Hotel feels the heat in bond default

Friday 15th June 2001

By Campbell McIlroy

The default on the Metropolis bond issue has caused some concern for the hotel's operator as the two-year guarantee pay-out period for investors nears its end.

A total of 315 investment units are managed by the Somerset Grand Metropolis Hotel, each with a guaranteed return of 9.5% for two years.

That two-year period ends in December and hotel general manager Frank Delli Cicchi said preliminary calculations estimated returns of 4-4.5% after December.

"We expect most investors would be realistic that they wouldn't be getting 9% after December. I think it would be half that," he said.

Mr Delli Cicchi said the negative publicity surrounding the bond issue had caused some concern but he claimed occupancy rates had improved over the past five months.

He said the hotel operation was completely separate from the developer.

He said the Ascott Chain, which owns the hotel, had 6000 rooms worldwide and net assets of $24.5 billion.

In its first year of operation the hotel managed a 57% occupancy level but Mr Delli Cicchi said the first five months of this year had seen the occupancy level top 70%.

Industry sources estimated that in order to cover the cost of the guarantee the hotel would need to operate at 75% occupancy with an average room rate of $215.

In the year to April the hotel was understood to have operated at 75% occupancy with an average room rate of $133. This was said to be in line with the rest of the industry, which was led by the Stamford Plaza, also with 75% occupancy and a marginally higher average room rate of $148.

Sources within the hotel industry have said the Somerset Grand has been cutting rates to gain business. But Mr Delli Cicchi said this may have been done to gain a foothold in the market but his focus was on turning room rates around.

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