The Belmond hotel group puts itself up for sale – will IHG strike now?

Back in March I wrote an article on the rumour that IHG, which operates InterContinental, Holiday Inn, Holiday Inn Express, Crowne Plaza, Hotel Indigo etc, was in talks to buy hotel group Belmond.

The story made sense.  IHG had been talking about its desire to buy a ‘true’ luxury hotel brand.

Whilst InterContinental does have some excellent five star hotels, they are primarily business focused city centre properties.  The few InterContinental resort hotels, mainly in Asia, are generally well regarded but sit a little oddly in the context of the broader brand.

Some of the names banded around as potential suitors for IHG were laughable, such as Mandarin Oriental and Peninsula.  I struggle to think of anything that would be worse for the luxury hotel sector than to see IHG get its hands on either of those.

The Ritz Carlton was sucked into Marriott many years ago and with very negative consequences, although there have been signs in the last couple of years that the brand is regaining some of its former lustre.

When rumours surfaced of IHG buying Belmond, it DID make sense.

Whilst the Belmond name may not be familiar to you, you have probably heard of its old name, Orient Express Hotels.  The company rebranded a couple of years ago after a dispute with the ultimate owners of the Orient Express name.

Belmond tells people that it is a luxury hotel brand.  It certainly runs some iconic properties which are world famous.  However, to those of us in the industry, it is a bit of a joke.  It would never be discussed in the same breath as Four Seasons, Mandarin Oriental or Aman.

This means that IHG couldn’t have messed it up.  There is only upside – the hotels would benefit from being part of a wider group, there could be some shuffling of the leisure-focused InterContinental hotels into Belmond and we would benefit from being able to redeem IHG Rewards Club points at some high end leisure hotels.

Here are some of the highlights of the Belmond portfolio:

Copacabana Palace, Rio de Janeiro

Hotel das Cataratas, Iguassu Falls (awesome photo above, click to enlarge)

La Résidence d’Angkor, Siem Reap

Hotel Cipriani, Venice

Hotel Splendido, Portofino

Villa San Michele, Florence

Sanctuary Lodge, Machu Picchu

Reid’s Palace, Madeira

Grand Hotel Europe, St Petersburg

Mount Nelson Hotel, Cape Town (photo below)

La Residencia, Mallorca

Le Manoir aux Quat’Saisons, Oxfordshire

….. amongst others.  They are also taking over a hotel in Chelsea later this year.

And then it all went wrong ….

We don’t know what happened in talks with Belmond.  All of a sudden, however, IHG announced that it was buying Regent Hotels.  Here is our story on that deal.

This was, frankly, crazy.  For a start Regent Hotels only had SIX properties.  One of those, Singapore, was not even under its control and recently announced it is moving its management to Capella Hotel Group.  The others are not exactly in major hot spots – Beijing, Berlin, Chongqing, Porto Montenegro and Taipei.

There is also brand confusion due to the Regent Seven Seas Cruises business which has an identical logo but which is totally separate.

If you are 50+ you may remember when Regent Hotels was a luxury sector leader, but the name means nothing to most people.  Four Seasons bought it and then sold on the Regent name to Carlson after rebranding the existing properties and the pipeline.  Carlson later sold the brand to a Taiwanese group, hence the hotel in Taipei.

Regent is slowly being reinvigorated but has virtually no brand cachet.  In fact, the one decision to date – to deflag the iconic InterContinental Hong Kong and rebrand it as Regent (its original brand when built) – actually makes IHG weaker and not stronger.  No-one has even tried to pretend that they have any clue how Regent and InterContinental will differentiate themselves.

As shotgun marriages go, it looks pretty rocky.

IHG may have a second chance

On Thursday, the board of Belmond announced that they were open to offers for the company.

Any buyer will need to find around $2.5 billion including debt.  The vast majority of this is actually underwritten by freehold and long leasehold property.  IHG or another suitor would only need temporary access to such a sum as the property could be sold, leaving just the hotel management contracts.

All of the major hotel groups have experience of selling major property assets in recent years and I doubt many would be put off by needing to do this.

It makes sense for IHG to take another look.  The Belmond brand is weak so they could use Regent Hotels on these properties, which would also help justify the Regent deal.

InterContinental would become ‘luxury business’ whilst Regent would become ‘luxury leisure’.  All sorted.

Don’t count Hilton out

One thing I heard multiple times from Hilton staffers when I was over at their HQ recently is that they don’t have enough luxury hotels.

Hilton believes that luxury hotels have an important halo effect.  You are more likely to stay at a small town Hampton by Hilton if you think it will earn points to put you nearer to a luxury hotel redemption.  The problem is that Hilton is low on luxury properties where you can do this.

Marriott used to have a similar problem, which it solved by buying Starwood.  Staying in a down-trodden Marriott now has more appeal, and Hilton – and presumably IHG – knows that.

And of course there is Accor ….

French hotel group Accor has made so many piecemeal acquisitions over the last five years I can’t even remember half of them.  Some are already written down.

They appear to have exceptionally deep pockets however and another few billion may not make much of a difference.  They bought Fairmont, Raffles and Swissotel to recreate a high end grouping and Belmond would add to that.  Accor also owns the Orient Express brand which, of course, Belmond used to use on its hotels – the old name could return.

There is also Hyatt, in desperate need of an acquisition – although this is really too small to move the needle.  Their last minute lunge into the NH Hotels sale process recently, which was in reality too low end for the group, shows the pressure they are under.

Whatever the outcome, it is likely to be good news for the travel loyalty sector given that Belmond properties are not currently part of any major scheme.  A free stay at the Hotel Splendido in Portofino may be back on the cards …..

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