FdR to launch new European hotel vehicle

French listed property giant Foncière des Régions is 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, said 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.

EUROPEAN STRATEGY
Having raised €200 mln in a capital increase last week, FdR’s hotel arm is likely to strike a new hotel deal sooner rather than later, probably in a market such as Germany where the company already owns some 15% of its hotel assets.

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%.