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Home / Business / Companies / Construction

Luxury hotel running at a loss

Anne Gibson
Anne Gibson
Property Editor·NZ Herald·
16 Jun, 2010 04:00 PM3 mins to read

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The Westin Hotel, Auckland, opened in 2007 but creditors are now claiming millions. Photo / Supplied

The Westin Hotel, Auckland, opened in 2007 but creditors are now claiming millions. Photo / Supplied

Auckland's Westin Hotel has been running at a loss since it opened three years ago.

Nigel McKenna, its developer, whose company manages the five-star, $130 million, 172-room Lighter Quay property, said that was why investors were not paid all they were due.

So he has proposed a $10 million plan
with benefits in the next six years, half to be paid in cash.

In a rare interview, McKenna said losses were unexpected and the financial downturn had hit the hotel hard.

"Actual hotel revenue fell well short of the original revenue projections. Since opening in mid-2007 and up until March 31 this year - a period of two years and nine months - the property achieved an overall cash-negative result before the payment of any returns," he said.

Tomorrow at 10am at a meeting at Alexandra Park, McKenna faces creditors claiming millions in rent for the rooms.

But he has put a scheme to them to stave off liquidation or receivership of Westin manager Lighter Quay Hotel Management. That scheme would be managed by insolvency specialists Meltzer Mason Heath.

"The original revenue projections were independently prepared and reviewed. When they were prepared initially in 2004 and again in 2005, it was not anticipated that the hotel would open into the worst global financial crisis in 80 years. This had a particularly hard impact on a newly opened luxury hotel.

"Despite this, we physically paid out to room owners $7,789,000 plus GST: $8,762,000. This represents an average annual return of 4 per cent plus GST in lieu of the originally contracted 6 per cent annually, for an overall shortfall of 2 per cent annually. These are averages across the hotel," he said.

The shortfall included payments owed to his company, Melview Viaduct Harbour, which owns 16 units in the Westin.

"The net amount owed to owners (ie, 2 per cent annually) is $4,121,490 plus GST," he said.

"The proposal we have put to our investors is as follows: we have negotiated to reduce the rent on the commercial spaces by $4,750,000 plus GST over the next six years and $700,000 per annum thereafter. The reduced rent will be linked to CPI and not reviewed to market to ensure that this long-term benefit remains. We have offered to pay all and any outstanding property ownership costs. We are offering to pay $1,250,000 plus GST ($1.4 million) to top up the return to 4.65 per cent.

"We have initiated a number of other cost-saving measures to reduce costs over the next six years by a further $1 million.

"The overall commercial value of our offer is in excess of $10 million over six years and over half of it is in direct cash benefit. The annual long-term benefit thereafter is in excess of $1 million per annum," McKenna said.

Despite the losses, he spoke highly of the hotel at 21 Viaduct Harbour Ave.

"It is highly regarded in the Auckland market and has been voted one of the top 100 hotels in the world ... and next year it will obviously play a significant role in hosting the Rugby World Cup," he said.

The meeting tomorrow was originally planned for earlier this month at the Maritime Museum.

If the creditors agree to the scheme, Meltzer and Hayward will then manage the compromise and have the power to oversee administration of payments to creditors.

WESTIN HOTEL

AUCKLAND

* Part of $300m Lighter Quay redevelopment.
* Part of Westin Hotels & Resorts, established 1930.
* Hotel room investors claiming millions in rent.

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Economy

Westin Hotel company in receivership

30 Jun 09:30 PM
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