Marriott continues capital recycling strategy with Westin Maui sale

Marriott has sold The Westin Maui Resort & Spa, Ka’anapali to a Trinity Investments and Oaktree Capital Management JV.

Who wants the headache of owning real estate when you can derive fees just by your name hanging on the shingle?

Asset light is the preferred route nowadays for global hotel companies, and Marriott International is continuing on that promise, actively marketing and selling former Starwood-owned assets that it acquired in the deal for the company, which closed six months ago.

In December, Marriott closed on the sale of The St. Regis San Francisco, which it sold to Qatar Investment Authority for $175 million, and now it's followed through on another sale, part of 13 hotels it intends to divest, with the proceeds, as Marriott International CFO Leeny Oberg told us, being recycled and reinvested into Marriott's future growth. This came on the heels of Starwood closing two sales in Florence, Italy

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Today it was announced that Marriott had sold The Westin Maui Resort & Spa, Ka’anapali for approximately $317 million, or $417,000 per key. Marriott will continue to manage the 759-room property under a long-term management agreement. The buyer is a joint venture among funds managed by Trinity Investments and Oaktree Capital Management.  

As Oberg pointed out, this transaction is the perfect outcome for Marriott: sell and retain the management contract. "Asset light enables us to achieve our growth targets by being able to recycle capital, such that we add on a strong management contract and bring in the capital that we can then turn around and reinvest and grow in our business," she said. "We can create terrific returns for our shareholders that way."

Oberg said that Marriott does not intend to do a 1031 exchange on the sale of assets, rather to take the expected 20-percent tax expense associated with selling the properties. A 1031 exchange allows an investor to sell a property and reinvest the proceeds in a new property, thereby deferring all capital gain taxes. It is the tactic Hilton took when it sold the Waldorf Astoria in New York to Anbang. The hotels were the Hilton Orlando Bonnet Creek, Waldorf Astoria Orlando, The Reach and Casa Marina Waldorf Astoria Resorts in Key West and Parc 55 in San Francisco for a total sum of $1.76 billion. 

Like Marriott is doing here, Hilton retained the long-term management contract on the Waldorf Astoria. 

Though Oberg restated Marriott's fee-based earnings model intent, she didn't discount using capital to invest directly with its partners via key money, loans and/or sliver equity. 

Outlook for Further Sales

In total, Marriott said it expects proceeds from the sale of the Starwood portfolio to reach approximately $1.5 billion, but Oberg said it's not reasonable to expect that the entirety of the portfolio will be sold by the end of the year. Up until now, the hotels have been sold piecemeal, rather than as a group.

In regard to buyer interest, Oberg said it's run the gamut from large commercial real estate groups and REITs to foreign capital and private equity. While REITs in 2016 were not large buyers, the expectation is that they will reengage in the transactions market in 2017. 

"We have seen relative to perhaps a year ago increased interest from the REITs," Oberg said. 

Properties for sale still remain the U.S. (three assets), Asia Pacific (two assets) and South America (five assets). 

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