• Provincial UK deals roll on

The Cairn Group has launched The Cairn Collection soft brand with a group of 10 hotels, half of which were formerly part of the Hotel Collection.

The brand came as Peel Hotels said that it had seen trading slow in the second half of last year as a result of “the Brexit decision”, describing it as “temporary”.

Peel Hotels’ chairman, Robert Peel, said that the company had been “unable to maintain the improvements in performance experienced earlier in the year and in the second half of the financial year trading slowed”.

Peel said that “on a positive note” it had maintained revpar and cut debt by close to GBP600,000.

The company took the opportunity to announce the appointment of Haydn Fentum, co-founder & CEO, Bespoke Hotels, to the group’s board.

Peel said that it was “very difficult to forecast the outcome for financial year 2017/18 as so much depends on staycation and increased tourist activity stimulated by the weak pound”.

While Peel Hotels was expressing caution, Cairn Group launched its Cairn Collection soft brand, with Naveen Handa, director, commenting: “For our customers, the collection provides a brand which will give them an assured quality offer across the portfolio, with a strong focus on destination dining, customer service, historical properties and local knowledge. The collection also meets a need for soft hotel brands which give the opportunity for owners and operators to affiliate with a major chain whilst allowing individual hotels to retain their unique style.”

Last May saw Cairn Group complete a GBP101m refinancing deal with HSBC to fund its expansion.

Handa told Hotel Analyst: “Our aim is to purchase quality assets that complement our portfolio, and we assess each new hotel acquisition on a case by case basis. It’s very early days, but we would certainly not rule out adding more hotels to the portfolio, if they chimed with our strong brand focus on destination dining, customer service, historical properties and local knowledge. Each of our hotels are individual in style, but there is an assured quality offer across the group and we want to ensure that any hotels we did add meet these requirements. We believe we have something special that as a brand could last a very long time and we don’t want to dilute that.

“At the moment our priority is to own the hotels in the collection. This allows us to maintain control of hotel standards and service levels.  However, as an ambitious business, we would not rule out managing a hotel for another owner should it be a good fit for the collection.

“Buying hotels in the provinces is getting tougher.  A weakened pound has increased competition, especially in gateway cities such as Edinburgh and Cardiff.  However, the weakened pound has also resulted in more people choosing to holiday in the UK rather than going abroad, which has presented an opportunity for us.  Our guests have told us that they are not simply after city breaks; leisure destinations in smaller towns are also becoming popular. We have listened to our guests and acted accordingly, purchasing hotels in locations such as Buckinghamshire, County Durham and Brighton.”

As part of the Hotel Collection was reassigned by Cairn Group, Project Solstice, the collection of 10 hotels bought to market by the Hotel Collection, made its final disposal, with the sale of Shrigley Hall Hotel for an undisclosed price, to a private investor and is now managed by real estate company Prahi, overseen by Ashfaq Ahmed.

Tom Cunningham, hotels director at Savills Manchester, said: “The hotel market in the North of England is particularly attractive to investors due to the prices and returns available.  With multiple income streams and a strong corporate and leisure trade, Shrigley Hall appealed to numerous different investor types.”

Cunningham told Hotel Analyst that the variety of investors looking at property in the provinces ranged “high and wide”, with, in the Manchester office, a swing towards single assets and away from portfolio deals. He commented: “There are plenty of buyers out there in the market who will buy up everything that comes to market”.

The provincial UK remained popular with Dalata Hotel Group, which continued to acquired sites in the UK, with the purchase of the Hotel La Tour in Birmingham for GBP31m from the company of the same name, described by sources close to the deal as a “low key seller”. When the site was opened in 2012, there were plans to expand the brand, which were not realised.

The property was newly built in 2012 and has 174 bedrooms and will be located directly opposite the HS2 Curzon Street terminal due to open in 2026. The hotel will be rebranded as a Clayton hotel in the final quarter of this year.

Pat McCann, the company’s CEO, told us: “We’ve been working on this for a number of months as part of our plan to grow in the provincial UK with new sites and existing properties. We can hold onto the property but we may consider further forms of financing further down the road.

“There is competition out there, we know there were other bidders. The beauty for us is that we did have cash, which is always appealing. What we’re looking at at the moment is new sites for new builds and existing sites. Our focus has switched from Ireland to the UK – we have 10% of the hotel rooms in Ireland, 20% of those in Dublin and its unlikely we’ll so a lot more in the Irish market.

Commenting on a likely increase in construction costs in the UK as a result of Brexit, McCann said: “It’s early days, but in Ireland there is clear evidence of inflation of construction costs because of limited supply of labour.”

HA Perspective [by Katherine Doggrell]: Enthusiasm is running high for the UK provinces, although not, it appears for residents of the UK, with the start of the school summer holidays seeing a record 2.4 million people fleeing in one weekend, according to ABTA.

In the other direction, the pound – reported to be down to EUR0.88 in some airports – is attracting a record number of overseas tourists to the UK and its Downton Abbey locations. So a happy balance is achieved and, should the UK traveller lose their taste for the exchange rate, staycations will cheer those at the cautious Peel Hotels.

The question now is how to take advantage of this bonanza. Dalata and the Cairn Group are trying two different strategies, with the former using its cash advantage to see off the healthy competition for provincial sites while the latter is joining the soft brand trend to build a brand in its own image.

Competition for sites is strong. Martin Rogers, head of UK hotel transactions at Savills, said that the group expected the second half of the year to be “equally robust” in terms of deals.

His colleague Cunningham noted that the market was “starting to see a slowdown in the supply of hotels” coming up for sale. We hear that more potential sellers are now considering testing the market while it remains buoyant. The beast must be fed.

Additional comment [by Andrew Sangster]: It is a mug’s game to try and call cycles but more and more indicators are beginning to flash warning signs for UK property.

Let’s start with residential: according to the Halifax House Price Index there has been a decline in prices for four consecutive quarters, the first time this has happened since 2012. The situation is probably even worse than this data shows for the second-hand market (that is houses not being sold by developers). This is because new-build is holding steady for the time being thanks to generous government incentives.

Last year, according to MSCI, the UK property market that it tracks (which is the professionally managed investment market) saw capital values drop by 0.8%. This is not much but is a sharp contrast to markets like Sweden and Spain (up 9.1% and 7.8% respectively). The global average rise was 2.5%.

In terms of returns, the UK saw total returns (which is income and capital value) drop to 3.9% from 13.1% in 2015. The global average was 7.4%.

For the overall property market (as well as residential), it looks likely that the cost of debt is going to rise soon. Interest rates are set to move slightly up and, just as importantly, regulation is raising costs for banks which ultimately have to be passed on in the form of higher borrowing costs even if rates don’t rise.

Property defied gravity during the last recession, thanks hugely to the unusual monetary interventions from the reserve banks in the form of ultra low interest rates and quantitative easing. These policies are now, albeit slowly, going into reverse.

There is little to suggest property is heading for a meltdown but with a subdued economic environment and the relative attractions of property diminishing as monetary stimulus is withdrawn, it is hard to make a bull case. The current “frenzy” may be the last we’ll see for a while.

Image: The Redworth Hall Hotel, part of The Cairn Collection

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