Hospitality was hot in 2007 as private equity real estate firms snapped up lodging assets small and large.
Blackstone’s $25.6 billion buyout of Hilton Hotels in June got the most headlines, but there were plenty of other hospitality deals to go around. In 2007, these included large deals like Goldman Sachs’ Whitehall Street fund acquiring the Equity Inns REIT for $2.2 billion, as well as small deals like Warburg Pincus’s $160 million joint venture with Triyar Hospitality to invest in niche hospitality assets and Aetos Capital’s $50 million commitment to develop Super 8 hotels in China. And 2007’s deals came hot on the heels of a mammoth deal at the end of 2006, the $27.4 billion buyout of hotel and casino company Harrah’s Entertainment by Apollo and Texas Pacific Group.
The recent activity comes on the tail of an acceleration of hotel buyout activity in recent years. From 2005 to 2006, private equity real estate activity in the US hotel sector increased 372 percent, growing from $6.6 billion to $31.3 billion, according to financial information group Dealogic.
Similarly, from 2005 to 2006, the value of all merger and acquisition activity in the US hotel sector nearly doubled from $29.7 billion to $58.8 billion. The number of transactions also increased from 132 to 137.
The uptick in hospitality activity hasn’t just been in the US. On the global front, the total value of hotel M&A deals increased from $60.7 billion in 2005 to $105.8 billion in 2006, a 74 percent increase, according to Dealogic. The Super 8 deal, in which Aetos has invested in Tian Rui Hotel Corporation, the main franchiser of the hotel brand in China, reflects the particular focus on hospitality assets in China. The growing economy in that country has spurred interest in the lodging sector there, which is still underdeveloped. The gaming sector has attracted attention as well.
In October, Permira, one of the world’s largest private equity firms, bought an approximate 20 percent equity stake in Galaxy, a casino and hotel operator in Macau for a total
consideration of $840 million. Among the top global hotel deals in recent years, private equity deals have stood out as the highest in terms of value of transaction. The Hilton deal alone accounted for about 82 percent of total global hotel buyout activity in the first half of this year. Blackstone already owns 100,000 hotel rooms across the US and Europe, including those at La Quinta Inn and Suites, which it bought in 2006. It has also pumped $1 billion into redevelopment of properties within its luxury brand LXR Luxury Hotels and Resorts.