Investors bet on the rich with LVMH’s purchase of Belmond
NEW YORK The globe’s most-affluent travellers are showing little sensitivity to higher room rates, giving property investors confidence to spend large sums on luxury hotels.
LVMH’s US$2.6-billion deal Friday to buy high-end hotel company Belmond Ltd. caps a big year for prime hotel assets, as investors bet that demand for super-expensive hotel rooms will keep up.
More than US$21 billion worth of luxury hotels changed hands in the 12 months through November, according to data from commercial-property brokerage Jones Lang LaSalle Inc. That’s a 44-per-cent increase from the previous 12-month period, driven by the expectation that a scarcity of high-end assets will allow operators to increase room rates.
Belmond’s trophy properties — such as the Hotel Cipriani in Venice and the Copacabana Palace in Rio de Janeiro — have rich historical pedigrees that make them impossible to replicate. Even building a new Ritz-Carlton or Waldorf Astoria can be an expensive and lengthy process. Instead, developers have focused on limited-service properties, lessening the new supply coming in at the high end.
“Hotels are full and can charge very high prices,” said Jan Freitag, a senior vice-president at lodgingdata provider STR. “If you’re sitting in the luxury segment right now, the people who buy that product seem to be fairly price insensitive.”
Belmond shares were up nearly 40 per cent at the close in New York, approaching the price LVMH agreed to pay of US$25 a share in cash. The stock has more than doubled since Aug. 8, when Belmond announced its intention to explore a sale.
Belmond is something of a rarity in the hotel world, as a management company that owns prime real estate.
While property investors have binged on luxury-hotel purchases, brand operators have also made new bets on the high-end segment, led by Hyatt Hotels Corp.’s recent acquisition of Two Roads Hospitality and Hilton Worldwide Holding Inc.’s impending launch of a new luxury brand.
Belmond, which used to be known as Orient-Express Hotels, owns or has stakes in more than 30 high-end hotels around the world, from St. Petersburg to Anguilla in the Caribbean. In addition to the ‘21’ Club power restaurant in Manhattan, its stable of luxury properties includes a cruise line in France, a London-to-Venice train line and safari camps in Botswana.
The transaction is LVMH’s largest since taking full control of Christian Dior for more than US$7 billion last year.