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Wednesday, September 30, 2015 2:25 PM ET
Listed market could be the out for PE hotel investors
By Sophia Furber
Private equity companies have been voracious buyers of European hotels in this property cycle. To give one example, Texas-headquartered Lone Star
bought British and Irish hotel chain, Jurys, in a £680 million deal in January, and is now reportedly
building up a £1 billion company, Amaris, to invest in
U.K. hotels. But private equity players like Lone Star, Apollo Global Management and Starwood Capital are, by definition, short-term holders of real estate
assets. Within three to five years, or perhaps less, these companies will be looking to sell. But where is the exit?
Time for some listed hotel companies?
That was the question posed during a private equity panel at the Hotel Investment Conference Europe in London on Sept. 29. For panelist Ryan Prince, vice
chairman of Realstar Group, the listed sector could be the answer.
"At the moment there's virtually nothing publically traded in the U.K. hotels sector. The only real opportunity to get exposure to hotels is through Whitbread
Plc. [the company that owns Premier Inn, along with Costa Coffee and several restaurant brands] I think someone will take a good look at the possibility of
setting up a listed hotel investment company. They would need to find the right tax structure though," he said.
Realstar Group invests in hotels, student housing and the private rented sector (or "anything with a bed in it," as Prince puts it). The company was part of a
consortium that bought 73 Holiday Inn and Crowne Plaza hotels in the U.K. for £1 billion in 2004, and it continues to work as operating partner of the
properties. But listing isn't an option for them, Prince said.
The REIT approach
Running a listed entity means a whole world of rules, regulations and communication with shareholders, conference participants noted. And it's not for
everyone.
"Some of the U.K. listed companies have remarked that three months of the year are taken up by reporting," said moderator David Ryland, partner at Paul
Hastings (Europe) LLP.
"There's a place for public and a place for private companies," panelist David Ling, head of strategic development at CDL Hospitality Trusts, said. "For
example, REITs are heavily regulated in Singapore, and there are penalties if you fail to comply. It certainly takes a lot of discipline."
Trading at a discount
There has been a lot of talk on a global level about mergers and acquisitions in the hospitality sector of late — especially with InterContinental Hotels Group
Plc reportedly nearing a
deal to buy Fairmont Hotels & Resorts Inc. Did panelists think that there was more to come?
"It's still rare to have a public-to-public company M&A execution. It can be done, but it's rare," said Douglas Kessler, president of Ashford Inc.
Ashford Inc. recently
agreed to buy (non-listed) hotel property and project management company Remington Holdings LP.
It's no surprise that there's chatter about more consolidation in the hotel world given where share prices are. "Relative value to NAV is an interesting topic in
the U.S. just now. All of the lodging REITs are trading at roughly a 20% discount to NAV," Kessler said.
However, one thing that could lift hotel company share prices is an interest rate hike in the U.S.
"Lodging stocks have typically performed better than other stocks when interest rates rise, and it will be interesting to see what they do in this cycle when
the Fed actually does raise rates," he said.
Troubled by its low share price, Ashford Hospitality Prime Inc., advised by Ashford Inc.,
adviser to look into strategic alternatives for the company, including a sale, Kessler said.
brought Deutsche Bank Securities on board in August as an
Source: S&P Global Market Intelligence | Page 1 of 1