If only for a night, Legacy Hotels lets people live in the lap of luxury. The real estate investment trust owns some of the swankiest hotels in the country, such as the Fairmont Royal York in Toronto and the Fairmont Le Chateau Frontenac in Quebec City.
Its investors may be able to afford one of Legacy's pricier rooms these days. Four quarters of improving sales and profits contributed to a stellar one-year return. But another cause was management's March 1 announcement it was assessing potential changes, including the sale of the business. (The move was backed by Fairmont Hotels & Resorts, Legacy's largest investor with a 22% stake.) The news sent the value of the units up 18% in a single day.
Legacy's decision to shop itself around was likely spurred by the federal Conservatives' proposed tax on income trusts. Although that legislation is still in its early stages, the hotel REIT doesn't seem to qualify for an exemption, says Richard Neshevich, vice-president of real estate at the corporate credit-rating agency DBRS. He wouldn't be surprised if Legacy gets acquired. “There's a lot of capital chasing real estate, and the appetite for hotels has been fairly strong over the past couple of years.”
Investors thinking of buying Legacy now and selling when a takeover offer appears could be disappointed and not just because a buyer may not show. Analysts at CIBC World Markets estimate the underlying assets of the company are worth between $13.45 and $15.45 a unit. With the units recently trading around $14, much of the takeover premium already appears reflected in the price. In other words, you might want to sleep on that idea.
