APG and GIC Real Estate have launched a jointly-owned European hotel investment vehicle, Archer Hotel Capital.
The launch followed last year’s purchase of a stake in AccorInvest by GIC, as the sovereign wealth fund looked to strengthen its long-term position in Europe.
The Archer Hotel Capital portfolio comprised 11 hotels located in major cities across Western Europe with a gross asset value of around EUR2.1bn. All the hotels were formerly part of the Host Hotels & Resorts European joint venture, with APG and GIC Real Estate having bought out Host’s 33% stake last year for around EUR700m.
The shareholders intended to spend an additional EUR300m “to capitalise on opportunities to further enhance one of the best quality portfolios of its type in Europe”.
The portfolio was formed of: Le Méridien Piccadilly, Hotel Arts Barcelona, Westin Palace Madrid, Brussels Marriott Hotel Grand Place, Paris Marriott Rive Gauche, Renaissance Paris La Defense, Renaissance Amsterdam, Hilton Amsterdam Airport, Sheraton Stockholm, Sheraton Berlin Grand. and Renaissance Paris Vendôme, giving it over 4,000 rooms.
Lee Kok Sun, CIO, GIC Real Estate, said: “This consolidation reflects our confidence of longer-term European business and tourism prospects, and enables us to scale up exposure to a portfolio we know well. We will continue to look out for opportunities to acquire high quality assets that deliver commensurate risk-adjusted returns over the long term. We look forward to working with the management team and playing an active role in the strategic direction of the vehicle.”
Robert-Jan Foortse, head of European real estate, APG said “We believe that European hotel real estate provides a compelling investment case for us, and for our pension fund client ABP, and we are pleased to have secured the opportunity to increase our exposure to a portfolio of institutional quality assets in prime locations across the continent. We believe that Archer Hotel Capital will be uniquely positioned in a European context, with its long-term horizon and high-quality capital sources allowing it to unlock complex investment and value enhancement opportunities.”
Host Hotels & Resorts will continue to provide transitional support to the portfolio.
The exit of Host Hotels & Resorts from Europe followed the appointment of Jim Risoleo, president & CEO, at the end of 2016. At the Reit’s third-quarter results last year, Risoleo said: “While we have been successful with our platform in Europe and very grateful to our partners for helping to build a strong business over there, we believe it is the right time for the company to focus its efforts where we can have the most impact for shareholders, which is owning a geographically diverse portfolio of assets here in the US.”
After the withdrawal, less than 2% of Host’s EBITDA came from outside the US, with only two hotels in Canada and three hotels in Brazil.
Last year also saw GIC, together with a group of international investors, acquire 55% of AccorInvest.
The sovereign wealth fund said: “AccorInvest is the world leader in hotel real estate with a current portfolio of 891 hotels. The majority of these hotels are located in Europe, in the economy and midscale segments. This investment will enable GIC to gain exposure to AccorInvest’s large and well-diversified portfolio, with resilient cash flows and attractive opportunities for value creation.”
The AccorInvest hotels will be operated by AccorHotels under very-long-term contracts, namely 50 years for luxury and upscale hotels, with a 15-year renewal option, as well as 30 years on average, with a 10-year renewal option for hotels in the midscale and economy segments.
APG, meanwhile, has other interests in Europe in the form of CitizenM, where, in 2006, it joined KRC Capital as co-investor. The two have appointed an investment bank to find an additional investor to fuel the brand’s global expansion.
HA Perspective [by Katherine Doggrell]: GIC has made a name for itself as a sober, long-term investor and, with APG, the opportunity to acquire Host’s stake in the European jv made a lot of sense – under the terms of the jv APG and GIC had to approve whoever Host sold to, so, well, gift horses and all that.
We are unlikely to see a sudden rush to buy, although, as we have seen with GIC in the past, they may be slow to consider, but they have the firepower which makes them quick to act. Investment now is likely to focus on existing properties, with a dash of opportunism.
In keeping with the location of the hotels, we may also see some shift in the branding, which until now has tilted towards US-leaning brands. GIC was one of the key players in the AccorInvest sale last week and has a long relationship with the French company. Freed up from the restrictions of being partnered with a Reit, operations are now an option and, in those circumstances, thoughts have a tendency to wondering whether a brand is required at all, particularly given the profile of some of the properties.
And, in speculation corner, it is an open secret that Citizen M is looking for further investment. Could GIC step in? Archer has not shown signs of looking to develop and Citizen M is not yet offering conversions, but as one of the sector’s more distinctive brands, it would be an opportunity which would be hard to pass up.
Additional comment [by Andrew Sangster]: The hotel industry has historically been structured in an unusual way in that the owners of capital have been disadvantaged relative to managers of that capital. The big hotel brand and management companies had, for decades, been able to set the terms for any owner seeking to stick a well-known flag on his/her property.
This began to change as the hotel brand companies pursued an asset light strategy, increasing the presence of organised and active owners. Smart lawyers got to work on the one-sided management contracts, rebalancing them towards the interests of owners.
But, relatively, owners were fragmented and comparatively small in scale against the hotel brand company giants. This has now clearly changed.
Combining the EUR2bn of Host together with AccorInvest, Accor’s spun-out property wing in which GIC also has a major stake, gives an owner with capital of EUR10bn or so. Owners not only have the legal nous to take on the hotel brand companies but they now have the muscle too.