Iceland capital ponders sensible way forward for hotels
Iceland capital ponders sensible way forward for hotels
08 MARCH 2016 8:52 AM

Panelists at the Iceland Tourism and Investment Conference & Exhibition praise Iceland’s growing tourism and hospitality industries, but admit investors are still hesitant to fund capital for new projects.

REYKJAVIK, Iceland—As tourism to Iceland grows, the structure for raising capital for hotel projects grows ever more important. But both banks and stock exchanges are grappling with how to make that happen, who to raise capital from and how to make the growth sustainable.

Currently only one hotel and travel company, Icelandair Group, is listed on Iceland’s stock exchange, the NASDAQ OMX Iceland, which formed in 1985.

Two panels held during the Iceland Tourism Investment Conference & Exhibition discussed finance for the country’s hotel and hospitality arena.

In “The Icelandic tourism industry and the stock exchange” discussion, Páll Harðarson, CEO of NASDAQ OMX Iceland, said now is a great time for tourism companies to expand, with 3.5% growth across the board and a 30% increase in tourists.

“It is large growth that we do not see the end of, but this makes shareholders very careful, as it is a volatile industry,” Harðarson said, who added the Icelandic stock exchange has been criticized for not being open to small and medium-sized firms.

He hinted this would change.

“Smaller, more simple tenders are a key component of NASDAQ Stockholm, and Iceland wants this, too,” Harðarson said. “In addition, more transparency will add more feasibility. … Profits have increased with registration on the stock exchange, and we can support tourism by instigating financial discipline.”

Kolbrún Jónsdóttir, managing director of venture capital firm Kjölfesta, and a board member of hotel firm Íslandshótel, said she believed most firms in the Icelandic hospitality industry would remain unregistered, with the majority of their capital deriving from pension companies.

“There is enough money out there, but it is interesting to think what kind of investors tourism would want. At the top of shareholder concern always is the interaction between risk and yield,” Jónsdóttir said.

She said hotels and tourism in Iceland would benefit from having professional investors on board.

“It means you have done your due diligence and gives you a quality stamp. Wide knowledge is in the interest of everyone,” Jónsdóttir said.

Davið Ólafsson, COO of Íslandshótel, which has five hotels in Iceland, said he received offers from capital on a daily basis.

“I get offers to diversify out of hotels, but I am a hotelier, I run hotels,” Ólafsson said. “There is a lot of capital about. … A boom? There will be some relaxations at some point.”

Yield and risk in a rapidly growing industry was heavily debated at the second panel, titled “Access to capital: Financing in the tourism industry.” Panelists also discussed the lack of industry data.

Árni Thór Thorbjörnsson, managing director of corporate banking, Landsbankinn, said “Icelandair is not registered as a travel company. Numbers are difficult to come by.”

He also suggested there was the possibility of there being too many hotels in the pipeline.

“The pipeline we all hear about is, though, from ideas all the way to construction,” Thorbjörnsson said.

Banks are back
During the last recession, Iceland’s banks suffered some of the worst damage seen globally and approached collapse.

But panelists said they are now prepared to play a role, along with the help of foreign investment, in the growth of Iceland’s tourism industry.

Thórður H. Hilmarsson, director of investments at business lobby Promote Iceland, said Iceland tourism would prosper from foreign capital, with new funds and knowledge likely to create more value and growth.

“We would benefit as a nation and as an industry. … Mergers and refinancing also might help create better yields,” Hilmarsson said.

Freyr Thórðarson, managing director of corporate banking at Arion Bank, said foreign investors have historically been concerned about Iceland’s infrastructure. Its roads outside of Reykjavik often were narrow, and many single-lane bridges still existed, panelists said.

“They ask ‘is your infrastructure growing, and in a sensible way?’” Thórðarson said.

Arion, Thórðarson added, was a partner in Marriott International’s Edition hotel being built beside Reykjavik’s Harpa Conference Center.

“There is access for capital for the right product with the right strength,” Thórðarson said.

There are Icelandic investment funds looking solely at Icelandic tourism, one of which, Landsbréf, was established three years ago.

Its fund manager, Helgi Júlíusson, said companies need year-round operations and not to be in competition with existing entities to spark the funds’ interest.

“We want to be active investors, with a seat on the board,” Júlíusson said.

Iceland barriers
Several barriers to entry exist for the hotel industry in Iceland, panelists said.

One was the shortness of Iceland’s hospitality season. Panelists said that is changing, with some regions now doing well in the winter, even though days are short. Another was the existence of government-mandated investment regulations.

Promote Iceland’s Hilmarsson said regulation affected all inbound capital, but European Union investors were able to sort out red tape more quickly.

“It is more difficult for those investors needing exemptions from government ministers. You do have to ask if this is in keeping with the times,” Hilmarsson said.

“Another unusual point is that it is usually municipalities that own the land, so hotels have to lease it,” Hilmarsson added.

As for Icelandair Group itself—apart from owning two airlines, it also owns Icelandair Hotels Group with a portfolio of 21 hotels in the country—it, too, is investing.

Its SVP, Halldór Benjamín Thorbergsson, said the company’s hotel division was partnering with Hilton Worldwide Holdings on an upcoming Canopy brand property and two for its Curio by Hilton soft brand collection. It also is spending $6 billion on planes from Boeing, which he said constituted a huge amount for an Icelandic company.

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