Starwood Capital is to sell Groupe du Louvre to Jin Jiang International Holdings, adding 1,100 hotels to the Chinese group’s 1,700.
The deal, which came shortly after the sale of the Waldorf Astoria to China’s Anbang Insurance Group, highlighted the ongoing growth of investment from China in the hotel sector.
The sale of Groupe du Louvre was for an undisclosed fee, thought to be above EUR1.2bn, with rumours suggesting that Jin Jiang’s was not the highest bid. The company was thought to have attracted bids from Accor and private equity groups PAI Partners and Oaktree. The sales process was triggered by a bid from Jin Jiang earlier this year, according to sources close to the group.
Yu Minliang, chairman of Jin Jiang International Holdings, said: “There is strong complementary synergy between Louvre Hotel and Jin Jiang in brand portfolio, geographic footprint and guest base.”
Barry Sternlicht, Starwood Capital CEO, said: “Together with Jin Jiang, we expect the brands will be able to strengthen their capacity and capture the strong growth potential that clearly exists in China and, more broadly, in Asia.”
Starwood Capital bought Louvre Hotels alongside champagne maker Groupe Taittinger for EUR2.1bn in 2005, when it was called Société du Louvre and looked a very different proposition. Since then Starwood has been paring the company down and taking advantage of the global enthusiasm for European hotels, particularly in the luxury segment.
Louvre Hotels Group was formed in April 2011 from the combination of the budget hotels division of Louvre Hôtels and Golden Tulip, which the private equity firm bought in 2009.
In 2008 the company planned to sell nine hotels in its Concorde collection to JJW Hotels & Resorts, a deal which descended into lawsuits over claims of unpaid deposits. The hotels were then sold off piecemeal, including the Hotel de Crillon, one of the jewels of the portfolio, for EUR250m to Saudi investors.
Last year Starwood Capital sold the final four of the company’s high-end luxury properties in a deal worth an estimated EUR700m to Qatar Holding through its vehicle Constellation Hotels. In another bad week for Accor, the winning bidder was thought to have beaten the group, which was in partnership with property company Unibail-Rodamco.
Sternlicht said at the time that completing the sale of the majority of the luxury hotel assets marked “an important milestone in the ongoing monetisation of the Groupe Du Louvre portfolio,” adding that the company had sold more than USD3bn in assets since closing. The sell-off was not limited to the high end, at Louvre 33 hotels were sold to Campanile in 2011 and a further 40 disposed of last year, to reduce debt and finance international expansion.
The focus for the investor then turned to Louvre’s expansion into Asia, which lead to the 2011 co-branding agreement with Jin Jiang.
For Jin Jiang, the deal is in line with comments it made in the summer at its full-year results presentation, where it announced a move into the neglected mid-market in China, with new brands and a focus on attracting more business customers.
The aspiration was one echoed by China Lodging Group at its third quarter results analysts call this month, where chairman & CEO Qi Ji hailed “fast network expansion … supported by our multi-brand strategy”. Perhaps with an eye to the Louvre deal, he said he expected “a long runway of consolidation” in the market.
China Lodging has continued to pursue a strategy of expansion using the manachised model and reported growth ahead of its own expectations, adding 39 leased hotels and 402 manachised hotels for the first nine months of the year. The current pipeline includes 517 hotels, with 485 manachised.
Despite the growth, the company has, like the global operators, seen some cause for concern in the softening of China’s economy and lowered its expectations for full year revenue growth to 19% to 19.6%, slightly lower than the 20% to 23% forecast at the start of the year.
CFO Jenny Zhang said: “The general trend we have observed in the past few years in the market, is that the travel demand from leisure travellers, especially tourists, has been growing very fast. At the same time, the general softness in the Chinese economy has brought a very soft demand from business travelling.”
Ji said that “to bolster our leadership in this competitive market, we will dedicate additional resources to technology, through open innovation platforms that strengthen our expertise. We believe this will lay a sound foundation for the company to capture the huge growth opportunity in the coming years.”
At the end of September the company’s loyalty programme had about 25 million members, who contributed close to 90% of room nights sold during the third quarter. During the third quarter of 2014, more than 90% of room nights were sold through the company’s own channels.
While China’s domestic players are investing in growth, not everyone is as welcoming to China’s investors as Starwood Capital. The US government is to investigate the sale by Hilton Worldwide of the Waldorf Astoria to China’s Anbang Insurance Group, amid concerns over espionage. The US Ambassador to the United Nations has a residence at the property and it is a popular hotel for dignitaries visiting the UN, including Barack Obama.
Kurtis Cooper, spokesman for the US Mission to the UN, said: “Any future decisions about the nature of that relationship (with the Waldorf Astoria) would need to factor in costs, the company’s plans for the facility, the needs of the US government and the US Mission to the UN, and any possible security concerns.”
The investigation comes as China and the US have accused each other of cyber spying. The concerns speak highly of the property’s IT offering – this correspondent fears that most hotels would not have the capacity to facilitate cyber-spying, at least not without a hefty daily charge.
HA Perspective [by Chris Bown]: While agitating shareholders are focusing on US hotel groups merging one with another, the Chinese are on the march. The country is creating capital, and a recent easing of restrictions has made it easier for that capital to be invested internationally.
Witness Chinese insurance companies buying Hilton’s Waldorf Astoria in New York, and Starwood’s Sheraton in Sydney.
Security authorities in Sydney are sure to be less bothered about the intentions of their new investors, than their US counterparts. Rather than meddling with the increasingly open global market for international investors, if the US government feels uncomfortable renting rooms at the Waldorf, it should simply move down the street to another New York hotel, and stop making such a fuss.
Jin Jiang’s move brings it into Europe, and builds on an existing cooperative marketing relationship with Louvre that will have started to show the potential of hosting Chinese visitors to the continent. This is something HNA is already working on with Spanish hotelier NH, in which it has invested by buying a stake; the pair are now working on NH branded hotels for China, while HNA has been slowly working on its European presence. It was in 2007 that it first bought a European hotel, in Brussels, which has yet to be converted as promised to its Tangla brand.
Starwood Capital’s exit from its French adventure looks to have added up to a worthwhile profit, once all the elements of the deal are combined. It will surely be hoping to complete a similarly worthwhile turnaround in the UK, where it has in the last two years spent GBP700m assembling the Principal Hayley, Four Pillars and De Vere Venues hotel portfolios. And it is bound to be running the rule over fresh opportunities in Spain.