• Sol buys Germany’s Innside

Sol Melia has bought the Innside hotel chain in Germany for Eu16.5m. The acquisition of the leasehold chain was struck at a multiple of 2007 EBITDA of 6.0 times.

Sol said that it enabled the chain to enter German cities, including Berlin, Munich, Frankfurt, Bremen, Dusseldorf, Dresden and Austria’s Vienna. The move also gives it a modern hotel concept that fitted with its current brand strategy.

The 1,848 rooms in the Innside chain were acquired at a multiple below the 7.5 times that Sol is prepared to pay. The lease contracts have an average of 17 years left to run. There are four additional lease contracts in the pipeline that are expected to open between 2008 and 2010.

Sol’s presence in Germany is now 28 hotels and 3,789 rooms. The former shareholder of Innside is teaming up with Sol to develop new hotels in Germany, Austria, Benelux and Switzerland.

Despite this expansion, the main concern of the company has been its share price underperformance since the start of the credit crunch this summer. Since the beginning of August its share price has slumped 10%.

The blame was put on three factors: fears of the cycle; fears over Sol’s exposure to Spain; and concern about the property element within the company.

Sol’s retort was to point out that its resort business has been resilient despite difficulties such as the slowdown in the German economy which led to demand falling from that country.

In its Spanish city business, Sol said that revpar was still 31% below the peak of the previous cycle (in 2000) in real terms and 7.2% below in nominal (not inflation adjusted) terms.

Looking ahead, it said GDP growth in Spain was expected to be robust and above trend for the Euro zone in 2007 and 2008 at 3.7% and 3.0% respectively. Hotel supply in key Spanish cities (Barcelona and Madrid) was also projected to increase more conservatively than in previous years.

Regarding exposure to Spain, Sol said that 49% of EBITDA was now generated outside of its home country with the Domican Republic representing the biggest portion of this at 22%.

The biggest European contribution came from the UK where the company’s sole asset, the White House in London, contributes 5% of total EBITDA.

The impact of any downturn in the Spanish property business would not be huge on Sol given that it represents just 10% of EBITDA, argued the company.

In terms of the robustness of property valuations, Sol’s case was boosted by the agreement to sell five hotels in the fourth quarter for Eu30m at an EBITDA multiple of 18.1 times. In the year to date, Sol has sold Eu130m worth of hotels at an average discount of just 0.76% to the recent valuation by CB Richard Ellis Hotels.

For the first nine months of this year, revenues are up 5.9%, EBITDA up 2.3% and net profit up 14.1%. Revpar was up 6.3%.

Sol said its numbers were boosted by a good summer in most of its Spanish and Dominican Republic destinations; strength in its city hotel business; and strength in the timeshare business which showed revenues up 29%.

Next year, the resort business is set to perform even better given favourable negotiations with tour operators.

Earlier this month Sol Melia’s controlling shareholder, the Escarrer family, bought an additional 0.36% stake giving it a total holding of 61.25%.

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