Qatar's Constellation offers $442m for Paris hotel

Rahul Odedra, August 7th, 2014

Intercontinental Hotels Group (IHG) has received a binding offer from Constellation Hotels Holding Limited, a subsidiary of Qatar Holding, to acquire Intercontinental Paris – Le Grand.

The proposed purchase price is €330 million ($442 million), payable in cash at completion. Constellation has made a further commitment to invest over time an estimated €60 million in future hotel renovations, according to IHG’s announcement.

Under the terms of the offer, IHG would retain a 30-year management contract on the hotel, with three 10-year extension rights at IHG’s discretion, giving an expected contract length of 60 years. Management fees are expected to be approximately €4 million (US $5 million) per annum.

Located in the heart of Paris overlooking the Opera House, the hotel has 470 guest rooms, including 70 suites. It first opened in 1862 and has operated under the Intercontinental brand since 1982.

In 2013, it generated revenues of US $118 million and earnings before interest and tax of US $22 million and, at the end of June, had a net book value of $342 million. Cash taxes payable on the potential transaction are not expected to exceed US $5 million.

Following receipt of the offer, IHG has agreed to a period of exclusivity with Constellation, and, in line with applicable French legal requirements, IHG will enter into an information and consultation period with the relevant employees’ representatives.

The completion of the deal would represent another high-profile acquisition of a European hotel property by a Middle Eastern investor.

According to a report by consultancy HVS London earlier this year, hotel transactions across Europe reached a value of €7.7 billion (US $10.6 billion) in 2013, with investors from the Middle East accounting for 30% of this figure.

In its half year results, published earlier this week, IHG reinforced its commitment to reducing the asset intensity of the business, a strategy which saw it complete two asset disposals in the first six months of 2014.