Peel Hotels Plc, the AIM-listed UK hotel business controlled by Robert and Charles Peel, today reported that FY 2011-12 was its toughest as LFL revenues fell by 4% to £14.6 million, while with rising costs the business swung to a pre-tax loss of £228k and has again passed paying a dividend.

The firm, with 9 hotels in Dunfermline, Newcastle, Carlisle, leeds, Bradford, Nottingham, Peterborough, Wallingford and Bournemouth, had a 1.8% fall in REVPAR, largely due to a 1.9% fall in occupancy.

Peel is carrying net debt of £12.84 million, which the business has managed to reduce in each of the past 2 years, including £600k this year, but it still represents 58.8% gearing, which is uncomfortably high, considering that much of it is on a fixed interest swap at 5.83% plus 2.5% margin until April 2014.

The reality for the smaller businesses in the UK is higher borrowing costs and serious difficulty in refinancing debt when it matures. Peel banks with RBS, who are showing little appetite for the sector these days. The value of the portfolio is derived from what it is earning, and when earnings become marginal, values suffer. Peel has to both maintain the quality of their product and keep its pricing attractive so that further erosion of occupancy is reversed.