French hotel REIT seeks Europe growth under new name
 
French hotel REIT seeks Europe growth under new name
30 MAY 2018 8:32 AM

French REIT Foncière des Régions, which includes hotel division Foncière des Murs, has changed its name to Covivio and will continue to concentrate investments in four European countries.

PARIS—French real estate investment trust Foncière des Régions has changed its name to Covivio, with its dedicated hospitality and hotels division, Foncière des Murs also being branded under that identity, according to sources.

The news comes in the same month the REIT entered the United Kingdom with a purchase of 14 hotels from Starwood Capital Group, a portfolio that included 10 properties under the Principal Hotel Company that was created by Starwood Capital.

At the same time, Covivio’s hotel division—or Foncière des Murs as it was known then—signed a long-term lease agreement with InterContinental Hotels Group, who will take over the management of the assets.

Covivio’s hotel division, with assets of €6.6 billion ($7.6 billion), plans to increase its hotel ownership across Europe but especially in four key markets—France, Germany, Spain and the U.K.

The parent company Covivio invests across all real estate classes and owns 42% of what was Foncière des Murs.

Covivio has assets of €21 billion ($24.3 billion), said Gaël Le Lay, its deputy CEO, and already has a unique position across the main European hotel markets..

He said the company’s strategy evolved significantly since the hotel division adapted to the changing business model of its asset-light hotel partners by investing in both real estate and hotel businesses.

“Today, we are very agile on the market because we are able to do lease, management and franchise agreements, which, for a French REIT, is not always the natural way,” Le Lay said.

Covivio is targeting what it considers to be the most attractive European cities in the main hotel markets, with the goal to have a critical size to be able to accompany its partner operators in their development, Le Lay said.

The group is also looking to increase its exposure in the upscale segment to better balance its portfolio of economy, midscale and upscale hotels, Le Lay added.

UK debut
Covivio’s move into the U.K. hotel market is significant, according to Le Lay. The agreement with IHG also will see some of that firm’s brands make a debut in the country.

“Basically, we are building a new partnership with IHG,” he said. “Several assets will be rebranded as Kimpton Hotels, thus enabling the launch of the lifestyle IHG brand into the U.K. Other hotels will be split between IHG brands and some may remain under the Principal brand, operated by IHG.

“This acquisition is completely in line with the upmarket strategy for the hotel portfolio. The group has also targeted 4- and 5-star hotels in Spain and Germany in the last two years.”

He said France represents 35% of the portfolio, Germany represents 26%, the U.K. comprises 18% and Spain makes up 11%.

“The strategy is to consolidate these four markets, markets we strongly believe in, but also to look at other markets such as Italy,” Le Lay said.

Covivio has full or part ownership interests in two other European REITs: Beni Stabili, an Italian REIT specializing in office real estate; and Immeo, a similar subsidiary from Germany.

According to a company news release, Immeo and Beni Stabili should be fully merged into the new Covivio by the end of 2018. At that point, Covivio will include those two REITs and the hotels division formerly known as Foncière des Murs.

“Italy makes total sense from a leisure perspective, but it is not that easy to enter this market largely dominated by family ownership,” Le Lay said. “With Beni Stabili, we can benefit from their support and local network, just as we did in Germany with Immeo, the German subsidiary specialized in residential assets.”

Covivio is also interested in hotel markets in Eastern European and Nordic countries, Le Lay said.

Strong partners
Covivio is looking for good hotel partners, Le Lay said.

“Our DNA is to develop partnerships,” he said. “When we do a strategic deal with the right operator in a country, as with IHG in the U.K., we like to duplicate the same scheme on a larger scale. We are looking for long-term partnerships. The aim is to gain critical mass on each market, so when an operator wants to grow, he comes to us.”

The group aims to support the most profitable operators and is primarily looking for the best operator for each product, he said.

Le Lay said Covivio works with approximately 20 hotel operators and 25 brands. AccorHotels is Covivio’s largest partner, with some €1.7 billion ($2 billion) invested in the company. IHG has become Covivio’s second-largest partner following the Starwood Capital deal, Le Lay said.

“IHG gives us more exposure on the international market, and this partnership is in line with our strategy of upgrading and balancing segments,” he said. “Along with our major partners, we are willing to continue to develop the European presence of brands such as Meininger or Motel One and also invest in new concepts and lifestyle products.”

Covivio recently opened the first Motel One in France, in Paris’ Porte Dorée area, and is currently developing the first Meininger hotel in Paris, in Porte de Vincennes, which is scheduled to open in 2020.

Next steps
Le Lay said Europe will remain Covivio’s focus as its executives believe the continent will still enjoy the most growth in international tourism and revenue-per-available-room growth between 4% and 6% per year.

Le Lay said midscale and upscale assets will be targeted as “these assets benefit from significant potential average price increase in dynamic locations.”

Covivio has almost 500 hotels in Europe on its books, Le Lay said.

“(In) the upcoming years, (Covivio) is looking for opportunities in liquid markets and in attractive cities with a strong ability to perform,” he said.

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