US investor Lone Star Funds looks to have gained a substantial interest in the UK regional hotel market, having successfully bid for the majority of the Project Rock and Project Salt debt portfolios.
The investor is understood to have paid GBP3.5bn for a pot of commercial property loans with a total face value of GBP5.2bn. The special liquidators were charged with selling the portfolios, the legacy of lending by Anglo Irish Bank which have more recently been held by the IBRC. Despite the apparent discount of more than 30%, the liquidators pronounced themselves “very pleased with the successful conclusion of sales…at bid levels that exceed independent valuations conducted on these books.”
Among the debts traded under the Project Rock portfolio are loans outstanding to UK regional hotel chains including QHotels, Somerston Hotels, Puma Hotels and Curzon Hotel Properties. The portfolio also includes loans outstanding to pubs, holiday parks, and Sunderland football ground.
QHotels had its loans to IBRC extended to November 2015. It has six loans with a gross balance of more than GBP370m, held against a property portfolio of 21 hotels worth less than GBP300m. Somerston holds 35 hotels across the UK, many of them running under Holiday Inn flags, and owes GBP339.5m against a recent portfolio valuation of approximately two thirds of the loan value. The company’s debt has previously been split, so that a tranche has non-interest bearing status. A portfolio valuation is scheduled for autumn 2014, after which time options will be considered.
Puma has a debt extension until May 2014, owing GBP324m against a recent market valuation of its 19 UK hotel properties of GBP185m. The company saw its fortunes turn when Spanish operator Barcelo, which had signed long term leases to run the hotels from 2007, decided to terminate its agreements in 2012, paying a GBP20.25m penalty to quit. The aggressively structured leases, whose rent had underpinned the valuations of the Puma properties, proved unworkable, leaving Puma to appoint local manager Chardon.
Curzon Hotel Properties, which owns 19 Thistle branded hotels, sits with an outstanding balance of GBP257m against recent asset valuations of GBP187m. A single asset liability is also included, the Crowne Plaza hotel in Marlow, which is operated by BDL. The hotel company has an IBRC loan of GBP28.5m, set against a recent market value of GBP16m.
HA Perspective [by Katherine Doggrell]: As we comment elsewhere this issue, Ireland is very much getting its act together and is being held up as an example to all.
The sales processes for the remaining portfolios in IBRC are on-going and are expected to be concluded early this year. So what next? Lone Star has previously been looking for bargains in Ireland, but with this deal they are looking down the barrel of the UK regional market, a market where there has been a lack of investment and where hotel agents are expected to be very busy this year as a number of portfolios are expected to come to market.
With IBRC taking a significant discount on the loan book, the UK banks watching the sale and considering their own assets would be wise to be wary. Although under pressure to shore up their balance sheets, they run the risk of overdosing the market with regional properties at a time when the recovery is not set.
Anecdotal evidence suggests that visitors who may have staycationed last year will go abroad in this as they feel a little more flush. For those hotels in secondary locations or needing a little too much work done, there may not be willing buyers waiting. Much was said at the time of the bank bailouts about the pain of the downturn not being properly felt. Depending on how those currently pasting ‘for sale’ over the hotels feel about taking a IBRC-style 30%-plus hit, there could be pain on the way.