Hotels' rush to market is no fad

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The Independent Online
The stock market is horribly prey to fads, and no more so than in the new issues arena. Two years ago falling interest rates had the City queuing up to invest in builders and property companies. Eventually the quality of the offerings deteriorated so much that even the better companies ended up slashing the asking price to get the issue away.

The hotel sector is in the middle of that process, with Lonrho's Princess Metropole operation, and now Thistle Hotels due on the block next month, both asking shareholders for in excess of pounds 500m. Granada is hoping to raise another pounds 1bn selling its Exclusive chain to a market that has already shelled out half as much on the flotations of Millennium & Copthorne, Jarvis, Cliveden and MacDonald Hotels. It is no wonder that Intercontinental is having second thoughts about the debut it had planned for next spring.

The difference between the hotel sector's rush to the market and the fads that preceded it lies in the fundamental attractions of a business enjoying the biggest upswing in trading for years. Demographic trends and the massive growth of tourism suggest the good news may continue for several years yet.

London is benefiting more than anywhere from the booming tourist market, a factor that will stand Thistle in good stead when it sets out its pitch to potential investors. Two-thirds of its profits come from the capital, where it is enjoying soaring occupancy and room rates. Longer term, the outlook for the industry appears just as bright. Increasingly rich travellers from the Far East are displaying an insatiable appetite for European culture which, thanks to sterling's weakness, they are finding relatively cheap.

At home the grey pound is being spent more and more on weekend breaks away, which pleases hoteliers who earn a much fatter margin from the leisure market than they can squeeze out of sophisticated corporate buyers.

Those factors, together with an almost total lack of investment in new hotel capacity during the 1990s should keep the sector on a roll long enough for Lonrho and Thistle to secure successful floats.

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