Key UK hotel management companies are jostling for position, with growth plans that could see them taking over a string of hotels from weaker managers. And, with banks now keener to do deals on indebted hotel companies currently under their control, 2014 looks to be the year the managers get their big opportunity to bolt on portfolio additions.
Kew Green is the latest to make an addition, picking up four more hotels to add to its mixed portfolio of owned and managed hotels. The company has purchased four Holiday Inn hotels from Chardon Capital Investments; the properties, in Brighton, Leeds, Norwich and East Kilbride have been operated by Kew Green since December 2012.
“This acquisition is part of our strategy to expand our UK portfolio to in excess of 60 hotels through a mix of single asset and portfolio acquisitions,” said Kew Green CEO Paul Johnson.
The move demonstrates Kew Green has some momentum behind its desire to double in size, and underlines its commitment to work with IHG. In autumn 2012, it picked up the management of three hotels in Braintree, Birmingham and Shrewsbury, as they were rebranded from Hilton’s Hampton to Holiday Inn Express.
Kew Green’s Nick O’Keeffe said that a 2013 deal which saw Lloyds bank exit its position in the company, selling out to new private equity backers, has meant there is a desire to acquire once more. “We’re back in acquisition mode, and we hope this year will be a fruitful year.” Currently, the group has 24 owned and managed hotels, with six managed and one being looked after while in administration. “We will continue to grow the management side of the business,” said O’Keeffe. And while acquisitions are being planned, the new owners will stop short of risking development: “We’re not in the market for building hotels at the moment.”
Lender Lloyds took an ownership position in Kew Green in 2011, alongside Barclays. A GBP39m debt for equity swap saw the pair acquire a 45.5% equity stake in Kew Green. At that point, the company cut its debt from GBP120m to GBP80m.
Kew Green is some way behind rival BDL Redefine, which has 60 hotels under management in its portfolio currently, with a publicly stated target of reaching 100 hotels under its wing by 2016. The group, which combined BDL Management with South African partner Redefine International’s hotel interests in early 2013, has 6,700 rooms under management in the UK.
Since the merger, the company has signed four management deals: the 77 room independent Longhirst Hall; Best Westerns the Aberavon Beach and Beamish Hall, and Holiday Inn Express in Folkestone. The company has also launched the Moorfield Hotel on Shetland, which it developed. Recently, it has agreed deal to manage a new Hilton, due to open alongside Leeds Arena in 2016.
Above both of these in scale is Bespoke, which recently signed a deal to manage the Menzies portfolio, following Topland’s successful acquisition of the group in a purchase from Lloyds. The deal means Bespoke now manages more than 100 hotels around the UK. In contrast to Kew Green and BDL Redefine, the hotels in the Bespoke portfolio tend not to be flagged under the major international brands, operating as independent local names.
Among the assets that may be of interest to both Kew Green and BDL Redefine are More Than and Somerston Hotels. More Than Hotels is a franchise operator of 12 Holiday Inn Express hotels around the UK, and has substantial debts with RBS, but might attract up to GBP50m from a buyer. Somerston is indebted to the Irish Bank Resolution Corporation, with a portfolio of 32 Holiday Inn Expresses and one Hampton by Hilton understood to be worth a recent valuation of around GBP247m.
HA Perspective: [by Katherine Doggrell] Hopes are high that this new year will mean a new batch of hotels coming onto the market, released by banks which are taking advantage of improved trading outside London and who have come to the realisation that the time to take the hit and make good shoring up their balance sheets is now.
While they bide their time and wait for the juicy pickings of More Than and Somerston, they are happy to play manager, many of them to banks eager to push for stronger business in the hope of getting a better price when it comes to a sale.
Throughout the downturn, the message in the regions has been that size and distribution matter. Last year’s deals and the likely imminent flurry are expected to lead to a few dominant regional players and then further consolidation between them. One message that is coming in loud from these flag-less managers is that the flight to the safety of a brand is not necessarily the best response when times toughen.
Going it alone, be that without a brand or without access to a distribution and supply network remains an unwise choice, unless you have a product so niche that you can name your rate. And even then you’d better hope that the supplier of those unicorn burgers isn’t planning a new year price hike.