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Plentiful portfolio deals recall frothy 2007
March 6 2013

A number of hotel portfolios were dealt during the past two weeks, and hotel investors and operators say more are on the way.

Highlights
  • Within the span of nine days, nearly 1,400 properties were dealt or saw at least some change of ownership.
  • 7 Days Group Holdings Limited  was acquired and taken private by a consortium of investors.
  • American Hotel Income Properties REIT LP acquired Lodging Enterprises LLC, whose portfolio includes 32 hotels.

BERLIN—The once dormant deals landscape saw a swell of activity last week that has hotel investors recalling the frothy days of 2007.

Within the span of nine days, nearly 1,400 properties were dealt or saw at least some change of ownership, including:  

  • 7 Days Group Holdings Limited  entered into a merger agreement and could be taken private by a consortium of investors led by Keystone Lodging Holdings Limited, Keystone Lodging Company Limited, pursuant to which Keystone will acquire the company for $4.60 per ordinary share or $13.80 per American Depositary Share, each representing three ordinary shares.
  • NH Hoteles’ board approved a 20% capital share increase by HNA Group of China, worth €234 million ($306 million) at €3.80 ($5) per share. Under the deal, the two companies would create a joint venture for the Spanish group’s entry into the Chinese market under the NH brand and establish a commercial partnership that would “enhance cross-selling opportunities,” the statement said.
  • NH also entered into a letter of intent to sell five hotels totaling 804 rooms to Hospitality Properties Trust for $70 million, with a 20-year management contract with renewal options.
  • Israeli hotel company, Fattal Hotels, together with a consortium of global investors have signed a binding agreement to acquire the entire share capital of the Queens Moat Houses (Germany) Holding GmbH group of hotels that presently consists of 20 hotels.
  • American Hotel Income Properties REIT LP acquired Lodging Enterprises LLC, whose portfolio includes 32 proprietary branded hotels in 19 U.S. states, 24 proprietary branded diners and the Oak Tree Inn brand.
  • Starwood Capital Group acquired the Principal Hayley Group, a conference and events hotel group that owns 23 city center hotels and conference venues across the United Kingdom and Europe. The portfolio offers a combined capacity of approximately 4,000 bedrooms and more than 500 meeting rooms, including The George, Edinburgh, the St. David’s Hotel & Spa, Cardiff, the Grand Central Hotel, Glasgow and the Hotel Russell, London.

Hoteliers and investors polled during the International Hotel Investment Forum said the transactions were a good sign for the hotel industry.

“It’s a reflection of the health of the industry that hotels and hotel properties have suddenly become very attractive investment positions again,” Gerald Lawless, president and CEO of the Jumeirah Group, told HotelNewsNow.com.

“Many of them are really at historic lows in terms of property prices. Investors are taking advantage of doing the transactions. The flurry of transactions is also a reflection of the expectations that the market has bottomed out and we’re on the way back up,” he added.

“The appetite of buyers is very strong,” said Christopher J. Day, managing director with Christie + Co., during a panel titled “Around the world in 40 minutes: A look at trends, investment and emerging markets.”

“Private equity is a key player, sovereign wealth. We’ve got Israel investors. The buyers do vary by asset and lot size. Single assets, particularly at the trophy end, we’re seeing high net-worth individuals. As we go further down the food chain, regional players come into the mix,” he said.

‘A head of steam building’
The recent blitz was no fluke, Day said, assuring conference attendees that more portfolio transactions are on the way.

“There does seem to be a head of steam building,” he said. “We’re likely to see more portfolios coming to market.”

While much of what will be transacted will be distressed, investors still are looking for quality assets with upside, Day said.

During an earlier session, David Fenton, senior economist with the Royal Bank of Scotland, agreed. There’s a certain degree of comfort with “safe global groups like (InterContinental Hotels Group), Accor,” he said. “I don’t think that’s going to change any time soon.”

RBS is itself rumored to be close to a deal with Abu Dhabi Investment Authority for a portfolio of 42 Marriott-branded hotels in the U.K., although sources from both parties have declined repeated requests for comment.

“People aren’t willing to take on significant chunks of risk just yet,” Josh Littman, director of development, EMEA, Hard Rock Hotels & Casinos, told HotelNewsNow.com. “The focus has been on well known or safer bets.”

That’s the case for Hard Rock, which is talking to a “number of players” regarding a possible portfolio transaction of its own.

“There’s more comfort out there. There’s more transactions. That should bode well for us,” Littman said.

Other portfolios in play
Not to be outdone, hotel developers and managers are busy inking deals of their own.

Interstate Hotels & Resorts, for example, recently acquired the management platform of London-based Sanguine Hospitality. The deal marks Interstate’s entrance into the U.K. market and adds 14 properties to its preexisting portfolio of 37 owned and signed hotels in Europe.

“We’ve been looking to grow our European platform for the past couple of years,” Ed Blum, executive VP of development and acquisitions, told HotelNewsNow.com. “Sanguine was a good fit because of its quality assets, superb operating team.”

Interstate’s CEO, Jim Abrahamson, has frequently made public his desire to grow by absorbing smaller management companies. When asked if the hotel industry should expect more such deals in Europe in the near term, Blum said Interstate’s development team continues to look at other opportunities.

“There’s nothing on the horizon,” Blum said.

A number of other notable deals spot the rearview mirror. The Carlson Rezidor Hotel earlier this week announced a joint venture with Panorama Group to create Carlson Panorama Hospitality. The joint venture will develop 20 Radisson and Park Inn by Radisson hotels during the next seven years.

Meanwhile, IHG signed a franchise multiple development agreement with Regional Hotel Chain, a portfolio company of VIY Management, to develop 15 new hotels in Russia by 2019.

And Germany’s Grand City Hotels which has more than 120 hotels and 13,000 rooms in its portfolio, entered into a strategic partnership with Wyndham Hotel Group to brand 43 hotels with more than 5,400 rooms.

“I think what’s were seeing is people are starting to be comfortable. This conference is proving it,” Michael Shindler, executive VP of Hard Rock, told HotelNewsNow.com. “It’s becoming a more international business in terms of the branding, management and vehicles. I think in some respects we’re contracting. There are fewer and fewer players even though it’s a very dispersed industry.

“Coming out of the recession, it’s an exciting time.”

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