State-owned investors are showing growing confidence in the revival of the travel sector with a renewed impetus for hotel acquisitions.
Hotel acquisitions tailed off in the height of the pandemic as the travel industry collapsed. In 2020, investment by state-owned investors totaled little over US$1 billion, which was a quarter of the level achieved in the previous year before Covid-19 struck. As world travel started to slowly ease back to life, in 2021 investment grew to US$1.6 billion and in the first few weeks of 2022 the total has already surged past the US$2 billion mark.
Two deals announced on Monday marked a surge in sovereign deal-making in a real estate sub-sector that bore the brunt of the global Covid lockdowns. Singapore’s GIC stumped up US$1.3 billion for about 30 hotel properties in Japan owned by Seibu Holdings, including some of its Prince brand hotels and leisure facilities, according to Nikkei. The US$744 billion sovereign wealth fund saw the acquisitions as potentially yielding strong asset value growth over the medium- to long-term as the hotel sector bounces back from a severe depression.
GIC has been at the forefront of hotel purchases in the sovereign investor universe in recent years, notably its co-investment with the Netherlands’ APG in CitizenM, a European chain of luxury boutique hotels. It also partnered with APG in the acquisition in 2018 of Archer Hotel Capital in a 50:50 joint venture worth and estimated US$1.3 billion. Also in 2018, it bought a significant minority stake in Accor Hotels alongside other investors, including Saudi Arabia’s Public Investment Fund (PIF). Unlike Middle Eastern sovereign wealth funds, GIC has tended to snap up hotel chains and brands instead of prestige hotels.
Canadian public pension fund manager PSP Investments reached a similar conclusion in recent days and announced that it was joining with global investment group Eurazeo to acquire EUR300 million (US$344 million) in European hotel assets in a 50:50 joint venture. The partners agreed to buy FST Hotels, a Spanish hotel group that owns five hotels in Madrid and Barcelona, operating under the Ayre brand.
Stéphane Jalbert, Managing Director, Head of Asia-Pacific and Europe, Real Estate Investments, PSP Investments, said: “We anticipate the hospitality sector in Europe will present an attractive recovery play as travel resumes and, together with Eurazeo, are working to capitalize on this opportunity.”
Last month also saw a major investment in European hotel properties by a public pension fund – this time, the Netherlands’ PGGM. The Dutch fund teamed up with UK-based L+R Hotels to create a EUR1 billion (US$1.14 billion) European value-add hotel venture launched by LRO Hospitality. The new hotel asset management company LRO Hospitality is set up by L+R Hotels and John Ozinga, former CEO of Accor Invest.
Tinka Kleine, Senior Director Private Real Estate for PGGM, said: “We have added hotels to our city focused investment programme because it offers attractive investment opportunities, both for achieving financial returns and for improving the sustainability performance of well-located assets.”
Investor sentiments are spurred by the deep discounts in full-service hotels, which are traditionally towards the premium end of the market. A return to pre-pandemic revenue per available room (RevPAR) is not expected until 2025, so state-owned investors are not expecting to achieve significant income from their new assets in these developed markets. Yet, they are likely to implement operational changes to bring down overheads through labor optimization and technological improvements in customer and back-of-house services. The importance of sustainability will also come to the fore in the management of hotel portfolios, as state-owned investors lead the way in ensuring all of their assets transition to Paris-aligned net zero targets.