Event review: Leisure Real Estate and Vacation Rental Summit 2015

Weldon Mather By Weldon Mather
Uploaded 26 February 2015

Founded and hosted by Piers Brown of Boutique Hotel Media, this lively and interactive conference featured a broad range of speakers from all leisure real estate disciplines.

Confidence, ADR Growth and Pipeline
Piers, in his opening remarks, found the audience to be far more confident in 2015 (even those from Greece!) and the mood throughout the day was one of positivity and realism. Piers introduced Katie Miller from STR Global to look at quantitative hotel and leisure real estate benchmark performance.

The 
Seychelles and Maldives are reporting USD$750 ADR due to the high level of five star penetration.  Thailand (Phuket and Ko-Samui) are seeing an average 4.5 per cent increase in supply and political uncertainty. Kate noted that when occupancy reaches 60 per cent then hotels have pricing power to push growth on rate - e.g. Spain (Canary Islands) saw a 14 per cent increase in ADR 2014. Ski area occupancy is static at 55 per cent and unable to push rates except Sochi in Russia, which grew phenomenally in 2014 due to the Olympics and residual interest post event & the Rouble devaluation.

A look at European mixed-use resort performance
included representatives from a range of resorts discussing current market dynamics, trading conditions, and future predictions. Topics included Hotspots and potential opportunities within Europe, Product form, What is and isn't working, Velocity of sales being achieved, Key drivers behind purchase decisions and how resorts are adjusting their sales models for success.

A lively debate ensured and was moderated by
 Dimitris Manikis, ‎(VP business development, Group RCI) and the panellists included 
Julian Houchin, (commercial director, iO Adria) Perry Newton (project director, Azure Malta) and Carlos Leal (managing director, United Investments). The panel professed belief in brands but the asset management of your property is critical. Indeed the brands came in for much criticism due to "mismatch" and Houchin noted that brands and resorts need to align carefully; hotel brands sometimes don't understand the ancillary resort facilities and that the ADR can be far higher from two- and three-bed apartments on site. 


Debt, equity and alternative finance models
was all about the big story of where equity is at and that yields are now back to levels in the boom. 
Moderated by Andrew Sangster (editor, Hotel Analyst) he called it a "binary recovery" and banks are now "moaning that their margins are shaved back to 2007 levels". Sangster further opined that "we currently have negative bond yields in 10 countries which is weird" and he put it to the panel that something has to give.
 Sachin Pandya  (Associate Director, Vision Hospitality Asset Management) explained that banks are looking for 7x or 8x EBITDA multiples but cautioned on how is this calculated.


Thierry Hellin, (deputy CEO, Groupe Pierre & Vacances-Center Parcs) said that yields in France are "fluid and looking at fibe to six per cent yield on a fixed basis".
 Andrew Harrington, (partner, AHV Associates LLP) gave us an overview of the debt markets commenting that "debt funds are much more aggressive and less obsessed with covenants and amortisation schedules".

Keith Evans, (VP hotel acquisitions, Starwood Capital Group) confirmed that Starwood have gone in all equity and then refinanced later. There are different dynamics in Europe with less transparency in certain states and this impacts on stabilization. Keith was reluctant to call the peak of the market as there is still so much money going after the deals on the buy side but Starwood is more focussed on taking profits from the UK this year. He further commented that the Mediterranean and Central Europe still offer opportunities for growth. Yields have come down to 5.5 to 6.5 per cent on a management contract as being "normal" whereas it was ±8% in the past. PE is much more "cash on cash" driven so lower cost of debt is preferable while leverage is in the 60 to 70 per cent range.

In true investor speak he added "if you can generate mid teens cash on cash then you approach higher returns and are not reliant on the back end of the deal and if cap rates move out then that is ok". Starwood Capital is very focussed on asset management, rolling up the sleeves to do work on the P&L, extend, fix up and generate cash, buy, develop and sell high and from a risk/return profile the company is looking to generate more cash.

The Mergers and Acquisitions presentation
from Andrew Harrington (AHV Associates LLP) provided a succinct overview of trends in the sector from a financial perspective. This included an analysis of current valuations, recent mergers and acquisitions and their implications for the sector over the next 12 months. Andrew focused on the investment cycle and the role of institutional investors at different stages of the product. He predicted that hostels are the next big area with Invesco already buying a stake in Generator (Patron Capital).

The Investor panel comprised leading hotel and mixed-use resort investors and those close to the transactions market who shared their views on current and future investments highlighting favoured destinations and deal expectations.
Moderated by Govinda Singh (director, BDO) the panelists included Erik Jacobs (director hotel and leisure fund management, Invesco Real Estate) commenting on the trend of Asian money coming into Europe if this money will continue to flow (return profile is critical).

PE is looking around for deals that can be bought significantly below replacement cost while institutional investors find it hard to invest in resorts due to cashflow volatility and uncertainty. Erik also commented "PE is extremely IRR driven but now the secondary trades will see portfolios being split up where good assets will be sold first and then the balance shifted". Asked a question by the audience "what is the target IRR". Erik opined it depends on the play whether a pure resort (mid teens) and the days of unleveraged mid teens IRR are long gone! 


Francisco Sottomayor (director, CBRE Development, Portugal) said his market is now seeing uplift with more Chinese investors and PE with HNWI's from overseas and international money; the £ v € relationship is also beneficial to Portugal especially from the UK market, but also the French market which is the 3rd largest market after UK and then the Chinese on the Golden Visa programme.

Overall the conference was a great success with opportunities for networking, doing business and generally taking the temperature of this dynamic sector. The verdict: the industry is in rude health but fragmentation continues to be a problem but as economies recover and world tourism grows, there are opportunities to be picked up by savvy investors and developers.

Weldon Mather is an independent hospitality and tourism consultant in the hotel, restaurant and pub sector. He works with clients in throughout the UK and Ireland including banks, owners and managers, receivers/administrators, liquidators and investors. Contact: www.wmconsultancy.eu  Tel: +44 77845 46066 or +35386 8684441

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