In Chicago on July 10 for the soft opening for the Langham Hospitality Group’s first purpose-built property, The Langham Hotel, Chicago, HOTELS Magazine Editor In Chief Jeff Weinstein talked with Katie Benson, CEO and executive director of Langham Hospitality Investments Ltd., Hong Kong. The new trust is a publicly listed company, which was established this year to own and invest in a portfolio of hotels on behalf of Great Eagle Holdings, the parent company of Langham Hospitality Group.
The initial portfolio of the trust is comprised of three hotels: The Langham, Hong Kong; Langham Place, Mongkok; and Eaton Hong Kong. However, the goal of the trust is to grow its portfolio, which, in turn, will help grow the Langham family of brands, which includes the luxury Langham and Langham Place, the 5-star Eaton Luxe, midscale Eaton and the Chuan Spa. In fact, the stated goal, according to Benson, is to grow the Langham portfolio from 19 hotels today to 50 hotels within five years.
The new trust will likely spend its first year focusing on performance of the three assets, and next year it will start to look for acquisition targets both inside Asia Pacific as well as globally and, more specifically, the United States.
With more than 30 years of hospitality experience, Benson has worked in hotel general management and operations, human resources, asset management and development across the Middle East, China, Australia, United Kingdom and the United States. Prior to her current appointment, she was the regional vice president of the Americas and the Caribbean for the Langham Hospitality Group.
She offered HOTELS Magazine some insight into her role, as well as goals of Great Eagle Holdings and its hotel division.
HOTELS: Explain how the new trust is set up.
Katie Benson: It has all the features of a REIT but none of the restrictive practices. We self-regulate ourselves a bit like a REIT but it is not as expensive to operate, which is better for the investors. It also has the security that people like similar to a REIT.
We raised money, which the chairman, Dr. K.S. Lo and Great Eagle, the owning company of Langham Hospitality, will invest in more assets. Great Eagle still owns a 57% share of Hong Kong hotels and spun off the remainder (the trust has an estimated market value of HK$8 billion (just over US$1 billion). The trust has the right of first refusal over assets of Great Eagle if it chooses to put them on the market in Asia, and can spin them into the trust. If Great Eagle is offered to buy an asset, the trust also has the right of first refusal to buy the asset instead.
Initially, we said the trust would start by focusing on Asia. However, America is picking up a lot so I think we have to look at regions where we can find assets that will add value to the trust. Langham Hospitality Group is still looking to acquire assets of its own outside the trust. The goal is that the brands of Langham Hospitality will grow through the trust, as well as through management contract and acquisitions outside the trust.
HOTELS: Explain your responsibilities in this new position?
Benson: I represent the owners of the three Hong Kong assets, and hopefully more assets to come. Brett Butcher (CEO of Langham Hospitality) reports to me on how he is going to deliver on the performance of the hotels in the trust. I am the asset manager, if you look at it simplistically, and I am looking for acquisitions.
For the first year, we will focus on achieving what we forecasted as our distributable income. You want to get through the first year with your investors being happy they invested in you. We chose the Hong Kong assets for the trust because they are the best performing assets in the company. Hong Kong is a very strong market and you want a strong foundation on which to build other assets. There are some other markets we are interested in as different parts of the world are firing back up again.
We will start looking to acquire after the first year. We listed the trust and then Federal Reserve Chairman Ben Bernanke went out and said quantitative easing is finishing. That was a hard week.
HOTELS: Where might you focus attention for acquisition?
Benson: We said Asia initially but I suppose it could be the Pacific, as well. We will look further afield, obviously, at other Asian countries such as Japan, where values are attractive.
I think we would consider portfolio acquisitions if it made sense. Every asset we acquire must be yield accretive to the trust, so if a portfolio of three or four hotels were on the market and could be yield accretive to the trust, and investors voted they liked it, then we would look at it.
I will be very disappointed if we can’t make an acquisition within the first two years. If Mr. Bernanke would have let quantitative easing go on a bit more we’d be even more bullish about it.
HOTELS: How aggressive does Langham and the trust want to be?
Benson: One reason we started the trust was to recycle cash so we could start growing faster. To reach our goal, however, we will not compromise and sign hotels that won’t meet our brand standards. Or, if we don’t think we can deliver for the owner, we won’t take the assignment as it is not fair for the owner. Ethically, that is what you should do. When you are a smaller company, you don’t want to risk your reputation by not performing.
HOTELS: What is the exit strategy for assets?
Benson: We have distributable income to give, but that comes from the rents we collect from leasing the properties to Langham Hospitality, so we don’t have to liquidate assets to pay our distributable income. Whereas REITs have to go on a binge to buy assets, we don’t have that. We have guaranteed for 2.5 years we will distribute 100% of distributable income and thereafter no less than 90%. Our goal is to give our investors as much as possible.
Our investors are already ahead because we are not paying enormous REIT management fees, and we have a very lean management structure. They are getting good value. When we want to acquire, the trust can dip into resources of Langham Hospitality to evaluate hotels and dip into the Great Eagle treasury team to help look at financing and legal. We don’t have to go hire outside people or create a hefty management team, which makes it very efficient for investors.
HOTELS: Great Eagle acquired the Setai in New York City and rebranded it as a Langham Place. What are the plans for the property?
Benson: We will do a soft renovation over the next 12 months (US$15-20 million). It was nicely done originally but we need to puff it up a bit to meet our new Langham Place modern luxury brand standards. We will do some things in the bar and the spa, and plan to bring in our own Chuan spa operation. We also want to add more meeting space as the hotel could be a really good road show hotel.
HOTELS: Great Eagle also acquired The Observatory in Sydney from Orient-Express Hotels last year. What are the plans for that asset?
Benson: We will start renovating early next year. The property has good bones but it was left too long between renovations. It looks over Darling Harbour from behind and it is in a redeveloping area (Barangaroo) and that part of town will be lovely. A lot of the city’s corporations are moving that way into new office developments.