There has been much speculation about the future structure and financing of professional rugby in Wales.
And with passions running high there has also been plenty of lively discourse on social media over the Welsh Rugby Union's involvement in a new luxury hotel - the Parkgate - next to the Principality Stadium and which opened for business last year.
I have seen plenty of comments asking why the WRU is investing millions in a project, while it urgently needs to invest in the game. Tweets abound like: "The WRU should focus on their core business rather than engaging in vanity projects like hotels and travel services" and "The WRU don’t care, they just love hotels now."
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However, for me the hotel is a smart piece of business which has not required a single penny of investment from the WRU and promises to provide a future annual income stream well north of £1million. This is a significant, if not transformational, margin which can be reinvested by the WRU back into the game at all levels.
The union has a 75% stake in the hotel through a company called Parkgate Hotel Cardiff Ltd. It is a joint venture with Cardiff-based property development firm Rightacres, whose projects include the one million sq ft Central Square office-led scheme in the centre of the capital outside Cardiff Central railway station. Rightacres has the remaining equity.
The new hotel has seen the transformation of the former Post Office and adjoining County Court buildings on Westgate Street, while maintaining and enhancing their listed facades and historic interior features.
The previously empty County Court building was already in WRU ownership. As part of the deal, Rightacres acquired the building, thus providing a cash boost for the WRU. This has more than offset the legal and other fees incurred by the WRU in delivering the joint venture with Rightacres.
So, how has the hotel’s funding been structured? The acquisition of the Post Office building and the hotel’s construction has been financed by financial services giant Legal & General with £45m of long-term repayable capital.
Using its pension funds L&G is no stranger to funding property and infrastructure projects in Wales. It has already provided £750m of forward funding for schemes which not only include Central Square, but Aston Martin’s car factory in the Vale of Glamorgan and a new 135,000 sq ft building for the Department of Work and Pensions in Nantgarw.
The deal has been structured so that the joint venture has to repay the capital and interest over a 40-year plus term.
One of Europe’s leading hotel operators, the Celtic Collection, whose interests include the Celtic Manor Resort in Newport, are operating the hotel on behalf of the joint venture. The aim is to hit full occupancy within two years.
While the terms of the deal have not been disclosed, the joint venture is confident it will comfortably be able to finance the L&G lending, pay the agreed hotel running fee to Celtic Collection, while leaving a margin well north of £1m for the WRU to reinvest into the game each year. This will only rise with hotel room inflation and as the capital is reduced.
For L&G, as well as a secure income - and it has the freehold interest in the building with the joint venture having entered into a long-term lease - it is another example of how it is deploying capital for job-creating regeneration projects.
After all, pension funds managed and invested by financial institutions like L&G is "our money" and the more that is invested in Wales the better. From a Wales plc perspective it is also good to see that the WRU and Rightacres choosing an indigenous and highly-successful hotel operator in the Celtic Collection to run the Parkgate Hotel.
Chief executive of the WRU Steve Phillips, who has come under fire in recent months, deserves credit for steering the deal, first revealed in 2018 when he was finance director of the union, and leveraging the expertise of Rightacres and its existing funding relationship with L&G for a project that will not only provide it with a much-needed new income, but will create a wider boost for the regional economy.
