CEO: Dolce deal boosts Wyndham’s managed base
02 FEBRUARY 2015 12:36 PM
Dolce Hotels and Resorts increases Wyndham Hotel Group’s portfolio of managed hotels by nearly 40%. Wyndham CEO Geoff Ballotti wants that number to continue to grow.
ROCKLEIGH, New Jersey—Geoff Ballotti endured considerable delays Monday morning as he braved blizzard-like conditions along U.S. Interstate 287 for a meet-and-greet at the Rockleigh, New Jersey, headquarters of Dolce Hotels and Resorts.
Wyndham Hotel Group, which Ballotti oversees as president and CEO, announced its $57-million acquisition of Dolce only hours earlier—a transaction that, by comparison, moves Wyndham down the managed-portfolio path much more quickly.
As of the third quarter of 2014, Wyndham counted 58 properties and 13,986 rooms in its managed portfolio, which is a fraction of the group’s total 7,590 hotels comprising 655,300 rooms around the globe.
The Dolce deal, which includes management contracts for 24 hotels and more than 5,500 rooms, ups Wyndham’s managed portfolio by nearly 40%. Wyndham acquired no real estate in the transaction.
“We’re continuing to look to grow our managed portfolio,” Ballotti said. “We’ve come a long way in the past few years with a few big and very important portfolio deals that have turned out very nicely for us.”
The first major move came in May 2012 when Wyndham converted and took over management of 20 hotels owned by Hospitality Properties Trust. A similar deal was struck in January 2013 with FelCor Lodging Trust, which converted eight hotels under the Wyndham Hotels and Resorts brand and signed a long-term management agreement.
“It’s not like this is new. It’s just something they’ve become more aggressive at in recent years,” said David Loeb, senior hotel research analyst at R.W. Baird & Company.
The deals mirror a broader trend in the hotel space that has seen most every major hotel chain targeting management contracts as a way to grow their fees. (Choice Hotels International remains the lone holdout, Loeb said.)
“It’s an interesting statement by Wyndham, directly saying, ‘We are a fee-based hotel brand company’ … but their fees can be management or franchise,” Loeb said.
Investors had a lukewarm response to the Dolce announcement. Shares of parent Wyndham Worldwide were down 3.2% in trading Monday as of press time. Year to date, the company’s shares are down 5.3%. The Baird/STR Hotel Stock Index is down 4.1% by comparison.
Share movement mirrored Deutsche Bank’s downgrading of Wyndham Worldwide to a “Sell” rating from “Hold,” according to a research note published Monday morning before the Wyndham acquisition of Dolce was made public. In a subsequent follow-up research note, analysts Carlo Santarelli and Chris Woronka said the Dolce deal was “not a needle mover in our view.”
“(Wyndham’s) net unit growth has meaningfully trailed that of its primary publicly-traded lodging peers,” according to the research note. “Given that many of its lodging brands appear to be either at or near full capacity (i.e., Super 8, Days Inn) or do not have significant scalability (i.e., Wyndham, Hawthorn, Wingate), we’ve identified acquisitions as the primary way (Wyndham) is likely to bolster its unit growth. The way we see it, an acquisition-centric growth strategy is likely to come at an incremental cost relative to an organic unit growth platform that most of (Wyndham’s) peers have.”
In addition to growing its managed portfolio, Wyndham also made major inroads into the group and meetings business with the acquisition.
“They’re pioneers in this business,” Ballotti said of Dolce’s history in the space.
It’s a segment that largely has eluded Wyndham, whose 14 hotel brands are primarily select service with relatively little meeting space. That’s one of the reasons the Dolce buy was a perfect fit, Ballotti said.
“Everything about their footprint, there was really no overlap in terms of any of our existing hotels,” he said. “No conflict in terms of owners on our side on the managed world that would be impacted by this, whether it was here in the United States or Canada or over in Europe, where they have really beautiful, higher-end upper-upscale scale product that we’re really excited about.”
Ballotti said he wants to preserve the integrity and identity of the Dolce brand.
“It’s important that we protect everything about it that makes them so strong a player, from their exceptional meeting planning experience to their service levels, to everything they do,” he said.
Ballotti said he envisions significant growth for the Dolce brand, although he declined to share specific growth targets or projections.
“There will be great development opportunity and momentum for Dolce just in the sheer fact that we’ve got 80 folks in our development team that they haven’t had before,” Ballotti said.
Dolce has four projects in the pipeline:
- a 180-room conference hotel near Versailles, France;
- a 140-room lifestyle conference hotel in Annecy, France;
- a 202-room lifestyle conference hotel near Cincinnati, Ohio; and
- a 200-room urban lifestyle hotel in Palm Springs, California.
Ballotti said another deal for a project is in the works in Wyndham’s and Dolce’s home state of New Jersey.
Speaking of, it’s too early to say whether Wyndham will move Dolce’s headquarters from Rockleigh to Parsippany, New Jersey (where Wyndham is headquartered).
“I think that’s premature. We’re very impressed with their space here,” he said.
More important, at least in the short term, is overseeing a smooth transition of the Dolce brand and product.
“What’s important to us from an integration standpoint,” Ballotti explained, “is that these associates and general managers and customers all see the value that Wyndham brings to the table from a distribution standpoint.”