Forte to cut dividend as asset values fall

FORTE, Britain's largest hotels group, is to slash its dividend this week in an attempt to shore up its overburdened balance sheet, writes Jason Nisse.

The group will also come under pressure to make large write-downs on its hotel assets, currently valued at pounds 4.67bn. City analysts say that Forte may have to write down their value by up to 15 per cent - cutting group assets by more than pounds 700m.

Forte's board is expected to override objections from Rocco Forte, the chairman and chief executive who is also the group's largest shareholder, and cut the final dividend from 7.16p to 3.5p, bringing the total for the year down from 9.91p to 6.25p. Even so, earnings per share from continuing operations will fail to cover the dividend for the second year running, further straining Forte's balance sheet.

The group is expected to say that the decision has nothing to do with the financial problems of Queens Moat Houses, its rival hotel group. But Queens Moat's difficulties have increased pressure on hotel values in the UK, and exacerbated worries about Forte's gearing. This stood at nearly 50 per cent in the last accounts.

IBCA, the influential credit-rating agency, cut its rating for Forte's long- term debt from A to A-minus last week and put the long-term and short-term debt ratings on credit watch.

The dividend cut will save Forte over pounds 30m and would be well received by the City. 'The market would not be surprised at a dividend cut and might welcome it as a prudent move,' said Nigel Reed, leisure analyst at Paribas Capital Markets.

The stock market is expecting Thursday's full-year results to show a dramatic fall in pre-tax profits in the year to January - some predict half the pounds 73m reported the previous year.