Trinity seeks growth via alternative public platform
 
Trinity seeks growth via alternative public platform
26 JUNE 2018 8:34 AM

Trinity Real Estate Investments has created a special purpose acquisition company, a publicly listed ownership platform that is an alternative to a REIT. Its goal is to seek long-term ownership opportunities while continuing to grow internationally.

NEW YORK—Honolulu-based Trinity Real Estate Investments is using a unique structure called a special purpose acquisition company for its new affiliated merger company, a new select-service brand created through a partnership in Japan and a keen interest in Mexico to increase its global hotel presence.

With longtime Hyatt Hotels Corporation and Marriott International executive Steve Haggerty joining the company as one of its managing partners, Trinity is poised to reset its agenda—and most notably will seek long-term investments in addition to launching the new Nikko Style brand with Okura Hotels & Resorts, according to Sean Hehir, another of Trinity’s managing partners and the CEO and president of the recently launched Trinity Merger Corp.

“We want to do business with people we like in places we like—we’re not going to be all things to all people,” Hehir said during an interview during the recent NYU International Hospitality Industry Investment Conference. “Our partnership between myself, Steve, (managing partner) Greg (Dickhens) and (chairman & senior partner) Lee (Neibart) is based on friendship first and foremost—we’ve all been friends for 20-plus years, we’ve been partners, we’ve been through the good times and the bad times.

“We’re investing in places where we have deep relationships, where we have a competitive advantage through that,” he added, noting that Mexico, Japan, Hawaii and the West Coast of the U.S. are primary targets to add to its portfolio of hotels that include the Ritz-Carlton Kapalua in Maui, the Westin Maui Resort & Spa, Ka’anapali and the Le Méridien Mexico City. “We’re not a capital allocator, we’re investors, operating partners and we’re friends.”

For Haggerty, who left Hyatt at the end of May, it’s a perfect scenario.

“It’s about a way of life,” said Haggerty, who added that he still has a great relationship with Hyatt’s executive team. “As I reflected on this next stage, I had a strong interest in working with people I trust, friends, I had a strong interest in a meaningful amount of alignment and I had a very strong interest in being a principal.”

The Ritz-Carlton Kapalua in Maui, Hawaii, is one of Trinity Real Estate Investments’ iconic holdings, according to company executives. (Photo: Trinity Real Estate Investments)

The catalyst for the move was the launch of Trinity Merger Corp., a SPAC that will acquire assets it can own for longer periods than the parent company can own them.

Steve Haggerty, Trinity

“The timing couldn’t have been better with all that Sean, Greg and Lee created with the SPAC,” Haggerty said. “The other part of it is creating something. We want this platform to be recognized as pre-eminent, and I think it can. I want to be a part of building that.”

In mid-May, Trinity Merger Corp. announced its $345-million initial public offering. The SPAC model is a publicly traded buyout company that raises collective investment funds in the form of blind pool money, through an IPO, for the purpose of completing an acquisition of an existing private company, sometimes in a specified target industry, according to Investopedia.

“The SPAC provides us with a more permanent capital base, the ability to grow the business in the public markets and hold on to assets for a longer period of time as we execute on our business plan,” Hehir said. “We had a lot of demand for the SPAC and right now Steve and I are going to work thinking about what the business combination is going to be.”

The SPAC process began in January, and executives went on a road show in April before the May IPO.

“It looks like the timing is pretty good,” Haggerty said. “The IPO market seems to have chilled a little bit, so SPAC as an option to go public is, depending on the business, quite valuable and elegant way to execute a go-public (strategy).”

The unique structure gives the company a lot of latitude when it comes to investments, the executives said.

“Finding something that is longer-term value add, where we, Trinity, are participating in that value creation as opposed to just being a vehicle to go public is a big point of differentiation that I would underscore,” Haggerty said. “The SEC, in a SPAC context, allows for a lot more transfer of information, of what we can share with our investors, so the notion of longer-term value creation plays well into that as opposed to short-term multiples.

“The execution of the merger itself is a much more controlled process as opposed to a binary build-a-book and go public at a price range that you hope you hit on the day,” he added.

Value creation is a priority
Trinity’s meaningful track record of value creation fueled the IPO and the subsequent interest from other investors and capital sources, the executives said.

“The frustration I expressed to Steve is a lot of the hotel assets we buy tend to be irreplaceable and (Trinity Real Estate Investments) has to sell them once we hit our business plan,” Hehir said. “With the SPAC and whatever it grows up to be, it can be permanent capital and these assets should be held long term.”

Sean Hehir, Trinity

During the Trinity Merger Corp. road show, executives talked about turning the IPO into assets valued at between $750 million and $2 billion, according to the CEO.

“Our goal is that the $345 million grows to be a multiple of that over the next few years,” he said.

Haggerty said the SPAC model will serve the company well, and he expects it to become more popular in the hotel industry.

“They will become more important and more accepted as a way in which to go public,” he said. “We are a global operating partner platform that has discretionary capital now with the SPAC and we look at larger, more complex deals on a global basis.”

The SPAC is just one of the silos the company plans to focus on, according to Hehir.

A new brand starting in Japan
A joint venture with Okura, which owns the Nikko Hotels International brand, spurred the launch of Nikko Style, an upscale, select-service brand. Trinity has been investing in Japan’s commercial real estate market for 20 years and has an office in Tokyo with 31 associates, Hehir said.

Japan’s rapid growth in inbound tourists—that number has grown from six million in 2011 to an expected 40 million in 2020 when the country hosts the Olympic Games—requires more select-service hotels, the executives said.

“It’s an explicit strategy of the Japanese government,” Haggerty said of the growth. “It’s changing the lodging landscape in Japan profoundly. … There’s a lot of activity on budget and full service, but nobody is really pursuing a select-service strategy.”

The Nikko Style brand, which was announced in November 2017, will feature hotels that average between 150 and 200 guestrooms that are approximately 350 square feet in size, Hehir said.

“We’ll start growing it in Japan first, then to other parts of Asia and hopefully go global from there,” he said.

Haggerty said that while the company will focus on launching and expanding the Nikko Style brand, it can also invest in other select-service brands.

“The bottom line there is that if you think of Asia broadly, the notion (is) the upscale segment being vastly under-represented,” he said. “There’s an interesting value play for select service in Asia broadly speaking. It’s difficult to execute because of the cost of land, but a lot of the growth like we saw in the States will occur in that segment.”

Growth in Mexico, too
Trinity Real Estate Investments is also interested in expanding its footprint in Mexico and brought on longtime partner Juan Vaughan to spearhead the growth, according to Hehir. The company in early May purchased the Hilton Los Cabos Beach & Golf Resort in Cabo San Lucas in a joint-venture deal with Walton Street Capital.

“We plan to spend a lot of time in Mexico looking at Mexico-specific investment vehicles, looking at acquisition opportunities,” Hehir said.

Haggerty, who sits on the board of directors of Mexico-based Playa Hotels & Resorts, said hotel product and capital are more available than ever in the country.

“The access to domestic capital sources has never been more efficient, more tax-efficient—it’s changed the liquidity profile of assets broadly speaking in Mexico,” he said. “As an investor you want to know you’ve got a meaningful couple of shots on goal to get out and not rely on foreign capital in Mexico.

“The FIBRAs have created an exit option for Mexico-owned capital that wasn’t there before,” he added. “The liquidity profile in Mexico has increased dramatically over the past five years.”

Hehir said Trinity is bullish on Mexico City, Cabo San Lucas, Cancun, the Riviera Maya and Puerto Vallarta, Hehir said.

“These are all very robust markets that have tremendous airlift from the United States,” he said. “You take Cancun and the Rivera Maya, there’s a lot of European demand.”

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