Abu Dhabi fund poised to buy 42 Marriott hotels for $1bn

Abu Dhabi Investment Authority's purchase of 42 Marriott-branded hotels from Britain's Royal Bank of Scotland is set to close 'very soon'.

The Abu Dhabi Investment Authority is poised to buy 42 Marriott-branded hotels from Britain's Royal Bank of Scotland. Newscast Limited via AP Images

The Abu Dhabi Investment Authority (Adia) is poised to buy 42 Marriott-branded hotels from Britain's Royal Bank of Scotland in a deal valued at close to US$1 billion (Dh3.67bn).

The deal features landmark hotels in the United Kingdom’s capital, including the County Hall hotel and the renowned London Regent’s Park.

The sovereign wealth fund beat strong competition from the Qatari Investment Authority to acquire the hotels.

Both Arabian Gulf-based funds were named as preferred bidders when the hotels were put up for sale a year ago.

“The Abu Dhabi Investment Authority has been looking at this portfolio of hotels for some time,” a source familiar with the deal said yesterday.

“It has been the front-runner and the deal will be closed very soon.”

It is understood that the Abu Dhabi fund will pay $990 million for the 42 hotels, which include properties managed by Marriott across the UK. The hotels are all four and five-star properties across England, Scotland and Wales and between them contain more than 8,000 rooms.

RBS has owned the hotels several times in different guises – both through property investment funds and through the issuance of mortgage debt.

RBS took control of the hotels for the last time in 2011 after it failed to refinance one of its biggest property loans made during the property boom.

Essentially the then owner of the hotels, a group of investors, needed to remortgage but was unable to do so because of market conditions.

RBS had been trying to refinance the loan through a debt for equity swap since 2008 but gave up in 2011 as the loan had accrued so much interest such a deal was no longer worthwhile.

The bank then bought the hotels back from the owner and put them up for sale.

At the time the RBS acquisition marked one of the most substantial commercial property repossessions in the UK market.
RBS originally bought 47 hotels in April 2006 through its acquisition of a company called Condor, which was jointly owned by Marriott International and the British brewer and pubs company Whitbread. It then sold five of them for £50m (Dh288.3m) the following year. A year after that the bank sold the portfolio on to a group of property investors from Ireland and Israel for £1.1bn, but kept a £700m mortgage on the hotels.

The properties were then repossessed from Ireland’s Quinlan Private and Delek Real Estate of Israel, among others, as they failed to make payments on the debt.

RBS appointed Ernst & Young, the international accountancy firm, as receivers for the hotel portfolio in 2011 after the loan restructuring talks collapsed.

Since then the 42 hotels have continued to operate successfully under the Marriott brand and are said to be “very much a going concern” by sources familiar with the deal.

In a statement issued at the time of the receivership Ernst & Young said: "It is business as usual for the portfolio. Marriott will continue to operate the hotels and this decision will not affect customers, suppliers or employees of the hotels."
Property is a substantial part of Adia's investment portfolio with an allocation of 5 to 10 per cent, according to the fund's 2011 annual review.

Within that portfolio the hospitality sector plays an important part.