Lone Star is considering selling part of Amaris Hospitality, predominantly under the Jurys Inn brand, two years after creating the group.
The private equity group had been mooted for a flotation of Amaris, originally pitched at GBP2bn, but is thought to have been attracted to a sale by the strong performance of the UK market and demand for assets from overseas investors.
Amaris was not commenting further on the story, which was first reported by The Times. Sources close to Hotel Analyst suggest that the decision has not yet been taken on whether to market the hotels.
At its peak, Amaris Hospitality was one of the largest hotel owners in the UK, with 89 hotels under Jurys Inn, AccorHotels and Hilton brands. Credit Suisse and Eastdil Secured have been appointed to look at strategic options for the package of 42 city centre hotels, which includes the Jurys Inn chain and six Hilton-branded hotels.
Lone Star has invested GBP100m across the 89-strong portfolio, creating what it has described as “the UK’s best performing, most exciting hospitality investment and management company”. The group typically operates its own sites while branding through franchises.
Its most-recent accounts, for 2015, reported that 90% of its GBP382m revenues were generated in the UK, with Jurys Inn accounting for more than 40% of total revenues in the group, and sales at the division up 9%, the Irish Times reported.
Earlier this year Savills, CBRE and Christie & Co were appointed to sell a portfolio of eight Mercure-branded hotels for Lone Star located in Stratford, Salisbury, Blackburn, Farnham, Banbury, Coventry, Bristol and Exeter.
The Bristol site was sold to Apirose through CBRE Hotels, for a reported GBP45m, where it is expected to retain the Mercure branding and be managed by Redefine BDL. Of the remainder of the portfolio, those involved in the sale commented that the process was “ongoing” after receiving first-round bids.
News of the potential sale came after a study from CBRE reported that the UK was beginning to see portfolio break-ups; resulting in larger single assets coming to the market, as the flight to quality and long-term secured income continued.
Rob Seabrook, head of UK brokerage at CBRE Hotels, told us: “The regional UK market is still active, but it is slower than it was, mainly through investors not bringing product to the market as they don’t know where they could reinvest their equity if they do sell. Meanwhile, many of the private equity groups who were actively buying in 2014 and 2015 are still going through their planned renovations projects at the moment and will need to see these completed before they exit.
“While there is generally a lack of sellers, there is still a pool of buyers out there and the market remains active. With the operational market more stable now, regional yields have moved out from where they were but we are seeing experienced owner operators able to compete in the market again and also some new entrants such as Aprirose dipping their toe into the pure operational ownership market.
“Another area of activity is the ground lease market, which is being driven by institutional investors looking for long-term indexed income streams to marry their liabilities. Historically this market has focused on commercial rented property but with strong competition for that product, the institutions are now increasingly happy to acquire hotel operating backed ground leases and we have seen yields compress markedly in this sector in the last six months.
“London continues to be on the top of every international buyer’s wish list but with demand significantly exceeding supply, vendor’s aspirations remain strong which is, in turn, pushing buyers to look at riskier opportunities such as full-scale redevelopment and as a result, prices per key for consented development schemes have been pushed to record levels in the capital.”
Savills pointed to an increase in interest from international investors following the EU Referendum vote aided by the favourable currency exchange with deal activity by international buyers doubling in the second half of last year.
Martin Rogers, head of UK hotel transactions at Savills, said that this year the broker expected to see “continued demand for both London and regional hotels and we expect demand from Far Eastern investors to increase. In addition, we expect that further single assets will come to the market as a result of the break up of the portfolios purchased over the last few years”.
Overseas investors are not the only interested parties as the portfolio comes to market. Dalata Hotel Group plans to open between 15 and 20 new hotels in the UK, largely on a leasehold basis, in the next three years
Asked by Hotel Analyst, whether the group would take a look, at the Lone Star portfolio, Dermot Crowley, the company’s deputy CEO, business development & finance, said: “If a portfolio or a part of a portfolio comes on the market at an attractive price with hotels that match our criteria, we will look at such opportunities.”
With Q Hotels also thought to be doing the rounds, the transactions market could find itself with more on its plate than was expected this year.
HA Perspective [by Katherine Doggrell]: So, who will buy my wonderful hotels, should said wonderful hotels come to market? And we can assume that this leak is, in fact, a form of pre-marketing to test the waters.
And the waters seem a little choppy, depending on the buyer. Those with a view on the portfolio have told us that it is unlikely that the Jurys Inn chunk will go to a trade buyer, with Marriott International and InterContinental Hotels Group already well catered to in that space. AccorHotels may look to bolster its UK holdings with the group but, Brexit nothwithstanding, such a buy would be mundane in the face of recent transactions and, with HotelInvest currently courting its own buyers, its dance card may well be stamped.
Interest is likely to come from overseas, in particular China and south-east Asia, where there is appetite for an operating business and a brand, as Jurys Inn offers. There could be a bite from a group such as Frasers, HK CTS or, as a wild card, NH Hotels (itself majority-owned by HNA Group) or Sol Melia may look to flesh out its holdings with a spot in the UK.
The Spanish-based groups may be wary given their concerns over the UK as a source market as the pound weakens further ahead of a potential hung Parliament. Exposing themselves to it on both sides may be a step too far as, for all those looking at the perky UK, the question remains, how long can it last?