Carlyle latest investor to put hotels on the block

With interest in German hotels at unprecedented levels, numerous investors have been bringing in the consultants to review what they are doing – or should be doing – with their hotel assets.

We reported in these pages last month how traditional German brewery group Warsteiner was evaluating a potential sale of its Welcome Hotels chain, with 17 three- and four-star hotels across Germany. Asian investors are looking around for suitable acquisition, and the Chinese group Jin Jang Hotels have bought the French Louvre Hotels. There is a lot of movement in the sector.

Now US investor Carlyle is reported to have mandated investment bank Morgan Stanley to handle the sale or public listing of its B&B Hotels chain, aiming to raise about €1bn and conclude the sale by autumn of this year. Apart from the operating business, Carlyle has already been selling off some of the hotels it owns in the group, most recently 22 units to the French investor Foncière des Murs.

Carlyle owns 80% of the group, having bought it in 2010 from listed French investment group Eurazeo for €480m and expanded it from 223 to 340 hotels. Eurazeo in turn had paid €471m 2007 for the chain. It currently operates budget hotels across Germany, Italy, Morocco, Poland, Portugal and the Netherlands. Germany has seen the fastest growth, with a doubling of hotels to 75, while revenue in Germany has jumped from €40m in 2010 to its current €92.5m.

Launched 25 years ago in Brittany, France, the B&B chain has established itself at the upper end of the budget hotel segment, serving business and leisure travellers.

Germany has seen a surge in hotel transactions this year, with volume rising sharply by 10% over last year to reach €1.48bn for the first six months, more than double the ten-year average of €646m, according to property broker JLL.

€2015 could be a record year, with transaction volume of more than €3bn, if sentiment continues, says Ursula Kriegl, Head of Hotels and Hospitality at JLL. Her division has registered 34 transactions, double last year's first half, with the average deal sizy being €27m. “Last year’s record is close at hand,” she says. “The number of transactions is remarkable… Never before have so many hotel assets (in single transactions) changed owners in a first half.”

The key driver, of course, is the mass of capital available for investment, looking for a safe home with a decent return. Of those buying, institutional investors have been the most active buyer group, responsible for 14 single deals worth €440m, followed by hotel operators (7 deals), high net worth individuals or family offices (5) and private equity investors (3). The ten largest single deals took up €560m of total and included the sale of the Roomers hotel project in Munich to US REIT W.P. Carey for €70m, and the Adina Apartmenthotel in Hamburg for €50m to Commerz Real.

German investors have been to the fore, responsible for two-thirds of hotel deals, worth €555m, followed by US (€100m) and UK investors (€80m). Portfolio transactions fell to €560m from €890m in 1H14. The largest deal was the sale of 18 Accor Hotels for an estimated €150m to German Event Hotelgruppe.

Geographically, Germany's Big 7 cities made up €910m or 60% of the transaction volume. About €600m went into secondary locations, where the average deal size was understandably much lower, at €8.7m per transaction.