Royal Bank of Scotland's attempt to find managers for its 11 Le Meridien hotels is facing a potential stumbling block in high valuations and guaranteed rent payments.
Some of the world's largest hotel groups are interested in securing control of the sites, which include the Grosvenor House and Waldorf in London. RBS, which bought the hotels in a sale and leaseback deal worth around £1bn in 2001, took back control of the UK and Irish hotels in July after talks to refinance the whole Le Meridien chain, which is heavily in debt, collapsed.
It is now seeking a partner and the likeliest outcome is that various operators will take over the running of a few hotels each. Those known to be interested are Hilton, Marriott International, Fairmont Hotels in the US and Accor of France.
But it is understood that some hoteliers are balking at the valuations RBS has put on the hotels and the rent it will charge. The portfolio is recognised as holding high-value hotels, with one analyst putting a figure of up to £400m on the flagship Grosvenor alone. Yet sources say RBS is not considering the weak economic climate in asking for guaranteed rental payments; Le Meridien's last quarterly one was around £20m, which it failed to pay.
"The valuations are high but the real issue is the risk and the return you get on that risk," said one insider. "Clearly you are not going to give a guarantee to the bank that you don't feel is sustainable. You would put yourselves in the same situation that Le Meridien found itself in in the first place."
While most agree the worst of the economic downturn is over, the luxury hotel sector continues to suffer from a dearth of American and business travellers. Whitbread, which runs Marriott in the UK, recently revealed a 1.2 per cent slide in like-for-like sales at the four-star chain
Le Meridien was bought in a £1.9bn deal put together by Guy Hands in 2001, but was rocked when the subsequent economic downturn hit hard.