New brands, M&A, tech on horizon for hotel companies
 
New brands, M&A, tech on horizon for hotel companies
12 MARCH 2019 7:34 AM

During calls with investors this earnings season, executives at hotel companies have shared their priorities for spending in 2019.

GLOBAL REPORT—After a record 2018 for revenue across the hotel industry as a whole, hotel companies are looking to leverage those earnings to grow in scale, make strategic investments in technology and targeted markets and segments, and return value to owners and shareholders.

Executives laid out these plans during calls with analysts to discuss fourth-quarter and full-year 2018 earnings and performance.

For the big brand companies, that may mean new brands. Already 2019 has seen the launch of meetings-and-events-focused brand Signia Hilton, and two brands associated with Accor (the lifestyle-centric Tribe and luxury The House of Originals, in partnership with SBE, of which Accor owns a 50% stake).

Meanwhile, InterContinental Hotels Group has signaled its intent to debut an all-suites brand in the upper-midscale segment this year. Wyndham Hotels & Resorts is focused on growing its brand portfolio with tack-on acquisitions, similar to its 2018 buy of La Quinta.

Real estate investment trusts also are likely to get in on the mergers and acquisitions game this year. Park Hotels & Resorts is “open for business” in regards to purchasing new hotels, portfolios or even other REITs, CEO Tom Baltimore Jr. told analysts. But Host Hotels & Resorts is focused on targeted assets and has no plans to buy large-scale portfolios.

Companies also are looking internally to strategically expand their footprints, as with Accor and its plans to invest in its loyalty program (newly dubbed ALL), and Choice Hotels International, which is pushing in-house tech innovations to enhance the booking process for guests and owners.

Here’s what executives at these hotel companies and others had to say about spending priorities for 2019:

Accor
“Marriott is spending $4.4 billion (on loyalty), Hilton, $2.2 billion, (InterContinental Hotels Group), $1.5 billion, while Accor? $700 million. We have to catch up. It is time to wake up, time to show muscle, time to dare. … Our loyalty has to be fixed. We need to transform. … You have to put your brand out, or you will get punished.”
—Sébastien Bazin, CEO, Accor, on the additional €225 million ($256 million) the company intends to spend on its loyalty and partnerships schemes

“Returning free cash flow is €529 million ($600.4 million), and our dividend policy will be 50% of this number.”
—Jean-Jacques Morin, deputy CEO, finance, communications and strategy, Accor

Ashford Hospitality Trust
“Our momentum carried into 2019 when in January we acquired a 310-room Embassy Suites by Hilton New York Midtown Manhattan for $195 million. In connection with this acquisition, Ashford, Inc. has committed to provide Ashford Trust with approximately $19.5 million under the terms of (Enhanced Returns Funding Program).”
—Douglas Kessler, president and CEO, Ashford Hospitality Trust

“During 2019, we will continue to invest in our portfolio to maintain our competitive position. In total, we estimate spending approximately $130 million to $145 million in capital expenditures during the year, which compares very favorably to last year. This will primarily be comprised of guestroom renovations at the Marriott DFW Airport, Fairfield Inn and Suites Kennesaw, Embassy Suites Crystal City, Hilton Garden Inn BWI Airport, Hyatt Regency Coral Gables and Hampton Inn Buford. Additionally, we are continuously identifying opportunities to create value throughout our portfolio, such as adding four keys at Hilton Boston Back Bay, two keys at the Marriott Bridgewater as well as capitalizing on projects to reduce energy consumption.”
—Jeremy Welter, COO, Ashford Hospitality Trust

Choice Hotels International
“Throughout the year, we returned approximately $200 million back to our shareholders. These returns came in the form of $49 million in cash dividends and $149 million in share repurchases. Even with these capital returns and continued investment in the business, we ended 2018 with a leverage ratio of approximately 2.2 times below our target range of 3 to 4 times. …

“Our record-setting pipeline, strong brands and the continued momentum of the margin cycle allow us to make long-term investments in areas that have been and will continue to be key drivers of our performance. Throughout 2019, we expect continued brand investments with the completion of Comfort’s Move to Modern program and key initiatives that will fuel the long-term growth of Clarion Pointe, WoodSpring and Cambria.

“Additionally, we will make investments in bolstering our consumer insights and predictive analytics capabilities to better understand our guests and our owners and keep us at the forefront of innovation and hospitality. We expect these investments to position us well for 2019 and beyond.”
—Dominic Dragisich, CFO, Choice

Extended Stay America
“We’re about halfway toward our goal that we laid out in terms of asset sales and refranchising, so I would fully expect we’d continue this year. I think it’s unlikely that we would sell the number of hotels we sold in 2018, but I think it’s quite likely that we’ll do the kinds of transactions we did in 2018—meaning portfolios of somewhere between 10 and 20 hotels—and I would certainly be enthusiastic about doing that with partners, including some who have already acquired our hotels, who have really become experienced in operating them and I think are dedicated to growing the portfolio. …

“We are innovating this year, testing several new ideas for the brand in 2019. These include an enhanced breakfast offering, offering a pantry, food delivery, expanded benefits for Perks loyalty members and expanding the availability of fitness centers in our hotels. We will update our plans and performance of each of these tests throughout the year. …

“While one of the strengths of product is our standardization, we also know it’s essential to innovate around a changing landscape of competitive action and customer preferences. For this reason, we are also investing in technology at our hotels, including enhanced Wi-Fi, TV streaming capability and a more robust property management system. These enhancements will improve our guest experience, improve our operational efficiency and lay the foundation for future mobile check-in and value-added recognition of Extended Perks loyalty members. As of today, up to 35% of our hotels are benefiting from these new technologies, and we expect to complete the rollout to all company-owned hotels this year.”
—Jonathan Halkyard, president and CEO, Extended Stay America

Hilton
“For the full-year 2018, we were returned $1.9 billion to shareholders in the form of buybacks and dividends. … For 2019, we expect to return between $1.3 billion and $1.8 billion to shareholders in the form of buybacks and dividends.”
—Kevin Jacobs, CFO, Hilton

Hospitality Properties Trust
“In 2019, we expect to fund $250 million of hotel improvements. … The majority of these improvements are expected to be funded from operating cash flow. We expect to have 20 hotels under renovation for all or part of the 2019 first quarter compared to 23 hotels last year.”
—Brian Donley, CFO and treasurer, HPT

“Eighty to 85 percent of our portfolio is select-service or extended stay, and the balance is full-service. Since the (ALIS conference in January), we’ve seen a pickup in full-service offerings and a more modest volume of select-service, so … as long as we can identify opportunities where the yield is acceptable to us and one of our major operators is willing to add it to their portfolio, probably we’ll do more full-service this year.”
—John Murray, president and CEO, HPT

Host Hotels & Resorts
“We continue to see the group booking window extend, and revenue pace is up almost 7% for the period 2020 to 2023. From a capital standpoint, we anticipate spending between $235 million and $275 million on renewal and replacement capital expenditures and between $315 million and $350 million of redevelopment and ROI projects this year. …

“The increase over last year is primarily due to the Marriott transformational capital program for which we are being well compensated. Some major renovation projects to be completed this year include the San Francisco Marriott Marquis, New York Marriott Downtown, Coronado Island Marriott Resort, the Santa Clara Marriott and the Whitley in Buckhead Atlanta.”
—James Risoleo, president and CEO, Host

Hyatt Hotels Corporation
“Turning to 2019, we expect to return approximately $300 million in capital to shareholders this year, which includes $54 million in repurchases completed through February 8. Our return of capital to shareholders will come through a combination of share repurchases and our quarterly dividend, which we are increasing from $0.15 per share in 2018 to $0.19 per share with our first quarterly dividend of 2019 to be paid on 11 March. Our expected total shareholder return of approximately $300 million does not contemplate the potential application of proceeds from asset sales that may occur during 2019. …

“Capital expenditures are expected to be approximately $375 million for the year. By way of reminder, one of the drivers of these higher capital expenditure amounts is the completion of significant redevelopment efforts at our Miraval property in Lenox, Massachusetts, with an expected opening later this year. Additionally, significant renovation activity is planned for the Hyatt Regency Phoenix and Hyatt Regency Indian Wells properties we purchased last year, as well as a handful of other properties. We also have new hotel construction costs of approximately $60 million to $70 million during 2019. … With the continued evolution of our capital strategy, we expect levels of CapEx to decrease significantly over time.”
—Joan Bottarini, CFO, Hyatt

InterContinental Hotels Group
“2018 was another year of strong financial performance for IHG, which (has) given the board confidence to raise the total dividend by 10%.”
—Paul Edgecliffe-Johnson, CFO, IHG

“(The earnings per share rise of 19%), together with an underlying operating profit increase for the year of 6%, was behind the decision to raise total dividends for the year by 10% and which followed the payment of a $500-million special dividend in January. … More than $700 million has been returned to shareholders in the last year.”
—Keith Barr, CEO, IHG

Park Hotels & Resorts
“For 2019, we continue to target 6% maintenance CapEx spend while our (return on investment) pipeline is expected to add an additional $25 million to total capital expenditures for the year. Given the increased CapEx spend, we expect renovation displacement to negatively impact (revenue per available room) performance by approximately 70 basis points in 2019. But note that this displacement is already factored into our guidance. …

“We are very excited about the renovation projects at both the Bonnet Creek Complex in Orlando and The Reach in Key West with targeted returns in the high teens for both. As a reminder, total ROI spend at Bonnet will be approximately $70 million to $80 million over the next 24 months. At The Reach, the scope of the project includes rebranding the hotel from a Waldorf Astoria to a Curio, in addition to a comprehensive rooms renovation and a restaurant reconcept. Total ROI spent for this project is estimated at $10 million, and we expect construction to occur during the slower months of Q3 and Q4 this year.”
—Sean Dell’Orto, CFO, Park

“We will continue to look opportunistically for single-asset deals that fit our criteria, and brand and operator diversification are a big part of that. We will continue to look at portfolios that make sense, and we not opposed to M&A.”
—Tom Baltimore Jr., president and CEO, Park

Pebblebrook Hotel Trust
“Within the portfolio, there were a number of renovations that were planned last year that started in either this past year’s fourth quarter or early this year. They’re primarily guestroom and guestroom bathroom renovation focused and include an $18 million complete renovation at Mondrian L.A., which also incorporates the lobby and Skybar; a $10-million renovation at W Boston; a $9.5-million renovation at Skamania Lodge, including the addition of a new outdoor pavilion; a $9-million renovation at Sofitel Philadelphia; and a $21-million renovation at the Hilton San Diego Resort on the waterfront at Mission Bay that also includes all of the hotel’s meeting space. All of these renovations have already begun and are due to be complete between the first and second quarters of this year. …

“In the fourth quarter of this year, we also plan to begin a number of renovations, including $13-million renovations at both Embassy Suites, San Diego Downtown and Westin Gaslamp, San Diego. Both should be complete in the first quarter of next year. …

“We’re also planning a complete renovation of the ground floor interior and exterior of Viceroy Santa Monica with the objective to return this iconic property to its rightful place as the leading boutique or lifestyle-oriented hotel in Santa Monica. In the fourth quarter, we also plan to begin a $10-million renovation of all of the public areas and meeting and event venues at Chaminade Resort in Santa Cruz. The plan is to reposition this resort to a higher quality level by dramatically improving the design and providing additional guest amenities to drive significantly greater levels of transient leisure customers and corporate and social groups to the property, which was once primarily a conference center. Additional amenities being evaluated, include a luxury pool complex, treehouses, ziplines, and an adventure park, an outdoor pavilion, as well as other active-oriented guest amenities.”
—Jon Bortz, chairman and CEO, Pebblebrook

RLH Corporation
“Continued investment in our technology platform ensures we remain at the forefront of providing both our hotel owners and our guests with efficient tools to run their business or book travel. …

“In 2018, we invested roughly $5 million dollars of CapEX on these (tech platforms) and other IT-related projects. Additional CapEX was made up of cost to expand our offices in Denver as well as standard maintenance and improvement to owned hotels and costs necessary to prepare those properties for sale.”
—Julie Shiflett, EVP and CFO, RLHC

“On the human capital front, we made significant investment in additions to the leadership of our franchise business. We streamlined our corporate infrastructure operations by reducing and redeploying our human capital.”
—Greg Mount, president and CEO, RLHC

RLJ Lodging Trust
“Our capital program is set up to position the portfolio for sustained growth. Our 2018 renovation plan concluded on schedule and on budget. In total, our 2018 capital plan resulted in approximately 100 basis points of renovation disruption. As we look to 2019, we expect to spend between $90 million and $110 million on renovations and anticipate less disruption. …

“We will continue to evaluate future opportunistic share repurchases to take advantage of stock price volatility. Our board recently authorized a new $250-million share repurchase program, with a one-year term, subject to extension.”
—Sean Mahoney, CFO, RLJ

Whitbread PLC
“We are cautious on sales. On the top line, we are expecting no help from the market at all.”
—Nicholas Cadbury, group finance director, Whitbread

“For the first time as a focused hotel business, Whitbread would commence our initial buyback program of up to about £500 million ($645 million), which will start today, and that will run probably until our full-year results announcement in April. …

“Continued efficiency programs will help to fuel further growth and add scale. But while the company estimates savings from continued efficiency programs at £40 million ($51.6 million) to £50 million ($64.5 million), additional costs and inflation would most likely come in at £20 million ($25.8 million) to £30 million ($38.7 million) more than those numbers at around £70 million ($90.3 million).”
—Alison Brittain, CEO, Whitbread, speaking on flush with cash following Whitbread’s 2018 sale of its Costa Coffee division to Coca-Cola

Wyndham Hotels & Resorts
“Our free cash flow was only $158 million in 2018 because of $150 million of specific cash outflow items, namely $98 million of transaction and separation related expenses, $17 million of insurance reimbursed hurricane related capital expenditures, and a $35 million tax payment tied to the La Quinta acquisition. Nonetheless, in the seven months following our spin-off, we were able to return $194 million to shareholders through share repurchases and common stock dividends.

“Going forward, we expect our free cash flow excluding the one-time payout of our temporary cash will approximate our adjusted net income over time as our business is inherently a cash business. Our capital allocation framework is unchanged. We remain focused on growing our business organically, and we will deploy a modest portion of our free cash flow for development advances and similar opportunities. We will also keep using free cash to pay dividends. Beyond that, we will allocate cash flow to bolt-on acquisitions that are both strategic and accretive, and to share purchases with the amount going to each depending largely on the acquisition opportunities that are available.”
—David Wyshner, CFO, Wyndham

“We’re going to look to have development advances in the $20 million, $25 million, $30 million, maybe even $35 million range. You may have noted that our development advances were below our longer-term average last year. … We had a few timing issues there that may make them a little bit larger this year, and … the opportunities to deploy some cash into various projects are relatively attractive for us. … We may see that sort of normalize over that two-year period to the … $20 million to $25 million average that we expect over time.

“With respect to opportunities that are out there, what tends to be highest on our radar screen is any opportunities to acquire brands. We’re pretty passionate about being asset-light, and that combination is what we look for—a good brand in an asset-light context is what captures our attention the most as we look at opportunities both in North America and around the world.”
—Geoff Ballotti, president and CEO, Wyndham

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