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As Hilton, Marriott Reach Colossus Scale, US Accommodations Sector Seen Ripe for More Consolidation

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Fitch Ratings Views Hyatt in Potential ‘Kingmaker’ Position as Other Competitors Face Growing Size Benefit of Top 2 Rivals

Grand Hyatt, Washington, DC
Grand Hyatt, Washington, DC The growing size and rates power of the 2 mega U.S. hotel brand names is modifying the competitive landscape of the hospitality market and will likely lead to more consolidation, according to recent analysis by Fitch Rankings.

Marriott and Hilton stand head-and-shoulders above their peers in regards to system size and average everyday space rates (ADR). They also appear to be taking advancement share far from smaller brand name operators. The scale-related competitive benefit usually translates into such things as lower acquiring and space circulation expenses, bigger client commitment benefits programs, and more clout in drawing in property owners and franchisees.

To compete, smaller competitors, such as Accor, InterContinental and Wyndham, will need to include more rooms across the cost spectrum to stay competitive, Fitch asserts.

Nevertheless, smaller sized accommodations operators run the risk of taking on too much balance sheet risk to grow their rooms systems, which could damage credit quality, specifically smaller operators focused on the luxury and upscale sectors that Marriott and Hilton dominate, the rankings company notes, which compiled a chart of prospective targets for more market debt consolidation.

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While Hyatt would appear to be a logical acquisition target for operators such as Accor, Intercontinental and Wyndham offered its above-average ADR, Fitch stated Hyatt’s dual class structure complicates any potential sale without the approval of the Pritzker family, Hyatt’s controlling investor.

This month, Marriott International (NYSE: MAR) reported that its systemwide North American ADR increased 1.3% to $161.01 for the second quarter compared to a year earlier. The business included approximately 16,000 spaces during the second quarter, consisting of almost 2,300 rooms transformed from competitor brand names.

Hilton Worldwide Holdings (NYSE: HLT) added 13,400 net rooms in the second quarter, representing around 30% development from the same period in 2016. Its U.S. ADR increased 1.1% to $149.27 over the same quarter a year ago.

Hyatt Hotels Corp. (NYSE: H) reported including far less 3,366 spaces and its systemwide ADR increased simply 0.2%.

Hotel franchisees and owners are revealing a clear choice to aligning their hotels with the largest brands that use the largest consumer commitment reward systems. Marriott-branded rooms consisted of 28.1% of the U.S. hotel development pipeline since July 31, inning accordance with STR Global. This is well above the business’s 14.9% share of existing U.S. rooms supply.

Comparable procedures for Hilton, the industry’s second-largest player, were 23.4% and 12.1%, respectively.

Hyatt-branded hotels, on the other hand, consisted of 2.7% of overall spaces in the U.S. hotel pipeline, which approximately matches its share of the existing stock.

Fitch Scores anticipates U.S. lodging industry RevPAR development to decelerate in second-half 2017, but stay decently favorable (in the low single digits) through 2018.

Need from leisure tourists is anticipated to outpace group and corporate hotel business for the same duration, with organisation travel projected to stay lackluster through the balance of 2017 and 2018, Fitch said.

Nevertheless, Fitch included, total brand-new hotel supply will remain at or above need for the balance of this upcycle. For the most part, these brand-new spaces are focused in the restricted service sector.

The number of spaces under building is reasonably below its prior cycle peak. However, the pipeline is 27% above its previous peak after including rooms in final planning, which have a high completion possibility. The impact of the elevated supply varies by market, Fitch added, with New York, Nashville, Seattle, Dallas and Miami being of particular concern.

RLJ Accommodations and FelCor Merging in $1.2 Billion Offer

Merger Creates Third Largest ‘Pure-Play’ Hotel REIT with Market price of $4.2 Billion

FelCor Lodging Trust Inc.(NYSE: FCH)has actually consented to combine with and become a wholly-owned subsidiary of RLJ Lodging Trust (NYSE: RLJ) in an all-stock transaction.

Under the deal, each FelCor share will be converted into 0.362 shares of recently released shares of RLJ common stock in a taxable merger. The combination is expected to offer RLJ a post-merger pro forma equity market capitalization of $4.2 billion and a total enterprise worth of $7 billion.

FelCor’s stock closed last Friday at $7.32/ share. RLJ’s stock closed at $23.60/ share. A 0.362 share of RLJ’s worth relates to about $8.54/ share. With about 138.1 million shares of FelCor stock impressive, the offer has a stock worth of $1.18 billion.

FelCor owns 38 hotels with 11,329 spaces giving the offer a worth of about $104,150/ room.

RLJ stated combining the entities will establish the 3rd largest ‘pure-play’ lodging REIT by enterprise worth, offering it with more scale to profit from cost effectiveness, negotiate utilize and access to capital, and strategically recycle assets.

The combined business will have ownership interests in 160 hotels with 31,467 rooms, including premium-branded hotels located mainly in urban and seaside markets.

“In addition to being immediately accretive to our RevPAR, combining with FelCor broadens our geographic footprint in highly-desirable markets on the West Coast, while enhancing our existence in other seaside markets in the East and the South,” stated Ross H. Bierkan, RLJ’s president and CEO.

RLJ is anticipating $22 countless anticipated savings from the elimination of duplicative corporate basic and administrative costs.

Following the merger, which has been all authorized by the boards of both business, will maintain the combined company will operate under the RLJ Lodging Trust name and be led by RLJ’s senior leadership, consisting of Robert L. Johnson as executive chairman and Bierkan as president and CEO. The company’s headquarters will remain in Bethesda, MD.

. Worldwide law practice Hogan Lovells recommended RLJ Lodging Trust on a conclusive merger contract. FelCor was encouraged by Sidley Austin LLP.

Investor Interest Moving Additional Down Accommodations Chain Scale to Mid-Level Assets

Top Hotel’s 26 Property/2,793 Space Profile Sale to American Realty Capital Hospitality Trust for $351.4 Million Newest in Hot Sales Trend

A pair of hotel portfolio sales this month highlights the vibrancy of the hospitality real estate sector in 2015, with financiers significantly shift their sights far from the incredibly luxury hotels to the moderate-quality, limited- and select-service end of the market as the U.S. hotel market sets the speed for record annual occupancies.

On Monday, Top Hotel Characteristic Inc. (NYSE: INN) said it accepted offer 26 hotels totaling 2,793 spaces in 11 states to American Realty Capital Hospitality Trust Inc. for $351.4 million.

ARC Hospitality apparently beat out multiple bidders to win the collection of select-service possessions, which includes apartments run by Marriott International, Hilton Worldwide Holdings Inc. and InterContinental Hotels Group Plc. The sale is anticipated to nearby January 2016.

ARC Hospitality CEO Jonathan P. Mehlman said the Summit Hotel portfolio “offers both an attractive yield and rate per key, along with scale, brand power, and constant and growing cash flows.”

The statement comes on the heels of New york city City-based ARC’s disclosure last week that it prepares to buy five hotels totaling 565 rooms from Wheelock Street Capital LLC for $93 million.

While independent and full-service inns have actually also recorded considerable investor interest, most of the activity is focused on the mid and much lower ends, according to Marcus & & Millichap’s current mid-year report on the U.S. hospitality market.After 60 consecutive
months of gains in room income, M&M said the timing appears opportune for sellers ahead of expected supply development.”Homeowner looking for to monetize the recent RevPAR-driven gains in building value will note buildings to make the most of investors’unfaltering interest, sustaining a high level of deals in the months ahead,”the Marcus & Millichap report specified. Both REITs and private owners of lodging & properties are recycling capital

to broaden limited-service portfolios. Sales of economy and midscale chains have risen even as rates remained to increase. Rates in the midscale segment have hovered in the $55,000 per space to $70,000 per room variety, though properties in supply constrained areas regulate more than$150,000 per space in some deals. The sale of the Summit Hotel Properties possessions is scheduled to enclose 3 separate tranches between September 2015 and January 2016, proving the business with sufficient time to recycle its cash proceeds from the deal into extra acquisitions, JMP Securities expert Whitney Stevenson stated in an investor note.”Our company believe that there were several bidders for the portfolio and believe that management structured a good deal with built-in versatility for redeploying the proceeds in a tax-efficient way, “Stevenson stated, adding that the offer increases INN’s concentration in the top 50 markets from 80 % to 93 %. Summit President and CEO Dan Hansen stated the transaction”will certainly allow us to remain to enhance our possession mix and upgrade our portfolio.””Through this transformational transaction, we anticipate to completely deploy the disposition proceeds into acquisitions that will certainly continue to improve our portfolio and offer future growth for our shareholders, “stated Hansen. He included that Top has actually determined a robust pipeline of about$100 countless acquisitions under agreement which are approximated to close prior to the first tranche of personalities to ARC in September

2015.