• Owners shuffling portfolios

The benefits of owning a geographically-diverse portfolio of assets were extolled by both Pandox and Park Hotels & Resorts in their first-quarter results.

Pandox said that it would continue to expand, while, at Park Hotels & Resorts, the Reit said that it would “remain on the sidelines” in terms of acquisitions and was planning to sell the bottom 10% to 15% of its portfolio.

In January Pandox signed an agreement with Scandic Hotels Group for new, 20-year revenue- based leases for seven hotel properties in the Nordic region currently in Operator Activities and an agreement to transfer the operation of Grand Hotel Oslo.

The company also announced its intention to acquire Silken Berlaymont in Brussels for the around SKr315m (USD35.5m). The group said: “The hotel product is underperforming and offers good improvement potential supported, among other things, by its strong position close to the European Commission with good public transit both to the city and the airport.”

The deal reinforced the company’s position as the leading hotel property owner in the city.

CEO Anders Nissen told Hotel Analyst that the group continued to look at the UK, commenting: “There hasn’t been been anything out there yet, but we are in a positive mood.”

He added: “We are a larger company, we are in a bigger market, but with an unchanged risk profile – we are in top destinations, but also in regional cities with strong domestic demand that, combined with expanding through leases, with more brands, means a platform that I am very pleased with. We have grown the company every year for 29 years and it’s easier to grow with this platform – we can always go to the market [for funding].”

The company is now in 10 countries, with 120 hotels, with domestic demand driving 72% of business and international demand the remainder. Geographically, 62% of rooms are in the Nordics, with the balance overseas, including Canada.

Nissen was speaking the day after the group’s Capital Markets Day and, commenting on Pandox’s corporate mindset, said: “We have built up a business platform based on knowledge and information, which we have done from the first day. We evaluate what we do constantly. I have a sport background and when you’re playing in the highest division you have to evaluate what you have done, that’s part of my DNA. We say, ‘how long has it been since you evaluated what you have done yesterday?’ Maybe you should do that instead of marketing campaigns.”

The first quarter saw the company growth in cash earnings and net asset value of 23% and 16% respectively and revpar in Europe up 7%. The group declined to make any forecasts, but said: “Based on previous acquisitions and anticipated organic growth driven by markets and profitable investments in existing portfolios, the prospects are good.”

At Park Hotels & Resorts, Tom Baltimore, chairman, president & CEO, told analysts: “We believe that Park remains well-positioned to deliver attractive results given our diverse geographic footprint and exposure to markets with below average supply growth forecasted over the next several years.

Baltimore said the Reit’s portfolio refinement strategy, would see it reposition the portfolio to focus exclusively on scale and luxury branded hotels across the top 25 largest cities in the US. He said: “This was a longer-term initiative, but we anticipate recycling the bottom 10% to 15% of our portfolio over the next several years.”

The group has identified a potential pool of non-core assets representing USD40m to USD45m of Ebitda that were likely candidates for sale. Baltimore said: “ Generally speaking, these assets were locating in secondary markets both abroad and here in the US, with an average revpar that is 25% below the portfolio average.”

He added: “Given the global thirst for yield, coupled with renewed confidence on the sustainability of the lodging recovery we believe the window of opportunity to sell non-core secondary market assets remains open.”

“In terms of straight acquisitions,” he said, “we currently remain on these sidelines in the near term as our primary focus is on operational excellence given the enormous value creation opportunity we see on the margin front, although, we remain committed to growing our footprint over the long term.”

The group reported domestic revpar up 1.7%, with a 4.1% increase in adjusted Ebitda to USD177m. Baltimore said that: “While we anticipate second quarter to be one of the more challenging in quarters this year due to tougher year-over-year comps and weaker expectations on the group side, we remain cautiously optimistic on performance for the year and reiterate our 0% to plus 2% comparable revpar guidance for the year.”

 

HA Perspective [by Katherine Doggrell]: It’s pleasant to have high-performing hotels in key locations, preferably a little down-at-heel so there’s some instant uplift to be enjoyed with some new carpets, or even a new brand (Park may be Hilton in origin, but, as Baltimore said: “Love our partners at Hilton” but other brands will be added to the mix).

And so the contrast between the owners and operators is currently painted. The operators’ view of scale is diverse brands and the owners reassure themselves with diverse operators. Eggs in one basket of multiple colours and shapes and, for Park, Fabergé eggs. I could go on, but we all have lives to lead.

But where will they buy these hotels? For Pandox, diversity has seen them be opportunistic, building up a position in Brussels as it recovers from its downturn post-terror attack, but also sees the group focus on cities with strong domestic business. For Park, there is potential as the ongoing round of consolidation drives sales as is currently seen at Marriott International, but, as Colliers International’s Marc Finney told us this week, looking at the London market, strong performance means no need to sell and “scary” prices as a result.

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