His Royal Highness Prince Alwaleed Bin Talal Bin Abdul-Aziz Alsaud of Saudi Arabia relaxes in a corner of the D-Bar during a Globe and Mail interview at the Four Seasons Hotel on Nov. 14 2013. The billionaire owns hotel properties such as the Four Seasons Hotel and Resorts, Fairmont Hotels and Resorts and Mövenpick Hotels and Resorts. He also has stakes in the social media giant Twitter.Fred Lum/The Globe and Mail
In 2007, Saudi Prince Alwaleed bin Talal joined with former Microsoft CEO Bill Gates to acquire 95 per cent of Toronto-based Four Seasons Holdings Inc.
Thursday, Mr. Alwaleed announced plans to IPO his stake In Four Seasons and Fairmont Hotels and Resorts.
For the prince, it looks like perfect timing. Investors, on the other hand, might want to think twice before helping the prince take his profits.
Marriott International and Starwood Hotels and Resorts are just two examples of lodging companies reaping the rewards from resurgence in the sector. Both easily exceeded earnings estimates in the most recent quarter and the stocks have appreciated 26 and 30 per cent respectively in 2013.
The prince is clearly, and wisely, looking to translate the increased optimism in the sector into the highest possible price for his ownership position. But he also noted, "the hotel industry is facing major upside right now. This may go on another three or four years."
Given a somewhat finite time horizon of 36 to 48 months, investors in a potential IPO would have to wonder when to sell the stock. After two years? Certainly no shareholder would want to be holding the thing when the clock runs out.
There are also signs that the fundamental outlook for the hotel sector may be deteriorating ahead of schedule. Bloomberg notes that "revenue per available room rose 3.6 per cent year over year in September, the second slowest rate in 2013…. Room rate growth was the slowest since April, 2011."
There's no date set for an IPO, so much of this is speculation. If a deal does happen, a discounted price would go a long way to compensating investors for the risk of an imminent profit growth slowdown.
But potential investors in Four Seasons shares should remember that even billionaire royalty doesn't sell assets they're sure will be worth more next year. If the time is right for the Prince to sell, why would it be the right time for investors to buy?
Scott Barlow