Moderated by Rosanna Caira and Amy Bostock
Business Fundamentals
Rosanna Caira: What kind of a year has 2023 been thus far for your company?
Roz Blaker: Marriott currently has 273 hotels across Canada, with 83 in the pipeline and I would say that this has just been a banner year. We’re well above 2019 metrics, both in primary, secondary, and tertiary markets. We’re seeing a levelling off of the growth across all segments in prior-year comparisons, but ADR for Canada is showing really healthy growth, which is something that we haven’t necessarily seen historically. Special corporate is still a challenge, getting back into office buildings, as downtown cores are feeling that stress more than the suburban and secondary markets. But in general, we’re just having a stupendous year across the board.
We have some markets where ADR is up 14 to 18 per cent. Overall, for Marriott North America, RevPAR grew six per cent, ADR rose six per cent, and that’s on an average. Even guest satisfaction — which is a balanced scorecard metric, we look at topline and we look at guest satisfaction — this is the first summer for Canada that has not seen guest scores dip. And we’re three-and-a-half points over last year. And it’s a tribute to attracting associates and having a stable workforce, and the reduction in turnover. We’re not hearing that finding staff is the bigger challenge. And when you have better economics, you have more opportunity to hire appropriately and get ready for the summer.
Patricia Phillips: We just opened our first hotel, the Dorian, which is a dual-flag Autograph Courtyard. We have 306 rooms and we’re bringing on 228 rooms next year through the Element. So, in that regard, our first year of operations, we ramped up much quicker than we expected. We’re about 25-per-cent ahead of our forecast, both in regard to ADR and also occupancy. We continue to dominate our comp set. And just taking a look at the breakdown of our revenue, we’re not seeing a lot of leisure travel but interestingly enough, a lot of business travel.We’re finding that about 34 per cent of our business and leisure travel right now is within Western Canada, 21 per cent is Eastern Canada, and then 39 per cent is coming from the U.S. But we will have a shortage of hotel rooms in Canada, given the onboarding of our conference facility that is booked for the next five to six years. So, we’re noticing an increase in traffic and hoping to see a little bit more leisure traffic trickling in as well.
Ryan McRae: The last 12 months have been incredibly strong. Because we’re quite geographically diversified, and market-type diversified, we have very good exposure in Western Canada in leisure markets such as Vancouver Island and the Okanagan Valley. Those markets, even through the deepest parts of COVID, were incredibly strong and continued to have year-on-year growth through COVID, save for those first dark months. So, we haven’t seen the dramatic increase from a RevPAR standpoint given in those markets we’re coming off a very high base, but they continue to be incredibly strong. Demand is there, willingness to pay from a rate standpoint is still very much in place, and it’s given our teams great confidence moving forward in terms of constantly driving rate and really giving them the peace of mind that yes, customers are willing to pay rates higher than they’ve ever paid before, provided they see value and getting a level of service that’s consistent with that rate.
It’s still skewed domestically, but we’re looking ahead into 2024 and into 2025 and beyond, as we put together some of our longer-term sales and marketing strategies. And interestingly enough, in markets such as the Rocky Mountains where we have a luxury resort in Canmore or the Okanagan, those markets historically had always skewed Canadian as well. And so, given the record-high rates in occupancies we’ve seen in those markets, we are in a very good position as U.S. travel comes back, which this summer, truthfully, is the first season where we’ve seen a meaningful increase in U.S. traffic. We have seen a comeback of European travellers and that is expected to grow for 2024. And so, we are very bullish on that. If we’re setting record-high ADRs today in absence of meaningful travel from Asia, it is a very, very good place to be in that we have strong domestic demand, strong North-American demand, returning European demand, and truthfully, Asian-Pacific demand that is not even started yet. When you look over the medium term it is, from a rate perspective and certainly from an occupancy perspective, a good place to be to be able to leverage that even further.
Mark Sparrow: We’ve seen a noticeable pickup in activity on the investment side of the hotel business in 2023 relative to what we saw in 2022 and throughout the pandemic. During the pandemic, there was a significant bid-ask gap between where buyers and sellers were looking to transact at. We’ve seen that narrow over the past 12 months, and we’re going to see a significant amount of activity through the balance of this year. Our book of business is about three to four times the size it was this time last year, and it’s growing daily. We have a lot of broker opinion of values that we’re submitting to owners as they’re trying to understand where the market would be. And that’s going to translate to a flurry of activity towards the backend of this year and early next year.
Wendy Lamont: Our airport and city-centre hotels have been growing at a faster rate than resorts. Resorts and extended-stay properties are still growing, but the rate is slowing. This is primarily due to them having seen the strongest performance over the past few years, so other markets are just now recovering.
Jessi Carrier: There’s tremendous momentum in the transaction market and it’s on paper. We just came out with our second-quarter quarterly report a couple months ago, and transaction volume for the first two quarters was around $1 billion, which is record transaction volume. If you compare to 2022 where we were around $550 million, it’s almost double. And it is 20 per cent over 2019 first two quarters, which was a record as well. So, it is great to see $1 billion of transactions in two quarters, and potentially get to $2 billion by the end of the year with some bulkier transactions coming up. Also, looking at the metrics of the transactions, price per rooms is up significantly — $190,000 a door is the average price per room for those transactions, for the $1 billion, if you bring it on a per-room basis. This is driven by, to echo what was said earlier, operating fundamentals that have been very good. ADR is up $30 compared to 2019 across the country and occupancy levels are similar, in the low to mid 60 per cent. So, even if there is still a bit of a question mark around availability of financing, and interest rates being high, fundamentals are so strong, values tend to stay.
Salim Gulamani: I’ve been a mortgage broker for 10 years, started our own company two years ago, and this is probably the busiest we’ve ever been. The deal flow is substantial. Because a lot of it is re-financing right now, on the positive end, you’ve got your trailing 12 months which have frankly never been as good as they are now, which really helps get your DSC to a point where you can re-finance and maybe get a little bit out. Obviously, the challenges, from the financing standpoint, is the rate. Rates have gone up substantially, but that’s just the way the market is, just the same as construction costs have gone up. And so, I think another reason that the price per room has gone up. Yes, the fundamentals are good, but the replacement costs or cost to build right now is so high that a better option is to go out and acquire a property. Not to mention, fixed-price interest rates are way better than they are on a floating basis. So, that also helps in terms of the overall picture. Access to capital is out there but it’s not easy to get, by any means as the underwriting is extremely stringent these days. But for the strong, experienced owner-operators, there’s capital available.
Aaron Laurie: It’s a big challenge this year to get new construction going with construction costs and the way interest rates are playing out. Experienced developers take these challenges and find creative capital solutions to get through it. But for us at Marriott, net-unit growth is one of our top priorities in development, and one of the only ways to continue to drive net-unit growth in this tough interest rate and financing environment is through conversion. So, conversions this year has been a big theme for us. And we have what we call conversion-friendly brands, namely brands such as Autograph, Tribute, Four Points, Delta, but we’re open to looking at conversions amongst the majority of our other brands as well. So, it’s a unique opportunity for owners to take a look at existing assets or acquiring existing assets, and finding an opportunity to re-position some of these assets in what could be considered very high-barriered entry markets for new build opportunities.
Investment Trends
Amy Bostock: How would you rate the availability of capital in the marketplace? Have you seen any new forms of financing become available in recent months?
JC: When it comes to availability of capital, a lot of it has to do with the debt, so maybe we start with that. Interest rates are high. I was a lender before doing what I do now, and back then, between 2006 and 2010/11, it was all about the sponsor and I feel like we’re going back to that. The asset is important, as is the location, but the sponsor is key. So, it is a lot harder now if you’re a first-time buyer to come into the space and buy your first hotel. It’s being done, but it’s more challenging. I think the sponsor will have availability of financing but then the key thing is, what are the metrics? And it’s simple business — loan to value that covers ratios and guarantees. A lot of deals were done between 2013 and 2019 on loan-to-value basis and now, values are great, they’re up, everything is good. But the debt-coverage ratios are tougher because rates are double. And we’re seeing a lot more transactions; we’re doing a lot of opinions of value and expectations from owners are high because as they should be, they came out of pandemic, everyone is okay and making money. But then at some point you hit a wall on the loan-to-value basis.
The second component, equity, is there — people have money, hotel owners have money. We have people coming from outside: Europeans, Americans even — which is rare for us, we’ve rarely seen transactions with Americans. We were talking about the Canadian economy earlier. Our fundamentals are strong, employment is strong and I think there’s more availability of staff now. All these things are driving more equity to the market, so debt and equity are there. And for the second portion of the question, we have to get creative on transactions — availability of capital through alternate sources, private lenders, but a lot also VTBs [vendor take-back]. You need to structure the deal and do VTB at balance of sale in order not to have erosion on value. Not because values are not there, just because, like we said earlier, interest rates are high, so the money has to come from somewhere. And vendors are willing to leave some money in the transaction to achieve that pricing, which is important for our fundamentals. As private lenders, we don’t see a lot of second mortgages, but we’re seeing a bit more now. It’s expensive but when the metrics are good, and fundamentals are good, and cashflow is strong, it can be done.
SG: Before all of this that we’ve been through the last few years, it was all about, where is the asset? What is it? Now the number-1 question when you take a deal to a lender is, who’s the sponsor? Sponsor is key to all financing deals these days. Secondly, before it was purely on loan to value but that’s only half the equation — the debt service is another big part of it. And so, with rates going up, they’ll add an additional amount as a stress test, we’ll call it, and to get to a debt service that is resulting in a high loan to value can be challenging at times. Finally, when it comes to access to capital, yes, it’s there, but then you have to go to secondary and private financing options and VTBs. The challenge with the VTB and the private is, if it’s going to be a 12-month term, what’s the exit on that after 12 months? People need to make sure that there is an option after the 12 months to extend it. Because you’re going to be potentially pushing off a problem for 12 months, and you might be right in that same spot of trying to figure out how to take that money out at that point.
Cameron Woof: For our group, our focus has always been sponsor first and as we go through different cycles, we’ve been financing hotels for a very long time in Canada, you see certain lenders come and go. Sometimes certain lenders lose perspective of the fundamentals of hotel lending, and sponsor should always be first. This particular cycle demonstrates if you’re working with the right groups that are committed to the hospitality space, that they’re willing to put their own equity on the line to support their business plan and their investments. And when interest rates are double what they were five years ago, that’s particularly important. Because a lender will only lend if the mortgage can be paid. So, if values are up and they’re strong, but the debt coverage just isn’t there to pay the mortgage, then you need a sponsor and a group that’s highly invested in the space to maybe put a little bit more equity into it and make sure that the fundamentals are working.
AB: What does the hotel industry look like for the next year to two years from an investment standpoint?
MS: We’re going to see an influx of new owners into the Canadian space in addition to current owners who are going to double down and invest in Canada to increase their portfolio. Part of that increase in capital we’re seeing is not only from groups outside of Canada that own hotels, but groups who are now starting to allocate their resources differently. So, if you look at the fundamentals, there’s never been a time that there’s been more capital ready to deploy into real estate. Now there’s a lot of these real-estate companies that have a 40 per cent allocation towards office, 20 per cent towards industrial, 30 per cent towards multi-family.
And what we’re seeing across the spectrum in the U.S. and Europe is a lot of those groups that have 40 per cent in office are taking 10 per cent away and pushing it towards alternative assets. And hotels are king when it comes to alternatives because of what’s happening in our fundamentals. So, a lot of that capital that’s been sitting on the sideline waiting to deploy through the pandemic is now looking at hotels differently. And if they align themselves with the right operating partners, the right brands, they’re ready to commit to the hotel space where they haven’t really been in the past.
We’re alive in the market with a billion and a half in value right now, and we’re seeing groups that have never looked at Canada, and never looked at hotels, and part of that story is allocation of capital. The other part of that story is relative to debt. If you’re pricing hotel debt in the U.S., you’re about $875 to $950 in pricing, so 9.5 per cent. When you’re pricing in Canada, you’ve got 150 to 200 basis point spread on that lower to be able to achieve your hurdles. So, ultimately cap rates are always a conversation in hotels, but they’re almost irrelevant. Everyone’s holding for a levered return or a five- or 10-year basis. And if your cost of capital is lower in Canada than elsewhere, you’re going to see a lot of investment start to strive towards the Canadian market and the next two to three years are going to be very positive towards investment in Canada.
RM: I absolutely believe there’s going to be a lot more transaction activity in the next 12 to 24 months. One thing I would say, though, in terms of the executability and how do you optimize that investment, are there are a lot of roadblocks from getting from point A to point B to do a successful transition of an existing asset, successful up-brand, successful renovation. And we’ve seen a lot of groups stumble on that front in the past.
When it comes to groups that are new to the hospitality space, we have been incredibly busy fielding calls and working with various groups that, in addition to the ongoing hotel operation side of things, need help trying to figure out how to effectively manage that renovation and up-branding process. Because it is, particularly for groups who don’t have previous exposure to the hotel space, fraught with landmines and having the right team together to actually make it happen is critical. Buying the asset is one thing, but getting it to its optimal position in as short a period of time as possible is another.
AB: What are the top draws for investing more money in Canada? Are there specific regions within Canada that are more attractive from a development perspective?
RB: We get a lot of questions around, ‘don’t you have too much product?’ But it actually works the opposite way. We have more significant broad brand recognition with our portfolio of brands, and we’re in primary, secondary, tertiary, and beyond markets now. So, there’s an awareness both on the level of support that we have across the country and the power of our brands and our distribution that’s really attracting investment from our U.S. partners and we have a lot of cross-border partnerships.
Duncan Chiu: For Western Canada, we’ve seen such a tremendous run in terms of the leisure markets. I would say Vancouver Island is a great market that is fairly untapped. You do have hotels, but it’s tired product in a lot of cases and that presents a pretty good fundamental to increase development. Nationally, we’re also seeing a pretty aggressive population-growth strategy from the federal government and so, people are generally getting compressed out of Toronto and Vancouver. Calgary and Alberta in general are going to be a beneficiary of that. The Okanagan Valley is going to continue to see increased appetite for development. Again, I think just with the tremendous leisure demand that we have seen globally and in Canada, those destinations will continue to outshine other parts of the country. And then in Alberta, I would say the Mountain Resort Parks will continue to have a lot of strong appetite. High cost of entry, but if you can get in, you’ll do reasonably well.
AL: In general, we need to remind ourselves that the majority of population growth in Canada is stemming from immigration. Immigration primarily is coming to Montreal, Toronto, Vancouver. And while we all recognize that population growth doesn’t necessarily stimulate hotel demand short-term, what it does long-term is it creates commercial development, it creates infrastructure development, healthcare facilities, infrastructure projects, which in the long term end up stimulating demand. So, I feel as population continues to grow, you’ll see a lot of that population within those large metropolitan areas displace or compress into some of the secondary locations. And that will bode well or allow those secondary markets or rural locations to be ripe for hotel development down the road.
Trends
RC: What are the most significant changes you’ve seen in accommodation over the last three years and what’s fuelled it?
RB: Therise of leisure over the last several years is a big change as business travel eased up. And the term ‘bleisure,’ which everyone knows, is still a strong travel trend. What I’ve been noticing even more, is that we’re taking very regular branded hotels and creating experiences within the hotels. The Ritz Carlton in Montreal, for instance, took a very small unused space and created a Louboutin experience there. And the owner and general manager said it was unbelievably powerful. At the W Montreal they have a little karaoke bar and people pay by the hour to go there. And it’s not just buzzworthy, it’s becoming part of the fundamentals of how you take a hotel and make it really exciting for people to want to visit and return to over and over again.
Also, we’re seeing a move towards sustainability, which is important both from a corporate business travel perspective, but also the leisure traveller that wants to do good wherever they go. It’s a powerful trend that our hotel operators need to embrace and get behind because people are making buying decisions based on how well you execute in that area.
PP: We were one of the first developers in Western Canada to embrace mental health and resiliency. I chair the board and founder of Headversity, and so that is something that we are going to bring into our guest experience at our hotel as well. Another change has to do with retention — retaining good people in your operations and in all of your businesses — is something that many CEOs talk about. And that’s really a reflection of leadership. I looked at how my GM answered the question as well, and for Concord and PBA, at Concord, 60 per cent of employees are women, we (PBS) have 70 per cent; we are women-owned and led and really, that leadership style is quite different today and it’s something that, culturally, creates an opportunity for retention and a strategic competitive advantage as a developer and operator in the hotel space.
RM: The biggest change we’ve seen in the last three years is in the expectations of both associates and guests. In Canada over the last 20 years in the hospitality industry, guests have been incredibly patient — patient with mediocre experiences, mediocre product in terms of hotels that have been underinvested in.
Similarly on the operations side, we’ve only been in the Canadian market now four-and-a-half years and when we came into the market as Hotel Equities, we found a very low bar when it came to the level of expectations for associates that are employed in the hospitality industry. And so, for us, it always comes back to the associate and what experience they have in their day to day, what levels of expectations can they have for growth, what support do they get from their employer. At Hotel Equities, our turnover in Canada is middle single digits, which, in the hospitality industry, is a very hard number to achieve. And that is a very deliberate and very conscientious strategy on our part because we know for our medium- and long-term growth for Canada, it’s absolutely critical. It’s reflected in our results — the fact that we’ve gone from zero to 32 hotels in five years — and that will then be reflected in very localized and unique experiences that customers can have.
WL: Google’s continuing expansion into travel with Google Flights and Google Hotels and its impact on metasearch platforms like TripAdvisor and OTAs like Expedia is a big change I’m seeing. Also, how digital and online communications are addressing guests’ strong preference for a seamless and touchless experience when making requests, such as chatting with hotel staff, and ordering extra towels or room service through dedicated apps or websites.
Guests now demand a delicate balance between personalized services and enhanced experiences, all while preserving their privacy. When it comes to technology, the potential of future incorporation of AI technology into the booking process, which would revolutionize how customers navigate their journey, has become a big topic. And finally, experiential travel and the heightened focus on curating unique and memorable guest experiences, indicating a shift towards prioritizing experiences over traditional services.
RC: What major consumer shifts do you see impacting the hotel industry moving forward?
CW: Over the last few years, there’s been a significant shift in the Canadian hotel industry where Canadian hotels are actually starting to get the value paid that they’ve historically been denied. It’s my personal opinion that rates in Canada have always been undervalued and so, we’re finally at a place where the consumer is willing to pay what is a reasonable rate for hotels in Canada. But with that comes the responsibility of hoteliers, managers and owners to provide or maintain that value. Clearly, over the last couple years, there’s been a huge pent-up demand for travel, and I would argue that a lot of consumers would be willing to pay whatever they could to get a hotel room. But with that increased rate comes a reckoning and over the next couple of years it’ll shake out. The hoteliers and the management companies that truly care about their hotels and run them to a high standard will be able to maintain those rates. And those that were just riding in the wake might get left behind.
WL: As prices go up, so do expectations. There has not been huge rate resistance, but if the customer is not seeing the ‘value,’ the guest satisfaction is taking a hit. Value not only perceived as it relates to the rate, but the service, amenities, value adds, et cetera.
RC: Can the market support more industry brands or we headed to brand fatigue?
DC: Our approach to brands is led by consumer demand and research and the development strategy is pretty simple — we want to be everywhere our guests want to be, everywhere our owners want to develop with us, and have a product available for all different trip purposes. A good example of this is, if you’ve seen the tremendous recovery with COVID, how resilient the industry is, and the demand for extended-stay brands. We responded to that with the introduction of Apartments by Marriott Bonvoy (AMB), which we launched in November of last year. We saw that there was a significant gap in the marketplace for a soft-branded hotel-service apartment concept and launched AMB to fill that gap because we also do know there are a group of consumers that want higher-end lodging with more spaces, but with an elevated experience.
The second piece of that is, we recently launched StudioRes (see story on p.22), which is our new mid-scale extended-stay brand, formerly known as Project MidX Studios, to serve the mid-scale segment that we traditionally never played in.
CW: I don’t think there are too many hotel brands. I used to think that was crazy. Why are the large hotel companies putting out so many brands or acquiring so many brands. But now I look at it and think, maybe the difference now isn’t that consumers are expected to fit into a hotel brand, but that hotel brands are being developed to suit the consumer. So, it’s been a complete shift in the mindset of hotel consumers. Now we see a lot more creativity and very niche focus in their marketing and market research to develop specific brands that fit a very specific need. Especially with the way social-media groups and people talk to each other in an instant across the globe, that you’re able to create these niche markets or work with those niche markets to build a product that they need or want.
SG: I also used to think there were too many brands, but at the end of the day, if you look at the demand that’s being generated, none of these hotels are saying, “oh my God, we have this brand that has multiple sister properties in the area and we’re not doing well.” So, the demand is showing us that there isn’t too much. Also, from a lending standpoint, to have a brand affiliation makes the world of difference, because lenders will not look at unbranded in most cases, or brands that they’re not as familiar with, or don’t have the reach of some of these larger hotel brands.
Future Growth & Development
RC: What part of the country do you expect to see the strongest development?
MS: We’re seeing a lot of push towards development in the secondary markets that haven’t seen a lot of new supply enter and there’s a lot of product that’s just tired and needs something new in the market, either through a very strong re-positioning with a brand or product, or new development. What happened through the pandemic is when demand just disappeared overnight and development costs skyrocketed, a lot of those projects that were slated for development were pens down for the immediate future. But as demand continues to increase, opportunity to build in these markets is becoming very attractive again.
SG: Some of these secondary markets are getting to a point where they’re growing so fast and exponentially. For example, take a market such as Barrie, Ont. Barrie has grown and that automatically results in requiring more hotels. The B.C. and Ontario growth can be attributed to population growth, immigration — those markets are still ripe for more development, again, if you can find a way to pencil it. But I think those are going to be the growth areas.
The other secondary markets that come to mind are the Okanagan, Vancouver Island and a half a dozen markets in Ontario alone. Look at the growth in places such as Mississauga and Burlington and that corridor or the Durham corridor from Pickering going east, there. In Pickering, just in residential development, over the next 10 years they’re going to have 75 condo buildings built. You’re going to have to put people up somewhere for infrastructure for construction.
MS: It goes even to the East coast. I’m going to Halifax tomorrow, and I’m paying $550 for a room night in Halifax. When did we ever think that was going to happen? And it’s fantastic for hoteliers, but there’s not enough product. Everyone is there for leisure during the summer, and then business is coming back in a very strong demand. So, coupling it together, there’s just not enough rooms.
We also are now starting to see in major markets such as Toronto and Vancouver, the ability to actually pencil new development for luxury product that hasn’t been there in the past. And when you’ve looked at markets specifically like Vancouver, Montreal, Toronto, not to pick on just the major markets, but it’s usually pencilled residential development first, or office. And that whole trend has now shifted to the point where that office development certainly isn’t happening. But even the residential perspective, you’ll actually be able to pencil a hotel, so it’s great.
RC: There’s a lot of vacant office space and a lot of that space is now being converted. Is this an area for possible hotel development?
MS: It certainly is, but it’s a lot harder in practice than in theory. If it’s an existing office building, to then change the risers, change your plumbing, change electrical, is very challenging. Where we’re seeing the most amount of interest right now is larger mixed-use development projects that have a 150,000, 200,000-sq.-ft. office or commercial component that is now shifting gears and saying, “I’m still moving forward with the residential development, but I’ve now got this box that has 10-foot clearance, that from an office perspective is great for hotels, but I’m still at the early phase of development that I can now shift gears or pivot towards hotel.” So, there’s numerous projects in the major markets that are going to be moving in that direction. The practice of actually taking an existing office building and changing it, it’s happening, but it’s challenging.
PP: For our Canadian Centre project, we’re re-purposing that building. We initially took that development on as a combination, multi-residential and hotel. When you’re looking at just the building challenges alone on a conversion, and then you’re faced with interest rates, economic recession, everything, our economics didn’t work for that combination. The only way it worked was for us to do it as a hotel.
DC: For a lot of these projects to make sense, at the municipal level, maybe even provincial level, they have to come to the table with meaningful financial incentives or development-incentive programs to make them happen, or maybe increase in density, for an exchange of a hospitality component. We’re starting to see that in places such as Vancouver and Toronto.
RM: It’s also really important to understand that the top-five markets in North America that have the lowest vacancy in office, four out of five are Canadian. And so, it’s also a very strong office market, even though we’re in a sector right now that we feel like it’s terrible. When you look at the rest of the world, their vacancy is significantly higher in office than in Canada.
JC: But isn’t it amazing to hear what Patricia said about the only way to make it work was a hotel? We’ve never ever heard that before Canadian Centre — we always fight to be in the game and now we are in the game because profitability and fundamentals are good. The yield is there, so you need yield to offset interest rates. Even multi-res projects, we get calls now. I don’t know about all the markets, but
in Eastern Canada, people call and say, “I was going to do a residential project there, it doesn’t add up anymore, do you think we could fit a hotel on that site?”
Segments
AB: How would you rate your company’s strongest segments?
DC: The one that sticks out the most is extended stay because of the increased demand for people that are working remotely, blending leisure and business travel. And again, we saw that this segment outperformed any other during COVID; the continued strength we saw even up to now. There’s a continued trend and a want for what we call our lifestyle or distinctive brands and you’ll start to see more of those in the urban-core markets and upper-secondary markets where there is ripe potential. Because these brands do have a little bit more programming, they’re more unique in terms of design, but you need that strong rate to support the development cost. And then when we go into the secondary, tertiary markets, the brands that really make sense are in the upper mid-scale segment, so Fairfield by Marriott, or TownePlace Suites, or now StudioRes.
AL: After the pandemic, a lot of people felt leisure would slow it down, but leisure is still persisting and we’re doing our best with the brands we have available to cater to that ongoing leisure trend or what we’re now calling ‘bleisure.’ But the reason leisure is persisting is because, again, it’s being tagged on with that business travel during the week. And the reality is, guests, now more than ever, are looking for unique accommodation experiences. Our distinctive brands such as Tribute, Autograph, Renaissance, that are very custom, non-cookie cutter are what’s driving that guest-service experience, that intent to recommend those high-brand-wide ADRs. So, that’s a major segment we continue to see play out, particularly with the soft brands.
RM: Fourout of our 11 pipeline projects that we have signed in Canada are either in the lifestyle, luxury, or soft-brand space. So, call it 36 per cent, no big deal. But when you look at the project value in the scope and size of those projects, it’s about 85 per cent in that we absolutely love the upper-mid-scale, select-service type of projects that are TownePlace Suites and Courtyards and Fairfields. But when it comes to some of these bigger-scale, higher-value projects, luxury and lifestyle is where we are seeing a majority of our growth. And if I look at anecdotally as well, where am I seeing the biggest amount of interest is absolutely leisure markets in underserved areas that are looking for lifestyle or a luxury product. And I always say in Canada, we have A-class physical surroundings, and a significant majority of those markets we have maybe B-minus, at best, accommodation options. Now we’re seeing a lot of interest in filling those gaps, particularly in the Western resort markets and we’re just truthfully at chapter one of a 10-chapter book in terms of what that can look like. So, a lot of demand there, making that luxury lifestyle and leisure space something to watch out for the next 10 years.
RC: What keeps you up at night?
RM: Short-term, in the last month it was wildfires in Northern Alberta, Vancouver Island, and now Kelowna, and the impact those had on our associates in the communities that our hotels were in. Thankfully, it looks like we’re getting to a better place there. Echoing Patricia, leadership and how do we make sure we’re attracting, supporting, and lifting up the leaders that are going be able to deliver on our service promises to our owners and investors for the next 10-plus years.
JC: Everyone’s first concern should be climate change. You see it with the wildfires. We’re not going in the right direction, so that’s for sure number-1. Number two is, generally speaking, mental health and people’s wellbeing, which is translated at all levels right now.
DC: I would echo what Jessi said but I would also end by saying I’m optimistic, just with seeing how well we’ve recovered as an industry, the resiliency of it. And also, we have a very healthy job market, increased investment into the country, increased population growth, and that means really good things from a development perspective.
MS: My answer is three-fold. Poppy, my two-year-old’s sleep regression; Air Canada pilots and whether I will take off in the morning; and the cost of capital.
PP: Leadership. In order for us to capitalise on the great opportunities this country has, we need a call to good leadership, and that will make it sustainable.
AL: Talent. We’re competing with so many other industries, and we’re all at the table here because at one point during our lives we fell in love with hospitality. We need to continue to innovate to attract the best talent for our industry, especially with the increased guest expectations that we’re seeing across our entire portfolio. So, I think continuing to motivate young talent, retain them, encourage them to continue to fall in love with hospitality is definitely a must.
RB: I have to say climate. And this would not be something I would have said one or two years ago, but with the fires that we’ve been experiencing just over the last month, I’m taking this really seriously, and it worries me.
SG: Obviously interest rates are a factor, but I think it’s how you deal with them and how you mitigate those factors. For example, not taking too much capital. And if you’re not able to do something, wait. And I think people and what I mean by that is, retaining people, people’s mental health, and listening.
I think sometimes in our industry, and in all industries in society, sometimes we tend to talk a lot but not listen enough. So, I think if we all did that, we’d all be in a better place.
CW: At this point, not much. And I say that because I have full confidence in our borrowers who own or run hotels, that they’re fully committed to their properties and will be able to manage effectively going forward. The focus now on changing and adapting and being more employee focused has gone a long way. And I can see a really bright period ahead for us in Canada.
