REPORT FROM EUROPE—Lone Star is not wasting any time engineering its new management platform, Amaris Hospitality, to achieve maximum value.
The United States private equity company over the past two years has acquired 89 hotels over four separate portfolio transactions. John Brennan, who will head up Amaris, said he thinks the new group could be worth up to £2 billion ($3.08 billion) after repositioning, rebranding, investing capital expenditure and leveraging.
That size will make it a significant hospitality company in the midscale-to-upscale segment in the British Isles, he said.
(By comparison, Denham, England-based InterContinental Hotels Group has a market capitalization of £6.1 billion, or $9.4 billion.)
Lone Star’s recent buys include Jurys Inn (purchase price of £680 million, or $1.1 billion, for 29 properties) and Puma Hotels, now The Hotel Collection (£323 million, or $501 million, for 17 properties). It also purchased 21 Mercure-branded properties that remain under the AccorHotels umbrella as well as three Hilton Worldwide Holdings assets.
On 30 July, Lone Star also will close on a portfolio of 19 U.K. hotels trading under the Thistle brand name, and which also will fall under Amaris’ control.
Brennan, who serves as CEO of Jurys Inn, said the time was perfect for such a move, although he did not say how many hotels, or parts of the portfolio, would be rebranded as Jurys Inn, or under a new brand.
“This initiative (in the U.K. and Ireland) is unusual for our segment. All our hotels, except one, is owned or leased. There are no other management groups like this. We have created something unique, and it brings great scale, some 15,000 keys and 8,000 staff,” Brennan said.
Brennan said Lone Star’s buy of Jurys Inn in January 2014 was the piece that unlocked the new strategy.
“The Jurys Inn business will (constitute) between 50% to 60% of the profitability of all of this, but the entire package helps bring scale. The process now is to effectively reposition and, in some cases, rebrand (properties). If we have the right brands, the right investment, improved customer service and good staff, we will see benefits deriving from consistent market improvements,” Brennan added.
Brennan said The Hotel Collection portfolio already has seen good traction in terms of recent investment.
Grant Hearn, former executive chairman of Travelodge (U.K.), has been brought in to Amaris as non-executive chairman.
Lone Star exit?
Brennan declined to speculate on Lone Star’s exit plans or if any exist for the portfolio.
“Our goal as management is to improve operating performance and execute strategy, which will make the business more valuable,” he said.
Adam Maclennan, director and head of U.K. and Ireland at consultancy PKF hotelexperts GmbH, said now is as good a time as any for Lone Star to move.
“Lone Star could move. It’s not a bad time, and there are some exciting properties in the portfolio. Plenty of people are looking, but it all depends on what they do with it,” he said.
Apart from private equity sniffing around, a portfolio of this size might also attract hotel companies, Maclennan added.
“There are some hotels companies that have not got much in the U.K., and hotel companies have a history of buying brands to get volume,” he said.
Elizabeth Winkle, managing director of STR Global, sister company of Hotel News Now, said the deal represents the second round of consolidation in the hotel industry.
The first wave came from U.S.-based private equity, which sought under-capitalized assets to help upside both on the physical asset and the operations. The U.K. hotel portfolios it amassed were managed as individual business arms, she said.
“Now, what is interesting is (this initiative’s) third-party management and ownership of assets. Of course, we have always expected consolidation, but this has not materialized among the big boys, the large hotel chains themselves,” Winkle said, adding that Amaris would see immediate efficiencies and economies of scale.
Winkle also said the move would add diversity to the midscale segment in the U.K. and Ireland.
Targeting growth
Brennan said three things will help drive Amaris’ valuation growth:
- repositioning, rebranding and significant capital expenditure to make hotels competitive;
- a number of significant extensions to properties. (Brennan mentioned adding 80 keys in Belfast, 70 in Oxford and 30 in Edinburgh, as examples, all of which he said would be accretive.); and
- expansion of the overall footprint, which, Brennan added, would be the second phase of the transition and would be selective.
He said it was likely that Jurys Inn would “grow significantly.” Amaris’ relationship with Hilton also would grow, he added.
“We only have five cities with multiple properties—Aberdeen, Birmingham, Dublin, Edinburgh and Newcastle/Gateshead—so there is room to grow both in terms of locations and in the different price points of the portfolio,” Brennan said.
“When leveraged, that £2 billion number is what we believe it will be worth in a couple of years,” he said.
“We all know trading performance is a reflector of economic activity, and we see juice both in the home and source markets. On both fronts there seems to be strong traction. The outlook is good, and (revenue-per-available-room) performance is good in both regional U.K. and Ireland. We see this continuing,” Brennan said.
Maclennan said two broader fundamentals also could benefit Amaris: constrained supply and a strong outlook for the U.K. economy.
“Overall there may be some economies of scale, but the question is, ‘What they will do with (the properties)?’ There are Jurys Inns dotted around the country, and you’d think the values should go up,” he said.