The sale of the InterContinental in Prague and talks over the development site for a hotel in the former Port of London Authority building in London at the end of September suggest that the appetite of investors for luxury properties remains strong.
In both cases, the owners were either eager to make an exit or to see an injection of equity as a result of the trading and financing issues around the downturn. However neither deal is likely to be at a distressed price, indicating a lack of product for plentiful buyers.
In London KOP Group is reported to be in negotiations with Thomas Enterprises and Lloyds Banking Group to acquire a controlling stake in the development site near the Tower of London, which is due to be turned into a luxury hotel, spa and flats at a cost of around £150m, opening in time for the 2012 Olympics.
Thomas Enterprises bought the grade II listed building in 2006 for around £110m, but has since seen three major projects put into bankruptcy protection in the US and is thought to have been looking for a partner to put equity into the project for some time. The group has five hotels in various stages of development, four of them in the US.
For KOP, which has a half stake in Stein Hotels and Resorts, the deal would mark its first move into the UK market. The group, which is backed by Dubai Group, also includes Mediterranean boutique luxury group Franklyn Hotels and Resorts in its portfolio.
Strategic Hotels & Resorts' sale of the InterContinental Prague to an investment group led by an affiliate of Westmont Hospitality for Eu110.6m was part of the REIT's strategy to exit Europe and sell assets to strengthen its balance sheet.
The 372-room property was forecast to contribute approximately Eu6.1m in EBITDA for the full year 2010, representing a sales multiple of 18.1 times and a capitalisation rate of 4.8% on NOI.
The sale of the hotel was described as a priority at Strategic's second-quarter results conference call, with Prague labelled as a "challenging" market by CEO Laurence Geller. The REIT's other three hotels in Europe – the Marriott Grosvenor Square in London and Marriotts in Hamburg and on the Champs-Elysees in Paris – have all seen trading improve in recent months.
In the case of London, Geller said that the group had looked at recent deals in the city and was "carefully monitoring the market for an appropriate and well-timed execution of a capital transaction".
Westmont has a long-standing relationship with InterContinental operator InterContinental Hotels Group, as one of its largest franchisees and having previously acquired packages of hotels directly from the operator, including a portfolio of 24 hotels in Europe in 2006 for Eu352m under the Crowne Plaza, Holiday Inn, and Express by Holiday Inn brands.
Around the corner from the Marriott Grosvenor Square, the Grosvenor House is expected to be the next luxury sale, with an estimated sale figure of £500m to £550m for owners RBS. Bidders so far are thought to have included private equity funds, REITs and high net worth individuals, those for whom raising financing is not an issue, but finding suitable assets has been.
Of the deals seen in recent months, the majority have been around the lower end of the market, with Accor making a series of disposals. Of the exceptions, the sale of the Le Meridien Piccadilly for £64m came after a protracted selling process which included a refurbishment.
The sales came in the same week that Jones Lang LaSalle Hotels forecast a 20% to 40% increase in global transaction volume this year, driven by single asset deals mostly valued at up to $100m. With both deals coming in above this – the completed London site likely to be considerably more so – buyers are showing they are not afraid to act at the higher end of the market.
However, while there has been enthusiasm for luxury bricks, the are signs that luxury owner/operators remains off peak, despite improvements in trading.
Raymond Bickson, managing director of Indian Hotels Company, told Indian newspaper Business Line that the group, which has a 7.85% stake in Orient-Express Hotels, was unlikely to sell soon. Bickson said: "It would be silly to do anything to that (investment in Orient-Express) before the market comes back more…Maybe we need to wait till it reaches a certain level of maturity to what we paid for and we haven't reached that yet."
In January IHC decided not to participate in a share offering by Orient-Express Hotels, at which the group raised $131m. For IHC it may be a case of picking its luxury investments – Orient-Express Hotels has as its current goal cutting its debt, through a series of asset disposals.
The group's four recent sales were described by CEO Paul White as having been at "very attractive multiples of not just the current earnings but of peak earnings", indicating the strength of luxury assets.