Davidson Hotels & Resorts Value Creation Case Studies Davidson Hotels & Resorts One Ravinia Drive, Suite 1600 Atlanta, GA 30346 678.349.0909
D ELIVERING
HOSPITALITY, CREATING VALUE... EVERY CUSTOMER, EVERY TIME
BALTIMORE HILTON AND TOWERS Baltimore, Maryland • Historic hotel had fallen into disrepair and gained poor inmarket reputation • Davidson and Prudential acquired the hotel in 1997 under a renovation/reposition investment thesis • Revenues grew by 41% while profits expanded 154% during the hold period • Property sold yielding a 21.5% all cash IRR
The 439-room Baltimore Hilton & Towers originally opened as the independent Lord Baltimore hotel in 1929. The 25-Story property is Baltimore’s only historic landmark hotel and is well known for its architecture and opulent public spaces. After a series of foreclosure and ownership changes, the hotel eventually became a Radisson franchise. Despite the new brand affiliation, the property suffered from subpar service levels and had developed a poor reputation in the market area.
Davidson acquired the property in Joint Venture with Prudential for $28.5 million in January 1997 and took over management from the prior owner/manager. The hotel was converted on the date of closing to a Hilton, and Davidson subsequently managed a $3,150,000 renovation that included guest rooms, corridors, lobby/ Financial Performance registration, meeting space and a completely new concept and design for the restaurant. Financial Performance $20.0
$17.6 Financial Performance Financial $18.0Performance $16.4
$15.5 $20.0 $20.0
$16.0
$18.0 $18.0 $16.0 $16.0 $14.0 $14.0 $12.0 $12.0 $10.0
$14.0 $12.4 $12.4
$ in Millions
$8.0
$20.0
inMillions Millions $$in
$ in Millions
Davidson focused on training $18.0and service levels while simultaneously redirecting $16.0the sales efforts to $13.4 the group and catering/banquet which $14.0 segments, $12.4 led to substantial increases in$12.0 customer satisfaction and market penetration levels. $10.0
$13.4 $12.0 $13.4
$12.4 $15.5 $15.5
$13.4 $16.4 $16.4
$15.5
$16
$17.6 $17.6
$10.0 $8.0
$6.6
$10.0 $5.8 By the end of 2000 Davidson had grown Total $5.3 $5.3 $6.0 $6.0 $8.0 $8.0 $6.6 $6.6 $4.1 $5.8 $4.1 $5.8 $5.3 $5.3 Revenue by $5.1 million, a $4.0 41% increase over $6.0 $4.0 $2.6 $2.6 $4.1 $4.1 the 4-year period. House Profit increased by $4 $4.0 $2.6 $2.0 $2.0 $2.0 million, a 154% increase over $-prior management’s $$1996 1997 1998 1999 2000 1996 1997 1998 results. In May 2001, the Davidson/Prudential 1997 1998 1999 2000 1996 1997 1998 1999 2000 Year Year Joint Venture sold the Hilton to Radisson/Olympus *DHC Took Over in Jan-97 Year Year *DHC Took Over in Jan-97 *DHC Took Took Over Over in in Jan-97 Jan-97 *DHC Capital Partners for $46,600,000 generating a Total Revenue DHC House Profit TotalPrevious Co. House DHC Profit Total Previous Revenue House Profit Previous Mg Revenue Mgmt. DHC House Profit PreviousMgmt. Mgmt.DHC Co.House House Profit DHC House Profit Co. Profit 21.5% all cash Internal Rate ofDHC Return.
One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com
TAMPA AIRPORT HILTON Tampa, Florida •
Davidson replaced Doubletree Hotels Corporation as manager in 1994
•
Davidson managed $3.2MM renovation and executed repositioning strategy
•
Revenue and profit growth allowed Prudential sale in 2001 yielding 19% all cash IRR
•
Davidson continued to improve hotel performance allowing new owner to exit in 2004 with an IRR of 59%
This 12-story hotel with 238-rooms and 12,000 square feet of meeting space opened in 1982. The property was managed by Doubletree Hotel Corporation before Davidson took over management in November 1994. The property had been undercapitalized for some time and was in need of a comprehensive renovation. The Hilton’s demand penetration was significantly below the market; a direct reflection of the poor physical product, unfulfilled promises of pending renovations from prior ownership, an unmotivated sales staff and inconsistent service. In 1995 Davidson Design and Construction managed a $3,200,000 renovation that included a complete refurbishment of all guest rooms, corridors and public areas. Davidson’s operation team immediately implemented practices to affect optimum labor and expense efficiencies. The sales team was repopulated and directed on a complete reintroduction of the “New Hilton” to corporate clientele in the market area. Most notably, the sales team successfully “repositioned” out of nearly 13,000 room nights of airline crew demand, in favor of corporate transient and group demand. In 1995, despite significant renovation disruption, House Profit increased by nearly $560,000 even though revenue had $27,500,000 only increased $200,000. In the first full year after the completion of the renovation, Davidson had grown total revenue by approximately 35% and House Profit by $12,000,000 $22,500,000 approximately $1,500,000 versus Doubletree’s results; a healthy 200% increase. $10,000,000 In December 2001, the Davidson/Prudential Joint Venture sold the Hilton to RLJ Hotels for $20.5MM, yielding a 19% all cash IRR. RLJ retained Davidson to manage the hotel and oversee another comprehensive renovation. By year end 2003, Davidson had grown the NOI to $3.3M. RLJ elected to exit the investment in January 2004 at a price of $29.5MM and an IRR of nearly 59%.
$17,500,000 $8,000,000
DHC Total Revenue DHC House Profit
$12,500,000
$6,000,000
33.9% 24.1%
$4,000,000 $7,500,000
Previous Mgt. Co.
25.2%
$2,000,000
$2,500,000 2005
$0 T-12 1994
2006 1995
Total Revenue
2007 1996
2003
House Profit
One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com
DOUBLETREE PALM BEACH GARDENS Palm Beach Gardens, FL • Failed attempt at sale in 2003 at $15 million • Property in default with DoubleTree • Davidson replaced Interstate as manager • Revenue and house profit increased 46% and 450% respectively • Owner sold hotel for $31 million 29 months after previous failed attempt
The DoubleTree Palm Beach Gardens originally opened as a Holiday Inn in 1977, and converted to a Doubletree in 1999, shortly after it was purchased by the Amstar Group, Ltd. The property was managed by Interstate Hotels and Resorts before Davidson Hotel Company took over management in November 2003. When Davidson was hired, the property was in default with DoubleTree and running a 56.4% RevPAR penetration. Additionally, it had been for sale for over a year and had fallen out of contract twice during that time. The hotel was worn, dirty and had a weak sales effort that received little corporate support.
Davidson leveraged its reputation with Hilton to postpone the default; with time-certain performance and product hurdles were established. Davidson met all hurdles and the default was removed within the next three months. Immediate changes were made to the sales staff and the market segment focus was realigned. Sales employed a “full-court press” on all local corporate accounts to let them know a change had taken place and gave them a service promise. In addition, rate strategies were set for every day for the next year on every booking channel available through both the brand and Internet. The result of this was a RevPAR index of 81.8%, up 45% by the end of the first quarter of DHC operation. Through September 2004, total revenue was up $1.8 million over 2003, an increase of 46%, and house profit had increased over that same time. The success continued in 2005 as total revenue grew an additional 10.4%, while house profit increased by an astonishing 450%. In April 2006, Amstar sold the property for approximately $31 million, only 29 months after unsuccessful sale attempts at $15 million.
$9,000,000 $8,000,000 $7,000,000 $6,000,000 $5,000,000
Total Revenue
$4,000,000
House Profit
$3,000,000 $2,000,000 $1,000,000 $0
YTD Sep '03
T-12 Prior Mgmt.
2004
2005
One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com
SHERATON ANN ARBOR Ann Arbor, MI • $8 million renovation executed by Davidson, converted to Sheraton. • RevPAR penetration grew from 94% to 126%
The Sheraton Hotel – Ann Arbor, MI was purchased by Rockbridge Capital and Davidson Hotels & Resorts in July 2010. The property is located less than two miles from the campus of the University of Michigan and contains 197 rooms and over 15,000 square feet of meeting space.
• House profit expanded from 20% to 35%. • Imputed 38.6% IRR
In the year following acquisition, Davidson successfully managed an $8 million renovation which touched every aspect of the hotel and converted the former Four Points into a full-service Sheraton. Prior to Davidson management, the hotel had seen its RevPAR penetration decline from a high 107% in 2007 to an all-time low of 94% in 2010. In the first full year, post-renovation, Davidson was able to reverse the performance decline, improving its RevPAR ranking from 5 of 7 to 2 of 7 while expanding penetration to 113.5%. Through November of 2013, Davidson has pushed the property to 1 of 7 and is delivering a remarkable 126.1% RevPAR penetration. Concurrently, Davidson changed the revenue management strategy at the Sheraton, lowering group ceilings to affect a substantially more profitable re-mix of the demand base. Group capture declined by 18% but group rate increased 26% from $96 to $122. Transient capture was allowed to grow by 67% at an average rate 25% above the previous management. As a result of the aggressive revenue strategies employed by Davidson, the hotel’s House Profit has increased dramatically from 23% in 2010 (T-12 under prior management) to 35% in 2013 (Forecast). Likewise, the property’s NOI has increased from $995,000 under prior management to $2.8 million in 2013 (Forecast). Based on an 8% cap, today the property would sell for approximately $35 million (a figure supported by recent offers to purchase) and generate a 38.6% leveraged IRR for ownership.
VALUE CREATION $3,000,000
140.0%
$2,500,000 $3,000,000
120.0% 140.0%
$3,000,000
140.0%
100.0% 120.0%
$2,000,000 $2,500,000
120.0%
$2,500,000
80.0% 100.0%
$1,500,000 $2,000,000
100.0% 60.0% 80.0%
$2,000,000 $1,000,000 $1,500,000 $500,000 $1,000,000 $500,000 $0
$500,000
Renovation
60.0% 20.0%
RevPAR Index
40.0%
$1,000,000
2009
2010
$0 2009
2010
$0 2009
2010
2011
2012
2013
RevPAR Index
80.0% 40.0%
60.0%
$1,500,000
NOI
RevPAR Index Previous Owner
40.0% 0.0% 20.0%
20.0% 0.0% 2012 2013 One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 0.0% Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com 2011
2011
2012
2013
HILTON GARDEN INN SAN FRANCISCO/ OAKLAND BAY BRIDGE Emeryville, CA •
Davidson hired 1/2011 by JP Morgan Asset Management • Davidson quickly cured Hilton QA and SALT defaults at the property • JP Morgan elected to sell in 2012, by which time: o RevPAR had grown by 35%; o HP had been pushed to over $3MM (37% increase); o NOI had ballooned to $2.1MM (81.6% increase). • Sale consummated in June 2012 at a roughly 6.5% cap rate – Davidson had created over $13MM in asset value in the first 18 months of management.
JP Morgan Asset Management hired Davidson as manager in January 2011, three years after their purchase of the property, to replace RIM Corporation. At the start of Davidson’s tenure, the property’s had a T-12 RevPAR of $80.11 and House Profit of $2.35M. Additionally, the property had recently been defaulted by Hilton for QA and SALT score deficiencies. Davidson quickly addressed the physical QA issues and initiated aggressive training in all hotel departments to address the service issues which were adversely affecting the SALT scores.
Concurrently, the Davidson team began to revitalize the sales effort, reconstructing the department under a new DOS, rationalizing direct sales deployment and setting clear sales productivity goals for all team members. Further, an experienced Davidson Revenue Manager was brought on property, replacing the Hilton cluster that had previously been used. The Hilton Garden Inn has now vaulted to a RevPAR index leadership position within its competitive set. JP Morgan Asset Management elected to exit the investment in June 2012 at a point where the property’s RevPAR had grown to $108.29 (35% increase), House profit had expanded to over $3 million (37% increase) and NOI had ballooned to roughly $2.1 million (81.6% increase). The sale was completed at a 6.5% cap rate which, when applied to the NOI growth delivered by Davidson, meant that over $13 million in incremental asset value was created for Ownership in the first 18 months of management.
One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com
AUSTIN HILTON GARDEN INN Austin, Texas •
Davidson was engaged as manager by Carlyle at its purchase in 2006
•
Davidson conceived of, planned and executed a $9.8 MM repositioning to Hilton Garden Inn
•
House profit grew by a remarkable 229% in two years
•
Property sold in late 2007 yielding ownership a 117% IRR
In January 2006, Davidson took over management from Pyramid Advisors on behalf of the Carlyle Group (Carlyle) upon its acquisition of the 254-room Crowne Plaza in downtown Austin, TX. At closing of the transaction, this hotel was in poor physical condition, lacked market identity,suffered from subpar service levels and attracted only low rated ADR business. Davidson identified this property as an ideal repositioning candidate and made immediate plans to convert the hotel to a Hilton Garden Inn. The Crowne Plaza brand was removed concurrent with Carlyle’s purchase and the hotel operated as an independent property throughout renovation. The comprehensive $9.8 million redevelopment was managed by Davidson and included all guest rooms/bathrooms, corridors, lobby/registration and meeting space.
During and after the property’s renovation, Davidson focused intensely on staff training and service level improvement while simultaneously re-energizing the sales effort to attract higher rated business from local and regional demand generators. Davidson’s success is evident in the numbers. Under Pyramid management in 2005, the property achieved a House Profit of $1.4 million, ADR of $108.80 and RevPAR of $63.96. Under Davidson’s management in 2006 (while the property was under full renovation and without a brand), the property achieved a House Profit of $1.6 million, ADR of $125.65 and RevPAR of $67.07. Davidson’s continued focus on training, service delivery and sales continued to pay dividends, with House Profit exploding to $3.7 million in 2007 and finished 2008 with a House Profit of $4.6 million.
137.36
$140
$5.0 4.6
$3.5
3.7
$120 108.8
108.28
$3.0 $2.5
$100
93.11
$2.0
1.6 $80
$4.5 $4.0
125.65
$1.5
1.4
$1.0 67.07
63.96
At the end of 2007, the property was sold to JER Partners at a price which yielded Carlyle a 117% leveraged IRR. Davidson was retained as the operator by the new ownership.
139.61
$0.5 $0.0
$60 2005
2006 Rate
2007 RevPAR
2008
House Profit
One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com
HILTON SAN DIEGO GASLAMP QUARTER San Diego, CA • LaSalle Hotel Properties owns the property. • In January 2005, Davidson took over management responsibilities from Interestate Hotels and Resorts. • In 2005: • RevPAR increased by 11.3% • Expense margins dropped from 83% to 75% • During the recent economic downturn, RevPAR penetration increased to its highpoint of 122.9%.
Hilton San Diego Gaslamp District, opened in 2000, is owned by LaSalle Hotel Properties and was previously managed by Interstate Hotels and Resorts. Davidsonwas appointed as manager in January 2005.
Upon management takeover, Davidson started to drive profitability by changing the property’s mix of business, replacing it with individual business traveler demand and increasing group business in order to establish a strong base level of demand. This produced pricing power in the transient segment. In the first year of Davidson’s management, the property’s 2005 year end ADR was $193 and occupancy was 77.5% (an 11.3% increase in RevPAR). F&B expense margins in 2005 dropped from 83.2% to 75.6% under Davidson’s management. Tighter inventory controls were implemented in the Rooms Department and centralized accounting was implemented in A&G. By year end 2005, total revenue was $18.7 million, house profit was $8.8 million, a 49% increase over prior management, and house profit margin increased from 37.8% to 47%. Prior to Davidson management, the property’s trailing 12 month ADR was $173 and occupancy was 78%. Total revenue was $16.6 million and house profit was $6.3 million. For two years prior, the property’s house profit margin hovered around 41%. In addition, the F&B Department expense was higher than typical Davidson managed properties at 83.2%.
Operating Statistics
In 2009, despite the opening of the 1,200 room Bayfront Hilton less than one mile away, the property’s revenue team was able to grow occupancy by over 9%. During the recent economic downturn, the Hilton Gaslamp continued to increase RevPAR penetration to the current highpoint of 122.9%. Aggressive proactive cost containment on the part of management, meanwhile, allowed House Profit margins to be maintained near 50% despite a decline in average rates.
60.0%
125.0%
50.0%
120.0%
40.0%
115.0%
30.0%
110.0%
20.0%
105.0%
10.0%
100.0% 95.0%
0.0% 2004
2005
2006
HP Margin
2007
2008
2009
2010
RevPAR Index
One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com
SHERATON ANN ARBOR Ann Arbor, MI • $8 million renovation executed by Davidson, converted to Sheraton. • RevPAR penetration grew from 94% to 124%
The Sheraton Hotel – Ann Arbor, MI was purchased by Rockbridge Capital and Davidson Hotels & Resorts in July 2010. The property is located less than two miles from the campus of the University of Michigan and contains 197 rooms and over 15,000 square feet of meeting space.
• House profit expanded from 20% to 37%. • Imputed 38.7% IRR
In the year following acquisition, Davidson successfully managed an $8 million renovation which touched every aspect of the hotel and converted the former Four Points into a full-service Sheraton. Prior to Davidson management, the hotel had seen its RevPAR penetration decline from a high 107% in 2007 to an all-time low of 94% in 2010. In the first full year, post-renovation, Davidson was able to reverse the performance decline, improving its RevPAR ranking from 5 of 7 to 2 of 7 while expanding penetration to 113.5%. Through November of 2013, Davidson has pushed the property to 1 of 7 and is delivering a remarkable 126% RevPAR penetration. Concurrently, Davidson changed the revenue management strategy at the Sheraton, lowering group ceilings to affect a substantially more profitable re-mix of the demand base. Group capture declined by 18% but group rate increased 26% from $96 to $122. Transient capture was allowed to grow by 67% at an average rate 25% above the previous management. As a result of the aggressive revenue strategies employed by Davidson, the hotel’s House Profit has increased dramatically from 23% in 2010 (T-12 under prior management) to 37% in 2014 (Year End). Likewise, the property’s NOI has increased from $995,000 under prior management to $2.99 million in 2014 (Year End). Based on an 8% cap, today the property would sell for approximately $37.4 million and generate a 38.7% leveraged IRR for ownership.
VALUE CREATION 140.00%
$3,000,000
120.00%
$2,500,000
100.00% $2,000,000 80.00%
NOI RevPAR Index
$1,500,000 60.00%
Previous Owner Renovation
$1,000,000 40.00% $500,000
20.00%
$-
0.00% 2009
2010
2011
2012
2013
2014
One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com
COURTYARD KAUA’I AT COCONUT BEACH Kappa, HI •
Davidson reacted quickly to fill a substantial tour and travel contract void
•
After managing major renovation, effective sales and revenue management initiatives were put in place
•
RevPAR grew by nearly 160%
•
Total Revenues ballooned from $6.7MM to $16.3MM
The Aston Resort, located on the eastern coast of the island of Kauai, was acquired by JMI Realty in late 2010. Ownership engaged Davidson Hotels and Resorts to manage the property as well as to execute a multi-million dollar redevelopment of the hotel into a Courtyard by Marriott. The extensive renovation not only upgraded the fit and finish of public areas, guestrooms and F&B outlets but also transformed the existing lackluster pool experience into a true resort environment.
Upon departure, previous management had relocated the vast majority of the tour and travel contacts to other of their properties on the island. As the contract season had already closed, Davidson had to act quickly in an attempt to Courtyard Kauai replace the absent groups. Using aggressive $140.00 $18,000,000 direct sales tactics in the tour operator $16,000,000 community, Davidson was able to salvage what $120.00 could have been a disastrous tourism season. $14,000,000 By continuing to exercise highly targeted $100.00 $12,000,000 direct sales and marketing efforts, overlaid $80.00 by professional and focused on-site revenue $10,000,000 management, Davidson has moved RevPAR $60.00 $8,000,000 at the property during the period July 2010 to $6,000,000 present by a remarkable 157%, from $43.55 to $40.00 $111.77. During that same time frame, Total $20.00 $4,000,000 7/10 T-12 2011 2012 2013 2014 Revenues exploded, growing by nearly 145%, ADR RevPAR Revenue from $6.7 million to a robust $16.3 million.
One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com
HyATT ReGenCy DenveR TeCH CenTeR Denver, CO • •
Davidson hired in September 2013 by JMI Realty at acquisition to replace Hyatt In the first eleven months under Davidson management: • Revenues grew by $3.2MM (16.1%) and House Profit grew by $2.8MM (67.5%) • House Profit % grew from 20.6% under Hyatt to 29.7% • Flow Through was 86.1%.
The Hyatt Regency contains 451 guestrooms and over 26,000 square feet of outstanding meeting space. The property was purchased in September 2013 by JMI Realty and is located at the junction of I-25 and I-225 in the heart of the Denver Tech Center – a hub of business and economic trading southeast of downtown Denver. Upon acquisition by JMI, Davidson Hotels & Resorts was hired as manager to replace Hyatt Hotels.
Upon takeover, Davidson began the implementation of an aggressive and multi-faceted plan to produce immediate enhancement of top line revenues and bottom line profitability. The entire property management structure was rationalized through both reductions in force and realignment of management and supervisory positions. These strategic moves yielded immediate and substantial cost savings. Further, Davidson re-energized the sales and revenue management functions, adding an onsite Revenue Manager and redeploying the property sales team to more effectively penetrate and capture the various sources of demand present in the Tech Center market. Lastly, Davidson’s Corporate F&B support team stepped in to significantly restructure the entire operation including production, purchasing, customer service and catering sales. On a T-12 basis through August 2014, RevPAR at the Hyatt Regency has grown 11.4% and the property has advanced from 3 of 6 to 2 of 6 within its comp set. The primary driver behind this strong double-digit growth was the highly targeted and aggressive group sales effort put in place by Davidson which yielded a robust 20.5% increase in Group segment RevPAR. The results achieved by Davidson in its first eleven months were nothing short of remarkable. Room revenues grew by $1.2MM while F&B sales shot up by $1.9MM, representing a lift of 10.4% and 24.0% respectively. Davidson’s impact on the bottom line was even more pronounced, with House Profit expanding by $2.8MM – an amazing 67.5% improvement over the trailing eleven months under prior management, including absorbing substantial franchise fees. The House Profit flow through of the incremental revenues was an extremely strong 86.1%.
REVENUE BY DEPARTMENT ROOMS TOTAL F&B REVENUES TOTAL REVENUE GROSS PROFIT - OPERATING HOUSE PROFIT HP FLOW THROUGH VS. HYATT
Hyatt 11 Months 10/2012-8/2013
Davidson 11 Months 10/2013-8/2014
$11,579,239 $7,816,249 $19,908,712 $10,647,661 $4,091,910
$12,788,149 $9,695,156 $23,116,611 $13,834,920 $6,854,533
58.2% 39.3% 100.0% 53.5% 20.6%
55.3% 41.9% 100.0% 59.8% 29.7%
VARIANCE $1,208,909 $1,878,908 $3,207,899 $3,187,259 $2,762,623
10.4% 24.0% 16.1% 29.9% 67.5% 86.1%
One Ravinia Drive, Suite 1600 • Atlanta, GA 30346 Phone 678.349.0909 • Fax 678.349.0908. • davidsonhotels.com