Global Premium Hotels suffers 52% surge in expenses

Wage hikes and staff increase are culprits.

According to OCBC, Global Premium Hotels (GPH) registered 3Q12 results that were below our expectations.

Here's more from OCBC:

3Q12 revenue increased by 8.1% YoY to S$14.9m. Gross profit margin declined 1.7 ppt versus 3Q11 to 86.6%. EBITDA margin fell 6.6 ppt to 59.8% (excluding one-off expenses of S$0.5m for 3Q12).

9M12 EPS of 1.34 S cents equaled 72% of our prior FY12F estimate of 1.87 S cents, which we now lower to 1.75 S cents.

Hotel room revenue increased by S$1.4m or 10.5% YoY. There was a contribution of S$1.7m from hotels that opened in 2011 (Parc Sovereign, Fragrance Riverside and Fragrance Elegance) or underwent upgrades in 2011 (Fragrance Emerald).

These were partially offset by lower room revenue at Fragrance Ruby which is temporarily closed for asset enhancement. Ruby is expected to launch on 1 Dec with first-of-a-kind facilities for an economy-tier hotel, e.g. free Wi-Fi and Smart TV.

Administrative expenses rose by S$2.0m, or 52% YoY, chiefly due to general increase in wages and additional staff needed for Riverside and Elegance. 3Q12 finance costs climbed S$1.6m, or 228% versus 3Q11.

This was mainly due to the drawdown of S$453.5m in term loans in 1H12 for partial payment of the purchase consideration in connection with the 2Q12 IPO.

GPH has begun construction of its new mid-tier Parc Sovereign Hotel located at Tyrwhitt Road in Aug. The 265-room hotel situated on a freehold land will become GPH's largest hotel, increasing the portfolio by 15% to 2,003 rooms.

An independent valuer has estimated a gross development value S$150m, implying a potential fair value gain of S$42m.