The Belmond brand of 34 hotels, along with other hospitality and travel assets, has been sold to LVMH Moët Hennessy Louis Vuitton, a company keen on expanding into the luxury hotel market and diversifying its luxury portfolio.
GLOBAL REPORT—LVMH Moët Hennessy Louis Vuitton SE has agreed to buy hotel and travel company Belmond for $25 per share, representing an equity value of $2.6 billion and an enterprise value, with debt, of $3.2 billion.
Executives and analysts say Belmond was attractive to the Paris-based luxury goods company as much for its experience and know-how as it was for its hotel and travel assets.
Expect synergies betweenLVMH’s luxury products and Belmond’s luxury hotels, said Jean-Jacques Guiony, CFO at LVMH.
“Luxury hotels most often contain luxury boutiques,” Guiony said.
Soazig Drais, associate director of consultancy and valuation at Christie & Co., said Belmond is “a historical luxury hotel company with a good, strong track record,” and a “rather good match” for LVMH. He added that “no one is surprised by Belmond being sold.”
Belmond’s portfolio consists of 34 hotels and approximately 3,100 keys in 17 countries, all of which are owned with the exception of London’s Belmond Cadogan, owned by Cadogan Estates. Belmond also has interests in luxury trains.
In June 2011, LVMH became the majority shareholder (76.12%) in fellow luxury goods firm Bvlgari S.p.A., which has a portfolio of six hotels and four in the pipeline. The sixth property, Bulgari Hotel Shanghai, opened in July.
Drais said LVMH, which is listed on the French Euronext stock exchange, is buying Belmond’s obvious experience in the industry and that there were other bidders in the mix, including KSL Capital Partners.
“This deal will clearly reinforce its hotel footprint and further maintain its DNA,” Drais said.
He added LVMH already operates four hotels under the Cheval Blanc brand in France, The Maldives and Saint Barthélemy, with one more in the pipeline.
During a phone conference held today to comment on the deal, Guiony and Chris Hollis, LVMH’s head of investor relations, pointed to the main attractions of Belmond in the proposed deal, including:
- Iconic and legendary assets all around the world;
- Ownership of the real estate;
- Globally diverse, highly refined customer base;
- A recognized brand and ideal complement to Cheval Blanc;
- A seasoned management team with deep industry knowledge; and
- The ability to reach critical mass in the ultimate luxury hotel world with a single acquisition.
Guiony said LVMH not only is buying properties, but a management team, which he said would remain based in London.
“That is very important to us. We will heavily rely on the present management team to grow the business. We will not change the management. … Yield management has been introduced to Belmond only in the last few years and that, too, takes times,” he said.
“We see the direction they are going is the right one. The Belmond brand is emerging, growing, but it is still a new name. Recognition is not what it could be, so we put investment behind the brand,” he added.
CapEx, branding, not expansion
Drais also mentioned that LVMH has been revamping the iconic La Samaritaine building, a former department store it owns in Paris, for the last several years.
There is the definite possibility that space might be converted into a luxury hotel, Drais added.
Guiony hinted Asia is one market the proposed partnership is interested in developing, but that the focus would be on optimizing the brands, rather than pumping capital in to expand the portfolio.
“One of the beauties of Belmond is that it already has many properties, so it is about optimizing the brands. We might add on a few things, maybe management agreements,” Guiony said.
“Belmond owns an unusually large share for a luxury portfolio, and that is a very strong competitive advantage and more of an obvious alignment between owner and operator. That this is beneficial is especially true of the top end of luxury,” Guiony said.
Guiony referred to some of the jewels in Belmond’s stable, including the Belmond Hotel Cipriani in Venice; Belmond Copacabana Palace in Rio de Janeiro and Belmond Charleston Place in South Carolina.
“The Cipriani is one of the key assets, but there are many others that also have very high real estate and operating value. It is very early to talk about a CapEx program, but we do not intend to do a huge capital push up in Belmond,” he said.
He added he is aware Belmond itself puts 3% to 6% of profit per year into capital expenditures, which he agreed is a good rule of thumb.
Hollis said the deal would have only a limited impact on LVMH’s debt profile and that the deal, subject to approval by Belmond shareholders and antitrust regulators, should be finalized by mid-2019.
Guiony said LVMH has not lacked opportunities in looking at traditional luxury goods, including hotels.
“We believe luxury experiences will become more important in the future, and (the Belmond deal) is a great opportunity to participate in this,” Guiony said.
He added some of the synergy initiatives LVMH has partnered in with Cheval Blanc could easily replicate with Belmond to strengthen or further these experiences.
“One thing we believe we are knowledgeable about is brands. Belmond is an emerging brand, and we strongly believe we can continue to develop it and make it in its segment very known and recognizable,” he said.
Cup spilleth over
Guiony said Belmond has existed for less than five years in its current guise and still needs time to reach its full potential for profitability.
“Most luxury groups are diversified, and Belmond is, too, and I do not believe its portfolio has seasonality. It has resorts, business hotels, leisure ones, and Belmond also has experiences that complement their hotels, such as cruises and trains,” Guiony said.
Guiony added LVMH had calculated its financing on the deal in terms of 50% U.S. interest rates, 50% European Union ones.
“That is how it was reached, what you see in front of you, but this does not mean this is how we will finance it at closing,” Guiony said, adding the deal will not change LVMH’s gearing going forward.
“We have significant debt repayment potential even with the buy, although we have to swallow a $3-billion acquisition, which is something we do not do every day,” he said.
Guiony said the priority for LVMH after dividends is to pay down debt to a certain level.
“When we reach a level we see as reasonable level, we will then recompense cash to shareholders via share buybacks,” he added.
In its latest earnings statement, for the third quarter of 2018, Belmond posted adjusted earnings before interest, tax, depreciation and amortization of $75.1 million, a year-over-year increase of 21%, and reaffirmed full-year EBITDA guidance would come in at between $140 million and $150 million.
In the 12 months ending 30 September, Belmond recorded total revenue of $572 million.
As of press time, Belmond’s stock was trading at $24.72 a share, up 102% year to date. The Baird/STR Hotel Stock Index was down 14.4% for the same time period.