PEHF II

Overview

A portfolio of two assets located in Florence, owned by a local industrial family who built the hotels in 2006 and signed a hotel management agreement with Hilton.

The assets were refinanced but, following the GFC, the banks sold or externalised their positions. The position was exacerbated later by COVID-19, leaving all parties looking for a solution and liquidity.

Pygmalion Capital acquired the assets at a discount to development cost.

Execution

• Switch from an existing hotel management agreement with Hilton into a franchise. Reposition the Hilton into a DoubleTree by Hilton to optimise the amount of CapEx needed to refresh the property.

• Focus on a conversion brand with flexible brand standards to generate ROI on the PIP.

• Restructure the operational structure to improve portfolio profitability and address overstaffing.

• Optimise the cost structure – the operator was delivering c. 21% GOP margin when market levels were above 30%.

Sourcing

• Off-market opportunity sourced by Pygmalion Capital from one of the loan servicers. Pygmalion negotiated a consensual deal with the owner and the lenders over a six-month period. The negotiations were made more challenging due to COVID-19.

• Partial loan repayment and partial roll-forward enabled debt financing during COVID-19.

• Negotiated for key contracts to be transferred from the existing OpCo to a NewCo to avoid potential legacy liabilities.

Sustainability

• Energy Efficiency: CapEx investment aimed at reducing reliance on fossil fuels and integrating more efficient electrical technologies.

• Building Certifications: Certified the two assets with BREEAM IN USE, achieving a rating of “Good.” Improved the EPC ratings during the holding period from G to D (Hilton Garden Inn) and from G to E (DoubleTree Metropole by Hilton).

• Social and Governance: Followed ethical and transparent standards, integrating robust practices.

Awards

• The HAMA Europe Award recognises the key role played by hotel asset management in sustainably growing asset value and driving underlying investment returns.