HOTELS’ 325

Continuing globalization means more brands in more countries throughout the world, but key slowing economies could lead to fewer big deals in the months ahead and more limited supply growth.

By Derek Gale, Senior Editor -- Hotels, 7/1/2008

View the Hotels' 325

Corporate 300 Ranking

Top Companies by Number of Hotels

Top 100 Brands

Consortia Chart International Course

Consortia 25

Change may be the only certainty in today’s business world, and 2007 saw no shortage of major changes within the hotel industry. The acquisition of Hilton Hotels Corp. by The Blackstone Group, Blackstone’s sale of Extended Stay Hotels to The Lightstone Group, Hilton’s sale of the Scandic brand and Accor’s sale of the Red Roof Inns brand made for an interesting year, to say the least. And that is before bringing up new brand launches, like Accor’s All Seasons and Pullman concepts.

But even with all this activity, the true giants of the hotel world, the biggest of the big players, remain relatively stable at the top—at least for now. At 2007’s end, the 10 largest hotel companies were the same ones occupying those same 10 spots, in order, at the prior year’s end.

Looking ahead, however, it is anybody’s guess as to how that top 10 may get shaken up, with the recent acquisition of Microtel and Hawthorn Suites by Wyndham Hotel Group and the rollout of more brands by the likes of Starwood (the first alofts have opened) and Hyatt (Andaz).

Then, of course, there is the focus on emerging markets across the globe, be they in South America, Eastern Europe, the Middle East or the Far East. In recent months, HOTELS has covered most of these areas in great depth, and the story is largely the same—brands want representation in desirable, growing markets, as countries and regions with developing economies produce more travelers and the world continues to get smaller.

Starwood, for example, plans to increase its portfolio in Asia Pacific by 70% in 2008, and Hilton, which opened some 32,000 rooms globally in 2007—about 1,000 more than Marriott’s total for the year—is excited about the prospects of continuing to take what were formerly strictly U.S. brands worldwide.

Pipelines remain relatively robust for such companies (Marriott has 130,000 rooms in the works) despite the fact that financing full-service hotel projects in some areas of the world is incredibly difficult right now. But some experts say not all of the planned new supply will reach the market.

“I would say that 2007 was the turning point from a pushy overall market to a more challenging period that we will face in 2008 and 2009,” says Francisco Zinser, chief operating officer, NH Hoteles, Madrid. “This will put the brakes on the increasing number of rooms coming into supply.”

Zinser also feels that consolidation in the industry will continue, with acquisition opportunities arising, but moreso “on a hotel-to-hotel basis, or smaller groups, rather than at a larger scale.”

Gary DeLapp, president and CEO of Extended Stay Hotels, Spartanburg, South Carolina, agrees, noting that major acquisitions may not be as prevalent—keeping some of the biggest players on the sidelines—but that individual franchisees, who have strong relationships with local banks, will continue to develop new supply.

Whatever transactions do occur, expect them to involve sovereign wealth funds, pension funds and dynastic families rather than private equity players, says David Mongeau, chairman and founder of Avington, a London-based investment banking advisory firm. Such organizations tend to have more available capital these days and can afford to pay more because of lower return hurdles and longer-term investment horizons, Mongeau says.

Still, it is going to take a decent-sized sale in the industry before anyone is able to get a feel for the current pricing or value of assets, says Barry Sternlicht, chairman and CEO of Starwood Capital Group. “The pricing of assets depends on the availability of debt,” he said at the NYU Hospitality Investment Conference in May. “It’s hard to know how to price an asset against this uncertain demand backdrop.”

Looking a bit more deeply at HOTELS’ ranking of the world’s largest hotel companies and consortia, 2007 saw quite a bit of significant upward mobility by key regional players (like NH Hoteles, which acquired Jolly Hotels; Golden Tulip Hospitality, which recently announced a new extended-stay brand; and Barcelo Hotels), a trend likely to continue.

On the franchising side, Vantage Hospitality, parent of the Americas Best Value Inn brand, continues to experience significant interest and growth, adding about 100 hotels in 2007 and so far more than 50 new properties through the first half of 2008—mostly through conversion.

In terms of segment growth, look for continued interest in developing lifestyle and extended-stay hotels throughout the world. Why these particular categories? Together they represent the newest segments within lodging, and with growing consumer awareness and attractive economic models, these categories are ripe for continued growth moving forward.