• Mexico growing from within

Two of Mexico’s Real Estate Investment Trusts, Fibra Inn and Fibra Hotels, have announced deals which will see them expand within the country using both domestic and international brands.

The agreements come as Mexico’s hotel market is reporting rapid growth, with its pipeline the strongest in the region and new targets from the government as it looks to tourism to bolster the economy.

Fibra Inn (‘Fibra’ is the Mexican term for ‘Reit’), which listed last year, has signed a letter of intent with Operadora de Hoteles City Express, a domestic company, to develop 10 hotels across Mexico over the next two years under the City Express, City Express Plus, City Express Junior or City Express Suites brands. Hoteles City Express will operate at least six of these properties and Fibra Inn up to four.

The company has franchise agreements with InterContinental Hotels Group and Wyndham Hotel Group as wall as operating agreements with Hilton Worldwide and Starwood Hotels & Resorts. The group also has development agreements with IHG, Marriott International and Wyndham.

The REIT, which is focused on the business travel market, raised Ps.4.46bn (USD347m) at its IPO, which it has used to expand rapidly. Aiming for a portfolio of 30 hotels by the end of 2014, at the end of the third quarter it had 27 hotels open, seven in the purchase process and three in development.

The group said that it would continue to focus on growing the portfolio, brand diversification and geographic expansion. Commenting on the results, Victor Zorrilla, president, said: “Our responsibility is to keep adding properties to the portfolio that add value for the benefit of our investors.”

The agreement with Operadora de Hoteles City Express was followed by the news that it had completed the first round of additional fundraising. The REIT plans to add Ps4.1bn to its coffers through the issuing of new certificates to existing shareholders. The funds will be used to pursue expansion.

At FibraHotel the group had acquired the Sheraton Ambassador Monterrey from Starwood Hotels & Resorts for a total of USD13.5m, including renovation to take place over the next two years. The hotel will be operated by Starwood Hotels & Resorts through a long-term management agreement.

After the deal the REIT, which, like Fibra Inn, looks to the business sector, has a portfolio of 66 hotels, with a further 12 in the pipeline. As with Fibra Inn, the group is looking for geographical and brand diversity and has agreements with operators including Marriott International, with whom it has a deal to acquire or develop 20 hotels which will be operated by Marriott.

At the end of the second quarter, CEO Simón Galante described the group as having “an important amount of cash on the balance sheet”, which will be used for further expansion. Shortly prior to the Sheraton buy, the REIT announced a deal with local developers Grupo Plan and Grupo Favier to acquire five hotels with international brands to be developed over the next two years.

Simon Turner, president of global development for Starwood Hotels & Resorts, commented: “We continue to seek the right asset disposition opportunities to create value for our shareholders, and very much look forward to working closely with FibraHotel to ensure the future success of this hotel and as we broaden our relationship to expand our presence in Mexico.”

Mexico is Starwood’s largest market in Latin America and continues to lead the company’s growth in the region. The group said that the agreement with FibraHotel would allow it to add to its portfolio of 28 hotels in Mexico, with six more under development, across eight of its nine brands.

Starwood Hotels & Resorts and Marriott International is not alone in its enthusiasm for the rise of the sector in Mexico. The country’s government has identified it as a source of future economic growth and has set a target to double the number of overnight guests by 2030, to 174 million per year.

The government’s National Infrastructure Programme 2014-2018 plans to boost the economy by attracting national and foreign investment, which will modernise and extend existing infrastructure. The government has put the figure of USD1.37bn on the hoped-for investment in the tourism sector, with projects to include the consolidation of Mesoamerican cultural heritage, the reclamation of beaches, the construction of convention centres and the refurbishment of historical downtown areas of colonial cities.

The future looks bright. According to the October 2014 STR Construction Pipeline Report, Mexico is currently leading the region, with the largest number of rooms in construction (7,957 rooms).

In the short term, it is not all a case for celebration in the country’s hotel sector. As Hotel Analyst was going to press there had been reports of mass cancellations at hotels in Acapulco as protests over a group of missing students turned violent. The apparent massacre of 43 students by corrupt police and drugs gangs serves as a reminder that, as in many emerging markets, there are still curveballs being thrown in to upset the players.

 

HA Perspective [by Chris Bown]: Mexico is a hotel market with considerable upside, having enjoyed steady rate and revpar growth since 2009. And it’s not just the lower or midscale sectors of the market. In Mexico City – one of the five largest cities in the world – brands such as JW Marriott, InterContinental and Hyatt Regency are pressing on with refits to satisfy the upper end of the market. Elsewhere, on the coast, institutional investors are moving into the all-inclusive holiday segment, with Hyatt involving itself alongside Playa Hotels & Resorts.

The two REITs seem to have no trouble tapping investors for cash, and as a result are growing their portfolios fast, encouraging developers to build new hotels. The scenario is ideal for asset-light brands, who are ready to sign the properties for their strong brand flags. If only other emerging hotel markets had such accommodating investors.

While the most “sophisticated” of all Latin American markets, currently, 70% of Mexican hotel rooms are unbranded, according to recent JLL research; yet both business and leisure consumers are seeking the comfort and consistency that a brand delivers. A brand feeling as if it is not keeping pace with its peers may be tempted to buy into one of the progressive local brands, such as the expanding City Express portfolio.

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