For global CEOs, a choice between ‘asset light’ and ‘asset right’

SYDNEY — When discussing Bangkok-based Minor Hotels' portfolio, CEO Dillip Rajakarier doesn’t mind going against the current “asset light” trend for global brands.

“If you look at our portfolio, we have about 560 hotels and almost two-thirds [we] actually own or lease. So, we’re quite, what they call, ‘asset heavy’ from our perspective,” Rajakarier said. “But our strategy has been not about asset light or asset heavy. Our strategy has always been asset right… That is the key.”

Rajakarier said the return on investment or investment capital is important for Minor because, as a publicly listed company, it has to drive shareholder value. “It’s really important where you deploy capital. So, I think that’s where we’re quite careful,” he said. “From our perspective, we care about the hotel owners actually making a return on investment, and how do we maximize that... We look at where we deploy capital and where we can get the highest investor rate of capital.”

Rajakarier participated in a “Views from the Boardroom” panel at the HICAP Australia New Zealand conference in Sydney last week. Other panelists included Trent Fraser, CEO of Choice Hotels Asia-Pac and Christopher Hartley, CEO of Dubai-based Global Hotel Alliance. Ron de Wit, managing director of Horwath HTL in Australia, moderated the panel.

We are asset light, but not asset purists. So we will look to leverage balance sheet strength into investments as they fit us strategically.

Trent Fraser

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Fraser said the pendulum for Choice Hotels Asia-Pac is currently swinging on the investment side with the company’s current portfolio about 90% conversion-focused and 90% organic development-focused. But, he said, that is changing.

“We’re making a shift there to move towards more of a strategic investment led organization,” Fraser said. “We’ll still focus on the organic opportunities, but we’re looking to leverage the balance sheet strength we’ve developed over many years.

“We are asset light, but not asset purists,” Fraser continued. “So, we will look to leverage balance sheet strength into investments as they fit us strategically.”

Fraser mentioned Choice’s acquisition of Radisson North America as an example that fit well into the company’s portfolio. On a smaller scale and more focused on the region, he mentioned Choice’s acquisition of the City Edge Apartment Hotels franchise in Melbourne, Australia. He also mentioned Choice helping their owners grow.

“We have many conversations that are very active now, both here and offshore, about looking to deploy capital and invest where it makes sense…. We’ve also deployed small amounts of capital with our current franchisees to help them grow… We have a large number of multi-unit owners (he mentioned earlier that 20% of Choice Hotels Asia-Pac franchisees are multi-unit owners). So, where it makes sense and where we can enable them, we help them tap finance that will be there to support them again on a case-by-case basis. That’s worked pretty well under the current environment.”

The development answer is different for Hartley, who is CEO of Global Hotel Alliance, a soft brand collection of luxury and upscale hotels that participate in a multi-brand loyalty program.

When we do the analysis across our hotels, the money going to a third party is hundreds of millions of dollars a year. But if you own that asset, it goes straight to your bottom line.

Christopher Hartley

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Hartley added that he’s a big believer in the market he was speaking in, Australia. He mentioned that pre-COVID, China was GHA’s number one international market in terms of outbound travelers, and now Australia is ahead of China. He said customers want a choice of where to stay when they travel.

“That’s the advantage of being part of an international network… That’s the value [brands] bring,” Hartley said.

But Hartley added that the high cost of acquisitions right now is hurting everyone. “You’re looking at hundreds of millions of dollars,” he said. “When we do the analysis across our hotels, the money going to a third party is hundreds of millions of dollars a year. But if you own that asset, it goes straight to your bottom line if you can shift that to a direct channel, and that’s what the international operators provide.”

Hartley said the opportunity in Australia is that customers are happier if they’re part of a network because they have a choice when traveling internationally. “If you want to attract people into the market, then the big brands help you reach a greater international audience and enable them to identify your hotels and hear about your hotels through an international distribution network,” he said. “We’re big believers in this market, and we think the alliance gives independent operators the opportunity to remain independent but be part of a global network.

“At the end of the day, it’s about margin,” Hartley said. “We talk about human resources costs, but it’s also about third-party costs, and those have to come down, and the only way to do that is to be part of a big organization that helps you drive moderate products.”