In one of the biggest recent deals, indicating growing investor interest in resort and leisure assets, Hyatt acquired Apple Leisure Group (ALG) for a whopping $2.7 billion, in cash, in August. Hyatt expects ALG's portfolio of all-inclusive resorts and hotels with over 33,000 rooms, in ten countries, to immediately double its global resorts footprint once the transaction closes in late 2021.
This summer, and September, saw a string of other leisure deals. They included, for example, the €440 million purchase of Spanish resort and hotel chain Selenta by Brookfield Asset Management; the £850 million acquisition of UK holiday park operators Away Resorts and Aria Resorts by CVC Capital Partners; or the $210 million purchase of three resort properties in Canada by Freed Corporation.
Overall, global hotel investments totalled $30 billion already, in the first half of 2021, up by 66% from a year earlier and only 4% below pre-pandemic levels, in the first half of 2019, real estate advisor JLL said. This is a fairly positive development, considering that the company previously predicted in April, that hotel investments would reach only $35 billion worldwide in the entire year of 2021.
This year's general investment growth and the current wave of increased investor activity is in large part driven by the resort and leisure segment, which has clearly become a hot spot in the overall hotel investment market. But why are these properties drawing robust interest from large hotel groups and private equity funds? The answer to this question is twofold:
Consumer demand is up after lockdowns
The first part of the explanation is the relatively swift return of demand. Consumers are understandably eager to travel again after lengthy lockdowns and extensive restrictions, because of Covid-19. Holidaymakers are willing to make longer trips partially as vaccination rates are rising and travel restrictions are being gradually lifted in many outbound markets and key destinations.
Higher demand already had a positive impact on the performance of some market players involved in this summer's M&A deals. Hyatt's RevPAR rose by 30% in April-June from a year earlier, reaching the highest level since February 2020, partially thanks to strong leisure demand. It said second-quarter leisure transient revenue fully recovered to 2019 levels in its US and greater China markets.
Away Resorts in the UK, now being merged with Aria Resorts by their new owner CVC Capital Partners, saw bookings increase by 41% year-on-year with holiday home sales up 32%, while the Deerhurst and Horseshoe Valley resorts in Ontario, purchased by Freed Corporation, increased their average occupancy to 85% and 66% in July, respectively, both exceeding pre-pandemic levels in July 2019.
Many guests are also ready to pay more to feel safe at a resort. "The desire for holidays [among consumers] is massive and with the concern for safety, price is not the question if you can offer an experience and the feeling you are in a safe place,” Henri Giscard D’Estaing, President of French resorts operator Club Med, said at the recent International Hospitality Investment Forum (IHIF) in Berlin.
Giscard D’Estaing, who spoke about recovery trends in a one-to-one discussion with Roger Allen, RLA Global's group CEO at IHIF, said Club Med is still struggling to attract the same number of customers as it did in 2019, and for the time being operates with lower capacity compared to pre-pandemic levels, but the company has seen double-digit growth in its average daily rate (ADR), as demand returned.
Leisure is where the market's at now
The second part of the answer, to why mergers and acquisitions surged in the resort and leisure scene, is simply that these products currently offer better opportunities than others. It obviously has to do with increased demand, higher vaccination and improving occupancy rates - JLL has found that the latter two are the top indicators that investors monitor as a signal to be more active in the hotel market.
Pricing, of course, is also very high up on the most important factors that investors tend to watch. They are likely to find the deepest discounts in pricing among full-service hotels compared to other types of products, such as select-service or economy hotels, according to JLL. Unlike full-service properties, the performance of select-service and economy hotels was less impacted in 2020, as they were able to fill rooms easier and often operate more efficiently with leaner staffing models, it added.
In our previous RLA Global insight on resort and destination investment, we reported that good deals - with discount rates possibly as high as 30% - were rather difficult to find as many property owners tended to wait for conditions to get better and often refused to significantly cut prices, while investors wanted bigger discounts. This gap in pricing expectations was still too wide in most cases.
With MICE travel still struggling, properties with a focus on meetings and conferences have lower appeal to investors. Real estate company Cushman & Wakefield found in a recent survey that 24% of investors have unchanged appetite for MICE hotels. But the need for in-person meetings after months of Zoom sessions probably might not offset concerns about holding big events and the effects of strict corporate travel policies just yet. This could prevent MICE demand from returning fast.
Resorts remain the most attractive assets for hotel investors, with 70% of respondents in Cushman & Wakefield's survey considering them even more attractive than before the pandemic. Leisure destinations are still expected to recover faster than other destinations, with 85% of respondents expecting their performance to return to 2019 RevPAR levels by 2023.
For its part, Hyatt expects leisure demand to drive its brand growth across Europe. The company doubled down on its expansion efforts by signing six management and franchise agreements in early September for properties in France, Germany, Italy, Spain, and Switzerland. Club Med's Giscard D’Estaing was also optimistic about the future at the IHIF, saying that "[in the long term] I believe we will keep going in the same direction [as currently], but it’ll go faster".
Growing concerns about the Delta variant of the coronavirus may bring further uncertainties and difficulties in the hotel investment market, but in summary, current trends and expectations tend to show that resort and leisure assets may continue leading recovery in the immediate future.
About the author: Roger A. Allen, RLA Global Group CEO
Roger is the Group CEO of RLA Global and brings a no-nonsense approach to the leisure industry, which is based on a proven track record of representing owners and operators best interests. Roger has worked with many of the leading real estate developers, entertainment venues, hotel operating brands and most influential hotel owners around the world. Furthermore, successful ongoing engagements with government entities and high net worth individuals keep him fully engaged with the day-to-day project development responsibilities.