Interview: How TUI will work with investors to grow leisure footprint

TUI Group is one of the biggest names in global tourism thanks to its integrated strategy involving travel agents, airlines, hotels and cruise ships. In recent years, however, it has switched its strategy on the accommodation side moving to an ownership model to one that is now looking to work more with real estate investors.

Last year the company launched an asset management and advisory business as well as a new €500 million fund to finance new hotels around the world.

Hospitality Investor recently caught up with Peter Krueger, TUI’s chief strategy officer and CEO of its holiday experiences division to discuss the company’s approach to hotel investment.

Highlights include:

  • What investors get from partnering with TUI
  • The pipeline for hotel acquisitions
  • The potential for a second fund
  • The types of hotels TUI is looking for

Hospitality Investor: How has TUI’s hotel strategy evolved over the last few years?

Peter Krueger: We have evolved and transformed from a mere holiday trader to a group that is planning, developing and operating its own products and services, including hotels, resorts and modern cruise ships. We are now further developing from a holiday experiences company into a year-round leisure experience provider with whom customers will not only be able to book their annual vacation but also their weekend getaway and concert tickets during the year. 

Pre-pandemic, TUI heavily invested in own hotels as well as cruise ships. For example, in 2019 alone, almost 50 per cent of our total investment of over 1 billion euros went into our hotel segment. We currently own and operate more than 400 hotels worldwide. The hotels are managed under our well-known brands which include TUI Blue, Robinson, Magic Life, RIU and Atlantica.  We have a strong position that we can now build upon and accelerate our growth. On the hotels and resorts side we will focus on growing our portfolio, invest in direct distribution and will expand our hotel brand portfolio.  

Hospitality Investor: What was the thinking behind moving to a new asset light/right operating model?

Peter Krueger: Our asset-right strategy was already launched in 2019 prior to the pandemic. Put simply, it means that TUI will have the right mix of hotel management contracts and hotels under own ownership. The growth of the hotel portfolio will be decoupled more from full ownership investments only, similar to what can be observed in the city hotel segment. For the customer experience, it’s the brand and the quality of hotel that matters, not whether the property belongs to us entirely. So, in essence, we will invest more in partnership models than before.

Hospitality Investor: You launched a hotel investment fund at the beginning of the year, why?

Peter Krueger: The global hotel fund is a good example of such an investment partnership structure. With this fund, we are providing investors with the opportunity to participate directly in leisure hotel investments and to benefit from the vertical integration of the TUI Group, and in particular participate in TUI's successful hotel portfolio and thus also in the development of existing and new holiday destinations. Investors benefit not only from our know-how and experience on the investment side, but also from our brand, marketing and sales power. We think it is an attractive investment opportunity in the holiday hotel real estate asset class and we as TUI, take care of the complete operational business. The strength that we have through our vertical integration is key, as this means we can develop destinations ourselves and ensure that customers can reach a destination with our own airline and transfers.

Hospitality Investor: How much investment have you attracted so far?

Peter Krueger: The global hotel fund, where TUI has a 10% equity participation, has a gross target volume of €500 million. We have already raised a significant amount of equity capital from German pension funds.

Hospitality Investor: How many hotels has the fund bought so far?

Peter Krueger: The fund has a strong investment pipeline and discussions on the acquisition of a number of hotels are far advanced and will be concluded in due course.

Hospitality Investor: Why should investors invest in the fund?

Peter Krueger: The fund creates a win-win situation for both sides: our investment partners benefit from sustainable returns and, of course, the increase in the value of the property. The market for leisure hotel properties is a niche market but we at TUI know it better than anyone else. And we have the momentum of our 21 million customers in Europe - so we make sure that the hotels are always well occupied. That makes it highly interesting for investors. As TUI, we aim to grow our hotel management business.

Hospitality Investor: Are you going to launch more funds, maybe one that focuses on Europe?

Peter Krueger: For us, the hotel fund is not a one-off deal but a scaleable structure. While we are currently focusing on the ramp-up of the global fund we are investigating simultaneously potential European fund structures.

Hospitality Investor: What types of hotels does TUI want to expand into?

Peter Krueger: Our core strategy is owning and operating leisure experience assets. This means predominantly sun and beach hotels, globally. However, you may also find us managing certain city hotels selectively, as leisure trips to cities is becoming a stronger trend.

Hospitality Investor: Which countries are you looking to grow in?

Peter Krueger: With 418 hotels globally our hotel portfolio is already well diversified. However, we see strong growth potential in year-round destinations outside Europe such as the Caribbean and Indian ocean and as well as opportunities to develop new tourism clusters in East and West Africa.

Hospitality Investor: What brands are you focussing on?

Peter Krueger: We have a broad portfolio of hotel brands, carefully designed to address specific target customer segments such as TUI Blue, Robinson, Magic Life, RIU and Atlantica. Strategically, we see growth potential for all of our well-known hotel brands in parallel.