CDL Hospitality Trust buys 95% of four-star Italian hotel for $63.6m

This marks its maiden entry in the country.

CDL Hospitality Trust (CDLHT) acquired a 95% stake in the four-star Hotel Cerretani Florence, Italy under MGallery by Sofitel for $63.6m (€40.6m). The deal is expected to be completed in a few weeks’ time.

According to an announcement, the remaining 5% will be held by the existing minority shareholder, a part of the EVENT Hotels Group.

Hotel Cerretani Florence has 86 rooms and recently went through an extensive phased refurbishment in 2016 for $68.6m (€43.8m).

CGS-CIMB analyst Eing Kar Mei noted that this is CDLHT’s maiden entry into Italy. The country is expected to account for around 1.5% of net property income (NPI).

The lease on the property is about 20 years and the lease structure is based on 93% of the net operating profit of the property, subject to a base rent of €1.3m. Eing said, “We understand RevPAR for the property is around €150 whilst average occupancy rate is more than 75%.”

The analyst noted that with the acquisition will give CDLHT exposure to a historic city such as Florence, which is one of Italy’s most visited cities. “There is also a vibrant exhibition and fair calendar, which includes the ‘Pitti Immagine Uomo’, a biannual international fashion exhibition that attracted more than 30,000 visitors in June 2018,” she added.

Meanwhile, on the supply side, there is limited future room stock due to high barriers to entry stemming from new urban planning regulations prohibiting new hotel developments in the city centre.

A point of concern for the analyst is the lower-than-expected acquisition size and yield. Eing said that their forecasted 2019-2020 earnings per share (EPS) for CDLHT has been reduced to 4.2-4.3%.