Six years after signing an agreement to purchase the property that became the prestigious Café Royal Hotel in London, Alrov (Israel) Ltd. (TASE: ALRO), controlled by Alfred Akirov, has signed a £160 million (NIS 930 million) financing agreement. The loan is for one year at 2.3% interest, with a senior lien on the property as security for the lenders. £85 million of the loan is guaranteed by the company, and the rest is a non-recourse loan.
Alrov probably preferred a rather short-term loan because of the low interest rate, and will refinance the property at the end of the loan period. The loan terms stipulate that the amount of the loan, which is currently equal to 60% of the property value (£213 million in the 2013 financial statements), will not exceed 65%.
Alrov gave £73 million (NIS 430 million) of the loan to The Crown Estate, the seller of the property, the balance of the amount due on the property. The parties then signed a 125-year lease for the property extending until 2137, as already agreed between them. The remainder of the loan, £87 million (NIS 500 million) will be used to repay a loan to an Alrov subsidiary, which will assist the latter's business development.
Negative results in the run-in period
In August 2008, Alrov signed an agreement to purchase the property for £90 million, and later reached agreements with the English company on the postponement of some of the payments stipulated in the agreement. At the time of the acquisition, the property, previously characterized as "the social playground of the rich and famous," served as a wedding and conference hall, and Alrov accordingly invested hundreds of millions more in renovating it and converting it into a luxury hotel.
In late 2012, Alrov completed most of the work on the hotel, which contains 160 suites and rooms and 1,300 sq.m. of commercial space. The hotel commenced full operations at the end of last year. Café Royal had a NIS 34 million operating loss in 2013, and a NIS 7 million operating loss in the first quarter of 2014.
The acquisition of Café Royal Hotel and the investment in it were part of the strategy adopted by Alrov in recent years of developing its hotel business with the aim of reaching 1,500 rooms. Alrov already has 1,100 rooms; in addition to Café Royal, it has two other European hotels: Lutetia in Paris, closed last April for three years for an upgrade, and the Conservatorium in Amsterdam, which began full operations for the first time in 2013. Alrov also owns the David Citadel and Mamilla Hotels in Jerusalem.
Published by Globes [online], Israel business news - www.globes-online.com - on July 3, 2014
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