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LONDON, England (Reuters)
The world's largest hotelier, InterContinental Hotels, has sold most of its UK hotels and promised to return 1 billion pounds ($1.93 billion) to investors, boosting its shares as it posted higher profits.
Shares in the InterContinental and Holiday Inn hotels group closed up 1.7 percent at 676-1/2 pence on Thursday, making it one of the biggest risers in the FTSE-100 after the bumper return of cash and a broad-based recovery in the hotel trade.
InterContinental is selling 73 UK hotels to a consortium of buyers for 1 billion pounds, but will retain management contracts for the hotels. The net asset value of the hotels is 1.02 billion pounds.
Following the sale, the group will return 1 billion pounds of funds to shareholders via a share consolidation and direct capital repayment after June 2005.
The group's strategy is to sell off many of its owned hotels to become largely a franchised and managed hotel operator, like U.S. hotelier Marriott International. It has already sold 121 hotels for 1.75 billion pounds over the last year and has 16 on the block worth 360 million pounds.
The asset sell-off is aimed at helping the company meet its goal to raises its return on capital, which runs at 6 percent against a cost of capital at around 10 percent.
"We are delighted; these are good numbers, and a return of capital of one billion pounds is all we had hoped for from the company," analyst Simon Larkin at ABN AMRO said.
The 16 hotels for sale include five U.S. hotels, among them the San Francisco InterContinental, and nine in Europe, including the InterContinental Paris, one of its two luxury hotels in the French capital, worth around 200 million pounds.
The group owned 188 hotels when it was created in April 2003 from the demerger of Six Continents, but will only own 59, including recent acquisitions, when the auction ends.
These 59, valued at 1.6 billion pounds, could later be sold to leave just a handful of owned hotels in the gateway cities of New York, London, Paris, Hong Kong and Los Angeles. Most of those likely to be sold are in continental Europe and Australia, as the company is committed to further shareholder returns.
Analyst Jamie Rollo at Morgan Stanley expects the group could return another 800 million pounds to shareholders, half from the sale of more European hotels and the rest from the sale of its near-half share in Tango and Robinsons soft drinks group Britvic, which it plans to float in 2005 to 2008.
Hotels recovery
The return to shareholders comes in addition to 1 billion pounds already promised, of which 767 million pounds has been returned via a special dividend last December and a continuing share-buyback programme.
The British-based group, which runs more than 3,500 hotels under InterContinental, Crowne Plaza and Holiday Inn brands, posted a 27 percent rise in 2004 pretax profits to 309 million pounds, in line with analysts' forecasts of 305 to 316 million.
"We have seen a strong recovery from 2003, especially in Asia, the Americas and the UK, with Asia-Pacific returning to 2002 levels. Most of the world is trading well with the exception of France and the Benelux countries," group Finance Director Richard Solomons said.
Chairman David Webster said the outlook for the current year was positive after strong trading during 2004.
The group, like other hoteliers, is recovering from a tough 2003 when most hotel companies were hit by the effects of the Iraq war, the SARS virus and the fear of al Qaeda violence.
InterContinental shares have risen 23 percent in 2004, and outperformed the FTSE 100 Index by nearly 15 percent over the last 12 months, but they have still underperformed rival Hilton Group Plc by 5 percent.
The buyer of the 73 UK hotels is LRG Acquisition Ltd, a grouping led by Lehman Brothers Real Estate Partners and including the Government of Singapore's investment arm GIC Real Estate and Canada's Realstar Asset Management.
InterContinental posted 2004 earnings per share of 32.5 pence after 20.8p in 2003, compared with analysts' forecasts of 29.0-32.8p, and proposed a final dividend up 6 percent at 10p.
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