Foncière des Régions has announced the signing of a €400 mln strategic investment partnership with Meininger Hotels to support the hotel brand's expansion across Europe.

Foncière des Régions has announced the signing of a €400 mln strategic investment partnership with Meininger Hotels to support the hotel brand's expansion across Europe.

FdR, through its 28%-owned subsidiary Foncière des Murs, announced on Wednesday that it has formed a commercial partnership with Meininger Holding under which Meininger will source assets to be acquired by FdR and leased to Meininger itself.

Target cities include Amsterdam, Barcelona, Brussels, Berlin, Geneva, Hamburg, Frankfurt, London, Madrid, Milan, Munich, Paris, Rome, Vienna and Zurich, the companies said in a statement.

Over the next four years, the JV could translate into up to €400 mln of hotel investments.

'The partnership with Foncière des Régions is an important step for our expansion in Europe,' commented Navneet Bali, CEO of Meininger Hotels. 'Meininger's aim is to operate an "urban traveller's home" in every major European city. The collaboration with Foncière des Régions is an exciting step in this direction.'

Meininger is a subsidiary of Holidaybreak, a specialist travel group which in turn forms part of Prometheon Holdings, itself part of Bombay and Luxembourg-listed Cox and Kings Ltd.

Founded in 1999, Meininger currently operates 7,089 beds and 2,093 rooms in 16 hotels across 10 European cities.

EUROPEAN HOTEL EXPANSION
The partnership with Meininger is part of FdR's growth plans in the European hotel sector.

PropertyEU announced earlier this week that Foncière des Régions was working on the launch of a new subsidiary focusing on European hotel properties. The new company is being created to follow the group’s 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 which 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, told PropertyEU. The focus will be on hotels with margins (EBITDA) of over 30%, he added.

It is understood that FdR’s partners in the existing hotel business FdM will participate in the new company with similar stakes. They include insurers Generali (20.5%), Predica (15%), ACM Vie (14.3%), and Cardif Assurance Vie (10.2%).

‘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.

Earlier this year the company, which manages a €3 bn portfolio of 404 hotels, already signed a partnership agreement with B&B for the financing of nine new hotels in Germany over the next three years. The new B&B hotels, representing 900 rooms located in town centres of major German cities, are due to open by 2016.

Over the summer, Foncière des Régions' hospitality arm also made its first acquisition in the Netherlands with the purchase of the four-star NH Amsterdam Centre hotel from NH Hotel Group for a total of €48 mln. The deal allowed FdM to secure a new hotel partner and advance its strategy to develop the business across Europe.

Ozanne: ‘We were convinced in 2005 that we could apply the FdR partner strategy to hotels as well because operators were looking for investors to buy their assets. Today we are one of the few hotel-focused investors in Europe and the only one that is listed.’

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.’

The European hotel sector has emerged as one of the top performing property sectors last year offering returns of 6.6% versus returns of 5.9% for the wider market, according to the IPD Pan Europe Annual Hotels Index.

Hotels outperformed all property types in 2013 except industrial. Of the 12 countries measured, the UK saw the strongest performance in 2013 with a total return of 11.2%, more than double the 2012 figure of 5.2%. The UK was followed by Austria at 6.4%.

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