Starwood Capital agrees sale of Principal portfolio to FdR

George Sell By George Sell
03 May 2018 | Updated 04 May 2018

UK: Starwood Capital has agreed the sale of 14 hotels that form part of The Principal Hotel Company to Foncière des Régions.

The £858 million deal is expected to be completed next month, and will see IHG assume management of 13 of the properties, mainly through its Kimpton brand, but also through the InterContinental flag and a new luxury conversion brand set to be launched later this year.

The portfolio consists of 14 full-service hotels comprised of 2,638 keys and split across two brands, Principal (12 hotels) and De Vere (2 hotels). The properties occupy flagship locations in high-growth cities across the UK, including London, Manchester, Edinburgh, Glasgow, Oxford, York and Leeds. Included in the portfolio are The Principal London and The Principal Manchester. The Principal hotels in London and Manchester will join Kimpton, along with one of the two Principal hotels in Edinburgh.

The deal is also an abrupt change of tack for IHG away from its preferred franchise model, in that it will lease the properties from FdR. IHG will pay an annual rent of £48 million until 2021, with inflationary increases thereafter, funding any shortfall generated by profit by up to £16 million in any one year. These leases will be a £48 million balance sheet liability from 2019 when the new IGRS16 accounting regulation comes in to force.

"This landmark transaction represents a major milestone in our remarkable journey with The Principal Hotel Company," said Cody Bradshaw, managing director and head of European hotels for Starwood Capital Group. "Five years ago, we embarked on an investment strategy aimed at consolidating more than 50 hotels across four different UK hotel companies to form a leading platform. With this sale to Foncière des Régions, we will have realised 35 asset disposals in total since our acquisition. As long-term institutional investors, Foncière des Régions are extraordinary custodians of real estate and we could not be more thrilled to pass them this iconic collection of assets."

IHG has entered into a conditional agreement with Foncière des Régions to rebrand and operate 12 trading hotels and one pipeline hotel (185 rooms) into its portfolio across the UK.

Keith Barr, chief executive officer for IHG, said: "We are focused on continuing to expand our leadership in luxury and upscale, which are both high-value segments with significant growth potential. Bringing Kimpton to such an important market as the UK is a key part of our plans, as is the introduction of our new upscale brand, which will provide an exciting, differentiated offering to both guests and owners. Together with the recent addition of Regent Hotels & Resorts to our portfolio, we are building real momentum behind our plans to deliver industry-leading net rooms growth."

IHG's Hotel Indigo brand is a sponsor at the 2018 Boutique and Lifestyle Hotel Summit in London.

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