Arabia’s Buffett Purchases Fairmont–Could Be a Sign of New Trends

If you were an extremely wealthy prince with $4 billion burning a hole in your pocket, what would you buy?

What about a luxury hotel chain?

Well, that’s what Saudi Prince Alwaleed bin Talal did.

In a US$3.9 billion all-cash deal, Prince Alwaleed, who’s been dubbed the “Arabian Warren Buffett,” purchased the chain of Fairmont Hotels & Resorts Inc.

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The Prince, whose estimated personal net worth is US$24 billion, is no stranger to luxury hotels. His company, Kingdom Hotels International, already owns an interest in 260 luxury hotels around the world. In addition, his partner in the Fairmont Deal, Colony Capital, owns 30 hotels.

Alwaleed is known as a long-term investor, and his strategy typically sees him investing in international companies that have seen a bit of a downturn in their fortune.

Prince Alwaleed’s offer topped corporate giant Carl Icahn’s previous bid of US$1.19 billion, and the luxury hotel chain couldn’t be happier. It is unlikely that others will try to outbid Arabia’s Buffett.

Real estate has been so hot over the past few years that the timing is right for hotel deals, not to mention that building new luxury hotels is not getting any cheaper. With Fairmont Hotels & Resorts Inc. comes 87 luxury hotels in Canada and around the world.

The all-cash deal is good for shareholders as well. Fairmont shares closed at US$43.82 on Monday after the Prince’s bid was received. Alwaleed will pay US$45 for each share of Fairmont he acquires.

“It wasn’t very long ago that the shares were trading in the low US$30 range,” said Fairmont’s CEO William Fatt. He also commented that “demand is growing at a reasonably good rate, anywhere from 2% to 4% per year, but supply is not growing so quickly, and that’s what makes the economics attractive at this part in the cycle.”

Prince Alwaleed bin Talal might have the right idea here. With home prices softening, real estate investors may want to take a look at what investments are available in the lodging industry. With consumers spending more and more these days on luxury goods and the economics in place for growth in the hotel market, stock investments in companies that own luxury hotel chains could be worth your while — even if you don’t have $3.9 billion to invest.