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Room2 completes £10m sale & leaseback of Southampton hometel

Room2, the world’s first hometel brand, has completed the sale and leaseback of its flagship offering, room2 Southampton, to a fund managed by Aberdeen Standard Investments (ASI), the UK’s largest active asset manager.

The disposal price of around £10m reflects a prime net initial yield of 4.98% with a 30 year indexed linked lease in place. The hometel concept, a sub sector of the extended stay space, is the brainchild of brothers Robert and Stuart Godwin, former members of the British Olympic Development Sailing Team. room2 was advised by Savills and ASI was advised by Knight Frank.

The transaction marks the first institutional acquisition of a hometel and a further investment for ASI in the fast growing yet undersupplied extended stay sector, which accounts for just 4% of total UK accommodation supply.

It also represents one of a small number of institutional acquisitions in the sector since the start of the pandemic and follows its outperformance of the wider hotel market during 2020, reflecting a trend seen over the longer term demonstrating the counter-cyclical features of the sector during downturns.

The outperformance has been underpinned by the sector’s more flexible room offering and ability to address evolving guest needs, including catering for longer stays. Aberdeen will benefit from room2’s established management and operational platform, with room2 Southampton continuing to trade under the room2 brand on a long-term index linked lease.

room2’s low-risk and lean hometel model has proved its resilience during the pandemic, remaining profitable with both room2 Southampton and room2’s hometel in Hammersmith continuing to trade since the government-imposed lockdown on March 23 last year.

During 2020, room2 achieved a blended monthly occupancy rate of 70%. This compares favourably to the national serviced apartment average occupancy of approximately 47%, which itself is 9% ahead of the national hotel average.

The model has benefitted from its flexible cost base, enabling the hometels to adjust the service offering to cater to longer term guests, whilst capturing new markets and therefore protecting margins.

Constructed in 2018, room2 Southampton boasts 71 studio bedrooms each with its own kitchenette, an open plan ‘Living Room’ at ground floor including a café and cocktail bar providing all day dining, along with flexible meeting room and event spaces and a fitness studio. It occupies a prominent position in central Southampton, with spectacular views over Queens Park and the harbour.

James Dunne, Head of Transactions at Aberdeen Standard Investments, said, “The room2 platform in the extended stay market has demonstrated its resilience through an unprecedented period of disruption. The ability to pivot between long and short stay augments the lean operational model without compromising on service.

'This not only protects business in a downturn but, as importantly, should allow for future outperformance with the quality facilities and flexibility of the product being attractive to both business and leisure travellers when markets normalise.

'We are pleased to be joining the room2 journey and look forward to a successful long-term relationship.”

Robert Godwin, Managing Director at Lamington Group and room2, said, “The sale and leaseback of room2 Southampton was instructed to test the room2 and Lamington Group covenant strength in the market.

'Agreeing this transaction with ASI allows us to take the step to institutional grade where the strengths of the brand, model, positioning and real estate backed covenant are fully valued.

'Furthermore, completing it during Covid-19 demonstrates the long-term belief that ASI has in room2 hometels, proving the durability of the model against this challenging economic backdrop.

'The sub 5% yield helps to underpin development values for the opportunities we are appraising with our future partners, and gives confidence that room2's strategic positioning is aligned with the future, whilst further indicating that we are out to do business.

“We hope this partnership will lead to further investment into more room2’s in the near future. The proceeds of the disposal are earmarked for reinvestment into acquisition opportunities as we remain on track to deliver 5,000 keys by 2030.”

Richard Dawes, director in the Hotel Capital Markets team at Savills, added: “This is an important step for the growth of the room2 brand and a landmark transaction in the UK extended stay sector. Securing one of the UK’s leading institutional partners for Lamington Group, at pricing levels that reflect the robust performance of the asset through the pandemic, is a significant endorsement in both the platform’s long-term prospects as well as the team behind it. The extended stay sector has demonstrated its flexibility to adapt and perform resiliently over recent months and we expect this theme to continue and support the continued role out of what is a truly exciting concept.”