Hotel Analyst
www.hotelanalyst.co.uk
dropping to 698 in 2008 and 464 already own in Choice Hospitality latest announcement shows is
Operators in the first nine months of 2009. (India). Choice currently has 28 happening, Marriott will make
Not surprisingly, the big plunge flags in the country. the impact even greater.
raise hope has been in sales of franchises It was also reported in January This is not a criticism of Marriott
to new build hotels down from in the Indian press that Marriott is alone, it applies to the whole of the
Both Choice and Marriott 327 in 2007 to 261 in 2008 and bringing its Fairfield Inn brand to industry. In previous recoveries,
upgraded their outlook at the just 109 in the first nine months the sub continent on a franchising hoteliers that owned real estate
start of 2010 for the full-year of last year. So far, conversions basis, with ambitions to grow its were levered into the upturn. The
2009 and Choice is indicating have also slipped back, failing to overall presence to 100 hotels recovering revpar dramatically
that it expects revpar to be take up the slack, but they have across various brands by 2015. improved profitability. But in the
close to flat in 2010. proved far more resilient than new asset light model, this will not be
The moves are encouraging builds. According to Choice CEO HA Perspective: The Choice the case. Of course, profitability
signs that operating performance Steve Joyce the stalled transaction outlook was pretty definitive in will improve but by nowhere near
has stopped plunging. But it market has held up the anticipated suggesting the US market has as much as in previous recoveries.
remains possible that the recovery flow of conversion opportunities. now hit bottom. There remains What is needed is system growth
will be long and flat. The Marriott Some commentators argue huge uncertainty about the climb but the last couple of years has
improved guidance is a tightening that there is pent up demand for out. The forthcoming results seen the rate of signings collapse.
of the range of expected decline transactions that has built up over season should make clear how This can be fixed by acquisitions
in revpar. So rather than a fall of the last two years, said Joyce, and many other operators believe the and / or conversions. But where is
13% to 16% for the final quarter that when released this would lead worst is over. And while visibility the capital going to come from to
of 2009, it is now thought to be in to a flood of opportunities. On the has improved it is unlikely that do this? The asset light hoteliers
the range 13% to 14%. other hand, Joyce said this business anybody is confident about the can no longer gear their balance
The previous guidance was first cycle has proved very different to nature of the recovery just yet. sheets. A clear example of this
given in October and reiterated previous ones he had experienced. But, there are signs that trends is InterContinental. In early
in December when the company Whether there will be a flood or are turning positive. In December, December it raised £250m from
revised upwards its expected a trickle of transactions Joyce said: PKF Hospitality Research in the selling seven year bonds. But
number of room additions to “I’ve heard people well informed US said that the pace of recovery this cash is earmarked to repay a
its system. For Choice, it is also argue both sides of it.” had accelerated from previous $500m facility that matures next
net room additions that will More positively, Joyce does expectations. This still leaves the year.
drive growth in 2010. During a believe that the bid and ask gap firm expecting an annual profit But there has been a host of
presentation at the start of January seems to be narrowing and it decline (Net Operating Income funds that have raised cash to
it said it expects the net growth to appears that there are signs of the at unit level) of 35% in 2009, the make acquisitions. US-based
its room count in the US will be existing hotel market financing worst result since it began tracking website hotelnewsnow.com has
2% in 2010. starting to improve. hotel performance in the 1930s. a listing of 37 funds with almost
Revpar is expected to fall In terms of construction For 2010 it is expecting a profit $40bn of firepower (not all of
2% during the year. But CFO finance, Joyce said he had not seen decline of another 5.3%. this is hotels focused). And yet
David White cautioned: “We are in his 30 years of experience “the Nonetheless, all this good news hotel companies, which are the
still in a difficult and relatively unique circumstance” of the lack disguises a much tougher period best placed to exploit distressed
unpredictable environment.” In of funds. “In the previous cycles, ahead for most hotel operators. situations given that they already
recent months Choice’s revpar there was interruption and there For almost two years, the have management and brand
results had remained in the mid was a slowdown… [but] I’ve never additions to Marriott’s pipeline solutions to troubled assets, have
to high teen declines, he said, and seen anything like this.” have slowed to a trickle, as is the been conspicuous in their absence
“so it is possible that revpar could Outside of the US, Joyce said case for other hoteliers. In fact, in from this fundraising.
fall outside of these ranges [the - it was possible that the company the second quarter of this year, Reversing the asset light
2% given in the outlook]”. might buy a short chain or Marriott said it had signed no model is not the solution. But
In 2009, revpar is likely to be cluster of franchised hotels if they new upscale contracts. the industry does need a massive
down 14.4% across the Choice were available. The company is Given the two to three year capital infusion. It is ironic that
system. Net room additions spending up to $10m revamping time lag between signing deals having handed back billions
were 4%. Adjusted EBITDA is its existing international franchise and bringing the hotels into the during the years in the run-up
estimated to come in at $164.5m infrastructure. system, the real impact of the to the recession as assets were
in 2009 but rise during 2010 to A week after the outlook hiatus will be felt in 2011 and sold off, the industry is now left
hit $170m. The rate of franchise presentation, Choice announced 2012. By increasing the rate struggling for capital when it
sales peaked in 2007 at 770 hotels, it was buying the 60% it did not of openings, which is what the needs it.
104 MARCH / APRIL 2010 WWW.SLEEPERMAGAZINE.COM WWW.SLEEPERMAGAZINE.COM MARCH / APRIL 2010
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