Vector's problems not an end to hotel REITs, say experts

The failure of Vector Hospitality, the hotel sector's first real estate investment trust (REIT), to float is more of a teething problem than a sign the model won't work in the UK, according to industry experts.

Mark Nichols, hotels tax partner at law firm Cameron McKenna, said last week's postponement of the £2.6b flotation had not been due to the REIT structure - which had been accepted by HM Revenue & Customs - but issues over the governance and valuation of the offering.

He said: "It's unfortunate that this should happen to the first specialist hotel REIT, but there's nothing wrong with hotels for the REIT model. I hope the Vector model gets back on track but with some changes to its structure."

"In the US," he added, "there's a preference for a strong internal management structure, which is left open in the UK."

Mark Wynn-Smith, chief executive, Europe, of property agent Jones Lang LaSalle Hotels, agreed the sector had not been the problem. He said: "It's clear both price and governance were an issue, and the market downturn did cause problems."

He suggested the REIT should be repriced, taking into account the provincial location of many of the hotels, which tend to grow only a little above inflation.

But he added: "It's very important for the sector that this succeeds in some form. This is more of a blip than anything else."

Russell Kett, managing director of HVS International, added that the conflict of interest between management and ownership was not an unusual problem.

"In more mature REIT markets, like the USA, this is not an uncommon issue and not insurmountable," he said. "I hope this is more of a pause button than an eject."

Vector's Richard Balfour-Lynn and David Michels declined to comment.

Vector Hospitality website >>

HM Revenue & Customs website >>

Property investors queue up to buy Vector Hospitality assets >>

Vector pulls out of £2b floatation >>

By Emily Manson

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