Barcelo’s REIT fills investment void in Spain
20 MARCH 2015 7:58 AM
With a joint venture between Grupo Barceló and Hispania Real focusing on Spanish resorts, the real estate investment trusts structure has arrived in Spain.
MADRID— Grupo Barceló and Hispania Real’s new real estate investment trust aims to fill a gap in Spain’s hotel investment landscape.
“There is a lack of institutional investors in hotels here and especially resorts, so this creates a vehicle to give exposure to the sector,” said Javier Arús, Hispania’s director for hotel investment, speaking of Bay, a hotel REIT focused exclusively on resort properties in Spain.
“This is a fine opportunity as the resort industry here is by far the largest in Europe,” Arús added.
Under the terms of the agreement, Hispania will acquire 11 of Barceló’s hotels (3,946 rooms), plus a shopping center. A second phase will give the REIT the option to take over five more of the group’s properties (2,151 rooms) and another shopping complex.
If and when the second option is completed, Hispania will have invested €339 million ($360 million) for 80.5% of the REIT, while Grupo Barceló will have a 19.5% stake, with an option to acquire up to 49% through capital increases.
According to a news release announcing the deal, the 16 hotels and two shopping centers have a value of €421 million ($446 million). The partners will together pool €35 million ($37 million) for property upgrades.
Hispania, which listed on the Spanish stock exchange on 14 March 2014 and operates in the residential and office space, has six hotels in its portfolio. They are managed by other Spanish hotel companies and could be included in the REIT.
“We spoke to other players in the Spanish hotel industry but chose Barceló as they are among the three or four largest operators in the country, and we needed critical mass or it wouldn’t have made much sense,” Arús said.
“Also, we have worked with Barceló in the past and knew that we had an identical view of the market. In addition, we liked their heavy exposure in the Canary Islands, which is not a seasonal destination,” he added.
Arús described Spain’s hotel sector as a stable industry that recovered fairly quickly from the recent economic downturn. He added that the domestic market is coming back, slowly but surely.
“But at the end of the day, most resort business is not driven by Spanish guests but by northern Europeans,” he said.
In an email interview with Hotel News Now, Vicente Fenollar, economic and finance director of Barceló Hotels & Resorts, said the move was aimed at ensuring continued growth.
“Barceló obtained good results in 2014, and the forecasts for 2015 are also good, both in urban hotels as well as vacation resorts and both in Spain and internationally,” he said.
“At this moment, Grupo Barceló has a clear objective of growth, and this alliance with Hispania is a vehicle which will allow Barceló to enjoy important growth over the next several years in the Spanish vacation segment.”
The initial focus would be on Spain.
Fenollar added that Bay also provides an opportunity for Barceló to reduce its owned assets.
“In 2014, we ended the year with almost 19,000 owned rooms, which is a record for us and represents 60% of our room total. If we continue towards our goal, we’ll end 2015 with a figure of 45%.
“This operation with Hispania will help our balance as the properties which we own will become managed as long-term rentals … as well as allow us future growth with partners with whom we share the investment and the returns,” he said.
Spanish REIT structure
Inmaculada Ranera, managing director, Spain and Portugal, at consultancy Christie + Company, said the REIT agreement makes sense for Grupo Barceló, which has been looking to unload assets to have a better ownership/management mix.
“REITs (known in Spanish as sociedades anónimas cotizadas de inversion inmobilaria, or SOCIMIs) are a relatively recent Spanish phenomenon here, and this is bringing to Spain the U.S. model of hotel REITs, which are an attractive investment vehicle for both Spanish and foreign investors,” she said.
Under Spanish law, REITs are required to return 80% of their profits to shareholders and there are no taxes on earnings, according to Sergio Miguez, a member of the executive committee of the Iberian chapter of the Chartered Alternative Investment Association.
“Also, they have to have minimum capitalization of €5 million ($5.3 million) and at least 50 shareholders, so this makes them relatively easy and cheap to establish,” he said.
Ranera noted that according to Spanish regulations, 80% of a REIT’s assets need to be under a lease agreement.
“In relation to hotels, this is a barrier to acquire hotels under a management agreement with a hotel operator, and this is why I think SOCIMIs might push the leases within the hotel industry versus management agreements (as) hotels operating under that type of agreement will not be appealing for SOCIMIs,” she said.
Ranera said that in the last 18 months she had seen an increase in investor interest in resorts. The key was the sector’s potential for profitability.
Last summer, Spanish news reports said Banco Sabadell, one of the country’s leading financial institutions, was considering setting up a hotel REIT with assets it had acquired through bad loans during the economic crisis.
At press time, Banco Sabadell executives had not responded to HNN requests for an interview.
“Spain and its resort sector are definitely on the radar for international investors as we have seen from the recent agreement between Starwood (Capital Group) and (Spanish hotel company) Meliá,” said Hispania’s Arús, referring to the joint venture involving seven Meliá resorts on the Costa del Sol and the Balearic and Canary islands.
“All the big players are getting involved,” Arús said.