New hotel development impacts Langlands valuation
“The fact there is another property being built, another competitor, another 150 rooms, the valuers’ belief is it does reduce the value of the asset we have built for the city."
The Invercargill Licensing Trust has survived what its CEO describes as the hospitality sector’s most disruptive period in history, although another possible challenge now looms for the community-owned organisation.
That challenge is expected to come when a new 150-room 4.5-star hotel opens in Invercargill. It is yet to open but has already had an impact on a valuation of the ILT’s Langlands Hotel.
Invercargill-based hotelier Geoff Thomson is in the process of redeveloping the former Menzies Building and transforming it into a hotel that will join his Distinction Hotel chain.
It comes after the ILT invested $52m in building its Langlands Hotel development on the corner of Don St and Dee St.
The ILT cleared its reserves and took on debt - which currently sits at $9m - to build the hotel which opened last year.
At its AGM on Tuesday the ILT confirmed an encouraging $13m consolidated group surplus for the financial year ending March 31, 2023.
The positive result has meant the amount returned to the community in grants is back at over $8m following a challenging period through the Covid-19 pandemic.
ILT CEO Chris Ramsay believed the result demonstrated how financially resilient the group is.
“This has been the most disruptive period in our industry’s history, but we’ve successfully navigated it.
“The Langlands is one example of us investing in the future of Invercargill and looking for opportunities to grow our community contributions,” Ramsay said.
Speaking to The Tribune following the AGM Ramsay did not hide from the looming challenge that another hotel player in the Invercargill market would bring for The Langlands Hotel.
“I think it is going to be challenging because at the end of the day, we’ve built a new property and added a whole bunch of rooms [to Invercargill] and we are desperately keen to make it a success.
“I would worry a wee bit about whether there is enough demand in the market, but as those international markets return, the tourism returns, hopefully the timing is right for a new property.
“There is enough concern, it is going to have an impact.”
Ramsay was certain there would need to be a significant increase in visitors to Invercargill to ensure there was enough demand to cater for the additional hotel rooms that would be on offer.
“We are going to have to [increase visitor numbers] because you’ve got to think back to pre-Covid when tourism was booming, and I can show you the numbers, our properties weren’t full.
“The aim has to be - and I’ve talked to Geoff [Thomson] directly about this - is to work together for the better of the city, and each other, to make sure we are driving occupancy.”
“It is going to provide some challenges for us, there’s no denying that. It’s happening so it’s up to us to react accordingly and manage our businesses accordingly.
While the ILT’s consolidated group surplus was $13m, that figure was impacted by impairment.
Impairment is a financial term for the reduction of the nominal value of an asset. The Langlands Hotel falls into that given its valuation.
Ramsay conceded while they invested $52m into The Langlands they would not get that amount if they were to sell it today.
The impairment of the assets was a direct result of audit requirements, and reflected revaluations that were based on the impact of Covid, which was keenly felt by the hospitality industry.
Ramsay said having a new competitor coming to town also affected The Langlands’ valuation.
“The fact there is another property being built, another competitor, another 150 rooms, the valuers’ belief is it does reduce the value of the asset we have built for the city, so it has had an impact on that.”
The impairment figure for The Langlands Hotel was $27m and that was spread across four years as part of the audit.
It resulted in the ILT posting a net surplus, after tax and donations, of $1.58m for the financial year ended March 31, 2023.
It also meant on paper there was a net deficit of $6.9m for 2022.
ILT Group Chair Paddy O’Brien acknowledged that at face value these results may look concerning. Although he emphasised the group was still in a very strong financial position and was producing “industry leading results”.
“The impairment of some of our hospitality assets, including The Langlands, is not unusual,” O’Brien said.
“Effectively, this is a book entry and does not change our cash position. In fact, it will improve our overall results moving forward as the impairment will actually result in a lower depreciation cost.”
The ILT board has also opted to take a ‘people first’ approach in terms of competitive remuneration for its over 670 staff.
Earlier this year it also introduced its first ever staff-wide bonus.
Well done on a solid performance ILT. Considering the massive disruption in the market, investment like Langlands is showing great confidence in the future of the South. I can't imagine Geoff is a mug either and he will have done the numbers and have the same confidence.
It's called competition, ILT, something you're having to become familiar with.