Landsec has completed the sale of its entire hotel portfolio to real estate funds managed by US private equity group Ares Management alongside operating partner EQ Group for £400 million.
In a filing Landsec said this compares to a September 2023 book value of the assets of £404 million. The REIT said the disposal is in line with its strategy to release capital from sectors in which the company does not have scale and to focus on areas where it has genuine competitive advantage.
The hotel portfolio, which comprises 21 hotels in total, is fully let to AccorInvest and generated net income of £28.4 million over the company's last reported financial year. The income is 100% turnover-linked with a lease contract expiring in 2091 and 12-yearly tenant-only break options, limiting Landsec's ability to influence performance or add further value to the assets.
Prior to the acquisition, the properties were fully let to AccorInvest under long-term leases. In parallel with the closing of the acquisition, Ares entered into an agreement with AccorInvest to surrender the leases and transfer operations of the relevant hotels to Ares. As a result, Ares has bought 18 hotels with 3,028 rooms.
Ares said the portfolio provides the opportunity to enhance value through implementing various asset management initiatives including the refurbishment and repositioning of some of the hotels. Alongside improving operational and financial performance of the hotels, Ares will target energy efficiency and carbon footprint enhancements across the Portfolio.
“This transaction highlights our ability to create solutions which unlock assets in today’s dislocated market,” said John Ruane, Partner and Co-Head of Ares European Real Estate, in a statement. “The hotels are well located with an attractive weighting to the London market and have seen performance recover strongly since COVID. The rationalisation of the ownership and lease structure offer us exciting opportunities to add value over time.”
Assets in the portfolio include the Novotel London West in Hammersmith and the Novotel London Tower Bridge, the Ibis London Heathrow, Novotel Leeds Centre, Ibis Manchester Portland Street and Novotel Glasgow Centre. Accor sold the portfolio to Landsec in 2007, including an additional nine hotels, for €711 million.
Of the total consideration, £350 million has been received on completion with the remaining £50 million payable within 24 months. Landsec will receive 6% interest per annum on the outstanding balance. The net proceeds of the sale will initially be used to repay debt.
Across a number of separate transactions, Landsec said it has also completed the disposal of £217 million of other non-core assets since the end of September. These disposals included the company's two smallest retail outlets, one retail park, and two leisure assets and a local shopping centre in London.
The transactions bring Landsec's total disposals since September 2023 to £617 million. This compares to £46 million of acquisitions since then, comprising a handful of smaller site assembly opportunities adjacent to existing assets. It says it now has substantial headroom to invest at an "attractive point in the cycle".
Mark Allan, chief executive, Landsec, said in a statement: "We said in late 2020 that our focus would be on areas where we have a genuine competitive advantage. In line with that strategy, we have continued to recycle capital out of assets where our ability to add further value is limited. The sale of our hotel portfolio and other non-core assets will further strengthen our balance sheet and leave us well placed to take advantage of opportunities in the market as they arise."
US private equity group Ares has been one of the most active investors in the UK recently.
CoStar News revealed recently that it is in talks to buy Schomberg House close to Buckingham Palace in London's West End for around £50 million, as US investors continue to be particularly dominant investors in real estate in the capital.
Last month it completed its acquisition of the majority of Shaftesbury Capital’s Charlotte Street "Lifestyle" portfolio in London's Fitzrovia for £60.5 million or a 5.56% net initial yield. It has also exchanged on the acquisition of the long leasehold interest in 25 Charterhouse Square, EC1 on behalf of one of its real estate funds, from Helical for £43.5 million.
At the beginning of the year Royal London Asset Management Property sold a 1.2 million-square-foot portfolio of industrial and logistics assets to Ares Management Real Estate funds for around £200 million.
Returning private equity investors have been behind much of the activity in a still-quiet London investment market. Colliers reported in March that private equity had accounted for 11% of acquisitions in the London capital market year-to-date, and for a quarter of deals under offer.
The hotel and leisure sector stood out in the UK's first quarter investment figures, with volumes lifting to a five-year high of £1.7 billion, according to LSH figures.
The quarter’s two largest deals were both hotel transactions. Starwood Capital bought a 10-hotel portfolio from Edwardian Group for £800 million, while MCR Hotels bought the BT Tower, London for £275 million and will convert it into a hotel. Travelodge’s £210 million acquisition of 66 hotels from LXi REIT also contributed to the strong quarter for hotel investment, which has been buoyed by the strength of the returning leisure market after the COVID lockdowns.
EQ Group is a pan-European hospitality investment and management platform.
Shaun Roy, Partner, Head of Hotels & Specialist Property Investment, said in a statement: “Knight Frank is delighted to have advised Landsec on the disposal of their Accor Invest leased portfolio of 21 hotels across the UK. We have worked with our client to ensure the optimum disposal route to enable maximised pricing and ease of exit. The portfolio will now be actively managed and repositioned by the new owners ARES, and we look forward to seeing these hotels thrive.”
Knight Frank acted for Landsec and TT&G acted for Ares.