Edinburgh, May 1 (Bloomberg) Royal Bank of Scotland Group, the UK's largest corporate bank, aims to...
Edinburgh, May 1 (Bloomberg) Royal Bank of Scotland Group, the UK's largest corporate bank, aims to buy hotels and retail properties worth as much as £4bn to profit from the trend to separate the ownership of physical assets from their operation.
The bank said it is in talks with five hotel groups following February's acquisition of 11 properties from Hilton Group for £312m. "I would be slightly surprised if we haven't done one or two other (hotel) transactions by the end of the year," Steve Pateman, Royal Bank's managing director for leisure, retail and services, said in an interview.
Royal Bank wants to exploit the desire of companies to separate ownership of assets from their operation, a trend it sees growing in the next few years. The bank would earn rental income from the properties and then hope to make most of its profit in eventual sales.
The Edinburgh-based company aims to make the purchases during the next three to five years and would hold them as long-term investments, Pateman said. "You wouldn't want to do this if you went in and out over one or two years," he said. He declined to name the hotel groups with which the bank is in talks.
It expects about half of its investments would be in hotels. Other investments likely would be in retailing, health and fitness, auto rentals and pharmacies.
The split between ownership and operation of assets makes sense for both sides, analysts said. "There is a long-term trend. The US has gone through this bifurcation, although it will take a different shape in the UK," said Mark Abramson, a Bear Stearns analyst in London. "It offers the bank a good potential return," he said.
Bass, the second-biggest hotel company, which operates the Inter-Continental, Crowne Plaza and Holiday Inn brands, would "love to get them off their balance sheet," Abramson said. Jurys Doyle Hotel Group Plc would also be keen to do a similar transaction, he said.
The attractiveness to banks is understandable, said ING Barings analyst Simon Willis. Banks see the benefits as a steady income stream from a relatively secure asset. "As long as we don't get into a meaningful recession, this sort of deal makes sense," Willis said.
Royal Bank's primary focus will be on UK transactions followed by Europe, Pateman said. The US market is "a little crowded" at the moment. The bank might issue senior debt or bonds once it has built up a critical mass of assets, Pateman said. "They should attract some fairly attractive credit ratings," he said.
26 April 2001 The Royal Bank of Scotland has successfully launched the E1bn Subordinated Lower Tier II issue, which it announced on 18th April 2001. The notes will be due 10 May 2013. The deal has been priced at a spread of 114.3 bp over the 5.75% Bund due January 2011.
The joint bookrunners for the deal were Lehman Brothers and The Royal Bank of Scotland Financial Markets, with ABN Amro, BNP Paribas, BSCH, and Deutsche Bank as co-managers.
The notes have been issued under the Bank's Euro-MTN programme, and are expected to be rated Aa3/A+/AA- by Moody's, Standard & Poor's and Fitch respectively. The notes will be listed on the London Stock Exchange.
Fred Watt, Group Finance Director of The Royal Bank of Scotland said: "This issue has received an excellent reception from the European investor community and we are delighted to have been able to increase the size to meet investor demand. Europe is an important market for the Group and we are pleased that there has been such strong investor appetite for this issue."
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