London & Regional is making its debut in the lucrative budget hotel sector with the £575m purchase of Atlas Hotels.
The property company, owned by billionaire brothers Ian and Richard Livingstone, has been selected as the preferred buyer of the Lone Star-owned business, which comprises 47 limited-service hotels under the Holiday Inn Express brand.
The Livingstones own some of the most luxurious hotels in the world, including the Hilton on Park Lane, W1, the Royal Pavilion in Barbados and the Fairmont in Monte Carlo, but have no exposure to the lower end of the market. It is understood that London & Regional is looking to create a large-scale business in the sector.
The brothers have been looking to get into the sector since last September, when they were outbid by Apollo Global Management for a £1bn portfolio of 19 Holiday Inns and three Crowne Plaza hotels.
The budget hotel sector has been a resilient performer over the past 12 months despite a stuttering economy and a slowdown in the property market since the start of the year. Premier Inn owner Whitbread posted a 12% growth in sales in the year to 3 March, with underlying earnings per share up by 11.7%.
Around half of all new UK hotel bedrooms set to open in 2016 will be branded budget rooms, according to PwC, with 9,500 bedrooms planned for the regions and 7,000 rooms planned for London.
“It is evidence that people are still doing deals despite the prospect of Brexit. Certain elements of the market, such as budget hotels, will not be affected by either outcome,” said a source close to the deal.
The Atlas portfolio comprises 5,575 bedrooms, 15% of which are in London. It also includes development opportunities to boost the size of the portfolio by almost 1,000 bedrooms, which could be built out over two years. The firm is run by managing director Keith Griffiths.
It was put up for sale for £600m through Eastdil Secured and Rothschild in last October. TPG made an unsolicited approach for the group last summer, which prompted the open-market sale. Abu Dhabi sovereign wealth fund ADIA is understood to have been close to agreeing a deal earlier this year but no agreement was reached.
London & Regional has now begun searching for debt of close to £345m to finance the deal. The figure reflects a 60% loan-to-value ratio.
The sale also secures a successful exit for Lone Star, which acquired Atlas as part of its purchase of the £5.2bn Rock and Salt NPL portfolios from IBRC in 2014. At that time the company was branded Somerston Hotels.
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