Why Outlier Hyatt Won’t Focus on Asia for Future Growth

The leaders of many of the world’s largest hotel companies have rallied in recent months around the idea the biggest rate of growth for hotels in coming years would be across Asia rather than the U.S.

Data already supports the idea: There are 622,218 rooms in the U.S. development pipeline compared to 656,828 rooms in China, according to Lodging Econometrics.

But Hyatt CEO Mark Hoplamazian sees more franchise growth opportunities for his company across the U.S., Europe, and South America rather than Asia.

“I would say Asia is trailing all of that by a wide margin because it’s just not a very penetrable franchise market,” Hoplamazian said last week at the Goldman Sachs Travel and Leisure Conference.

Hyatt isn’t writing off Asia or China. The company had a 35,000-room development pipeline in China at the end of 2020, which was larger than the 24,000-room pipeline in the U.S.

In fact, Hyatt views China as a bit of a guide for how the rest of its portfolio can recover from the pandemic.

Hyatt’s business travel demand in China is about 80 percent of 2019 levels compared to the 35 percent seen in the U.S., Hoplamazian said.

The Chicago-based hotel company has development partnerships with Homeinns Hotel Group and Tianfu Minyoun Hospitality to bring more Hyatt-branded properties across the country. But those partnerships aren’t enough for Hyatt to crack the top five brands leading a bulk of the hotel growth across China.

Hilton leads the way, with 601 hotels and 116,446 rooms in various stages of development in China. IHG Hotels & Resorts comes in second for property volume with 439 projects while Marriott is second in terms of room count with 105,290 rooms across 388 projects.

Hyatt did not respond to Skift’s request for updated figures to its development pipeline by region.

No Way Around It: Asia may be a tougher market to enter for hotel brands, but it’s inevitable brands need to find a way in due to the saturation and soaring construction costs in the U.S.

“Asia is a tougher nut to crack. There are high barriers to entry, but, on the flip side, let’s face it: American hotel brands are fairly developed and established within the United States,” said LW Hospitality Advisors CEO Dan Lesser. “That doesn’t mean that there’s not opportunity for growth, but, in my mind, Asia is such virgin territory when you compare it to the U.S.”

More companies appear to see growth in Asia rather than markets like the U.S.

Wyndham’s more than 62,000-room China development pipeline is 20 percent higher than it was in 2020, company leaders reported in April. Almost all of that stems from direct franchise arrangements.

Hilton CEO Christopher Nassetta indicated on an investor call early last month the company was likely to put a greater emphasis on growth in Asia in the next few years while construction costs rose and lending tightened in the U.S. Hilton also has a development agreement with property developer Country Garden to build more than 1,000 Home 2 Suites properties across the country.

Accepting a Good-Enough Deal: Hoplamazian’s comments at the Goldman Sachs conference left out master agreements, which many American hotel companies aren’t entirely fond of because it means sharing royalties with whoever is the local developer. Wyndham attributed its push to direct franchising in China to this.

But master agreements are still very much a major way to build in a country like China, and American firms may be limited in how far they can avoid them in favor of franchise agreements.

“The American companies don’t like that, but [master agreements are] the way to do it, quite frankly,” Lesser said. “There’s a lot of runway in Asia for American brands to grow if they can accept that.”

What Extended Stay’s Takeover Says About the Future of Hotel Investment

Extended Stay America shareholders Friday voted to approve Starwood Capital and Blackstone’s more than $6 billion joint takeover of the company. While the vote tally was still preliminary, the acquisition would be Blackstone’s third time owning the extended-stay hotel company.

We’ve written plenty about the tension in getting this deal done, so there’s no need to bring that up here (you can catch up on the shareholder spats here and here). But this deal does signal where investors flush with cash want to park some of that capital waiting in the wings for hotels.

Starwood and Blackstone invested smaller stakes in Extended Stay early in the pandemic as a result of its relatively strong performance compared to other hotel companies. While many hotels temporarily suspended operations during the health crisis due to low demand, none of Extended Stay’s hotels had to turn off the lights.

That’s due to the company’s typical customer base of essential workers in industries like construction and healthcare as well as longer-term residents using rooms as temporary housing. Extended Stay America’s portfolio averaged a 74 percent occupancy rate last year compared to the 44 percent U.S. average.

Show Me the Money: Hotel companies and lodging real estate investment trusts signaled over the last year they want greater exposure to the extended stay hotel sector. Companies like Sonesta International Hotels Corp. and Choice Hotels have both pointed to the extended-stay hotel segment as a significant growth opportunity.

Extended stay hotels accounted for about 20 percent of the hotel portfolio at Starwood Property Trust, Starwood Capital’s affiliated REIT, last year.

Chatham Lodging Trust leaders at last week’s NAREIT conference signaled they want to boost the firm’s extended stay holdings from 65 percent of the company portfolio to 80 percent.

Sonesta’s $90 million RLH Corp. takeover left the company with overlapping extended-stay brands. Sonesta’s ES Suites as well as RLH’s GuestHouse, Americas Best Value Inn, and Knights Inn all operate within the sector. But given the resilience of the sector, Sonesta leaders see an upside to maintaining multiple extended-stay brands at varied price points.

“We’re making sure we’re good custodians of the brand and mining out all that value,” Sonesta CEO Carlos Flores told Skift in March. “When we have great brands, we want to frack out as much value as possible.”

Transat Shutters Hotels

Montreal-based tour operator Transat plans to narrow its focus in light of the pandemic, a move that comes at the expense of its hotel division.

Transat plans to resume operations on July 30, but hotels won’t be part of the company going forward. The company only ventured into hotels in 2018 with the purchase of two pieces of property in Mexico. Transat wanted to add thousands of rooms across Mexico and the Caribbean, but those plans never really panned out due to the health crisis.

The strategy shift comes after Air Canada dropped plans to buy Transat due to the likelihood the takeover would face regulatory hurdles. Both companies have been battered due to Canada’s tough entry and quarantine rules as well as Prime Minister Justin Trudeau’s push to curtail travel to Mexico and the Caribbean to prevent the spread of variants of the virus, Bloomberg reports.

A Farewell to a Hotel Dealmaker

Mark Elliott, president of commercial real estate brokerage firm Hodges Ward Elliott, died over the weekend, according to various social media reports. Elliott had been with the firm since 1983.

The brokerage firm billed Elliott as the highest-selling hotel broker in the U.S. As recently as February, he was involved in the sale of a nearly 500-room Sheraton in Orlando.

Elliott was involved in the selling or financing of 1,500 hotels with a combined roughly 297,000 rooms. His total sales volume clocked in at roughly $52 billion.

“One of the truly good guys in hospitality has passed away. Mark Elliott touched the lives of so many in our industry,” American Hotel & Lodging Association CEO Chip Rogers wrote on LinkedIn. “He was always funny and forever gracious. He leaves us far too soon and will be sorely missed.”