Hotel chains across Europe are expanding by selling off their property and leasing or managing it back. However, it is a trick they cannot repeat.
Hotel chains such as Four Seasons, Hilton and Marriott may seem almost inextricably linked with their properties but in reality the relationship couldn’t be more tenuous.
Paris’s palatial Four Seasons George V is owned by Saudi billionaire Prince Alwaleed, as is Geneva’s oldest hotel, the des Bergues, while Marriott and Hilton’s London fl agships, Grosvenor House and the Waldorf, are both owned by Royal Bank of Scotland. The owners pay the chains fees to manage the properties, and selling hotels provides chains with capital to grow by acquisition, organic expansion, paring down debt or paying dividends to shareholders. But the bene?ts are far broader than just jam today.
Sale-leaseback deals have been fundamental ?nancing instruments in property markets since the early 1970s, but they have only found favour with the European hotel industry in recent years as purse strings were pulled. The trend began when the City put pressure on hotel companies to deliver higher returns on their investments. Confusion as to whether hotel companies fell into the real estate or hospitality sectors made it dif? cult to carry out rights issues in the industry. So chains became bereft of funds just when they needed them most as stock markets turned their backs.
Selling assets is a no-brainer. It quickly raises cash for cutting debt, returning capital to shareholders and improving the return on equity and the debt-to-equity ratios in the process. This can help both the chain’s credit rating and accordingly the stock market’s perception of the company, which in turn may lead to an increase in the share price. In contrast, ?nancing expansion by borrowing threatens investment-grade credit ratings by loading balance sheets with debt. Catch up on the latest deals.
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