Trinity Investments largely focuses on acquiring bigger corporate and group-demand-driven hotels and resorts, and that portfolio strategy is paying off.
Larger, group-dependent hotels and resorts were hit the hardest by the pandemic and have taken much longer to recover. A year ago, Trinity Investments President and CEO Sean Hehir admitted that for some the investment plan raises the question "how sane is this strategy?"
During a podcast interview with Hotel News Now, Hehir said that temporarily closing these properties felt like "stopping a supertanker mid-sail," but Trinity remains disciplined in its investment strategy.
"Looking back now, we were very disciplined pre-pandemic, in terms of the markets we were investing in, the types of assets, the brands, etc. All of our hotels fit that mold [of] 300 rooms and larger, brand-managed, smile states, more destination-type hotels," he said. "Of course, as COVID hit, it was devastating because these hotels, like others, they all had to close. What we saw happen first was the revenge leisure traveler come back in the summer of '21 ... but group was soft because we had variants of COVID ... that sort of stalled the recovery of group. Now that that's all passed, group has come back strong."
Trinity has shown its confidence in the recovery of group business by acquiring the 1,000-room Curio Collection by Hilton Diplomat Beach Resort Hollywood in February for $835 million. The hotel will be converted from a Curio Collection to Signia by Hilton, which is focused on meetings and conventions business.
"The plan when we bought the Diplomat from Brookfield [Asset Management] was to bring in Hilton to manage it and once it goes through its renovation, it will go into the Signia brand within the Hilton family. So far ... everything's been going according to plan," he said.
Hehir is confident in the strength of the overall hotel industry because hotels can absorb higher interest rates.
"There's not as much negative leverage," he said. "An example is if you're buying logistics or multifamily — you're typically buying at a 3% to 4% cap rate, and you're traditionally borrowing 2% to 3% fixed-rate financing — you can't get 2% to 3% financing anymore. It's more like 6% to 7% for those asset classes, so there's negative leverage. With hotels, everything we do is value-add. If we're buying at a 7% cap and we're borrowing at an 8% interest rate, there's slight negative leverage on the way in, but then you're value-adding your way into positive leverage pretty quickly."
Analyzing the Profit-and-Loss Statement
Hehir said the key to Trinity Investments' analysis of profit-and-loss statements is "not reporting on the traffic" but instead reporting on why expense margins are the way they are and where the opportunities are.
"Even on the revenue side, not just the middle part of the P&L, do we have the right distribution channels ... should we be shifting distribution around?" he said. "Back to the Diplomat, that's one of the reasons we really want this to become a Signia hotel, is that you get into the consortia side of the group business, the higher-rated group business. Then it's getting into analyzing the redemption programs, the occupancy levels that kick in for the various rates that you can charge for the redemption business. Our teams work very much hand in glove with the brands."
For more insights from Trinity Investments' Sean Hehir, listen to the podcast above.