The generational game

Resorts did not used to be a grown-up person’s game. Those who managed to have resorts so wonderful, so marvellous, so cash generative that you or I have never heard of them were the stuff of rarity. All other resorts were, in the minds of many in the sector, to be lumped in with the kind of locations you could stay at after collecting vouchers in a tabloid. Not the sort of thing a big, powerful, global operator would get into. 

Then came the pandemic and last week saw Hilton CEO Chris Nassetta tell analysts on the group’s second-quarter call that it was putting more key money into “iconic assets” for its portfolio, “largely resort-oriented, that will be generational”. They would be in the system, he said, for “decades and decades and decades”.

Not that the operators hadn’t noticed resorts before, but only as loyalty lures. When Marriott International bought Elegant Hotels in 2019, then-Marriott CEO Arne Sorenson said that the portfolio would provided “more choices on the breathtaking island of Barbados for our 133 million Marriott Bonvoy members”.

But now the value is clear – and not just for the pandemic. 

Marriott International’s CEO Tony Capuano told of how many of its resort properties in the Caribbean and Mexico were “flourishing” as they benefitted from easing international travel restrictions and their close proximity to the US. In other non-core news, the group had also been happy with its home sharing product, where 40% of listings were in locations where the company didn’t have distribution. Ninety per cent of them were booked by Bonvoy members. Will this too be taken more seriously in the future?

But back to resorts. Elsewhere in results season, Hyatt’s Mark Hoplamazian said: “The surge in our resorts is like nothing we’ve ever experienced. June revpar was 11% above 2019, with 25% average rate growth in June on 2019 levels.”

The company acquired a resort in Big Sur for $148m, a market the CEO described as “a highly sought-after resort destination” and said poetic things about it benefitting “from people’s desire to get back to the wilderness and nature”. By lucky luck it also had the highest rate and revpar of any  hotel in its system and, while Hoplamazian was willing to admit that 2021 might well be a peak year, he added: “the cachet and the guest response from being in that location is fantastic. We are not so focused on the price per key”. No. Although they were planning to add more keys. 

This was all shifting the CEO’ s mind to what else he might buy, adding: “We feel that we’ve come through the pandemic and are now into recovery mode at a very healthy clip. So as we think about deployment of capital we are turning our attention to the things that we were looking at before covid hit – more and more opportunities in Europe and smaller brands. We are tracking a number of opportunities. 

“We also talked about the expansion of our resort portfolio.” 

The message was just as clear at Host Hotels & Resorts, where CEO Jim Risoleo had $1.3bn burning a hole in his pocket. The group recently bought a resort in Key Largo and Risoleo muttered: “There hasn’t been as much distress out there as people thought there was going to be” (fear not, Jim, the Quarter of Reckoning beckons). But, he added: “We’ll continue to look at resorts, complex assets that we’ll feel we can add value to.”

And here’s the issue. Resorts were largely ignored in the past not just because they didn’t bring in the money which the road warriors did, but because they were hard. Oh so hard. Now they’re hip and investors can’t get enough. Operators are jostling to add them to their rosters, but buyer beware. It takes specialised knowledge to run them and make money – choose your flag, if you want one, wisely. 

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