Hotel groups Deploy bulging cash piles with varied betting books

Change Roof

The big hotel groups are sitting on a cash pile of 7 billion dollars. How they use it, whether to acquire properties, improve their offerings or buy back shares, will shape their future.

Sean O’Neill

Global hotel groups are awash in near-record amounts of cash. Seven of the best-known hotel groups were sitting on a combined $7.3 billion in cash and short-term investments as of June, according to a recent wave of financial filings.

How these hotel giants – Accor, Choice, Hilton, Hyatt, IHG (InterContinental Hotels Group), Marriott and Wyndham – spend their money will be of great interest. Stakeholders hoping for some of the money include property owners looking to sell hotel assets, workers looking for raises, executives hoping for corporate investment in their products, and shareholders hoping companies buy back stock to boost stock prices.

Take Marriott International, for example. At the end of last year, it had $1.39 billion in cash and short-term investments, partly as a hangover from building up a cash cushion during the uncertainty surrounding the pandemic. By June 30, it had reduced its cash pile to $546 million.

“Given our outlook for further global recovery and our strong business model that generates significant cash in excess of our investment needs, we expect to return more than $2.2 billion to shareholders this year,” Marriott International CFO Kathleen Oberg said during an earnings call earlier this month.

Large hotel companies follow varied playbooks. Most signaled plans to draw down their cash hoards in one way or another. Rising interest rates erode the value of cash, discouraging companies from holding onto it.

Hyatt and Wyndham go shopping

Hyatt had $1.955 billion in cash, cash equivalents and short-term investments as of June 30. It plans to pay off some or all of the short-term debt it issued at the end of 2021, while also buying back some shares.

Hyatt wants to use some of its money to buy hotels. Earlier this month, it bought the Hotel Irvine in California, a 541-room independent hotel, for $135 million.

The acquisition of Hotel Irvine helped Hyatt secure its brand presence in a popular destination where it has been underrepresented. Hyatt made an all-cash offer, which private equity rivals couldn’t easily match given current market volatility, Mark Hoplamazian, president and CEO, said on an earnings call.

Wyndham Hotels and Resorts had $400 million in cash and cash equivalents at the end of the second quarter.

“Our first priority, as always, is investing in the business,” said Michele Allen, chief financial officer. “We are actively exploring both external and organic growth opportunities.”

Wyndham also delivered about $240 million in buybacks and dividends, representing about 3 percent of its market capitalization, in the first half of the year.

Purchase versus repurchase

Hilton had $1.175 billion in cash and liquid investments as of June 30. It planned to give shareholders between $1.5 billion and $1.9 billion via buybacks and dividends.

Investors like when companies buy back shares because it reduces shares outstanding, usually increases earnings generated per share and often increases the share price. Stock buybacks are popular in many corporate offices because hotel executive compensation is typically designed to encourage it by rewarding top executives whose stock performance targets such as earnings per share rise.

Some analysts worry that CEOs may buy back too much stock when they are motivated to boost earnings per share as a way to boost compensation. Still others point out that the incentives could dissuade CEOs from making ill-conceived mergers and acquisitions simply because they have money to spend.

A new wrinkle in the US is just passed legislation that will charge companies a 1 percent fee on the fair value of the stock they buy back. It is unclear what effect it will have on buyback practices.

Tough decisions

At the end of June, Accor had about $1.294 billion (€1.298 billion) in cash and short-term equivalents. In the second quarter, it used nearly $200 million (€200 million) in cash to pay for corporate restructuring and to invest in Reef, a ghost kitchen company.

Choice Hotels had $607 million in cash and short-term equivalents as of June 30. In the first half of the year, it returned around $42 million to shareholders in cash dividends and share buybacks. The company plans future buybacks of shares. It also expects to pay $53 million in dividends this year, more than double last year’s level.

IHG had $1.36 billion in cash and liquid assets. It announced this month a plan to buy back half a billion dollars of its stock by the end of the year.

Jin Jiang is a Shanghai-based conglomerate that is one of the world’s largest operators and managers of hotels in China and elsewhere, although it also has other businesses, such as restaurants and cruise lines. The company has not reported earnings in a comparable period to the other global giants mentioned here. But it had $811 million in cash and short-term equivalents at the end of March.

Leave a Reply

Your email address will not be published.