Berjaya Buys into Icelandair Hotels…With US$10m Covid-19 Discount

Main Photo: The Canopy Hilton Reykjavik

Date: July 2019…updated April 2020

Location: All around Iceland

Name: Icelandair Hotels – The portfolio includes includes Hilton Canopy Reykjavik, Icelandair Hotel Akureyri, Icelandair Hotel Mývatn and Icelandair Hotel Hérað.

No. of Keys: 1,811

Seller: Icelandic Air

Buyer: Malaysian hotel group Berjaya has bought 75% of Icelandair Hotels. The agreement originally put an enterprise value of US$74m on the portfolio, owned by the Icelandic airline.

However finally completed (April 2020) it’s acquisition of the majority stake only after extracting a covid-19 discount. The deal has been almost a year in negotiation, with Berjaya undertaking to acquire the 75% stake for a price of US$55.31m which had been agreed, with the buyer putting down more than half of that as a deposit. As the deal has dragged on, Berjaya has been able to extract a US$10m discount from its Icelandic sellers, now completing the purchase for a discounted total of US$45.31m.

Completion of the deal also appears to have been pulled forward from a planned end May date, perhaps to aid the airline with a cashflow crisis due to the virus lockdown. Earlier in April, Icelandair started talking of a new share issue to bolster the company’s finances, as it reported its flight schedule had dropped to less than 10% of its regular schedule.

“We are pleased to close the sale of Icelandair Hotels at this point in time,” said group CEO Bogi Nils Bogason. “It is part of our shift of focus to our core aviation business, which has never been as important as today. We are proud of our leading role in the growth and success of the tourism industry in Iceland over the past decade where the development of our hotel company was an important contribution.

Despite the uncertainty we are currently facing, I am convinced that the future prospects of Icelandic tourism remain good. Berjaya’s investment supports that vision and confirms the quality and the value of Icelandair Hotels.“ Berjaya revealed the discount in a filing to the Malaysian stock market, detailing the revised sum paid.

The original deal included a commitment from Icelandair to retain the remaining 25% stake for three years, with the parties signing a put and call agreement. The division delivered €97m of revenues in 2018, with ebitda of €7m from operations and a further €5m from rental income. As well as Icelandair branded properties, the deal includes the Hilton Canopy Reykjavik, and a new 145 room Hilton branded property in the city’s parliament square.

The move by Berjaya is a significant switch in its hotel focus. Currently the conglomerate has ten hotels and resorts in its home Malaysian market, plus a token presence in the Philippines, Sri Lanka and Vietnam. It also has two properties each in the Seychelles and UK, as well as ownership of the Four Seasons in Kyoto, Japan which it developed. Outside of hotels, the group has interests in retail malls, residential development, country clubs, gaming businesses and the UK luxury car retailer HR Owen.

Iceland relies heavily on inbound tourism to feed its hotels as well as a raft of other tourism-related businesses, and having had a successful few years, saw visitor numbers falter in 2019, with the demise of cut price airline Wow Air. With Icelandair, and many other airlines now feeling the pinch, the pressure will be on to create new airlinks with valuable source markets, once coronavirus is conquered.

Agents tell HA that for any deals in train right now, the discount will all be around the timeline of the buyer, the quality of the asset, and the degree of desperation of the seller to get their hands on some quick cash.

HA Perspective [by Chris Bown]: While slower deals are completing, and long term development finance is largely unaffected, it seems deal flow is starting to falter – and those in the market to buy are already staking out the water hole, and eyeing their wounded fare.
Cash is king, and anyone with some fancying a hotel or two will now be wondering how much of a discount they can win, for a quick completion.

Forced sellers, trying not to blink, will be those with cashflow issues, maturing debt and borrowings at high LTV values.

And so to Iceland. Quite why a Malaysian conglomerate would want to grab a dominant position in an island hotel market, many miles from home, is not immediately apparent. With direct flights from Kuala Lumpur to Reykjavik scheduled at more than 27 hours, this acquisition is somewhat enigmatic for Berjaya – it’s hardly an obvious market for outbound Malaysian tourists. But what it does deliver, is a dominant position in a unique tourist marketplace, and an operating relationship with Hilton.

What’s interesting about this deal, is the length of time it took to pull over the line. It was in the first half of 2018 that the national flag carrier announced it was to sell its hotel division. Yet the process took another year to choose the winning bidder, and a further year to complete the deal.

As we all now know, a lot can happen in a quarter – never mind a year. But don’t rule out the wily Icelanders. Since the turn of the millennium, they’ve thrown us adventurer banks, challenger airlines, and created a new tourism destination for northern Europe. Don’t bank on them wasting any time in getting their tourism offer back in shape.

Additional comment [by Andrew Sangster]: Real estate is a notoriously illiquid asset, and herein lies its ability to both generate outsize returns and outsize losses. You can try to catch the turn or choose to take a long-term view and ride the cycles to glean healthy, if not spectacular, returns.

Those caught buying at the top of the cycle (last year) will be under big pressure. If these buyers have a robust enough capital structure, then they can ride out this storm. If they stick with a long-term view, it ought to come good (even if the depth of this downturn means the good times are many years away). In the meantime, the game now is to buy at the bottom and sell on the way up. That bottom may well be a while off too, particularly for assets likely to continue struggling with trade such as hospitality.

The sale completed 15th April 2020

Price: Originally US$74m for the whole portfolio…now $60.4m

Price per Key: US$33,359

THPT Comment: Great move for Berjaya to expand it’s hotel portfolio into this interesting part of the world, Iceland, outside of it’s current area of activity…Asia and the UK…and compared to the rest of Europe, a very low price per key.

First Seen: Originally Global Newswire, update: Hotel Analyst

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