With hospitality assets growing in popularity, Ares Management has acquired an 18-strong hotel portfolio in a deal valued at £400 mln (€464 mln).
The UK portfolio totalling 3,028 rooms of midscale- and economy-quality is owned by Landsec and let to AccorInvest. But AccorInvest and Ares have negotiated a surrender of the leases enabling Ares to not only take possession but transfer all operations.
Ares is working with hotel operating partner, EQ Group.
The assets are mainly in Central London by value, with others sprinkled around the UK in cities such as Edinburgh, Manchester, and Birmingham.
Alongside improving operational and financial performance of the hotels, Ares said it would target energy efficiency and carbon footprint enhancements.
John Ruane, co-head of Ares European Real Estate, said: '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.'
Knight Frank advised Landsec. Shaun Roy, head of hotels & specialist property investment, said: '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.'
TT&G acted for Ares.
Mark Allan, CEO of Landsec, explained: '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.'
Though Ares said it was acquiring 18 assets, LandSec said it was disposing of 21 hotels fully let to AccorInvest, which generated net income of £28.4 mln 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.
Of the total consideration, Ares is investing £350 mln upon completion with the remaining £50 mln payable within 24 months.
Landsec will receive 6% interest p.a. on the outstanding balance, which is ahead of
the company’s marginal cost of borrowing. The net proceeds of the sale will initially be used to repay debt.
Across a number of separate transactions, Landsec has also completed the disposal of £217 mln of other non-core assets since the end of September.
These disposals included amongst others the company’s two smallest retail outlets, one retail park, and two leisure assets and a local shopping centre in London.
