THE forthcoming demerger of Six Continents, the hotels and pubs behemoth forged from the embers of the old Bass brewing empire, has put the spotlight firmly on the hotel sector. The question everyone is asking is not whether anyone will snap up the hotel business after April’s planned split, but when.

While international rivals such as Marriott and Starwood, which owns the Sheraton chain, could probably construct an argument for bidding based on some kind of “once in a lifetime opportunity” hypothesis, the financial and property players are considering the potential for snapping up some of the world’s top hotel assets at a big discount to their underlying value.

Given the ravages suffered by the hotel industry in the wake of the Gulf War and the terror attacks of September 11, 2001, it may seem odd for anyone to be looking at potential acquisitions in the current political climate. But the reality is that the sort of short, contained war that most commentators are expecting would probably have a relatively limited impact and help to draw a line under the current uncertainty.

The lingering aftermath of September 11, when international travel ground to a halt before spluttering slowly back into life, has long since been subsumed into a wider economic malaise exacerbated by the threat of terrorism and war in Iraq. Although a successful conclusion to the Iraq situation would not solve the hotel industry’s problems, at least it would be a step in the right direction.

One of the most interesting elements of the current situation is that asset values have not been nearly as badly affected as a decade ago. The simplistic reason for this is that very few hotel companies are in such dire straits that they are having to sell up cheaply or call in the receivers.

Last time around, the combination of the Gulf War, the recession and spiralling interest rates meant that even some well-established names found themselves struggling to cope with onerous debt obligations. Many were forced into cut-price disposals to keep their heads above water, while others failed to survive.

The present uncertainty is deeply unnerving, and has had a big impact on corporate spending budgets, as shown by De Vere’s statement yesterday that midweek conference sales have slowed since January. But with interest rates so low, few hotel operators are burdened by such unmanageable debt mountains that they have become distressed sellers. This means that, even when hotels do come up for grabs, very few are changing hands at bargain prices.

This scenario explains why so few hotel transactions have taken place in the wake of September 11, despite optimism among some of the big operators that there might be rich pickings. Take Six Continents, for example. Although it has recently become the subject of bid speculation, over the past year or more it has itself been casting an eye over just about every possible acquisition target it could find.

The nearest it came to buying anything was when it held detailed talks with Wyndham International, the US hotel operator. However, despite its huge debts, Wyndham was able to reject Six Continents’ advances and, with help from its banks, come up with an alternative strategy for reducing its debt. Six Continents is now being forced to return much of its war chest to shareholders as part of the demerger.

Of the few transactions that have taken place in recent months, none can be categorised as bargain basement. In August, the London Hilton on Park Lane changed hands for £157 million, equivalent to about £310,000 a room, while in December the super-luxury Four Seasons Hotel in Milan was sold for a staggering £1million-plus a room.

It is doubtless deals like this have got the juices flowing at Blackstone Group, the US investment firm that bought the Savoy Group for £520 million almost five years ago.

At a recent presentation to the British Association of Hotel Accountants, Bill Stein, managing director of Blackstone’s real estate group, told listeners that, in his opinion, the group’s 841 rooms were worth £999 million.

Although Blackstone has added about 120 rooms to its luxury portfolio of hotels, which includes such London landmarks as Claridge’s and the Connaught, Mr Stein’s valuation still looks a little on the toppy side, to say the least. But given Blackstone’s oft-declared strategy of holding the group for no more than three to five years, it looks as if that valuation may well be tested against the market sooner rather than later.

It is the disparity between how the stock market is valuing hotel companies and how the property market values them that has attracted the vultures, and not only to Six Continents. At the other end of the scale, the likes of Queens Moat Houses, Thistle Hotels and Hanover International have all attracted speculative interest.

One name that has cropped up regularly is Jack Petchey, the veteran property investor who once owned Watford Football Club. Over the past year, his Trefick investment vehicle has built a stake of 29 per cent in Hanover International while acquiring 19 per cent of both Queens Moat and Jarvis Hotels. His end-game is not yet known, though his basic premise of buying shares that trade at a discount of up to 50 per cent of asset value is easy to grasp.

One factor that has helped to buttress hotel asset values has been the recent alignment of hotel assets with commercial property assets in the eyes of debt providers. Whereas buyers would traditionally have to provide at least 40 per cent of the purchase price in equity, these days the figure is more like 20 per cent, making it easier to buy.

All of which probably explains why more than 1,000 delegates have booked places for next month’s International Hotel Investment Forum in Berlin. Three years ago, when the hotel industry was enjoying record trading, the conference attracted just 300 delegates.

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