Starwood strikes £750m Principal Hayley sale

Starwood Capital has agreed to sell its Principal Hayley hotel platform to a new entrant to the UK property market.

Foncière des Régions (FdR), through its specialist hotels subsidiary Foncière des Murs, is in exclusive talks to buy the portfolio for around £750m, which is part of a broader £1.2bn hotel sale currently being undertaken by the US private equity firm.

FdR, which was ranked 86th in EG’s Global 100 with $20.6bn (£14.5bn) of assets, is teaming up with operator IHG to run the assets.

The French SIIC (the country’s REIT equivalent) owns a portfolio of €6bn (£5.3bn) of hotels across Europe, having made €788m of investments in the sector last year.

FdR is buying 14 four and five star hotels totalling 2,626 rooms including Blythswood Square and Grand Central Hotel in Glasgow, the St David’s Hotel in Cardiff, and The George in Edinburgh.

The jewel in the crown is the recently refurbished Hotel Russell on Russell Square, WC1, which is thought to be worth around £300m.

Two hotels from Starwood’s DeVere hotels business have also been incorporated into the sale.

Maximising pricing

When Starwood kicked off its sales process last November, the Principal Hayley and DeVere businesses were offered both together and separately, each priced at around £600m.

However, with the two DeVere assets being transferred over to the Principal Hayley portfolio, this has skewed the weighting.

Nick Weber’s Henderson Park had been in competition to buy both the Principal Hayley and DeVere portfolios, but Starwood ultimately decided to sell the two separately in order to maximise pricing.

Starwood is currently considering its options on the remaining 13 DeVere country hotels and conference venues assets, which are valued at around £425m, including a prospective refinance or restructure.

There continues to be interest from at least two parties in purchasing the portfolio which requires greater capital expenditure than the Principal Hayley collection.

The two hotels that have been incorporated into the deal with FdR are considered of a lower quality in the context of the overall processes, and the remaining DeVere collection has subsequently been strengthened.

Return on investment

For Starwood, the Principal Hayley deal secures a substantial return on its investments made when it piled into the hotels market after the downturn and it will be a boon for the performance of its 2013, $4.2bn Starwood Distressed Opportunity Fund IX.

In 2013, Starwood bought Principal Hayley for £360m and then followed this up in 2014 by acquiring De Vere Venues for £232m and Four Pillars for £90m, with these three deals forming the bulk of its holdings.

Starwood spent around £250m upgrading the Principal Hayley and DeVere hotels and has also made disposals of individual hotels in the region of £200m.

Despite the sales of Principal Hayley and DeVere by Starwood, it continues to be active in the UK hotels sector, having raised $7.6bn for its latest opportunity fund.

Last month it agreed a £135m deal to buy a portfolio of eight Hiltons from Park Hotels & Resorts alongside Kew Green.

Eastdil Secured and UBS are acting for Starwood.

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