The fund, which is subject to regulatory approval, is intended to enable strategic identification, acquisition and development of hotels, focusing primarily on value-add investments across Europe.
The repository will launch with the initial contribution of the firm’s existing asset in the Italian capital, art’otel Rome, and an equity commitment of up to €75 million from cornerstone investor Clal Insurance (with an upper limit of 49% participation). PPHE’s Roman property is currently undergoing refurbishment and repositioning ahead of its opening as Italy’s first art’otel in Q1 2024.
The Clal deal builds on PPHE’s existing successful partnership with the insurance and financial services firm in relation to two key London assets.
In its initial form, participation in the fund will be 51% by PPHE and 49% by Clal. In consideration for its 51% participation, PPHE will contribute the ownership of its existing Rome asset to the fund for an agreed value of €29.3 million. Clal will subscribe an initial €28.1 million in cash for its initial 49% participation.
PPHE has committed to participate in the fund for an amount up to €50 million in cash and/or assets. In the coming year, additional investors will be able to participate for the remaining €125 million equity, following the receipt of regulatory approval.
With full equity subscription and combined with a targeted 50% bank leverage the investment potential of the fund will be around €500 million. The repository will have an initial life of seven years, during which time it aims to deliver an attractive double-digit IRR for its investors, by focusing primarily on value-add investments and applying the well-established PPHE strategy.
Investors in the fund will be able to benefit from and tap into PPHE’s integrated owner-operator model, driving optimal operating performance through enhanced access to recognised brands as well as an uplift in real estate value.
The fund is also further intended to drive the growth and value of PPHE’s scalable hospitality management platform, as the company will be appointed as the hotel management company for all hotels acquired through the facility.
Where appropriate, PPHE will leverage its access to Radisson Hotel Group’s portfolio of brands, which provides instant access to global distribution and booking platforms, reward programmes and customer databases, and a wide range of commercial benefits.
Boris Ivesha, president and CEO of PPHE Hotel Group, commented: “This new fund represents another significant step forward for PPHE strategically, as we continue to expand our leading portfolio of premium hotels while also taking advantage of our unique flexible and scalable in-house hospitality management platform.
“The fund enables us to accelerate our ability to capture the attractive opportunities we see in front of us, via the use of non-dilutive third-party capital, while also playing to our strengths as a fully integrated acquiror, developer and manager of attractive city centre hotels. This also provides a compelling financial return profile for all fund investors, including PPHE, helping to further drive our future growth and enhance returns for our own shareholders.”