Hyatt Hotels & Resorts, Host Hotels & Resorts and Millennium & Copthorne continued to identify themselves as buyers in what Hyatt described as a “vibrant” transactions market.
Recovering fundamentals, particularly in group and corporate business, have meant that the market currently offers benefits to both buyers and sellers.
At Host Hotels & Resorts, the recovery of group business, which was in turn expected to push up food and beverage revenue, saw the company increase its adjusted Ebitda guidance by USD10m to between USD1.360bn and USD1.4bn and adjusted FFO per share for the year to USD1.41 to USD1.46.
Ed Walter, president & CEO, Host Hotels & Resorts, added: “Occupancy in the portfolio is ahead of our 2007 peak, suggesting that our hotels should be able to drive rate growth over the next several quarters.”
Walter described the company’s transactions activity as “relatively light” following a busy period at the end of last year. Host is currently marketing a small group of assets, with the CEO commenting: “I think pricing is slowly but surely working its way back up, not quite to the levels that we saw during the last cycles but, certainly, has been improving.
“You would think that would start to draw more sellers out. I think the fundamental problem is the fact that there is a universal perception that this cycle has a fair amount of time left to run. The desire on the part of people to sell is probably driven more by strategic reasons than a sense that the time is now to act in order to get out before the cycle starts to go the other direction.”
Despite this, he concluded that deals activity in 2014 would exceed last year’s. He added: “We still find that we’ve spent the majority of our time talking about investments in the US, but the international piece of it is a meaningful component.”
At Hyatt, the company was seeing improvements in trading driving interest in its hotel assets, with group business increasing, as at Host. The company saw group revenue booked in the quarter for the year increase by over 13%. Group represents around 45% of the company’s total rooms’ revenue in the US.
During the quarter, the group completed the sale and manage-back of a portfolio of 10 hotels for around USD313m. The company is currently marketing nine full-service hotels in North America.
Mark Hoplamazian, president & CEO, told analysts: “We also remain active in looking at new opportunities. The overall level of deal activity and capital availability for deals in our industry remain high… it’s a vibrant market at this point. Some of the deals that may have been late and deferred because of extensions by lenders are now increasingly coming to market, either because of owner motivations or because of lender motivations.”
Hoplamazian said that the company was looking for unbranded properties or properties which were able to be converted, in the key markets of London, Miami, San Francisco, Hong Kong and Los Angeles.
He added: “With respect to select service, our focus remains on urban development and with respect to resorts … Mexico and the Caribbean in North America.” In addition to ownership, the company said that it would continue to pursue expansion through management and franchises.
“Looking ahead, we expect healthy occupancy and (room) rate growth, particularly in the Americas, as group business continues to recover and transient business remains strong,” Hoplamazian concluded.
At Millennium & Copthorne, the company has continued to pursue acquisitions of hotels, most recently with deals for the Chelsea Harbour Hotel in London, Novotel Times Square, New York and Boscolo Palace Roma. On the sales side, the company disposed of land in New Zealand and condominiums in Singapore.
The group said that it would continue to refurbish its estate, planning to spend GBP60m this year. Revenue and profit before tax during the first quarter were down 0.3% and 15.5% respectively with steady hotel trading and higher property sales counterbalanced by adverse foreign exchange movements.
Looking forward, Kwek Leng Beng, chairman, said: “We expect trading conditions to be influenced by increasing social and political uncertainties affecting key Asian economies, which have already had an impact on exchange rates.
“We made good progress on strategic growth initiatives, including completion of The Chelsea Harbour Hotel acquisition. With Europe and US showing signs of increasing stability, we remain cautiously optimistic about the rest of the year.”
HA Perspective [by Katherine Doggrell]: Hotel owners and operators are currently enjoying a textbook sweet spot in the market. The number of people travelling is on the rise, but the supply of hotels in their core market of the US is set to remain low for the foreseeable.
Unlike last week’s concerns over Starwood Hotels and Resorts and its seeming willfulness when it comes to not giving back (what the market sees as adequate) to shareholders, Hyatt and Host saw the release of their quarterly results push both companies’ shares to year highs.
But that is to be unfair – for Host in particular the company enjoys the tax efficient ownership joys of being a Reit. Shareholders have also enjoyed its strong operating portfolio performance, as the upscale market continues to rise and the group continues to invest in its assets. Capital appreciation and an increasing number of rich people needing their gin and tonics freshened around the globe makes for a compelling picture indeed.
And, at the moment, there seems no end to the rising share prices and rising asset values. Ryan Meliker, senior analyst at MLV & Co, said, one of the bonuses of the cyclicality of the hotel sector is that “when things are going well, they go very well”. And, he said, with supply growth “relatively benign” asset values “can go up and up – there’s a lot of capital chasing a real estate” and, until that recessionary event kicks in, they will continue to rise. This, he felt, wouldn’t be for at least two years, geopolitical activity notwithstanding, (although he warned that he was seeing “very aggressive leverage levels”, reminiscent of 2007) so until then, those wishing to buy may have to dig deep.