A hotel divestment plan more than three years in the making has come to an end: On October 31, a subsidiary of Marriott International sold the St. Regis New York Hotel on Manhattan's Fifth Ave. to Qatar’s sovereign wealth fund, the Qatar Investment Authority, for $310 million, or $1.3 million per key.
According to a filing with the Security and Exchange Commission, the Bethesda, Md.-based company will continue to operate the 229-room hotel under a long-term management agreement with the QIA.
“This deal underscores our ongoing commitment to having an asset-light business model," Marriott CFO Leeny Oberg told Hotel Management. The model, she added, “not only allows us to deliver strong returns on invested capital, it also provides significant scale and operating leverage, which helps drive increases in earnings, cash flow and returns to stockholders.”
St. Regis, QIA and Marriott
Marriott acquired the asset as part of the headline-making $13.6 billion purchase of Starwood Hotels & Resorts Worldwide in 2016. Ahead of the sale, Starwood was seeking buyers for its owned real estate, including the St. Regis hotels in New York and San Francisco. The QIA was eyeing the assets even then, with insiders suggesting the deal could be worth a combined $1 billion. The Authority had experience with the brand, having acquired the St. Regis Rome in 2014 for just under $151 million.
The San Francisco deal closed for a reported $175 million in late 2016 after the Starwood acquisition was finalized. As with the New York property, Marriott still manages the 260-room hotel under a long-term management contract.
Just over four years ago, the Authority announced plans to invest $35 billion in the United States by the end of 2020, and opened a New York office to “better access new and existing investment partners.” The QIA acquired the Fairmont-managed Plaza Hotel in New York City, four blocks south of the St. Regis, for around $600 million in July 2018.
Buy. Renovate. Sell. Manage.
Marriott has been going "asset-light" for several years now, preferring to earn revenue from licensing and management fees, as Bloomberg noted. Of the 7,100 hotels in Marriott’s portfolio, the company owns only 14 and leases 49.
At the same time, the company has been making notable acquisitions, generally with an announced plan to eventually sell the new assets. The St. Regis deal comes less than two weeks after the company acquired the 270-room W New York-Union Square for $206 million as part of a plan to “redefine and reinvigorate the W Hotels brand” through a renovation. The company will manage the property and expects to put the hotel back on the market for sale “over time,” subject to a long-term management agreement.
“This buy-renovate-sell-manage playbook is familiar and follows Marriott's successful execution with the three Edition properties earlier this cycle and the Charlotte Marriott City Center,” RW Baird senior research analyst Michael Bellisario wrote in an email to investors in mid-October.
Marriott sold the Charlotte Marriott City Center in Charlotte, N.C., to Watermark Investors 2 Inc., a non-traded REIT, in 2017 after Marriott spent more than $40 million on capital improvements to the property. A year later, the company purchased the 1,000-room Sheraton Grand Phoenix Hotel for $255 million. Like the Charlotte Marriott City Center—and now the W in Union Square—Marriott International expects to eventually sell the Sheraton Grand Phoenix.
One day after the Union Square deal was announced, Marriott reached an agreement with the board of Elegant Hotels Group, which owns and operates seven freehold hotels on Barbados, on a recommended all-cash offer for Elegant's portfolio for an estimated $199 million. Marriott indicated it intends to sell the hotels but wants to continue to manage them.
“Marriott is making progress toward additional dispositions...which would make the investment in the W New York Union Square (and, to a lesser extent, in Elegant) more of a capital recycling transaction rather than an incremental investment on the real estate front, in our view,” Bellisario noted.