BERLIN—Representatives from across the hotel operating landscape engaged in a heated discourse Monday during an opening session of the 16th International Hotel Investment Forum.
At question was the value of brands—or the lack thereof—as global chains exit out of the ownership business and transition toward asset light.
“At an investment forum like this, what should we talk about is really the driver of this industry; we should not talk about brands anymore,” said Anders Nissen, CEO of Pandox AB, which owns and/or operates 120 hotels comprising 25,000 rooms in 10 countries through Europe.
“We should talk about investment, management skills, who has the best model, who is running their business at a high productivity,” he continued. “The stars of this stage should be all the managers, not the brands. I wish that would happen next year. That is the problem we have in this business. We believe in brands, but we cannot believe in them anymore.”
The hotel brand companies are focused on only three things, Nissen said: fostering an asset-light operating model; building a pipeline to drive more fees; and driving brand standards.
“And who pays?” he asked of these initiatives. “Me.”
As the lone brand representative on the panel, Christian Karaoglanian, chief development officer for Accor, bore the brunt of the verbal assault. He argued that being asset light does not shield the global chains from all risk. Accor, for one, still owns or leases 20% of its portfolio.
But when panel moderator Simon M. Johnson, head of specialist markets for CBRE, pointed out that Accor has spent more than €600 million ($779.7 million) to get out of its leases, Karaoglanian could only attempt to downplay the charge.
“What was OK seven or eight years ago is not now,” he said, arguing that higher operating costs and lower returns in certain markets have rendered such agreements as challenging for all parties.
The comment left the door open for Ian Livingstone, executive chairman of private equity firm London & Regional Properties, who asked why then global chains would insist on decades-long management contracts.
“Management contracts for 20, 25 years in the old way are not sustainable. They’re possibly not even legal in European law,” he said, adding that courts might rule them a “restraint of trade.”
“I don’t know how good hotel brands are going to be in three or five or 10 years. I don’t know who is going to own them if there’s consolidation,” Livingstone said, adding he would prefer a flexible arrangement with an efficient operator.
Nissen suggested management contracts be shortened to five years or less. Then both parties—brands and owners—could reevaluate and make adjustments as needed. A truly great brand company should not have any trouble re-signing such contracts, he reasoned.
Karaoglanian said owners do have a way out, in the form of various performance guarantees that Accor and other brands stipulate as part of their management contracts.
Nissen said Pandox would never strike a management deal with a global brand.
“I would like to have control of my (gross operating profit),” he said. “I can lose a lot of revenue but gain a better GOP.”
However, Nissen did admit 90% of the group’s portfolio is branded—purely for marketing and distribution, he said.
But the outspoken CEO questioned even that relationship.
“I pay maybe more at the brand than I pay at the (online travel agency,)” Nissen said. “They start to be more of a distribution channel … instead of being a hotel company.”
Adding asset value
When asked if they were in buying or selling mode, Livingstone said London & Regional Properties is looking at acquisitions, focusing mostly on the United Kingdom. “But it’s getting more difficult to buy, especially in and around London,” he said.
Nissen said Pandox is holding at present, focusing instead on €275-million ($357.4 million) program to upgrade several hotels the group has purchased in the past two years, which is in line with the group’s strategy of acquiring and improving underperforming assets. The process, which began during 2012, likely will take the entirety of 2014.
When asked whether he thought a brand could aid a potential sale, Nissen was resolute in his response.
“I have never found any problem to sell an independent hotel. It’s easier to sell an independent hotel,” he said.
But Karaoglanian maintained brands do enhance asset value, pointing to studies and examples in which properties flying a global chain’s flag sell higher than similar independent hotels.
“I think a brand is bringing more in terms of price than in terms of occupancy,” he said.
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