It’s asset right, not asset light, for Bangkok-based Minor
Hotels – at the moment, it looks neither. The chain is asset heavy and Europe
heavy. Its new three-year plan addresses that.
BANGKOK – Minor Hotels is keeping to an asset-right strategy while
other chains prefer to be asset light, especially in the wake of the pandemic.
The global player that is not so minor anymore has a
three-year plan targeting 600 operating hotels by 2025, from 530 hotels in
2022, and revenue growth of 12% to 15% CAGR for the period.
Minor Hotels recorded a net profit of $60 million (1.9
billion baht) in 4Q22, a 57% increase from 4Q21, saying it’s time to go “back
to growth” after the pandemic iced plans.
But its portfolio of 77,000 rooms shows it has a way to go
before becoming asset right. It is asset heavy, with only 19% of rooms under
management contracts. More than 70% of the inventory are owned, leased or joint
venture hotels.
In contrast, 98% to 99% of the portfolio of chains such as
Marriott International and Hilton are managed or franchised, according to a
Boston Hospitality Review article in May 2021.
Minor is addressing this, targeting for 29% of the portfolio
to be managed by 2025, from 19% in 2022. However, don't expect it to be
virtually asset light anytime soon – or ever – as some global chains are.
“We have an ownership mindset. We don't have a management
company mindset, which is very different,” said Dillip Rajakarier, group CEO of
Minor International, in an interview with Hotel Investment Today. “The
management mindset is, how much fees can I earn from the hotel? Our mindset is,
how much value can we drive for our owners and guests?”
Management push
Rajakarier said with global presence and scale, Minor Hotels
could now accelerate the management deals volume. But in a light-hearted jibe
at some global chains, he said, “We won’t put 10 hotels in one city because we
don’t want to cannibalize [the properties]. We don’t want our brands portfolio
to be such that after brand number 20 we don’t even remember their
names.”
Minor Hotels has seven brands, including three under NH
Hotel Group (NH Hotels, NHow, NH Collection), Tivoli, Oaks and its own
homegrown brands, Anantara and Avani.
As it works to increase the ratio of managed hotels, the
chain is also fine-tuning its cocktail of owned, leased and joint venture
hotels.
There’s an opportunity to do more joint investments, such as
the deal with Abu Dhabi Fund for Development, Rajakarier said. In 2021, the
fund acquired a 40% stake in five Minor Hotels assets in Thailand at an
aggregate price of $100 million (3.5 billion baht). Minor holds 60% and
continues to manage the properties.
It marked the fund’s first investment in Asia’s hospitality
and tourism industry. According to Rajakarier, the UAE partner is “very happy”
with the performance of the asset portfolio and is considering “a further
investment with us, which we will be announcing soon.”
Our target is to grow our earnings by 10% to 15% each year. And then we work backwards to see how we can achieve that through organic or inorganic expansion.
Dillip Rajakarier
The project will be in Asia, but not in Thailand and won’t
be as big as the fund’s interest in the Thailand foray, he said.
Asset rotation is another strategy for reducing its asset
ownership without losing the property. Examples include a sale and manage back
of two Tivoli hotels in Portugal to Madrid-based investment fund, Azora, in
2021. Or a sale and manage back of the Anantara Dhigu Maldives Resort into
Blackstone in 2019.
“When you speak to Blackstone today, they will say how happy
they are with us compared to the other brands they own,” Rajakarier said. “Azora
then gave us another two hotels to manage. So, our partnership starts with one
or two hotels then develops into multiple hotels. You take these small steps
with partners such as the Abu Dhabi fund, Azora, Blackstone and you create a
larger relationship.”
By 2025, owned hotels will be 22% of the portfolio, from 25%
in 2022. Room count is targeted to grow to 90,500, from 77,000.
But a rebalancing in another area is also due. From being
totally dependent on Thailand when it first started, Minor Hotels is now
vulnerable to any shocks that might occur in Europe, which contributes 70% of
revenue and is where 61% of the portfolio is. This is thanks to the NH Hotel
Group acquisition in 2018 and Tivoli Hotels & Resorts in 2015, which
increased its presence in Europe and South America vastly.
When asked about the potential risks, Rajakarier said,
“While 70% of the revenue is from Europe, the future customers for Europe will
be from Asia who will travel extensively compared to regional travel in Europe.
The market mix is changing from East to West and today we can take the Thai
customers, Chinese, Indians, etc., to Europe, thanks to the [acquisitions].”
Three-year plan
That said, its three-year plan includes reducing Europe's
presence to 56% of the portfolio by 2025, from 61% in 2022. Asia is forecast to
increase to 18% by then, from 11% in 2022.
A key Asian market is, no surprise, China, where it sealed a
joint venture with Funyard Hotels & Resorts in January 2021. Rajakarier
expects to open “at least 100 hotels in China in the next five years.”
Another is again, no surprise, India, where it has just
signed an Anantara hotel in Jaipur. The 150-property, a newbuild opening in the
fourth quarter, is the second Minor hotel in India since 2017, when it opened a
116-unit Oaks Neemrana, a business hub located southwest of New Delhi.
With brands that are new to the West such as Avani, and to
the East such as NH, opportunities to plant flags around the globe are
plentiful. Its homegrown Avani brand, for instance, will debut in Madrid,
Milan, Venice this summer, and will enter Germany and the Netherlands later in
the year. NH, meanwhile, is now in Asia, in Phuket and Dubai.
But it’s not about putting flags on the map, Rajakarier
said. “It’s all about earnings. If you ask me, how many staff will I have
in five years, I will say I don’t know. But if you ask me how Minor earnings
would grow each year, I can tell you that. Our target is to grow our earnings
by 10% to 15% each year. And then we work backwards to see how we can achieve
that through organic or inorganic expansion.”