Beverly Hills-based Hilton Hotel Corp. announced two major projects last week, a conference hotel to open in Warsaw, Poland, in March and groundbreaking for a casino resort in New Mexico.
Wall Street yawned and Hilton stock stayed around $35. Later in the week, however, analysts Thomas Weisel Partners LLC downgraded the company along with its competitors Marriott International Inc. and Starwood Hotels & Resorts Worldwide Inc.
“It’s probably a reaction because there has been such a rapid run-up in values,” said Alan X. Reay, president of Atlas Hospitality Group.
Hilton stock rose 46 percent in 2006. The company bought out its international partner for $5.7 billion last January and spent the rest of the year shedding assets.
“Revenues for hotels really went up tremendously last year and downgrading is probably a reflection that they don’t expect as strong an increase as they did last year.”
Reay thinks the hotel industry is well positioned for a strong 2007 performance, although 2006 will be tough to top.
“Hilton has been clearing up their balance sheet, they’re selling at high prices and making long-term management contracts, which is really the most lucrative part of the business,” he said. “Each additional franchise they sign is almost all profit.”
The 29-story Warsaw property, which will have a ballroom capable of holding 1,850 people, will be Poland’s biggest conference hotel.
In Pojoaque, N.M., groundbreaking for the Buffalo Thunder Resort will take place this month. The resort, designed to be a four-star destination, will include a 390-room hotel, spa, restaurants, entertainment venues, meeting space and a casino. The resort, which will be able to recycle 100 percent of its water, is expected to open in late 2008.
The property is owned by the Pueblo of Pojoaque and expected to bring jobs to hundreds of Native Americans.
Reay said these announcements don’t necessarily conflict with Hilton’s effective 2006 strategy. The hotel chain has been shedding company-owned hotels in favor of long-term management contracts with little risk and a wide profit margin. With large projects, such as the two announced last week, however, Reay said hotel companies often buy a share of the equity, between 10 and 15 percent, in return for the company name on the property and a management contract with the hotel.
“When you consider they’re going to have their name on a major hotel in a major market with a long-term management contract, it’s very lucrative,” he said.
Wide Ranging Chicken
Pollo Campero is taking its crispy fried chicken, flan, rice and pinto beans to Arizona.
Los Angeles-based Adir Restaurants Corp., the franchisor of Pollo Campero restaurants in six western states has a new franchisee, Emerging Restaurants Group LLC, which plans to open 20 locations in the Grand Canyon State.
“We are thrilled to be bringing Latin America’s leading quick service restaurant to Arizona,” said Gonzalo A. de la Melena Jr., chief executive of Emerging Restaurants. “The market is ripe for this concept; Phoenix is the fifth-largest city in the country and the ninth-largest Hispanic market. The Campero brand has a long standing history of quality and set of values that will resonate with Arizona consumers.”
This represents a sizable growth spurt for the Guatemala City-based food chain, which recently celebrated its 35th anniversary. The chain currently has 200 locations in Latin America and 30 in the United States, including 14 in the Los Angeles area. The first L.A. store opened in 2002.
Emerging Restaurants plans to open its first Pollo Campero in first quarter 2008.
Faith in Retail
L.A.-based True Religion Apparel Inc. will continue its retail expansion in 2007.
The next locations are slated for The Galleria shopping mall in Houston and trendy, youth-oriented Lincoln Park in Chicago. The locations will open in spring and summer 2007, respectively. The two additions will make seven retail locations for the young public company, which has a Miami Beach location opening this month.
“We have established a robust pace to open True Religion stores throughout the country, and the Houston Galleria is emblematic of the premier locations we are targeting,” said Michael Buckley, president of True Religion.
Retail expansion has proven to be a profitable strategy for a variety of upscale-designer brands, including L.A.-based Guess Inc., which was one of the market’s top performers of 2006. Its stock went up 80 percent last year and is currently trading at $67.73.
True Religion executives would love to see that sort of return on their expansion. The firm’s stock, which was at roughly $24 in October, has dropped to $15.30 over the past two months.
“While we have been opening stores methodically, we are extremely encouraged by the sales success we have witnessed so far, encouraging us to continue to roll out our retail strategy throughout 2007,” Buckley said.
Staff reporter Emily Bryson York can be reached at (323) 549-5225, ext. 235, or at
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