With most public companies having reported their 2020 results, it seems a good time to take the temperature of the hotel investment sector.
We decided to take a look at three European-based investors to see how they performed in 2020 and how they view the coming years.
Hotels make up around 15% of Covivio’s portfolio. The company, formerly known as Foncière des Régions, said that the Covid-19 pandemic had reduced hotel revenues by 55% to €57.6 million on a like-for-like basis. The group’s overall revenue only fell 9.4% to €609.5 million thanks to a better performance in its biggest two sectors offices (65% of portfolio) and German residential (25%).
Even with the pandemic still raging in parts of Europe, Covivio is still betting on the sector over the long term. “The exceptional crisis facing the hotel industry does not call into question the solid fundamentals of the European hotel market,” it said in its annual results statement. It expects domestic, leisure travel to drive any bounce back, saying its portfolio meant it was “well positioned to benefit from the recovery”.
Secure Income REIT
Budget hotel assets make up 20% of Secure Income REIT’s portfolio value and comprised of 123 Travelodge hotels in England, Wales and Scotland at the end of 2020. At one point during last year it looked like the REIT would be moving to another brand after Travelodge concluded a Company Voluntary Arrangement. Ultimately it decided to stick around despite having to forgive £14.5 million in rent. It expects to take another hit to its expected rental cash flow of £8.9 million this year.
But even with this sustained hit, the company remains positive.
“While we cannot examine the performance of the budget hotels sector following previous pandemics, we can look at periods of recessions and post recession recovery where it can be observed that budget hotels recover more quickly than the rest of the hotels sector,” it said in its annual results statement.
Overall the company swung from a pre-tax profit of £154.5 million in 2019 to a loss of £113.3 million in 2020.
"The Covid-19 pandemic has created significant challenges for our leisure and hospitality tenants, which has in turn had an impact on the Company's results, particularly in the first half of the year,” Martin Moore, Non-Executive Chairman of the Company, said.
Union Investment, part of Germany’s DZ Bank, has 77 hotels in its real estate portfolio, representing around 16%. In total it has around €5.9 billion in hotel property assets.
More than half of the portfolio is in Germany (in terms of asset value) with the second largest market being the United States.
According to the results for its parent company, Union Investment had a very good year. Pre-tax profit was pretty much flat at €649 million – an impressive achievement in the circumstances. The Hamburg-based real estate investment manager invested around €4.1 billion in the European commercial real estate markets in 2020, securing a total of 62 properties or projects for its real estate funds through a combination of single-property and portfolio deals. It didn’t break down how many of these deals involved hotels.
And like many others in the sector it is gearing up for a big year.
“When the markets recover, not least in the hard-hit hotel and retail segments, we intend to take advantage of that momentum for our investors in 2021. We will deploy all our resources and the entire real estate team in Hamburg, along with our offices in Paris, Madrid, New York and Singapore,” CEO Michael Bütter said.
Insight: We’re not exactly comparing apples with apples, but these three companies show that appetite in the sector remains strong with all staying focused on long-term goals. All have pretty diversified real estate portfolios and perhaps fortunately hotels only represented a smallish piece of the total pie. That doesn’t mean they are not bullish for the future.