Terranum Hotels Holding, the Panama-based hotel owner and development company, is reported to be in talks to buy Hoteles Decamerón Colombia, the Colombia-based hotel owner and operator, for an estimated USD500m.
The deal will add more than 45 hotels to Terranum’s estate, at a time when investors are turning to Latin America and to the MINT countries in search of growth.
Terranum, which has described itself as ‘brand agnostic’, includes five separate real estate units, including the hotels division, which is focused on developing and acquiring properties in the select services segment without, it said “losing sight of the importance of offering exclusive hotel products in the luxury and great luxury segments”.
The group, which is owned by Grupo Santo Domingo, the private investment vehicle of the Santo Domingo family, currently has hotels under brands with Starwood Hotels & Resorts, Marriott International and Four Seasons Hotels & Resorts, with the goal of becoming “the largest lodging platform in Central and South America”.
In an interview on the group’s website, Rogerio Basso, VP of Terranum Hotels, said that the group, which has five hotels, would be announcing a series of new-build hotels and was also “exploring development alliances with strategic groups in key geographies. On a mid-term basis, we will pursue accretive acquisitions of single assets or regional portfolios that complement our existing platform. This should allow us to build critical mass in an accelerated manner”.
Basso said that the group had identified a gap in the market in region, where the “common thread of strong economic fundamentals, rising middle class, availability of credit, and increasing income levels are resulting in increased travel activity, both corporate and leisure”.
Basso said that the company appreciated that, on the acquisition side, there were limited select services assets available in Latin America, which meant that it would consider assets in top tier urban markets regardless of their positioning – as long as they were under an international brand or could feasibly be converted to one.
The company’s target, Decameron, currently owns and/or operates over 45 hotels in 16 countries primarily in Central and South America, but also Europe and Africa, operating as all-inclusive sites. According to a report in La República, Terranum will only buy 27 of the properties, with those in located in Senegal, Morocco and Libya left out of the deal in line with the group’s Latin American focus.
Basso said that the major lodging operators had “created, enhanced and adapted their brand prototypes to satisfy the needs of Latin American customers”. The deal came as Starwood Hotels & Resorts – which includes Terranum hotels amongst its estate – announced plans to expand in Latin America, as investors turn from the Piigs to the MINT countries.
The group said that, responding to strong demand for business and leisure travel in Colombia, it would double its footprint from four to eight hotels by 2016. Starwood has two Alofts under management agreements with Terranum, in addition to the W Bogota, which is due to open during the third quarter of this year. With other owners it has two Four Points hotels, in Cali and Medellin, which are targeting domestic business travel and operates the Sheraton Bogota, one of 33 Sheratons in Latin America.
Across the whole of Latin America, the company has close to 80 hotels and plans to open 17 more, increasing its portfolio by 20% by 2016. Starwood described itself as the largest high-end hotel operator in Latin America, with its momentum is largely driven by vigorous growth in Mexico, its seventh largest market in the world.
“With sustained GDP growth, a stable influx of foreign direct investment to high-growth markets, and a fast-rising middle class, Latin America continues to be a region filled with growth opportunities for our globally recognised and admired brands,” said Frits van Paasschen, president & CEO.
Starwood is not alone in having identified Latin America as a key growth region. Marriott International announced plans in 2012 to double its portfolio in the region by 2017, from the 59 hotels it had at the time.
President & CEO Arne Sorenson said: “The opportunity is enormous. The much higher rates of growth in places like Latin America and Asia will cause us more and more to shift to a global mix of revenues and travelers. People as they build wealth want to travel. As their economies grow, they need to travel to do business.”
HA Perspective [by Katherine Doggrell]: Mexico has been named as one of the next likely economic growth countries, alongside Indonesia, Nigeria and Turkey. Economist Jim O’Neill, who coined the term ‘Brics’, has labelled them ‘MINT’. Owners and operators alike will hope they help them coin one indeed.
But it turned out with the Brics that some of them were less of a sound foundation and more of the ‘building-a-house-on-sand’ variety, as opportunity was foisted on countries which were not equipped to fulfill it.
This has not yet been the case as yet with the Latin American countries, where investment has been encouraged by the regional governments, in the main. The listing last year of Fibra Inn, the Mexican-based Real Estate Investment Trust, indicated to many that hotels were a viable investment opportunity, alongside the more established options of oil, gas and infrastructure.
As at Terranum, the focus at Fibra Inn is on the business travel sector, with the Reit’s CEO, Víctor Zorrilla, commenting on listing that it aimed to become “one of the key players in the Mexican hotel sector”, being “committed to disciplined growth …employing a long-term vision”. The group also looks at the select service brands, which it says offer both “excellent organic growth and acquisition opportunities”.
Fibra has been as good as its word, earlier this month announcing that it had a acquired a lot in Ciudad del Carmen, one of the leading oil-producing cities in Mexico, on which it plans to build a Fairfield Inn & Suites by Marriott. The group now has 21 hotels in operation plus three under development, up from the 14 hotels it had at listing in March 2013.
Since Sorenson made his comments, the region has looked shakier, with the 0.2% growth in GDP recorded in Mexico in the fourth quarter, according to the country’s National Institute of Statistics and Geography, below the forecast 0.6%. Barclays Capital said the weak growth was probably the result of slow US imports and a “still fragile domestic consumer”.
In contrast, Colombia this week saw the country’s finance minister describe its economy as getting “very close” to its potential in the first quarter, with GDP up 4.9% in the fourth quarter, beating the central bank’s 4.6% forecast, led by public works projects and home-building. The IMF has forecast 4.5% growth for the year and Capital Economics has said that it expects to see Colombia overtaking Argentina as the third-strongest economy in Latin America this year, behind Brazil and Mexico.
So it’s not all cocaine and cartels any more. Or less so, since negotiations began with the FARC rebels in 2012. Terranum is convinced, with Basso describing the country as “sustainable”. He is alive to the perils of rushing in, warning of seeing pockets of over-supply, relying on the company’s strong local knowledge to assess which markets are at risk.
Music to the ears of the operators, whose aspirations in these countries are often matched by a lack of enthusiasm to risk their balance sheets. Terranum describes itself as ‘brand agnostic’ and, with the operators champing to get into the region, it’s hard to imagine why it would be any other way. The beauty parades must be a sight to behold.