Hotel Sales Undercut Brands
Three significant hotel real estate transactions last month indicated that after two-and-a-half years of sluggish revenues and occupancies, the industry is starting to see more asset sales, large-scale changes in management contracts and even the assumption of debt of foundering chains. As a result of the deals, the long-term future of such established brands as Adam's Mark, Wyndham International and Le Meridien has been cast in doubt.
As hotels change brands and portfolios realign, travel buyers might find the hotel inventory changing in their key cities, causing them either to rethink their chainwide deals or at least how effectively they are using their volume in those destinations.
In the Adam's Mark deal, the brand's parent company, HBE Corp., sold eight hotels, which is more than one-third of its total distribution, to a joint venture of Boston-based Pyramid Advisors and a Morgan Stanley real estate fund. The hotels, which account for approximately 2,900 rooms, are located mostly in second-tier cities, such as Indianapolis, Ind., and San Antonio, Texas.
"We're in discussions with several national brands to reflag each of the hotels, following renovations this year," said Richard Kelleher, a Pyramid principal. Pyramid's management arm will operate the hotels.
Twelve Wyndham hotels, about 10 percent of its total, are being rebranded as Prime Hotels in a deal between the properties' owner, Hospitality Properties Trust, and Fairfield, N.J.-based Prime Hospitality. Included in the Wyndham portfolio, which amounts to more than 2,300 rooms, are hotels in such key business travel cities as Atlanta, San Diego and Seattle.
According to Maureen O'Hanlon, Prime Hospitality senior vice president of sales and marketing, Prime Hotels is the hotelier's new full-service brand. Prime had been known for its midprice AmeriSuites and Wellesley Inns brands.
Hospitality Properties Trust earlier last year awarded management contracts for 14 of Wyndham's 39 Summerfield Suites extended stay hotels to InterContinental Hotels Group.
London-based Le Meridien, whose portfolio includes more than 120 properties worldwide, began having serious financial troubles in 2002 due to expenses incurred in an elaborate, ill-timed renovation, compounded by the market downturn. Starwood Hotels & Resorts Worldwide, in conjunction with Lehman Brothers, acquired Le Meridien's $1.3 billion of outstanding senior debt, effectively taking control of the hotel company.
Allison Reid, Starwood vice president for investor relations, cautioned that the deal is not a formal acquisition. "It likely will take three months to six months for us to finalize our strategy," she said. In the interim, Starwood and Lehman Brothers likely will work on restructuring the debt. The two parties could hold Le Meridien for a while and then attempt to resell the debt. A back-up plan might entail a takeover.
One eventual option is for Starwood formally to acquire ownership or management contracts on Le Meridien assets and convert them to one of its existing brands, which include Westin, Sheraton and W. "Starwood also could maintain the entire Le Meridien chain as a separate, standalone brand," said Keith Mills, lodging analyst for UBS.
Separately, Marriott International last month announced it had assumed management of key Le Meridien properties in London and Dublin, rebranding them as a J.W. Marriott and Renaissance, respectively.