International hospitality group PPHE Hotels (PPH) has agreed to sell a New York development site, abandoning its US growth ambitions. The site in Manhattan was meant to be the springboard for the firm’s US business when it was acquired in 2019.
| Share price: £20.55 (-0.2%) | PE: 45x |
| Market cap: £985m | Yield: 1.75% |
‘No longer viable’
PPHE is selling a site near Hudson Yards, which it had originally planned to turn into a hotel and condos. The area was extensively redeveloped as New York’s art gallery district and was therefore the ideal location for an art’otel.
On buying the site, PPHE said development costs would be financed by third parties and wouldn’t affect group cash flows. The firm expected to open in 2023, but Covid delayed plans to develop the site, which has sat empty since.
The plot has been sold for $33.5 million, of which $8.3 million will go to paying off associated debt. The firm didn’t reveal the original purchase price, or whether it had made a gain or a loss.
Management pinned the decision to sell on ‘significant’ changes to the planning landscape for ground-up developments in New York. It decided a hotel development was ‘no longer viable’, so it demolished the existing building while retaining the ‘air rights’.
The decision to sell such a promising site speaks volumes about how the US landscape has changed since 2019. We don’t just mean in terms of planning, but its appeal in general, especially for foreign visitors.
The group clearly faced increased costs and barriers to developing the site, so maybe the ‘third parties’ were less keen. Either way, Hudson Yards was meant to be the first of a chain of art’otel openings in the US.
By walking away, PPHE is sending a strong signal – probably unintentionally – about the outlook for the US hospitality sector. As we have flagged previously, other prominent hospitality and entertainment groups have cautioned on inbound tourism under the current administration.
Read the press release here: https://www.pphe.com/investors
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