Hotels will continue to grow in popularity as an asset class, with investors becoming ever-more diverse, delegates at the IHIF in Berlin were told.
The anticipated transactions will come as supply coming into the market rises, with delegates divided over whether it could be absorbed by the expansion of the global travel markets.
Philip Ward, EMEA CEO, hotels & hospitality, JLL, told the conference: “The emergence of hotels as a mainstream asset class was the major shift in the hotel sector in the last 20 years”.
Commenting on the changing identity of investors, Ward said: “There is not as much investment coming out of China, but the rest of Asia is expected to pick up the baton. From the Middle East, investors are more risk averse and are trying to protect their portfolios and expand them at the same time.
“Major economies scheduled to hold elections in 2017 include Germany, France and the Netherlands. As the outcome of these is determined throughout the year, we expect investment volumes to gradually intensify. Hotel owners’ expectations have reset and there’s an increasing proportion who want to sell now, as many markets are still expected to see a sharpening of yields, as opposed to waiting for one or two more years when hotel performance might plateau.”
In a study released to coincide with the conference, HVS forecast that, looking to the political year ahead, “investment activity should somewhat intensify as these events take place and remove – or otherwise – some element of uncertainty”.
The company added: “Regardless of the political situations, hotel values in Europe still have some room for growth, as markets, such as some in the PIGS countries, continue to climb the value ladder to their rightful position”.
One company expected to be active in the transactions market in the current year is AccorHotels, which is due to sell a stake in its HotelInvest business, to be known as AccorInvest.
Sébastien Bazin, chairman & CEO, AccorHotels, told the conference: “We’re going asset-light, we’re late to the trend, not because we like it or we don’t like it, but the equity analysts don’t know how to value an asset-heavy company so we paid the price. AccorInvest is going to go way beyond EUR10bn in assets and they want to grow and they need to grow and I can’t invest in that and technology at the same time.”
Commenting on the composition of AccorInvest, Guarav Bushan, chief development officer, AccorHotels, told us: “We will be open to the new brands in HotelInvest, because HotelInvest is a financial animal. In the end the brands have got to deliver a financial return, we’re not into brands which are just cool. If the brands do their job HotelInvest will be open to all the brands. We’re already working on some projects for Jo&Joe which could be in HotelInvest.
“More than half our development comes from existing owners and in Europe it’s up to 70%, so a lot of Jo&Joe opportunities are coming from Ibis owners. Our whole game plan is to build relationships with existing owners. It’s efficient and you get economies of scale. You keep fulfilling owners’ needs and they don’t go to alternative companies. It’s all about brickwalling, not just the customers but the owners. Our objective is that, if they are not doing business exclusively with us, they are doing business mostly with us.
“People move radically between segments now, they are much more used to segmenting their needs and it’s the same for owners. People who are serious hotel investors want exposure in the different segments. In the luxury segment it’s about capital growth and in the economy sector it’s about cashflow and investors look for a spectrum of investments which balance their risk and return.”
BLP, which also released a report for IHIF, reported that it expected high net worth individuals to be the most active equity investors in the European hotel market this year.
The report said: “Activity in the first quarter suggests that, as the Brexit picture becomes clearer in the UK, many will be looking to capitalise on the window of stability and make their exits now, leading to some unexpected portfolios being marketed.”
Lack of distress in UK means private equity will make way for “someone with a lower cost of capital” and remain net sellers, Dominic Murray, senior director, head of cross border transactions, EMEA, CBRE Hotels told us.
James Chappell global business director, Horwath HTL, added that, while private equity money was starting to withdraw, “fund money is taking over in Europe chasing after those assets”.
Attracting investors to assets is the strong performance in Europe. Despite declines across several major markets, Europe’s hotel industry posted a 2.1% year-over-year increase in revpar in 2016, according to STR.
Robin Rossmann, STR’s managing director, said: “In terms of major markets, Paris and Brussels should start to regain stability this year, provided there are no further security threats. London hotels should benefit from a weak sterling, but this will be partially offset by continued supply growth, as there are more rooms in London’s pipeline than in any European country with the exception of Germany and Russia.”
Despite the growth in supply, rooms were expected to be filled. Ward concluded: “Despite all the concerns – the terrorism, the geopolitical uncertainty – travel and tourism continues to rise.”
HA Perspective [by Katherine Doggrell]: The split between the haves and the have not property in the hotel sector made its presence felt at IHIF in Berlin. The sector is eyeing IHG, knowing that it has no more assets to sell to cheer shareholders up with, while, at Marriott International, Sorenson commented that asset-light was: “Really about growth. If you tried to own everything it would be impossible to be a success. This year we are opening 90,000 hotel rooms in one year, The amount of money that represents is astonishing. We have a USD250bn property portfolio”.
Well, the royal ‘we’, Mr Sorenson. Marriott International is more flexible than most, being prepared to buy assets to promote the brands it needs to use to convince owners that their assets will be worth more and throw off more cash with than without.
The view from the sidelines at IHIF was that, for owners, the scent of power was in the air. The number of new distribution options are growing yearly and the brands are not the only game in town. Asset-light may be working for the operators, but owners want more skin in the game and are realising that they don’t need the brands as much as they did. Operators which cover all bases and are seen as sharing alignment may rise in popularity.
Image: Chappell, Scriven, Ward, Rossmann