Aspen REIT (ticker: AJAX), the upcoming Reg A+ IPO that owns Colorado’s St. Regis Aspen hotel, is poised to benefit from the wealth effect in Aspen and should recover quickly in the event of an economic shock. That’s according to CEO Stephane De Baets, whose company is selling a 49% economic stake in the single-property REIT for $33.5 million, with an anticipated dividend yield of 5.8%. In an interview with RegAResearch, Mr. De Baets explains how the St. Regis may appeal to yield-hungry investors, but also those keen to own part of a well-known trophy property. AJAX has been qualified by the SEC and the book-building process is underway, with pricing likely in the next few weeks.
RegAResearch: What do you expect to be the main driver of sales growth in the next few years?
Mr. De Baets: Revenue has been consistently increasing over the last few years. We are committed to improving the customer experience and that alone should drive higher sales. We have renovated the bar and restaurants, which we believe will help drive better F&B numbers as a result.
RegAResearch: As a single-property REIT in the luxury category, investors may struggle to find a good comp for AJAX. Beyond REITs, would it make sense to compare the REIT to a single-label luxury brand like Hermès?
Mr. De Baets: I believe that investors will invest based on yield. They will compare what we are offering with other similar attractive real estate investment yields. However, the opportunity to own shares in a well-known, trophy property also strengthens the value proposition.
RegAResearch: Investors may ask how resilient the hotel will be in the event of a severe economic shock. What happened to sales and margins during the crisis of 2008-2009?
Mr. De Baets: Like with many businesses around the time, the margin dropped in 2008-2009, but was quick to recover. An irreplaceable trophy asset in a high-barrier- to-entry market like Aspen will generally always be first to recover should an economic shock happen.
RegAResearch: Affluent guests like yours may have a lot of their wealth in the stock market. To what extent does the wealth effect drive business?
Mr. De Baets: Wealth effect is a big part of the spending behavior. It creates more demand, and, in a city like Aspen, where supply is very limited, it drives revenue.
RegAResearch: REITs with external managers often trade at a discount. Can you explain why AJAX’s structure is shareholder friendly?
Mr. De Baets: We are a single asset REIT which means that very little management is needed since the hotel is being managed by an operator under a Hotel Management Agreement (HMA). Being externally managed enables us to only charge a fraction of the cost of the infrastructure needed to be a public company. As such we are preserving the economic return for shareholders.
RegAResearch: Food and beverage margins appear to be thin. Is there potential to improve them, and how will you go about it?
Mr. De Baets: Absolutely. We have hired a new Chef and the ratings we receive from our guests reflect significant improvement.