• Pandox tipped for Jury’s Inn

Pandox has confirmed that it “has entered a negotiating phase” for a major portfolio, believed to be Jurys Inn.

The comments came days after the group confirmed to this publication that it was looking for further acquisitions, after making its debut in the UK.

The company said: “The acquisition concerns a hotel portfolio focused on larger cities in Great Britain and the Republic of Ireland. Pandox would like to emphasise that the deal is complex and that current negotiations may not necessarily lead to an agreement, and that it is not certain that the transaction will be successfully concluded.”

London & Regional and a number of private equity houses were also thought to have bid for the group.

It is thought that Pandox will pay GBP800m for the portfolio, which includes 36 hotels under the Jury’s Inn brand, 20 of which are freehold or long lease, with the remainder on operating leases. The Hilton Garden Inn Heathrow is also thought to be under consideration. Leonardo Hotels is expected to manage the sites. One party close to the deal, who wished to remain anonymous, commented that they would be “amazed” if Pandox retained the Jury’s Inn flag.

June saw Credit Suisse and Eastdil Secured appointed to look at strategic options for a package of 42 city centre hotels, which included the Jurys Inn chain and six Hilton-branded hotels. 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.

Lone Star bought the Jurys Inn hotel chain in a GBP680m deal in 2015. The acquisition included the brand, along with an estate of 25 hotels in the UK, five in Ireland and an outpost in Prague.

Lone Star has since 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.

In July Pandox acquired the Hilton London Heathrow Airport for GBP80m, with the hotel operated by Hilton under a revenue-based lease agreement

Anders Nissen, CEO, Pandox told Hotel Analyst that he retained faith in the UK despite the decision to leave the EU. He said: “Many people think that Brexit will be a disaster, which I don’t believe – the country is too strong. But if that happens the currency will go down and will have a positive effect on tourism and if things go very well then the currency rate will go up and this will be a positive result for values.

“It’s a good market out there and we have a successful acquisition. It’s a good platform. The hotels at Heathrow all have a rate premium and the hotel already has strong efficiency. Hilton are much more interested in keeping control of the risk and it’s a strong location, with a strong local management.”

Nissen said that the company continued to look for potential acquisitions, commenting: “We are always looking to grow the company. We are looking at more in Europe – Scandinavia is too expensive at the moment.”

The group favours the lease model, with Nissen adding: “I would say that the trend is spreading across Europe. Brands don’t want to be operators and there is an increase of companies including Meininger and Steigenberger who want to take on leases – it’s one of the ways where you can make a profit if you are any good.”

News of the deal came as Pandox reported its third-quarter results, with Ebitda up 19% on the year  to SKr610m (USD71m). Net operating profit from property management was up 3% to SKr511m and net operating profit from operator activities was up 44% to SKr129m.

In the Nordics, there was growth in Norway and Finland driven by Oslo and Helsinki. In Copenhagen the development was described as “stable”. In Stockholm the underlying demand remained strong, but revpar decreased due to the addition of new room capacity to the market. Nissen retained his faith in the region, adding: “It’s a great market, very profitable, very stable and in the big cities there is an international flavour.”

Looking ahead, the group said that, supported by previous acquisitions and anticipated organic growth driven by markets and profitable investments in the existing portfolio, “the prospects remain good for the remainder of the year”.

HA Perspective [by Katherine Doggrell]: Anders Nissen is known for his ebullient disposition and if anyone could find two positives out of the negative that is Brexit, he’s your man. But it’s one thing to buy a hotel in Heathrow and quite another to buy Jury’s Inn. This correspondent had harboured hopes that Pandox would buy Park Inn, when/if Rezidor/Carlson cuts it loose when the five-year plan is announced in January.

Nissen was enthused about Park Inn, telling us: “We love that brand, they do well in Scandinavia, they’re positioned much more efficiently – less F&B and more rooms. We have a strong relationship with them.”

But not as strong as Jury’s Inn, where, now that Lone Star has polished the bannisters, the group is positioned to take advantage of the current strength of the regional market.

Additional comment [by Andrew Sangster]: There are a number of interesting things to note about Pandox’s imminent entry (on a large scale) into the UK market.

Brexit is probably the most obvious thing: and the prospect of this deal is yet more proof that, whatever the net outcome from the UK’s departure from the EU, few people are expecting an economic apocalypse.

For Pandox (or whoever the buyer of the portfolio is), the outcome from Brexit still matters. If Brexit leads to robust growth, then Jurys will look a great buy. But if Brexit impacts the UK economy as negatively as some expect, then the long-term returns from the acquisition are more likely to be mediocre. How well is all this factored into the price or has the currency drop already done that?

Another significant question is how will a champion of leases fare in a market where leases are increasingly shunned, particularly by the major hotel brands? Usually, the answer would be to farm out the hotels to a third-party operator on a lease who would then sign-up a franchise to a global major.

But Pandox likes to do the operations itself in such circumstances so a franchise deal seems more probable. Despite the comments by Anders Nissen, it would a big surprise to see any global brand take on the leases of a portfolio like Jurys. How hard will Nissen try to push his point?

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