THREE of Scotland's leading hotels changed hands last week as Hilton Group sold a package of 15 hotels to a unit trust backed by the Israeli investor Egal Ahouvi.

The GBP382.4 million deal will transfer the properties to the Managed Hotels Unit Trust (MHUT), a property fund led by lawyer Ahouvi, which handles funds for Israeli investors and pension interests.

This highly leveraged transaction - which was debt funded by the Royal Bank of Scotland, with MHUT putting up only GBP20m of equity - marks the continuation of an established trend within the hotels sector. It has seen branded operators such as Hilton, Marriott and InterContinental no longer wishing to own their own hotel properties, but instead selling them off in "sale-and-manageback" deals to free up capital on their balance sheets.

In Scotland, the three hotels being acquired are the Aberdeen Treetops, Dunkeld House and Hilton Strathclyde. All three came into the Hilton Group as part of its GBP1.3 billion acquisition of Glasgow-based Stakis in 1999.

A separate GBP14m deal to sell the Hilton Edinburgh Airport to the same buyer is expected to be tied up "in the very near future", according to Alex Pagett, Hilton's corporate affairs director.

The hotels - which also include Hiltons in Bristol, Coventry, Gatwick Airport, London Olympia, Southampton and Swindon - are on 30-year sale-andmanage-back contracts to MHUT, with Hilton Group retaining the option to extend these to 50 years should they perform as well as expected.

The arrangement means that, even though Ahouvi's unit trust will own the bricks and mortar for which it will receive a rental income, the hotels will remain Hilton branded, with little change apparent to guests.

Two Northern Irish hotels due to have been sold by Hilton as part of the same package, marketed by property agents CB Richard Ellis Hotels, have been taken off the market.

Pagett says: "We had around GBP2.4 billion wrapped up in hotel assets at the start of the year. That has now come down to below GBP2bn, as we sold another package of hotels for around GBP100m in March."

These hotels, including the Dunblane Hydro and Hilton East Kilbride, plus eight properties south of the Border, were sold to a joint venture between US-based Starwood Capital and Glasgow's Chardon Hotels. They are no longer trading as Hiltons.

"This is consistent with our capital restructuring, " says Pagett.

"The company does not wish to have so much capital wrapped up in property going forwards."

He says the strong level of interest in the hotels sold last week has persuaded Hilton to put a further tranche of hotels, worth GBP400m to GBP500m, on the block. These include the 1058-room Hilton London Metropole, one of Europe's largest hotel and conference centres. The second package also includes the Birmingham Metropole, Hilton Luxembourg and Hilton Durban.

Pagett says: "We learned from the interest in the initial group of hotels that there's a huge appetite from banks and institutional investors - which is partly a result of so few new hotels being built."

In October, London-based Hilton received an offer from Hotels Corp, the US-based hotel chain, to buy back Hilton Group's hotels arm for an estimated GBP3.6bn. If it proceeds, the deal, which involves properties in 80 countries, would reunite the two businesses after four decades apart. Pagett says: "Talks are continuing. But it's very much business as usual here."

NEED TO KNOW

THE FACTS: Hilton Group has sold 15 hotels to the Managed Hotels Unit Trust for GBP382.4 million.

BACKGROUND: The deal is part of a trend among hotel groups to offload ownership of hotels on "sale-and-manage-back deals" to banks and property investors.

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