Sweden's Pandox scores big haul, including Jurys Inn, in Lone Star portfolio buy

A deal that many expected to happen has. Swedish hotel group Pandox has entered into an agreement with U.S private equity group Lone Star to acquire a portfolio of 37 hotels, inclusive of the Jurys Inn chain, whose hotels are spread out across England, Ireland, Scotland and Wales. The deal is said to be valued at £800 million or €908 million.

The transaction is being made in association with Israel's Fattal Hotels as operating partner, whereby Pandox, following a reorganization of the portfolio, will retain 20 of the hotels plus one operating property at Heathrow. Fattal will acquire Lone Star’s operational platform with 36 hotel operations under the Jurys Inn brand.

“The acquisition fulfills all of Pandox’s strategic criteria regarding countries, cities and locations, as well as size, segment and profitability, contributing to a further diversification of our revenue base," said Anders Nissen, CEO of Pandox. 

The acquisition of the 20 hotels by Pandox gives the company exposure in the UK, where it up to now had one hotel, the Hilton London Heathrow Airport, which it acquired in July 2017. The bulk of Pandox's current 122-hotel portfolio before the transaction are in Scandinavia, with 44 hotels in Sweden and 23 hotels in Norway, and mostly branded under such names as Scandic, Quality Inn, Holiday Inn and Hilton. Anders called the UK and Ireland "large and dynamic hotel markets."

Pandox has been in buy mode over the past couple of years. In November 2016 it acquired seven hotels in Europe—four in Germany, two in Austria and one in the Netherlands, totaling 1,744 rooms—from U.S. investment firm Invesco Real Estate. In September 2017, it acquired the Hilton Brussels Grand Place for €55 million.

Lone Star back in May brought the Jurys Inn chain and six other hotels to market with the aim of selling the properties for more than £1 billion, ultimately coming up short of that goal. The 42 hotels were part of Amaris Hospitality, which was formed by Lone Star in June 2015 and composed of 89 hotels. Lone Star targeted distressed hotels in recent years, purchasing 29 Jurys Inn hotels in January 2015 for £680 million and Puma Hotels, which owned the Lygon Arms in the Cotswolds and the Imperial in Torquay, for £323 million last year.

Lone Star had acquired the Jurys Inn chain from a group of investors: the Oman Investment Fund, Mount Kellett Capital Management, Ulster Bank, Westmont Hospitality Group and Avestus Capital Partners.

In November, it was reported that Pandox had pulled into the lead to acquire the portfolio, with real estate and leisure investment firm London and Regional Properties, along with private equity and trade buyers from Asia and the UK, in contention. 

Of the deal, David Fattal, CEO of Fattal Hotels Group, said, “We are proud to continue consolidating and developing our collaboration with Pandox, our strong expansion partner. The mutual trust we have built up over the last few years forms the basis for our success. For us, the acquisition of Jurys Inn hotels represents a huge step forward in our growth. With this, we have the opportunity to further expand and strengthen our expertise and brand awareness in Europe.

Pandox laid out drivers for the acquisition, which include: 

  1. Landmark transaction with 21 high-quality hotel properties, which firmly establishes Pandox in the UK and Ireland.
  2. Five countries, 20 cities (including five capital cities) and approximately 4,700 rooms.
  3. Large hotels with an average size of approximately 224 rooms.
  4. Well-established hotels with strong positions and strong locations.
  5. Attractive mix of domestic and international demand.
  6. Stable and profitable upper mid-market segment.
  7. 25-year revenue-based lease agreements with Leonardo for 2o hotels.
  8. Good growth potential.
  9. Attractive purchase price and immediate contribution to Pandox’s earnings.

PwC's 2018 UK hotels forecast is not as bullish on 2018 as it was on 2017. "We don't expect the growth in 2018 to match 2017, even though the outlook is broadly positive for the UK hotels sector," wrote authors David Trunkfield, UK Hospitality & Leisure Leader, and Dr. Andrew Sentance, senior economic adviser, PwC.

UK's hotels this year have seen a bump due to two main factors, PwC contends: a recovery in the broader global economy, which is helping spur more overseas travel, a win for cities like London, and the fall in the value of the pound since the Brexit vote, which makes visiting the UK that much cheaper. 

PwC's latest view is for UK GDP growth to slow from around 1.5 percent in 2017 to 1.4 percent in 2018, as the impact of the weaker pound on inflation and continued Brexit-related uncertainty move through. 

PwC predicts year-over-year occupancy growth in London of 2.3 percent and a RevPAR gain of almost 6 percent. That solid growth will not be repeated in 2018, PwC forecasts. For 2018, the expectations for London is occupancy growth of 0.2 percent, taking occupancy up two percentage points to 83 percent; ADR to increase by 2.2 percent, taking it to £148; and a RevPAR gain less than 2017 at 2.4 percent reaching £123.

The Lone Star portfolio acquisition is expected to be completed before year-end 2017.