PPHE Hotel Group Limited (LSE:PPH), the international hospitality real estate company, fell 9% to 18,321p in early trading after announcing it would repurchase the freehold of its Park Plaza London Waterloo hotel for £147.9 million.
The market reaction suggested investors were uncomfortable with the additional debt the deal requires, with £136.5 million of the purchase price to be funded through a new borrowing facility secured against the property.
PPHE originally sold the 494-room hotel's freehold in June 2017 for £161.5 million in a sale and leaseback transaction, retaining a 199-year lease with an initial annual rent of £5.6 million. That rental obligation has since risen to £7.3 million a year and continues to increase in line with the retail price index (RPI).
Co-chief executive Greg Hegarty said the buyback would protect the group from future rental increases, improve financing terms and give PPHE greater flexibility over refurbishment and development of the site.
The remaining balance beyond the new debt facility will be met from existing cash resources, with the transaction expected to close within the coming months.
PPHE develops, owns and operates hotels and resorts across Europe and the Middle East.
Sentiment across the hotel sector was already under some pressure on Monday after the Competition and Markets Authority launched an investigation into suspected information sharing among Hilton, IHG Hotels and Marriott through a third-party data analytics platform.