• Regional shake-out continues

The UK Group of Hotels, formerly Puma Hotels, has gone into administration, with the company’s banking facilities undergoing a restructuring.

The news came amidst an ongoing shake-out of the regional hotel sector, which has seen a number of deals in recent weeks.

Deloitte estimated that the regional market contributed around 60% of  total investment (c.GBP780m) in the UK in the first half of this year. Hotel transaction activity across the UK totalled around GBP1.5bn during the period, 65% higher than that reported in the second half of last year.

Nick van Marken, global head of hospitality at Deloitte, said: “This is the second strongest start to a year since the peak in 2007. Macro-economic fundamentals have finally caught up with investment sentiment, which has further stimulated appetite for the hotel sector. We anticipate continued strong interest from investors but a potential lack of product given the substantial capital the market has to deploy.”

While deals in the capital remain focused on single assets, outside London portfolio deals have been the key trend. In the first quarter this included the sale of the Four Pillars portfolio in January for GBP90m and De Vere Venues in March for GBP232m; both acquired by Starwood Capital. Deloitte attributed the interest to investors looking to consolidate; banks offloading assets; distressed sales; the scarcity of London deals; and improved trading fundamentals and higher profit margins.

Since then, the deals have continued, most notably with the sale by Goldman Sachs of 11 QMH UK hotels, with the majority operated under franchise agreements with InterContinental Hotels Group under the Crowne Plaza and Holiday Inn brands. The sites were acquired for an undisclosed sum (reported to be GBP130m) by Marathon Asset Management.

The hotels have undergone a multi-million pound refurbishment programme, which Marathon is expected to continue. Marathon, which is headquartered in New York, with an office in London, acquired the hotels as part of plans to expand in the UK and continental Europe. The company currently has around USD12.5bn of capital under management.

Jeremy Hill, Christie & Co, which marketed the hotels, said: “The deal highlights what excellent value good quality hotel assets are right now – both for vendors and buyers. While vendors are benefiting from values being on their way up following the recession, they are still short of their pre-recession peak. And this is reflected in values both in and around London, and the UK regions.”

Despite an increase in optimism over the performance of regional hotels, the number of hotels going into administration continues to build, with the company formerly known as Puma the latest. Administrator Duff & Phelps confirmed that it had been appointed to UK Group of Hotels and was assisting with the restructuring of the company’s banking facilities.

Duff & Phelps said none of the subsidiaries of the parent company – collectively known as The Hotel Collection – were affected by the administration process and all hotels would continue their day-to-day operations as normal.

Earlier this year Lone Star acquired Puma’s GBP324m debt from Irish Bank Resolution Corporation. Puma had a debt extension until May. As previously reported in Hotel Analyst 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.

There have been further recent transactions linked to activity in Ireland, with the sale of the Novotel Liverpool Centre out of administration on behalf of NAMA, to Algonquin for GBP13.15m. The fund has acquired a number of hotels in Europe this year, including the Novotel Edinburgh Park, which was also acquired out of administration.

Robert Stapleton, director of hotel, leisure & trading at Savills, which advised the administrators, said: “We are delighted to have secured such a strong price for our client, which significantly exceeds the original guide price of GBP12.3m, and further demonstrates the investment markets’ growing interest in UK regional centres.”

 

HA Perspective [by Chris Bown]: Those long in the property game suggest that administrations and receiverships grow in number as the market picks up – lenders generally like to sell into a rising market. So it is that Puma is now coming to the market, with debt owners Lone Star keen to see a return from their discount loan acquisition.

While there is strong demand for property under a strong brand – witness the Novotel Liverpool deal – there may be less appetite for the Puma portfolio. The name change earlier this year was an acknowledgement that here is a bunch of individual properties, with little combined brand strength. Expect active buyers such as Topland to look for properties that might fit with its Menzies, and more recently, Hallmark portfolios.

Lone Star and a supporting consortium bought the Puma Hotels debt as part of the Project Rock disposal, winning the portfolio with a bid at a reported more than 30% discount to face value. Also within the debt package were loans to QHotels, Sommerston Hotels, Curzon Hotel Properties, containing 19 Thistle hotels, and the Crowne Plaza in Marlow. Do not be surprised to see Lone Star move on these, too, in coming months.

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