NEW YORK—Yes, quite a few opportunities are circulating in the hotel transactions market, but the team at The Hotel Group isn’t going to dive in without first testing the depth of the water.
The executives behind the Edmunds, Washington-based hotel owner and operator take a more diligent approach that has netted them 35 assets in THG’s 27-year history.
“It doesn’t sound very ambitious,” said Doug Dreher, the company’s president and CEO. “We have more of a one-off mentality and we
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Doug Dreher, The Hotel Group |
certainly don’t want to rush things.”
Coming out of the most recent downturn, Dreher and his team entered some 1,300 properties in the company’s database, of which they made offers on 10. The number of deals that actually came to fruition? Only one—the Holiday Inn Santa Fe, New Mexico.
A second deal for an undisclosed hotel is in the works and should be announced shortly, Dreher said earlier this month during a break at the NYU International Hospitality Industry Investment Conference.
THG is fueling its growth through an opportunity fund comprising US$50 million in equity and US$25 million in debt.
“We raised it via subscriptions and commitments,” Dreher said. “We have also the ability to bring in sidecar investors.”
The company targets hotels in secondary markets with renovation and branding upside. They predominantly fly flags from Hilton Worldwide, Marriott International, InterContinental Hotels Group and Starwood Hotels & Resorts Worldwide.
“We like to do all in for 60% or less of replacement cost,” Dreher said of THG’s acquisition strategy.
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Holiday Inn Santa Fe, New Mexico |
Rates and refinancing
THG’s management team isn’t spending all of its team looking for new opportunities. The group also has been busy driving performance in its existing portfolio.
Recessionary results were certainly down, Dreher said, but the company’s portfolio performed well relative to its competitors.
“In ’09 the industry was down 16.7% in RevPAR. We were down 11%. The industry was down close to 40% in EBITDA, we were down 18.5%.
“In ’10, we were at 12% top line and 22.5% EBITDA,” Dreher added. “This year year-to-date, we’re up 9% top line and we’re up 19% (EBITDA).”
Rate growth has and still remains a challenge, he said, especially when dealing with online travel agencies.
“We do have generally speaking more rooms allocated for the OTAs than we would prefer. They’re kind of a necessary evil. We consider them like heroine. You don’t want to take it, but you have to,” Dreher said. “It’s easy to say, let’s just stop doing that. But if the guy next door’s doing it, it becomes very challenging.”
THG’s management team also has been active in refinancing select properties. It successfully refinanced the Hilton Suites Brentwood (Tennessee) in December 2011 and the Crowne Plaza Hotel in Billings, Montana this year.
Next on the docket is the Crowne Plaza Kansas City Downtown and the DoubleTree Hotel Cleveland, Dreher said.
“The financing markets, if you’ve got decent cash flow, is really good. The rates are really low—we’re talking the low fives to mid-fives,” Dreher said. “That’s pretty exciting.”