With its acquisition of Chesapeake Hospitality, Remington Hotels grows the percentage of hotels in its portfolio that are not owned by Ashford Inc.'s related companies from 20% to 40%, but that's only the beginning, according to Remington President and CEO Sloan Dean.
Dean, who in his two-year tenure as Remington's top executive has been open about his desire to grow the company beyond being Ashford's management wing, believes the Chesapeake deal is a "tipping point" for his company and will greatly accelerate its pace in signing new hotels.
"Next year, I believe we'll be more than 50% third-party management, and in short succession, we should reach 60%," he said in an interview with Hotel News Now on Monday, shortly after announcing the close of the deal with Chesapeake.
Reaching a majority of hotels not owned by sister companies is an important milestone, he said, as it removes the perception of potential conflicts with other ownership groups, particularly other hotel-focused real estate investment trusts, which have been skeptical about partnering with a company so closely tied to Ashford Hospitality Trust and Braemar Hotels & Resorts.
"I think that entirely goes away," Dean said. "It's funny because you talk to private equity or family office or high net-worth owners, and they love the [Ashford] affiliation because they benefit from it. But it's just an optics problem with the other REITs. This dilutes that or helps it go away entirely."
In the end, he's hopeful those REITs will see the benefit of partnering with Remington, which is a company that was built from the ground up with the capability of servicing publicly traded ownership groups.
"We're the only operator that can offer a [profit-and-loss statement] on the first of the month, which is a reporting requirement, and who has an auditing team that is [Sarbanes-Oxley] compliant, which is a [$500,000] expense for us, but is a big selling point because we'll get your your P&L first and you can do earning at any point," he said.
The deal for Chesapeake brings Remington's overall portfolio of managed hotels to 121 and brings greater diversity to the company in terms of ownership groups, geography and brands. Dean has been touted the need for his company to add scale for months, telling HNN in January that 2022 would be the year Remington acquired another operator.
But Remington is unlikely to pursue a similar deal in the foreseeable future, he said, noting the company is now big enough to bring down costs but small enough to still focus on operations.
"I don't want to lose sight on quality operations and knowing every single general manager and owner," Dean said. "We're in that sweet spot of getting the benefits but not the detriment of scale. I'm really fearful of just becoming this mega company that's all about hotel churn."
Dean said by Remington's count, the company is now the fifth-largest hotel operator, behind Aimbridge, Highgate, Benchmark Pyramid and Crescent Hotels & Resorts.
He noted that within the past year, Remington only lost the management rights of a single hotel, and that was unique in that the property was sold to a new ownership group for twice its original development costs.
Dean said conversations with former Chesapeake President and CEO Chris Green, who will stay on as division president for Remington, began in the third quarter of 2021, and over time it became clear the two companies were closely aligned.
"We were talking for months about how we can make one plus one equal three," he said. "We have no overlap of owners. There were 16 ownership groups for Chesapeake and 13 for Remington. We only have hotels in two of the same markets, and those are over 10 miles apart."
Dean added having Green on board adds an extra level of credence when pitching owners on the third-party management platform.
Dean described the deal as "the most minimally disruptive" acquisition possible, in part because the companies run on many of the same systems and have similar cultures. He also noted owners on both sides of the fence were extremely supportive.
He said the deal will be a win-win up and down the spectrum for stakeholders in the companies, from owners to employees.
"It became a question of can we join up and get our associates better medical insurance while driving down fixed costs for owners," Dean said. "This platform is better for everyone, and we're in complete cultural alignment."
He noted the deal helps the company grow in several key areas of focus, including adding several independent and full-service properties and companies under IHG Hotels & Resorts flags, which was a brand family Remington had little exposure to before.
Remington now has a new largest hotel following the deal in the 877-room Showboat Atlantic City, which Dean said will soon include a water park.
Remington is keeping more than half of Chesapeake's corporate team — 19 people in all — and all of their on-property associates, although Dean did note growing the size of the portfolio exacerbates the staffing issues felt across the industry.
"We had 835 open jobs across Remington and another 200 at Chesapeake, so the deal pushes that number over 1,000," he said.
Dean said while the pricing for the Chesapeake deal was favorable for Remington — structured as $6.3 million in cash and $9.45 million in preferred Ashford Inc. stock upfront with the possibility of adding another $10.25 million over the next two years depending on the performance of the legacy Chesapeake portfolio — it also provides the Chesapeake principals, including Green, with long-term growth potential through the ownership component with Ashford.
Assuming the Chesapeake portfolio performs well enough to earn the incentives, the deal will represent a 4.9-times earnings multiple for Ashford.
"I think it's a bright structure" for the deal, Dean said. "It gives them a good bit of liquidity, but they also get to stay on to earn out and grow together. There's diversity and upside for the Chesapeake owners."
He noted the pricing of the deal did reflect "legacy overhead" for Chesapeake, and the deal was done with the assumption that Remington can bring operating costs down significantly across its portfolio.
"We're going to improve the margin of the business," he said. "The deal is very synergistic."
Perhaps ironically, a big part of the reason the company could consummate a deal to move beyond being viewed as just Ashford's hotel management is through cost-saving relationships with other Ashford-owned companies, Dean said.
He noted legacy Chesapeake hotels will see cost savings in partnership with companies such as Inspire, an Ashford-owned audio-visual company, and at the same time, Chesapeake's ownership group will enjoy the profits of working with those businesses.