Emerging pandemic winners

Hotel groups Choice and Hyatt look to have emerged from the pandemic ahead of the pack, with strong performance and growth momentum.  

Choice had previously announced it would restart paying shareholder dividends, off the back of a promising first quarter. Now, it is looking at performance in its leading markets that is actually pipping previous records. Hyatt, too, looks poised to build momentum – and is even talking of acquisitions in Europe, to beef up its presence there. 

“Our June and July RevPAR results exceeded 2019 levels by approximately 5% and 15%, respectively – a truly remarkable achievement,” said CEO Patrick Pacious. And he set out the road ahead: “Our goal is not simply to return to our 2019 performance levels but rather to capitalize on current and future investments to fuel our long term growth and drive our performance to new levels. As previously discussed, we were very intentional in our approach to investing prior to the pandemic to drive growth across the more revenue intense hotel segments.” 

Pacious said the strong performance was payback for the investment in previous years to sharpen its brands, and launch into new sectors – notably extended stay: “Our strategic investments in the extended stay segment allowed us to quadruple the size of the portfolio over the past five years to reach 460 domestic units with a domestic pipeline of over 300 hotels.” 

“Thanks to our enhancements and our distribution capabilities, we recorded nine of our top 10 all-time highest booking days for choicehotels.com and other proprietary digital channels in the last two months.” 

The company, which has always seen its international presence as a significant second to its US efforts, has used the pandemic to have a portfolio shake-out, said finance director Dom Dragisich. “We also looked at this as an opportunity to terminate some marginal or lower performing products from the European portfolio that we felt in the long term were not necessarily going to be profitable. And so we expect to continue to see some of that trend continue into Q3 and Q4 this year internationally speaking, but then anticipate significant pickup in 2022 and beyond.” 

Hyatt’s latest quarterly performance was ahead of management expectations, moving into July 2021 with revpar accelerating to almost 75% of 2019 levels.  

“The revpar acceleration has come through higher demand but also bolstered by a significant increase in the rates, which are nearing fully recovered levels,” said CEO Mark Hoplamazian. He noted that the performance is distinctly mixed: “Areas such as Europe, Southeast Asia and the Middle East are trending at less than 50% of fully recovered revpar levels, while the US, Mainland China and the Caribbean are over 80% recovered. The surge in our resorts is unlike anything we’ve previously experienced.” 

Hyatt is also growing at a far better rate than its larger peers, recording net unit growth at 7.1% for the quarter. “Conversions have been running at or above what we would have expected, terminations are at a lower level than we built into our own outlook, and we’ve seen the openings continue to pace,” said Hoplamazian. “We have a gross room opening expectation for the remainder of the year that’s far in excess of the 6% level. Our earnings model pre-covid suggested that we would have a net rooms growth longer-term somewhere between 6.5% and 7%. I see no reason why we shouldn’t be at least in that range if not higher long-term, and in the next couple of years, it could be lower than that may be between 6% and 6.5%. But I don’t think it’s going to drop below that.” 

He added that the future pipeline is also looking more towards high end brands: “The quality I guess of the pipeline itself is higher, than where it was a couple of years ago – and what I mean by that is, we have had over this period of time effectively replaced the pace that we had enjoyed on select service signings with more full-service and lifestyle hotels globally.” 

Hoplamazian hinted at acquisitions in Europe to keep up the pace: “We are starting to turn our attention back to the things that we were trying to do and identify before covid hit, which is more and more opportunities to grow in Europe. We are paying close attention to smaller brands and groupings of hotels there. While the deal volume there has been slow to date, we are tracking a number of different potential opportunities in the hopes that we’ll see some things free up over the coming year.” 

HA Perspective [by Chris Bown]: Choice and Hyatt look to be ahead of the pack, as the hotel groups emerge from the pandemic. Choice is already performing ahead of 2019, in some parts of its portfolio, while Hyatt looks to have a growth momentum that none can match.  

In the case of Choice, that leading position looks to have been, in part, due to a lucky break. The company has never really tried very hard to take its business global, preferring to continue to concentrate on its home US market. And, for once, having most of its eggs in one basket has paid off, with the US, alongside China, being the fastest recovering hotel markets out of the pandemic.  

In part, it’s also been down to a concentration on extended stay, too. Choice spotted the extended stay niche as one worth doubling down on, ahead of the pandemic – and so it enjoyed a covid-19 related bonus as its apartment-style accommodation became highly desirable.  

Thirdly, and in common with Wyndham, Choice’s budget-end hotel offering continued to trade by accommodating blue collar business customers throughout the pandemic. It’s retained its business/leisure split far better than those with full-service portfolios.  

Hyatt’s on the move for different reasons – accelerating in value, according to a recent brand ranking report. It appears to have made a good job of integrating its acquired brands – which fortuitously were in-demand boutique and lifestyle brands – into the portfolio.  

Then, it has met Wall Street demands to slim down its capital commitment, selling down a raft of assets to meet the reduction target it set. But – significantly – that has not signalled a move to asset-light, the route its peers all follow. In that respect, it is still business as usual. The company invested USD148m to retain management of the Ventana Big Sur resort, and was also the only one of three tenants happy to agree a deal with US landlord SVT, to retain its properties; IHG and Marriott both walked away from the required capital commitment.  

Net unit growth figures are markedly ahead of its peers, with Hilton closest behind. Now, Hoplamazian is talking about acquisitions in Europe, to further accelerate the growth there – growth that its property team there is already making a decent fist of, with a number of significant recent signings. What’s up for grabs?  

One other thing that Hyatt appears to be executing on well, is its loyalty programme. In contrast with those at Hilton and Marriott, which are still below previous performance, it is moving ahead, growing signups and grabbing more direct bookings.  

Additional comment [by Andrew Sangster]: Disentangling what is a long-term trend from a short-term blip created by exceptional conditions thrown up by pandemic restrictions is not easy. But there are patterns to provide a guide. 

The earlier return of domestic travel, first leisure and then business, has benefitted economy and midscale ahead of upper scale properties. Where luxury hotels are situated in leisure destinations, they are enjoying an early recovery too. 

No surprise then to see the likes of Choice enjoying a quick rebound. The question is whether this structural advantage is going to continue for long? Has there been such a shift in demand patterns that some types of accommodation are going to enjoy an advantage over others for years to come? 

The rise and rise of extended stay has been well trailed. But how much of the new-found excitement for the product is because of genuine change in market fundamentals or due to the sub-sector’s inherent strengths being highlighted during the pandemic restrictions. 

Similarly, the resilience of the branded economy hotel market was well known before the pandemic. Perhaps it is now just a case of investors relearning these lessons having had their heads swayed elsewhere. 

The success at Hyatt is perhaps more surprising given its portfolio’s reliance on international travel, particularly outside of the US. Achieving outperformance is certainly a feather in the cap of its leadership team. The one risk is that it may stimulate increased interest from potential predators. Given the current ready availability of capital, advisers to the Pritzker family interest in the business will be pointing out that there has never been a better time to exit. 

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