Investors in Ramada and Wyndham had returns slashed. Photo / Dean Purcell
Two major New Zealand hotel chains have slashed payments to investors who own suites at properties throughout the country, blaming Covid-19 for reduced occupancies.
Nine of 11 Ramada properties cut payments from March, drawing an outcry from investors who never expected their incomes to halve. Meanwhile, 70 per cent of Quest landlords were not being paid in full.
Sajad Bassam - a director of Marsden Group which pays licence fees to Ramada and Wyndham to use those brands in this country - said the business managed about 600 rooms, and had to cut returns at nine of 11 properties due to plummeting occupancy.
Mike Osborne of Marsden said: "Occupancy rates were around 77 per cent pre-March and went to 4 per cent in April."
One investor said the monthly rental income of $2600 dropped to just over $800. The investor had expected "guaranteed" returns from their sale and purchase contracts, with rents forecast to rise by about 2 per cent annually. They are now questioning occupancy rates, claiming that some properties appeared to be relatively busy.
However, Bassam wrote of occupancies falling below 5 per cent and sought investors' understanding.
"Since the onset of Covid-19 we have been in constant contact with our 600 landlords and owners, both monthly and bi-monthly since March, to update them on impacts to our business and to their investment," Bassam told the Herald.
The pandemic had caused occupancy fall after cancellations, and there had been a dramatic decline in current and forward bookings, he said.
"This has meant that the amount earned on units is less than the contracted amount due under the owners' leases. We are working together in good faith, given that the duration and scope of Covid-19 remains unknown, to find the best solutions for all parties so we can help ensure that our stakeholders' investment is protected for the long term," he said.
Osborne said returns were cut at Ramada Suites at Auckland's Albany, Federal St, Victoria St, Manukau South, Christchurch, Remarkables Park outside Queenstown, Queenstown Central and Wyndham Gardens in Queenstown.
Quest chief executive Stephen Mansfield said franchised businesses paid landlords with more than 850 leases. Quests are owned or operated by franchisees.
The operators were "supported" by the landlords who weren't paid in full, he indicated.
"Thirty per cent of Quest's 35 franchisees did not require any support for their Individual landlords during any phase of the lockdown. The other 70 per cent received in total around $2m in either abatement or deferral support from their landlords during the phases of lockdown alert level 4 to level 2," Mansfield said.
"During this same period that franchisees received this $2m in abatement/deferral support, they also managed to pay $4m in rental. So through this level 4 to level 2 period, all individual landlords got some, if not all, their entitled income," he said.
Anthony Appleton-Tattersall, an accountant specialising in property, said he cautioned clients against guaranteed return investment claims.
"Any true investment has risk, and with risk by definition, nothing is guaranteed. I am quite uncomfortable with that word and a lot of reading has to be done into the terms to find out who or what is actually providing a guarantee and a guarantee of what," Appleton-Tattersall said.
Some investors live overseas and are understood to have borrowed to buy the units, so reduced returns are affecting their ability to make their repayments and pay body corporate fees.
Investors have sent copies of statements from Ramada Group naming Sajad Bassam Tabar and Kazem Bassam Tabar as guarantors. Overdue rents to one investor were listed as $20,000, accumulated since March when payments were halved from nearly $5000 a month to $2400 a month.
"We are a group of 26 angry, desperate owners," said one investor with suites at Ramada Albany. "The deed of lease guarantees a fixed monthly rent, with a 2 per cent increase every three years."
Many Ramada properties were developed by Safari Group and the investor said she initially dealt with them.
"In March, Safari group sent a general email to all 600 Safari and Wyndham hotels and resorts units landlords to let them know that because of Covid, they were requesting landlord support to make a change to the rental payment terms of the lease and units, asking to pay only 50 per cent of the rent," the landlord said.
The remaining half would be a deferred payment to a later - unspecified - date, the investor said.
In early September, Bassam emailed owners with a proposed variation of the lease to be signed and returned. That was backdated to April 1, the investor said, and offered reduced rents in contracts to be signed by landlords.
"I know under pressure, some desperate and distraught landlords signed the agreement as the deed of variation of the lease to Crown Group," the investor said.
Lawyers have been involved and one landlord had spent nearly $4000 trying to communicate with Bassam to get payments guaranteed under the deed of lease.
"Some owners of the units have been staying at the Albany Ramada lately and report that the hotel is quite full," the landlord said.
Another investor who owns two Auckland Ramada suites and two in Queenstown also complained of his returns being cut.
"The entities he runs, he has applied for wages subsidies, extension and resurgence," he said of Bassam.
Work & Income's Covid-19 wage subsidy scheme shows that Crown - a Marsden shareholder - received $35,000 for five employees, and got an extension of $18,000 for four staff, then a resurgence wage subsidy of $4600 for four staff.
An investor said she had bought a one-bedroom Ramada unit for $246,000 in 2015 and although she didn't have a mortgage, "a lot of other owners do". Instead of getting $1400 a month, she got only $463 a month, she complained.
Bassam said the business had been in good shape before the pandemic hit.
"We are working to negotiate a mutually acceptable position with investors. While we are bitterly disappointed with the situation, it is simply out of our control, out of anyone's control, and no other entity or manager would be able to rectify this," he said.
"Everyone is in the same boat whether it is a single owner or a group of unit owners, the position is the same. The important thing is to keep the properties operating efficiently and prepare for a post-Covid-19 environment," Bassam said today.