News for the Hospitality Executive
|By Dawn Bryant, The Sun News, Myrtle Beach, S.C.
Knight Ridder/Tribune Business News
Mar. 24, 2004 - Rooms are going for less and cost-cutting continues at the Radisson Plaza Hotel as the days dwindle for Myrtle Beach City Council to decide on a bailout plan.
The hotel's lower-than-predicted rates and trimmed costs gave the Radisson its best earnings month in February since it opened about a year ago -- only the second month it finished in the black.
February earnings topped $107,000 compared to the loss of $247,800 in February 2003.
The only other month the Radisson made a profit was July, when monthly earnings were $37,800.
The Radisson's worst month has been a nearly $484,000 loss for December.
Officials credit February's strong showing to a $14 drop in the hotel's forecasted average daily winter rate and continued cost-cutting that includes scaled-back food and valet service. Nightly rates fell to $91.38 to drive business. The strategy worked.
"We're headed in the right direction," said Walt Standish, chairman of the city's Hotel Board Corp. "Soon money will start going to the city instead of coming from the city." But the turnaround won't help avoid a technical default on the hotel bonds that will happen April 1 when the city dips into hotel reserves to make that $2.6 million debt payment.
The city is buying out about 300 bondholders who own about $40 million in bonds. The second set of bonds issued for the hotel, worth about $22 million, will not change.
The council is expected to decide the next step Tuesday by picking one of two options: refinancing or getting a five-year loan.
Either choice won't keep the bonds from defaulting next week. But it will give the city the chance to prove it has a plan to turnaround the financial woes.
That explanation might limit the default's potential negative affects, officials say. A default could hurt credit ratings.
The bailout hasn't been an easy decision for the council, which has spent many hours in the last few weeks debating options.
Meanwhile, Radisson officials have stayed behind the scenes.
They've focused on improving the hotel's performance and planning a public relations effort to limit the potential hit that could come once word of the default spreads.
Officials are assuring clients and potential guests that the hotel isn't closing and that sales are getting better.
The hotel's reputation already has taken a hit. S.C. senators mentioned the Radisson's struggles during last week's session. And officials have gotten calls from friends and associates in markets such as Atlanta who think the hotel is on its last legs.
"That's what we have to stop," consultant Jeff Sachs said. "On [April] 1st, something will be reported. We are going to say, 'Here's our solution. The hotel is open ... and everything is OK.' " Radisson Sales Director Craig Smith is preparing a press release and trying to comfort clients.
"It could be damaging. That's our biggest concern," he said.
That puts more pressure on the council to pick a plan next week so officials can report that efforts are in place to avoid future defaults. The council is eyeing a loan or a refinancing using hospitality fee revenues as back-up.
"There is no intention to ever utilize that cash," Sachs said.
But pledging those hospitality funds, about $7 million annually, will still affect taxpayers.
Setting aside that revenue to back the hotel takes that money away from backing other big-ticket projects. That means renovations at the Rivoli theater, downtown redevelopment and some new fire stations might be delayed for up to two years.
The Radisson has agreed to step up and cover future losses if the hotel misses revised projections, though officials say they are optimistic that won't happen. Details of Radisson's multimillion-dollar offer haven't been released.
In exchange for that pledge, Radisson's parent company, Carlson, has asked that it take the open seat on the city's Hotel Board Corp., which oversees the hotel's financials to protect the city.
The board would have to change its bylaws to allow that.
The rules now say board members must be South Carolina residents.
The City Council will have the final say on whether Carlson could take the seat for a four-year term. Two locals also have applied to serve.
Some Hotel Board members said Carlson's request was reasonable. Others questioned whether the city would pick up the tab for the out-of-town member to travel to the meetings. Current board members aren't paid.
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(c) 2004, The Sun News, Myrtle Beach, S.C. Distributed by Knight Ridder/Tribune Business News.