SINGAPORE (EDGEPROP) - At the luxury boutique hotel, Duxton Reserve, room rates start from $309 a night for a shophouse room to $709 a night for the Montgomerie Suite, which comes with a separate bedroom and living room. The Maxwell Reserve on Cook Street, off Maxwell Road, is not open for bookings as it is currently used for those serving stay home notice (SHN). (See also: Garcha Group realigns hotel portfolio, launches new concepts)

In fact, these two properties established Satinder Garcha, founder and chairman of Garcha Group, as a hotelier, in addition to international polo player, real estate magnate and tech investor. His wife, Harpreet Bedi or “Lady Boss”, is the managing director of the couple’s hospitality business Garcha Hotels and holding company, Garcha Group.

Garcha Hotels now owns four hotels in Singapore, including Duxton Reserve and Maxwell Reserve. The other two hotels are The Vagabond Club on Syed Alwi Road and the upcoming Serangoon House (the former Claremont Hotel) on Serangoon Road. Duxton Reserve and Maxwell Reserve officially entered Marriott’s Autograph Collection at the start of the year. The Vagabond Club and Serangoon House are part of Marriott’s Tribute portfolio. All four hotels are managed by Garcha Group under a franchise agreement with Marriott. There is a fifth hotel in the pipeline, Garcha Santiago, in Santiago, Chile. Garcha Group has also launched a luxury co-living concept across its hotels, called My Posh Pads at the end of last year.

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Duxton Reserve and Maxwell Reserve had debuted as Six Senses Duxton and Six Senses Maxwell three years ago. Back in February 2018, the two hotels marked Six Senses’ foray into Singapore and an urban setting. Until then, Six Senses was a brand synonymous with luxury resorts in locations such as Maldives, Seychelles and Thailand.

However, just over two years later, the hotel owners and the operator agreed to “mutually terminate” their contract as at May 31, 2020, and Six Senses exited Singapore.

Trouble had been brewing even before the Covid pandemic, according to a civil suit filed in the High Court in November 2019 under “Murray Pte Ltd and Murray Aitken, a South American passport holder”, that has yet to go to trial.

The plaintiff is Murray Pte Ltd, the entity that owns the 138-room hotel at 2 Cook Street off Maxwell Road. The hotel debuted as Six Senses Maxwell in December 2018. SG Hotels Pte Ltd is the entity that owns the 49-room hotel at Duxton Road, which opened as Six Senses Duxton in April 2018. Garcha and Bedi are directors of both companies.

Accountability of the hotel GM

Murray Aitken, had been the general manager of both Six Senses Duxton and Six Senses Maxwell from February 2018 to January 2020. Aitken who has been named defendant in the civil suit, is said to have over 30 years’ experience in the hospitality industry.

This civil suit highlights the conflict of interests that arise from the tripartite relationship between the hotel owner, hotel management company or operator, and general manager.

The plaintiff asserts that the general manager’s accountability should be to his employer, the hotel owner, Murray Pte Ltd. Although Six Senses “instructs and supervises the general manager, the general manager is an employee of the owners”, says the plaintiff.

In his statement of defence, Aitken maintains that “the relationship between the opera- tor and the owners is governed by the management agreement entered into by the operator and the owners, and effective as of Feb 7, 2018”. According to the plaintiff, Aitken was “the most senior employee” and “the ultimate decision-maker in relation to the day-to-day management of the hotels”. The plaintiff further says that Aitken was given “ultimate authority and autonomy in making key management decisions”. However, Aitken claims that he is only an employee of the plaintiff, Murray Pte Ltd, under the terms of the employment agreement, and not of SG Hotels. His appointment as general manager was made “pursuant to and as part of the provisions/arrangements under the management agreement”. Under the employment agreement, he says, he was to report directly to the vice-president of operations, Hotels and Resorts, Six Senses Hotels Resorts Spas.

Operating budget vs actual performance

At the heart of the dispute is the operating budget. The budget includes projections in terms of total operating revenue (TOR) and net operating income (NOI). The operating budget is “crucial” to the hotel owners, says the plaintiff. It sets the expected performance to be achieved by the operator and the owners’ anticipated financing obligations for the hotels. The projections are also “the basis on which the owners plan the pro- vision of cashflow for the maintenance of the hotels’ operations,” adds the plaintiff.

Furthermore, the operating budget is given to the hotels’ bank for the purpose of financing its operations. “The bank reviews, on a monthly basis, the actual performance as compared to the projections in the operating budget, in order to continue to provide financing as per the usual covenants and loan roll-over dates,” says the plaintiff.

According to the plaintiff, one of Aitken’s responsibilities was to prepare and present the operating budget for both hotels. In early October 2018, Aitken had presented the hotel owners with the operating budget for Six Senses Dux- ton for the 12 month period from October 2018 to September 2019; and for Six Senses Maxwell for the period from December 2018 to September 2019. The actual performance of both hotels were “grossly and materially below the budgeted numbers” both in terms of TOR and NOI, says the plaintiff.

However, Aitken says the yearly operating budgets were intended to “serve as a guide and as a target for the hotels to strive and work towards”. Aitken further states that the operating budget was not prepared by him. Rather, it was prepared by the operator in consultation with its various division heads.

Aitken further adds that the management agreement clearly states that the operating budget was not to serve as a “representation, warranty, guaranty or claim that the operation of the hotels will be profitable or that any budgets, forecasts or projections are achievable”. The management contract further states that the operator “shall not be held responsible by the owner” for  any divergence between the operating budgets and actual operating results achieved, according to Aitken.

‘Material divergences’

As the hotel owner and a director of Murray Pte Ltd, Garcha first raised his concerns on the performance of the hotels in an email to Aitken sometime around Dec 20, 2018. He stated that the costs and expenses incurred by the hotels at that point were “not justified due to the severe and material underperformance to date for every month of operations”. He requested for the operational expenses to be reduced, to be in line with the prevailing operating revenue, says the plaintiff.

When the preceding month’s numbers again showed a disparity between the budgeted and actual performance, Garcha sent an email to Aitken on Jan 19, 2019, pointing out the dire situation: Revenue for Six Senses Maxwell for December 2018 was “more than 80% below budget”; and revenue for Six Senses Duxton was “approximately 50% below budget”, with the latter operating at a loss since opening. He referred to the discrepancy as an “unsustainable financial catastrophe” in his email and requested for a definitive plan “to stop the bleed”. Garcha requested for “an accurate and revised operating budget for the full operating year 2019”.

Aitken had replied to the email, stating that “he would continue efforts to increase revenue with a bigger sales team in place”. He also said that cuts have been implemented at the hotels, and that a revised plan would be presented to the directors, Garcha and Bedi, at their next monthly meeting in February 2019, according to the plaintiff.

When there was still “material divergences” between the budgeted and actual performance for the hotels in February 2019, Garcha had sent a “notice of gross non-performance” to Aitken through e-mail in April 2019. The following month, he wrote to Aitken, highlighting that the hotels’ performance for the previous month was again “significantly below the revised 2019 budget”. He asked Aitken again to “recalibrate costs in line with revenue” and to provide yet another written plan by end of the month.

Towards the end of June 2019, Aitken had asked for “another round of additional funding completely not in line with the 2019 revised budget”, says the plaintiff. Even as the funds were being arranged, Garcha had informed Ait- ken that: “It’s been extraordinarily challenging for me to run my other businesses because of the deviance from the plan in the business you have control of. As you are aware, all funding requests as per our HMA [hotel management contract] are to be made in accordance with our annual plan. Nothing you have done so far has been even remotely according to our annual plan.”

Face-off

Garcha and Bedi subsequently met Aitken for a discussion on Aug 30, 2019. During the discussion, Aitken had admitted to the significant discrepancy between the operating budgets and the actual performance of both hotels, says the plaintiff. Aitken had also considered the budgets “some of the most exaggerated he had seen in his 30-year career”, asserts the plaintiff.

However, Aitken denies saying that the operating budgets were “exaggerated” or “unachievable”. He did inform Bedi and Garcha that the budgets were a “stretch” in that the performance targets in the budgets were (in his view) “very aggressive”, according to his statement.

During this same conversation, Bedi and Garcha had “continually used abusive and threatening language towards the defendant, including calling him a cheat and a fake and that he was lying to the owners, which they said they will take action on”, according to Aitken’s defence. “As a result of their behaviour, it became obvious to the defendant that he could no longer work with the owners,” the defence statement adds.

Aitken accordingly informed Bedi and Garcha that he would be resigning from his position as general manager of the hotels and brought the discussion to a close.

He sent a notice of resignation to the hotel operator, Six Senses, dated Oct 11, 2019.

Garcha and Bedi allege that “Aitken fraudulently and wilfully prepared and submitted the revised 2019 budget despite knowing that the revised 2019 budget was even more grossly and materially inflated, unrealistic and unachievable than the 2019 budget, and despite having been put on notice as to the plain and obvious problems with the 2019 budget”. Aitken, therefore, “failed to exercise independent and professional judgment in the preparation and submission of the 2019 budget and the 2019 revised budget for the two hotels”, they claim. They are of the view that he has breached his duties under the employment agreement.

Today, Aitken is the general manager of Hard Rock Hotel Desaru Coast in Johor, Malaysia, where he has been since November 2020.

Six Senses was sold by private asset management firm Pegasus Capital Advisors to Lon- don Stock Exchange-listed InterContinental Hotels Group for US$300 million in cash in February 2019.

Check out the latest listings near Duxton Reserve and Maxwell Reserve

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