Hotel management companies are looking to further grow and consolidate, as the hotel landscape is redrawn off the back of the pandemic.
Those with a foot in the US and Europe are already active in acquiring both new subsidiaries and new properties to manage. While in mainland Europe, where management companies are more inclined to sign leases, greater stresses are still being unwound.
Aimbridge, the largest hotel management group globally, has just signalled a further round of consolidation in the sector, acquiring Mexican operator Grupo Hotelero Prisma. The largest third party operator in the country, Prisma currently manages 42 properties across Mexico, with 7,500 rooms. Alongside Marriott, Hilton and IHG properties in the portfolio, Prisma works closely with local brands and with a major owner in the form of Fibra Inn, the leading hotel owning Reit in the country.
In December 2020, Aimbridge CEO Dave Johnson moved up to a new executive chairman role, aiming to focus on further “transformational growth, including capital markets, M&A, and new business opportunities”. Global president Mike Deitemeyer was promoted to replace Johnson.
In Europe, Aimbridge operates through Interstate Hotels, which it merged with in 2019. In late 2020, Interstate picked up the management of the 31 strong Jupiter portfolio in the UK, while a further six pipeline hotels, all under major brands, are launching during 2021.
Nick Northam, executive vice president international at Interstate, and responsible for the group’s European business, said growth is on the agenda. “If there are opportunities, we are all about growth.” He said the current market in the UK has seen significant occupancy growth in the last few weeks, and predicted: “This summer will be strong – and I think that the urge to just go somewhere, is dominating people at the moment. The real key test for UK hotels will be this coming autumn.”
Northam said he has noticed a modest change in tone, among owners. “The one thing we are starting to see, is that the landlords are becoming more flexible – there are hybrid agreements, with a fixed and performance element.”
Another international management group, Valor Hospitality, has benefited in the UK from investor Marathon’s acquisition of the Project Horizon portfolio of 17 IHG branded properties, which it has asked Valor to manage.
Brian McCarthy, managing director of Valor Hospitality Europe, said the opportunity to work with Marathon once more in the UK means working closely with an owner that shares a common goal. His bigger goal is to see more third-party managers working ever more closely with investors. “I think there’s growth for third party management – but even using that term is interesting.” He said that the aim of owner and operator should be “to be fully aligned on goals, and it should feel totally integrated.”
Valor previously worked with Marathon on a UK portfolio, which the investor then sold to Asian investor DTGO. The company has continued to manage those hotels for the new owner, but maintained links with Marathon and so was invited to take on the investor’s latest portfolio purchase. The additions mean Valor now manages close to 80 hotels globally.
Off the back of the pandemic, cost pressures are clearly a bigger issue, and McCarthy said he had heard of some hotel management companies, with what he calls “limited infrastructure”, offering cut price deals to attract new business from owners. “But the continual desire to drive down management fees is underlining performance. It should be our biggest obsession to deliver best in class performance, and attract more investors to the sector.”
In mainland Europe, the last few months have seen stress for a number of management groups, specifically those that signed leases on properties they then managed. Event Hotels, for example, dropped out of an agreement with Invesco on 13 IHG branded hotels in the Netherlands and Germany, to be replaced by Westmont. And early this year Dutch operator Odyssey agreed to be acquired by investor ActivumSG, as a way to fund its planned growth.
But there are also opportunities, as indicated by a recent deal struck by Spanish hotel operator Smy with Wyndham Hotels illustrates. Smy, which was founded in 2018, and has links with distribution platform Logitravel, will work in a strategic partnership with Wyndham to build out around 20 hotels in Spain, Portugal and Italy.
“Owners have different needs, from better profitability, stronger marketing to higher asset value and more,” said Ovidio Andres, founder of Smy and Ligitravel. “Our strategic partnership with Wyndham will enable us to diversify and further improve our offering by leveraging our complementary platforms. Working with Wyndham will also help position Smy Hotels as a perfect solution for independent owners who want to be affiliated with a globally-recognised brand to emerge stronger from the challenges of the pandemic.”
McCarthy said Valor’s growth in the UK is likely to come from its existing two owners buying additional assets. He will also look at opportunistic growth, including mainland European options, but is not keen on signing leases.
He added that the specialist management sector as a whole needs to bang a communal drum. “As a group, the biggest thing we need to say is that best in class infrastructure will deliver best in class performance.”
HA Perspective [by Chris Bown]: Are we heading for a new age of consensual hotel management? Now ought to be the moment to move that way – most owners and operators have had to share frank conversations in the last year, when they might never have had to previously. So it might be good to recognise that a good hotel operator will deliver a better return, if they are paid a decent share, and listened to.
There’s also plenty of opportunity to consolidate and drive up standards in the management niche, as McCarthy indicates. And he makes a valid point that a properly recompensed operator, with adequate resources, can make landlord, brand, and themselves better off.
But, as for jumping the Channel, there remain issues. The Anglo Saxon hotel managers don’t like leases, in the way that their German counterparts have been used to: neither Valor nor Interstate will commit to signing them. However, pandemic lockdowns have put those Germanic lease arrangements under pressure, sometimes to breaking point.
And one deal that broke was Invesco’s portfolio of a bunch of IHG properties, where the leasing operator fell over, to be replaced by Westmont who are taking the hotels forward on a different basis. Perhaps other fund owners of German hotels will need to follow a similar path – in which case they’ll doubtless find a number of operators keen to work with them.
Additional comment [by Andrew Sangster]: Our mantra at Hotel Analyst throughout the Covid pandemic and ensuing restrictions has been that rather than a catalyst for change, the crisis has been an accelerant. Covid has not caused change but rather speeded it up.
It looks as though this is the case with the switch into third-party management. After bricks and brains – the separation of property from the operations via an opco-propco split – there was the bricks, brawn and brains – property, operating company and brand company.
The harder push of the global brand majors into franchising is a key driver of this trend. They can achieve scale quicker, using less capital than even when taking on management contracts. And right now, the global brands have an unprecedented opportunity to push into franchising, particularly conversions.
The issue that needs resolving for the third-party operating companies as they grow is how they retain sufficient focus on each asset. Scale inevitably makes senior management more remote for owners.
But with sufficient attention to operating procedures an effective and professional service can be maintained. In fact, the bigger operating companies ought to be able to deliver higher quality training and better career prospects, giving them the edge when recruiting staff when compared to smaller rivals.
It will be hard to match the sex appeal that the global brand majors can offer recruits, but the larger third-party players are evolving into sophisticated corporates offering much more than on-property jobs.
Aimbridge, for example, has divided into eight verticals, encompassing soft brands and independents to select service, and from luxury to economy. The range of services on offer to owners extends into digital and ecommerce as well as the expected operating of f&b, rooms and meeting spaces.
A company that has more than 1,500 properties, and 60,000 employees across 20 countries, is a significant player. Rivals to Aimbridge are currently much smaller – the next biggest third-party company, Crescent Hotels, is roughly a quarter the size – but there are ambitious growth plans among many challengers.
In Europe, Aimbridge does not have the same scale dominance and faces a tough fight from competitors such as the UK’s RBH and Bespoke, Germany’s Event and US-based Valor. While there are still scale advantages across continents many of the most significant are much diminished.