Saudi Arabia’s sovereign wealth fund, which is set to be turbo-boosted by Saudi Aramco’s upcoming IPO, has teamed up with three other investment titans to buy AccorHotels’ €6.6bn (£5.6bn) property business.
Public Investment Fund of Saudi Arabia joins Singaporean sovereign wealth fund GIC, French asset manager Amundi and US REIT Colony NorthStar in exclusive talks to buy HotelInvest, which owns around 1,183 hotels.
Accor is expected to retain a stake of around 20% of the company and a deal is due to be finalised within the next two months.
The sale will allow Accor to return cash to shareholders and reinvest into its business as it responds to new competitors such as Airbnb.
■ See also: Accor, world’s largest hotel empire targets millennials
PIF was founded in 1971 and, despite having around $183bn (£142bn) of assets under management, it has historically been relatively inactive and more of a holding fund for the country’s assets.
However, over the past year the fund has become increasingly more prominent as the country looks to diversify its economy away from its reliance on oil following the collapse of the price of crude since 2014.
The HotelInvest portfolio
HotelInvest holds around 1,183 owned and leased hotels, comprising 167,000 rooms.
These are operated by HotelServices, AccorHotels’ operational arm.
Some 96% are operated by Accor’s midscale brands, such as Novotel and Mercure, or its economy offerings such as Ibis and HotelF1.
The majority of the portfolio, 82%, is located in Northern, Central and Eastern Europe, including Accor’s domestic French market. The remainder is located in North and South America and the Middle East and Africa, with a small minority in Asia Pacific.
HotelInvest is headed by chief executive John Ozinga, the former president of CBRE Global Investors in France.
PIF had $27bn of central bank assets transferred to it last year and it is it set to be the main beneficiary of next year’s Saudi Aramco IPO. Saudi Arabia is to float 5% of its $2tn oil reserves and $100bn of the proceeds are expected to be diverted to PIF.
The fund has been aggressively expanding into the technology sector and last year bought a stake of around 5% in Uber for $3.5bn, as well as contributing $45bn to a tech fund alongside Japan’s Softbank.
PIF has not historically been a major investor into overseas real estate but it is understood to have been closely examining a number of large-scale transactions in the sector. According to RCA data, more than $3.74bn has been invested into European real estate from Saudia Arabian investors in the past year.
The world’s largest pension funds are increasingly allocating a greater proportion of their investments into real estate in order to take advantage of the relatively higher returns the sector provides.
Japan’s £1tn Government Provident Investment Fund, for example, is in the process of preparing to invest into property for the first time, and is planning to allocate 5% of its spending to alternative assets.
EY is advising AccorHotels.
More funds will flow from Saudi
Hassan Farran, director of cross-border investment, Savills, writes: Having spent the past week in Riyadh and Jeddah, I would say that there is strong appetite for international real estate investments, both commercial and residential.
Over the past few months we have detected a slight uptick in activity from investors in several of the Gulf Cooperation Council countries, including Saudi Arabia.
More recently the slight recovery in the pound is leading some investors to conclude that the period of weak sterling may be coming to an end and that it may be time to deploy before it recovers further. We are seeing this especially on bigger ticket deals of £50m or more.
While a recovery in the pound might put a slight damper on appetite for sterling-denominated investment opportunities in the short term, in the longer term this would be outstripped by the continued desire to diversify funds internationally.
The Public Investment Fund of Saudi Arabia has been active recently, especially domestically and regionally where a lot of government legacy projects have been passed onto it to resolve. I believe it is still finding its feet, but with a seemingly large pot of capital to deploy into real estate it will undoubtedly be focusing on large deals.
I would expect it to primarily deploy the money in partnership with some of the large global investment managers to outsource the process, and to achieve sufficient scale and
deal flow.
To send feedback, e-mail david.hatcher@egi.co.uk or tweet @hatcherdavid or @estatesgazette
