Why Aprirose is gearing up for more UK acquisitions

LONDON — As real estate investment firm Aprirose continues to divest of hospitality assets, the company said it is also gearing up for more acquisitions across all asset classes.

Manish Gudka, CEO of the London-based firm, told Hotel Investment Today that the company’s latest sale, a Premier Inn in Liverpool in the U.K., was reflective of a 10-year hold time and a desire to recycle the capital.

Manish Gudka

“If you just do the mathematics, there was no rental increase, and having held it for such a period of time, we felt that maybe we wanted to be a bit more ambitious with the capital,” Gudka said. “At the same time, with this asset, you leave something in it for the next buyer.”

Aprirose sold the 165-key property to an undisclosed investment charity at an undisclosed price.

Ying Fahrholz, investment director for Aprirose, said while almost half of the company’s real estate portfolio is in hospitality, that doesn’t mean it’s actively looking just for hospitality investments.

“Our mandate from the investment team really is to be sector agnostic,” she said. “We’re looking for value as opposed to sector. If it needs to be an industrial, then it’s industrial. We’re not targeting a particular portfolio.”

Fahrholz said the company is always actively looking at deals (maybe a dozen at any point), and roughly a third of those are usually in hospitality. She said the deal environment right now in the U.K. is “odd.”

Ying Fahrholz

“It’s definitely a lot more active than we saw it at the beginning of the year… It’s certainly come back. Deal flow is certainly there,” she said. “The bid-ask spread, I think it still exists in the U.K. It may not be quite as pronounced as it is in the U.S.,” she said. “Deals are certainly taking longer than they used to take, but I think those that are selling now are selling with a reason, and it feels, certainly from our perspective, that the market is starting to wake up and deals are getting done.”

Gudka said that while overall transactions are down in the U.K., there’s room for optimism. “Debt is getting more available. Interest rate trajectories are on the way down. You’d think this would be a perfect time for catching up,” he said. “Hospitality is one of the hottest sectors in terms of the volume of transactions that are happening, and that’s skewed by a couple of very large deals, but the number of deals that are happening is still very, very low.”

The road ahead

Aprirose has another sale in its pipeline, Gudka said: the 230-key Leonardo Hotel London Heathrow Airport that it acquired in 2015 for £25.5 million and has put on the market for £30 million. He said it’s a similar dynamic to the Liverpool Premier Inn deal.

“We have, of late, invested quite heavily in hotels, but our investments range across all sectors and all geographies in the U.K.,” he said. “For the three years leading up to the pandemic, we felt that hotels provided relatively good value compared to other asset classes, which is why we invested in them.

Moving forward, roughly 45% of the Aprirose portfolio will continue to be hotels. "We’re just working that space, and some of this capital could be deployed into other asset classes as well,” Gudka said. 

Over the past seven years, Aprirose has executed deals valued at around £2.4 billion in office, industrial, pubs, residential and other asset classes, including hospitality. Gudka said Aprirose also wants to move into the student housing sector.

Aprirose’s hospitality portfolio includes individual assets across the U.K. and larger company portfolios like Q Hotels (which has 19 hotels) and Z Hotels (which has five hotels and manages six others). Gudka said the company already has decent exposure in central London but less in secondary U.K. markets.

“So we’ll certainly be looking at those,” he said. “You just have to be careful about the supply and demand characteristics of those cities.”

It’s definitely a lot more active than we saw it at the beginning of the year... Deals are certainly taking longer than they used to take, but I think those that are selling now are selling with a reason, and it feels, certainly from our perspective, that the market is starting to wake up and deals are getting done.

Ying Fahrholz

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Gudka said Aprirose wants to have hotels in select-service, including extended-stay. He said every deal is funded through a mix of debt and equity (that’s 50-50 in the current environment).

“We have roughly 40 to 50 investors we deal with at any one point in time. These are high net-worth, family-office investors with a reasonable amount of liquidity available to them at any time, and it’s an organic process of putting the appetite of the individuals involved and matching them to the opportunity.”

After an acquisition, Aprirose asset manages the property until there’s an exit.

Doubling in size

When asked where he wants his company’s portfolio to be in the coming years, Gudka said he’d be “disappointed” if Aprirose didn’t double its assets under management (hospitality included).

“Looking forward, we are better informed than we’ve ever been and I don’t see much difference in us here internally, but in how we look at things and what we want to do out there. I guess it’s more of the same but in a much better informed and more clinical way.”

When asked what makes an asset appealing, hospitality or otherwise, for Aprirose, Fahrholz said it’s really about whether the sector fundamentals make sense.

“So, if there’s growth, we often play in an area where it’s not institutional assets, so it doesn’t tick every single box, which means there is a yield play that we’re chasing where we can get our returns,” she said. “We can take views that institutional funds just aren’t able to, and we spend a lot of time doing our due diligence and underwriting to make sure that there’s a reason behind our position on those deals. That’s where we typically have a better angle on some of the more unique deals in the market.”

Gudka said the company’s investors are looking for investments with downside protection. “So, something like hospitality obviously fits well into that…  and with very little development, it’s much more buying something that already works but might need a bit of fixing here and there… Anything with a trading history is already downside limited, and then we look at the skills we have to see how to maximize value.”