French Firm Acquires £858m UK Hotel Portfolio

French real estate investment group Foncière des Régions (FdR) has confirmed its acquisition of a portfolio of 14 luxury UK hotels from US private equity fund Starwood Capital Group, for a cost of £858m.

The acquisition, expected to be completed in June 2018, marks the Parisian firm’s first move into the British hotel property market.

It will be in part funded by a £262m (€300m) share capital increase by the group’s Foncière des Murs hotel subsidiary.

In a press release, FdR deputy chief executive Dominique Ozanne says that entering the UK market “will help Foncière des Regions cement its leading position on the hotel real estate investment market in Europe,” building on the success of the firm’s development strategy in France, Germany and Spain.

The hotels purchased from Starwood, currently operating under ‘The Principal’ and ‘De Vere’ brand names, include four and five-star sites in Birmingham, Cardiff, Edinburgh, Glasgow, Leeds, Liverpool, London, Manchester, Oxford, Wotton and York.

Intercontinental to lease 13 sites to ‘expand leadership’ in UK

The acquisition has been met with confidence by investors, with the French hospitality firm having already secured a conditional agreement for the long-term lease of 13 of the sites to InterContinental Hotels Group (IHG).

If finalised, this leasing deal will render IHG the leading luxury hotel operator in the UK.

IHG plans to convert the sites to its own brands, introducing the Kimpton Hotels & Restaurants label to the UK market.

Under the agreement, IHG will retain a royalty fee for their operations and pay rent which is expected to “stabilise” at £48m per year by 2021.

Keith Barr, IHG chief executive, said in a statement that the hotel operator looked forward to “expand[ing its] leadership in luxury and upscale” sites through the deal, adding: “bringing Kimpton to such an important market as the UK is a key part of our plans.”

The lease will also “establish a presence” for IHG’s “new upscale brand, which will be launched later this year.”

The deal marks an on-going international interest in the UK’s hotel market, which has been largely unaffected by Brexit and remains a fast-growing, valuable sector.

Projections estimate that the Foncière des Régions portfolio could generate over £200m in revenue and operating profits for IHG by 2023.

UK hotel market buoyed by ‘record tourism’ and infrastructure investments

Meanwhile, US private equity group Starwood Capital will remain an active player in the UK, having bought seven British Hilton hotels from Park Hotels & Resorts in February 2018 for £135m.

Cody Bradshaw, Starwood’s managing director and head of European hotels, says that the equity group is keen to capitalise on lucrative investment opportunities in the British hotel market and will “continue to pursue attractive hotel investment opportunities, particularly any situations where we can add value through repositionings and operating improvements.”

Bradshaw notes the strengths of the UK hotel property market, stating:

“The top UK cities continue to benefit from major investments in infrastructure, regeneration schemes and new demand generators, which when coupled with record international tourism and high barriers to entry, continues to produce solid fundamentals and ample liquidity.”

Accountancy firm PWC forecast in March 2018 that a London-specific acceleration in hotel supply could result in more “new rooms opening” than in the last growth peak of 2012.

It further notes that record occupancies have been seen in hotels in many parts of the UK so far this year.

Europe-wide, the luxury hotel sector has seen burgeoning investment and expansion recently, with Foncière des Régions’ acquisition coming on the heels of AccorHotels’ £416m purchase of Swiss luxury hotel group Mövenpick Hotels & Resorts.

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