• Starwood refinances Principal Hayley

Starwood Capital has taken advantage of improving property values and a strong debt market, to refinance its debts used to purchase the Principal Hayley hotel group. A GBP330m deal will allow the investor to extract GBP100m of equity from the purchase, and makes a further GBP80m available to spend on upgrading the portfolio of hotels.

Starwood hired Eastdil Secured to help it find the new funds, which have come from Morgan Stanley. The main tranche is a five year, GBP250m property-backed loan that will be used to pay down the GBP200m loan advanced by Citigroup, which enabled Starwood to complete the purchase 15 months ago. The Citigroup funds were originally on a three year, term, and so early redemption penalties will apply.

Starwood paid GBP360m for Principal Hayley and its 23 hotels in early 2013, and thanks to an improving market the properties have now been revalued with a 16% uplift at GBP417m; thus the new funds reflect a loan to value of just 60%. Values have been buoyed by a solid performance in the UK regions. Hotstats has reported improved occupancies, and the opportunity for rates to start heading up, in the first quarter of 2014; while strong investor interest in London hotels, and rising prices, have encouraged investors to increasingly look outside the capital.

Starwood has stepped up as a major investor in the UK hospitality sector, deploying almost GBP700m in a little more than a year. In early 2014, it followed the Principal Hayley deal by buying regional hotel group Four Pillars, gaining five further UK hotels; and in April, followed this with the purchase of De Vere Venues, for which it paid around GBP232m. To date, no plans have been revealed for the potential of integrating parts of the three businesses.

Starwood is remaining tight lipped about how it will deploy the GBP80m of capital expenditure allocated under the latest Principal Hayley refinancing. At the time of the acquisition, however, Starwood’s Jeff Dishner commented: “We intend to use our capital and branding expertise to maximise the value of each property in the portfolio.” And Principal Hayley chief executive Tony Troy added: “We will now be able to expand and develop across the UK,” hinting at adding further UK and some mainland European locations.


HA Perspective: Earlier this year, a high profile private equity executive told Hotel Analyst that he was seeing debt funding on terms as good, if not better, than was available at the height of the boom in 2007. He was not claiming that LTVs were back up to the levels they were but rather that, when looked at in the round, the cost of debt finance was the lowest he had seen it.

“I’m just not sure how they [the debt financiers] are making any money,” he said, when commenting on how much spreads had pulled in.

This change in sentiment among lenders has transformed the outlook on what was bought in the last few years. The acquisition of Principal Hayley had seemed a risky deal just over a year ago, with many questioning whether Starwood would lose its shirt. Now, it looks inspired.

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