Landsec has announced it has completed the sale of its entire hotel portfolio to Real Estate funds managed by Ares Management alongside operating partner EQ Group for a cash consideration of £400m.
The disposal is in line with Landsec’s strategy to release capital from sectors in which the company does not have scale and to focus its resources on areas where it has “genuine competitive advantage”.
The hotel portfolio, which comprises 21 assets, is fully leased to AccorInvest and generated net income of £28.4m over the company’s last reported financial year.
In parallel with the closing of the acquisition, Ares entered into an agreement with AccorInvest to surrender these leases and transfer operations of the relevant hotels to Ares. As a result of these transactions, Ares has acquired 18 hotels with 3,028 rooms.
Of the total consideration, £350m has been received on completion with the remaining £50m payable within 24 months. Landsec will receive 6% interest p.a. on this 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.
The Portfolio consists of midscale and economy properties with the majority of value in Central London and the remaining assets primarily located in major UK city centres, including Edinburgh, Manchester and Birmingham.
According to Ares, the acquisition, which consolidates ownership of the portfolio’s real estate and operations by the surrender of the AccorInvest leases, provides the opportunity to “enhance value” through implementing various asset management initiatives including the refurbishment and repositioning of certain assets.
Alongside improving operational and financial performance of the hotels, Ares will target energy efficiency and carbon footprint enhancements across the portfolio.
John Ruane, partner and co-head of Ares European Real Estate, said: “This transaction highlights our ability to create solutions which unlock assets in today’s dislocated market. 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.”
Mark Allan, chief executive, Landsec, added: “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.”