LOS ANGELES— Omni Hotels & Resorts is in the midst of a metamorphosis. While by no means abandoning its long-time position as a stalwart in the group/convention and urban financial center businesses, the Dallas-based* company has taken advantage of market conditions to expand its horizons.
After acquiring six upper-end resorts from KSL Capital Partners in two separate deals over the last seven months, Omni has given its 52-hotel portfolio a more diverse flavor, said President Mike Deitemeyer during an interview conducted at the Americas Lodging Investment Summit.
“As opportunities presented themselves in the resort sector, we started looking at them and saw barriers to entry that we liked,” Deitemeyer said. “From an ownership standpoint, we tend to be more opportunistic. It takes a certain type of real estate to pique our interest.”
Omni is owned by TRT Holdings, a Dallas-based* private holding company founded in 1989 by Robert and Reese Rowling. Financial details of the KSL deals were not disclosed and Deitemeyer declined to discuss specifics. At the time of the first deal with KSL that involved five assets, the Dallas Morning News reported it was the largest purchase by Omni since TRT purchased the brand in 1996.
The acquisitions give Omni plenty of opportunities to further expand its portfolio in multiple types of markets, Deitemeyer said.
“Where you won’t see us play is suburban properties,” he said.
But there are plenty of places for the brand to increase its presence, and Deitemeyer indicated it is more likely to come in the form of an acquisition that includes multiple properties instead of one-off deals.
“On individual auctions, it’s very competitive out there,” Deitemeyer said. “There are a lot of people out there wanting to invest in the resort space. KSL provided an ideal opportunity because of the scale of the project made it something that a smaller universe of potential buyers could act on it.
“Right now on pricing expectations for most of the hotels coming out, I don’t know if we win the single asset,” he said.
No set number for additions
Omni is exploring more private/public deals such as the convention center hotel it opened last year in Nashville, Tennessee, Deitemeyer said. It is also exploring other new-construction opportunities. But one thing is certain: The company will expand on its own timeline.
“The great thing about our organization is there’s not ‘a number,’” Deitemeyer said. “I would never tell anybody we’re going to add two or 10 properties in any given time frame. It’s about the opportunities that come up.”
Deitemeyer said adding another brand to the Omni lineup is “something we talk about from time to time” but there is nothing on the table at the moment.
“It would have to be something with a little critical mass to start to make it worth the effort for the organization,” Deitemeyer said.
Deitemeyer said the company would accept selective management opportunities but prefers to own and manage most of its assets.
“Most of our income comes from owning the hotel, not operating,” he said. “We certainly are a third-party manager and we are interested in doing more of that. It’s about the right location in the right hotels; it’s not just a fee game for us. How do they fit into the overall Omni program is an important part of the decision.”
Omni’s wish list for growth is vast and includes markets across the U.S. and Mexico, but when pressed for a deeper dive, Deitemeyer said Miami and Seattle are among the primary target markets. There’s also a strong desire to have second locations in New York and Boston.
Deitemeyer said Omni is a long-term play and a core asset for TRT. When asked about exit strategies, the executive said there are no plans for a sale or a public offering.
Strong fundamentals in play
Deitemeyer said the hotel industry as a whole is in a great spot, and that shows in Omni’s performance. Year-over-year same-store RevPAR growth is tracking at a little less than 7%, he said.
“We look at ‘15 in the same way, but with perhaps a higher percentage of RevPAR coming from rate,” Deitemeyer said. “We felt good about slow and steady right now.”
With nearly 50% of its business coming from group business, Omni has navigated its way through a tough environment in the aftermath of the recession. Group business continues to lag transient bookings across the industry, according to STR, the parent company of Hotel News Now.
“With the softness of group shoulder business from the group side, we’re putting a lot of transient business on the weekend,” Deitemeyer said, citing the company’s property in downtown Dallas as a prime example. That hotel draws locals with an art program that includes at least four original pieces of unique art in each guestroom.
There are signals that group business is rebounding.
“Group spend is increasing,” Deitemeyer said. “We haven’t seen double-digit room night growth, but we’re seeing the spend move back to historic levels.”
Adding dynamic resorts
Deitemeyer called the deals with KSL an opportunity to add dynamic resorts to the Omni portfolio, including five assets in high barrier-to-entry markets.
“Not only do we believe in the resort demand, certainly with the demographic shifts and type of drive markets these are in, but in most cases it will be a very long time before new construction can impede our success there,” Deitemeyer said.
The deal with KSL is a prime example of Omni’s growth strategy, according to Deitemeyer.
“It’s a cash-on-cash deal; it’s not (internal rate of return) driven,” Deitemeyer said. “We’re looking for good, long-term sustainable (earnings before interest, taxes, depreciation and amortization) growth. It’s a great situation in that I have the opportunity to make decisions for next year, not next month.”
The five properties involved in the first deal, which was finalized last summer, include: Barton Creek Resort & Spa in Austin, Texas; La Costa Resort and Spa in Carlsbad, California; Rancho Las Palmas Resort & Spa in Rancho Mirage, California; the Grove Park Inn in Asheville, North Carolina; and the Homestead in Hot Springs, Virginia. Earlier this month Omni announced it acquired the Montelucia Resort & Spa in Scottsdale, Arizona, from KSL.
Adding value in unique ways
Deitemeyer said the company is particularly happy with the direction of its newest projects, including hotels in Dallas, Nashville and Atlanta. The Nashville property is connected to the city’s new convention center and the Country Music Hall of Fame, while the Atlanta hotel is working closely with the adjacent College Football Hall of Fame scheduled to open this fall.
“As we’ve deployed capital in our hotels, we’ve done some out-of-the-box partnerships to enhance the value and offerings,” Deitemeyer said.
Even with so much of the focus on the physical attributes of the portfolio, the “perfect Omni” actually revolves around having great human interaction, the executive said.
“It’s easy for brands to distinguish themselves on capital; it’s another thing to do it on service,” Deitemeyer said. “Our focus is to make sure there’s a level of service that the guest knows it’s there, but it’s seamless with their stay.”
Deitemeyer said it’s important for Omni properties to have a local flavor so guests know what city they are in when they wake up in the morning.
“We work hard to provide an experience that is localized in all of our hotels,” he said. “We don’t have room prototypes because we want to design our rooms based on location.”
Deitemeyer said the biggest challenges ahead for Omni include navigating some of the political issues—specifically immigration, living wage, minimum wage and understanding the full impact of health care reform.
Correction, 30 January: An earlier version of this article stated the company's base as Irving, Texas.