February 4, 2010 / 6:56 PM / 10 years ago

U.S. hotels eye new brands as supply growth slows

NEW YORK (Reuters) - Top U.S. hotel companies are scouting out new brands to expand their reach abroad and keep their best customers from defecting to rivals as new rooms growth slow down.

In recent months, Choice Hotels International Inc (CHH.N), Hyatt Hotels Corp (H.N) and Wyndham Worldwide Corp WYN.N have all expressed interest in acquiring a brand.

Buying a brand allows a company to offer more hotels at different prices and give frequent guests more options, keeping them away from competitors.

It also helps a hotel company diversify into new market segments and regions without the cost of developing a chain from scratch.

“You’re trying to be everything to everyone,” said Stifel Nicolaus analyst Rod Petrik.

Loyalty program members book a large number of rooms, according to companies that operate and manage hotels.

For example, roughly half of Marriott International Inc’s MAR.N room nights are purchased by loyalty program members. And about 25 percent of the domestic gross room revenue of Choice Hotels comes from frequent guests.

“When so much of your business is driven by loyalty programs, you want to have all those offerings available to your customers,” Petrik said.

Acquiring a brand might be a good way for hotels to seize market share as new room construction slows down, analysts said.

Data firm Smith Travel Research projects supply will grow 1.8 percent this year and 1 percent in 2011. Last year, the number of new rooms grew 3.2 percent.

NEW FRONTIERS FOR FREQUENT GUESTS

In an interview last month, Hyatt said it was looking to buy hotels or a brand to bolster its presence in gateway cities such as New York and London. Wyndham has said it is looking overseas for growth.

“Acquiring a brand is one way to jumpstart the international presence of a brand umbrella,” said Robert W. Baird analyst David Loeb.

He expects hoteliers to especially look at opportunities in India and China.

Hotel operators have had success buying brands before. In 2005, Starwood Hotels & Resorts Worldwide Inc HOT.N bought the Le Meridien brand for about $225 million, according to an annual filing.

The hotels added new management fees to Starwood’s coffers, accounting for 8 percent of its overall management and franchise fees in 2006.

“If there were another opportunity like Le Meridien, we’d be interested,” Starwood Chief Executive Frits van Paasschen said in an interview with Reuters last month.

But van Paasschen said there were few new hotel brands with “critical mass” in terms of size and popularity.

“What may be interesting for a smaller player from a brand acquisition standpoint may not be for us,” van Paasschen said.

BUT WHO’S FOR SALE?

Analysts said there were more brand-buying opportunities abroad, given that there are few independent brand companies based in the United States.

One U.S. exception is Spokane, Washington-based Red Lion Hotels Corp (RLH.N), which owns and operates hotels, and a handful of other small luxury and boutique hotel chains.

French company Accor PA (ACCP.PA) may spin off its hotel business, which could be an attractive purchase for major brand companies, Loeb said.

Accor, which runs the Sofitel and Motel 6 hotels, declined to comment. Red Lion did not return calls for comment.

A hotel operator buying a brand belonging to another major company is not out of the question either, analysts said.

“Hoteliers may be able to pick up a brand for roughly 12 to 14 times its annual cash flow, in line with where brand companies are currently trading,” Loeb said.

“Such a deal could also command a much higher premium under the right circumstances.”

Reporting by Deepa Seetharaman; added reporting by Deena Beasley; editing by Andre Grenon

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