Reporting the latest earnings figures, executives at major hotel chains focused attention on efforts to add rooms across their portfolios.
GLOBAL REPORT—A slowing performance growth environment for the hotel industry so far hasn’t seemed to curb the plans of big hotel companies to get bigger, by adding and building hotels across their global portfolios.
Even factoring in the latest headwinds swirling around business impact due to coronavirus (COVID-19), some optimistic hotel executives have signaled that development might be delayed but not canceled.
Speaking on calls with analysts to discuss their latest earnings and performance reports, hotel executives highlighted recent development wins and projections for net unit growth in 2020.
Sébastien Bazin, CEO, Accor
“Twelve brands represented 90% of the money we invest … and our top 10 countries account for 60% of our EBITDA stream of management and franchise fees, and that would be 80% if you added countries 10 to 20. Upscale/luxury constitutes 42% of the portfolio in those top 10.
“I am actually not happy with only 5,000 rooms being in development in North America … as a percentage of what we have. We need to show muscle and to go deeper there, and we are certainly doing it faster today through (acquired brands) Delano, Mondrian and SLS.”
Jean-Jacques Morin, deputy CEO and CFO, Accor
Network-size growth in 2019 of 5.1% is a record, Morin said, with the company now opening a hotel every day and signing one every 16 hours.
Dominic Dragisich, CFO, Choice
Choice expects domestic net unit growth for 2020 to range between 1.5% and 2.5%, which is “generally in line with where we thought we would be. Every six hotels or so, it’s about 10 basis points. Just having a little bit of shift from Q4 into Q1 … could impact those numbers 10 basis points or 20 basis points either way. … Obviously a little softer in the economy segment just based on what we’re seeing in terms of conversion activity, (Choice is) continuing to keep that portfolio relevant by cleaning some of the lower-performing units out of there. But when you take a look at those stronger segments, we were at 3.1% this year. We expect to actually increase that in terms of growth rates in 2020. That’s obviously going to be a big tailwind for us as we think about 2021. Those numbers … when you think about Comfort … actually are even declining moderately in 2019. We expect Comfort to actually return to growth in 2020, albeit moderate growth, and then further accelerate back to historical averages in 2021 and beyond.”
Pat Pacious, president and CEO, Choice Hotels International
“We’re developing hotels in higher-RevPAR market and higher-RevPAR segments. As a result, we’re doing a lot more new-construction hotels, and we’re developing in markets where entitlements and the costs of labor to actually get hotels built is actually probably more expensive, (which means development) takes a little bit longer. We’re seeing a little bit more of a delay in the amount of time it’s taking new hotels once they start construction to actually open, but that’s reflective of the fact that we’re pushing more into the upscale segment.”
Brian Nicholson, CFO, Extended Stay America
“We completed 16 hotel renovations in the full year of 2019. Our owned balance sheet development pipeline at the end of the fourth quarter stood at 16 hotels, while our franchise pipeline grew during the quarter to 59 hotels. Our total pipeline stood at 75 hotels at the end of 2019. We opened two hotels on balance sheet and also purchased and converted an extended-stay hotel for approximately $10 million, representing a projected stabilized cap rate of approximately 14%. Additionally, franchisees converted two hotels to the Extended State America banner in 2019.”
Chris Nassetta, president and CEO, Hilton
“We remain confident in our ability to deliver at least 6% net unit growth for the next several years.”
Joan Bottarini, CFO, Hyatt Hotels Corporation
“Net rooms growth for 2020 is expected to be in the range of 6.5% to 7% inclusive of the termination of the Ocean Resort at the beginning of 2020. The Ocean Resort was a 1,400-room franchise operation that while significant in room count had a very modest fee contribution due to the nature of the contract. Excluding the Ocean Resort termination, our 2020 net rooms growth would be in the 7% to 7.5% range.
“We had a record year of signings and delivered double-digit growth in our pipeline notwithstanding a record year of openings in 2019. Our robust pipeline gives us confidence we can deliver strong net rooms growth well into the future.”
Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation
“The good news is that the hopper is so full that we’re able to continue to maintain that pace of openings and drive this kind of net rooms growth. The other thing that was really a wonderful positive in 2019 was conversions. We realized a great deal of conversions over the course of the year, which was additive to our total growth rate, and I believe that we will continue to see some of that momentum as we head into this year.”
Keith Barr, CEO, InterContinental Hotels Group
“We have opened five or six hotels in China in 2020, so business is still moving. Where we might see interruption is in furniture, fixings and equipment ability, with items simply not manufactured and delivered, and in staff, but I will stress again this is a delay, not a stop. The long-term strength of the business is extraordinary in China, and we’re very bullish.
“Among our newer brands, Voco has signed 33 hotels in the past 18 months in 16 countries, with the brand on track for more than 200 hotels in the next 10 years. Atwell Suites has signed 10 hotels in 2019; 10 Avid hotels have opened and 200 signed since that brand’s launch; and Six Senses Resorts & Spas has 18 open hotels and 25 in the pipeline, with the expectation that more than 60 will open over the long term. There is increasing demand for distinctive brands.”
Arne Sorenson, president and CEO, Marriott International
“At year end, 7% of global industry rooms flew one of our flags, while our share of STR’s worldwide under-construction pipeline led the industry at 19%. To be sure, our signings were impressive, but we are not just focused on adding units. We are focused on adding valuable hotels that drive higher fees per room and enhance our brands.
“Luxury and upper-upscale rooms comprise over half of our distribution globally, which is one reason our fees per room lead the industry. During 2019, we expanded this lead by signing a record 45,000 rooms in these tiers. At year end, the number of our global luxury and upper-upscale rooms under construction totaled more than the next three competitors combined, according to STR.” (STR is the parent company of Hotel News Now.)
“For 2020, we assume 5% to 5.25% net rooms growth, including deletions in the 1% to 1.5% range. Preconstruction and construction delays persist around the world. Again, our rooms growth assumption does not include any impact from the coronavirus situation.”
Leeny Oberg, EVP and CFO, Marriott
“We remain disciplined in our approach to capital allocation. Using the base case assumptions, 2020 investment spending could total $700 million to $800 million. This includes around $200 million of maintenance investment spending, roughly $200 million of system investments that will largely be reimbursed by owners over time, and $300 million to support new unit growth.
“We expect roughly three-quarters of this new unit investment will be associated with luxury and upper-upscale properties. These projects typically provide higher fees per room and attractive 20-plus year agreements. Projects where we invest our own capital are expected to generate a substantially higher value per key over the life of the contract on average, compared to full-service deals with no Marriott capital.”
Alison Brittain, CEO, Whitbread PLC
“Premier Inn will open approximately 20 hotels in Germany in 2020. … The Foremost Hospitality deal is due to be completed in February.
“We are increasingly optimistic and firmly on plan in Germany … especially pleasing as we have achieved that with 100% direct bookings across our three open hotels. (In) Germany, costs to ramp-up operations are expected to result in losses across the German portfolio of £12 million ($15.6 million) over the year.”