• Leases offer no salvation

The bankruptcy of the 14 Dutch hotels operated by Golden Tulip which was announced last week indicates that the company is struggling to find a quick solution to its financial woes.

Earlier speculation of a merger with smaller rival Apollo has not materialised and now the administrators are turning the screws on the property owners to enable some kind of rescue plan.

Hospitality Management BV, the parent group of Golden Tulip, went into voluntary receivership in early April. It is its subsidiary, EuroTulip Hospitality Management BV, which was put into bankruptcy at the end of May.

The hotels, in 13 locations, are branded as Golden Tulip or Tulip Inn. The filing for insolvency was "in order to finalise a turnaround plan" according to the administrators, law firm Van Benthem & Keulen.

Golden Tulip ran 60 hotels at the end of last year. It has subsequently seen three taken back by owners in the Netherlands, two in Scandinavia and one in Austria. It is left with two hotels in Belgium and 11 in Germany / Austria following the 14 going into bankruptcy.

It also has 30 managed hotels in joint venture structures all of which are outside of Europe, including 20 in the Middle East and North Africa with others in South America and South East Asia.

At the year end there were 239 hotels under one of the three flags of Golden Tulip: Royal Tulip, Tulip Inn or the eponymous Golden Tulip. In addition, German consortium Top Hotels had 250 properties which shared the Golden Tulip branding and Australia's Stella Group had 301 flags bearing the Golden Tulip moniker.

Stella Group has a 50% share holding in Golden Tulip's parent, Hospitality Management BV. The other half is held by CEO and president Hans Kennedie via his Kenmark vehicle.

Stella, which bought its stake in 2005, has run into its own set of difficulties. It has been divesting assets to reduce debt and last month announced it had restructured its debt with UBS.

In April, Stella sold its 76% stake in South Africa's Protea hotels for a mooted Rand1bn (US$125m), about a third less than the R1.48bn it paid for the stake in July 2007.

The original debt provider in the deal, Investec, now has a 33% shareholding via a debt for equity swap. Investec had stumped up R700m to fund the original deal.

Protea is now controlled by a management-led consortia including a 27% stake held by Broad Based Black Economic Empowerment, an arm of the South African government.

The company is Africa's largest hotel management company with 126 properties in 13 countries. The hotels range from resorts to city centre locations.

Stella's problems came to light when previous holding group, MFS (now known as Octaviar), sold a 65% stake in Stella to private equity house CVC Asia Pacific for Aus$409m in cash and the assumption of Aus$900m in debt at the end of 2007. The messy outcome of this deal has seen CVC chase MFS / Octaviar for Aus$249m in compensation.

Stella is the third biggest branded hotel operator in Australia with around 15,000 rooms in 140 properties. Its brands included Peppers, Mantra and BreakFree.

The company has been unloading some of its other assets such as the UK wing of travel agency business Harvey World. But it insists it is also interested in acquisitions.


HA Perspective: The plight of Golden Tulip demonstrates clearly that leases do not offer the security to owners that some believe. It is undeniable that the income stream can be steadier than in the case of management agreements but during periods of economic turmoil (such as now) the out turn can be just as bad.

While it is tempting to seek the security of a lease right now, any owners will miss out on the upturn. And even if you believe the bears that argue we are in for a slow haul back to normality, it is surely better to be in with a chance of enhanced returns than stuck in the slow lane.

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