The IPO of Vector Hospitality is a landmark event for the UK hospitality industry. After a slew of privatisations, hotels are back on the public markets.
But there are marked differences to the six listings that occurred in 1996, the last previous burst of enthusiasm for putting hotels on the stockmarket.
The first obvious point to make is the size of the listing. By raising £2bn with assets valued at £2.6bn, the company is bigger than most of the market debuts a decade ago. Only Millennium & Copthorne, the only business that still retains a listing from the original six, and Thistle Hotels, were of comparable size.
Had Vector included the 47 Marriotts that were formerly owned by Whitbread and are now owned by a consortium controlled by Igal Ahouvi and in which Quinlan Private has a 44% stake then Vector would have come to market with an extra £1bn of assets, giving it even greater weight.
Despite attempts to strike a deal, however, these assets have been excluded. The loss is not disastrous, but it means Vector is not quite the colossus it promised to be.
Arguably more important in terms of differences to a decade ago is the nature of the Vector business. It is not an integrated owner-operator but is a focused hotel property owner that takes advantage of the tax exempt real estate investment trust legislation that came into force at the start of this year.
Ironically, the main driver for the delistings has been the failure of the market to appreciate the value of the property assets within owner-operators. Indeed, the bedrock of the portfolio within Vector is the former assets within De Vere, the owner operator taken out by the Alternative Hotel Group just last year.
The total Vector portfolio comprises 71 hotels with 10,781 rooms. As well as De Vere, there are the 11 Hiltons that were part of the sale and leaseback in 2001, the Malmaison and Hotel du Vin hotels and four individual hotels that were formerly Meridiens – the Cumberland (now a Guoman), the Park Inn Heathrow (operated by Rezidor), the Victoria and Albert (operated by Marriott) and the Waldorf Hilton.
All of the hotels are held on leases which was undoubtedly a complicating factor with regard to the 47 Marriotts which are on management contracts. A solution to this conundrum is there, however, had both sides been willing.
The personality issues seem to have got in the way. Quinlan Private issued a press release announcing the completion of its deal to buy the Marriotts only a few days ahead of Vector’s official statement of its intentions.
The Quinlan release was notable for its assertion that it is to carry out the asset management function of the 47 Marriotts. Hotel Analyst understands, however, that a contract for this role remains in force with Vision Hospitality, the asset manager of Vector.
The details of the lease structure within Vector will become clearer following the publication of the pathfinder prospectus later this month.
For the Marylebone Warwick Balfour assets – the Malmaison and Hotel du Vin portfolios – the hotels are on 20-year leases which are renewable twice, effectively 60 year contracts.
The rental costs on the 17 operating hotels being bought by Vector are £22.4m (the Malmaison in Oxford is not to be included as it is held only on a 33-year lease). This is more than 17 times the £382m sale value.
In addition, Vector is buying a group of development hotels for £113m for which MWB is using £42.5m of its receipts to complete. All development work on the five developments and two further sites is timetabled to complete by October 2008.
The operating company for Malmaison and HdV is to be retained by MWB for the time being but this is likely to be sold-off. A likely taker would be a management buy-out led by current CEO Robert Cook. This might include the operations of the De Vere portfolio and the former Initial Style conference centres.
But Vector could well prefer to put the De Vere hotels in the hands of an international brand. Hilton’s Doubletree is an obvious contender here, having had it miss out on the 24 Macdonald Hotels that went to Accor.