Pub group Icon Hospitality collapses into receivership

Sydney pub group Icon Hospitality has collapsed, owing main lender creditor Commonwealth Bank $60 million and leaving property fund ING Real Estate Entertainment without a key tenant.

Icon, owned by prominent Sydney hotel operators Damien Reed and Peter Wynne, operates 11 hotels around Sydney, including the well-known Five Docks Hotel, the Dolphin Hotel in Surry Hills, the Commodore Hotel in North Sydney and the Star Hotel in Sydney’s Chinatown precinct.

Nine of pub properties Icon operated were owned by ING Real Estate Entertainment, which said in a statement to the Australian Securities Exchange that rents from the pubs account for 39% of the fund’s total annual income.

ING revealed back in August that Icon’s business was under pressure as pub group struggled with large debts and rents set during the peak of the pub boom in 2006-07.

ING gave Icon a $1.2 million “working capital assistance package” and had reportedly given the group rent holidays to allow it to deal with cashflow pressures.

But Icon’s lender, Commonwealth Bank, ran out of patience and handed Icon to receivers Peter Walker and Morgan Kelly of Ferrier Hodgson yesterday morning.

The receivers will continue to trade the pubs – which turns over more than $50 million, thanks in large part to revenue from its gaming machines – while it assess options for the group.

One of those options could come from the ING fund itself.

ING said yesterday it has an agreement in place with the Commonwealth Bank whereby it has the right to make an offer for Icon’s business and assets.

ING chief executive Daniel Hargraves said in a statement he plans to make a “conditional offer” in coming weeks.

“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.”

The collapse of Icon Hospitality looms as the first of many pub collapses in 2011, as lenders grow impatient with pub owners who overpaid for properties between 2005 and 2007, and are now battling reduced revenue and rising financing costs.

While it has been estimated as many as 200 pubs in New South Wales would be in breach of their lending conditions, industry experts say lenders will need to be careful about putting businesses into the hands of receivers to avoid triggering a fire sale.