Hoteliers should be cautious when considering listing their companies on the stock market, and a thorough analysis is required to outline possible markets, investor maturity and financial and development goals.
ABU DHABI, United Arab Emirates—The value of publicly listing hotel companies on stock exchanges is dependent on factors such as the geographic location of markets, investor maturity and the equation of risk and reward, according to sources on a panel at the recent Gulf & Indian Ocean Hotel Investors’ Summit.
Determining the price of stock upon floating—given the hotel industry’s operations and real estate value components—is perhaps the hardest part of the process, panelists said.
Speaking at a session titled “Being publicly listed: What do the markets look for? What value-add is there for hotel real estate?” Javier Arús, CFO of Azora, which listed in 2014, said investors still fail when they move from valuating real estate to valuating hotels.
“There is a strong effort to explain to analysts and investors how (profit and loss accounts) will play out,” Arús said, speaking of how investors often stumbled when analyzing hotel industry accounts and earnings reports.
Vincent Joyner, CEO of Hospitality Investment Partners Africa—which listed in 2006 as Africa’s first specialty real estate investment trust—agreed that education is key. The better informed all parties are, the likelihood of investment surprises decreases.
“It takes the right client with the right product,” Joyner said. “Risk needs to equate with reward, and it takes a little longer to explain hotels, but investors are very happy once it is explained and realize it in a cyclical business.”
Geography is also an important consideration, and Joe Sita, CEO of IFA Hotel Investments—which listed in 2006—said Europe is beginning to catch up with the United States.
“It is not fair to compare all with the very sophisticated North American REIT market, which has the very best metrics, but the European market is moving in that direction,” Sita said. “AccorHotels is behind much of the movement, and when Europe moves, I believe the rest of the world will follow. Everyone is searching for yields.”
Lourie Kruger, SVP of Kingdom Hotel Investments—which also listed in 2006 but then delisted in 2010—said REITs based in Asia “might be next.”
“Some REITs are getting a little stuck, but if they can show that they work outside of the U.S., and in a smaller way outside Europe, then there is opportunity,” he said. “If your investors are all from emerging markets, your (stock exchange listing) story needs to be only one bullet point. High yield and good locations is a very simple story, but putting those two points together and coming up with the right share price is a very difficult one.”
“One of the biggest conversations with bond holders was that they had bought into hotels, not real estate,” he said.
The move to public listing should be done only if the asset has a long lifespan and, again, if the story communicated is a simple one, panelists said.
“An operating platform does help smooth out revenue spikes that come if you are only a development company,” Sita said. “All is aimed at recycling value, but the market tends to punish you when you have two different strategies. (IFA) delisted from Johannesburg as it was cumbersome to be dual-listed.”
Arús said for a firm in it for the long haul, public listing provides credibility and speed.
“The public road is much shorter,” he said. “Between when you sit down with bankers and raise the money is six months.”
He also said public listing strips away all privacy.
“As a manager, you’d be better off in a private equity, as you have to give full transparency, which I am not saying is bad, but investors will see what you did in your last transaction and that will be the point from where negotiations begin,” Arús said, who added his company also had unlisted funds.
Although his company is currently private, Kruger said Kingdom Hotel Investments still remains focused on growth on a weighted basis. However, the “internal view is that if we go public again it will be the result of any one of our verticals becoming more mature.”
Kruger said his firm had mixed results as a listed company.
“We had a lot of development when we listed, and the market loved that,” he said. “At the time it was something new … (but) a return on metrics would not necessarily tell you where we going.”
Kruger also gave one last warning to companies who are considering a public offer.
“Be careful using your own stock, because you only use your own stock if (it) is not performing as well as you think it should,” he said.