White Lodging deal boosts Interstate’s scale advantage
White Lodging deal boosts Interstate’s scale advantage
15 DECEMBER 2017 9:21 AM

Interstate Hotels & Resorts CEO Mike Deitemeyer said the company’s pending deal to pick up the operations of 82 hotels from White Lodging will allow for greater bargaining power and investment in technology.

ARLINGTON, Virginia—When it comes to third-party management in the hotel industry, Interstate Hotels & Resorts is already the biggest kid on the block, but President and CEO Mike Deitemeyer said he’s excited about unlocking the benefits of even greater scale with the pending acquisition of the management contracts of 82 hotels and one restaurant from White Lodging.

The deal is “exciting on a lot of fronts,” he said. “The hotels are pretty clustered. It certainly adds a lot of scale and allows us to leverage our competitive advantage and purchasing power and invest in technology tools.”

Interstate officials announced the deal with White Lodging earlier this month, noting the portfolio spans eight states in the U.S. and includes 78 select-service properties. The deal is expected to close in January, growing Interstate’s management portfolio to 540 properties across 12 countries.

“That component is pretty exciting,” Deitemeyer said. “We’ll have density in various markets, which gives us the opportunity to cluster sell and do things that will create market advantages for us.”

He expects the larger company’s greater purchasing power to be a significant advantage.

“When you think about (food and beverage) or linens, this enhances our buying and further enhances an advantage we already have,” Deitemeyer said.

He stressed that investment in technology is going to be a strong focus following the deal, and it is expected to result in enhancements and further utilization of the company’s IHR1 business intelligence platform.

“This allows us to build our IHR1 and other proprietary tools,” he said. “Our scale allows us to really invest in tech infrastructure.”

Employee benefits
Deitemeyer said the portfolio growth also gives the company significant advantages in recruiting and retaining employees.

“We’re excited about the 2,500 associates that will join us from this and the opportunity that creates for career-pathing for them,” he said. “Our scale gives us an opportunity to recognize talent and to create avenues for personal growth within marketplaces beyond the typical hospitality model of having to move around the country.”

Interstate officials said the company has 30,000 employees across the globe.

Though the deal isn’t expected to close for at least a month, Deitemeyer said his company has been working closely with White Lodging to begin the onboarding process to help ensure a smooth transition for employees.

“We have density in those markets, so (onboarding) is not as complex as it might seem,” he said. “We’ll have opportunities to get our GMs together and do cluster orientations. We’ll have folks on site, and will be doing a mentorship program where every new GM coming in will have a mentor or buddy GM to talk about the differences and nuances and tools. That process is starting.”

Working with RLJ
The properties included in the portfolio are tied to two ownership groups, Deitemeyer said, including 62 properties owned by RLJ Lodging Trust. The other owner has not been publicly announced.

Deitemeyer said he is excited to grow his company’s relationship with RLJ, especially since the real estate investment trust is itself in a growth mode.

“They’re a great partner,” he said. “We currently manage hotels for RLJ already, but this puts us on a different level with them. They’re great folks. … I like that alignment with an owner that is growing the way RLJ is.”

Deitemeyer pointed to RLJ’s recent acquisition of FelCor Lodging Trust as a specific sign that RLJ has grown to be one of the top players in the hotel REIT space.

Future growth expectations
Because the added portfolio is so heavily weighted toward select-service properties, as a counterbalance, Interstate’s development team will largely focus on growing in the full-service hotel segment, Deitemeyer said.

“We’re trying to keep a balance on the two parts of the organization,” he said, noting the company also sees significant opportunities for growth through its recently announced Intrigue lifestyle division.

Despite the fact that Interstate is already a large player among third-party managers, Deitemeyer said plenty of white space remains in that business.

“If you think about all the hotels across the world, (the size of the Interstate portfolio) is a very, very small number,” he said. “There is a lot of room to grow.”

Interstate officials do intend to think globally. The company has a well-established presence in the U.K. with plans for significant growth in continental Europe. Deitemeyer said the company is opening a new office in Amsterdam and has hired on new German- and Dutch-speaking staff to help facilitate that growth.

He noted future growth could come both organically and through other portfolio deals.

“We’re privately held by (Kohlberg & Company), and they continue to show a desire for strategic M&A,” he said. “We have 16 people in our development department focused on organic growth for the company, with a couple people in Europe. That will be and is our primary strategy, but we have an active M&A list.”

He said he expects some significant deals to be announced in early 2018.

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