Atlantico Hotel Advisors reports: why now is the time to be buying hotels in Europe

Dec. 13, 2012 - PRLog -- Atlantico Hotel Advisors, a boutique European and African hotel consultancy with offices in Dublin and Amsterdam, is reporting on the timing for hotel acquisitions in Europe. Lured by continued distress, more realistic values and attractive TTM yields, hotel investors doing deals in Europe now stand to benefit most. While most reports show a drop-off in transaction levels during 2012, this is being driven by outside factors and influences such as lack of finance (still a problem), lack of product (there is more off-market than on) and economic uncertainty, rather than a lack of desire to participate in the upside. (http://www.atlanticoha.com)

The most important outside influence is the economic uncertainty in Europe. The perceived market risk - together with bank and owner distress – is putting pressure on values. At a minimum, it means there is more for sale now than ever before. In many cases, what is for sale is the debt behind the property or portfolio, but this can still be a route to the asset or an investment opportunity in its own right. What is clear is that many of the property/debt opportunities are not being promoted through traditional broker or agency channels. Rather, acquisitions must be coordinated directly with banks or their affiliated parties.

Private equity, in particular, is already increasing its focus on Europe and also its acquisition pace in the hotel space. According to a recent New York Times article, the Blackstone Group, Lone Star Funds and Colony Capital have all been beefing up their presence in Europe. Blackstone recently purchased the famed Burlington hotel in Dublin, while NH Hotels’ board reports to have received a purchase offer from KKR, who also reported their intention to invest up to $500 million in European deals in the short term (source: Bloomberg). Meanwhile, Starwood Capital recently announced a Q4 2012 IPO of its new European property debt investment platform, estimated at around $500m.

Meanwhile, tourist arrivals and hotel performance in Europe are actually increasing. In many markets, the drop-off in domestic travel has been replaced by leisure demand (driven by new outbound markets), and to a lesser extent, a return of corporate travel. A November 2012 UN World Tourism Organization report indicates European tourist arrivals having increased 3% year-over-year. Good growth was recorded in core markets: Germany (+7%), France (+5%) and the UK (+4%). The reality is people are still visiting Europe and will continue to do so. Hoteliers are benefiting from the current environment in two ways, top line performance increases and improving margins.

According to STR, European RevPAR (in Euros) was up 5.1% through October 2012 versus the same period last year. This was led by Northern and Eastern Europe, as both areas boasted RevPAR improvements over 9%, but RevPAR also increased in Southern (+1.3%) and Western European (+2.8%) through the first 10 months of the year. Figures show the increases were driven almost entirely by improving average rate, and this has benefited hotel margins. Over the last two to three years, European hoteliers have implemented their own austerity measures. Now with improving top-line performance, these measure are driving EBITDA levels higher.

As time goes on, a recovery and these proven improvements in performance will begin to get priced back into hotel acquisition opportunities. So, savvy investors should be looking to take advantage now of current discounts and opportunities.