Mallorca, Spain-based hotel firm Riu Hotels & Resorts has agreed to acquire the remaining 49% of its hotel real estate via its Saranja, S.L division from Anglo-German hotel firm TUI in a deal worth €670 million ($817 million).

The deal includes 19 hotels and two properties in the pipeline, and represents an enterprise value/earnings before interest, taxes, depreciation and amortization multiple of 11.9.

According to a statement from TUI, the “expected net cash consideration pre earn-out amounts to around €540 million at the closing of the transaction.”

A news release from RIU said Tui will retain its 50% stake in RIUSA II S.A., the management company for Riu-branded hotels formed by the two companies founded in 1993.

The deal is expected to close in late summer.

The Riu family now owns 100% of the real estate, with TUI’s supervisory board having agreed to the acquisition. Both companies stated their long-term partnership would continue.

Riu executives said in the news release that the firm will maintain “its position of strength … management will continue, as always, to be characterized by prudence and stability, and it will continue working on reactivation, with the intention of preserving all of its jobs.”

Albert Puig Pascual, a director at Riu, said an interview with Hotel News Now that the sale proposal came unexpectedly.

"[If the decision had been up to us], we would not have thought of doing this operation, but things happen when they happen," he said. "TUI raised their hands. They said, here are the 19 hotels, plus two in development, and we want to sell it now. We said 'OK.'

“Sometimes you do not choose the moment, and of course we have to secure the debt with the banks. It involves much money. We have been always very comfortable with our partnership with TUI, but we think this deal is in [our] long-term interest,” Puig said.

He added the 19 assets are spread throughout the world, including one in Dubai, two in Panama, one in the U.S. and one in the Bahamas.

Stuart Gordon, senior analyst at Berenberg Bank, said TUI needed to improve its liquidity position amid losses due to the COVID-19 crisis.

“Its debt position spiraled in last 12 months,” he said. “They will use the proceeds to pay down debt. They need to get their debt down.”

Gordon added the price TUI received on the deal was not very good.

Research from business consultancy HVS showed the average price per room for a Riu hotel at approximately €250,000, whereas the sale valued each room at approximately €160,000.

“Riu was likely to be the only buyer because of their partnership agreement, but they got a good deal,” Gordon said. “Yes, that is pre- and post-pandemic pricing, but there have been recent examples of resort hotels going to good or better prices."

In a news release issued by TUI, executives played down the debt angle, stating that “management of all 100 Riu Hotels & Resorts worldwide remains unchanged in [the] successful 50/50 joint venture between Riu and TUI."

Peter Krueger, TUI’s chief strategy and mergers and acquisitions officer, said the strategy behind the decision to sell predated the pandemic.

“We are separating hotel management and the holiday experience from property ownership, in line with our strategy announced in 2019 pre-crisis, a business model that has proven successful in the international city hotel sector," Krueger said. “We will release capital employed, while we are strengthening our core business by focusing on global hotel management.”

TUI still owns real estate in other brands, including TUI Blue.