Following a year of careful spending, hotel executives are expected to ramp up activity in renovations and brand conversions to a pace that reflects pre-pandemic levels.

Here are some highlights of commentary on capital investments and other internal spending including stock buybacks from hotel executives during the fourth quarter and full-year 2021 earnings season.

“Since 2018, we’ve invested approximately $350 million into redevelopment and transformation projects at 25 different properties. We expect these projects to generate 10% or better returns as demand returns and performance stabilizes over the next two to three years. For 2022, we have $100 million to $120 million of capital investments planned, of which $80 million accounts for the major redevelopments and smaller [return on investment] projects.

“In 2022, we have eight significant renovations or redevelopment projects either underway or starting later this year, including the transformations of Vitale to 1 Hotel San Francisco, Grafton on Sunset to Hotel Ziggy — our next unofficial Z Collection hotel — and Solamar to Margaritaville San Diego Gaslamp District.

“Major repositions at our newly acquired Jekyll Island Club Resort and Estancia Hotel & Spa in La Jolla will start later this year as will long overdue major renovations and upgrading of the Hilton Gaslamp Quarter, and the second and final phase are repositioning Viceroy Santa Monica and following whatever governmental approvals come through, the transformation and Paradise Point Resort & Spa to Paradise Point and Margaritaville Island Resort San Diego. We are very excited about these projects and expect they will drive significant [earnings before interest, taxes, depreciation and amortization] growth and value creation.”

“We remain very confident in the broader recovery and our ability to keep driving value on top of that. This should allow us to generate strong free cash-flow growth and our expectation is to reinstate our quarterly dividend and begin buying back stock in the second quarter.

“In normal times, we’re a free-cash-flow machine. The higher the margins, the higher the free cash flow and having 500 basis points higher margins allows us to drive a lot more free cash flow that allows us to return a lot more capital over time.”

“Our team successfully executed on all of our strategic priorities, which included acquiring three high-quality hotels during the year which were accretively match funded with proceeds from non-core dispositions, generating strong operating results, which allows us to achieve positive corporate cash flow for the full year, advancing our value creation initiatives, which are expected to deliver an incremental $23 million to $28 million in hotel EBITDA, and actively managing our balance sheet to increase flexibility, extend covenant waivers, further ladder debt maturities and lower our cost of debt through the refinancing of over $1 billion of debt.

“We expect to be a net acquirer this year and are encouraged by the quality of our assets within our pipeline, which includes several off-market opportunities. On the internal growth front, we are continuing to make progress towards generating an incremental $23 million to $28 million in stabilized EBITDA from our embedded value-creation opportunities. These include $7 million to $10 million from our three conversions, which remain on track, $9 million to $11 million from our revenue enhancement opportunities that are being completed as part of our normal cycle renovations and $7 million representing 50 basis points of margin expansion from management agreement amendments that we are finalizing, which will be incremental to any industrywide margin efficiencies from post-COVID operating synergies.”

“We're super excited about what we completed in 2021. That was a big year for us with … three conversions. We have two conversions happening in the first quarter of this year, which aren't terribly capital intensive. And then the big ones that we have coming up over the next, let's say 18 months, will be the Boston Hilton, the Burlington Hilton, which we're hoping to convert to a Curio next year. And then the repositioning of Orchards [Inn in Sedona, Arizona]. The seasonality of the Boston Hotel will allow us to really keep disruption to a minimum there. Orchards will have some [disruption, but we’ll do it when it’s] seasonally slow and it's a relatively small asset in the overall portfolio. So we think that’s very manageable. And Burlington, we can do off-season as well. We're not anticipating significant disruption from our capital programs in 2022.”

“From our standpoint right now, I think we have a really attractive use of capital in our portfolio for [return on investment] projects and some of the acquisition opportunities that we're looking at. And from a practical standpoint, we have the operating losses that would effectively allow us to not have to pay a dividend. Electively we could, but I don't expect we will be obligated to pay a material dividend this year.”

“We are very optimistic about our runway for growth because of the long-term investments we have made and will continue to make in our business. These investments are designed to capitalize on the consumer trends that have accelerated during the pandemic, favoring leisure travel, limited-service hotels and longer length of stay.”

“Throughout the pandemic, we demonstrated our ability to adapt while continuing to invest in the core business and deploying capital for ancillary growth opportunities. We will continue to monitor the environment for investment opportunities and expect to continue to utilize our strong leverage position to invest in growth, to drive attractive returns for years to come. As we enter 2022, we expect to have all of our capital allocation levers fully at our disposal.”

“During the fourth quarter we made $30.4 million of capital improvements in our properties, and $103.6 million for the full-year 2021. We anticipate our capital spend for 2022 to be around $200 million, including $62 million dollars we've committed to spend on our amended Hyatt and Radisson agreements for renovations, as well as to renovate a significant number of Sonesta hotels. As [President and CEO John Murray] mentioned, we expect to invest $600 million over three years in the Sonesta portfolio.”

“During the fourth quarter and full-year 2021, we invested approximately $9.7 million and $20.4 million, respectively, in our portfolio on items primarily related to maintenance capital and advanced purchasing related to upcoming renovations. As communicated in last quarter's call, we have recently commenced our plan to commence several renovations in markets where we anticipate a more rapid return of demand in order to minimize disruption from these projects. Throughout 2022, we are planning for a more typical renovation program in line with pre-pandemic levels, although supply-chain issues may ultimately impact timing.”

“We believe that there is no better capital allocation decision than to invest in Park, either through share repurchases or investment in ROI projects.

“We expect to prioritize portfolio enhancing ROI projects that are targeted to drive outsize growth and unlock the embedded value in our portfolio. Significant work is underway on our $110 million [Signia by Hilton] Bonnet Creek meeting space expansion project. We seek to repeat incredibly successful brand conversions at the Hilton in Santa Barbara and the Reach Resort in Key West. We plan to launch two additional brand conversions — the DoubleTree San Jose to a Hilton and the Waldorf Casa Marina to a Curio branded hotel. Overall, we expect to invest at least $200 million in value-enhancing ROI projects over the next few years with projected attractive returns.”

“We invested $64 million into our portfolio in 2021. As part of that work, we added new meeting space at Boston Park Plaza, completed a redesign in the food-and-beverage options at Hilton San Diego Bayfront and converted unused space at the hotel into a spectacular new meeting venue with views of the water. And we also made additional progress on the renovation of the soon-to-be-rebranded Westin Washington, D.C. While the portfolio remains in great condition, we have a number of exciting projects planned for 2022 and expect to invest between $130 million and $150 million into our hotels with a focus on enhancing the value and future earnings potential of the portfolio. During the year, we will be working on the addition of a new serenity pool at the Wailea Beach Resort to further elevate the guests experience, a rooms renovation at the Hyatt Regency San Francisco and we will also substantially complete the transformational work at our hotel in Washington, D.C., as we prepare to convert it to the Westin brand in order to capture higher rates and drive incremental profitability. We expect the incremental spend of $30 million above the standard cyclical renovation to convert to a Westin will result in a low to mid-teens return on our investment.”

“We have also continued to strategically reinvest in our existing portfolio. During 2021, we invested approximately $26 million in capital improvements, including the full renovation of eight hotels. We intend to invest an additional $55 million to $65 million in 2022, which includes major renovations at between 20 and 25 hotels.

“These reinvestments ensure that our hotels remain relevant and competitive in our markets. Our scaled ownership of branded select-service properties allows us to perform these renovations efficiently and our experience renovating hundreds of hotels over more than two decades informs a decision making related to the scope and timing of investment to ensure minimal disruption to the property operations and maximum impact for dollar spend. Historically, capital spend has ranged between 5% and 6% of sales, a meaningful differentiator for our portfolio and a contributor to total shareholder returns. With a relatively young and well-maintained portfolio, we anticipate future spending will continue in this range.”

“To date, our ROI development projects at the Andaz Maui villas and the one Hotel Beach Club have reduced returns significantly greater than our original underwriting. Our 2022 capital expenditure guidance range is $500 million to $600 million, which reflects our continued focus on reinvesting in our properties during the early phase of the recovery to position our portfolio for future demand. The plan includes $245 million for redevelopment and repositioning projects such as the completion of the Ritz-Carlton Naples beach transformation and tower expansion, a transformational renovation of the Fairmont Kea Lani, and completion of the Orlando World Center water park and meeting space expansion. It is worth noting that our capital expenditure range at the midpoint is $125 million higher than last year, which is driven by increased investment and ROI development projects as well as more normalized maintenance CapEx spend.

“Of the CapEx guidance we've given, $200 million is related to two major ROI projects that we believe will deliver very attractive returns, double-digit cash-on-cash returns on the money we're putting into them. The first is the Ritz-Carlton in Naples. It's a complete transformation of that asset, every part of the resort, which is just a terrific hotel on the beach in Naples, Florida, is being touched. We are increasing the room count from 450 rooms to 474 rooms. And we're combining 100 keys at that property ... to allow us to enhance the suite count from 35 suites to 92 suites. We're building a 74-key new tower, and we're building a new club lounge that is, frankly, six times the size of the existing club. Why is that important? For context, club rooms get an average annualized ADR premium in excess of $220. And we just didn't have the space at that property to sell the number of club rooms that the demand would warrant. We're very excited about the things we're doing in Naples. Additionally, we are building a new swimming pool, a new pool bar and completely redoing the lobby.

“In addition to finishing up the Marriott Transformational Capital Program, we're going to complete and reposition three other properties: The Westin in Denver, the Westin in Georgetown and the Miami Biscayne Bay Marriott. All expected to meaningfully increase yield index as a result of the capital that we're investing. We're well on the way. We're excited about a three- to five-point gain in yield index.”

Editor’s note: Chris Nassetta serves on Hotel News Now’s parent company CoStar Group’s board of directors.

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