Hilton attorney Doug Daniels told the News-Journal last February that the area?s low room rates and inconsistent occupancy were affecting the hotel. (N-J | David Massey)
DAYTONA BEACH -- The Hilton Daytona Beach Oceanfront Resort has not been generating enough revenue to service its $94.7 million debt, but something should happen with the loan within three to six months, according to New York-based Fitch Ratings, a global rating agency.
Fitch recently reported that the Hilton's loan was transferred to special servicing in October after the hotel appeared in danger of stopping payments because of low cash flow. The hotel has been making its payments and is working with a special servicer to resolve the issues.
The Hilton at 100 N. Atlantic Ave. is the area's largest hotel with 744 rooms. Located across from the Ocean Center, it attracts many convention visitors and is seen as integral to the county's convention business. News of its financial challenges comes as local officials are trying to expand the convention business, add a second convention hotel and redevelop the area into an entertainment and restaurant district.
Hilton attorney Doug Daniels and General Manager Rich Larkin could not be reached for comment.
In an expanded report on the hotel's loan Dec. 23, Fitch said the hotel has an $8.88 million letter of credit that is being held as additional collateral.
The Hilton's net operating income fell 19.7 percent from 2009 to 2010, Fitch said. The hotel's room occupancy rate and average daily price rates, however, have fared well compared to its competitors.
Its June occupancy rate -- the most recent data available -- was 63.5 percent, and its revenue per available room was $81.61, or about $10 less than four years ago, according to the report. That's compared to 54.6 percent occupancy and $61.94 in revenue per available room from competitors in the area, the report said.
Paul Breslin, managing partner for suburban Atlanta-based Panther Hospitality, a consulting and development firm, and executive in residence for lodging at Georgia State University, said the Hilton's troubles appear to be "a combination of the perfect storm."
Daytona Beach area hotels have had to lower their room rates since the recession to attract customers, especially troubling to the Hilton which secured its loan in 2007 just before the recession began.
"You have demand that has gone down combined with a rate that has gone down, so you get this combination of earnings that are below expectations, and you have a devaluation in the market and an expensive loan," said Breslin, who has consulted with some Daytona Beach hotels. "So they have to work through it, sit with the lender and work out refinancing."
The Hilton's occupancy rate was 64.4 percent and revenue per available room was $91.74 in 2007, when the loan was issued, according to the Fitch report.
The hotel's loan transferred to special servicing in October after it failed to achieve a debt service coverage ratio of 1 the previous month. The ratio is a standard used to show a borrower's ability to generate enough cash to cover debt. The higher the number is, the happier the lender.
Debt service coverage ratio is "very important," said Adam Fox, senior director at Fitch. "If you're below 1, you're not generating enough to service the debt. One is break-even."
Fitch reported the financial challenges earlier last month in an analysis of the trust that holds the Hilton loan.
County and tourism officials have expressed optimism that the Hilton will rebound. Breslin said Thursday that the Hilton's per-room loan price of $127,325 is undervalued for such a hotel.
"I think the rest of the market took too much of a cut and there wasn't that dramatic swing in occupancy combined with cutting rates too much," Breslin said. "If they dropped the rates and gained exponentially in occupancy, that might have worked, but I don't think it did."
Hilton officials have declined to comment on their financial struggles, but Hilton attorney Daniels told the News-Journal editorial board in February that the area's low room rates and inconsistent occupancy were affecting the Hilton and other area hotels.
Evelyn Fine, president of Mid-Florida Marketing and Research in Daytona Beach, said in doing her research on the area's tourism that she has constantly advised hotels to raise their rates.
"The problem with Daytona Beach is, even as we've increased occupancy rates the last couple (of) years -- even in a bad economy we've been able to bring people in -- the hotels for whatever reason were not able to raise up their rates at the same time," she said. "So they wound up spiraling downward instead of upward."
Part of the problem, she said, is that a lot of hotel owners are owner-operators. That can be good -- they care about the property -- but that also means they have to pay the mortgage and are scared of going under.
"So when the guy next door has to lower the rates, they feel like they need to as well," she said.
"I feel for the Hilton, I really do," she said. "It's tough. They have a property, rooms and product that are worth more than they're getting."
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