FdR confirms launch of European hotel investment arm; buys for €104m

French listed property giant Foncière des Régions has announced the launch of FDM Management, its new European hotel arm, as tipped earlier this month by PropertyEU.

PropertyEU reported that FdR was working on the launch of a new subsidiary focusing on European hotel properties in a bid to boost its exposure to the high-yielding hospitality sector.

FdR, which already owns a 28.3% stake in French REIT Foncière des Murs, is creating the new unit to follow its hotel partners – which currently include NH Hoteles, Louvre Hotels, Pierre & Vacances and B&B Hotels - in their expansion across the continent through both acquisitions and new developments.

‘We are going to adapt ourselves to our operators who are increasingly looking for an asset-free strategy. The new dedicated vehicle will have third-party equity and will be a consolidated subsidiary with a focus on budget hotels in growing tourist cities such as Berlin, Frankfurt, Amsterdam and Barcelona,’ Dominique Ozanne, CEO of FdR’s hotel unit and newly-appointed chairman of FDM Management, told PropertyEU. The focus will be on hotels with margins (EBITDA) of over 30%, he added.

The new investment partnership will unite Foncière des Murs, the main shareholder, with ACM Vie SA and BNP Paribas Cardif, two existing shareholders of FdM with 14.3% and 10.2% respectively. Efforts to raise equity capital from other institutional investors are currently under way, with the vehicle expected to reach an investment capacity of at least €300 mln in 2015, the company added.

Other FdM shareholders include insurers Generali (20.5%), and Predica (15%).

‘It had to be a strategic decision for our investors to participate in this new investment strategy,’ Ozanne commented. ‘They are used to real estate leases and not to taking risk in an operating company, which in a way is the case for hotels. But this sector also allows them to increase profitability.’

Typical hotel management contracts which regulate the relation between the landlord and the hotel manager include a 5% fee on the asset’s turnover and an 8% fee of EBITDA. Investment yields are at over 7% in the sector.

To support Louvre Hotels Group, FDM Management is in exclusive negotiations to buy nine hotels in Germany and transform them into 'Première Classe' hotels. The investment will amount to around €49 mln.

FDM Management is also purchasing a Pullman hotel for future completion (VEFA) from Eiffage at the Roissypole site, in the immediate vicinity of the Roissy-Charles de Gaulle airport, with delivery planned for the second half of 2015. This 305-room hotel represents a €55 mln investment and will be operated by Accor via a management contract.

FdR’s hotel arm currently manages a €3 bn portfolio of 404 hotels.

Commenting on the rationale for the planned expansion in the sector, Ozanne said a number of factors contribute to making now a good time to act. ‘Hotel companies are expanding and on a global basis, tourism is booming in Europe. Plus, there is much more interest and liquidity from institutional investors than in the past.’

Ozanne will work alongside Alice Lombard, who has joined FDM Management as chief financial officer. Lombard has 25 years of experience at Accor and was previously director of asset management and hotel partnerships.

See pages 21 to 28 in the December edition of PropertyEU Magazine for more on hotel investment.