Why Hilton Grand Vacations Upped the Bid in $1.4 Billion Timeshare Takeover

After watching their stock price fall 68 percent from just mid-February to mid-March 2020, the leaders at Hilton Grand Vacations began talks two months later with another timeshare company, Diamond Resorts, about an acquisition.

The agreed-upon sales price shows how the travel industry sees much of its future tied to branded properties coming out of the pandemic.

The Hilton Grand Vacations team initially floated the idea last October of an all-stock acquisition of Diamond Resorts at an equity value of $840 million, according to a recent filing with the U.S. Securities and Exchange Commission.

By the time a deal was announced last month, Diamond was slated to sell for $1.4 billion — a hefty climb considering the travel industry was still in tumult and wasn’t wearing the rose-colored glasses it appears to have slipped on in recent weeks.

Hilton Grand Vacations was willing to play ball based on branding potential it sees lacking in the timeshare space. That has ramifications that will flow beyond timeshares and into all-inclusive resorts and other hotel sectors.

Bloating Brands: Hilton Grand Vacations spun out from the Hilton Worldwide Holdings hotel company in 2017, but it remains an affiliated Hilton brand. The hotel company ultimately had to grant approval for the acquisition to move forward. Shifts in consumer behavior, or at least how hotel companies perceive them, made this approval a no-brainer.

The 110-property Diamond Resorts portfolio isn’t affiliated with any brands, presenting a significant growth opportunity for Hilton. Hilton Grand Vacations even plans to create a new upscale sub-brand with the Diamond properties. The brand additions will add “significant credibility and enhance the value” of Diamond’s portfolio, according to the filing.

The acquisition comes at a time when all major hotel companies are trying to absorb independent hotels and resorts into their branded portfolios across a variety of hospitality sectors like timeshares, all-inclusive resorts, and traditional hotels.

Marriott Vacations Worldwide agreed in late January to buy Welk Resorts for $430 million and plans to convert the eight Welk properties into Hyatt Residence Club brands. Marriott Vacations picked up the Hyatt timeshare business as part of a $4.7 billion ILG takeover in 2018.

Leaders at companies like Wyndham, IHG, and Choice Hotels all boasted in investor calls over the last year about signing new brand and franchise agreements with owners of existing hotels.

Marriott even looked to add new sectors like all-inclusive resorts to its brands. The company announced plans in February to add 19 of these resorts to its Autograph Collection of hotels. Marriott only launched an all-inclusive division in 2019, but analysts think this presents a new frontier for some of the world’s largest hotel companies to pursue further brand deals in a sector dominated by smaller brands like Sandals or Club Med.

“We have seen, since the 2019 announcement of our entry into the all-inclusive space, steady interest around potential affiliation,” Marriott CEO Tony Capuano told Skift in February. “It’s reflective of the market’s view we can be a significant player and bring powerful engines to the all-inclusive space.”

Money, Money, Money: The Diamond acquisition, like any takeover, also comes down to cash — and Hilton Grand Vacations sees plenty of that to be made from this deal. The SEC filing shows Hilton Grand Vacations has a higher forecast than industry analysts regarding revenue over the next three years.

The combined company’s expected $588 million in earnings before interest, taxes, depreciation, and amortization — or EBITDA, a metric used to evaluate a company’s operating performance — is 10 percent higher than analyst expectations, according to a Truist Securities memo. Hilton Grand Vacations’ 2021 and 2022 expectations are 11 percent and 5 percent higher, respectively, than what analysts predict.

If the bigger-is-better mantra pans out financially, expect more deals like this and Wyndham Destinations’ Travel + Leisure takeover to cascade into the timeshare and all-inclusive space.

Brookfield Poised to Take on Troubled Hotel Portfolio

Hospitality Investors Trust, a non-traded real estate investment trust focused on U.S. urban hotels, is on track to hand over all its assets to Brookfield Asset Management in a bankruptcy deal.

The ongoing bankruptcy negotiation was noted in a filing with the SEC last week, but Bloomberg first reported news of control of the company handing over. Hospitality Investors Trust largely owns older hotels under various Marriott, Hilton, and Hyatt brands.

While the hotel industry appears on track for a demand boom over the summer due to vaccine acceleration in the U.S., Hospitality Investors Trust’s debt burden is too much to overcome. It ended 2020 with more than $1 billion in debt.

“We estimate that without additional liquidity from a source other than property operations, we will no longer have sufficient cash on hand to continue to pay our current obligations during the first half of 2021,” the company reported in its annual report to the SEC. “Accordingly, we will soon require additional liquidity from a source other than property operations, and to date we have not been able to identify an available source that can satisfy this requirement other than the Brookfield Investor.”

Boom or Bust: The bankruptcy proceeding may seem like an anomaly, especially given the U.S. travel sector rallying in recent weeks around the idea demand will be at record levels this summer. U.S. hotel-focused lodging trust values increased by 18 percent in the first quarter, according to Green Street data reported by the Wall Street Journal.

But much of that is still rooted in leisure travel, and Hospitality Investors Trust had a portfolio focused on urban hotels catering more to business travelers. While hotel and airline executives think business travel will pick up more this fall, that optimism doesn’t help make debt payments due now.

Singapore-based Eagle Hospitality Trust’s U.S. division similarly filed for bankruptcy earlier this year.

European Hotel Investor Targets Millennials in Buying Bonanza

Dutch businessman John Arthur Fentener van Vlissingen, founder of BCD Travel, plans a European hotel expansion aimed at younger travelers.

Fentener van Vlissingen wants to expand a European hotel network in three years to 10,000 rooms across at least 30 markets through his Boron investment company, he said in an interview with Hotel Management last week. The organization, which currently doesn’t have a name, will operate tech-enabled, hostel-style lodging aimed at millennial and Generation Z travelers in primary markets.

Barcelona, Budapest, Istanbul, Lisbon, and Marrakech are the company’s planned initial markets for acquisitions. The average price of a room will be “well below” $120 per night, Fentener van Vlissingen said.

Blink, and You’ll Miss It: There is plenty of upside to focusing on this more economical end of the hotel sector, Fentener van Vlissingen said. Less than 500,000 of the world’s 19 million hotel rooms operate in this space, per Boron research.

While Boron is known for holding onto investments for longer periods of time, this foray into lodging geared toward younger travelers may be a financial flash in the pan. The plan is to sell quickly, as the company plans to markets its business to major hotel groups after achieving its targeted volume in the planned three-year timeline.

Europe continues to struggle with new waves of coronavirus cases and variants. While hotel building valuations have generally held up during the pandemic, Boron’s leader anticipates there will be favorably priced deals to be made to quickly ramp up expansion.

Part of that is due to the pandemic, but it’s also due to hotel companies leaving business on the table in light of entities like Airbnb siphoning away some leisure business, Fentener van Vlissingen said.

“Of course, it sounds more attractive to enter the five-star segment, but we see more opportunities here,” he told Hotel Management in an interview that has since been translated from Dutch. “In the low segment, the hotel industry is on the move, partly due to Airbnb.”

Shareholder Tension Mounts on $6 Billion Extended Stay America Deal

Disgruntled shareholders and board members who called Blackstone and Starwood Capital’s joint $6 billion takeover offer for Extended Stay America too low got evidence backing their claim courtesy of an SEC filing last week.

While Blackstone and Starwood are acquiring Extended Stay America as partners, the companies have been independently interested in a deal as far back as 2017, according to the filing. Multiple earlier bids, one which could have ranged between $22 and $24 per share, would have eclipsed the pair’s current $6 billion, or $19.50 per share, deal.

“We are dismayed that the board would approve such an obviously inadequate price and shocked that the board did so over the objection of two of its own members,” a spokesperson for Tarsadia Capital, a family wealth fund that has a nearly 4 percent stake in Extended Stay America, told Skift last week.

Brace for a Summer Hotel Blastoff

The hotel industry may not be at pre-pandemic levels, but Expedia CEO Peter Kern is bullish on a summer recovery for hotels relative to vacation rental brands like Airbnb or the Expedia-owned Vrbo.

Vrbo benefitted from pandemic shifts in travel behavior favoring longer stays in whole homes, and Kern said in an interview with the Wall Street Journal that Expedia is investing more in marketing and adding supply to the division of the company.

But don’t sing a swan song for traditional hotels.

“I also believe hotels will come screaming back and the moment will change, so I don’t expect that home rental will be as dominant as it feels right now,” Kern added. “I don’t know when we will find the new normal. But you have to think this summer, a lot of hotels will come back strongly.”