Hotel Analyst
Starwood buys Design
Hotels stake Starwood Hotels & Resorts has signed an agreement to acquire 49.8% of Design Hotels from Arabella Hospitality, one of Starwood’s longtime partners in Germany, for an undisclosed fee.
Starwood is now the largest shareholder in the company, with founder and CEO Claus Sendlinger holding 12.94%, private investor Oliver Schmidt holding 5.24% and 32% held by other individual investors via a listing on the Munich stock exchange. Design Hotels, which provides
distribution, sales, marketing and consulting services for hotels, has a portfolio of over 200 member hotels in 40 countries. In 2010 the company had a turnover of EU9.4m. The first half of 2011 saw sales up 13%. “This is an investment presented to us by a longtime partner,” said Starwood president and CEO Frits van Paasschen. “With our own passion for design and innovation, we have long admired Design Hotels. As a shareholder, we are delighted to have a seat at the table of this dynamic company.” Arabella Hospitality has recently re-focused its hotel strategy mainly on ownership and asset management and as a result chose to divest its shares in Design Hotels. Starwood will not be involved in the day-to-day operations of Design Hotels, nor will Design Hotels participate in any of Starwood’s centralised delivery systems including
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reservations and Starwood Preferred Guest. Last year saw the Schörghuber
Group dissolve ArabellaStarwood Hotels & Resorts, its joint venture with Starwood Hotels & Resorts, a move which was intended to allow Schörghuber to focus on owning hotels, rather than managing them.
ArabellaStarwood was founded
in 1998 with the aim of protecting the Arabella brand and expanding it in the German-speaking and Majorcan markets, a strategy which changed at the start of 2007, when the JV was extended until 2037. Under the revised agreement,
further Starwood brands, including Westin, Le Méridien and St. Regis Hotels & Resorts, were added to the group’s remit. The Arabella name was transferred to the group’s complementary tourist offers, which include golf and a vintage car business. Following the dissolution of the
JV, the sale of the group’s stake in Design Hotels marks its ongoing attempts to move towards an ownership-only model in the hotel market. Starwood continues to manage or franchise 20 of Arabella Hospitality hotels in Europe. Founded by Sendlinger in
1993, Design Hotels is planning to continue its expansion, with the CEO commenting: “Having Starwood with its leading global footprint and lifestyle brands as an investor is a further validation that Design Hotels is a strong brand of global relevance as we continue to grow and focus on our niche in the New Luxury hotel segment”.
HA Perspective: Out of the global majors it is Starwood who has so far grasped most clearly that they are in the business of luxury brands rather than just running hotels. While InterContinental is
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leading the pack in the midmarket, innovation at the top end has been dominated by Starwood. The acquisition of Design
Hotels thus makes sense for Starwood in having exposure to a collection of cutting edge independently owned hotels. How much further Starwood
takes the relationship remains to be seen. There is certainly an argument for creating a franchise concept along the lines of Marriott’s Autograph whereby the Design Hotels properties can plug into Starwood’s reservation system and loyalty scheme while retaining their own identity. Whichever way it plays out,
the deal seems a sensible card for Starwood to be holding.
Consolidation looks the only
play The depth of the challenge facing conference hotels in the UK provinces was highlighted at the start of this year by two stories: Principal Hayley’s buyback of six hotels and the decision by De Vere to sell properties to focus on its mid market Village brand.
While the two separate deals have been presented as positive, the underlying logic points to a difficult environment. Hotel operator Principal Hayley
has bought back six hotels which it previously sold close to the height of the market in 2006. The six are Hotel Russell, London, the Royal York Hotel, Metropole Leeds, George Edinburgh, Palace in Manchester and Selsdon Park in Surrey.
The reacquisition was arranged
in two parts, with the hotelier signing 175 year leases on the properties, and their freeholds being bought by new landlord and long term property investor Pramerica funds. Lloyds has provided finance for the transaction. The 2006 sale and lease back
to property investor Aaim saw the six properties change hands for GBP275m, while Principal signed 25 year agreements to run them. The repurchase is reported to have been at around GBP200m. With the confidence provided
by the lengthy lease agreements, Principal is now in a position to benefit from any major investments in the properties. Bedroom refurbishments are ongoing, while the group is rolling out its new Tempus restaurant format across the chain. “We are very pleased with
this transaction,” commented chairman Roger Devlin. “The fact that we are backed to expand at a time when many hotel groups are being sold or restructured, is a reflection of both our performance and our prospects.” Principal’s portfolio extends to
24 hotels and conference venues, of which 22 are in the UK, one in Paris and one in Barcelona. In 2009, it bought the Connaught Rooms in London, and Glasgow’s Central Hotel, which was then refurbished ahead of a 2010 opening.
Meanwhile, changes are afoot
at De Vere, with the arrival of Robert Cook, the former boss of Malmaison and Hotel du Vin, as chief executive of De Vere Village. The group is understood to have put five hotels on the market in a bid to raise GBP65m to help fund the roll out of the Village brand. Three hotels are shortly to come to market - Southampton’s
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