• Pandox leads Europe after Norgani buy

Pandox is to acquire Norgani Hotels for 8.3bn Norwegian Kroner (£860m) from Oslo  Properties, a 100% owned subsidiary of Norwegian Property, in a move which will take the group to 119 hotels.

The deal, which is conditional on funding and the approval of competition regulator will, Pandox said, make it the leading specialised hotel property company in Europe in terms of geographical diversity, number of hotels and brands.

The transaction also marks the end of almost three years of difficult ownership for Norwegian Property, in which has attempted to sell the group almost since the day it acquired it, due to illiquid market conditions hindering its funding. 

Pandox said that, after the acquisition, its portfolio would be worth Eu2.3bn, with estimated rental revenues of Eu185m and cash flow of Eu75m. Norgani's properties had a book value as of 30 June of 8.9bn Norwegian Kroner.

The company said that its first priority on acquiring Norgani would be to invest Eu125m on measures including investment, revised lease structures and product development.

Anders Nissen, the group's CEO, said: "Getting started on development work, hotel by hotel, is a priority and we're looking forward to strengthening our contact interfaces with old and new partners."

Nissen added that the company felt "humbled and inspired to get the opportunity to establish ourselves as one of the big players in Europe".

The deal marks a return home for several of Pandox's properties, which were acquired as one of three portfolios – owned by Capona, Eiendomsspar/Pandox and Wenaasgruppen – when Norgani was formed in 2005, a decade after Pandox was launched.

Since Norgani's initial estate of 30 hotels, it has expanded through a series of single asset and portfolio deals, prior to its acquisition by Norwegian Property in 2007, which picked the group up for 3.75 bn Norwegian Kroner plus 6.3bn in Norwegian Kroner debt, ahead of a rival bid by Aberdeen Asset Management.

As part of the 2007 deal, the group renegotiated new and long-term lease contracts with Scandic Hotels (which represented around 60% of its rental income) with the rent levels adjusted upwards to reflect the then market levels. The average duration for those lease contracts was also extended from six to 13 years, ensuring they are still running.

At the time Norwegian Property's CEO, Petter Jansen, spoke of its ambition to build the Nordic region's leading property company, part of which was wanting "a certain exposure to the hotel segment". Last week Olav Line, CEO since September 2009, marked the exit from the sector, commenting that the sale would allow it to create "a more focused company", which would allow the group to "swiftly and proactively re-align our balance sheet relative to the possibilities we see in the office real estate business".

Line did, however, add that the company was "very satisfied with the price and the commercial terms of the transaction, especially in light of the current capital market  environment".

The deal marks a second attempt by Norwegian Property to sell Norgani, after entering exclusive talks with a consortium of unnamed buyers, for 11.2bn Norwegian Kroner, in May 2008. It had then welcomed the deal, which it said would allow it to reduce debt and avoid a potentially large and dilutive share issue. However, the consortium had difficulties raising the needed financing and the deal collapsed.

Norwegian Property, which was then forced to raise 2.5 bn Norwegian Kroner in a rights issue to fund its own purchase of Norgani after also having issues raising financing, said it would continue to look for a buyer and had been approached by several interested parties.

In June Norgani recorded a return to positive revpar for the month against June 2009, with EO Anders Vatne commenting that the company was "positively surprised … especially in

Norway and Finland which earlier have been lagging the Swedish market. The

growth is to a large degree positively impacted by private travel activity. The

business travel market is still relatively flat".

For the full year Norgani reported a pre-tax loss of 837.1m Norwegian Kroner, although the first half of this year saw a return to profit, with 31.9m Norwegian Kroner.

At 88%, the majority of the Norgani's revenues come from variable lease agreements relating to hotel operator sales, while the remaining 12% comes from own operations. The group said the leases were structured so Pandox benefits from market growth and development work in hotels, with risk limited through guarantee levels.

Norgani owns 73 hotels and one conference centre, with 41 of the properties located in Sweden, 14 in Norway, 16 in Finland and three in Denmark, with operators including Scandic, Choice and Rezidor. There will be a total of 15 brands in the combined portfolio, with Pandox itself also operating nine hotels located in Belgium, Germany, Canada and the Bahamas.

The largest brand will be Scandic, with 45%. Choice, with its three brands of Clarion, Quality and Comfort, represents just over 13% of revenues, while the Hilton share is nearly

12%. Other brands include InterContinental, Radisson Blu, Crowne Plaza, Hyatt, Holiday Inn, Elite, First, Rica, Ibis and Best Western.

The majority Pandox's estate is located in city locations, near airports or close to exhibition and conference centres, with the hotels mainly in the upper-middle and premium segments.

Sweden makes up almost half of the group's revenue, with 49%, followed by Finland with 13%, Norway with 11% and Denmark with 6%. International revenues are mainly sourced from Belgium, with 7.5%, Germany with 6%-plus, Canada with 3%, and the UK, 2%.


HA Perspective: The traditional geography of the hotel business has been to look either East or West but it is clearly time we started looking North as well. Pandox now has the scale to make its presence felt well beyond its Scandinavian homeland.

The Pandox estate now numbers 24,000 rooms across 119 hotels in 10 countries and includes 15 brands.

Pandox has taken a pragmatic view on owning hotels, choosing sometimes to run them directly itself. It currently operates nine hotels, with total sales from these nine estimated at Eu115m and EBITDA of Eu20m for this year.

It said the Norgani estate requires Eu125m of investment including revised lease structures. This is going to make for an interesting round of negotiations for the current brands running Norgani.

The scale and reach of Pandox means brand owners will have nowhere to hide.

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