By Andrew Starke
Debt-stricken pub operators are bracing themselves for a tougher stance from lenders after the Icon Hospitality Group yesterday (Jan 20) went into receivership.
The decision is a major blow to the ING Real Estate Entertainment Fund as Icon is the tenants at nine of the 41 properties in which the fund has an interest, including a number of high-profile Sydney pubs.
The rent from these nine hotels represents approximately 39 percent of the fund’s annual lease income.
While the appointment of receivers Ferrier Hodgson to Icon will surprise few in the industry, the implication is that banks will increasingly feel compelled to appoint receivers to protect asset value.
Last year the ING Real Estate Entertainment Fund (IEF) revealed plans to prop up its major tenant through a $1.2 million ‘rescue plan’ but these commitments did not extend past December 31.
Icon is believed to have since defaulted on two $1.5 million repayments.
“Under the existing tri-partite agreement between IEF, Icon and Icon’s financiers, the receivers and managers have the right to operate the hotel businesses provided that they continue to meet the tenant’s ongoing lease obligations, including payment of rent to the Fund,” said an ING statement to the Australian Stock Exchange.
The receivers and managers are expected to exercise this right and therefore maintain rental payments.
IEF has also received confirmation from its financiers that the appointment of receivers and managers to Icon will not constitute an event of default under either of IEF’s senior debt facilities while the receivers and managers observe the lease obligations.
This support has allowed IEF to consider taking over the Icon leases.
“IEF has reviewed its options in relation to the Icon hotels and consequently has reached a non-binding in-principle agreement with Icon’s secured creditor in relation to Icon’s assets and business,” said CEO Daniel Hargraves.
“Based on the terms of this in-principle agreement, it is IEF’s intention to submit a conditional offer to Icon’s receivers and managers for their consideration.
“If completed, this will provide IEF the ability to manage the income derived from the hotel operations and therefore exert greater influence over the investment value of the hotel assets.”