The Pittsburgh hotels, Orchard Heights Assisted Living Residence, and Health Services of Northern New York excelled in 2007; their outstanding efforts merit celebration. Our Company’s mid-term and long-term projection is positive. We have learned and continue to learn a great deal about our industry segments, the ever-changing marketplace, and the ways by which we capture the hearts and minds of our customers. We know that we can never expect to win customer loyalty today in the same way that we gained it yesterday: the marketplace is highly competitive and we must constantly develop new methods and strategies in order to provide a superior level of customer care.
Before beginning, however, I would like to show my appreciation of The Hamister Team. Their contributions and commitment to results ensures the success of our organization. Our team is made up of three stakeholder groups:
- Senior Leaders and General Managers: these results-oriented individuals established and communicated our Core Values and Four Top Goals (a refined version of our previous Top Goals). They live and enforce our principles on a daily basis.
- Co-Workers: these dedicated team members adhere to our values and ensure the fulfillment of our Goals.
- Shareholders: our loyal Shareholders expect above average results while exercising reasonable patience with their investment.
Our Senior Leaders, General Managers, Co-workers, and Shareholders all work together to achieve superior results. The Hamister Group gratefully acknowledges their cooperation and confidence.
Our present national economic condition requires that all companies focus on results and results alone. In The Speed of Trust, Stephen M. R. Covey writes: “Establish a track record of results. Get the right things done. Make things happen. Accomplish what you’re hired to do. Be on time and within budget. Don’t overpromise and under deliver. Don’t make excuses for not delivering.” The following business units achieved outstanding results in 2007. Senior Management, local Management, and local Co-workers contributed to the success of the business units below. We celebrate their achievement.
Health Services of Northern New York, Inc.
Orchard Heights, Inc.
Hampton Inn, Cranberry Township
Hampton Inn, Pittsburgh Greentree
Hampton Inn, Pittsburgh Airport
Holiday Inn Express, Cranberry Township
Mainstay Suites, Alcoa Knoxville
Residence Inn, Cranberry Township
FISCAL YEAR 2007 - Improving Results
During 2007 we started and/or completed several property refreshes. Refreshes generally include the installation of new wallpaper, carpeting, window treatments, furniture, etc. in both guest rooms and common areas. In the long term, these refreshes will lead to an improvement in customer care, average daily rate, and occupancy. In the short term, however, they have a negative impact on earnings. During these refreshes significant portions of the buildings (sometimes as much as 25% to 35% of total rooms) are taken out of service. Refresh activities started in 2006 or 2007 and completed in 2007 at the following properties:
- Hampton Inn, Cranberry Township, PA
- Sleep Inn & Suites, Louisville, KY
- Holiday Inn Express, Cranberry Township, PA
Refresh activities were completed or will be completed in 2008 at the following properties:
- Brompton Heights, Amherst, NY (started in 2005 and still underway)
- Residence Inn, Cranberry Township, PA (started in 2007 and completed in February 2008)
FISCAL YEAR 2007 - Our Equity Partners
The support, loyalty, and patience of our Shareholders are critical to our success. Many of our Shareholders have been investing in Hamister companies for years. We have enjoyed very positive returns during our partnership (see www.hamistergroup.com/history.htm for more information). I look forward to continued success and I thank you for your unwavering support over the years.
We have also been very fortunate that so many new Shareholders—people who share our vision and our values—have joined us. I thank our new Shareholders for their support and welcome them to the Hamister family.
In 2006 HSBC Capital became our equity partner in the purchase of five Pittsburgh hotels. Since that time we have solidified our relationship and developed mutual trust with HSBC Capital. We have found this to be a perfect marriage of values, wealth development objectives, and intellectual capability. We sincerely respect this relationship and look forward to its growth and expansion. I thank the people of HSBC Capital for their support.
Hamister-affiliated companies have a strong record of delivering superior all-in returns to Shareholders. In 1996, after the sale of National Health Care Affiliates, our Shareholders attained an internal rate of annual return on their investment exceeding 38%. In 2005, Premier Self Storage Shareholders received returns of 37-41% upon the sale of that business. The Hamister Group, Inc. remains focused on achieving above-average returns for its present Shareholders.
While not all properties paid dividends in 2007, those that did performed quite well. Our overall dividend return on capital invested on a net basis was above the average for publicly traded companies. We anticipate that 2008 will bring even greater results. We anticipate that several more properties will join the group of dividend paying entities.
FISCAL YEAR 2007 - Our Co-Workers
We cannot achieve success without the support and hard work of Co-workers at every level. Superior customer care leads to profitability; we cannot provide a high level of customer care without the dedication and support of the entire organization. I thank the hundreds of Co-workers who share our passion and commitment to genuine customer care. We had many successes worthy of celebration. I would like to share a few customer comments:
From the daughter of an Orchard Heights resident:
“To the Staff of Orchard Heights . . . I just needed to tell you what a wonderful job you are all doing. I never worried about my dad. I knew that I could call at anytime of the day or night and see how he was doing. I also knew that I would be informed day or night if anything was not right. If he was not feeling well or whatever the case may be. I have had many conversations with the nurses and the administrator Gary. I felt I could call the business office to discuss my father’s financial situation at any time. I would stop in at different times during the week, but mostly on weekends. I knew that Connie or Pat would direct me to where my father would be at the time of my visit. I told many of my friends how comfortable I was with my father being there and they too placed their mother or father there. I want to commend the nurses who in July worked fast to call 911 for him. The speediness of their actions helped save his life. I will be forever grateful, because it gave me a little more time with him. Orchard Heights is a special place and without it, I would not have been able to provide the care my father so deserved. I could not have given him care 24/7. Therefore, I just needed to say thank you for the care you give the residents of Orchard Heights. I needed to say thank you for the care you gave my mother for the short time she was there. Most of all, thank you all, every one of you who touched my father’s daily life while he was there. You will all be remembered fondly.”
From a HSNNY client:
"We were very fortunate to have had Erica as our nurse. She was FANTASTIC! We cannot thank her enough for her care. If we ever need assistance again, we will ask for her by name. We were also fortunate to have had Keith (Physical Therapist).As with Erica, we were extremely happy with him and would ask for Keith again. Julie (Home Health Aide) was great. She honestly cares about her clients and you can see that come out in her work. Great gal! They were all very professional and we felt so comfortable with them, like they were
family. We will miss seeing them!”
From a Hampton Inn Pittsburgh Cranberry Township guest:
“Everyone from Senior Management to the Maintenance Staff is always so friendly courteous and very accommodating. I feel like I drive from my house to my other house when I arrive here. There are a few that exceed and I felt that I need to take the time to recognize them. They are, Hotel Manager, Carla Biaggi and her three front desk staff, Barnabas, Vivian, and Jeff. They all greet me by name, welcome me back and always relate to me on a personal level. Yes this may be required but they do it in a way to make you feel as though it is truly genuine as I know it is and I also want you to know that not other Hotels do this. When you look up Guest Service these four individuals define it and set the bar for others strive to achieve. You are very blessed to have all of this entire staff and Hotel in your chain. Please take the time to praise them, not only do they deserve it but I know with my internal sales staff, that extra ‘that a boy’ goes a long way. Thank you for finding such wonderful people to make your Hotel my second home.”
During our recent Strategic Planning Retreat we spent a considerable amount of time talking about co-worker compensation, incentive compensation, and co-worker benefits (most notably health insurance costs and the inability of the business and/or Co-worker to pay those costs). We concluded that we would like to spend the better part of 2008 developing a flexible, retractable approach to sharing extraordinary performance (i.e. profitability which permits dividends above 8.0%) with our Co-workers. We plan to develop a system which encourages extraordinary performance. Bonuses will only be given when performance exceeds mutually agreeable base levels (i.e. base compensation for Co-workers and 8.0% dividends for Shareholders). We will be communicating more about these plans and concepts later in the 2009 budget and in next year’s Annual Report.
2008 AND BEYOND - Our Goals
During the second half of 2007 the Senior Management Team decided to rewrite our Strategic plan. The Company engaged an outside consultant to lead us through the process. We held a series of individual meetings and participated in a three-day retreat. We will need to meet several more times before presenting a new Strategic Plan to our Board of Directors. We are also developing business plans for the implementation of the broader goals and strategies identified in the Strategic Plan.
We realize that we need to develop and act on the new plan as quickly as possible; this will enable us to differentiate ourselves and create opportunities during a difficult economic period. If we implement our new Strategic Plan with caution, passion, discipline, and forethought, we may be able to achieve even greater success during the present economic downturn.
The drafts of this new Strategic Plan call for senior management and all General Managers to focus the majority of their time and the Company’s treasures pursuing these four Goals:
PEOPLE: To maximize our effectiveness by hiring and retaining great Co-workers.
CUSTOMERS: To provide a memorable experience for our customers by exceeding their expectations.
PROFITABILITY: To maximize profitability in existing businesses in order to pay for improved customer services, improved Co-worker compensation/benefits, and improved shareholder returns.
EXTERNAL GROWTH: To promote growth through acquisition and new development. To design methods and approaches to maximize our strengths in relationship development during this difficult but opportunistic time period.
2008 AND BEYOND - Growth Plans
Although the question of whether we are or are not in a recession can be debated, most experts agree that our nation is experiencing an economic downturn that will last from six to eighteen months. The dollar is at an all-time low in relation to most foreign currencies. I will therefore address the risks and opportunities of the economy and the value of the US dollar.
Before planning external growth, we must first consider the marketplace and develop a thoughtful response to its opportunities and risks. Some external growth risks and opportunities are obvious; others are less apparent.
More and more companies are cutting expenditures, including business travel expenses. So far, the quantity of business travel has not decreased drastically; instead, most cuts have affected the price of travel. Fewer business travelers are flying first class, driving luxury rental cars, or staying at expensive full-service hotels. We believe that full-service hotels may suffer slightly during this economic downturn. Statistics from the first quarter of 2008 have proven that this is what is presently happening. Since more business travelers are staying at select-service hotels, we expect a slight increase in business.
The weak dollar creates a certain level of economic balance. It makes US manufactured products cheaper to the global community and reduces the cost of US travel for international visitors. Many pundits predict that leisure travel to the US will increase in 2008. However, we do not believe that our hotels will see any direct benefit from this trend; resort hotels are more likely to be affected by the weak dollar.
So far, the market has accepted rate increases. This acceptance is unusual. Most of our properties have increased published daily rates by eight to twelve percent. The result for the first quarter of 2008 to date has been an average daily rate increase of 6.68% for all hotels (ranging from 1.57% to 16.91%). National reports (such as the STAR reports) and experts suggest that rates will not decrease this year, despite the economic downturn. “Stagflation” will therefore have a positive affect on our rates.
The 2008 First Quarter Hotel Horizons Report for Midscale Hotels (Econometric Forecasts of the US Hotel Markets by PKF Consulting) predicted that occupancy for the entire industry will be down 1.6% in 2008 (this includes full service hotels) and rates will increase by an average 4.7%. ADR is anticipated to increase by 5.9% per annum for the period 2008-2012. The supply of new hotels is expected to grow 2.4% this year and flatten next year.
On March 13, 2008 Business Travel News predicted that the top 25 hotel markets (which represent 42% of overall demand) will experience ADR increases of 5.4% this year and 4.5% in 2009.
Jones Lang LaSalle Hotels (a brokerage firm) produces an expert publication on the subject of hotel growth and expansion. Jones Lang LaSalle made several interesting prognostications in the 2008 Hotel Investment Outlook:
- “In most markets, sellers initially refused to accept price adjustments and withdrew assets from sale; now sellers have a greater appreciation that there has been a price correction, and they are either choosing to put an asset back on the market at a lower price or are holding assets in anticipation of better pricing clarity.”
- “Both consumer and business confidence will positively support hotel trading in most markets. With the growing leisure segment, bolstered by aging baby boomers, it is likely that hotels will be less affected than other sectors, such as retail.”
- “Brand has never before been as critical a component of hotel value as it is today in these more challenging market conditions.”
- “We will see RevPAR growth fueled mainly by ADR increases as occupancy is flattening.”
- They also discuss the importance of the “right” management company: “Superior sponsorship is of central importance in this period of more conservative underwriting.”
- “In 2008, lodging fundamentals are expected to remain strong, and RevPAR is still on an upward trajectory, albeit growing at a slightly more moderated pace.”
Considering all three of these reports, we can conclude that we should experience: an increase in ADR, flat or slight increases in occupancies, and an overall healthy increase in revenues. We are reasonably optimistic about the future as long as new travel risks do not occur.
Our acquisition pipeline (i.e., the list of available properties that meet our stringent criteria for size, market, age, historical results, and valuation) is at its lowest level of active projects at any one time in five years. While the pipeline of opportunities is small, the list of competitors is even smaller. Most acquisitive companies (which primarily relied upon the CMBS marketplace for debt) are now sitting on the sidelines.
Hamister-affiliated companies have a long history of relationship borrowing. We have excellent relationships with regional and national banks. Many of these banks still have money to lend, although their lending criteria have changed. Our primary lenders encourage us to remain acquisitive while strictly adhering to our criteria. We believe that we will be able to achieve one or more successful acquisitions this year, despite the difficult market.
The development of new hotels is our next frontier. We are excited about this opportunity for several reasons. If we continue to work actively on deals, the economic downturn will have changed direction by the time we secure the necessary zoning approvals, design the property, and build the property. New openings will occur during an economic upswing, which is of course the ideal time to introduce a new product to the market.
The economic downturn may also enable us to obtain favorable land purchases and construction contracts, which will reduce total development costs and increase shareholder profits.
All new hotels will be branded as a franchise of the top flags, such as Marriott, Hyatt, Hilton, Starwood, Intercontinental, etc.
We are looking forward to announcing three to five new construction projects this year.
The Senior Management Team
It is important for me to recognize and thank my senior management team without whom we would not have achieved the success that we have. They are a talented group of people who are candid with one another, frequently disagree and debate issues with the goal of achieving greater success from the “group think” process. I am especially blessed to be surrounded by such a talented group of people.
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Jack A. Turesky
President and COO
Started with the Company in
May 1984 |
W. Earl McCartney
CFO and Executive Vice President
Started with the Company in
November 2007 |
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Daniel M. Hamister
Vice President
Started with the Company in 2001 |
John P. Havrilla
Senior Vice President, M&A
Started with the Company in May 2006 |
In Conclusion
On behalf of the Board of Directors, the Officer Team and all of the Co-workers who make up every aspect of our Company, it is my pleasure to present this 2007 Annual Report on the condition of and prospects for our Company and its affiliates.
While there are many factors beyond our control, I believe that the foundation of success is having the right people in the right positions. I am very confident in our Senior Team. The market conditions are generally strong for the businesses in which we operate; we hope that this will translate into a bright long-term future. I expect that we will continue to improve and produce the desired results on a net basis. We will work diligently to support the strong performers and to find solutions for the weaker businesses.
As always I thank you for your support, your patience and your friendship,
Mark E. Hamister
Chairman and CEO
The Hamister Group, Inc.
This message is intended for use by all of our affiliates. The Hamister Group, Inc. is not a holding company. Rather, it is the management company which contracts with similarly owned companies to provide central services in an efficient manner. All of the affiliates are separate companies. While ownership may be similar, they maintain their individual corporate integrity. Since the message of our direction is, like our strategic plan, coordinated, we offer this joint annual message.
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