The AHV Hospitality Index underperformed against the broader hospitality industry index and the overall European market in August, although it still outperforms year-on-year.
Increasing Covid-19 cases in Europe, the US, and China alongside uncertainty on when travel restrictions will ease created market turbulence. However, we are encouraged by industry data provided by STR that gross operating profit for US hotels reached 84% of the comparable 2019 level. That indicates a gradual return to normality, and Europe could follow the same trend.
Furthermore, CBRE reported record quarterly performance gains for hotels, with EMEA corporate travel doubling from the previous quarter.
Many major hotel groups have published their interim reports, with earnings partially bouncing back. Hotel groups Melia and NH returned to profit, and TUI generated positive operating cash flow in its third quarter. Together with recent comments by hotel company CEOs, these numbers suggest that the return to normality is occurring quicker than expected, although we are not there yet.
Global hotel investment activity for the first half of 2021 reached $30 billion, three times greater than the total value in 2020, reflecting a surge in optimism for the industry that we expect to continue in the second half of the year. According to STR, the number of hotel openings in Europe is expected to hit an all-time high in 2021, with more than 100,00 new rooms estimated for the year.
Additionally, capital is being raised at a fast pace, which is highlighted by Schroders’ new hotel fund surpassing its €500 million target and the launch of Insula’s new €100 million fund. Meanwhile, the issuance of sustainability linked bonds from real estate companies has spiked in 2021, with €22 billion of SDG-linked notes having already been issued so far this year, up from €12 billion in 2020.
The pandemic has done little to curb the industry’s appetite for all-inclusive expansion, with Hyatt’s agreement to acquire Apple Leisure Group for $2.7 billion, turning up the heat in an already white-hot sector. The transaction was the biggest all-inclusive play by a leading global hotel company to date.
Other notable transactions in August include:
- The merger between Aria Resorts and Away Resorts for £600 million, creating a staycation powerhouse in the UK resort sector.
- The joint venture formed between Flynn Properties and Värde Partners in the US, to acquire 20 select-service hotels in a $211 million deal with Apple Hospitality REIT. This acquisition is part of a broader business strategy by Flynn Properties to increase its select-service hotel footprint.
- The formation of portfolio company Mission Hill Hospitality by private equity firm KSL Capital Partners created to acquire select service and extended stay hotels. It has acquired 12 hotels so far.
These transactions, along with others announced in recent months further confirm the attractiveness of resorts and select-service hotels to investors post Covid-19.
Andrew Harrington is a partner and the co-founder of AHV