GIC announced on Tuesday its purchase from Blackstone of a 35 percent stake in Mediterranean luxury hotel owner Hotel Investment Partners (HIP) in a move to capitalise on the burgeoning resort market in southern Europe.
The acquisition puts 72 more hotels into GIC’s portfolio of European hospitality assets, according to an announcement by Asia’s largest sovereign fund, as it looks to profit from a post-pandemic rebound in international tourism.
“We look forward to working with Blackstone and HIP’s management team as they continue to deliver on HIP’s strategy to enhance existing assets, while capitalising on the growing global and domestic demand for high quality Mediterranean resorts,” said Lee Kok Sun, chief investment officer of real estate at GIC.
The parties did not disclose financial details of the transaction, which was reported by the Financial Times to value Blackstone’s European hotel platform at €4 billion ($4.2 billion). The Singapore sovereign fund announced its bet on European hotels on the same day that news from Australia showed it taking a 45 percent haircut to exit a Sydney shopping centre investment with ASX-listed retail REIT Vicinity Centres.
Spanish Luxury in Style
“This partnership with GIC, alongside the controlling interest from Blackstone, is a further vote of confidence in the HIP business and the resort hospitality sector in Europe. The partners’ cumulative size, scale and capital will bolster our ability to continue the transformation of the hotel landscape in Southern Europe,” said Alejandro Hernández-Puértolas, founder and chief executive of HIP.
Acquired by Blackstone from Spanish banking group Banco Sabadell in 2017, HIP currently owns a portfolio of 73 hotels representing 21,831 keys across Spain, Portugal, Italy, and Greece and counts Ritz-Carlton, Hyatt, Hilton, and Marriott among its operator partners.
HIP has built its holdings via a value-add strategy of acquiring underperforming properties and looking for opportunities to boost returns. The company’s business model focuses on hotel renovation, smart deployment of capital expenditures, asset upgrades and experienced in-house design, brand and technical teams, according to its website.
The investment in HIP is GIC’s latest addition to its Mediterranean hotel portfolio, after the fund in September 2022 acquired a majority stake in Greek luxury resort owner Sani/Ikos Group, in a deal which valued the 10-hotel portfolio in Greece and Spain at €2.3 billion ($2.3 billion). In addition to the 2,750 keys that it acquired through the Sani/Ikos buy, GIC also owns the Madrid Edition, Westin Palace Barcelona, and Hotel Arts Barcelona through its Archer Hotel Capital joint venture with Dutch pension manager APG Asset Management.
Institutional investors are showing interest in Spanish hotel assets as the tourist destination enjoys a post-pandemic rebound in international tourist arrivals, with 57.7 million foreign tourist arrivals in the first eight months of 2023, representing a 20 percent jump over the same period a year earlier, according to Spanish government statistics.
GIC’s equity investment comes as global real estate investors face tight credit conditions in the rising interest environment. Blackstone refinanced the business in March with a €680 million loan from Morgan Stanley and Credit Agricole, according to local Spanish media.
The transaction aligns with an upswing in institutional investments into Spanish hospitality assets, with total investment in the southern European country’s hotel sector having reached €3.3 billion in 2022, its third-highest level on record and exceeding pre-pandemic levels for the second consecutive year, according to a Colliers report.
During this year Spain’s luxury hotel segment has been the primary target for investors with upscale hostelries attracting 52 percent of total capital commitments in the first six months of 2023, according to separate statistics from the property consultancy.
“The fundamentals of the Southern European hotel market continue to be strong with revenue booked for the balance of the year over 20 percent ahead of last year,” said HIP’s Hernández-Puértolas.
Retail Recalibration Down Under
GIC’s Aussie exit sees the Singapore institution handing back its stake in the Chatswood Chase mall in Sydney’s northern suburbs to Vicinity Centres at nearly half the valuation from its 2017 investment in the property. The A$307 million sale price also represents a 6.5 percent discount to the property’s June valuation as disclosed in Vicinity’s most recent financial statements.
In an asset swap with Vicinity six years ago, GIC had acquired the shopping centre at a A$562.3 million valuation in exchange for its 50 percent stake in Sydney’s Queen Victoria Building, The Galeries, and the Strand Arcade, a trio of shopping centres in the city’s central business district which had a combined valuation of A$556 million at the time.
GIC representatives had not responded to inquiries from Mingtiandi regarding the disposal by the time of publication.
Peter Huddle, chief executive of Vicinity Centres, said in the REIT’s annual general meeting on Wednesday that the group’s first move after taking back full ownership of the Chatswood asset will be to launch a A$620 million revitalisation project in March of next year. In preparation for that renovation, the mall is now mostly vacant, Mingtiandi understands from market sources.
On the same day that it announced its Chatswood investment, Vicinity stated that it would sell Roxburgh Village, a shopping centre located about 23 kilometres north of Melbourne’s central business district to Hong Kong investment house JY Group for A$123 million, representing a 8.8 percent premium to the property’s June book value. In September of last year JY had picked up a half-stake in a suburban Sydney shopping centre from Telstra Super for $78 million.
In September, Vicinity Centres sold its 50 percent ownership in Perth’s Midland Gate mall to Hong Kong private equity firm PAG and Melbourne-based real estate fund manager Fawkner Group. Located northeast of the capital of Western Australia, the shopping centre sold for A$500 million, which was around 23 percent below the initial asking price of A$650 million.
Nick Willis, senior director of retail investment at JLL in Sydney, told Mingtiandi that investment in Australia’s retail sector remains constrained with private investors or managers raising domestic capital as the primary buyers.
“We are continuing to see a growing weight of capital re-engage on major retail assets, however, it is very discerning with a focus on core metropolitan markets and those assets that are land rich and provide a form of mixed use development,” Willis told Mingtiandi.
Capital Deployment Continues
The Chatswood Chase transaction is GIC’s latest move Down Under after the fund agreed to sell Australian trailer park operator Serenitas for A$1 billion to a partnership between property manager Mirvac Group and local investment firm Pacific Equity Partners in September.
Despite the disposals, GIC remains active in the Aussie property market, having invested A$400 million in a condo venture in October 2022. That deal came two months after the fund acquired a half-stake in an Amazon-anchored Melbourne office project for A$800 million and four months after the June 2022 opening of its Australian headquarters in Sydney.
With an estimated $769 billion under management, GIC has been expanding its holdings in Europe, including teaming up with US multi-family investor and operator Greystar in December 2022 to acquire 23,000-bed student accommodation provider Student Roost. Also last year the sovereign fund teamed up with APG to invest in Amsterdam-based student housing platform The Social Hub.