Management Cos. Pressured To Perform

NATIONAL REPORT? Management companies are being called into action in 1999 to drive profitability and service levels up as industry conditions soften slightly. With lodging?s growth rate declining and dealmaking slowing, the industry?s focus has shifted away from M&A to operations efficiency and service perfection. The ability to provide these services effectively is acting as the differentiator among management companies, regardless of their size or stature. We see many new companies and are missing a few of the old on this year?s Top 100 Management Companies list as a result of industry consolidation. Four of the top 10 companies either merged and changed names or fell off of the list completely after becoming part of a larger hospitality company. For instance, Interstate Hotels Co., which was number one on last year?s listing, is absent from the 1999 listing. CapStar and American General Hospitality disappeared and MeriStar Hotels & Resorts has appeared in their place after the two companies merged late last year. In addition, Servico Hotels & Resorts moved up on this year?s listing as Lodgian, after merging with Impac Hotel Group. The company now holds the number three slot with $530 million in gross annual revenue in 1998, following Bristol Hotels & Resorts at number two with $692 million in gross annual revenue for the same period and MeriStar Hotels & Resorts at number one with $1.1 billion in gross annual revenue. Due to their increased size, the consolidated companies noticeably pushed many of the other players lower on the listing. Tishman Hotel Corp. fell from number three to number four, Ocean Hospitalities fell from number four to number six, Outrigger fell from number six to number eight and Richfield Hospitality Services fell from number five to number eight. However, some companies still found room to migrate upward, such as Coastal Hotel Group, which jumped from number 30 in 1998 to number 10 on this year?s listing with $285.9 million in gross annual revenue in 1998 versus $100 million for the prior year. Davidson Hotel Co. moved up one slot to number 12 this year with $228 million in gross annual revenue and Destination Hotels & Resorts moved up from number seven to number five with $473.2 million in gross annual revenue in 1998. As in prior years, the top five companies on the listing share more than 25% of the total gross revenue. MeriStar alone makes up 13.89% of the total gross revenue. The top 10 companies make up almost half, at 46.53%. This shows us that the survey remains top-heavy. The lion?s share of the business is consumed by the top 25 companies, which make up 69.61% of the total gross revenues, with all other companies sharing the remaining 30.39%. Choice Atlantica Hotels, which is ranked number 79 with $18.9 million in gross annual revenue in 1998 made the highest gains in that area. The company grew 200% over the prior year. Coastal Hotel Group, number 10 on the listing with $285.9 million in gross annual revenue was second in highest gross revenue gains with a growth rate of 167.5%. Pinnacle Hotel Management, number 97 on the listing with gross annual revenue of $5.6 million came in third at 82.2%. But with the sweeping wave of consolidation among owners behind us, new challenges have emerged for management firms. Most importantly, companies will be challenged to provide stability and operations experience to hotel owners. Many of these owners are busily integrating assets purchased over the last several years and can?t concentrate on the day-to-day responsibilities of running a hotel, sources said. ?Industry conditions have forced owners to seek stability on revenue management and cost control that a management company with experience can offer,? said John Emery, CFO of MeriStar Hospitality, sister company of MeriStar Hotels & Resorts. ?All of this activity has actually been a growth vehicle for third-party management contracts for us.? Owners are understanding the importance of service