Omni Hotels Corp.

views updated

Omni Hotels Corp.

500 Lafayette Road
Hampton, New Hampshire 03842
U.S.A.
(603) 926-8911
Fax: (603) 926-6613

Wholly Owned Subsidiary: Wharf Holdings Limited, Hong
Kong
Incorporated: 1958 as Dunfey Hotels Corporation
Employees: 8,000
Sales: $500 million
SICs: 7011 Hotels & Motels

Omni Hotels Corp. operates a group of unique, upscale, full-service hotels located mostly in urban centers. The company is a subsidiary of Hong Kong-based Wharf Holdings Limited. In 1994, Omni operated about 47 hotels with over 15,000 rooms in the United States, Mexico, and Asia. Backed by its well-heeled parent, Omni began expanding rapidly in the early 1990s.

Omni Hotels’s history traces back to the five Dunfey brothers’ clam stand. In 1945, the five Dunfey brothers started a clam stand in Hampton Beach, New Hamspshire. The success of their clam stand enabled the brothers to purchase and open other businesses. Most notable among the Dunfeys’ purchases was Lamie’s Tavern, a combination restaurant and motor inn located not far from their clam stand. The Dunfeys primarily wanted the restaurant, but the owner insisted that the adjoining 32-room hotel be part of the deal. The brothers adopted a theme of “Good old New England hospitality” for their hotel and touted the restaurant as a “cracker barrel lounge.”

The success of the Lamie Motor Inn convinced the Dunfeys that they could make more money as innkeepers than they could running restaurants. They purchased their first real hotel (332 rooms) in 1958 and founded the Dunfey Hotels Corporation. During the late 1950s and early 1960s the brothers, under the guidance of company president Jack Dunfey, bought several other properties throughout New England. The Dunfeys became some of the first pioneers of hotel franchising in 1964 when they obtained several existing hotels and motor inns that bore the Sheraton name. With their Sheraton inns acquisition, the Dunfey Hotels Corporation became the largest hotel franchise holder in the world with a total of 14 inns.

By the mid 1960s, the Dunfeys had hotels and operating offices scattered throughout Massachusetts, Maine, and New Hampshire. The properties were successful partly as a result of the Dunfeys’ marketing and management strategies. For example, they retained their original New England hospitality slogan and integrated the cracker barrel lounge into many of their hotels. They consolidated their acquisitions’s management into the Dunfey Hotels Corporation’s New England headquarters to maintain control over their growing operation. The Dunfeys also devised a strategy of targeting struggling hotels in need of renovation that they could buy inexpensively. In 1968, for instance, they bought the financially ailing Parker House in Boston, renovated the facility, and returned it to profitability.

Success with the Parker House served as an incentive for the Dunfeys. Although they wanted to continue expanding, they lacked capital. So, in 1971 they sold all 18 of their hotel and motor inn properties to Aetna Life Insurance Company. Aetna became the owner but retained the Dunfeys to operate them. The Dunfeys were successful at managing the hotel chain and earned the company a reputation for innovation. In 1968, for instance, they started a “Wayfarers Club” that gave perks like free travel insurance, coffee, and newspapers to their most frequent patrons. That successful program became a model for the frequent traveler programs that became commonplace by the 1980s. The Dunfeys also initiated the “Colleen Club,” or secretaries club, which provided benefits to both the traveler and the person that made the reservations.

In 1976, Aer Lingus, an Irish airline company, purchased Dunfey Hotels from Aetna. Under Aer Lingus, Dunfey Hotels stepped up its efforts to penetrate the upscale hotel market through the company’s Classic Hotel Division, which included only one property in 1976. The Classic Hotel Division was the foundation upon which the Omni Hotels would be built. In 1977, the company added a second holding to its Classic Hotel Division, the Ambassador East Hotel in Chicago. Still under the management of the Dunfey brothers, that property was renovated and its profitability improved. In 1978, Dunfey Hotels purchased the renowned Berkshire Place Hotel in New York. Following a major renovation in 1979 that jewel became the centerpiece of all Dunfey properties. The Berkshire Place would later undergo another complete renovation in the mid-1990s and was expected to reopen in the fall of 1995 as the top four star hotel in New York. Also in 1979, Dunfey Hotels bought the Shoreham Hotel in Washington, D.C.

By 1980, Dunfey Hotels Corporation owned or managed about 9,000 rooms in hotels mostly on the East Coast. Throughout the 1980s the corporation sought to expand its Classic Hotel Division. In 1981, it acquired New Orleans’s Royal Orleans Hotel and the Biltmore Plaza Hotel in Providence, Rhode Island. Those purchases brought the number of properties in the Classic Hotel Division to five. Importantly, in 1983 Dunfey Hotels acquired Omni International Hotels, a company that operated three hotels in Atlanta, Norfolk, and Miami. Dunfey Hotels also added the once esteemed Netherland Plaza Hotel in Cincinnati, which it soon restored to its original art deco grandeur.

After the 1983 Omni acquisition Aer Lingus decided to adopt a new business strategy. It chose to develop a hotel chain called Omni Hotels. The new group of hotels would consist of more upscale properties and would be built from the existing Classic Hotel Division holdings. To that end, the company was reorganized into two separate operating divisions: Dunfey Hotels and Omni International Hotels. Omni consisted of nine hotels. Dun-fey Hotels was a conglomeration of 14 hotels and motor inns that were operated under independent or franchise names, or under the Dunfey name.

During the 1980s, Aer Lingus gradually liquidated its Dunfey holdings jettisoning its last property in 1992. The Dunfeys sold all of their interests in the company that they had founded. They formed a new company, the Dunfey Brothers Capital Group, a venture capital company oriented toward socially responsible companies. Aer Lingus used cash from the sale of its Dunfey properties to fund the expansion and improvement of Omni. It opened the Baltimore Omni International Hotel in 1984 and the Omni Sagamore Resort in 1985. It also added two properties in Detroit, Michigan, and Charlottesville, Virginia.

To speed up expansion, Omni’s management elected to begin franchising the Omni brand to selected hoteliers in 1986. Subsequently, in that same year, the Omni International Hotel in Orlando, Florida, and the Omni Charleston Place in South Carolina were opened. Omni Hotels’ strategy during the early and mid-1980s was to buy, create, and manage unique, upscale hotels, mostly in downtown areas. Rather than creating a chain of identical inns, as did many of its industry peers, Omni focused on creating a group of independent, unique properties that would still add value to the Omni name. The effort worked; by the mid-1980s, Omni was recognized as a leading operator of upscale hotels.

Omni thrived during the 1980s, but so did many other hoteliers. The 1980s was an era of explosive growth for the hotel industry. As demand by travelers surged, the hotel industry embarked on an aggressive building spree. The expansion was possible largely because of favorable tax laws and an influx of investment capital into the real estate development sector. By the end of the decade, more than three million hotel rooms existed in the United States, most of which had been constructed since 1980.

The difference in Omni’s expansion during the 1980s and that of many other upscale hotel chains was that Omni’s growth was slower. Although it had built its chain to 36 by 1987, it had simultaneously divested other of its holdings through the Dunfey Hotels Division. Furthermore, Omni had been very selective about the properties that it added to its portfolio, buying hotels that it felt were undervalued and keeping its total debt low in relation to many of its highly leveraged competitors. Because of its comparatively cautious stratagem, Omni would be positioned to take advantage of the nasty hotel industry shakeout that would lambaste its rivals in the 1990s.

Ownership of Omni Hotels changed hands again in 1987. World International Holdings Limited and its associate Wharf Holdings Limited of Hong Kong bought the company from Aer Lingus for $135 million. World International was a massive diversified conglomerate, with annual revenues of over $5.6 billion, which represented ten percent of the entire Hong Kong stock market. World International was known as a very conservative, savvy organization with a reputation for buying undervalued companies that it could finance and turn into long-term performers. Omni’s new parent company already owned a small chain of upscale hotels in Hong Kong and Singapore called Marco Polo International Hotels. It changed those properties to Omni Hotels. Also in 1987, Omni added its first hotel in Mexico, the Omni Cancun Hotel.

Omni continued to expand during the late 1980s, but escalating property prices slowed its progress. In addition, Omni dealt with two failed properties in the late 1980s. In 1988, a project involving the restoration of a historic mission in Riverside, California, failed when the developer went bankrupt. A year later another California property, which was franchised by Omni, failed as a result of bad dealings by the owner that were outside of Omni’s control. Despite modest setbacks, Omni added nine new holdings to its portfolio between 1987 and 1991, boosting its total number of properties to 45.

By 1991, the hotel industry was in the depths of a downturn that had started in the late 1980s. Changed tax laws, a dearth of new investment capital, and an overbuilt market combined to force the hotel industry into a depression of historic proportions. As demand decreased, the average pretax profit gleaned from a U.S. hotel room dropped from a profit of over $ 1,500 per year in the late 1980s to a loss of $719 by 1991 As industry revenues plunged, the average market value of a hotel room plummeted from $23,600 in 1988 to a $18,400 by 1992, representing a devaluation of industry assets of more than 20 percent in just four years. The average hotel built after 1985 had lost $5,000 per room by 1991. Many hotel owners and operators were forced out of business and had to forfeit their properties to lenders, or to the federally backed Resolution Trust Corporation.

In 1991, Wharf Holdings Limited purchased World International’s share of Omni Hotels. Wharf installed a new management team headed by Jerry Best. Best replaced William Shee-han, who had piloted the company since Aer Lingus sold it in 1988. Best recognized opportunities in the industry despite industry woes. Because of property devaluation, a number of premier hotels were being sold for a fraction of their original value. Omni had resisted the temptation to expand irresponsibly during the industry heyday, so it was now in a position to build a portfolio of superior properties by paying rock-bottom prices.

Backed by Wharfs massive base of capital, Best and his team launched an aggressive five-year growth plan. The strategy included three primary goals: 1) to increase the number of North American properties from 39 to 60 by 1997; 2) to scrap any properties that did not complement Omni’s market position; and 3) to seek ownership or management contracts with four-star properties in the top ten or 12 U.S. markets. Omni added just one more hotel in 1991, the Omni Houston Hotel. In 1992, though, Omni contracted three new franchises, acquired full equity in two of its properties, purchased a hotel in Dallas, and entered into a management contract for a property in Austin, Texas.

Although Omni was able to take advantage of cut-rate property prices during 1992, the industry began to show signs of recovery. The average U.S. hotel room generated a meager profit of $159 in 1992, which served to buoy property prices in 1993. In 1993, Omni secured a flagship hotel in Chicago, the Chicago Hyatt Regency, which became the Omni Chicago Hotel. It also broadened its presence in Mexico with the addition of a franchise in Juatulco. Additional purchases early in 1994 boosted Omni’s worldwide holdings (in operation or under development) to 45 hotels comprising 17,000 rooms. Thirty-six of the hotels were in the United States, two in Mexico, three in Hong Kong, and two in Singapore and Vietnam. Two more properties were scheduled to open in 1995, one in China and another in Indonesia, and several other negotiations were in progress.

By 1994, Omni generated approximately $500 million in annual revenues and employed a work force of more than 8,000. Its upscale and luxury hotels averaged 300 to 400 rooms and were generally oriented to corporate business travelers and business groups and associations. Going into the mid 1990s, Omni was focusing on continued U.S. expansion, particularly on the West Coast, through acquisition, franchising, and management contracts. It was also targeting selected regions in the Far East and Mexico.