Goldman Sachs launches £427.3m Ribbon Finance UK hotel CMBS

By James Wallace - Thursday, May 10, 2018 8:47

Goldman Sachs has launched £427.3m Ribbon Finance 2018, a CMBS transaction backed by one loan secured on 20 Holiday Inn and Crowne Plaza hotels in the UK acquired by the Dayan family, a wealthy Israeli family.

The latest European CMBS is the fourth this year marking the strongest year for European CMBS since 2015 in less than the first half of the year, underscoring the revival of the securitisation market.

CoStar News first tipped the acquisition and CMBS here.

The capital structure of Ribbon Finance 2018 is as follows:

Description Balance Prelim. Ratings (DBRS/S&P)

• Class A £153.90m AAA (sf) / AAA (sf)

• Class B £48.07m AA(low) (sf) / AA (sf)

• Class C £27.93m A (sf) / AA- (sf)

• Class D £49.02m BBB(high) (sf) / A (sf)

• Class E £81.70m BBB(low) (sf) / BBB- (sf)

• Class F £54.815m BB (high) (sf) / BB (sf)

• Class G £11.875m BB (sf) / BB- (sf)

Pricing is expected for week commencing 21 May.

Goldman Sachs extended a five-year £449.8m senior loan on 4 April, priced at 3.19% over three-month LIBOR to Ribbon Bidco Limited, the special purpose vehicle owned by the Dayan family, headed by Amir Dayan who manages the family’s Germany-focused real estate business.

Only £427.31m of the senior loan is securitised. As part of EU and US risk retention requirements, Goldman Sachs lender will hold a £22.5m of the senior loan which ranks pari passu to the notes of each class and the class X certificates.

CBRE Loan Services has been appointed as loan servicer. A liquidity facility of £27.8m will be available but the bank is still to be determined.

The Dayan family acquired the 4,840-bed hotel portfolio – 17 Holiday Inn’s and 3 Crowne Plaza hotels – and Lapithus Hotels Management UK (LHM) from Apollo Global Management for £742m, financed with the £449.8m senior loan and a five-year £69.2m mezzanine loan extended by Goldman Sachs.

Goldman Sachs sold the £69.2m mezzanine loan to Apollo, which retains an economic interest in the portfolio it previously owned directly. In addition, the Dayan family will fund an additional £38m capex programme planned in 2018.

LHM, which is part of the transaction, provides day-to-day management of the portfolio. LHM is formerly a subsidiary of the Lapithus Group, the European real estate arm of Apollo.

The purchase price paid by the Dayan family reflects a 7.2% premium to the £692.2m portfolio valuation, as measured by HVS, net of 6.8% purchaser’s costs. The resulting senior loan LTV is 65%.

The senior loan amortises by £1,124,500 per interest payment date (IPD) or £4.498m per annum, which is 1% of the senior loan amount at issuance.

The mezzanine loan can be voluntarily prepaid on 3 April 2020 or later, triggering a margin step down on the senior loan to 3%. The expected maturity date is 2 April 2023 with no extension option available. The notes to be issued carry a final maturity date falling in April 2028, providing a five-year tail period.

The loan’s event of default covenants is triggered if the LTV exceeds 75.83% (year 1), 74.75% (year 2), and 73.67% (year 3 onward) or if the net operating income (NOI) debt yield is less than 9.26% at any period, according to S&P.

The hotels are located mostly in city centres or close to major UK airports, with concentrations in London and the South East. By location, there are five airport hotels in major UK cities (London, Manchester and Glasgow), four London hotels and 11 non-London hotels.

The three Crowne Plaza hotels – in Birmingham city centre, London Heathrow and Manchester airports – are valued at £149.3m, or 21.6% of the portfolio’s market value. The Holiday Inn-branded hotels – including three airport hotels near the Heathrow and Glasgow airports, four hotels in London and 10 hotels elsewhere in the UK – are valued at £542.9m, or 78.4% of the portfolio’s market value. The top five hotels represent 44% of the total portfolio’s market value and YE2017 EBITDA.

The hotel portfolio occupancy rate was 84.6% as at the end of 2017, reflecting £72.2 in revenue per room and an average daily rate of £85.3 per night. LHM plans to improve further the occupancy and net operating income (NOI). In the year to end of February 2018, the portfolio generated £181.0m revenue, after deducting costs and expenses, the EBITDA for the same period was £57.8m and the NOI was £50.6m after removing £7.2m for furniture, fixture and equipment.

Gross operating profit and NOI have increased by 39% and 29%, respectively from 2009 to 2017, according to DBRS, which added the portfolio’s overall performance is slightly above its competition set.

The overall EBITDA margin of all 20 hotels is 31.9%, according to DBRS. The crown jewel in the portfolio is the 316-bed Holiday Inn London Bloomsbury has an EBITDA of £22,945 per room, nearly twice as much as the Portfolio average.

Site visits are planned for 16 and 17 May.

James Wallace is a freelance consultant and can be reached via Linkedin or email: jawallace32@gmail.com

 

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