This $1.4 Billion Deal Underscores How Hungry Big Hotel-Branded Timeshares Are to Expand

Historically, the kind of “deal” most associated with the timeshare business was when a salesperson would promise your mom and dad free Broadway tickets in exchange for sitting through a six-hour presentation on an annual week-long stay in Bermuda.

But during the pandemic, the timeshare business is notable for notching some of the biggest acquisition deals in the travel sector.

U.S. timeshare business Hilton Grand Vacations announced plans last week to acquire Diamond Resorts International for $1.4 billion. The combined company will have 154 resorts and 720,000 timeshare owners. It also adds more drive-to resorts to the portfolio for Hilton Grand Vacations, which spun out from the Hilton Worldwide Holdings hotel company in early 2017.

“I do think consolidation is being led by the branded players. In our space, it makes absolute sense,” said Hilton Grand Vacations CEO Mark Wang. “The much larger networks, credibility with our brands, and connections with the Hilton loyalty base — those are very powerful ingredients to grow your business.”

Branded Bonanza: The Hilton Grand Vacations play for Diamond Resorts is the latest in a string of deals where timeshare businesses associated with traditional hotel brands and their loyalty programs are buying up smaller operators. Marriott Vacations Worldwide agreed in late January to buy Welk Resorts for $430 million.

Wyndham Destinations entered an agreement in early January to buy Travel + Leisure for $100 million. The combined company, which will take on the Travel + Leisure name, will operate as both a timeshare and travel club company while the namesake magazine continues to be operated by Meredith Corp.

Like Wyndham Destinations, Hilton Grand Vacations is in pursuit of younger clients for its timeshare offering. This includes shedding the misconception that the product is just about going to the same location at one designated point in a year. Timeshares now are about flexibility and a variety of destination options, which is key in appealing to buyers in younger demographics like millennials.

“Diamond was growing their millennial base of customer at a faster rate than we were,” Wang said. “This is an opportunity for us to reach a broader customer base.”

Where’s the Beef…er…Hotel Deals?: An economic downturn generally inspires deal making. Investors that spent the last economic cycle amassing cash finally deploy it on deals in various industries facing tough times.

The acquisition activity in the timeshare sector during the current downturn is notably more robust than in the traditional hotel space, which has been dotted by rumors like Accor and IHG linking up but not a significant level of actual mergers, acquisitions, or deals. Patience is key, Wang said.

“I still think it’s a bit early,” he added. “It takes time for these things to work their way out, and I would expect there will be some substantial movement in that regard [of further acquisitions and transactions], but I think you’re looking more toward the latter part of this year.”

Marriott Throttles Up Soft Brand Growth Plans

Marriott plans to add nearly 70 hotels and 24 new markets to its three collections of soft brands — the Autograph Collection, Tribute Portfolio, and Luxury Collection — this year, the company announced Monday. The growth plans come as Marriott recently opened its 200th Autograph Collection hotel, 50th Tribute Portfolio hotel, and 120th Luxury Collection Hotel.

Autograph Collection is the soft brand Marriott launched in 2010 while the Tribute Portfolio and Luxury Collection came under the company’s purview following its Starwood Hotels & Resorts acquisition in 2016.

Soft brands are seen as a significant way for major hotel companies like Marriott and Hilton to grow into the independent hotel space, as they serve as kind of a cool sibling to the more traditional brands like a Westin or a Sheraton.

Hotels in the soft brand space typically don’t show much of a relationship to a bigger company save for subtle acknowledgements on signage or the fact that they appear on a Marriott or Hilton reservations system and loyalty program.

“We don’t want these hotels to give up their independence or give up their vision. The more we allow hotels to homogenize, the less special this is and the less excited consumers get for the brand,” said Jennifer Connell, the vice president and global brand leader of Autograph Collection and Tribute Portfolio at Marriott. “We want hotels to have their soul and retain the soul they have today.”

The Conversion Courtship: Soft brands are widely seen in the hotel industry as a key tool in appealing to owners of existing hotels to take on a new brand affiliation, a deal known as a conversion. This kind of activity is expected to pick up in the next few years, as lenders aren’t as keen on new-build hotel projects following the pandemic’s devastating drag on the industry.

Conversions still cost money to execute, but they aren’t as expensive as a ground-up development.

Marriott began the Autograph Collection as a largely conversion-driven vehicle, as have other companies. Choice Hotels has the Ascend Hotel Collection, Wyndham has the Trademark Collection, and Hilton has the Curio Collection and Tapestry Collection. All generally appeal to upscale and high-end independent hotel operators.

Soft brands and their general autonomy surrounding brand standards are a way to sell brand affiliation to an independent hotel owner apprehensive on losing “cool factor” in linking with a bigger company. But the soft brand sector’s appeal even extends to developers wanting to build something from the ground up.

Marriott was a little apprehensive at first when developers reached out wanting to build new projects under the Autograph Collection, Connell said. Today, about 60 percent of the hotels are new construction compared to 40 percent conversions.

“Can you infuse a soul into something and it work?” she said. “It turns out that it can.”

You Have $1 Billion for Hotel Opportunities — So What?

Dreamscape Cos. late last week became the latest investment group to announce plans to deploy money into the struggling hotel sector. The company has more than $1 billion to deploy on assets and made the Warwick Hotel its first acquisition target.

While the company is exploring all sectors of the hotel industry, Dreamscape Cos. CEO Eric Birnbaum noted business-oriented and convention hotels may be the easiest targets due to their expected prolonged road to recovery.

“We are not married to simply that vertical, but the recovery within that vertical may take more time, and as such that’s where entry pricing may end up being more compelling,” he told Skift via email.

Hard-to-Find Bargains: Even Birnbaum recognizes there hasn’t exactly been the firehose of hotel deals many expected to emerge from the pandemic that left most operators with their worst financial year on record. Federal stimulus, bank forbearance, and shifting attention to leisure travel have all provided various degrees of relief to hoteliers.

“There may not be complete carnage; but there will be opportunities,” Birnbaum said. “You have to, like always, be nimble, judicious and pick your spots.”

Thailand’s financial leaders even announced a plan last week that essentially operates a pawn shop-style relief measure for hotels, Bloomberg reported.

Struggling operators can temporarily leave their asset in the hands of creditors and lease them back or buy them back within five years. The program, officially known as asset warehousing, is another mechanism that would likely prevent a major wave of hotel deals from transacting, at least in the near-term. But the plan is fairly unique to Thailand.

A Queen Mary Deal (Potentially) Sets Sail

Singapore-based Eagle Hospitality Trust may have a buyer for some of its struggling hotel assets thanks to a $470 million bid from New York-based Monarch Alternative Capital in bankruptcy court.

Eagle Hospitality’s U.S. division, which includes assets like the Queen Mary cruise ship-turned-hotel in California as well as several airport hotels across the U.S., filed for bankruptcy in January. Monarch’s bid was the minimum offer possible in bankruptcy court, the Real Deal reported.

Pre-Pandemic Distress: The Eagle Hospitality sale, if approved, shouldn’t necessarily be seen as a pandemic-driven bargain. The lodging trust has faced challenges for years unrelated to the pandemic like the mounting repair costs of the Queen Mary (a subsidiary floated the idea of $250 million in upgrades back in 2017). Several current and former executives with the company were also arrested in Singapore last October for hiding information from investors.

The sale to Monarch, if approved, would go into the general industry idea that most hotel deals at the moment are coming from portfolios that were already struggling prior to the pandemic.

A ‘Choice’ Newspaper Buyer

Stewart Bainum Jr., chairman of Choice Hotels, appears poised to go it alone for a bid for Tribune Publishing, the owner of various newspapers like the Baltimore Sun and The Chicago Tribune, the New York Times reported Sunday.

The deal is a notable break-up between Bainum and Alden Global Capital, a hedge fund that is also Tribune’s largest shareholder and was expected to acquire the remainder of the company before spinning off the Sun and two additional Maryland papers to Bainum.

The hotel executive is now interested in acquiring the entire company by himself but potentially seeking local ownership partners for many of the company’s papers like the Orlando Sentinel. Bainum was ready to offer $100 million of his own money while seeking additional investors, per the Times report.

Journalists at many of Tribune’s papers have cautioned against a hedge fund like Alden taking over the company and potentially gutting newsrooms with job cuts.

Bainum is tied to a pandemic rarity in the hotel industry: Choice Hotels managed to be profitable last year when most companies lost hundreds of millions of dollars.