• Macdonald’s £400m manage back

Macdonald Hotels has sold-off 24 of its properties in a £400m plus deal that will see it retain short-term management contracts but be forced to bid for longer term deals against two international rivals.
   The buyer, a private equity fund established by the Moorfield Group, already has exposure to regional UK hotels through investments in Kew Green and WA Shearings and is now adding 2,511 rooms to its portfolio.
   All parties are keeping tight-lipped about the exact terms of the deal, other than disclosing it is worth north of £400m. But by accepting short-term management contracts, Macdonald has signalled it is happy to focus on its 55 remaining hotels and resorts.
   Executive chairman Donald Macdonald said: \Private ownership has enabled our business to deliver a major capital expenditure programme of £166m over the last three years.\
   He described the delisting process which has left the company half-owned by Bank of Scotland as \expensive but worthwhile\.
   The hotel sector was a capital intensive business that requires a longer term view of investment, he said. \When it comes to creating long-term and sustainable value, developing our people and our hotels is much more important than any short-term profit.\
   Certainly, during its period on the stock market between 1996 and 2003, the company's management persistently complained that investors were not giving it sufficient credit for the value locked-up in its hotel property holdings.
   The funds released by the latest transaction will enable the company to reduce its debt burden which has hit profitability since it went private in a £590m move which saw HBoS supply the debt as well as equity.
   Moorfield, meanwhile, is joining the swelling ranks of private equity houses intent on tidying up the UK mid market, a segment that public equity failed to make much headway with during the late 1990s heyday.
   The real estate specialist investor began to take its present course in 1996 when two ex-Goldman Sachs bankers, Marc Gilbard and Graham Stanley, joined the then publicly listed vehicle.
   They took Moorfield private with the backing of HBoS and focused on selling inherited assets and reinvesting in new ventures, often with co-investors such as Blackstone, Deutsche Bank, HBoS and Ellerman Investments.
   In 2005, Moorfield went direct to US investors, raising a £1bn fund (including debt) rather that act as the European investment partner for US funds. The target IRR is in excess of 20%.
   The first hotel investment by Moorfield was as part of the modest £6.1m package put together with HBoS in 2001 to back the start of Kew Green Hotels which now operates 17 hotels, six of which were developed with Moorfield's backing (the other 11 were the Courtyards bought from Whitbread).
   Moorfield last year paid £110m to buy a portfolio of 41 regional hotels from coach operator WA Shearings that were leased back on 25 year terms. The plan was to exploit additional alternative use value both in ancillary buildings and in the hotels themselves, an approach that is likely to be applied to the Macdonald portfolio.
   The Shearings deal was the second investment out of the Moorfield Real Estate Fund, the pool used for the latest Macdonald deal.
   Looking forward, the challenge for Moorfield will be in making a tidy exit within the eight years of the fund's life.

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