In an earnings season that was dominated by talks of a potential recession, executives from publicly traded hotel brand companies and real estate investment trusts mostly took a nimble approach to the transaction market, vowing to consider all options, though most are leaning toward selling due to inflationary pressures and the rising price of debt.

Here are some highlights of commentary on transactions from hotel executives during the 2022 second-quarter earnings season.

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July 29, 2022 09:17 AM

Second Quarter 2022: Hotel Executives Remain Optimistic Despite Threat of Recession

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“In June, we announced the acquisition of Radisson Hotels Americas. Today, I am pleased to share that we remain on track to close the transaction this month. This transformative acquisition of Radisson Hotels Americas’ nine brands is expected to significantly accelerate Choice’s long-term, asset-light strategy of growing our business in higher revenue travel segments and locations.

“As we look forward to closing, we expect the acquisition to create a number of compelling value drivers. First, the acquisition will add over 67,000 rooms that will be RevPAR-accretive to our existing platform due to Radisson Hotels Americas' strength in the upscale and upper-midscale segments, and their hotels' locations in higher RevPAR markets. In 2019, the average RevPAR for this portfolio was 38% higher than the average for Choice’s existing system.

“And importantly, the cultural fit between our two companies could not be more ideal. This unique off-market transaction is the result of a yearlong strategic conversation with the sellers and represents a win-win opportunity, whereby Choice will bring our track record of brand growth and brand stewardship in the Americas to these well-known global brands.”

“Moving to real estate transactions, as previously disclosed, we've had a very active first half of the year which resulted in gross proceeds from asset sales of $812 million. We're currently marketing two owned hotels for sale and are pleased with the progress we are making.

“We're also pleased to announce that on Aug. 3, we acquired the Hotel Irvine, in Irvine California, a hotel we know very well, as it was previously the Hyatt Regency Irvine for over 20 years, before exiting our system several years ago.

“We purchased the 541-room hotel for $135 million, securing our brand presence in a highly sought-after location where we are underrepresented. As in the past, when we look at unique opportunities like this one, we remain highly confident in our ability to unlock value through renovating and repositioning the hotel, while seeking to identify a strategic third-party buyer to be a long-term owner of the asset.”

“We took another meaningful step in April to simplify our corporate structure and complete the monetization of our real estate assets with the closing of our strategic transactions between MGM Growth Properties and VICI. This transaction brought us $4.4 billion in cash, which we intend to use to invest in our core businesses while continuing to pursue meaningful growth opportunities. One such opportunity was the acquisition of The Cosmopolitan of Las Vegas that officially closed in May.

“I've had the opportunity to spend some time at the property and have met a number of the costars. I cannot say enough about the strength of the team at the Cosmopolitan and the exceptional service culture that has been created there. Our focus now is on integrating the operations of the property into MGM Resorts' portfolio and working together to maximize the future success of this world-class resort. We also recently announced another strategic divestiture in our portfolio.

“In June, we reached an agreement to sell the operations of the Gold Strike Tunica to the Cherokee Nation for $450 million. As a company, we felt this was an opportunity to sharpen our focus in Mississippi on Beau Rivage and take advantage of an attractive valuation. Gold Strike is a very special property. I'd like to, again, thank every employee in Tunica for consistently delivering amazing first-class gaming entertainment experiences to our guests.

“We look forward to seeing Gold Strike's continued success with the Cherokee Nation, and we expect this transaction to close in the first part of 2023. The divestiture follows our prior announcement to sell the operation of the Mirage, would still also stay on track for close later this year.”

"On the investment side, on May 11, we acquired the luxurious Inn on Fifth in downtown Naples, Florida, for $156 million. And on June 23, we acquired Gurney’s Newport Resort & Marina for $134 million. Both of these resorts have held the trailing 12-month NOI yields, with the Inn of Fifth at 7% and Gurney’s Newport at 7.1%.

"We also made significant progress with our disposition plan. On June 28, we completed the sale of The Marker San Francisco for $77 million. We have also executed three separate purchase and sale agreements, which include hard money deposits with separate buyers for three of our urban hotels totaling $183.9 million of additional gross sales proceeds. We expect these sales to be completed during the third quarter, and we have additional properties on the market for sale.

"While the transaction market has gotten bumpier due to debt markets, and some deals are taking longer to close, quality assets like ours continue to be desired by the vast amount of equity looking to invest in the hotel industry."

“We are uniquely positioned as a buyer of assets in this marketplace, given where the debt capital markets are today, the fact that it is virtually impossible to get meaningful levels of debt on the acquisition front. So we're tracking a lot of transactions, and we will balance whether or not the right decision is to invest in an asset given where our cost of capital is today and with the underwriting requirements will have to be versus buying back our stock over the course of the balance of this year and into next year. So there hasn't been a broad repricing of buyer asks or seller asks out there on hotels that are actively in the market.

“You're right that a lot haven't traded. I think that's one reason why. The second reason why this is just very challenging for buyers to access to debt markets today. So with the liquidity we have today, the availability of a $1.5 billion revolver and the incremental cash that we're going to generate over the balance of this year as business continues to churn along, we will be in the pole position.

“We will always invest in our assets. We can quantify the ROI. We're seeing it play out. And transformational comprehensive renovations or ROI projects, we think that's a good place to put our capital and then there'll be a balance between share buybacks and investing in hotels.”

“There have been actually for some time a number of attractive portfolios that have been marketed — several of which we were active in the bidding process around — which are coming back to market with sellers having some additional flexibility around the makeup of those portfolios. As we were initially underwriting, the portfolios often contained assets that we thought would be less additive to our portfolio and that impacted the value for us and our pricing and competitiveness around the portfolio.

"As the portfolios are coming back to market, sellers are increasingly willing to consider disposition of a subset of the larger portfolio, which puts us in a position to more effectively align the makeup of the portfolio that we're underwriting with our existing strategy and the portfolio we currently have.”

“If you looked at our internal pipeline, it's about half urban, half resort now. You have to price it right for both of those. But no, we're not precluded at all from [buying urban assets].

"Probably the typical urban asset in our pipeline is about 200 rooms, has a good restaurant in it, has management available. Probably half of those are self-branded, and half are independent.

"So no, it's something that we think is very viable. Different urban markets have different risk profiles. But no, it's definitely on our radar screen. It's something we'll continue to pursue when the price is right.”

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