Invesco’s €313-million ($356 million) buy of three Lisbon hotels sets a new transactions record for Portugal, but sources say it is not fair to say this is a new birth for the country, although other opportunities are available in what remains a fragmented market.
LISBON—Invesco Real Estate has made its first buys into Portugal in a sale-and-leaseback deal that sets a country record in terms of the transaction price, three hotels in the capital Lisbon for €313 million ($356 million), according to sources.
All three properties—285-key Tivoli Avenida Liberdade Lisboa, 279-key Tivoli Oriente Lisboa and 119-key Avani Avenida Liberdade Lisbon—were owned by Thailand’s Minor International, which finalized its 94.1% buy of Spain’s NH Hotel Group in October 2018.
All three properties will be managed under a hybrid lease agreement by NH, which has a market capitalization of €1.9 billion ($2.2 billion).
According to an accompanying news release, the purchase now brings Invesco’s European portfolio “to 25 investments in eight countries with over €1.5 billion ($1.7 billion) of (assets under management).”
In addition, NH is taking over management of a further nine Minor hotels in Portugal and two in Brazil, another Portuguese-speaking nation.
David Kellett, senior director of hotel transactions, Invesco, who until November 2018 was VP and head of development at InterContinental Hotels Group, said Invesco had acquired the real estate in the deal and leased them to NH to operate for “20 years, plus various extensions” via a couple of its European hotel funds.
The record transaction price derived from the large room count in the portfolio, Kellett said, who added that also of attractiveness were the hotels’ different micro-locations and demand drivers.
“Those are long-term demand drivers,” Kellett said, “and having a really solid lease, a hybrid lease means we will benefit from the upside.”
According to data from STR, the parent company of Hotel News Now, May 2019 hotel occupancy in the three hotels’ upper-upscale segment in Lisbon increased 5% year over year to 86.7%, but a 0.9% average-daily-rate decrease to €167.79 ($190.72) contributed to a 4.1% revenue-per-available-room increase to €145.55 ($165.44). Year to date through May, occupancy in Lisbon's upper-upscale segment is mostly flat (+0.1% to 69.7%), but ADR is up 3.8% to €145.37 ($165.23) and RevPAR is up 4% to €101.28 ($115.12).
Gonçalo Garcia, director, hospitality division, at business advisory Cushman & Wakefield’s Lisbon office, said the Portuguese investment market has been strong for the last five years and said it was a mistake to compare Portugal’s fundamentals with Spain’s.
“Unfortunately, we could not get involved either on the sale or buy side of (the Invesco-NH) deal as everything was done directly by the parties involved, but in the upcoming months I expect to see something similar,” Garcia said.
Javier Serrano, country manager, Spain and Portugal at STR, said both Lisbon and Porto still are both hotspots for international investors and international hotel companies.
Lisbon is the more popular of the two.
Serrano said such firms want to enter “under any management formula, or even by purchasing and owning the asset, but they all are finding it difficult to get in the market because assets are no longer price-attractive or affordable, and also because how assets in the market are distributed.”
“It’s a very fragmented market in terms of ownership. Assets are mainly owned by independent family owners, which makes negotiations more difficult,” Serrano said.
Kellett added Invesco completed similar sales-and-leaseback deals with NH prior to Minor’s ownership of NH.*
“NH has always been great to work with, and it is nice to rebuild that relationship,” he said.
Invesco has no imminent plans on expanding in Portugal, he said, with its strategy focused on buying and operation in key European gateway cities.
“We focus on multiple demand drivers and sources, but now with a base in the capital city Porto is a possibility,” Kellett said.
Garcia said that Lisbon is very appealing, with international recognition, good quality hotels and guest demand, as does Porto, certainly if visits to the Douro Valley wine region are added.
“Portugal is not seizing the moment from Spain. It has its own dynamics, but there are not as many opportunities as there are in Spain, not so many large portfolios,” Garcia said.
Garcia said the Invesco-NH deal is more of an outlier operation but is cognizant of its intrinsic value.
“NH’s business model is very appealing to institutional investors,” Garcia added.
Serrano said over the last three years there has been a boom in boutique hotel construction in Lisbon, mostly conversions to hotels from other real-estate classes but that they have remained independently managed and owned.
“Lisbon has strong demand growth and as a result strong (revenue per available room) growth, and we believe that is set to continue,” Kellett said. “Also, supply growth is not as bad here as in other cities. Supply is moderate, and demand continues to come from leisure and international travel, from the U.S. and further afield.”
Kellett said that other pluses are a Portuguese government that is very pro-tourism and a new international airport in development.
*Correction, 27 June 2019: This story has been updated to correct Invesco's history with NH Hotels.