M&G Investments has acquired the freehold of 21 Tothill Street, Westminster and will fund the development of a 339-room hub by Premier Inn, to be carried out by Whitbread Group Plc (Whitbread Group).
The capital is provided by the £3.3 billion M&G Secured Property Income Fund, which invests in UK real estate assets, let to high quality tenants on long-term, inflation-linked leases. The property will be let to Premier Inn (UK) Limited on a 25-year lease with five yearly rent reviews. The transaction complements the Fund’s existing portfolio of Whitbread Group assets, which includes Premier Inn hotels at Gatwick North Terminal, Red Lion Street, Holborn, and Wandsworth in south west London.
Whitbread Group will redevelop the former office building into a circa 100,000 sq ft, nine floor hotel with a bar area of approximately 3,000 sq ft at ground level. The hub by Premier Inn, launched by Whitbread in 2014, is a new generation of compact, city centre hotels, with a focus on value for money and an emphasis on design and technology. The redevelopment is expected to complete in 2017 and will add an affordable alternative to a selection of upmarket hotels in the area.
Ben Jones, fund manager of the M&G Secured Property Income Fund, says: “This investment will provide our clients with a high quality inflation-linked cash flow. The forecast returns are well supported by the prime central location of the asset, underpinning the long term value of the investment. Pension funds and insurance companies continue to look for secure long-term investments to match their liabilities and we are confident that this property will deliver on that requirement. London is one of the world’s leading tourist and business destinations with a strong demand for budget hotels.
Shailendra Shah, Director: Investment, M&G Real Estate says: “Operational real estate has been attracting a lot of attention from institutional investors in recent years as it offers considerable relative value compared to traditional real estate assets. The budget hotel sector presents fantastic investment opportunities, with secure covenants, regular income, and this will be our fourth transaction with Whitbread Plc”.
Mark Anderson, Managing Director – Property and Premier Inn International at Whitbread, says: “This is a great example of Whitbread’s property strategy in action and how we are able to release value created from suitable freehold developments for new growth opportunities. Illustrating the strength of the Whitbread covenant and the success of the innovative hub by Premier Inn format, the sale and lease back of 21 Tothill Street agreed with M&G will deliver an excellent hotel in a prime central London location, as well as recycling capital for further network expansion as we target 85,000 bedrooms by 2020.”
This deal in Stockholm’s Central Business District is now our fund’s single largest acquisition to date, again considerably increasing our average transaction size. We continue to raise and deploy significant capital, targeting major European cities where prime assets in core locations benefit from strong rental growth and give our investors long-term income driven returns.
Ben Jones,
Fund Manager, M&G Secured Property Income Fund