Tuesday, May 3, 2011

Japan Leisure Hotels Announcements | Japan Leisure Hotels: Proposed Disposal

Investegate |Japan Leisure Hotels Announcements | Japan Leisure Hotels: Proposed Disposal

Japan Leisure Hotels announced that it is selling its 6 hotels and business for JPY1.4bn - a discount of 70% on the JPY5bn value claimed by JLH for the assets. The JPY5bn value was basically the original investment amount into the assets by hedge fund DKR Oasis - although most of this was invested in around 2005 and 2006 when most of the hotels were originally acquired and renovated.

JLH was listed on AIM in January 2008 at 50P a share trying to raise GBP100m; but eventually only raised GBP3 million before expenses.

JLH came to AIM offering
investors an absolute return, supported by a ‘stable and growing’ income stream.

In August 2008, using the proceeds from its IPO, JLH acquired another hotel to take its total to 6 hotels

In May 2009, JLH went back to the market, unsuccessfully, looking to raise GBP50million

Another attempt was made to raise equity in its 3rd year on AIM in May 2010.

But again this was unsuccessful - even though this attempt was made after the payment by JLH of its first ever dividend of 1P per share (total - GBP440,000 on an investment of GBP20m) in 2010 - as its analyst Hardman put it in May 2010 -
Japan Leisure Hotels (LON:JPLH, market cap £24m) produced results ahead of our forecast this morning. We are both pleased and reassured by the numbers. There is a maiden dividend, and EBITDA margins are at an all time high. The business model has been proved and we believe a capital raising to purchase more hotels would be good news for shareholders.

But 2 months later, in July 2010, Hardman hurriedly had to re-issue a restatement of their guidance -
as JLH revenues and EBITDA and share price began to slide in 2010 as it was hit by a loss of revenues due the closing of their most recently acquired hotel for renovations - leaving it closed the first half of 2010, and also loss of market share to competitors and their hotels requiring refurbishments (ie., further investment) -
Japan Leisure Hotels warns that revenue and EBITDA for the year to the end of December will be lower than current market expectations. 
The Yokkaichi hotel was closed for renovation for the majority of the first six months of the current financial year. 
Some other hotels were experiencing reduced occupancy due to competitors aggressively reducing prices and some hotels nearing their scheduled refurbishment. 
The firm said: "The asset manager is taking immediate steps to address these short term issues, where possible, and is confident that it they will be quickly resolved." 

In December 2010, JLH's main investor DKR Oasis announced it was selling out  - presumably as it was faced with holding an investment which on top of providing little or no yield since its inception in 2005 - was now faced with declining revenues and with the operator foreshadowing requirements for future investments in renovations.

JLH says that investors can expect to get 22P a share on winding up. The FT reports on the deal as follows-
In some cases, boards are not entirely happy with the prices being paid when companies with dominant shareholders are sold...

Now the board of Japan Leisure has announced “considerable misgivings about the price to be paid for the trading subsidiaries, especially in view of its underlying value as a going concern”...
The company tried to raise £100m in 2007, convinced that it would be able to consolidate the fragmented Japanese industry. But it had to settle for £3m at 50p a share, leaving DKR Oasis, a US hedge fund that specialised in pre-IPO fundraising in Asia, holding 88 per cent of the shares. Another attempt at a £50m fundraising in 2009 failed.
At the end of last year DKR announced that it wanted to realise its investment and last week JLH said that it had agreed to sell its operations to Sanglier, a private buyer, for £10.4m. Shareholders were told to expect to receive 22p a share from the deal, against the last reported net asset value of 77p a share.
The company is being realistic about its position, pointing out that DKR could push the deal through regardless of the board’s misgivings about the price. The simple truth is that, even allowing for the credit crisis and Japan’s natural disasters, the flotation should never have gone ahead. The market’s lack of interest was clear from the beginning.

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