SJ Berwin and Berwin Leighton have broken new ground in the property world by advising on the innovative sale and leaseback of 11 Hilton hotels to the Royal Bank of Scotland (RBS) for £312m.
The structure of the property finance deal is seen as a landmark within the UK hotel sector. Hilton has sold the hotels into a special purpose vehicle set up by RBS and simultaneously entered into leases based on turnover rather than the more conventional option of fixed rents. Other recent sale and leaseback deals – for J Sainsbury and Abbey National, for example – have used leases based on fixed rents.
The structure provides Hilton with a level of operational flexibility not typically seen in property leases, while the importance of turnover should encourage both parties to maximise the performance of the hotels.
The transaction was the first principal finance deal for the former NatWest structured finance team, which was subsumed into RBS following the takeover. “It’s a new step for them,” says Berwin Leighton partner Simon Kildahl, who led the team advising RBS.
The firm was instructed less than five weeks before the deal completed on 6 March. Kildahl says: “We went to a brainstorming meeting where we talked about how to structure the deal and the turnover rent arrangements.
“Our objective was to ensure that we got the appropriate balance between operational freedom for Hilton and controls to ensure RBS got the appropriate rental income.”
SJ Berwin property partner David Ryland led the team appointed by Hilton Group. He says: “This kind of deal is evidence of the hotel market becoming more institutional, and it creates a new benchmark for rental patterns for the sector.”
Iain Robertson, chief executive of corporate banking and financial markets at RBS, says the bank expects to undertake other similar transactions within the hotel sector and with other industries.