Starboard revels in long-term, select-service ownership
 
Starboard revels in long-term, select-service ownership
12 APRIL 2018 8:34 AM

Over the last five years, Starboard Hotels has built a portfolio of mostly select-service assets that continues to grow. Executives said they have learned from past lessons and are investing in their employees and more assets. 

BEACONSFIELD, England—Starboard Hotels is where it is today partly due to lessons learned while providing emergency accommodations during the recession of the early 1990s and hostel beds during the Great Recession at the turn of the last decade, according to sources.

The Beaconsfield-based company also has faith in its people and is confident in its ability to be nimble when securing deals, according to Starboard’s managing director Paul Callingham.

Paul Callingham,
Starboard Hotels

Callingham said what Starboard learned during those two historical dips set the company on its current trajectory, which today is focused mostly on select-service ownership.

“The aspiration when we began buying hotels around 2013 was to have 20 hotels by 2020, but we are already there,” Callingham said.

Callingham attributes Starboard’s rise to its flexibility.

“We do not have external shareholders with targets to hit,” he said. “We’re long-term owners. We want a mature portfolio, and we will work it. We are opportunity-driven, and we will optimize what we now own.”

Starboard has developed and owned hotels since 2006, but it was approximately five years ago that its portfolio started growing noticeably.

Future growth will come from strategic acquisitions, Callingham said, and not so much through development.

By 2016, Starboard had 11 assets, which increased to 15 by 2017. In March 2018, it added a portfolio of four AccorHotels Ibis Styles hotels from now defunct property developer Carillion. Callingham said the Carillion deal was finalized in the passenger lounge of Berlin Tegel Airport on the way home from March’s International Hotel Investment Forum.

That deal is indicative of how Starboard seizes opportunities, Callingham said.

“It certainly came with its challenges, notably when liquidators were called in to wrap up Carillion in January 2018 just as a deal with Starboard was being discussed,” Callingham said.

The four hotels originally were Ramada Encores, and Carillion adopted them when it bought their developer, construction firm Robert McAlpine in 2008, Callingham said.

As the March 2018 deal tottered towards breakdown, Callingham said his team moved into overdrive.

“There was a huge amount of work and research and many moving parts,” he said. “Could we buy at the terms we agreed, and how would (administrators) PwC now look at the deal?”

Starboard also plans to exchange contracts on 17 April on a property in Teignmouth, Devon.

Altogether, those deals added 544 rooms to increase Starboard’s United Kingdom room count to 1,960.

Starboard also owns two development sites, one in West London with plans to open a Hampton by Hilton and the other in Cambridge with no brand as yet attached.

Accidental hoteliers
Callingham entered the hotel business after wanting to be in the merchant navy. He secured employment as a chartered surveyor and later became an owner of residential properties. His first two hotel buys were bed-and-breakfast hotels in London he planned to turn into residential units.

“That was before the recession hit. We were suddenly paying 17% interest with no income,” Callingham said.

Housing those temporarily homeless via the local authority was one initiative; another was housing asylum seekers via government contracts.

When those Home Office deals were not renewed, Callingham realized what he liked most was operations, which he wanted to do via hotel ownership.

“From those years I learned about running a business with people. Residential is more clinical,” Callingham said.

Starboard bought its next assets at the start of the new millennium. Callingham started with three hotels, including two—the 102-room Holiday Inn Express Burnley and 129-room Days Inn Wetherby—which are still part of the portfolio.

He divested non-core assets, too, including a 680-bed Smart City hostel in Edinburgh, which Callingham said was instrumental in getting the company safely through the Great Recession. Callingham sold it in 2015 to longstanding business partner Philip Houghton, who was at Starboard Hotels for almost a decade and CEO of Safestay Hostels until early 2017.

Callingham said his one overriding memory of all those years was the difficulty of financing.

“It was tough,” he said. “Trying to raise money was almost impossible. My appetite for development waned.”

Callingham said if he could go back he would start buying hotels much sooner.

“I would have liked to have been acquiring hotels a couple of years before,” he said, “at about the time many of the corporate mortgage-backed securities loans on hotels were coming to maturity and the large funds and private equity companies were having to sell due to their holding patterns.”

Callingham became comfortable as a buyer when Starboard found the funding model balancing debt and equity that best suited its ownership and risk strategies. The company transitioned from other real estate classes and focused on owning and operating hotels, with select service as the sweet spot.

“We became known as hotel buyers and a buyer happy (to be) buying individual hotels,” Callingham said.

Despite leaning toward select service, Callingham said one recent buy was the full-service Holiday Inn Derby Riverlights. Starboard also manages the Best Western Plus Epping Forest. The company has two development sites under ownership on the books, one of which will be a Hampton by Hilton.

Starboard has also explored the independent space. It bought the Windermere Manor Hotel in England’s Lake District last November from Vision Hotels, a charity for the visually impaired, which has a second asset in Teignmouth.

Callingham said Starboard will continue to promote those hotels to the visually impaired, but not exclusively, and use the Lake District hotel as a training center to educate on how to cater to the visually impaired in all its hotels.

Adding value
Going forward, Starboard Hotels’ strategy revolves around generating value rather than increasing costs, Callingham said.

“For our Derby hotel it is about adding keys, and we bought two adjacent retail units we plan to convert to rooms,” he said. “At our Ibis Gatwick, we will also add rooms, 60-plus, but value also comes from refurbishments, cost controls and IT improvements.’

Callingham said the cost-control strategy trickles down from executives to all employees.

“We’re mean and lean as a team; that comes from being family-owned,” he said. “There’s a sense of ownership from employees, and also much of our portfolio until we bought it has been unloved. We recycle profits, and we plan to do so for a while. Value doesn’t always equal cost.”

Callingham said development in U.K. provinces has become more and more difficult.

“You can buy for less than you can build,” he said. “In London, there are other clear uses for buildings that have value, but not so in the provinces.”

Callingham said challenges include increasing costs of having brands on board, increasing costs in general and continuing to being considered a good employee.

Changes in employment due to Brexit and labor worries might not affect Starboard as much as it might others, Callingham said, because the firm’s portfolio is spread around the U.K. and not focused on London and the Southeast. He added he also sees opportunities on the horizon.

“People, and the ability to develop them is one of those (opportunities), and being seen to work well with brands as hospitality continues to expand its demand for quality accommodation is another,” Callingham said.

One recent initiative aimed at employees is SHAPE, an acronym for the Starboard Hotels Accelerator Programme, which trains existing employees to become the company’s next generation of GMs, Callingham said.

As the portfolio has grown, Callingham has begun to appoint cluster managers.

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