Covivio has completed the acquisition of the portfolio of eight hotels located in Rome, Florence, Venice, Nice, Prague and Budapest for €573m, including €86m of capex.
The deal, which closed at the same price agreed in January, took Covivio to a portfolio of €6.8bn hotels, located in the city-centre of major European touristic destinations.
The deal will see the hotels operated by NH Hotel Group through long term triple net lease contracts with minimum guaranteed variable rent, generating a minimum yield of 4.7%. At the time the transaction was agreed the group had a yield target of 5.8% (including the 4.7% minimum guaranteed yield). The agreement has an initial duration of 15 years, extendible at NH Hotel Group’s option to 30 years.
The portfolio includes several emblematic hotels such as the Palazzo Naiadi in Rome, the Carlo IV in Prague, the Plaza in Nice and the NY Palace in Budapest. Covivio is pursuing a capex programme of €86m for the entire portfolio. Värde Partners bought the hotels from Boscolo in 2017, for €450m.
The hotels will be operated under the NH Collection, NH Hotels and Anantara Hotels & Resorts brands.
Ramón Aragonés, CEO of NH Hotel Group, commented on the deal: “following our integration with Minor Hotels, this transaction represents an extremely important milestone in our shared ambition to continue to expand the luxury brand Anantara Hotels, Resorts & Spas in Europe, while marking significant progress on our strategy of creating added value for NH Collection´s customer base via new hotels and destinations.
“This agreement reinforces the collaboration between Covivio and NH Hotel Group, which dates back to 2014 and has since unlocked advantageous deals for both parties in the Netherlands and Germany”.
Covivio’s relationship with NH began with the acquisition of a hotel in the centre of Amsterdam and then continued between 2016 and 2018 with the purchase of 10 hotels in Germany, the Netherlands and Spain.
In total, Covivio has a portfolio worth €25bn, with 15% of the estate in hotels, 60% in offices and the remainder in residential.
Covivio said: “Despite an unprecedented crisis, Covivio, through this investment, highlights its confidence in the long-term fundamentals of the hotel industry and its capacity of recovery. Covivio, with its recognised platform and solid track record, is currently partnered with nearly 20 hotel operators, representing about 30 brand names spread out over 12 European countries.”
Commenting on the group’s half-year results, in July, Christophe Kullmann, CEO, said: “During the 1st semester, our offices and residential activities (84% of our portfolio) performed well. On the other hand, hotels have been directly impacted by an unprecedented crisis. During this period, we reinforced our exposure in Germany, with €1.2bn acquisitions, and made significant progress in our sales plan, with new agreements signed for €400m. More than ever, our capacity to adapt and the diversification of our portfolio are key strengths in order to deal with the crisis and prepare tomorrow’s growth.”
Philip Camble, director, Whitebridge Hospitality, told us: “The dearth of deals at the moment is feeding a circular reference market. Dearth of deals means that values and yields are uncertain. Uncertain values mean that banks cannot lend reliably. No bank lending means fewer deals. The uncertainty around values is driven by lack of trading data, due to Covid-19, so until hotels can generate trading accounts again, this circular situation is likely to persist for some time.
“Unless a buyer can pay in full in cash, a deal is unlikely to happen - presumably Covivio paid all cash and were thus able to close the deal with Värde and then appoint NH as planned. Most buyers are in need of debt to support their purchases and so therein lies the limitation that is constraining the deal market. Until banks can rely on valuations again, this limitation will remain.”
Insight: At least Camble is saying dearth and not death and this deal has been through the wringer and come out the other side looking pretty much as it did on the way in: no shrinkage and no unsightly stains. The portfolio needs investment and, with two hotels currently closed, no trading is not so much of an issue. Indeed, as many have found, now is a pretty good time to get those gold bannisters buffed, if you have the money to do so.
Covivio will be looking for that 5.8% yield at some point, however, if only because the office market may not hold the group up forever.
According to a webinar hosted by HVS this week, it was felt that revpar and values would return to 2019 values in 2023, which means something of a longer hold than anticipated for many. But what’s not to enjoy about owning a hotel? As we are seeing across the sector, hoteliers are broadening what their properties can do to earn money - time to put the local socially-distanced school in your ballroom.