Starwood strikes £750m Principal Hayley Sale to Fonciere des Regions

Date: March 2018

Location: 14 four & five star hotels in the UK

Name: Principal Hayley, which includes Blythswood Square and the Grand Central in Glasgow, St David’s Hotel in Cardiff and the George in Edinburgh….now to be Kimpton (see below).

The jewel in the crown is the recently refurbished Hotel Russell on Russell Square, London WC1, due to re-open at The Principal, London, which is thought to be worth around £300m.

No. of Keys: 2,626

Seller: Starwood Capital’s Principal Hayley Group, including 2 DeVere hotels.

When Starwood kicked off its sales process last November, the Principal Hayley and DeVere businesses were offered both together and separately, each priced at around £600m.

However, with the two DeVere assets being transferred over to the Principal Hayley portfolio, this has skewed the weighting.

Nick Weber’s Henderson Park had been in competition to buy both the Principal Hayley and DeVere portfolios, but Starwood ultimately decided to sell the two separately in order to maximise pricing.

Starwood is currently considering its options on the remaining 13 DeVere country hotels and conference venues assets, which are valued at around £425m, including a prospective refinance or restructure.

There continues to be interest from at least two parties in purchasing the portfolio which requires greater capital expenditure than the Principal Hayley collection.

For Starwood, the Principal Hayley deal secures a substantial return on its investments made when it piled into the hotels market after the downturn and it will be a boon for the performance of its 2013, $4.2bn Starwood Distressed Opportunity Fund IX.

In 2013, Starwood bought Principal Hayley for £360m and then followed this up in 2014 by acquiring De Vere Venues for £232m and Four Pillars for £90m, with these three deals forming the bulk of its holdings.

Starwood spent around £250m upgrading the Principal Hayley and DeVere hotels and has also made disposals of individual hotels in the region of £200m.

Despite the sales of Principal Hayley and DeVere by Starwood, it continues to be active in the UK hotels sector, having raised $7.6bn for its latest opportunity fund.

Last month it agreed a £135m deal to buy a portfolio of eight Hiltons from Park Hotels & Resorts alongside Kew Green.

Eastdil Secured and UBS are acting for Starwood.

Buyer: Foncière des Régions (FdR), through its specialist hotels subsidiary Foncière des Murs, is in exclusive talks to buy the portfolio for around £750m, which is part of a broader £1.2bn hotel sale currently being undertaken by the US private equity firm.

FdR, which was ranked 86th in Estate Gazette’s Global 100 with $20.6bn (£14.5bn) of assets, is teaming up with operator IHG to run the assets.

IHG has announced (May 2018) that they will rebrand the hotels under their Kimpton brand, launching the brand into the UK, joining the 66 Kimpton Hotels in 33 cities around the world, mainly in the USA.

The French SIIC (the country’s REIT equivalent) owns a portfolio of €6bn (£5.3bn) of hotels across Europe, having made €788m of investments in the sector last year. FdR is also a strategic investment partner of hybrid hotel brand Meininger Hotels.

Under the terms of the agreement between IHG and Foncière des Régions, IHG will:

Retain a royalty fee, before rent payments, of an amount equivalent to franchise fees from existing hotels, pay rental amounts which are forecast to stabilise at at $66 million per annum in 2021, with inflationary increases thereafter, fund any shortfalls in rent payments up to an annual and cumulative cap on losses of 22 million and $66 million respectively at stabilisation; and, retain a share of profits after rent payments.

“This acquisition is an opportunity to duplicate the development strategy already rolled out in France, Germany and Spain,” said Foncière des Régions deputy chief executive Dominique Ozanne. “This transaction will help Foncière des Régions cement its leading position on the hotel real estate investment market in Europe.”

Price: £750m

Price per Key: £285,605

THPT Comment: Sometimes one wonders if the hotel industry is just a large game of musical chairs…but the numbers make sense for Starwood. Interesting they choose IHG to manage the hotels. Tony Troy, CEO of Principal Hotels builts a strong management team, which we hope will stay in place under IHG.

First Seen: Estates Gazette