UK’s Resident Hotels has spring in its step

LONDON – Natural light, says David Orr, chief executive of the UK’s Resident Hotels, makes all the difference. Resident now also has a breath of fresh air in the management team as well with Jane Bentall recently appointed non-executive chair in a move which signals a wish to raise new capital.

Bentall’s remit is “overseeing the group as it moves into its next phase of growth” with ambitions to increase room numbers to between 1,500 and 2,000. While it’s not clear precisely how it will happen, you don’t need to be a Nobel prize-winner to deduce that city center real estate acquisitions for new building and conversions are likely. HMAs (hotel management agreements) may well be a feature, too.

Resident Hotels is majority owned by Mactaggart Family & Partners, the operating arm of Western Heritable, which describes itself as a real estate private equity firm and family office. Hotels comprise about one-third of Western Heritable’s real estate asset value.

Quite a catch

Bentall is quite a catch for a group which has a handful of properties and a few hundred rooms. Her most recently successful associations may be instantly recognizable to many British readers. Butlins is a low-budget holiday-camp format with cultural references rooted in the 1950s and dramatized in a prime-time BBC sitcom called “Hi-Di-Hi.’ Helped by Bentall, Butlins is revitalized in a way few would have thought possible.

Sure, one might expect Orr to be complimentary about his new colleague yet she is, in his words, “a real properly superstar business person… a forward-thinking, breaking-glass-ceilings business person.”

With Butlins parent, Bourne Leisure, now sold to Blackstone, Bentall has joined a Resident Hotels team with newly acquired Sleeperz and Cityroomz brands to go alongside the properties trading as The Resident.

The Resident brand can be found in four central London locations – in Covent Garden, Soho, Victoria and Kensington. There is another hotel in Liverpool with a sixth, slated for opening in 2024, in Edinburgh. A 125-room London addition, in Farringdon, is also in the pipeline.

Sleeperz has properties in Cardiff, the capital city of Wales, in Dundee in Scotland, and Newcastle, north-east England. Sleeperz and Cityroomz are, the company says, in the “premium budget” segment. They are also a work in progress, which may see them rebranded before any expansion plans kick in.

Driving growth

In 2022, Mactaggart refinanced its freehold operational assets in Covent Garden, Kensington, Liverpool and Soho with a five-year £55 million debt facility from NatWest bank.

At the time, Anthony Say, Head of Hotels, NatWest Corporate Banking, described Resident Hotels as a “high-quality hotel investor, developer, operator and brand.” He added: “One of the attractions of The Resident is the support it gives its teams, which promotes valuable high retention rates and delivers the guest service which drives important loyalty.”

Equity capital will probably be at the heart of the future growth. It appears that Western, like Warren Buffet, thinks the best investment time horizon is forever. That said, the family office also says it wants to work with co-funders to make the most of the opportunities it sees.

Why might outside investors be interested? William Laxton, CEO of Mactaggart Family & Partners, explains that equity multiples rather than, say, IRR (internal rates of return) are the preferred measures of success. The aim is to at least double the value of equity holdings.

Western’s balance sheet strength eases pressure on timetabling returns but the objective is to go in with loans equivalent to around 60% of value and come out – or more probably refinance – at 40% LTV.

Macro challenges – pandemic, economic, inflation and interest rate squeezes – may help by diluting competition among buyers. But Resident is not the only hotelier with cash-rich backers. Nor is it the first to discover the virtues of personal service, sustainable operating standards, and the importance of decent working conditions.

David Orr, a hotelier with 30-odd years’ experience to go alongside his enthusiasm for natural light, extols the virtues of personable, empathetic and cohesive ambition.

For Orr, success also comes with attention-to-detail focus on macro trends largely beyond his control. “There are multiple small differences between what we do and what others do,” he said.

Investment returns will depend on the prospects for city center hotels in general and Resident’s particular skill identifying near-perfect locations. Since food and drink are not in the prospectus, Resident needs sites in bustling café-bar neighborhoods.

Orr co-founded City Inn in Edinburgh in 1995. He was chief executive of the business rebranded as Mint Hotels in 2010. When Mint was sold to Blackstone for £628 million (US$756 million) in 2011 it had more than 2,700 rooms and 2,000 staff.

Orr went on to explore individual projects through Urbanist Hotels, his joint business with Taco Van Heusden, while also leading a project for Eurostar. Orr was appointed chief executive of Resident Hotels in March 2018.

If Orr gets the daylight, and Laxton is right about operating performances which he says “shoot the lights out,” the Resident Hotels investment story may now become visible to a bigger audience.