NORFOLK, Nebraska—There’s more to Supertel Hospitality’s name change to Condor Hospitality Trust than a simple rebranding exercise, according to President and CEO Bill Blackham.
At the core of the matter is a fundamental shift in strategy that will see the real estate investment trust’s portfolio evolve from one focused on economy and midscale hotels into one focused more on premium, select-service and extended-stay brands, he told Hotel News Now on Wednesday.
Further investment criteria include:
- primarily in the 20th through 50th MSAs;
- less than 10 years in age; and
- investment between $15 million and $20 million.
“The name change was really more to get identification for the company in its new strategic direction,” Blackham said.
Signaling that change to the broader investment community is important, he added. With a new acquisition profile should come more value for shareholders, which should continue pushing shares of the company well above the minimum threshold of $1 on the Nasdaq, he said. The company will soon change its stock symbol to CDOR.
Supertel shares are up 17.3% year to date as of Thursday morning. Shares are trading for $2.71. Blackham took over as president and CEO on 3 March.
The company previously faced the threat of delisting from the exchange for falling below $1. That’s ancient history, Blackham said.
“One of the things that we strive to do in the business today is always to be regulatory compliant, be that (with the U.S. Securities and Exchange Commission) or (Nasdaq) exchange compliant,” he said. He said that with the company’s new direction and growth goals, “our hope is that the share price improves so that delisting shouldn’t be an issue.”
The CEO is eyeing an enterprise value in excess of $1 billion, which is the sweet spot for publically listed REITs.
There are advantages to be gleaned at that level, Blackham said—from reaping enough revenue to efficiently managing general and administrative costs to being large enough to attract institutional interest.
“It’s not an official mission—not something that we’re stating officially, ‘We’re going to do this.’ My personal mission is to get us past that threshold in a reasonable period of time so that we can continue to grow and attract capital,” he said.
The ship has sailed
The ship already is being steered in that new direction.
Condor on Wednesday announced it would acquire a 116-room SpringHill Suites by Marriott in San Antonio, Texas; a 142-room Hotel Indigo adjacent to the Hartsfield-Jackson Atlanta International Airport in Atlanta; and a 120-room Courtyard by Marriott in Jacksonville, Florida, for total consideration of $42.5 million.
Funding those and future deals will be capital recycled from the disposition of existing non-core assets.
With 48 hotels in 19 states as of press time, that process is dependent on the transaction market. Not only must Condor executives push for the right sale prices for existing assets, but also they must find the right acquisition costs for new assets.
It’s a delicate balance, Blackham said.
“The markets have improved. There are a much larger number of buyers interested in purchasing economy and midscale hotels today,” he said. “My objective has to be to get the best possible price so that we’re maximizing shareholder value. If you try to do that too rapidly, you may get into a situation where you don’t necessarily achieve that objective.”
When pressed, Blackham said he thinks he can transform the portfolio in one to two years.
The sooner Condor’s portfolio includes those higher-end select-service hotels the better, he added. They are typically more profitable, have better margins and are ultimately more valuable than Supertel’s old asset mix.
It’s also much easier to achieve that enterprise value of $1 billion with 50 hotels valued at $20 million than it is with 400 hotels valued at $2.5 million, Blackham said, noting the obvious efficiencies of scale.
Timing the cycle
Such wholesale changes might be deemed risky with an inevitable downturn looming over the horizon. Blackham thinks there’s still plenty of runway left to see Condor take flight.
“You have to have reasonable expectations that there still are (revenue-per-available-room) gains in the specific geographic markets that you’re considering investing capital into,” he said.
“You also have to believe there is still runway left in this economic expansion. We believe we are not at the top of the economic cycle,” Blackham continued. “And the markets we are interested in acquiring hotels in still have runway left to grow RevPAR. Therefore, there will be higher operating income, which will translate into higher value for the properties.”
He has reason to push for those higher values. Blackham acquired 5% of Supertel’s common stock when he joined the company in March.
“What I’m doing is something that I truly believe in with my own pocketbook,” he said. “The direction we’re going is something that I’m perfectly aligned with.”