Hilton Hotels Corp last week shed the property interests in two of its largest European hotels, the London and Birmingham Metropoles, in a sale-and-manage-back transaction.
The £417m move was another step towards an asset light strategy – at least outside of the US – and saw another step taken by Israeli investors into the hotel industry outside their own country.
The purchase of the Metropoles was struck through a joint venture involving Tonstate, a family-owned British company led by Edward Wojakovski, and two Israeli companies, Destiny and a subsidiary of IDB Holding, Property & Building. The shareholding of the new owner is split 60% Tonstate and 20% each to the other two parties.
The sales particulars of the Metropoles, published early in 2006, gave an estimated 2006 EBITDA for the two units at £33.7m, giving a multiple of more than 12 times.
Property & Building, however, told the Tel Aviv stock exchange that the total cost of the acquisition was £463m with an agreement to spend another £23m on renovations to the two hotels. This pushes the multiple up to over 14 times.
Hilton has previously sold property to Israeli investors: at the end of last year it sold 16 hotels for £397.2m to the Managed Hotels Unit Trust, a consortium of wealthy Israelis put together by Igal Ahouvi. Other deals that have attracted Ahouvi’s attention include the Whitbread Marriott portfolio, bought by Royal Bank of Scotland earlier this year, and the seven mainland Europe InterContinentals, on which he was outbid by Morgan Stanley.
IDB, meanwhile, has been seeking to expand its hotel investments outside of Israel. It currently owns the CLAL Tourism chain and earlier this year bought a majority stake in Israel’s Sheraton Moriah chain.
CLAL Tourism, which owns, manages or franchises six Accor branded hotels, was last week formally put up for sale with bids over $88m being sought.
Hilton’s CFO Bob La Forgia said the latest deal means that his company has sold more than $2bn of real estate since starting its disposal process in early 2005. The group currently has 11 European hotels on the blocks and is reviewing its Scandic brand, with a sale thought most likely.
In total, the two Metropoles have 1,848 rooms with the London property claimed to be the largest business hotel in the UK and the Birmingham hotel the largest UK hotel outside of London.
The Birmingham unit can accommodate up to 4,800 conference delegates, including one room which can host 2,000 alone, while the London hotel has a capacity for 1,500.
Hilton’s push towards divestment in an asset light strategy contrasts with Starwood Hotels’ position of seeking an asset right approach.
For both companies, their owned hotels are not being fully valued by stock market investors. Citigroup estimates that the market is currently putting a 10 times multiple on non-trophy Starwood hotels (that is excluding the Ciga portfolio) and a lowly 8.8 times for Hilton’s owned hotel property.
This contrasts with the 11.7 times that hotel REITs in the US are currently attracting, on average, and the punchy 13 to 18 times that private equity investors are prepared to pay.