John Scott walked in as new CEO of Orient-Express Hotels last November with his hands full. Debt levels needed to be better managed, 46 assets had to be reassessed with some earmarked for potential sale and he had to manage an anxious board that late last year turned down a US$1.2-billion takeover from The Indian Hotels Co.
Last month, HOTELS talked to the former president and CEO of Rosewood Hotels & Resorts with expertise in hotel acquisition and asset management about the issues and opportunities facing Orient-Express Hotels (OEH), London.
HOTELS: OEH has been known as a buttoned-up company. How is the transition going for you?
John Scott: I have never been called “buttoned-up.” The only change I am trying is not wearing a tie as often as others here. My assistant tells me I am the first CEO she has worked for who takes public transportation. I take the tube to work; I like the message that sends.
It has been a rapid transition as the company had been without a CEO longer than most companies. It was important for me to start and start quickly. … There is great value here that has not materialized as much as it should, and I have been successful in helping people do that. … My approach, while not as buttoned-up, is about execution, urgency and focus. The organization has been adapting to my speed and need for speed to get things done, and that has been a good thing.
HOTELS: What are you doing to change the team and culture?
Scott: We have a great team, but I also brought in some great people to help us execute on the people and product front. I brought in a global HR person as well as someone on the tech services front. I also brought in Ralph Aruzza as chief sales and marketing officer (35 years of luxury hotel experience and with Rosewood since 2006) to help with the brand and sales and marketing infrastructure.
Any CEO puts in place his own team, and then we have to execute and deliver. Culture will change, but that is not an easy thing to do. I want to be respectful. OEH wasn’t broken on culture; it just needed focus and direction, and greater urgency for execution. We also need a little more consistency, more metrics surrounding how we measure ourselves and hold ourselves accountable.
HOTELS: What are you doing to address the debt on the balance sheet?
Scott: Five years ago, the company was in a far different place. In 2008, it had close to US$900 million of debt on the balance sheet. Debt to EBITDA was almost 10 times at its peak. Near-term maturities were extensive. We set a goal to get it down and have done so via growing cash flows, asset sales and by paying down debt. We are under five times now and have goal to get it to four times within 12 months. With select pruning of the portfolio we will get there. I am happy where we are. We have good liquidity, and total debt to EBITDA is in good shape.
HOTELS: What is your asset sale strategy?
Scott: We will sell and keep management. If we get a better price for selling unencumbered we will do that, too. The best scenario in the future is to sell and keep management.
HOTELS: How do you further grow the stock price?
Scott: First, position ourselves for favorable industry dynamics. We are owner-operators and must be leveraged to be successful in the markets we cover. The next piece is improving the core. Bringing Ralph on board with a strong sales and revenue generation background is something the company will benefit from. Yield management, better penetrating existing markets and really focusing on some new markets we haven’t spent much time on such as emerging markets will help a lot. If investors see we are disciplined about capital allocation and what we do that will helpas well. Renovations, attractive ROI projects and select new businesses can get us strong EBITDA growth.
HOTELS: Were you brought in to sell the company?
Scott: I am committed to doing what is right for the business. Selling the company is not a strategy; it is an outcome. The strategy is doing all the right things to create the most value and get the share price up. It doesn’t mean selling. It could be transformation, change, merger, acquisition or getting back into acquiring assets.
No, I wasn’t brought in to to sell. They wouldn’t have hired me if that was case. I am compensated by getting our stock price up, so when I talk to investors they are thrilled about the alignment of our interests to do the right thing, whatever that is. I am not sure what that will be three years out, but I know what I need to do: add value today.
HOTELS: What do you tell stock analysts about being for sale?
Scott: I tell analysts we are not for sale. It is not my mandate and not my job as CEO to make that decision. I focus on what I can control. I can’t control if someone comes to make an offer. The board will have to consider it. It happened with Tata. It was considered and evaluated thoughtfully, and it was the wrong bid, at the wrong price, at the wrong time. A lot of shareholders would agree to that but were frustrated it didn’t result in something more.
HOTELS: Are you sourcing management deals?
Scott: It is part of our growth. That business is very attractive, and we can leverage our infrastructure. We will do that as part of our strategy, and we are trying to focus on doing a couple that make a lot of sense. It is not about quantity. We will do a few where we can add value, where it is close to our operating infrastructure and where our customer wants to go. I hope to have something on this later this year.
HOTELS: What are you most proud of to date at Orient-Express?
Scott: The completion of the US$20 million refurbishment of the main building of the Copacabana Palace in December 2012. The refurbishment included all of the main building’s 145 rooms and suites (61% of the hotel’s total room inventory), a renovation and expansion of the hotel lobby and significant enhancements to the hotel’s public areas. The hotel will celebrate its 90th anniversary in 2013, and this renovation puts it in prime position to capitalize on the city’s growing international profile and to benefit from the exciting global sporting events that will take place in Rio over the coming years.
In March, following a multi-year US$134 million renovation, we opened the 92-key El Encanto hotel in Santa Barbara, California, further strengthening brand presence in the important North American market.
I’ve been in the “hot seat” at Orient-Express Hotels now for just over eight months. I’m proud of what we have managed to achieve in that time in strengthening and improving our core business through a disciplined portfolio re-investment program, ongoing balance sheet strengthening initiatives and refined organizational structures.
HOTELS: What’s next?
Scott: We will be embarking on two large-scale renovation projects at Grand Hotel Europe in St. Petersburg and Charleston Place in South Carolina. The three-year refurbishment program at Grand Hotel Europe includes the conversion of 19 rooms into six ultra-luxury suites, a new food and beverage outlet, an expanded spa and fully renovated meeting rooms. At Charleston Place, we have started the first phase of a three-year program to refurbish all of the hotel’s 435 keys.