Honestly, this isn’t my favorite sector because I’m not a fan of property investment. Also stuff like accountability and valuation here can be trickier than in a “normal” business. Still, it’s hard to ignore this sector when you compare its average returns to the S&P 500.
Millenium Hospitality Real State SOCIMI, is a Spanish REIT that builds and develops luxury hotels at prime areas of Spain.
At first glance, this company might not seem too exciting it doesn’t pay dividends, has rarely (if ever) turned a profit, and in 2023, it faced management troubles, including a conflict of interest involving the former CEO.
With that description, doesn’t sound interesting… but keep reading.
Company Assets
In Operation (54% of assets)
- Hotel Meliá Bilbao
- Hotel Radisson Collection Sevilla
- Hotel Radisson Collection Bilbao
- Hotel JW Marriott Madrid
- Hotel Mercer Plaza Sevilla
- Hotel Nobu San Sebastián
Under development (46%)
- Hotel Nomade Madrid
- Fairmont La Hacienda Cadiz
- Autograph Collection Madrid
- Hotel Nobu Madrid
Plus, it runs a Golf Club called “Alcaidesa Golf – Restaurante Casa Club,” which is highly profitable.
Every hotel is rated as a 5-star.
The total value of its assets in H1 2024 is 664 million, after subtracting a deal where the company sold two properties to the old CEO for 18 million.
So, we’re looking at a REIT with top-notch assets, trading below its tangible book value. It’s a catalyst the new management and their 2024-2027 plan (we’ll get into that later). Also, 46% of its assets aren’t fully up and running yet, but they will be in the coming years (by Q1 2026, everything should be 100% operational). Their goal? Start paying dividends in 2025.
Another good new is we are in a favorable environment for this type of REIT, as the company say:
Financial Review
Millenium revenue per segment:
In 2023, Golf (listed as “Otras Actividades”) made up 17.10% of the revenue, but it had a negative margin. Meanwhile, Hotel Leases made up 82.90%, with a really high EBITDA margin (over 90%), since the costs of the Corporate unit aren’t included in this segment.
As we see between 2022 and 2023 the revenue grows a lot due to the operational starts of new hotels.
The Golf Club is unprofitable but the idea it’s to get it break even and eventually lease it out to a third party operator.
Overall, the EBITDA margin was 42%, and it grew six times in value from 2022 to 2023.
Related to debt, REITs are usually high leveraged (around 45% LTV on average for Hotel REITs), but here it’s different. With a Loan-to-Value (LTV) of just 19.3% (in the first half of 2024), this low debt level means the company can take advantage of lower Euro interest rates to buy more properties with leverage.
Valuation
The strategic plan 2024 – 2027 sets these goals for the company:
- Improve operating efficiency to reach an EBITDA margin of 75% to 80%.
- Double the revenue.
- CAPEX is already set at 100 million until 2026 (50% in 2024, 35% in 2025, and 15% in 2026).
- Pay the first dividend in 2025!
- Adjust employee interest and pay to keep them happy.
If the company hits these goals, it’ll pull in a Net Income of about ~20 million and an FFO of ~15 million.
Using the net asset value (which I think is the best way to look at this company right now), there’s a potential upside of 74.24%. This gap should close as the company gets close to meeting its targets and all the hotels are fully operational.
Conclusion
Even though closing the NAV gap might take longer than I thought (I’m guessing around 2026–2027), this company has assets that I really like, and the new management is heading in the right direction and they have got a lot of skin in the game (the current CEO was picked by the biggest shareholder, Castlelake LP, which owns 49%).
Another cool thing, it’s I found this idea from an investor letter by Equam Capital from Q3 2024.
I started with a 5% position at a price of 2.50. I’ll keep an eye on any news about the company and check if they’re hitting their goals. If they do, it could be a great chance to add more to my position.
Thank you!
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I hold a material investment in the issuer’s securities.
