• Investor appetite undimmed

International investors underlined their commitment to the hotel sector with a flurry of major deals around the year end adding up to more than GBP1bn of transactions. Alongside established players, the market continues to deliver new entrants into the space.
Leading the pack was French investor Covivio, which acquired the Boscolo portfolio from private equity investor Varde Partners, for EUR573m. The new owner has agreed to lease the properties to NH Hoteles, which will rebrand them under its NH, NH Collection and Anantara flags. Concurrently, Covivio also acquired the Hilton hotel in Dublin for EUR45.5m.
Varde realised a successful disposal after first acquiring the debt attached to the properties before gaining ownership. Following refurbishments of the luxury properties, it subsequently rebranded the eight hotels as the Dedica Anthology.
For Covivio, the deal with NH meant gearing up a relationship established in 2014, when it bought an NH branded hotel in Amsterdam; and cemented with the acquisition of ten NH branded properties in the Netherlands, Germany and Spain. The properties have been leased to NH on 15-year minimum leases, with a fixed basic rent and variable portion. Following planned capex, Covivio is targeting a 5.8% return on the portfolio.
The addition takes Covivio’s commitment to European hotels to EUR6.9bn, having doubled its portfolio over the last five years. The group has a presence in 12 countries, holding hotels under 30 brands. “Covivio is continuing the European development of its hotel business by establishing itself in the city centres of the twenty most important tourism destinations in Europe,” said deputy CEO Dominque Ozanne. “At the same time, we are both strengthening the quality of our assets, 85% of which are located in the large European cities, as well as our partnerships with leading hotel players in their segments.”
Elsewhere, US investor Marathon Asset Management disposed of a GBP450m portfolio of UK hotels, to Thai buyer DTGO. The 17 properties operate under Hilton and IHG flags including DoubleTree, Hilton Garden Inn, Crowne Plaza, Indigo, Holiday Inn and AC, and are all managed by Valor Hospitality. For conglomerate DTGO, which was founded in 1993, the acquisition was its first foray into the European marketplace.
A further UK deal saw Dutch pension fund investor APG team up with London residential property specialist LCP, to acquire the Harrington Hall Hotel in Kensington. The property was held by the Saudi Olayan Group, which bought it in 2014. The new owners are to launch their own new all-suite hotel brand, with the 200-room property set for a summer 2022 launch.
“This will act as a cornerstone for a new lifestyle brand of all-suite hotels which will be located in key micro-markets across Prime Central London,” said Robert-Jan Footse, head of European property investments at APG. “This acquisition represents an attractive opportunity to gain access to a high-quality property and add value through refurbishment, innovation and repositioning to meet the needs and aspirations of today’s travellers.”
Naomi Heaton, CEO of LCP, said that the company will bring 30 years of experience operating central London rental apartments to the hotel space. “We have the good fortune of having a blank canvas. I think entering into the hotel sector from the residential space provides a completely different approach.” She promised a “refreshingly different” style, adding: “More and more guests are looking for a sense of space.”

HA Perspective [by Chris Bown]: As accountancy firm EY called out 2019 for a growing number of hotel insolvencies in the UK, and others point to the coming storm as rates stall in the US market, so the investors plough on.
Fresh money from Thailand replaces the US private equity investors as they cash out – and as we’ve seen with other Asian investors, they come to the hotel market with fresh, sometimes bold ideas.
Equally, APG’s punt with LCP, which has more experience with serviced apartments, than with hotels, promises a new offering into the vibrant London market. And, as is increasingly the way, there is mention of environmental responsibility in the development of the new brand, which we await with interest.
For Covivio, it’s more of the same, albeit the latest additions to the portfolio give the landlord a promised upside, in the form of variable lease structures. The best of both worlds? The base rent means a 4.7% minimum yield is guaranteed, while the potential upside could take that to 5.8% if the hotels perform as expected.

Additional comment [by Andrew Sangster]: We are witnessing the emergence of some serious hotel investment giants in Europe. Covivio is now player that sits comfortable alongside AccorInvest and Pandox. The total hotels portfolio at Covivio is now EUR6.9bn out of a total property portfolio of EUR24bn. It has doubled in five years.
And Covivio is not just a French player. It is spread out over 12 European countries and is partnered with nearly 20 hotel operators.
The focus is mid and upscale properties, with just over three-quarters of the portfolio in such segments. In addition, 85% is located in large European cities.
The arrival of focused and large investors is going to shift the European hotel landscape ever faster towards brands and more sophisticated operators. Interestingly, the brand groups also include players like NH which appeared to be challenged by the biggest global brand majors.
A willingness to lease and to take capital positions has enabled mid-sized groups like NH to survive and arguable thrive. And it is forcing the global majors to rethink their exclusive asset light position. Not by much yet – deals like IHG with Principal, which also involved Covivio, being one example – but perhaps by significantly more going forward.

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