Hotel buyouts a bonanza for many mutual funds
July 8th, 2007 - Category: Hotel, Real EstateHotel buyouts are proving a bonanza for mutual funds which snapped up Hilton, Marriott and other hotel stocks after the September 11, 2001, attacks.
Private-equity firm Blackstone Group’s (BX.N) $20 billion bid for Hilton Hotels Corp. (HLT.N) on Tuesday sparked a 27 percent rise in shares of the second-biggest U.S. hotel chain over Thursday and Friday, and boosted those of Hilton’s rivals.
But for funds that bought Hilton at its lows in 2001 and still own them, the gains are nearly 500 percent.
Bank of America Corp.’s (BAC.N) Columbia Real Estate Equity Fund is one such fund. According to data from Lipper, the fund bought 536,700 shares in the last quarter of 2001 and held 667,514 as of the last filing in April.
The Morgan Stanley Institutional U.S. Real Estate fund bought 720,000 Hilton shares between September 11, 2001, and February 2002, according to Morningstar data. By March 31, 2007, it had more than doubled its Hilton holdings to almost 1.7 million shares, the data show.
“A few weeks after September 11, I was buying hotel stocks and cruise lines. We added to our positions significantly,” said Mark Greenberg, who manages the $983 million AIM Leisure Fund as a senior portfolio manager at AIM Capital Management.
Hilton traded at around $8 to $11 in late 2001. The stock closed at $45.71 on Friday. Marriott International Inc. (MAR.N), the largest U.S. hotels operator, also moved up from a range of $16 to $20 to the present $47.11. And Choice Hotels (CHH.N) has leapt from $8.3 to $11 in late 2001 to $42.34 on Friday.
“Hotel stocks will do well for the next several years. There’s just not that many hotels being built in most places in the world, certainly compared to growth in demand,” said AIM’s Greenberg, who’s Leisure Fund owned nearly 850,000 Marriott shares as of end-September 2001, as per Morningstar data.
MARKET RUN-UP
The fund now has Hilton, Starwood Hotels & Resorts (HOT.N) and Marriott among its top 20 holdings.
Two Jennison funds bought 1.25 million Marriott shares in September 2001 after the attacks, which triggered a travel and tourism slump. The funds still owned a large chunk of those shares in March this year, according to Morningstar.
The MainStay MAP fund snapped up 152,000 Hilton shares between September 11 and September 30 2001. They held most as of end-May, the research firm’s data showed.
Several private-equity groups have made multibillion-dollar offers for hotel assets this year.
Last month, Goldman Sachs (GS.N) real-estate fund Whitehall said it would buy Equity Inns Inc. (ENN.N), a mid-market hotel chain, in a deal worth $2.2 billion including assumed debt.
Also in June, Legacy Hotels Real Estate Investment Trust (LGY_u.TO), Canada’s biggest lodging REIT, said it was in talks with investors over a possible takeover and had received nonbinding offers valuing its equity at $1.36 billion.
Tom Roseen, Lipper’s senior research analyst, said it was uncommon for mutual funds to hold investments for six years as managers feel compelled to buy and sell because they are paid fees. But the markets helped in this case, he said.
“You got to buy something very, very cheap, and then we’ve had a great run in the market since 2003. So people have tended to hold on to their winners,” Roseen added.
