05_ Regions will see continued variable trading performance, but may be boosted by Olympic ‘stay-aways’ 06_ Mid-market and budget hotels will continue to up-scale their customer bases 07_ Capex timebomb will hit owners and force down prices on tired assets
01_ Cash buyers will hold the upper hand 02_ Investment will come from diverse and new markets including China, India and Russia, but will be London-centric 03_ Banks may seek to rationalise their investments seeing some consolidation in the market 04_ Transactional market likely to remain cautious. Prices will be driven by those able to buy now and fund later
The lack of available debt and the ongoing economic uncertainty combined to repress a hotel sector which began 2011 with high hopes following a hint of recovery in 2010. In many respects, 2011 can be considered a tale of four quarters. The year began with operators and investors alike full of optimism, following a relatively positive end to 2010 – and the trading environment remained largely benign. By quarter two, that optimism was reflected in a wave of positivity and an increase in transactional activity – albeit partly due to some distressed assets, like von Essen Hotels, coming to market. As the reality of the slow pace of recovery hit home, and the full extent of the problems facing the financial markets in Europe emerged, quarter three was marked by uncertainty and confusion. In turn, by the fourth quarter, transactional activity stuttered as operators and investors adopted a ‘wait and see’ approach. Trading performance was inextricably linked to the economy where, as far as the UK was concerned, it remained very much a case of ‘London and the rest’, although even the capital had its share of peaks and troughs in revenue per available room (RevPAR).
Higher quality hotels in both London and the regions suffered as consumers migrated to mid-market accommodation, and mid-market operators ‘up-scaled’ their customer base. Despite this, London, buoyed in part by the Royal Wedding and the extended Easter holiday period in the first half of the year, significantly outperformed the rest of the UK. Most regional hotels struggled to maintain occupancy levels and RevPAR fluctuated greatly from month to month. Transactional activity marked by flight to quality … and distress In uncertain and recessionary markets, the only certainty is quality – that was typified by transactional activity in the hotel sector. The availability of stock was somewhat limited – the one exception being cases of distress. The 26 UK luxury country house hotel assets of von Essen Hotels (plus a Napoleonic island fort off the Welsh coast and a French chateau hotel) went into administration in April, with Christie + Co instructed by the administrators to sell the portfolio. Market sentiment and investor appetite determined that the portfolio would be sold off in parts rather than as a whole. By the end of 2011 the majority of the hotels were under new ownership as a new quorum of country house hotel operators emerged. The majority of the deals were completed for cash with the possibility of raising debt subsequently.
Andrew Brownsword’s Bath Priory Group acquired four of the hotels, Sir Peter Rigby’s Eden Hotels Collection added two to its growing portfolio, while Longleat Enterprises bought two of the hotels as it sought to build a small portfolio near to the estate. Patron Capital Partners, in a joint venture with Halcyon Hotels and Resorts, acquired a portfolio of seven former von Essen assets. Halcyon Hotels and Resorts is owned by Nigel Chapman, who sold five of the hotels to von Essen when they were part of his Luxury Family Hotels chain. The sales of the von Essen Hotels portfolio, the Mint Hotels in the UK and Europe to the Blackstone Group (owners of Hilton Worldwide) for £615 million, and the Leicester Square W Hotel to the Qatari Al Faisal Holdings for just shy of £200 million all generated huge interest. They also emphasised both the investor desire for quality and the fact that values for quality assets were holding up in the difficult market conditions. Whilst the acquisition of a controlling stake in the Maybourne Group by the Barclay brothers for £700 million was the headline-grabbing deal of the year, the sales of the Aerodrome Hotel in Croydon and a further von Essen asset, Hotel Verta in Battersea, demonstrated the continuing investor appreciation for character as well as quality.
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