resorts. Sagicor X Fund CEO Rohan Miller said this means the Jewel brand, which is owned by Sagicor, can also be found on the Hilton website as Hilton properties.

Notes to the property fund's annual report for 2016 indicate that for the DoubleTree hotel, the Hilton group receives royalty fees of four per cent to five per cent of gross room revenue, and fees for marketing, reservations and other related activities amounting to four per cent of gross room revenue.

Under the agreement for DoubleTree, franchise costs totalled US$2.26 million in 2016. The franchise agreement runs to September 30, 2025. For Hilton Rose Hall Resort & Spa, it pays monthly royalty fees of US$100,000, and monthly programme fees of US$50,000. That franchise agreement runs to January 21, 2033.

The issue of the sum paid to Hilton by the property fund was raised by shareholder Orette Staple during a teleconference of X Fund's annual general meeting (AGM), which was beamed

from the Hilton DoubleTree in Orlando to Sagicor Group Jamaica's headquarters in New Kingston.

Chairman Richard Byles, who was at the AGM site in Orlando, said the 'flag' - which is another name for franchise fee - was normal in the course of business and quite reasonable. "We get quite a lot of business through Hilton," he said.

In 2016, the two Hilton-branded properties generated net profit of $440 million, which was $70 million less than the year before, due to funds spent on renovations. Revenue from the hotels amounted to $8.4 billion, up from $5.55 billion in 2015.

 

X FUND NET PROFIT UP

 

Sagicor X Fund itself made net profit of $1.7 billion off total revenue of $10.2 billion, up from $1.3 billion of profit and $6.6 billion of revenue in 2015.

All hotel properties in which X Fund is invested - excluding Palmyra - contributed 78 per cent to revenue last year, although representing only 62 per cent of assets, CEO Miller said.

Hilton Rose Hall carried one of the highest occupancies for the group, as did the DoubleTree. But Miller also noted that occupancy levels at both properties were affected by refurbishings carried out during 2016.

The property fund spent US$16 million on the DoubleTree, which includes two towers of over 300 rooms each and has more than 60,000 square feet of conference and meeting-room facilities. One tower was shuttered in September for the complete overhaul of all guest rooms, general guest areas, restaurant, bar, conference facilities and other areas.

Now that the refurbishing is complete, he said, room rates are set to rise from about US$100 per night to US$120. The hotel operates under the European plan model, and so rates are much lower than those offered on other X Fund properties in Jamaica, which operate as all-inclusive resorts, Miller said.

Sagicor X Fund's most recent investment was a 15 per cent stake in the Palmyra Resort & Spa, which was acquired by Sagicor Group through several of its managed funds in October 2016.

Miller was unwilling to disclose the costs for work being done on the Palmyra, which is set to open this coming winter as the Jewel Grande. X Fund is also planning to upgrade Jewel Dunn's River and Jewel Runaway Bay, he said.

The X Fund CEO later told Gleaner Business that lands acquired at Cardiff Hall in Runaway Bay and at Palm Beach were adjacent to the investment properties and would provide room for "more work". He declined to say whether both hotel properties would be expanded.

At the end of 2016, X Fund's assets were estimated to have grown 31 per cent to $44 billion.

avia.collinder@gleanerjm.com