October 05, 2014 - 4:01pm EST by
2014 2015
Price: 11.44 EPS $0.00 $0.00
Shares Out. (in M): 105 P/E 0.0x 0.0x
Market Cap (in $M): 1,206 P/FCF 0.0x 0.0x
Net Debt (in $M): 499 EBIT 0 0
TEV (in $M): 1,706 TEV/EBIT 0.0x 0.0x

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  • Real Estate
  • Hotels
  • Trophy assets
  • Dual class
  • Small Cap


When traveling the world, some of you have probably stayed at the Hotel Cipriani in Venice, or the Grand Hotel Europe in St. Petersburg, or the Copacabana Palace in Rio de Janeiro.  You were probably also unaware that these hotels, all truly irreplaceable trophy assets, are owned by the same company: Belmond Ltd.
Known until recently as Orient Express Hotels, Belmond owns and operates some of the most historic luxury hotel properties on the planet.  Having reached over $60/share in late 2007, the stock then fell to under $4/share in the wake of the Great Recession, and has yet to recover.
Background -
Belmond's longtime CEO, Paul White, resigned in mid-2011 for personal reasons, and the board began a search for a new CEO at that time.  On Oct 18, 2012, Indian Hotels, which held a 7% stake at the time, announced an offer to buy the company for $12.63/share.  The board had not yet named a permanent CEO at the time of this offer.  Less than a month later, the board rejected the offer as inadequte and simultaneously announced the hiring of John Scott as new CEO.  Indian Hotels neither increased nor withdrew their offer, but formally withdrew it a year later.  They continue to hold a 7% stake and remain the company's largest shareholder of the class A shares.

Corporate Governance -
Belmond has a dual class share structure.  The B shares do not trade and are held by a subsidiary of the parent company.  They have 10x voting power relative to the A shares and control 63% of the vote.  But for these B shares, I believe we would have seen an activist get involved a long time ago now.

New CEO -
John Scott came to Belmond from Rosewood Hotels, which he sold to a Hong-Kong-based hotel management company.  Scott is a seasoned hotel operator who made it clear at the beginning that the Indian Hotels offer grossly undervalued the company, in his opinion.  He also clearly appreciates the discount investors apply to the company on account of the dual class share structure, which I suspect he will eventually move to collapse.  In the interim, he has strengthened the board with new members.
Scott has also articulated a plan that involves divesting non-core assets and redeploying that capital into core assets, as well as paying down debt, all of which he has delivered on.
Re-branding Effort -
One of Scott's biggest initiatives has been his rebranding of the company.  The company's historical name ("Orient Express Hotels") provided no real brand architecture under which each hotel could operate.  Instead, each hotel was perceived as its own individual brand in the minds of consumers, many of whom had no idea the different hotels they were patronizing were all owned and operated by the same company.  Belmond's luxury train offerings (also called "Orient Express") only served to increase the confusion.  With a new name (and a new ticker symbol) as of July 2014, Belmond will enjoy an increased ability to cross-sell properties to customers.  Though not quantified by management, it is easy to imagine marketing synergies here.
Management agreements -
Scott has also begun developing a hotel management business within the company, whereby Belmond will manage a property fully branded with the Belmond name but owned by somebody else.  These agreements are not likely to move the needle, but they provide Belmond a nice way to leverage their brand strength in gateway markets that would otherwise be too expensive to enter by simply buying a historic luxury property.
Barriers to Entry -
There is simply no substitute for these properties, some of which are classified as a national and cultural landmark.  They are true trophy assets.  A quick look at their website will give you an idea.  They also happen to own the 21 Club in NYC.  I'm sure many of you have been there enough times to know that the food is lousy but the place is an icon and will never die.
Valuation -
So what's it worth?
I estimate BEL is currently trading at well under $500k per key.  A number of recent transactions for high-end luxury properties suggest material upside for BEL.  Examples include:
Four Seasons Punta Mita - Dec 2013
Sold to Cascade Investments for $1.1m per key
St Regis Bal Harbour Resort - Jan 2014
Sold to Qatar's Al Faisal for $1m per key
The Standard Hotel NYC - current rumors
Rumored to be in talks to sell for $1.2m per key
It's also worth pointing out that pre-recession Belmond was trading at over $800k per key.  Simply returning to the pre-recession level of $800k per key would imply a value of over $17/share, or ~50% upside from here.
Risks -
Leverage: Belmond has a fair amount of leverage (>4x) but is working to get that down quickly.  Current management have proven to be reasonable capital allocators thus far and I see no real cause for concern.
Russia: Their St. Petersburg hotel is a significant contributor to revenue and ebitda, and recent events have had a negative impact on the hotel's traffic.  In addition, the Four Seasons has recently opened a location nearby, which has added pressure.  This might cause some bumpiness over the near-term.
Disclaimer: The views expressed in this note are only the opinion of the author.  This report is not a recommendation to purchase or sell any securities mentioned.  The data contained herein are prepared by the author from publicly available sources and the author's independent research and estimates.  No representation or warranty is made as to the accuracy of the data or opinions contained herein.  Readers should conduct their own verification of any information or analyses contained in this report.  The author undertakes no obligation to update this report based on any future events or information.  Please do your own work.
I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.


- Collapse of dual class structure
- Buyout offer
- Improvement in Russia 
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