Eagle’s Nest Hotels Uncertainty Event No. 3

Uncertainty Event No. 3

This uncertainty event is released shortly before submission of the Investment Case. Syndicates must adjust their Investment Cases to take account of this event.

“The US Federal Equal Opportunities Bureau (FEOB) has announced that from the start of next year all hotel and motel rooms which are on storeys (floors) above the ground floor must have access to an electrically operated lift or stairlift which is powered by an independent fire resistant power supply capable of 60 minutes continuous operation following onset of a fire incident. This is in order that disabled guests can be evacuated from the building in the event of an emergency. Up until now the fire service were allowed to physically carry disabled guests out using wheeled stretchers, but the increasing number of incidents with obese guests who could not be man-handled onto stretchers and carried down stairways has resulted in this new safety requirement. A spokesman for the Bureau has ruled out the obvious loophole of booking obese guests into ground floor rooms. Whilst this practice would seem sensible, the new fire regulation rules would still require upper storeys to have the new evacuation equipment.

Eagle’s Nest Hotels’ large portfolio of cheaper rate multi-storey hotels and motels means that this will result in an expenditure of approximately US$25m across the portfolio but 40 of the motels and 5 of the 3-star hotels are not capable of retrospective fitting of the required facilities. They will need to be substantially rebuilt or sold. If sold, the price would reflect their status as buildings which could not be legally operated for paying guests without expensive construction work. It has been estimated that this will cost Eagle’s Nest a further US$35m in construction work or lost asset value. The overall outcome of this is that there is now only US$80m available for the new venture instead of US$125m. Furthermore, any investment must also take account of the fact that any new US based hotels and motels added to the company’s portfolio must comply with the new regulations.

Following this announcement comes an immediate announcement that Marriot have dropped their plan to make a bid for Eagle’s Nest, stating that this is because of the new regulations and the expenditure they would need to invest in the portfolio they would acquire. The share price of Eagle’s Nest which saw an initial rise of 25% following Marriot’s rumoured bid, has now dropped by 40% as the market realise the impact of the requirement on Eagle’s Nest. The risk of predatory hostile takeover bids is now very large but no bids have yet been announced.”

Business & Commercial Awareness 6BUS0279