Hotel News Now
MADRID — Publicly listed hotel companies remain largely absent in the Middle East, while in Europe, real estate investment trusts have not reached the maturity of their cousins in the U.S. and Singapore.
In the Middle East, REITs are even further behind those in Europe, although they do exist in the region, and among the first REITs founded was the Emirates REIT in 2010.
But currently in the region, public money — that which comes from state entities or stock exchanges — is often better positioned to take advantage of investment opportunities, according to panelists speaking at the recent Atlantic Ocean Hotel Investors’ Summit.
Khalid Anib, CEO of Abu Dhabi National Hotels, said eventually more Middle Eastern REITs will exist, but for the moment the culture in the region is that individual owners — be they a family office, a listed firm, a hotel operator or a high-net-wealth individual — prefer to own hotels in their entirety.
Anib said there have been attempts to create Middle Eastern REITs.
“There is some annoyance from some investors that they simply cannot compete with the value of money coming from the state,” he said.
The need to find creative mechanisms to boost value from hotel operations and keep a strict focus on the exit strategy appears to be putting more pressure on private equity in the Middle East, panelists said.
But speakers wondered if private money could compete with public money in terms of repositioning and conversion opportunities.
The general view is that private companies are better at pushing earnings before interest, tax, depreciation and amortization, while public ones are better at pushing yield, panelists said. Private equity investors extract value from hotels in a distributive manner rather than doing that via accumulating more stock.
Jordi Ferrer Graupera, CEO of Spain-based Hesperia Hotels and Resorts, said public entities have trouble ascertaining the value of real estate, while private firms are better at consolidating the entire value of a business, both the operations and real estate.
Graupera said that while private firms can take on more debt, often lenders like the transparency of a publicly traded entity.
Private firms also are suited to take on risk, while two other advantages public companies have are the liquidity such capital can create and the ease in which public shares are traded.
“There are arguments on both sides,” Graupera said.
Leo Carrington, head of hotels and leisure equity research for Europe at Citi, said the European hotel industry is also conscious of the existence of very few European REITs. One notable European REIT is France’s Covivio.
Carrington said such capital gets complicated due to there being 44 different nations in Europe, all with different cultures, laws and business frameworks.
Pandox is one European publicly traded company that spreads itself wide across the continent, said Jacob Rasin, Pandox’s vice president of transactions.
Rasin said Pandox owns 157 hotels across 11 European nations and Canada, operating 22 of them and leasing the remainder to both institutional and opportunistic capital.
“Those are the two mountains, and we love to be in the valley. That gives us the entire scale of operations and a better idea on how to invest,” he said.
Rasin cited one complicated deal the firm completed last summer.
“It was an [operating company-property company] buy that we turned into a lease. The negative part of that is it takes us a long time to explain to investors,” he said.
Carrington said investors are prioritizing closing acquisitions amid fraught competition and then uncovering value across the entire span of a hotel.
“Franchises are good models but do not allow for value-creation processes to be uncovered,” he said.
Carrington said that Whitbread PLC, with its Premier Inn brand, is one publicly listed hotel firm that successfully raised equity during the COVID-19 pandemic, but he added its focus could be said to be simplistic, concentrating on its home market of the United Kingdom and on one other market of scale, which for Whitbread is Germany.
Graupera said one problem is when a public company’s share value adds up to less than the perceived value of the company itself. He said investors look at the value of the management team and the real estate, which sometimes “creates discrepancies for multiples.”
“The bottom line is the investors looking at both sides might well be different ones,” he said.
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