Brand, REIT executives talk 2017 M&A climate
 
Brand, REIT executives talk 2017 M&A climate
10 MARCH 2017 9:01 AM

During fourth-quarter earnings calls, hotel executives shared a range of opinions on the acquisitions climate going forward.

REPORT FROM THE U.S.—With many projecting the hotel industry at or near the end of its cycle, the question lingers of whether that will fuel further mergers-and-acquisitions activity and what continued effect it will have on the transactions market.

Hotel executives shared their views on buying and selling during fourth-quarter and full-year 2016 earnings calls. Here’s a selection of some of the things they had to say on the topic.

Leeny Oberg, EVP and
CFO, Marriott International
 
Mark Hoplamazian,
president and CEO,
Hyatt Hotels Corporation
 
John Murray,
president and COO,
Hospitality Properties Trust
 
Douglas Kessler,
president and CEO,
Ashford Hospitality Trust
Ross Bierkan, president
and CEO, RLJ Lodging Trust
 
Steve Joyce, CEO,
Choice Hotels International
 
Jim Risoleo,
president and CEO,
Host Hotels & Resorts

Leeny Oberg, EVP and CFO, Marriott International, on possible portfolio sales of former Starwood Hotels & Resorts Worldwide assets: “We certainly are willing to entertain all comers ….

“Frankly, we’ve spoken to a number of potential investors that would be interested in either part of a partial portfolio or all. As you might imagine, in many cases, those are international buyers. But the reality is, we’ve got a really interesting kind of diverse group of hotels.”

Troy Pentecost, president and COO, FelCor Lodging Trust, on the company’s appetite to be a seller or a buyer: “If the acquisition market heats up and pricing disappoints, that makes sense to us; then we could certainly look at some of our other assets.

“We haven’t seen that yet, but that’s definitely on the table. As far as the acquisition things go, obviously we didn’t give (new CEO) Steve (Goldman) time to get in here and put a stamp on our strategy and make those determinations of going forward.”

Mark Hoplamazian, president and CEO, Hyatt Hotels Corporation, on buying outside the hotel industry: “I guess the answer ultimately is going to be derived from our customer base. The way we are approaching how we operate going forward is to focus on the fact that we have a very strong high-end customer base—a high-spending, high-traveling customer base. What we’ve been doing and will continue to do is get closer and closer to them in terms of understanding what their desires are and what they’re thinking about, what they like, and then be responsive to them.

“In some cases, that is able to be satisfied through hotel offerings that we’ve gotten out of the cases. It will extend beyond that. In some ways, even though our all-inclusive business is a hotel business, getting into the all-inclusive segment was really a call that we made about higher-end travelers who are interested in that format of travel. And that’s why we launched two new brands and we’re able to do that through the investment that we made in Playa.”

John Murray, president and COO, Hospitality Properties Trust, on what brands his REIT will work with on new acquisitions: “It’s a challenge. Our contract is the most secured contract of the lodging REITs and many of the other types of hotel owners. … We have a good relationship obviously with Sonesta because it’s a related party, but also with IHG, we’ve got a very large portfolio.

“We’ve worked strategically together for many, many years now, and we both understand how our operations work and how the contracts work, and they are mutually beneficial.”

Douglas Kessler, president and CEO, Ashford Hospitality Trust, on his company’s confidence in its offer to acquire FelCor, despite not having property-level performance data: “We’re very comfortable based on the information that we received.

“We’d looked at their public data. They’ve given us some limited information as part of the signing of the (nondisclosure agreement). … The benefit that we have here is that our assets are profitable in many ways, and we can look at the publicly available information and compare and contrast on market comps and operating comps within our existing portfolio to arrive at our estimates for savings. Flow through is flow through, and it’s pretty easy to evaluate the difference.”

Ross Bierkan, president and CEO, RLJ Lodging Trust, on his company’s appetite for acquisitions versus buying back stock: “It’s going to be opportunistic. There’s not a hard-and-fast goal or a deadline, but similar to our peers, we are interested in finding opportunities that work for our portfolio and improve it.

“Conversely, it’s not a binary decision. While we’re looking at acquisitions, (we will) also consider buying back shares. We’ll be opportunistic on that front as well.”

Steve Joyce, CEO, Choice Hotels International, on making acquisitions to add new brands and facets to his company: “We are a very aggressive discipline reviewer of opportunities. We’ve seen some that we like, but they didn’t come to fruition.

“We’re going to do continue to do that, but we’re going to do it in a way that provides real value to our shareholders in the near term. … If you look at the market, you will know that there is a number of things that are potentials.

“While we don’t have anything at all to report, we believe in adding to our platform because our infrastructure is built to absorb a significant number of hotels without having to add to the cost, which is why our margins are what they are and we continue to look for opportunities to add to that platform.

“And if we buy them at the right price, we like the idea of starting with an existing platform to grow from versus starting another brand.”

Jim Risoleo, president and CEO, Host Hotels & Resorts, on whether his company will be a net seller or buyer in 2017: “We are not interested in buying assets just for the sake of growth. We underwrite every transaction in a disciplined manner.

“We underwrite each deal to a 100-basis-point increase, plus over our cost of capital. If the right opportunities present themselves, we will pursue them. That goes on the sales side as well.

“As I mentioned, we are not implementing a systematic sales program in 2017, but every asset in the portfolio is for sale. If we get an offer that is truly accretive to shareholder value, we’re not going to be shy or bashful about pulling the trigger and selling a hotel.

“So to say today that we’re going to be a net buyer or a net seller, I really can’t. I can’t give you a definitive answer on that because I just don’t know how the year is going to unfold. I will tell you that we are working on a number of opportunities, and if they pencil we would intend to pursue them.”

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