Main Photo: The Hotel California in Paris, one of the few hotels owned by Colony in Europe
Date: May 2020
Location: Mostly major cities across USA
Name: 78% affiliated to Marriott International and the remainder with Hilton
No. of Keys: 157 hotels – Keys: TBA
Seller: Colony Capital reported that its portfolio companies had defaulted on $3.2bn of debt secured on hotels and healthcare-related properties.
CEO Tom Barrack said that the company “has begun discussions with advisors to evaluate strategic and financial alternatives to maximise the value of its hospitality assets”.
The group is also shareholder in AccorInvest. As of 31 March, Colony Capital had a portfolio of 157 properties, mostly in the major cities in the US, with 78% affiliated to Marriott International and the remainder with Hilton. As of 5 May it had $1bn of cash on the balance sheet at the corporate level.
Barrack told analysts that the group’s hospitality real estate segment had seen same-store portfolio revenue decrease by 18% on the year for the first quarter and NOI before FF&E reserve fall 45% compared to the same period last year, primarily due to the economic impacts of COVID-19 across the hospitality portfolio during March.
He said: “The company is in default and a significant portion of the hotel portfolio investment level non-recourse debt as a result of the COVID-19 crisis and its impacts on the hotel industry at large.
“The company has a dialogue with all of its lending counter-parties and as well has begun discussions with advisors to evaluate strategic and financial alternatives to maximise the value of its hospitality assets.”
Barrack said: “This is a different kind of a crisis. We’re not concerned about the solvency of our business. We’re concerned about the liquidity of our business. Liquidity is the magic elixir to assure long-term optionality.”
Last week saw AccorInvest comment that it was not planning to seek support through the French government’s state-guaranteed loan programme, after reports that it was in talks to raise up to €500m.
Prior to the denial, rumour had suggested that, in return for the loan, banks would ask the group to commit to rebalancing its accounts by the end of the year via a capital increase to be subscribed notably by Accor and by Colony Capital.
AccorInvest has 911 hotels, both owned at operated under fixed or variable-rent leases. At the time of writing, this publication was seeking clarity on the split. In 2018, out of 891 hotels, 324 were owned and 567 operated under fixed or variable-rent leases. In 2017, with 775 hotels under operating leases, the rental expense was €615m. HotelInvest as was had 58% owned at 2016, with, according to the 2017 annual report, a target of 77% owned by 2021.
Insight: Barrack concluded: “The bottom line, whether a lion or an antelope when you wake up, you better start running.” The sector had been waiting for the first signs of blood in the water and this is very much it. COVID-19 appears to have caught up with Colony.
The question now is who will bail out Colony and what impact this will have on AccorInvest. Prior to this point, Accor, which had happily gone asset light, was sitting on $2bn and the garden was rosy. Could it now have to wade in and take a higher stake, having wanted to get out of AccorInvest? Will one of the other shareholders come in and take on Colony’s chunk? Or will we see a new entrant? Hyatt, as it said last week, was not opposed to participating in M&A and, as exhibited in its NH takeover efforts, has its eyes on Europe.
THPT Comment: Buyer – There’s the question! Who is big enough to take this on, at this time?
First Seen: Hospitality Insights
The Hotel Property Team (THPT) are a small group of highly experienced business professionals. Between us, we provide a range of skills and experience which is directly relevant to those involved in the hotel property market.