Hotel industry votes on sale and leaseback
A debate between professionals from the hotel industry last night concluded with a surprise result on the issue of sale and leaseback deals.
The debate, organised by hotel consultancy firm, PKF asked the question: “Is the current vogue for hotel companies to sell their assets, and only retain operational control, in the long-term interest of their business?”
The result was that 72 percent voted no, and 20 percent yes (eight percent abstained). PKF managing director, Melvin Gold said: “This was a totally unexpected result. I envisaged a very close contest because of the complex nature of the issue”.
The overwhelming vote against came despite the number of obvious advantages incurred to a hotel group of selling a property, then leasing it back. The advantages are that it provides cash to invest in brands, allows the hotel group to concentrate on the operational side of the business, may lead to bigger returns for shareholders, and could bring tax benefits.
A report from PKF published points for the case against according to a number of the speakers on the panel. Simon Johnson, an analyst for UBS Warburg, argued that the long-term impact of each deal must be considered on its merits due to the flexible structure of sale and leaseback arrangements, which can allow for a low or high level of control to remain with the hotel company involved. However, he underlined the widely held concern that “You can only sell off the family silver once”.
Offering a legal perspective was Simon Kildahl, partner at Berwin Leighton Paisner. He argued that operators become beholden to rental contracts that may not be in their interests in the longer term. He stressed that if a hotel company sells its assets and then pays rent based on turnover they may be obliged to maximise future turnover whatever the economic conditions, and may forfeit their right to occupy the property if they default from the contract.
The debate was part of the PKF Forum 2002, held in London last night.
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