Schörghuber Group has dissolved Arabella Starwood Hotels & Resorts, its joint venture with Starwood Hotels & Resorts, as part of plans to focus on owning hotels, rather than managing them.
The move was at least partly motivated, it was claimed, by proposals by the International Accounting Standards Board on how operating leases are treated. This will see lessees forced to capitalise lease obligations on their balance sheets from 2013.
Dr Klaus Naeve, chairman of Schörghuber, has been quoted as saying that the decision was "purely financial", with the company unwilling to take the risks involved in expanding the group through management agreements.
"The decision to make a fundamental change of strategy in our hotel divison, was not an easy one. It is, however, crucial for the sustained success of the Schörghuber Corporate Group," said Alexandra Schörghuber, chairwoman.
ArabellaStarwood was founded in 1998 with the aim of protecting the Arabella brand and expanding it in the German-speaking and Majorcan markets, a strategy which changed at the start of 2007, when the JV was extended until 2037. Under the revised agreement, further Starwood brands, including Westin, Le Méridien and St. Regis Hotels & Resorts, were added to the group's remit. The Arabella name was transferred to the group's complementary tourist offers, which include golf and a vintage car business.
Schörghuber is expected to continue to hold hotels in its real estate portfolio, but will look to building its business through an uplift in property values, rather than through earnings. It is increasing the level of collaboration with Starwood Hotels & Resorts, which will continue to manage Arabella's 43 hotels in Germany, Spain and Switzerland.
The decision caused Wolfgang Neumannn, CEO and president of the Arabella Hospitality Group, to leave the group, citing the unexpected change in strategy.
Neumann, who had previously been at Hilton for 24 years, leaving as European area president, joined Arabella in March last year. Under him the group has been refocusing its portfolio, selling two hotels in South Africa that were seen as too remote from the core business, while signing new agreements in countries including Germany and Switzerland.
Neumann has also overseen the rebranding of 18 Arabella Sheraton hotels, losing the Arabella name and in the process making the decision to end the agreement easier for Schörghuber.
When Neumann joined the group he had looked to make the most of Arabella's position as a private company with strong fundamentals to allow it to grow through acquisitions, predominantly through the distress expected to enter the European market. He had also planned to work more closely with Starwood to further build the jv.
The agreement has allowed Starwood to expand in Europe, most recently with the Westin Hamburg, which is due to open in 2012. The company has welcomed the news, with Roeland Vos, president of Europe, Middle East & Africa, being quoted as saying that it was "delighted to have the opportunity to increase our level of involvement in the on-going management of the hotels".
There is no word as yet on how the agreement between the two will be structured in the future. Arabella's role is as-yet undefined, although Reinhold Weise, general manager of the Westin Grand Munich, has been named as CEO. It is reported that the existing agreement had been excessively complex, with Neumann having been involved in negotiations to simplify it.
HA Perspective: This looks to be a significant "bricks and brains" split, perhaps the first major transaction which involves the dissolution of the hotel management company altogether.
It should concern other management teams of a similar size or smaller that Schörghuber thought there was no value to be extracted from its hotel operating arm.
The cover for the move is provided by the forthcoming changes in accounting rules that will force companies to put onto balance sheets any lease commitments.
The IASB draft issued last month applies initially only to listed companies. But, by definition, these are the ones most exposed to fickle investors. Debt on balance sheets will balloon not only unnerving investors but giving bankers an opportunity to renegotiate any corporate borrowing.
For hotel operating companies, the challenge will be persuading institutional investors that in reality there has been no change, despite the radical new look for the accounts. Some listed giants, particularly in continental Europe, will have busy investor relations departments over the next couple of years.