Budget hotels are one of the strongest performers in Europe but across the Atlantic, they have been one of the weakest segments in the hotel market.
Accor’s lower than expected proceeds from the sale of its Red Roof brand this week for $1.32bn reflects the tougher time for limited service hotels in the US.
The Global Special Situations Group of Citigroup Global Markets has teamed-up with Westbridge Hospitality, the fund set-up by Westmont with Canadian pension groups, to strike the deal. The sale of the 326 hotels with 35,238 rooms means Accor is now focused on the sole economy brand of Motel 6 in the US.
There are plans to step-up development of Motel 6 by opening more than 200 units in North America by 2010. There are currently 928 hotels which this year are expected to generate a return on capital of more than 10%.
The multiple in the sale is 11.2 times the $117.8m EBITDA achieved in 2006. The chain had been expected to fetch at least 12 times.
There continues to be a flood of transactions in the US involving private equity. Yesterday, the REIT Highland Hospitality agreed to be taken out by JER Partners for $2bn. And in a secondary buyout, Blackstone last week sold Extended Stay Hotels for $8bn to the Lightstone Group, a property investor with a background in retail and office space.
Blackstone is in the process of raising $10bn for a new high-return property fund, building on its previous successes. Senior managing director Jonathan Gray has led a series of hotel acquisitions by Blackstone, including Extended Stay, the first bought by the firm in the wake of the downturn that followed the 2001 terrorist attacks. Other Blackstone deals include the purchase of MeriStar, La Quinta, the Savoy Group and Wyndham.
Meanwhile, Blackstone rival Whitehall Street, the Goldman Sachs affiliated real estate fund group, is to pay $1.3bn for four casinos in Nevada. The vendor, American Real Estate Partners, a vehicle headed by investor Carl Icahn, said it would book a gain of $1bn on the deal which involves just less than 5,000 rooms plus casino space and slot machines.
This casino deal follows the $27.8bn purchase of Harrah’s by private equity fund Texas Pacific which was approved by Harrah’s shareholders earlier in April.