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Sandals Whitehouse value plunges US$39m - As hotel owner's losses climb to US$30.8m
published: Wednesday | January 23, 2008
The 360-room Sandals Whitehouse hotel in Westmoreland. - File
Independent assessors have slashed the [COLOR=orange! important][COLOR=orange! important]market [COLOR=orange! important]value[/COLOR][/COLOR][/COLOR] of the Sandals Whitehouse hotel by 39 per cent, saying that it would fetch only US$60 million (J$3.9 billion) in an 'arm's length' sale, rather than the US$99.1 million (J$6.5 billion) for which the real estate was previously carried on the books of its owners, Ackendown Newtown Develop-ment Company Limited.
However, when the US$11.4 million (J$746 million) price tag for the land on which the [COLOR=orange! important][COLOR=orange! important]hotel[/COLOR][/COLOR] sits was taken into account, the total value for the real estate was put at US$71.73 million (J$4.7 billion), still 28 per cent below the value previously booked by Ackendown.
This US$27.6 million (J$1.8 billion) impairment of Ackendown's real estate investment helped push the company losses at year end, March 2006, to US$30.73 million, pushing its accumulated losses to US$30.77 million.
Write-down
The write-down in the value of the Westmoreland property is revealed in Ackendown's audited financial statement for the year ending March 31, 2006, which was recently tabled in Parliament by the finance minister, Audley Shaw.
In that document, Shaw described Ackendown's financial position as "precarious".
The company then had negative working capital of US$54 million, suggesting that in a crunch it could not pay its short-term bills.
Its [COLOR=orange! important][COLOR=orange! important]debts[/COLOR][/COLOR] had also risen to US$88.8 million (J$5.8 billion), while total assets have fallen to US$91.7 billion (J$6 billion).
The asset write-down is likely to reignite the debate over whether Jamaica got value for money in the construction of the 360-room hotel that was completed at around US$40 million above the original US$70 million [COLOR=orange! important][COLOR=orange! important]budget[/COLOR][/COLOR].
Assessment
In a note to the accounts, the auditors, Deloitte and Touche said that a fair value assessment of Ackendown's investment property was done by the real estate assessors C.D. Alexander Company Realty and George Gregg & Company.
"Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction," the auditors explained. "In the absence of an active market fair values may also be determined by using estimation techniques as the present value of future cash flows."
Ackendown is a three-way [COLOR=orange! important][COLOR=orange! important]partnership[/COLOR][/COLOR] between Gordon 'Butch' Stewart's Gorstew Limited which owns 33 per cent, and government agencies National Investment Bank of Jamaica (NIBJ), 30 per cent, and Urban Development Corporation, 37 per cent. NIBJ has since merged with the Development Bank of Jamaica.
Stewart, through his Sandals hotel chain has a five-year contract to manage the property — the lease became operational at the same time as the hotel, July 1, 2005.
Stewart is locked in a legal quarrel with his partners over who was responsible for the big overrun in the cost of the construction and who should pay.
His company Gorstew has sued Ackendown for US$29.2 million, claiming breach of the shareholder agreement as well as damage to the reputation of his hotel brand, Sandals. If Gorstew were to triumph in the courts, it would affect Ackendown materially, said Shaw.
However, Deloitte and Touche said that the Ackendown board expects the lawsuits to fail and had consequently made no provisions for damages. The Minister, in his report to Parliament, also telegraphed concern about the efficient utilisation of the hotel property and its negative impact on Ackendown's earnings.
For the nine-month period, July 2005 to March 2006, occupancy was just about 82 per cent, which Shaw suggested was below expectations and a direct contributor to the Ackendown's poor financial performance.
Negative trend
"To improve this negative trend and ultimately achieve a turnaround in operating performance, key strategies need to be employed by the hotel's management to increase significantly occupancy levels and ultimately grow the revenues, since this is linked to the lease agreement," said Shaw in the ministry paper dated November 26, 2007 but tabled in January. Last night Patrick Lynch, Gorstew's director of finance, dismissed Shaw's comment as "ridiculous", saying most hotels worldwide operate between 50 and 65 per cent occupancy.
"The 81.77 was a phenomenal occupancy level and based on real marketing effort," said Lynch.
The hotel's occupancy has since fallen into the mid 70 per cent, but Sandals has since stepped up its promotional efforts, Lynch told
Wednesday Business.
He ended with a jab at Ackendown's other partners, saying the real issue to be tackled was the write-down on the assets.
"No amount of performance can ever improve that amount of capital loss," Lynch said.
Ackendown's primary source of income is rental from the hotel, which is run by Sandals Whitehouse Management Limited, a subsidiary of the hotelier's Sandals Resorts International group.
The rental has a fixed component of US$2.33 million per annum over the life of the five-year lease, but additional revenue flows are linked to occupancy levels or the volume of business done by the hotel.
In 2005, when Sandals White-house was just entering the market, Ackendown's turnover was zero, and its losses US$30,914 (J$1.9 million).
A year later, March 2006 — the most current audited financial accounts — Ackendown collected rental and other income totaling US$3.88 million (J$254 million), and declared operating profit of US$1.99 million (J$130 million).
The asset write-down plus US$5.1 million (J$334 million) of finance costs on the loans used to finance the hotel construction, flipped the company back into the red.
business@gleanerjm.com
published: Wednesday | January 23, 2008
The 360-room Sandals Whitehouse hotel in Westmoreland. - File
Independent assessors have slashed the [COLOR=orange! important][COLOR=orange! important]market [COLOR=orange! important]value[/COLOR][/COLOR][/COLOR] of the Sandals Whitehouse hotel by 39 per cent, saying that it would fetch only US$60 million (J$3.9 billion) in an 'arm's length' sale, rather than the US$99.1 million (J$6.5 billion) for which the real estate was previously carried on the books of its owners, Ackendown Newtown Develop-ment Company Limited.
However, when the US$11.4 million (J$746 million) price tag for the land on which the [COLOR=orange! important][COLOR=orange! important]hotel[/COLOR][/COLOR] sits was taken into account, the total value for the real estate was put at US$71.73 million (J$4.7 billion), still 28 per cent below the value previously booked by Ackendown.
This US$27.6 million (J$1.8 billion) impairment of Ackendown's real estate investment helped push the company losses at year end, March 2006, to US$30.73 million, pushing its accumulated losses to US$30.77 million.
Write-down
The write-down in the value of the Westmoreland property is revealed in Ackendown's audited financial statement for the year ending March 31, 2006, which was recently tabled in Parliament by the finance minister, Audley Shaw.
In that document, Shaw described Ackendown's financial position as "precarious".
The company then had negative working capital of US$54 million, suggesting that in a crunch it could not pay its short-term bills.
Its [COLOR=orange! important][COLOR=orange! important]debts[/COLOR][/COLOR] had also risen to US$88.8 million (J$5.8 billion), while total assets have fallen to US$91.7 billion (J$6 billion).
The asset write-down is likely to reignite the debate over whether Jamaica got value for money in the construction of the 360-room hotel that was completed at around US$40 million above the original US$70 million [COLOR=orange! important][COLOR=orange! important]budget[/COLOR][/COLOR].
Assessment
In a note to the accounts, the auditors, Deloitte and Touche said that a fair value assessment of Ackendown's investment property was done by the real estate assessors C.D. Alexander Company Realty and George Gregg & Company.
"Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction," the auditors explained. "In the absence of an active market fair values may also be determined by using estimation techniques as the present value of future cash flows."
Ackendown is a three-way [COLOR=orange! important][COLOR=orange! important]partnership[/COLOR][/COLOR] between Gordon 'Butch' Stewart's Gorstew Limited which owns 33 per cent, and government agencies National Investment Bank of Jamaica (NIBJ), 30 per cent, and Urban Development Corporation, 37 per cent. NIBJ has since merged with the Development Bank of Jamaica.
Stewart, through his Sandals hotel chain has a five-year contract to manage the property — the lease became operational at the same time as the hotel, July 1, 2005.
Stewart is locked in a legal quarrel with his partners over who was responsible for the big overrun in the cost of the construction and who should pay.
His company Gorstew has sued Ackendown for US$29.2 million, claiming breach of the shareholder agreement as well as damage to the reputation of his hotel brand, Sandals. If Gorstew were to triumph in the courts, it would affect Ackendown materially, said Shaw.
However, Deloitte and Touche said that the Ackendown board expects the lawsuits to fail and had consequently made no provisions for damages. The Minister, in his report to Parliament, also telegraphed concern about the efficient utilisation of the hotel property and its negative impact on Ackendown's earnings.
For the nine-month period, July 2005 to March 2006, occupancy was just about 82 per cent, which Shaw suggested was below expectations and a direct contributor to the Ackendown's poor financial performance.
Negative trend
"To improve this negative trend and ultimately achieve a turnaround in operating performance, key strategies need to be employed by the hotel's management to increase significantly occupancy levels and ultimately grow the revenues, since this is linked to the lease agreement," said Shaw in the ministry paper dated November 26, 2007 but tabled in January. Last night Patrick Lynch, Gorstew's director of finance, dismissed Shaw's comment as "ridiculous", saying most hotels worldwide operate between 50 and 65 per cent occupancy.
"The 81.77 was a phenomenal occupancy level and based on real marketing effort," said Lynch.
The hotel's occupancy has since fallen into the mid 70 per cent, but Sandals has since stepped up its promotional efforts, Lynch told
Wednesday Business.
He ended with a jab at Ackendown's other partners, saying the real issue to be tackled was the write-down on the assets.
"No amount of performance can ever improve that amount of capital loss," Lynch said.
Ackendown's primary source of income is rental from the hotel, which is run by Sandals Whitehouse Management Limited, a subsidiary of the hotelier's Sandals Resorts International group.
The rental has a fixed component of US$2.33 million per annum over the life of the five-year lease, but additional revenue flows are linked to occupancy levels or the volume of business done by the hotel.
In 2005, when Sandals White-house was just entering the market, Ackendown's turnover was zero, and its losses US$30,914 (J$1.9 million).
A year later, March 2006 — the most current audited financial accounts — Ackendown collected rental and other income totaling US$3.88 million (J$254 million), and declared operating profit of US$1.99 million (J$130 million).
The asset write-down plus US$5.1 million (J$334 million) of finance costs on the loans used to finance the hotel construction, flipped the company back into the red.
business@gleanerjm.com