• Steigenberger’s InterCity sale-and-leaseback

Invesco Real Estate is to buy four InterCityHotel properties in Germany in a deal worth a total of EUR80m from Steigenberger Hotels.

Steigenberger has signed a 30 year hybrid lease on the properties, which the company said marked the beginning of a “strategic partnership” between the two groups.

The hotels are in Darmstadt, Mainz, Frankfurt airport and Rostock. Under the terms of the agreement contractual liabilities for renovation works will be financed by Invesco for the hotels in Rostock and Frankfurt.

Marc Socker, senior director, hotel fund management of Invesco Real Estate said: “We are delighted to have secured this portfolio which fits our strategic focus on strong real estate fundamentals of income-oriented hotel investments in highly accessible locations, on long-term leases with high brand recognition, an important feature within the hotel industry.

“Our research suggests that the German hotel market is currently one of the strongest hotel real estate investment markets in Europe, thus cementing our decision to buy what we believe are the right assets in the right market, at the right time. The acquisitions also benefit from local demand growth, and the added benefit of large conference facilities.”

Commenting at the end of last year on Invesco’s support of the hybrid lease, Socker said: “Hotels’ typical long-term lease contracts underpin income stability, while the strong partnership between owners and operators/tenants tends to secure and enhance the underlying real estate value through regular re-investment into the properties on an ongoing basis, without the loss of rental income during refurbishment periods.”

InterCityHotels is Steigenberger’s mid-market chain which targets business and city travellers staying at city centres and airport hotels. The group also operates up-market hotels under the Steigenberger brand, which currently has a portfolio of 34 sites in Germany and Austria and, earlier this year announced a new hotel in Rotterdam, to open in 2017.

The IHIF conference in Berlin saw it announce a deal to open a hotel under the flag in Dubai at the end of 2016. “The Middle East represents the next stage in our expansion strategy. The hotel we are planning in Dubai will establish us in a new market and enable us to pursue ongoing global growth”, said Puneet Chhatwal, CEO of Steigenberger Hotel Group.

At last year’s event Chhatwal said that the brand was looking for strategic partners and joint ventures to take it overseas, with the parent company looking to InterCityHotels to drive its future growth. Steigenberger has a total portfolio of 85 hotels, with plans to open around 10 per year, with the target of 120 hotels open or under development by 2016.

The past few months have seen the group’s expansion into Egypt and China, under its eponymous brand. Three further properties are under construction in China with local partners. Chhatwal joined the company in 2012 from Rezidor, where he was chief development officer. During his tenure at Rezidor, the group grew from 150 to the current level of 435 hotels and Steigenberger made it clear on his appointment that his international expansion experience was key to their decision.

Back in Germany, the country continues to prove an attractive market for both investors and brands. The InterCity brand has also attracted the attention of Internos, which this month closed on the acquisition of the InterCity Hotel Leipzig from B & L Gruppe on behalf of the Iternos Hotel Real Estate Fund I. The hotel is operated on a lease and is the tenth hotel to be acquired for the hotel fund since its first closing 18 months ago.

Together with the recently announced acquisition of the Maritim Dresden, which will close shortly, the latest deal represents around EUR70m of investments for the fund since the beginning of this year.

Jochen Schäfer-Suren, partner in charge of Internos’ hotel and leisure division. “In addition we have two or three more acquisitions in progress and thus expect to deploy the remaining equity by this summer.” Later in 2014, the fund plans to launch a successor fund that will also focus on three- and four-star existing leased hotels across Europe.

 

HA Perspective [by Katherine Doggrell]: Germany has become the sober, rational option for investors across Europe. And when it comes to investors, sobriety and rationality are much underrated qualities.

This is within the context of the hotel sector. For the wider investment community, hotels have been a fringe activity, with their complexity and cyclicality seen as off-putting. This is changing, however, as a survey released at the International Hotel Investment Forum in Berlin by BLP illustrated. Institutional investors increasingly value the benefits of hotel property as an attractive real estate asset class, according to 61% of respondents to the study.

Institutional investors who may in the past have been solely driven by asset value are, it is felt, starting to realise that where the hotel operation is of good quality, the potential for better cashflow can be highly valuable. There is work still to be done, with investors struggling to understand the concept of operational risk and how to balance this risk/reward dilemma. Eighty per cent of respondents felt that hotel property is perceived by real estate investors as more risky than traditional commercial property, such as retail and offices.

Respondents also felt that institutional investors still focus on fixed leases and would not risk the benefit of variable income through owning a hotel with a management contract/franchise. Although Germany is known as the land of leases, they had been harder to come by, particularly with strong brands in place. However, the decisions by Accor and Rezidor to leave the leased model behind means that there is now more room for the smaller players such as Steigenberger to move.

Last year was a bumper year for Germany. For the first nine months of the year the market was about 70% ahead of the previous year, according to Colliers, largely thanks to a spate of individual deals and one significant portfolio transaction. The agent forecast that the market would exceed the EUR1.3bn mark.

Foreign investors made up 49% of volume, higher than their 30% share of commercial investment volume as a whole. 23% of the deals were for hotels in the five-star segment, 66% of the deals were for three- and four-star hotels and 10% were for one- and two-star hotels.

It’s not just investors who are looking to Germany. With markets such as China under pressure, the operators are looking at the more established territories for something they may have missed. See Marriott International’s Moxy Hotels for further details – although the company has taken the franchising route, promising that for those investors prepared to take a walk on the wild side, Germany has much to offer.
 

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