• Debt lenders buoy sales market

LRG, the consortium that bought 73 UK Holiday Inns in March 2005, has now sold-off all 11 of the properties it identified as non-core.

The rapid sales point to a market buoyed by plentiful debt being offered even to poor quality covenants.

The latest deal was for two hotels, at Bolton and Leeds / Bradford airport, bought by the UK’s largest private hotelier, Britannia Hotels.

The disposal by large corporate hoteliers of their tail of unsuitable properties has proved a happy hunting ground for privately owned groups like Britannia. It has grown into a 33-strong company with more than 6,700 rooms since starting out as a chain in the early 1980s.

Its most famous/notorious property, the Aldephi in Liverpool, was bought in 1982 when British Rail was selling-off its hotel division. Since then it has snapped-up a number of other corporate properties including brands such as Moat House, Posthouse and Grand, the former Rank / Butlins brand.

This year alone, Britannia has bought four properties, all from agent Christie & Co, who handled the LRG disposals.

Another one of the 11 LRG properties went to the Cairn Group, a rival to Britannia that has 15 properties. This former LRG unit was the 280-room Holiday Inn in Birmingham.

Not all of the LRG disposals went to what are effectively unbranded or, at best, weakly branded chains. Premier Travel Inn bought seven hotels.

But Premier Travel Inn is repositioning the properties into a different market segment whereas the other hotels will continue to be run as full-service, mid market offerings.

If the Holiday Inn badge was not enough to make these hotels viable, how can they succeed with a much weaker name above the door? Is there trade which these smaller groups are scooping up that is being missed by the bigger branded chains?

As private companies, the business of these owner-operators is hard to unearth. But Britannia’s track record of buying and holding suggests that it is not a property play that is on the cards. More likely, it seems that Britannia is intent on running its hotels leaner and meaner than its larger corporate rivals.

This has certainly seen it attract criticism. The company was widely condemned for portraying the hospitality industry in a bad light when the Adelphi featured in a fly-on-the-wall television documentary in the mid-1990s.

Even this year, this same hotel has come under fire from the Merseyside tourist board for suffering from many more bedroom thefts in the first half of 2006 than all the 14 other hotels in the city put together.

Whatever the criticisms levelled at Britannia, it has been a robust business financially. And its backers have been duly rewarded.

Arguably more surprising, perhaps, is the cash finding its way at unprecedentedly low yields into middling assets.

Just on the market at present are six Thistle hotels bought barely a year ago by the Topland Group for what at the time seemed a punchy yield of just over 6%. This £185m purchase was underwritten by an £11.5m rent.

Now, however, Topland is seeking £240m for the portfolio. A sub-5% yield is aggressive by most standards but for hotels leased to Thistle, hardly the strongest brand in the hotel world, it seems particularly so.

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