It was no surprise when OEH missed estimates on last week. We still think Street estimates are too high for the balance of the year, as well as for 2010 but what is the real value?
“The Company plans to make further disposals of non-core assets in the coming quarters as we continue to deleverage the Company in line with our target and reach a four to five times ratio of debt to average EBITDA by the end of 2011.” – OEH Management
Despite another quarter of terrible numbers and a seemingly outrageous valuation of 18x 2009 EV/EBITDA, we believe that if the company is serious about monetizing some of its assets, the real value of the company may be higher. As we wrote about in “NAV: WHO CARES?” on 06/10/2009, given the dearth of transactions at the upper upscale and luxury end, change in the “traditional” set of real estate buyers, lack of financing, and the uncertain timing of any recovery, per key (Net Asset) values are difficult to determine. However, our best crack is that OEH’s NAV lies somewhere north of $11/share.
We think that potential buyers of trophy assets (like the Cipriani) would be willing to pay a price that provides a break-even scenario in the first few years as fundamentals recover. On the 2Q09 call, OEH discussed selling up to 8 properties to help de-lever the company over the next 2 years. Below is our attempt to try to quantify the proceeds of some potential assets sales.
Windsor Court, which is under contract, and the Bora Bora asset are currently in the process of accepting bids. OEH did not specify the sales price for Windsor Court other than stating that proceeds will materially exceed the $37MM mortgage on the property. Our best guess is that Windsor Court will fetch $45MM -$50MM, or between $140-150k per key. Bora Bora was purchased by Orient Express in March 2001 for $19.6MM. We also believe that there is some land that comes with the asset. We think that OEH should be able to get more than the initial purchase price - perhaps $30MM.
Other assets that we expect to come on the block include:
- The Grand Hotel Europe
- 2007 EBITDA of $21MM, 2008 EBITDA of $23.6MM, 2009E EBITDA of $13MM
- Rates are in roubles, so the hotel took a huge hit this year after an unusually good year in 2008 when the rouble depreciated about 27.5% against the dollar in the 1H09
- This is the largest EBITDA producing asset in OEH’s portfolio with 300 keys
- Since the Russian economy is levered to oil, a recovery in prices could help them sell this asset at north of $200MM and perhaps closer to $230MM
- Selling a majority stake in the asset is also a possibility
- Given the volatility of the Russian market, we don’t think this asset is high on the list of for sale properties
- Hotel de la Cité
- With 61 keys located in Carcassonne, France, this asset is located in a “day trip” market which OEH mentioned was suffering the most in the current environment
- 2007 EBITDA was $0.9MM, 2008 EBITDA was $0.1MM… our guess is that they are loss making this year
- Our best guess is that this asset would fetch about $20-25MM
- Keswick Hall & Inn at Perry Cabin
- We believe that OEH would love to sell these assets, but the market just isn’t there now. However, they fit the bill of “weekend getaway” markets
- Westcliff Hotel
- Located in Johannesburg, South Africa, this asset is not key to the portfolio
- Most of the customers that go on the OEH safaris stay at the airport hotel in Johannesburg so there’s not a lot of synergy with the Westcliff
- We think OEH would sell this asset for a bid of $20-25MM
- Lilianfels Hotel
- Located just outside of Sydney, Australia in the Blue Mountains National Park
- Another day tripper hotel
- Best guess at value: $20MM
- Pansea Porfolio
- We think that at least one of these assets will be up for sale in the next two years