Ares buys LandSec hotel portfolio for £400m and restructures leases

Novotel London West in Hammersmith.

Landsec has sold its entire hotel portfolio to property funds managed by Ares Management and its operating partner EQ Group for £400 million in a cash sale.

The portfolio comprises 21 assets let to AccorInvest which generated net income of £28.4 million in the latest financial year. The hotels are midscale or economy properties and most of the portfolio’s value is in central London. The majority of the other assets are located in major UK city centres, including Edinburgh, Manchester and Birmingham.

The income has been 100% turnover-linked with a lease contract expiring in 2091 and 12-yearly tenant-only break options, which Landsec said limits its ability to influence performance or add further value to the assets. However, as the deal closed, Ares simultaneously agreed that AccorInvest would surrender its leases and transfer operations of the relevant hotels to Ares. As a result, Ares has acquired 18 hotels with 3,028 rooms. Ares said this consolidates ownership of the portfolio’s real estate and operations by the surrender of the AccorInvest leases, providing 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 said it will target energy efficiency and carbon footprint enhancements across the portfolio.

Landsec said in a statement that the disposal is in line with its strategy of releasing capital from sectors in which it does not have scale to focus resources on areas where it has genuine competitive advantage.

“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,” said LandSec chief executive Mark Allan. “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.”

The price paid to LandSec compares to the assets’ September 2023 book value of £404 million. Ares paid £350 million on completion of the deal and the remaining £50 million is payable within 24 months. Landsec will receive interest at 6% pa on the outstanding balance, ahead of its marginal cost of borrowing. The net proceeds of the sale will initially be used to repay debt.

John Ruane, partner and 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.”

Landsec has also completed the disposal of £217 million of other non-core assets since the end of September in a number of separate deals. These disposals included the company’s two smallest retail outlets, one retail park, two leisure assets and a local shopping centre in London.