Aug. 5, 2004 - The surprise postponement of the stock offering by CNL Hotels & Resorts could save shareholders millions in the short run but might cost them millions more over time.

Shareholders approved the acquisition of the Orlando company's external adviser, CNL Hospitality Corp., last week in preparation for the initial public offering, which could have come as early as this week. But the proxy vote had a contingency clause indicating that the IPO and listing on the New York Stock Exchange would have to occur by Nov. 30, or the acquisition of the adviser might not be completed.

The company could make another attempt at the IPO by the end of November.

But if it does not meet that deadline, the company might exercise a waiver that would allow it to proceed with acquiring the adviser, Carolyn Gosselin, spokeswoman for CNL Hotels, said Wednesday. "That is one possibility," she said.

If the acquisition does not go through, shareholders would save the $300 million sale price initially. But the delay might end up costing millions more in fees, said one veteran industry follower. The 100,000 shareholders also will have to eat the costs of the delayed IPO.

"The people who never lose in a deal like this are CNL," said Barry Vinocur, editor of Realty Stock Review, a newsletter that covers the real-estate investment trust industry. "They've been collecting high fees all along, and they will continue to do so," said Vinocur, who has followed the industry for 20 years.

CNL Hotels is required as part of its commitment to shareholders to list its common shares on a national exchange by Dec. 31, 2007, or liquidate "in an orderly fashion."

A national hotel union that raised questions about the cost to buy out the CNL adviser -- a company owned and controlled by CNL founder James Seneff and other insiders -- said Wednesday that the market's apparent rejection of the IPO was both a surprise and validation of the union's concerns.

"The fact that they couldn't do the IPO means the company ought to look at the restructuring and the way they operate, such as the fees to insiders," said Courtney Alexander, deputy director for strategic affairs for Unite HERE, which represents about 100,000 hotel workers nationwide.

CNL representatives said the company postponed the stock sale because of "market conditions" including heightened concerns about terrorists targeting financial institutions in the New York area, where top CNL executives had gathered this week in preparation for the IPO and traditional ringing of the bell on the NYSE. CNL, citing ongoing restrictions on public disclosures, would not say whether the offering to institutional buyers had been faring poorly.

Alexander said there is no doubt in her mind the IPO was not living up to expectations. "They would have done it [the IPO] if pricing had been doing what they wanted," she said.

CNL said in its preliminary prospectus that the company planned to sell 35 million shares at $19 to $21 a share, to raise more than $700 million.

Institutional buyers typically buy the shares, at a discount, and then the public market sets the trading price for secondary buyers and sellers.

Gosselin said the company does not need the $700 million right away, so the IPO postponement does not affect the operations of the company, which owns an interest in more than 130 hotels valued at more than $6 billion, up from $3.8 billion at the end of 2003. The IPO has long been planned to make shares more easily tradable and thus potentially more valuable.

Current shareholders have limited ability to sell their shares. They can transfer them back to the company, minus costs, or sell through a nonpublic broker-dealer network, at a discount. "You can't easily turn around and sell, but there is an informal market for these private REITs," Vinocur said.

Most investors in private REITs, and even publicly traded REITs, are primarily looking for high dividends, and liquidity is not as much of a concern as with many other types of equity investments.

Ira Rowell, a retired U.S. Navy pilot who has invested in a CNL limited partnership for the past 10 years, said he thinks the IPO postponement makes sense. Rowell said he was considering buying some shares once it went public, and plans to keep an eye on when the issue makes it back to the market.

"I think it's prudent to put it off," Rowell said. "The market's not exactly a ball of fire right now." Rowell said he has owned REITs in the past, because they generate high dividends similar to the 9 percent annualized yield he gets on his limited partnership, but he steers clear of unlisted REITs such as CNL Hotels & Resorts.

"I just like to see them listed," Rowell said. "You can see the price, and the fact that it's listed increases the price."

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