• M&C strong amidst dissent

Millennium & Copthorne Hotels reported strong third-quarter results as a result of new openings.

The figures fuelled objections to the planned GBP1.79bn takeover of the group by its majority owner, with some shareholders complaining that it undervalued the company.

City Developments has until 8 December to make a formal offer for the group.

The investor has faced objections on a number of fronts. International Value Advisers and MSD Partners, which collectively own close to 9% of M&C, wrote to the company’s independent directors, describing the planned offer “significantly” undervaluing the company, objecting to using the share price as the basis for the valuation.

The pair said that the offer price was 32.5% discount to M&C’s value as set out in its accounts.  The proposed bid represents premium of approximately 23.7% to the closing price per M&C Share of 446.7 pence on 18 August, being the last business day prior to the date on which an initial proposal was received by M&C from CDLthe company. The share price at the time of writing was at 605.50 pence at the time of writing, suggesting that the market expected a higher offer.

International Value Advisers and MSD Partners called on the directors to M&C’s property portfolio independently valued in order to work out what its hotels are worth. The letter read: “We have been supportive of the company for a significant time, and would like to understand how you feel your obligations to guide the company through a takeover process are discharged by a recommendation of a wholly derisory proposal.”

The objections joined those from Fidelity Special Values investment trust, which holds 2.59% and Aberdeen Standard Investments, which holds 2.75%, adding that, because much of M&C’s value was tied up in its property, an offer based on the share price did not represent what the company was worth.

In response, CDL has said: “In view of CDL’s intent to retain an asset ownership model, coupled with M&C’s lack of scale and ability to replicate an asset-light business model employed by its larger hospitality group peers, M&C should not be valued based on NAV but rather on its present and future hotel earnings, which is how the analyst community has been typically prioritising their assessment of M&C shares.”

Details of CDL’s strategy should it acquired the remainder of M&C and take it private remained scant, other than its intention to maintain M&C’s current business model, in particular to run the business as an owner and operator of its hotels.

It added that it had no intention to sell or repurpose any of M&C’s hotels in London or in New York. CDL owns 65.20% of M&C.

In the third quarter M&C reported like-for-like group revpar up by 0.3% with New York increasing by 1.2%, London down by 2.5% and Singapore down by 2.1%. On a constant currency basis, group revpar was up by 1.8% for the three weeks ended 21 October. Pre-tax profit at the company rose by 19.6% to GBP55m, with revenue up 6.5% to GBP247m.  The company said that newly refurbished properties and additions to hotel portfolio contributed to the higher profit.

The M Social Auckland (previously known as Copthorne Hotel Auckland Harbourcity) had its soft opening in early October 2017. During the coming months all of the hotel’s 190 rooms and facilities will be commissioned in weekly releases, with the aim of having the new hotel fully operational by the end of December 2017.

Earlier in the year the company said that it would focus on its management structure in the US, with Hotel Analyst understanding that number of changes have now been made. In the wider group, Tan Kian Seng was named interim group CEO in March, replacing Aloysius Lee who resigned from the position in August last year having become chief executive in February 2015. Tan joined the group as group chief of staff and interim president of Asia in October 2016.

M&C’s annual report saw it describe its vision “to be the leading global hospitality real estate ownership group for key gateway cities, with effective, in-built and unique asset management skills”. Over 50% of the group’s 131-strong portfolio is owned or leased, with the majority of the remainder managed.

HA Perspective [by Katherine Doggrell]: What happens in the court of Kwek Leng Beng has long been a source of speculation in the sector. What seems clear over this latest spate of letter writing from shareholders is that he will be forced to make a higher offer for the group to get the deal done.

Sources close to Hotel Analyst have suggested that the decision to take the company private was driven in part by the failure of the market to price M&C as high as it could be, with the value of the brands trailing the value of the assets and it would not shock many to see the group’s sites rebranded when (and it looks ‘when’ not ‘if’) M&C leaves the public markets. The company has already undertaken some rebranding and strong results from those properties. More is likely.

Investors are now seeking a property valuation for the portfolio, after complaints that the 2003 audit may be overdue an update. An update on the offer price is expected to follow.

Share →