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The boom in REITs reaches the hotel sector assets

The boom in REITs reaches the hotel sector assets

The boom in REITs reaches the hotel sector assets

Real Estate Investment Trusts (REITs) have become in vogue investment vehicles on the stock market. The first investment trust with hotel assets appeared in Spain last year, and we’re expecting to see new specialised REITs created in the hotel sector this year.

Investors have been keeping a keen eye on the hotel sector thanks to the Spanish economy’s favourable dynamics over the previous 12 months and the record-breaking moment we’re experiencing in tourism in our country. Not only have yearly investment figures increased but they have also gained a greater share of the overall commercial real estate market.

Regarding the profile of investors, REITs have played a pivotal role, and this must be emphasised. They have become the market’s principal driving force due to the substantial commitment made by these vehicles. According to Irea, the real estate consultancy firm, in 2015 alone the level of investment reached a whopping €2,614 million in 2015, exceeding the highest previous amount registered in 2006 by 50%

REITs are paving the way for groups to separate the property management of the establishment. They offer significant tax advantages and also help to boost professionalism in the sector. This model, which focuses on the purchase and the restoration of property assets for rental purposes must invest at least 80% of its funds in property and maintain dividend payout ratios of at least 90% from income deriving from the rent.

Hotel chains and real estate professionals must be aware that the biggest challenge in the sector is the importance of understanding that the management of the hotels and the property are in separate hands. In this new era, REITs are a perfect tool to reduce risks, to be more competitive as a group and also more efficient when it comes to expansion. I would go so far as to say that, in this case, the restructuring real estate capital in the sector has been triggered by the lack of financing, the drop in prices, and the existence of an adequate legal and tax framework. Investors can now access the property without the hassle of managing it, and hotel groups maintain the management role without being the owners.

REITs are therefore a financing formula to facilitate expansion and internationalisation, they provide the answer to the problem of family-owned business succession and pave the way for integration between larger groups and smaller chains. They also favour greater transparency and control, improve the professionalism of the management teams and provide a more objective evaluation of the assets and rents as they have to share out a minimum dividend.

To conclude on the hotel investment market outlook in the current year, and taking into account that both equity and debt capital markets have an enormous cash flow to invest, in addition to the fact that Spain has become the preferred destination for investment at a European and global level. I would anticipate the 2016 financial year finishing very active in the hotel investment market and the creation of new REITs is sure to be one of the major players in the sector.

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