The hotel empire of Damian Kelly is on the chopping block, after a feud between major investors brought legal action and administrators were appointed.
The portfolio comprises four large hotels, being Parramatta’s Rose & Crown, the Corrimal Hotel in Wollongong, the Crown Hotel in Surry Hills, and most recently the North Nowra Tavern. All are operated under management agreement by Marlow Hotel Group.
A dispute surfaced last October, centred on accusations Kelly and his entity Pub Invest had paid itself more than it was entitled. Clear Run Investments – private vehicle of Rowan Hookaway – sought to remove Pub Invest as trustee, and on 11 October the Supreme Court of NSW issued interim orders seizing all company assets.
Subsequent orders on 22 December appointed Andrew McCabe and Joseph Hayes of Wexted Advisors as receivers and managers, with powers under the Corporations Act to divest the hotels. The operators appointed Hall Chadwick as voluntary administrators to continue trading the businesses during the sale process. Marlow Group is working with both sets of administrators to optimise the outcome.
A creditor’s report from Wexted cites a report from Pitcher Partners that suggests $535k may have been paid in management fees over three years (2018-2020) above what was entitled. An amount of $309k repaid by Pub Invest in December 2020, leaving $126k unaccounted for.
The four hotels currently have book valuations totalling $76 million.
A former Citi banker, Kelly launched the investment scheme in 2014, beginning with the Rose & Crown Hotel. In 2016 he went south, taking the Corrimal Hotel for around $10 million, and early 2017 he was beneficiary of the last of the Lantern sell-off, buying the Crown of Surry Hills.
Mid-2021 Peak became the new owner of North Nowra’s Tavern, for about $14 million.
Wexted report the four assets enjoy a positive net position and surplus to meet all creditor claims in full. CBA will receive its claim of $38.5 million.
No rescue plan for the business has been proposed, and sale of the assets and liquidation of the companies is seen to be the “best return for investors”.
A second meeting of the four companies under the Pub Invest umbrella saw creditors vote to liquidate, and Kelly submitted a $4.4 million claim for his share of the proceeds, based in management performance fees.
But the ‘collapse’ will likely prove a boon for the investors, bringing about sale of the assets as the market continues to set records.
Conscious of recent cap rates as low as 3.5-4.5 per cent (Bittini portfolio, December 2021), Wexted reports having already received over 10 unsolicited expressions of interest on the pubs, plus one offer of almost $110 million for the whole set.
Today Wexted appointed HTL Property’s Andrew Jolliffe, Sam Handy, Dan Dragicevich and Blake Edwards as exclusive agents on the public campaign.
“The appointment of an independent entity to bring about the sale process now avails these high-quality properties to a transaction landscape in short supply of AAA-grade product,” offered Jolliffe.
Matters before the NSW Supreme Court are due to be heard this month, and details on the sale process will unfold over coming weeks.