May 30, 2019 / 3:53 PM / 2 months ago

Exclusive: Host Hotels to sell 3 Rio properties, exit Brazil - sources

SAO PAULO (Reuters) - U.S. hospitality group Host Hotels & Resorts Inc (HST.N) plans to sell its three hotels in Rio de Janeiro and exit the Brazil market, three people familiar with the matter said, as it unloads weaker assets and focuses on its core North American operations.

The decision underscores how investments made in Rio ahead of the 2016 Olympic Games have turned into white elephants in a city plagued by rising violence and public finances in disarray.

Host did not respond to requests for comment. The company has 93 hotels worldwide and a total enterprise value of $17 billion, according to its website.

Host emerged from a spinoff of Marriott Corp years ago. In 1993, the Marriott Corp split into two publicly held companies, investing the lodging real estate in Host Marriott, later renamed to Host Hotels. Over the years it acquired hotels from other brands such as Hilton, Ibis and Novotel.

Host, the third largest U.S. real estate investment trust (REIT), entered the Brazilian market in 2010 when it paid $47.5 million in cash for a 245-room JW Marriott Hotel on Copacabana Beach.

Host later invested an additional $67 million in the development of a 256-room Ibis and a 149-room Novotel, both inaugurated in 2014 and operated by France’s Accor SA (ACCP.PA), near Olympic venues in the city’s southern reaches.

“It may be difficult to find a buyer willing to pay what they have invested,” said one of the sources, who asked not to be named because the talks are private.

Dozens of hotels opened in the run-up to the 2016 Olympics in Rio, which had some 50,000 rooms that year, up from 30,000 in 2010, according to Hotéis Rio, a local hospitality association. About 15 hotels have shuttered since the end of the Games.

“No one invested in advertising when the sporting event ended, neither the state nor the city. Everyone turned their backs on Rio once the next city to host the Olympic Games was announced,” said Alfredo Lopes, president of Hotéis Rio.

Business travel has also suffered from setbacks in Brazil’s oil and gas industry, particularly after Rio-based oil firm Petroleo Brasileiro SA (PETR4.SA) was ensnared in a widespread corruption scandal.

A weak economy and excess rooms have pulled down hotel occupancy rates in Rio to 55% this year from 75% in 2014, said Claudio Marcelo Costato, commercial director at consulting firm Binswanger Brazil, citing data provided by hotel operators association FOHB.

Host’s annual reports highlighted opportunities in Brazil beginning in 2012, citing both the Olympics and soccer’s World Cup in 2014, which the country hosted. However, the hopeful tone evaporated in the 2017 report, which flagged “economic and over-supply issues in Brazil.”

The crisis facing some hoteliers is a buying opportunity for others.

“It would make sense for Accor to consider buying the hotels from Host depending on the price agreed, especially to convert the one in Copacabana,” to one of Accor’s brands, said a source close to the French company.

Accor did not immediately respond to a request for comment.

Accor has recently invested in Latin America, agreeing last year to pay around $105 million for the management company behind Chile’s Atton Hoteles and spending about $50 million in 2017 to run 26 of Brazil Investment Group’s hotels.

($1 = 3.9728 reais)

Reporting by Gabriela Mello; Editing by Brad Haynes and Jeffrey Benkoe

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