We recently posted an analysis of the major US hotel brands’ liquidity, urging them to pause collection of franchise fees entirely. This post compares public statements by each of the major brands, rated by flexibility.
Marriott
Flexible
Marriott stated in an SEC filing that it reduced the cost of certain systemwide service charges by 50% for April and May, and reduced reimbursable expenses for certain systemwide services on behalf of owners and franchisees by approximately two-thirds.[1]
CEO Arne Sorenson said “These are the times in which we proved that actually even fixed costs are variable, that we will do things we’ve not anticipated before in order to make sure that we are not burdening our owners and not burdening Marriott until such time as the business comes back.” (emphasis added) [2]
Contracts don’t require flexibility
CFO Leeny Oberg said, “Our contracts are clear that we have the right to be reimbursed for our costs, including the ability to request additional working capital from our managed hotel owners to ensure we are paid. Needless to say, we are doing all that we can to reduce the costs we need to charge the hotels in these times.” (emphasis added) [3]
Writing on the wall
“Even if hotel owners or franchisees do not declare bankruptcy, they may be unable or unwilling to pay us amounts that we are entitled to on a timely basis or at all, which would adversely affect our revenues and liquidity.” [4]
“Even in situations where we are not obligated to provide funding to hotel owners, franchisees or joint ventures, we may find it necessary in the interest of our business to provide financial or other types of support to certain of these parties, which could materially increase our expenses.” [5]
Hilton
Writing on the wall
“Financing difficulties and significant declines in revenues for most hotels make it more likely that third-party owners of our hotels could declare bankruptcy or face other difficulties with their lenders. Bankruptcies, sales or foreclosures involving our hotels could, in some cases, result in the termination of our management or franchise contracts and eliminate our anticipated income and cash flows, which would negatively affect our results of operations. Hotel owners with financial difficulties may be unable or unwilling to pay us amounts that we are entitled to on a timely basis or at all.”[6]
Hyatt
Writing on the wall
In an SEC filing on April 23rd, Hyatt listed the following factors in the context of COVID-19: [7]
“the financial condition of, and our relationships with, third-party property owners, franchisees and hospitality venture partners;
“the possible inability of third-party owners, franchisees or development partners to access capital necessary to fund current operations or implement our plans for growth;”
“unforeseen terminations of our management or franchise agreements”
In the same filing, Hyatt stated,
“Moreover, our third-party owners and franchisees could fail to reimburse us for any payments we may be required to make to third-party lenders to whom we made financial guarantees for the timely repayment of all or a portion of the third-party owners’ or franchisees’ debt related to hotels that we manage or franchise. We may find it necessary or in the interest of our business to provide financial or other types of support to certain of these parties, which could materially increase our expenses and cash flows.” [8]
Wyndham
No recent filings or public comments on the topic.
IHG
Flexible on renovations and brand standards
“In addition, to support our owners and manage their cash flows, we have launched a comprehensive package of measures including delaying renovations and relaxing brand standards.”[9]
Choice
Flexible
On April 8th, Choice announced the following measures to assist franchisees:[10]
Implemented fee-deferral programs for domestic and international franchisees.
On March 19th, the company announced the following relief measures for owners:[11]
Waiving one half (1/2) of Monthly Fees.
Waiving one-half (1/2) of Property Revenue Management Fees.
Reducing Best Western Rewards® (BWR®) loyalty point fees charged to members by one-half without lowering points awarded to loyalty program participants.
Increasing by 50% hotel redemption compensation for BWR loyalty guest stays.
/wp-content/uploads/fairfranchise.png00admin/wp-content/uploads/fairfranchise.pngadmin2020-06-08 08:00:322020-06-08 09:47:07Which hotel brands are flexible with franchise fees these days?
During these challenging times, hotel owners and franchisees are within their rights to approach brand companies and ask for a break on fees. In an analyst call in March, Marriott CEO Arne Sorenson and CFO Leeny Oberg both acknowledged the difficulty that their franchisees and owners are going through, stated they were going to marketing fees, and that the company is “doing all that [it] can to reduce the costs [it] need[s] to charge the hotels in these times.”[1] But owners will need to be proactive about requesting relief.
Marriott leadership: we can be flexible, but we don’t have to
The company posted the transcript of its March analyst call here.
Sorenson said to analysts, “We’re announcing internally here today as well, we are dramatically reducing the cost pools that depend on reimbursement from the owners so that they are rightsized. And I think in year’s past we’ve had conversations internally and with many of you about what percentage of those are fixed and what percentage of those are variable. These are the times in which we proved that actually even fixed costs are variable, that we will do things we’ve not anticipated before in order to make sure that we are not burdening our owners and not burdening Marriott until such time as the business comes back.” [2] (emphasis added)
However, Marriott may not be forgiving across the board.
Oberg said, “Our contracts are clear that we have the right to be reimbursed for our costs, including the ability to request additional working capital from our managed hotel owners to ensure we are paid. Needless to say, we are doing all that we can to reduce the costs we need to charge the hotels in these times.” [3] (emphasis added)
What Marriott has done about fees so far
Marriott expects to cut expenses for certain systemwide programs by two-thirds, but it announced that it cut the charges to franchisees and owners for “certain systemwide programs and services” by 50% in April and May.
In an April 15th SEC filing, the company stated it “has taken additional steps, including reducing by 50 percent the cost of and offering delayed payment for certain systemwide programs and services charges for April and May, and supporting owners and franchisees who are working with their lenders to utilize furniture, fixtures, and equipment (FF&E) reserves to meet working capital needs.”
Marriott stated later in the same filing, “The Company also remains focused on significantly lowering the reimbursable expenses it incurs on behalf of its owners and franchisees to provide centralized programs and services such as loyalty, reservations, marketing and sales, which are generally charged on the basis of hotel revenue or program usage. Given the significant decline in hotel-level revenues and occupancy currently anticipated, the Company has implemented plans that it estimates could reduce these centralized, system-funded reimbursable expenses by approximately two-thirds compared to the monthly costs initially budgeted for 2020.”[4] (all emphasis added)
What can you do?
Take a close look at your franchise or management agreement to see what kind of relief might be available.
Document all your lost business, when local events canceled or attractions closed, when any state or local shelter-in-place requirements took effect, etc.
Take note of any fee breaks Marriott has already given you and compare those with the above quotes from the company’s SEC filings to see if you’ve gotten the relief they announced.
Call your contact person at Marriott and ask for a break on fees, and tell them you’re more likely to stay open later if they can work with you now.
/wp-content/uploads/fairfranchise.png00admin/wp-content/uploads/fairfranchise.pngadmin2020-06-01 08:00:102020-05-29 16:22:54Did Marriott give you a break on franchise and management fees?
The major hotel brands had over $11 billion in combined liquidity in March and April, much of that having come from new fundraising since the outbreak of the coronavirus. They could afford to put a moratorium on collecting franchise fees.
Hilton stated on April 16th that it expects their liquidity to last them 18-24 months, and it has no material debt due before June 2024.[1]
Marriott stated on April 15th that “As a result of the operating and financial strategies the Company has implemented, the Company strongly believes that it has sufficient liquidity and will continue to be able to successfully adapt as the [COVID-19] situation evolves.”[2]
/wp-content/uploads/fairfranchise.png00admin/wp-content/uploads/fairfranchise.pngadmin2020-05-26 10:03:362020-05-26 10:03:36Hotel brands can do without franchise fees for now
Before buying into a Marriott franchise agreement, hoteliers should learn the potential downsides that may come into play if they want to sell in the future. Our latest guide for Marriott franchisees explores the ways in which their franchise agreements could impact both the value and the pool of buyers for their properties. You can get all of our guides for free on www.fairfranchise.org.
There are several factors franchisees should be aware of that could impact a sale, including:
How potential buyers may perceive Marriott’s controls over hotel operations;
The many costs that may be involved in transferring control of a Marriott-franchised hotel;
Whether Marriott has retained the power to withhold consent for a sale or use a right of first refusal to block certain buyers;
Franchisees’ relative lack of control over the fate of their brands.
We just released our latest guide for Marriott franchisees about what to watch out for when negotiating your franchise agreement. You can find it for free here.
Marriott has included liquidated damages clauses in at least one of its franchise disclosure documents (“FDD”) requiring a franchisee to pay liquidated damages even if the franchisor is the one to initiate termination. A similar clause may appear in your franchise agreement.
The latest guide offers some ideas about how to make these clauses more fair.
/wp-content/uploads/fairfranchise.png00admin/wp-content/uploads/fairfranchise.pngadmin2018-10-05 14:11:222018-10-05 14:13:02Who pays if Marriott terminates?
Which hotel brands are flexible with franchise fees these days?
We recently posted an analysis of the major US hotel brands’ liquidity, urging them to pause collection of franchise fees entirely. This post compares public statements by each of the major brands, rated by flexibility.
Marriott
Flexible
Marriott stated in an SEC filing that it reduced the cost of certain systemwide service charges by 50% for April and May, and reduced reimbursable expenses for certain systemwide services on behalf of owners and franchisees by approximately two-thirds.[1]
CEO Arne Sorenson said “These are the times in which we proved that actually even fixed costs are variable, that we will do things we’ve not anticipated before in order to make sure that we are not burdening our owners and not burdening Marriott until such time as the business comes back.” (emphasis added) [2]
Contracts don’t require flexibility
CFO Leeny Oberg said, “Our contracts are clear that we have the right to be reimbursed for our costs, including the ability to request additional working capital from our managed hotel owners to ensure we are paid. Needless to say, we are doing all that we can to reduce the costs we need to charge the hotels in these times.” (emphasis added) [3]
Writing on the wall
“Even if hotel owners or franchisees do not declare bankruptcy, they may be unable or unwilling to pay us amounts that we are entitled to on a timely basis or at all, which would adversely affect our revenues and liquidity.” [4]
“Even in situations where we are not obligated to provide funding to hotel owners, franchisees or joint ventures, we may find it necessary in the interest of our business to provide financial or other types of support to certain of these parties, which could materially increase our expenses.” [5]
Hilton
Writing on the wall
“Financing difficulties and significant declines in revenues for most hotels make it more likely that third-party owners of our hotels could declare bankruptcy or face other difficulties with their lenders. Bankruptcies, sales or foreclosures involving our hotels could, in some cases, result in the termination of our management or franchise contracts and eliminate our anticipated income and cash flows, which would negatively affect our results of operations. Hotel owners with financial difficulties may be unable or unwilling to pay us amounts that we are entitled to on a timely basis or at all.”[6]
Hyatt
Writing on the wall
In an SEC filing on April 23rd, Hyatt listed the following factors in the context of COVID-19: [7]
In the same filing, Hyatt stated,
“Moreover, our third-party owners and franchisees could fail to reimburse us for any payments we may be required to make to third-party lenders to whom we made financial guarantees for the timely repayment of all or a portion of the third-party owners’ or franchisees’ debt related to hotels that we manage or franchise. We may find it necessary or in the interest of our business to provide financial or other types of support to certain of these parties, which could materially increase our expenses and cash flows.” [8]
Wyndham
No recent filings or public comments on the topic.
IHG
Flexible on renovations and brand standards
“In addition, to support our owners and manage their cash flows, we have launched a comprehensive package of measures including delaying renovations and relaxing brand standards.”[9]
Choice
Flexible
On April 8th, Choice announced the following measures to assist franchisees:[10]
Best Western
Flexible
On March 19th, the company announced the following relief measures for owners:[11]
Notes
[1] Marriott Prospectus Supplement, 4/15/20, page S-3. https://www.sec.gov/Archives/edgar/data/1048286/000119312520108217/d915944d424b5.htm
[2] Marriott International, Inc. Business Update Conference Call Transcript, March 19, 2020, Pages 6, 7, and 10. https://marriott.gcs-web.com/static-files/791fabc1-9897-4fff-a426-69027af1edcc
[3] Marriott International, Inc. Business Update Conference Call Transcript, March 19, 2020, Pages 6, 7, and 10. https://marriott.gcs-web.com/static-files/791fabc1-9897-4fff-a426-69027af1edcc
[4] Marriott Prospectus Supplement, 4/15/20, page S-7. https://www.sec.gov/Archives/edgar/data/1048286/000119312520108217/d915944d424b5.htm
[5] Marriott Prospectus Supplement, 4/15/20, page S-8. https://www.sec.gov/Archives/edgar/data/1048286/000119312520108217/d915944d424b5.htm
[6] Hilton Worldwide Form 8-K, 4/16/20. https://www.sec.gov/ix?doc=/Archives/edgar/data/1585689/000158568920000088/hlt-20200416.htm
[7] Hyatt Prospectus Supplement, 4/23/20, page S-v. https://www.sec.gov/Archives/edgar/data/1468174/000119312520115517/d908755d424b2.htm
[8] Hyatt Prospectus Supplement, 4/23/20, page S-12. https://www.sec.gov/Archives/edgar/data/1468174/000119312520115517/d908755d424b2.htm
[9] IHG Form 6-K, 3/20/20. https://www.sec.gov/Archives/edgar/data/858446/000165495420002896/a9029g.htm
[10] Choice Hotels Press Release, “CHOICE HOTELS INTERNATIONAL PROVIDES COVID-19 BUSINESS UPDATE,” 4/8/20. http://app.quotemedia.com/data/downloadFiling?webmasterId=101533&ref=114933096&type=PDF&symbol=CHH&companyName=Choice+Hotels+International+Inc.&formType=8-K&dateFiled=2020-04-09&CK=1046311
[11] Best Western Hotels Press Release, “BEST WESTERN® HOTELS & RESORTS PROVIDES MUCH NEEDED RELIEF TO HOTELIERS,” 3/19/20. https://www.bestwestern.com/en_US/about/press-media/2020-press-releases/relief-for-hoteliers.html
Did Marriott give you a break on franchise and management fees?
During these challenging times, hotel owners and franchisees are within their rights to approach brand companies and ask for a break on fees. In an analyst call in March, Marriott CEO Arne Sorenson and CFO Leeny Oberg both acknowledged the difficulty that their franchisees and owners are going through, stated they were going to marketing fees, and that the company is “doing all that [it] can to reduce the costs [it] need[s] to charge the hotels in these times.”[1] But owners will need to be proactive about requesting relief.
Marriott leadership: we can be flexible, but we don’t have to
The company posted the transcript of its March analyst call here.
Sorenson said to analysts, “We’re announcing internally here today as well, we are dramatically reducing the cost pools that depend on reimbursement from the owners so that they are rightsized. And I think in year’s past we’ve had conversations internally and with many of you about what percentage of those are fixed and what percentage of those are variable. These are the times in which we proved that actually even fixed costs are variable, that we will do things we’ve not anticipated before in order to make sure that we are not burdening our owners and not burdening Marriott until such time as the business comes back.” [2] (emphasis added)
However, Marriott may not be forgiving across the board.
Oberg said, “Our contracts are clear that we have the right to be reimbursed for our costs, including the ability to request additional working capital from our managed hotel owners to ensure we are paid. Needless to say, we are doing all that we can to reduce the costs we need to charge the hotels in these times.” [3] (emphasis added)
What Marriott has done about fees so far
Marriott expects to cut expenses for certain systemwide programs by two-thirds, but it announced that it cut the charges to franchisees and owners for “certain systemwide programs and services” by 50% in April and May.
In an April 15th SEC filing, the company stated it “has taken additional steps, including reducing by 50 percent the cost of and offering delayed payment for certain systemwide programs and services charges for April and May, and supporting owners and franchisees who are working with their lenders to utilize furniture, fixtures, and equipment (FF&E) reserves to meet working capital needs.”
Marriott stated later in the same filing, “The Company also remains focused on significantly lowering the reimbursable expenses it incurs on behalf of its owners and franchisees to provide centralized programs and services such as loyalty, reservations, marketing and sales, which are generally charged on the basis of hotel revenue or program usage. Given the significant decline in hotel-level revenues and occupancy currently anticipated, the Company has implemented plans that it estimates could reduce these centralized, system-funded reimbursable expenses by approximately two-thirds compared to the monthly costs initially budgeted for 2020.”[4] (all emphasis added)
What can you do?
Notes
[1] Marriott International, Inc. Business Update Conference Call Transcript, March 19, 2020, Pages 6, 7, and 10. https://marriott.gcs-web.com/static-files/791fabc1-9897-4fff-a426-69027af1edcc
[2] Marriott International, Inc. Business Update Conference Call Transcript, March 19, 2020, Page 7. https://marriott.gcs-web.com/static-files/791fabc1-9897-4fff-a426-69027af1edcc
[3] Marriott International, Inc. Business Update Conference Call Transcript, March 19, 2020, Page 6. https://marriott.gcs-web.com/static-files/791fabc1-9897-4fff-a426-69027af1edcc
[4] Marriott Prospectus Supplement, page S-3, 4/15/20. https://www.sec.gov/Archives/edgar/data/1048286/000119312520108217/d915944d424b5.htm
Hotel brands can do without franchise fees for now
The major hotel brands had over $11 billion in combined liquidity in March and April, much of that having come from new fundraising since the outbreak of the coronavirus. They could afford to put a moratorium on collecting franchise fees.
Hilton stated on April 16th that it expects their liquidity to last them 18-24 months, and it has no material debt due before June 2024.[1]
Marriott stated on April 15th that “As a result of the operating and financial strategies the Company has implemented, the Company strongly believes that it has sufficient liquidity and will continue to be able to successfully adapt as the [COVID-19] situation evolves.”[2]
Liquidity by brand
Notes
[1] Hilton Worldwide Form 8-K, 4/16/20.
[2] Marriott Prospectus Supplement, Page S-4, 4/15/20. https://www.sec.gov/Archives/edgar/data/1048286/000119312520108217/d915944d424b5.htm
[3] Marriott Form 8-K, 4/2/20. https://www.sec.gov/ix?doc=/Archives/edgar/data/1048286/000162828020004549/mar-2020drawdown8xk.htm
[4] Hilton Form 8-K, 3/5/20. https://www.sec.gov/ix?doc=/Archives/edgar/data/1585689/000158568920000060/hlt-20200305.htm
[5] $1.2 billion on 3/31/20 plus $890 million in proceeds from bonds on 4/21/20. Hyatt Prospectus Supplement, Page S-4, 4/23/20. https://www.sec.gov/Archives/edgar/data/1468174/000119312520115517/d908755d424b2.htm
And Hyatt Form 8-K, 4/21/20. https://www.sec.gov/ix?doc=/Archives/edgar/data/1468174/000119312520117696/d920340d8k.htm.
[6] Form 8-K released 3/17/20, Wyndham Hotels. https://www.sec.gov/Archives/edgar/data/1722684/000110465920034779/tm2012583-3_8k.htm
[7] IHG Form 6-K, 4/27/20. https://www.sec.gov/Archives/edgar/data/858446/000165495420004437/a9283k.htm
[8] $489m cash and borrowing capacity on 4/8/20, plus $250m additional borrowing capacity on 4/16/20. Choice Hotels Business Update, 4/8/20. https://www.sec.gov/Archives/edgar/data/1046311/000119312520101634/d916724dex991.htm and Choice Hotels Form 8-K, 4/16/20. https://www.sec.gov/ix?doc=/Archives/edgar/data/1046311/000119312520112318/d919274d8k.htm
Could a Marriott franchise agreement hurt your hotel’s value?
Before buying into a Marriott franchise agreement, hoteliers should learn the potential downsides that may come into play if they want to sell in the future. Our latest guide for Marriott franchisees explores the ways in which their franchise agreements could impact both the value and the pool of buyers for their properties. You can get all of our guides for free on www.fairfranchise.org.
There are several factors franchisees should be aware of that could impact a sale, including:
Check out our report here.
Who pays if Marriott terminates?
Check our our latest guide.
We just released our latest guide for Marriott franchisees about what to watch out for when negotiating your franchise agreement. You can find it for free here.
Marriott has included liquidated damages clauses in at least one of its franchise disclosure documents (“FDD”) requiring a franchisee to pay liquidated damages even if the franchisor is the one to initiate termination. A similar clause may appear in your franchise agreement.
The latest guide offers some ideas about how to make these clauses more fair.