Anđelko Leko: HUP Zagreb enters real estate construction and sales

Apart from the tourism industry, the company HUP Zagreb is not as well-known as its leading figure Anđelko Leko, who has been building his business empire in Zagreb for 45 years, becoming an indispensable figure in the hotel business.

writes Željka Laslavić
[email protected]

From a small city catering company with a few hospitality facilities, Leko has transformed HUP Zagreb into hotels with the first foreign well-known brands in Croatia, signed the first management contract in the hotel industry with the international chain Starwood, which includes Westin, Sheraton, and Four Points Panorama. HUP Zagreb is celebrating its 60th anniversary this year and employs 875 employees through its subsidiaries, of which 28 are in management. Peak at HUP Many domestic and foreign entrepreneurs have had and still have a ‘peak’ at HUP Zagreb, of which Leko is the majority owner; there have been serious offers to purchase hotels and shares in the company on several occasions, but Leko has reportedly inflated the price by up to 70% higher than its estimated value, causing investors to withdraw. Leko most likely does not have serious ambitions for sale because, although he is 76 years old, as he himself says, he does not know what to do with further plans and investments if he sells HUP Zagreb. The leading figure in hospitality (he also chairs the Croatian Hotel Association) has only one other member in the Management Board, his son Ivan Leko, who graduated in Tourism from the Faculty of Economics, underwent professional training at the Imperial Hotel in Vienna, and then got a job in his father’s company. Although he has gone through all the necessary business processes to become a successful manager, some hoteliers believe he would not be able to keep up with his father’s pace, and Anđelko Leko claims he has not yet discussed with his son the possibility of him inheriting his position. The third key person at HUP is Leko’s deputy Branimir Protrka.

A healthy company

The hotel industry agrees that HUP Zagreb is a healthy company, but according to some experts, it lacks good individual managers who could make decisions more freely. Although he is one of the first pioneers of modern hospitality in Croatia, Leko leads HUP Zagreb in a traditional, centralized manner, which does not mean that it has resulted in negative outcomes. With its six subsidiaries, it has been achieving fairly balanced revenues of around 350 million kuna for years, mostly from hotel operations. Recently, HUP Zagreb has been quite active in buying back its own shares, and it is questionable whether they are intended for rewarding management or all shareholders.

Given the low profitability of the hotel industry, Leko is diversifying his activities and revenues of the subsidiaries engaged in real estate, catering, and gambling, which generate significant income with minimal costs. Although he planned to renovate the dilapidated Hotel Zagreb at Bundek into a more acceptable facility, Leko decided to demolish the building and construct commercial and residential spaces, thereby directly entering a new real estate business: – Although we initially announced that we would renovate Hotel Zagreb, we abandoned that idea: we will demolish that facility, purchase an additional 30,000 square meters of construction land at that location, and independently or in collaboration with strategic partners build residential and commercial spaces – explains Leko.

HUP Zagreb is reportedly financially capable of covering the announced investments, although the company is quite burdened with loans. According to the analysis of financial indicators, HUP had slightly more than half a billion kuna in long-term obligations and about 200 million kuna in short-term obligations last year. This is approximately the amount of total investments made by the company in the past six years.

‘Old school’ entrepreneur

What always seems confusing is the ownership structure, or shares in individual facilities and projects of HUP Zagreb. The majority owner of HUP is Expertus, with a 51% ownership stake, whose majority owner is Anđelko Leko. However, the most complex ownership relationship is over the Sheraton hotel, whose majority owner is HUP’s subsidiary H.B.I, which shares ownership with the State Agency for the Rehabilitation of Banks and Savings Deposits, which owns 49% of the shares.

Although his hotels raise the average of Zagreb as a metropolis, the average occupancy throughout the year is around 50%, which is not enough to cover fiscal and parafiscal costs such as monument rent, for which HUP Zagreb spends about four million kuna annually.

An ‘old school’ entrepreneur, the most famous hotelier in Croatia is the ‘glue’ that holds the entire empire together. Regardless of the price at which he bought today’s facilities during privatization, the way he has survived and endured all regimes and political structures speaks of a man who will not easily sell his company, nor will he step away from it.

Special urban plan for tourist resorts Srebreno and Mlini

Anđelko Leko, the majority owner of HUP Zagreb, hints that next year will be tougher than this one

• Unlike most tourism companies, HUP Zagreb has not compiled three popular crisis scenarios in case of a downturn in the tourist season. How do you plan to defend yourself against the announced poorer results?
– More than two months ago, we started radically cutting costs, which all employees must adhere to. The company will cover itself with the blanket it has; I believe that we will withstand this blow of the crisis under these conditions. Given the state of the tourism sector, HUP’s stock is still one of the more stable ones, along with its subsidiaries. We have no liquidity problems, we should not find ourselves in a situation of fighting for survival. We will feel much weaker results in 2010.

• Some of your hotelier colleagues have comments that not all your hotels meet the standards of international brands, namely Starwood.
– I agree that Westin and Four Points Panorama urgently need investment in the lobby. We are currently building a wellness center at Westin, which should open in two and a half months, and one million euros have been invested in construction work. All rooms are at a five-star level, and the floor that has not been renovated will be designated for business spaces. We have invested the most in Hotel International, which, with an investment of 140 million kuna, has become perhaps the most profitable hotel within the group. It has been 13 years since the opening of the Sheraton hotel, it is still the most representative HUP hotel, and in the next two years we will renovate its interior in collaboration with a German design company.

• The Westin hotel has already lost several brands and changed several names. One of the owners was Darko Ostoja with a 25% ownership stake. Have you bought out his share?
– International has been expanded by 110 rooms and a completely new complex of business spaces has been built, which today houses the headquarters of the Valamar hotel group founded by Darko Ostoja and Count George Eltz. Ostoja exchanged his 25% stake in Westin for ownership of that business center.

• What is the status of investments in the tourist resorts Srebreno and Mlini in the Dubrovnik region? Shouldn’t you have completed the investments in the south long ago according to the contract with HFP?
– The Dubrovnik region has finally adopted a spatial plan, but there is still no detailed urban plan, without which we cannot obtain a building permit to start work. We are negotiating with municipalities and the Ministry of Construction to adopt a special detailed plan for the Srebreno and Mlini projects in accordance with HUP’s conceptual project because if we waited for the entire municipality, it would take four to five years. According to the contract with HFP, we had a set deadline, but also a clause that HFP must resolve property-legal relations and spatial plans.

• Given the current reluctance of banks to finance large projects, is this situation in the Dubrovnik region welcome?
– For these projects worth about 80 million euros, we have secured more than 50% of the funds, and for the rest, we can rely on banks and funds that have shown great interest in the projects. HUP keeps all its loans under control, we have been working with HBOR, Zagrebačka banka, and PBZ for more than 50 years. At no point is it a problem for us to obtain a loan from abroad, and that under acceptable conditions.

• There has been much speculation about the sale of HUP’s hotels to the Adris group and some other foreign partners. Why did you not reach an agreement with them?
– Many people have visited us and offered various things, but HUP has never made a serious decision about selling nor is anyone pushing us to sell. Moreover, this economic moment is not at all suitable for selling. We are not in a situation to flee or sell because our projects have potential.