May 15, 2020
Hotel Business Exclusive - Amid Crisis, Aimbridge Signs Deals
DALLAS—As the COVID-19 pandemic affects the hospitality industry, Aimbridge Hospitality reports that it has seen a rise in existing hotel owners reaching out to the company to take over management of their properties.
“Coming into late March and early April, we started receiving inbound calls from owners that we manage properties for and also owners that we do not manage properties for, as well as lenders who had expectations of taking assets back from CMBS debt, etc., about managing their properties,” said Dave Johnson, CEO, Aimbridge Hospitality. “Since Feb. 24, we have added more than 200 hotels to our pipeline of potential management contracts. We have had large PE firms, and public and private REITS reach out to us and basically say, ‘Are you in a position to take more properties?’ Because—to quote one of our existing owners—they feel like half of the management companies will not survive the pandemic. It came a little quicker than we realized it would. As bad as it is to say—those companies are good people—there is a flight to scale and there is a flight to quality in a downturn.”
Johnson said many of these hotel owners are turning to Aimbridge because of its scale. “From an owner perspective, from the equity side, we are permanent,” he said. “Certain owners on the equity side see switching management companies as a potential disruptor to the revenue and the talent level of the property. Obviously, with running either a closed hotel or a hotel that is running single-digit occupancy, they have seen that the risk has really been mitigated.”
Greg O’Stean, chief development officer, Aimbridge Hospitality, said these owners saw that Aimbridge will be able to help them get through this. “I always thought, ‘We’ve got a great story.’ The key to growth is getting our message out there,” he said. “But once it got out there, the owners said, ‘Yes, I want to do this now. You are the right partner for me.’ I am surprised by the tremendous amount of volume that’s come our way since it started. I think it is going to continue.”
Noble Investment Group is one of the owners that recently chose Aimbridge to take over management of some of its properties. “Across more than three decades, multiple economic cycles and black swan events, Noble has successfully invested nearly $4 billion in select-service hospitality,” said Mit Shah, founder/CEO, Noble Investment Group. “The scale and depth of Aimbridge provides us access to best-in-class leadership talent, technology and data, which assists us in driving superior results.”
Johnson said that so far, the hotels the company has been awarded have all been domestic, but that may change. “We are working on two potential deals that are top of list,” he said. “One would add an additional 30-some hotels in Europe and another one would add almost 40 hotels in Canada. With both of those deals, we are confident we are going to get to the finish line. They are assets currently managed by other third-party management companies where the owner had serious concerns they are going to be a go-forward entity.”
Johnson said that a number of management companies have reached out to Aimbridge to purchase them. “Candidly, they reached out as a last resort and there is really no value,” he said. “In the third-party managed world, there are so many small players. Once you get past the top five or six third-party management companies, the majority…have less than 100 properties under management, so they really have no balance sheet… I don’t think any of us ever foresaw something like the COVID-19 pandemic, with revenues close to zero; there is no cash flow.”
He continued, “What we hear from our existing owners is that [a lot of the smaller companies]basically devastated their entire teams. So, they have no infrastructure to manage hotels. We picked up three hotels in the last two weeks of owners that had signed hotel management agreements that the management company called them and said, ‘We don’t have the resources to open your hotel, so therefore you need to find somebody else.’”
Responding to the pandemic
Like most companies, when the pandemic first hit, Aimbridge was playing defense. “Everyone is dealing with the pandemic, and it hit us as dramatically as it hit everyone else in the tourism and travel industry,” he said. “In mid- to late-February, we started to realize what was coming and we obviously reacted the same way everyone did with furloughs and minimizing expenses, battening down the hatches, taking down salary reductions, etc. So mainly in late February, early March, we were playing defense.”
While the company played defense in the beginning, that has changed. “I use a quote from Ray Hunt from the Hunt family: ‘In an economic crisis, if you are only playing defense, you are missing a wonderful opportunity,’” said Johnson. “That is really playing out true to form right now. I didn’t see it happening this quickly, but I honestly believe we are going to come out of this thing way stronger as a company than we went into it.”
Johnson credits Advent International, Aimbridge’s majority equity owner, with allowing the company to keep much of its team intact. “Basically, what the team did was approach Advent and say, ‘We want to make the necessary, very difficult decisions to furlough and institute pay reductions, but we also don’t want to mortgage our future,’” he said. “‘We have a great team in feasibility and development, and we see there is going to be tremendous opportunity, and we would like your support to maintain that entire team.’ Even though they took a 20% salary reduction, I think everyone is happy to have a job. They feel very secure, so we’ve got a great financial and strategic partner in Advent. Advent’s allowed us the opportunity to really take advantage of this situation.”
Aimbridge is now getting its hotels ready for Q3 and Q4 to take advantage of opportunities that will present themselves in markets that are already on the rise and those that will take a while to recover. “We have great data within our company,” he said. “We have the ability to manage 1,400 hotels in 20 countries. The assets that are performing best right now are secondary and tertiary markets. We manage about 260 extended-stay hotels, and we continue to enjoy in this new normal of what we would say is healthy occupancies, anywhere from 30-50%. Obviously, anything in top 15-20 MSAs urban is basically shut down and shuttered for now. What we are seeing in booking trends for Q3 and Q4, summer I would say, is sizable increases in leisure drive markets—places like Myrtle Beach and Napa Valley, golf course resorts, South Texas and South Florida now that the beaches and parks are opening up. There are some signs of life.” HB