Hoteliers padded their portfolios last year as they gobbled up the competition through a slew of acquisitions. Marriott’s purchase of Delta Hotels and Resorts perfectly illustrates the combine-and-conquer mentality that’s been shaping the hotel landscape during the past year — a timely strategy, given the proliferation of new brands emerging from the industry’s biggest players. Canada’s top 50 hotel companies marked the end of 2014 with $18.7 billion in sales, up from $17.9 billion in 2013, collectively demonstrating a renewed focus on business strategy. Those who posted strong year-over-year increases lead the pack by building strong partnerships.
“For us, it was a very strong, busy year,” boasts Felix Seiler, COO of Halifax-based Holloway Lodging Corp., which acquired fellow Halifax company Royal Host Inc. in July, adding 17 units and 2,382 rooms to its portfolio. (The deal also included the master franchise rights to Canada for Travelodge, which it sold earlier this year to Superior Lodging Corporation and Waramaug Hospitality Canada.) The $16.4-million transaction expanded Holloway’s portfolio of select- and limited-service properties throughout Canada and made headway into the mining markets of northern Ontario and the corporate markets in Toronto and Ottawa. “Before, we had hotels in Alberta and B.C. and on the East Coast, but acquiring Royal Host gave us a much more national portfolio, especially in these times where oil and gas have taken their toll. We are in a much better position today to weather that storm,” adds Seiler.
Holloway Lodging wrapped up the year with $97.8 million in sales, a 60-per-cent increase over the previous year and bumping up Holloway’s rank from number 31 to number 25 on Hotelier’s “Top 50 Report.” “We have a philosophy that we can’t generate demand, necessarily, but we can take care of the things that we can actually control,” says Seiler. “The good thing about the merger was it gave us the scope to actually lead and manage our own hotels, while before we were owner-operators; more of a third-party management.”
The team went to work upgrading or converting several assets, including transforming a Ramada in Whitehorse to a Days Inn. Its Super 8 in Timmins, Ont. received a contemporary design overhaul, including a rustic brick facade, new fitness centre and energy-friendly E-Star Windows, LED lighting and sensor technology thermostat controls.
Meanwhile, the Holloway team expanded its regional sales teams to drum up more business for the portfolio of 35 properties in Canada, and selling several under-performing assets or shutting down operations that generated a negative cash flow, such as its food, beverage and banquet operations at the Travelodge properties in Ottawa and Yellowknife.
South of the border is a made-in-Canada success story. John O’Neill says the Vancouver-based O’Neill Hotels & Resorts Ltd.’s impressive year-over-year increase is due to a partnership with American Hotel Income Properties REIT LP (AHIP), a company he co-founded with his brother Robert. “The essence of our growth is our relationship with our largest client, AHIP, who continues to grow. And as they grow, we grow,” he says. O’Neill has an exclusive agreement to manage AHIP’s properties. O’Neill Hotels added 23 new hotel-management contracts last year and is spending $17 million to upgrade the U.S.-based assets.
It was the 2007/’08 financial crisis that led the Vancouver-based team to look south for development opportunities, O’Neill explains. “By 2010 there was a lot of opportunity in the U.S., the Canadian dollar was strong and U.S. hotel values were down. That’s when we shifted our focus as a company to the Unites States.” With only four properties in Canada, including its flagship Westin Grand Vancouver and the Westin Resort & Spa in Whistler, B.C., the team will continue to expand south. “We would like to grow more in Canada, but right now our main pipeline is the U.S. We will be adding at least 14 hotels in the U.S. between now and August 31,” O’Neill adds. “AHIP will be acquiring and we will be managing.”
The company wrapped up the year with 67 properties and $206.9 million in sales, a 52.8-per-cent increase over its 2013 sales and rising five spots on the list. Revenue-management has been key to its success. “You can’t save your way to success; you have to build the top line. You can only cut expenses so much and it will come back to haunt you in terms of guest experience and employee satisfaction,” O’Neill advises.
Anil Taneja credits 2014’s upward RevPAR trajectory for Palm Holding’s 44-per-cent jump in sales, from $25 million in 2013 to $36 million last year. The team also acquired six hotels, infusing capital to achieve double-digit RevPAR growth.
“Apart from those six hotels, we rebranded two hotels in 2014,” adds the president of the Toronto-based company, whose rank increased by one point on the report. “We rebranded the Destination Inn in Waterloo (Ont.) to the Four Points by Sheraton, and we rebranded the Travelodge in London (Ont.) to a Marriott TownePlace Suites.” Palm Construction, the group’s building subsidiary, knocked down the lobby walls to create an open-concept space. The team also added all new furniture, fixtures and equipment, such as fully equipped kitchens with stainless steel appliances and granite countertops, and revamped the porte cochère. Taneja says the project cost between $30,000 and $70,000 per key.
While hoteliers enjoyed RevPAR growth last year, they did struggle to find adequate staff. “One of the challenges we’re having is access to labour. We have a shrinking labour pool in our industry, and profit margins aren’t strong enough to support higher costs of labour,” notes Taneja. Last summer’s Temporary Foreign Worker Program reforms decreased the number of foreign worker applications by 75 per cent, so operators are looking elsewhere for staff. The Palm team is zeroing in on students, partnering with Ontario’s University of Guelph and University of Waterloo to bridge students from co-op placements to full-time employees. “We’re trying to counteract [the labour shortage] by creating a culture within the organization; a culture of unity, a culture of fun. The ultimate goal is making people excited to come to work,” Taneja says.
As 2015 unfolds, the management team is looking for opportunities in under-branded markets. “We’re interested in select-service and we’re interested in extended-stay. The challenge with both is we don’t see a strong conversion with the bottom line. So we’ll do full-service on a very select base. But select-service and extended-stay is fantastic, and as Canadians travel more they need to be more educated on what extended-stay is. As we get more extended-stay hotels in the market we are creating demand,” sums up Taneja.
Being a diligent buyer means not always purchasing properties at the top of the cycle, and constantly evaluating your options, adds Holloway’s Seiler. “Make sure you buy something that doesn’t just fit into your portfolio but also makes good financial sense.” He adds: “One of the philosophy/strategies is, we look at a hotel that doesn’t perform as well from a cash-flow basis and we see if there is a buyer out there…. If we get a good price and we can buy something that is better for us or fits better into the portfolio, then we’ll continue to do so.”
Volume 27, Number 5
