• Barceló to spark NH bidding war

Barceló has reversed previous statements and made a move on NH Hotels Group, confirming to us that it was “expressing an interest”.

Barceló is looking to acquire a 60% stake in its domestic rival, with sources close to Hotel Analyst commenting that a bidding war for NH was likely.

The move is expected to provide majority shareholder HNA Group with an exit.

Trading in NH’s shares was suspended on the news, with the stock rising by 20% after the suspension was lifted. Sources close to Hotel Analyst suggested that Barceló would not have a clear run at the group, with a number of parties thought to be interested in replacing HNA Group in a country which is seeing a boom in tourism and a company which is also performing strongly.

NH confirmed it had received a “sample of interest not requested, preliminary and non-binding” by Barceló “for the merger of their respective businesses”. Barceló would hold a 60% stake in the listed group, which would have more than 600 hotels worldwide and with a joint turnover of more than EUR3bn.

In comparison, Meliá Hotels International is the largest Spanish hotel chain, with 375 hotels in 43 countries, with a turnover of EUR2.88bn, according to its most-recent annual report.

It is thought that the Spanish government was likely to back a deal, on the grounds that it would create a Spanish-owned hotel group capable of competing with the large global operators, combining both urban and leisure markets. The country continues to attract investors. According to CBRE, the size of the Spanish hotel investment market more than doubled in the first three quarters of 2017, with transaction volumes increasing by 112% year-on-year.

NH is 29.5% controlled by HNA Group, which does not have a presence on the board after last June saw Oceanwood Capital take control of the board, having previously called for chairman Charles Mobus to step down. Oceanwood argued that directors representing shareholder HNA had a conflict following HNA’s purchase of Carlson Hotels and were likely to push for the group to be rolled into Rezidor. Mobus worked for a company which advised HNA.

The Oceanwood fund controls another 14.3% of NH, having increased its stake in August this year Hesperia another 9.27%  and 4.19% is held by Henderson Global Investors.

Barceló has 31% of its portfolio focused on the leisure segment, with a strong presence in the Caribbean. NH is more specialised in urban hotels and has a greater presence in Europe.

Barceló, co-chaired by cousins Simón Barceló and Simón Pedro Barceló, is privately owned. In 2015 Barceló and Hispania launched the first Spanish hotel Reit, allowing Barceló to reduce its owned hotel portfolio – and debt – by selling properties into the joint venture. At the same time, acquisitive Hispania was able to build its exposure to the Spanish resort hotel sector.

The pair signed an agreement to create a joint venture that would invest in resort hotels in Spain. Hispania initially acquired 11 hotels and a shopping centre, with an option to acquire a further five hotels and a second small shopping centre. The intention was that Hispania would invest a total of EUR340m overall. It would hold an 80.5% stake in the new joint venture acquisitions, with the balance held by Barceló. Barceló was to continue operating the assets, under lease contracts with a 15-year term.

At the time, the idea was to grow a significant portfolio of Spanish resort properties, operated not just by Barceló but by a range of leading operators. Since then, the Reit has built up an estate of 26 hotels, including the Bay portfolio of 16 resort hotels and two shopping centres. The assets include hotels under brands including NH, Meliá and Holiday Inn and the majority of the portfolio is located in the Canary Islands, which account for 65% of the total rooms in the portfolio.

July saw Hispania become the leading hotel owner in the country after paying EUR16m for the Hotel Selomar, taking it to 11,021 keys across 38 different properties.

The beginning of September saw a judge in Madrid reject HNA’s efforts to have the removal of Mobus, Ling Zang, Xianyi Mu and Haibo Bai from the board reversed. Earlier this year saw HNA cut its stake in NH, to avoid having to make a public offering.

In January this year NH Hotel Group appointed Ramon Aragonés as the company’s new CEO, replacing Federico Gonzales Tejera, who was ousted alongside Mobus. In the third quarter the company reported that revenue performance in the wider Spanish market led results, with the country seeing 13.1% growth in the first nine months of the year, against total growth of 6.7%.

The company has continued to pursue its refurbishment plans and said that 61 hotels had now been fully refurbished. The compound annual revpar growth rate for hotels repositioned between 2014 and 2016 was 13.1% on the year for the nine-month period.

For the year to date, the group has signed new agreements for five hotels; three leased contracts (two in Frankfurt and one in Cancun) and two under management (in Valencia and Lima) with a total of 1,243 rooms.

HA Perspective [by Katherine Doggrell]: At the time of going to press, NH’s share price was up to the heady heights of EUR5.64, its highest point for just over two years, giving the company a market capitalisation of EUR1.98bn. The reported offer would represent a premium of 27% over NH’s share price ahead of the announcement, but, given the interest in Spain from investors, it is expected that this will rise.

One group which is unlikely to agitate is HNA, which, we understand, has already had approaches over its stake. The company has been without representation on the board for more than a year, although is thought to keep two executives on standby in Madrid should that change. The company is currently entangled with its efforts at Rezidor Hotel Group, where its five-year plan, due in January, is expected to see the group in a merger with Carlson by any other name. At the end of September, HNA held 69.98% of Rezidor, with settlement due to begin in October.

The hedge funds which put HNA into its detached position are, it is thought, likely to push for a higher bid. HNA had previously accused Oceanwood of being ‘event driven’ and trying to push the Chinese company into a bid for its stake and with NH’s performance on the up, it is sitting pretty. The funds are likely to try and hang on for the sale of the group’s hotel in New York which, at the time of writing was thought to have attracted a number of bids, but none of them high enough to tempt. As one interested party told us: “This is just the first chapter”.

One card which Barceló has in its back pocket is Aragonés, who, prior to joining NH eight years ago, worked as GM and director of operations at Hesperia. In a series of grisly open letters last year HNA accused Oceanwood and Hesperia of working together, with the ultimate goal being a management contract between Hesperia and NH which was more favourable than those in the past. If this deal goes through, friendly terms can be expected all round.

Additional comment [by Andrew Sangster]: The credit rating agency S&P took a swipe at HNA at the end of November, cutting its rating saying that the company’s aggressive financing structures were damaging creditworthiness.

HNA’s response was to call S&P’s assessment “one-sided” and to claim it had financing options through “many channels”. Among these was a line of credit of more than USD4bn from the Agricultural Development Bank of China. Nonetheless, having S&P push your debt rating further into junk territory is not going to help liquidity.

But HNA is likely to be a “motivated” seller for other reasons too. CEO Adam Tan was reported at the end of November stating: “If some sectors are now restricted by government, I will consider selling assets I bought in these sectors”.

The Chinese government is, perhaps to understate things, a little opaque on exactly what it wants. But the main thrust of policy is now focused on its Belt and Road Initiative, a plan to link up, through investments in infrastructure, China with Europe and Africa via central Asia.

It seems unlikely that HNA’s investment in Carlson or its 25% shareholding in Hilton qualify under these rules. Just to make things even more interesting, HNA jettisoned the chairman and CEO of its tourism business, Xin Di, in mid-November. Xin is also chairman of Rezidor, a position he looks likely to lose too. Xin was replaced as chairman of HNA Tourism Group Co by Zhao Quan, the CEO of another HNA unit, Hong Kong International Construction Management.

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