Hilton’s $11.5M loss mostly from depreciation

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While the city-owned Hilton Baltimore Convention Center Hotel lost $11.5 million last year, development officials stressed that the loss is not coming down to taxpayers.

“The hotel to date… has not lost a single penny for the taxpayers of Baltimore City,” said M.J. “Jay” Brodie, president of the Baltimore Development Corp.

The 757-room hotel, which opened on Pratt Street in 2008, was paid for by $301 million in bonds floated by the city and backed by hotel revenue.

To date, the hotel has lost nearly $54 million.

A majority of last year’s loss — $9.6 million — came from depreciation of the building and its furnishings and amortization of bonds. That “paper loss” is not as significant as the hotel’s ability to pay its bills and debt service, officials said

Still, the hotel ended the year with $1.8 million in cash and cash equivalents, 33 percent, or nearly $1 million, less than in 2010.

The $9.6 million in depreciation and amortization last year, and $31.3 million since 2006, when construction started on the hotel, is an important economic indicator, said Steven Isberg, associate professor of finance at the University of Baltimore’s Merrick School of Business.

“It’s still a fairly new property that doesn’t require substantial reinvestment at this stage, but that $31 million represents cash that will have to be used to maintain the business value of the building in the future,” he said.

“In the long run, without reinvesting that money, the business will not be sustainable. So it is important to recognize that depreciation as an economic expense of operating the business today.”

In March, the hotel used $3.8 million in operating reserves to make a semi-annual bond payment.

That came after a slow period in the hotel industry and was what the reserves are intended for, said Brodie, adding that ideally, the hotel will not have to dip into reserves again.

Though hesitant to project when the hotel may start posting a profit, officials said the Hilton is outperforming its competitors.

“Was the hotel a good investment then and now? Absolutely,” Brodie said. “The Hilton Baltimore Convention Center Hotel has put us in the game, competitively and has opened doors to marketing Baltimore to groups that were not open before.”

Still, the city needs to increase its group bookings in order to see occupancy, and subsequently, average daily rates, increase, he said.

“We’re not just concerned on a day-to-day basis with how the Hilton hotel is doing. We’re concerned with how Baltimore is doing,” Brodie said.

The hotel had an occupancy rate of 63.1 percent last year and 62.5 percent in 2010. Average daily room rate for 2011 was $171.53, down from $174.83 in 2010.

“Are we where I want to be? No. Are we where the city was in 2005? No. But we’re not seeing alarming trends,” said Irene Van Sant, project analysis director for the BDC.

Ideally, the hotel would be at 70 percent occupancy, generating $60 million in revenue, she said.

The hotel generated $54.5 million in revenue last year, a 2.5 percent decrease from $55.9 million in 2010.