• Regions to see drop in exuberance

Topland has continued its regional buying spree with the eight-strong Feathers Group, based across north-west England, for a reported GBP65m.
The deal came as Christie & Co commented that more regional hotel portfolios were likely to come to market in the first quarter, taking “some of the froth” out of what has been an exuberant market.
Topland has now spent GBP200m in 13 months acquiring 28 hotels. CEO Sol Zakay said: “Our intention is to invest further in our existing hotels to strengthen performance, and to deploy significant further capital in new opportunities to grow the portfolio.”
Lionel Benjamin, Topland’s director of hotels, said: “The Feathers Group is a great addition, complementing the Menzies and Hallmark acquisitions, and enhancing the growth of our hotel portfolio.
“Our internal team are very hands on in day to day operations, with Bespoke operating as Topland’s management arm. Our combined management expertise will continue to focus on driving revenue and exceeding Ebitda expectations across the portfolio to maximise value. The Feathers acquisition underpins Topland’s long-term commercial strategy in the hotel sector.”
To date, the Feathers portfolio has traded under the Best Western umbrella brand. Justin Lanzkron, Topland’s hotels asset manager noted: “As we start to understand the dynamics and idiosyncrasies of each hotel and the markets in which they trade we will review the Best Western brand.”
Topland’s appetite to add to its portfolio is likely to be met, if not quenched, by an increase of supply coming onto the market, although the recent increases in prices are likely to soften. Christie & Co reported that average hotel prices (including London) had risen by 17.2% on the year last year, against a 5.7% increase the previous year.
The company’s managing director, Chris Day, told Hotel Analyst: “I don’t think we’re at a peak by any stretch of the imagination, I think we’ve seen some over-exuberance in some of the portfolio transactions, which will be mellowed by the fact that more supply is coming into the market. That won’t mean any decline in price, it will just mean that the increases become more normal.
“Across all our sectors prices fell by about 28.5% from their 2007 peak to the trough in 2012 and we’re only roughly halfway back. Hotels fell slightly more, being about 45% off the peak. Even if the peak was over-exuberant we’ve still only moved forward about 20% so there’s still a 25% gap. There’s still room for pricing to more forwards, because operationally we’ve recovered completely.”
Andreas Scriven, international managing director & head of consultancy, Christie & Co, added: “If you look at what’s coming to market, even in Q1 portfolio-wise, it’s materially more than we’ve seen for ages. That will take some of the froth off. Operationally, especially in some of the secondary and tertiary markets in the UK, they got absolutely hammered. There’s still some growth left in that.”
Christie & Co’s Business Outlook 2015 pointed to a rise in investment in regional portfolios from North American private equity groups, which was forecast to continue, with added interest from other parts of the globe, aided by Jin Jiang’s recent acquisition of Louvre Hotels Group.
Day said: “There’s still the appetite, there’s plenty of capital around and there’s no let-up in interest for portfolios. We’re starting to see a few more Far Eastern buyers coming into the market – we’re not seeing a huge amount of interest in regional portfolios, but if Jin Jiang have bought then one suspects that other Chinese wealth funds may show an interest.
“It strikes us that the Chinese are not quite as trophy-driven as the Middle Eastern buyers, they tend to be a little more pragmatic about buying operating businesses that deliver good returns, as evidenced by buying Louvre.”
Not all of the activity is likely to be portfolios new to market, with recent speculation suggesting KSL is looking to sell Malmaison and Hotel du Vin less than two years after acquiring them. “There are likely to be some profit-taking sales from those who bought assets in 2010/11 and want to exit now that demand has returned,” said Day.
M&A may not be limited to the regions in the UK, with InterContinental Hotels Group the subject of renewed takeover speculation as Dutch billionaire John Fentener van Vlissingen increased his stake in the company to 3.18%, through his Beverweerd Investments vehicle. Van Vlissingen previously held around 2%.
Van Vlissingen told The Times that the deal was motivated by expected growth at IHG, driven by a move towards online booking. He also noted a lack of four and five-star hotels, particularly in India and China. “This is an industry where further consolidation will happen,” he said. “We are long-term investors and this is a broadening of our travel activities.”
While the investor’s comments appear innocuous, the market paid particular attention to the deal because of recent stake-building by IHG’s resident activist shareholder, Marcato Capital Management. The group is pressing IHG to merge with a rival, which it has so far resisted.
Even if IHG continues to hold off Mercato, the sector seems set to look very different by the end of 2015.

HA Perspective [by Chris Bown]: It already looks to be another good year for the property agents, with plenty of deals in the offing. Portfolios are up for grabs, early private equity buyers are testing the market for a profitable exit from their UK holdings, and Asian buyers are starting to make themselves known.
In purchasing the Feathers group, Topland has effectively bought a bunch of unbranded hotels, albeit a portfolio that has been relying on the Best Western platform for marketing support. To date, Topland has continued to run the Menzies and Hallmark portfolios that it purchased under their existing brands, with Bespoke providing management and an additional marketing platform. What next for these three mid-market collections? Will there be more buying ahead of a rebrand to create a strong presence in the UK market?

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