Date: October 2018
Locations: Belgium, France, Germany, Netherlands, Portugal, Spain & UK
Name: They work most closely with chains such as AccorHotels – operating nearly one-quarter of Covivio properties as well as IHG, B&B, Radisson, Marriott and NH.
French REIT/SIIC Covivio has pared hotel holdings to 400 hotels and now targets seven European cities, operating profit of over 30% and cooperation with operators to establish best use of the real estate, say its top executives.
Dominique Ozanne, MD of Covivio Hotels and group deputy CEO, told a Capital Market Day meeting in Milan that after a flat period post-GFC the travel market is growing at an unprecedented pace.
“We are a unique player in the hotel industry, with a large portfolio and located in seven countries so we are well diversified both in terms of market and in our operators,” Ozanne said. “We have critical size in all countries where we own hotels, and are often the preferred partner.”
The Paris-based group holds one-third of its portfolio in its home nation, 28% in the major German cities, another 16% in the UK, 13% in Spain of which 80% in Madrid and Barcelona – plus a small holding in Portugal – and 9% in Belgium and Netherlands.
One of Covivio’s biggest coups was the acquisition in spring by its then-named Foncière des Murs of a 14-hotel British portfolio in 4- or 5-Star categories from Starwood Capital, for which it paid £858m (€976m).
“Our strategy is very simple,” Ozanne said. “We want to be focused on the major European cities, those with over 2m in population. We want to buy the best assets with over 30% EBITDA margins, and be in a strong position for negotiations with the operator.” The division is open to new ideas and ready to adapt to the expectation and strategies of its clients.
The division maintains dynamic management of its portfolio and has recently sold close to 100 hotels that did not fit the strategy, Ozanne added. “Today we have 400 hotels and in each one we are tracking the way to capture value creation… The fundamentals for the future are very good; the market in Europe is not consolidated and the chains want to increase their market share – they want to be in the best locations in the strongest cities.”
For this reason, Covivio focuses on Paris, Berlin, Madrid, Barcelona and London. In these cities the firm now holds 80% of its assets, which it aims to raise to 100% by 2022. “We want to find partners that have a long-term strategy. This is very important as the market is going to consolidate among the main operators… Half of our portfolio is with four of the six leading players in the world, which means that today we are working with 31 brands.”
Covivio Hotels Deputy MD Gael Lelay said the strategy is stresses diversification. The firm maintains an optimised balance between secured cash-flows with fixed leases to operators, and those based in variable revenues which can benefit from business growth.
This helps to deal with unforeseen events such as the Paris terrorist attacks in November 2015 which depressed visits to the French capital for some time. Overall, the portfolio yields 5.2%.
“A key element is the vacancy factor; we have no vacancy since 2005, never a single empty building and that gives us huge security. Our lease portfolio has contracts running 14 years on average, which is quite unique in the real estate industry,” Lelay said.
The group aims today to re-open the Park Inn on Berlin’s Alexanderplatz, which it has fully refurbished together with the operator.
He said the hotel has benefited from the Covivio Hotels upgrade program which is based on three main drivers: persuading operators to make and share capital expenditure to refurbish in pursuit of better yield management, creative thinking on how to create value through improvements, identification of the real estate potential of the property – whether it can be developed or extended etc.
Chief Investment Officer Elsa Tobelem told the meeting that the group has achieved rental increases by simply changing the operator of a hotel property.
There is huge demand, she noted. One recent tender process in Madrid attracted 15 offers, and Covivio decided on Radisson which wanted to place its new brand Red in the city. A 20-year contract was agreed at a higher overall return. Radisson also agreed to do a €7m capex refurbishment.
“There is often rent reversion potential of at least 30% in some of these contracts so we need to negotiate with each operator to catch this growth,” Tobelem said.
Vanguelis Panayotis, COO of hospitality adviser MKG Group, said hotel investments Europe hold the most potential of all global regions since visitor numbers, particularly from Asia, will continue to soar long term.
Airbus forecasts of passenger traffic shows that European destination airports will have the strongest in the world out to 2034. However the continent, at just 33%, has by far the lowest penetration of hotel chains – far less than half the 73% penetration in the US and well below Asia’s 47%.
“There is a lot of potential in hotels in Europe,” Panayotis said. “New players are coming in from Asia and entering the top 10 brands, with particularly high interest being shown by players in China for this industry.”
THPT Comment: Covivio have done well with their recent acquisitions and interesting thoughts of what makes them different.
First Seen: Business Immo.eu