2000 HOTELS' 325
Another year of vigorous merger and acquisition activity means the biggest hotel players in the world are once again growing at the expense of their smaller rivals.
By Tony Dela Cruz, Managing Editor -- HOTELS Magazine, 7/1/2000
NOTE: The bulk of the HOTELS' 325 article is comprised of tables ranking the hotel companies. These tables are available for download as a single PDF document. To view PDF documents such as this you will need the Adobe Acrobat Reader, available for free at Adobe Systems' web site (www.abobe.com).
HOTELS' 325 (2000) rankings: Hotels 325
HOTELS' Corstia 25 (2000): Consortia 25 and Index to the 325
Updates to the 2000 Giants: Omitted from our list of top 300 Corporate Hotel Companies was Silver Spring, MD-based Sunburst Hospitality with 11,350 hotel rooms in 83 properties. Sunburst would have ranked number 72 in the survey and will most certainly appear in our Giants 2001 survey.
Riu Hotels Group should not have been ranked separately at number 37 in the top 300 Corporate Hotel Companies as the portfolio is included in the numbers for the TUI Group. The number of Riu rooms is 21,779 in 80 hotels.
The correct figures for MeriStar Hotels & Resorts, an operating and management company,should be: 45,600 rooms in 215 properties as of 12/31/99. This would have ranked MeriStar Hotels & Resorts, #17.
HOTELS' 325
Another year of vigorous merger and acquisition activity
means the biggest hotel players in the world are once again growing
at the expense of their smaller rivals.
Once again, mergers and acquisitions painted the annual HOTELS’ Giants survey with a broad brush. The biggest deal of the year, the merger of Los Angeles-based Hilton Hotels Corp. with Promus Hotel, Memphis, created a new behemoth of nearly 300,000 rooms (closer to 350,000 if one includes the Watford, Herts, England-based Hilton International portfolio), furthering the notion of a global lodging industry dominated by just a handful of players.
Ironically, the biggest deals on the minds of most experts are two that have yet to happen. One is the expected sale of the Le Méridien chain from Forte Hotel Group parent Granada Plc, which should fetch US$4 billion. The second is whatever acquisition Bass Hotels & Resorts chooses to make after it can access US$2 billion of anticipated proceeds from the divestment of its brewing businesses. Either deal will have a profound impact on the rankings for next year.
The current rankings reflect the seemingly endless churn of ownership, franchise representation and development in the hotel business. This year, 28 of the 300 corporate hotel chains listed are new or return to the survey newly reconfigured; of this group, 10 landed in the top 100.
Most notable among these is TUI Group, Germany’s largest tour operator, based in Hannover, which debuts in the #17 position with 172 hotels and 42,379 rooms. Previously, the various brands under the TUI banner were reported separately.
Also making its first official appearance, in the #23 slot, is Surrey, England-based Millennium & Copthorne Hotels, which became a global player when it purchased most of the hotel interests of CDL International in the spring of 1999.
The last top 25 re-entry involves Pittsburgh-based Interstate Hotels Corp. at #24, which did not appear in last year’s survey because it was still part of the Patriot American Hospitality/Wyndham International paired-share REIT. Independent once again, Interstate returns to the survey and edges out Washington-based MeriStar Hotels & Resorts to regain the distinction as the world’s largest third-party management company. Wyndham, meanwhile, as the successor company to Patriot, now becomes the first hotel company to reach the 100,000-rooms plateau and then recede from it the following year.
Speaking of REITs, Canada’s two largest hotel REITs submitted survey data for the first time. Royal Host Hotels & Resorts, Calgary, entered at the #49 slot with 16,000 rooms and 195 hotels, while CHIP Hospitality, Vancouver, debuted at #99 with 8,263 rooms and 40 hotels. Contrary to common belief, REITs can still thrive in North America, given modest additions to rooms inventory and healthy consumer demand.
About The Rankings
As in past years, the research data for the HOTELS’ 325 is secured through a standard questionnaire sent to hotel company executives. We survey companies primarily on the number of hotels and hotel rooms owned, managed, franchised or leased through the end of the calendar year. In addition, we ask participants to volunteer occupancy figures and to detail the global distribution of their hotel portfolio.
It should be pointed out that in some cases rooms and hotels will have been counted more than once with separate companies. That is because we choose to report hotel owners, managers and franchisors on the same list. For example, the hotels managed by MeriStar Hotels & Resorts, which happens to be Hilton Hotel Corp.’s largest franchisee, are counted under both MeriStar and Hilton’s headings.
We should also call attention to the lag between the announcement of some major transactions and their reflection in the survey data. Most people are aware that Bristol Hotels & Resorts was purchased by its franchisor, Bass Hotels & Resorts, but because the deal was not closed by our late-spring data collection deadline, Bristol remains on the survey at #26. The Bass deal to buy Sydney-based SPHC, however, did close in time for the numbers to be reflected in this year’s survey.
Late Closings and Other Anomalies
Outrigger Hotels & Resorts is the largest and oldest hotel company in Hawaii, but it appears to debut in the #77 slot because its figures had been co-mingled with its management affiliate, Encino, California-based Outrigger Lodging Services. The two companies are now listed separately.
Some top 100 companies completed a Giants survey for the first time, such as Beijing Kingdom International Hotels, which debuts in the #84 position with 10,076 rooms and 34 hotels. The same can be said for Boca Raton-based Janus American Group, ranked #93; WestCoast Hospitality, Spokane, Washington (#94); and G.S.M. Hoteles, Madrid (#96).
The hyperactive Mediterranean market has made it particularly difficult to stay on top of changes. Most significantly, Krasnapolsky Hotels, the Dutch license holder for Golden Tulip Hotels, remains listed at #85 in the survey, even though it has agreed to be purchased by NH Hoteles of Madrid. Also from Madrid, Occidental Hoteles purchased Allegro Resorts, but the transaction will not be reflected until next year’s survey. The same can be said for Madrid-based Barceló Empresas’ purchase of a 3,800-room portfolio of hotels in North America from Wyndham International.
Information was once again slow to flow out of Cuba. One late survey respondent whose information was left off the survey rankings was Havana-based Gaviota, with 20 hotels and 3,036 rooms.
CORPORATE
300
Fewer players are controlling the lion’s
share of the market as consolidation continues.
By now, it is commonplace to discuss how the largest players in the lodging industry are getting bigger at the expense of their competitors with each passing year. But a glance at the top of the Corporate 300 portion of the 2000 HOTELS’ 325 reveals how powerful the forces of consolidation truly are. At the end of 1998, the 10 largest hotel companies in the world all had 100,000 rooms or more. Today, there are only nine companies whose room counts exceed the 100,000 barrier. Yet, in 2000, those nine giants now control 2.98 million of the world’s hotel rooms, while in 1999, the 10 biggest companies controlled a smaller amount, 2.84 million rooms.
Two companies are chiefly responsible for that statistical shift: Los Angeles-based Hilton Hotels Corp. bought one of the largest hotel franchisors in the world in Promus Hotel Corp., Memphis, and saw its room count soar 241%, from 85,000 to 290,000. Accor, Evry, France, made the next largest percentage gain in the top 10. Through two brand acquisitions (Red Roof Inns, Hillary, Ohio; as well as All Seasons, Sydney, Australia) and aggressive organic growth, Accor increased its rooms inventory by 21.6%, crossing over the 300,000 mark for the first time.
In the current survey, Accor actually came within 1,300 rooms of dislodging Washington-based Marriott International from third place. Meanwhile, second-ranked Bass Hotels & Resorts, London, expected to make a major acquisition when it divests its brewery business later this year, had an average year of growth, the numbers reflecting about a 2% gain. That would change dramatically if persistent rumors of a Bass-Starwood merger come to fruition in the coming year.
Perennial Leader
The perennial number one on the Giants survey, Parsippany, New Jersey-based franchisor Cendant Corp. grew its room count by 2.6%, although it should be noted Cendant emerged this year on our list of hotel companies operating in the most countries for the first time. From his view atop the Cendant empire, Hotels Division Chairman Eric Pfeffer sees competition amongst the giants continuing to increase both in the number of hotel franchisors active, as well as in the demand for better and sharper lodging products.
Pfeffer also sees consolidation continuing worldwide. “I agree it will continue in every segment of this industry,” he says. “There is no question that everybody, from the guest, franchisees, shareholders, everyone, immediately reaps the benefits of ‘bigger is better.’”
Cendant is on record as wanting an upscale brand to complement its slate of mid-market and economy products led by brands such as Days Inn, Super 8, Howard Johnson and Ramada. And with regard to the oft-perceived saturation of Cendant’s more than 542,000 franchised hotel rooms, Pfeffer remains ever the optimist. “Only Super 8 and Days Inn are in the 1,900-property range,” he says. “All the others are 1,100 and below.”
He expects much of Cendant’s growth, nevertheless, to take place in new markets outside the U.S., where typically 70% of the hotels are unbranded. “I’m starting to see more interest on the part of groups of small hotels, feeling pressure from [brand operators] buying hotels,” he says. “Accor bought, in Denmark, a group of six hotels which were all independent, so that creates pressure on the independents, and serves as a catalyst for Cendant getting more phone calls.”
Marriott Looks East
Like Cendant, Marriott International espouses the virtues of expanding international boundaries over time. “Ten years ago, we had 15 hotels outside of the U.S.,” says Jim Sullivan, executive vice president, development, Marriott. “Next year, we hope to have 300.” While much of that increase came with the acquisition of Hong Kong-based Renaissance Hotel Group a few years ago, Marriott is content to grow at a pace the market allows.
“With one minor exception in the last year [the purchase of ExecuStay, a chain of corporate apartments], we have not made any company acquisitions. Marriott’s master franchisee in the U.K., Whitbread, purchased the Swallow hotel chain this past year, which will lead to some Marriott conversions. Other than that, everything we do is one hotel at a time,” Sullivan says. “Most of the room growth has been from new-builds by franchisees and to some degree, by us, in the limited-service business.”
While the European market might appear to be undergoing a fundamental change toward a more brand-conscious outlook, Sullivan is careful not to overestimate the changeover. “We are seeing a grudging recognition in Europe that the value of international brands is there,” he says, pointing to the history of European hotels being owned by governments or airlines, for example, with “reasons to grow the business in a less than vibrant way.”
Europe is also primed for growth because of the emergence of major buyers and sellers, Sullivan says, but the obvious deals might be too rich even for Marriott. “It is clear the divesting of Méridien [from Granada] would be a coup, the problem is that it is a US$4 billion transaction. It is hard work, I do not know where you go to find US$4 billion; our debt is about US$2 billion, we could not do it,” Sullivan says. “Bass could do it.”
Thirst For Equity
The quest to find a buyer for Méridien represents just the tip of the iceberg for European deals. “We are advisors to 21 pending transactions just in Europe,” says Bjorn Hanson, chairman of the worldwide hospitality practice of PricewaterhouseCoopers. But he agrees with Sullivan that large deals are not likely to be consummated soon. “The public markets are not about to fund initial public offerings or follow-on offerings,” Hanson says. “It may be two years before we see any velocity of public equity available.”
For the remainder of 2000, Hanson predicts large hotel players will buy smaller ones, particularly in Europe, where the lodging industry is achieving record profits and generating cash flow that allows companies to structure debt service coverage to access capital.
The flip side of the consolidation among large players is that smaller companies can benefit from the real estate churn resulting from brand realignment. “Companies like Starwood are going to be finding that in the frenzy of acquisition, they have ended up with several brands they own on opposite street corners,” says Lee Berthelson, president/CEO of Milwaukee-based Marcus Hotels & Resorts, ranked #40 in the survey. Marcus acts as both an independent owner and third-party manager, a needed alternative to what Berthelson calls a “one-size-fits-all approach” of the mega-brand owners.
Berthelson’s goal is to bring the Marcus portfolio of full-service rooms (excluding the Baymont brand) up to 10,000 rooms by 2005. “This will more likely take place through acquiring management companies and by forming a strategic alliance with a major equity partner,” he says. “As you know, equity partners have been hard to come by, but we feel it is doable.”
Upside of Mergers
Of course, major brand mergers such as the Hilton-Promus union have benefited the smaller brands involved in the merger. Jim Holthauser, vice president of development for the former Promus extended-stay brand now known as Homewood Suites by Hilton, says the “share of wallet” strategy allows the brand to have frequency programs and other benefits it never had for the preceding decade. He says Homewood has picked up three points of occupancy and three points of RevPAR since the merger. In terms of unit growth, “we did as many approvals in the first quarter of 2000 as we did in all of 1999,” Holthauser says.
Some types of hotel owners in the survey are in relative holding patterns, such as the real estate investment trusts. Irving, Texas-based FelCor Lodging Trust, the 16th-ranked company in the Corporate 300 and the largest REIT, had a very profitable 1999 because it steered clear of questionable investments, according to Chairman Tom Corcoran. “When the capital markets are a little difficult to access, people are tempted to do things that don’t make sense over the long haul.”
North of the border, lodging industry fundamentals are actually enabling the growth of REITs such as Royal Host Hotels & Resorts, Calgary, (ranked #49 in the Corporate 300) and CHIP Hospitality, Vancouver (#99). New construction of hotels across Canada has been held at a minimum, allowing owners to push their room rates up.
CONSORTIA 25
Market leaders and the Internet control
the future.
Once again, the analysis of the Consortia 25 survey of third-party marketing and reservation providers must be prefaced with the explanation of a major acquisition. Pegasus Solutions, Dallas, last year purchased survey leader REZsolutions (Phoenix), thereby gaining in one fell swoop a 53.9% share of the rooms included in our Giants survey. Pegasus and the second-ranked reservation provider, Irving, Texas-based Lexington Services together represent 76.4% of the rooms in the survey. For virtually all the remaining providers on the survey, the question is less one of market share than of defining and defending a suitable market niche.
A white paper authored earlier this year by Peter Cass, president and CEO of Preferred Hotels and Resorts Worldwide, Chicago, pointed out the dramatic changes undergone by reservation providers. “Access to the Global Distribution Systems is no longer a competitive advantage,” he says. “The new competitive playing field is proprietary distribution channels leveraged by consumer segmentation, e-commerce technology and partners, and innovative customer-management programs.”
Richard Chambers, vice president of marketing, Leading Hotels of the World, New York, also says GDS access is no longer a chief selling point. “You can buy a GDS booking from Lexington for US$2 a transaction, so it is no longer a matter of cost per reservation,” he says. Moreover, Preferred’s Cass insists the consortia have been ill prepared to compete as sellers of a commodity. “Traditional reservation affiliations are not strategic in an environment that demands strategic positioning,” he says. “These organizations must change not only their focus but also their structure if they want to succeed in this new competitive world.”
Defining New Roles
Cass advocates the concept of a branded distribution company, which he views as an evolutionary step up from representation firms, reservation-only providers and reservation sales organizations. He says the one hope for consortia in the future is to provide all the support and marketing of chains and franchise systems without actually licensing a brand.
For the consortia, any drafting of new strategy will have to take place while also assessing the future impact of e-commerce on GDS reservations. Survey leader Pegasus sees the future of its business relying completely on the Internet. “We expect to be a leader in Internet reservation platforms,” says Mark Wells, executive vice president and CEO, Pegasus Hospitality Group. REZsolutions and Anasazi, both predecessor companies of Pegasus, developed the reservation system that 80% of the hotel business uses at this point. “All of those systems are 10 to 12 years old at this point. The future is in web-based enterprise systems—PMS and CRS combined systems,” Wells says. “We are in the process of evaluating how to play in that space in the future.”
Wells says a few months ago, following the acquisition of REZsolutions, Pegasus decided to halt new installations of its existing PMS system. “We will devote time to figure out how to put a system in place that our current clients can migrate to,” Wells says. “All of them will have to redo their systems; it would be silly for them to spend millions of dollars each developing what is essentially the same system.”
No More Hardware
Ultimately, Wells envisions the disappearance altogether of the concept of legacy systems. Although it is true that most consortia clients are depreciating existing equipment, Wells sees Pegasus and other providers getting to the point of using the Internet as a transmission network for its products. “Our focus will be to update without ripping out hardware,” he says. “Instead of clients buying on a capital basis, they will buy on a transaction basis from a provider that can pull everything together for them.”
Top executives at other reservation providers agree. “We are not threatened, but rather, excited by developments on the Web,” says Leading’s Chambers. He predicts in five years, Internet bookings could account for 20% of all bookings and that in 10 years, the figure could rise to 75%. Zolon Wilkins III, chief operating officer for Lexington Services, estimates 10% to 15% of his company’s business is already being driven through the Internet. “We have a very aggressive Web strategy we will roll out later this year,” he says. “It will include booking and also significantly enhance client data management marketing capabilities through the Web.”
Of course, given the dominance of the largest reservation providers, more consolidation is expected. “ It is clearly obvious that the quickest way to grow a business is to grow through acquisitions,” says Wilkins. “However, whenever they are made you have to make sure they are complementary to each other, that operational strategies are in place and clients have a seamless transition.” He also hints Lexington may be prepared to take part in the next wave of consolidation.
“Whenever you get outside North America, there are geographic players, but I believe as we go forward, the industry is going to have major transition over the next 12 to 18 months,” he says. “The transition of the industry will give more strength to the high-end reservation providers and create a greater barrier to growth for the lower-end providers.”
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