Hotel firm Vector forced to cut float price
June 6th, 2007 - Category: HotelVector Hospitality, the hotel real estate investment trust (REIT), has had to cut its flotation price and delay the launch by 24 hours to get its £2 billion London listing off the ground.
The cut comes after pressure from institutions who voiced concerns over potential conflicts of interest in the role of director Richard Balfour-Lynn and amid worries that the global property market has peaked.
The company, which is planning to use the funds to buy £2.6 billion of hotel assets, was forced to cut its price range to 875p to 900p, compared to the 995p to £11.15 range announced almost two weeks ago. The book was set to close at 4.30pm today but bankers have now extended that to the same time tomorrow.
The original range implied a market value of £2.02 billion to £2.26 billion, excluding debt of about £600 million. Assuming the same number of shares are issued, the new range would equate to a market capitalisation of between £1.75 billion and £1.8 billion.
t is selling its Hotel du Vin and Malmaison hotels assets to Vector. He also founded the Alternative Hotel Group, which is supplying a tranche of De Vere and Village hotel assets to Vector.
One City source said: “All roads seem to lead to Richard Balfour-Lynn. That is a concern.â€
Standard Life Investments and Morley Fund Management today went public with their decision not to buy shares in Vector, claiming they were unhappy with the role of Mr Balfour-Lynn in its external management structure.
The two top UK fund managers join the US investment firm Cohen & Steers, the world’s largest specialist property investor, and Henderson Global Investors, who last week also ruled themselves out of subscribers to shares in the float.
Mike Bessell, Standard Life’s investment director for UK equities, said: “We do see very real corporate-governance risks out of the complex management structure of this deal.”
Morley Fund Management, which is owned by the insurer Aviva, said: “We are not convinced by the management structure and the alignment of interests and the upside in the portfolio.”
Institutional nervousness about the float emerged as Deutsche Bank was preparing to close the books on what is likely to be one of the biggest London equity issues of the year.
Deutsche Bank, which is running the books on the float, working with Goldman Sachs and UBS, is understood to have been confident on Friday evening of covering its book at the bottom of the mooted range of 995p to £11.15 a share.
However, negative media coverage over the weekend was compounded by mounting concerns about valuations of property stocks on stock exchanges around the world. A Deutsche source said today after the price cut “We are absolutely confident. We aren’t launching in the dark.”
Shares in Spanish real estate companies crashed this Spring while in London the shares in both Land Securities and British Land, the UK’s two largest quoted property companies, are now trading at a 15 per cent discount to their net asset values after trading at premiums for much of last year, over fears that prices for UK commercial property have peaked.
Francis Salway, chief executive of Britain’s largest property company Land Securities, warned last month that prices of UK commercial property can not go any higher, “the yield re-pricing of UK property assets is close to having run its course”.
On Friday, PIK Group, the Russian property developer, raised $1.8 billion as it made its debut on the Moscow and London stock exchanges, but that was $400 million short of what investors could have shelled out if they bought the bookrunners’ most bullish valuations.
Instead Deutsche Bank, the lead manager on the Vector float, priced the PIK listing with the help of Morgan Stanley and Nomura at $25 per share, at the bottom of the guidance of $25 to $31, in a sign that that prices may be stalling in the real estate market.
Shares in AFI Development, another Russia-focused property firm, have fallen 20 per cent since it raised $1.4 billion last month, but the nail in the coffin for valuations of global real estate firms may have come yesterday from the planned flotation of Realia, the Spanish real estate company, which cut its final price for a flotation to €6.5 per share, below its original range of €7.9 to €9.7.
The final price values Realia, a joint venture between construction company Fomento de Construcciones y Contratas and savings bank Caja Madrid, at €1.8 billion. The final price is also below the maximum price of €8.80 a share for the retail tranche of the offering, set last week by the company.
A spokesman for Vector Hospitality said that the hotel firm had established a conflicts committee on the Vector board and that this “mitigates or eliminates the effects of any potential conflicts”. He said that the issue had been fully explored in the company’s prospectus.
information from : business.timesonline.co.uk
