Andrew Morris: Property development director, City Lodge.

Posted On Tuesday, 07 January 2003 02:00 Published by
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One of the more interesting stories on the property side is the way that the hoteliers go about their business.
MONEYWEB: One of the more interesting stories on the property side is the way that the hoteliers go about their business. For the most part, the hotel companies get other people to build the hotels and to fund them, and then run those businesses and manage them accordingly. You might remember the Don Group – and happy birthday to Thabiso Tlelai, who turned 39 today – managed to get its way out of bankruptcy by selling off most of its hotel interests. This evening we have a look at the way City Lodge goes about its business. Property development director Andy Morris is with us, and the reason why we asked you to come in, Andy, was to have some kind of perspective on your decision to build a new City Lodge at Gateway in Umhlanga. The whole Gateway Centre – I believe it’s the biggest shopping centre in the Southern Hemisphere. Is that right?

ANDREW MORRIS: Yes, that’s correct.

MONEYWEB: And it’s been all over the place. Some people say it’s a great investment, others say Old Mutual is losing a bomb at the moment and it’s never going to fly. City Lodge must be certainly in the first camp, because you wouldn’t be building a hotel nearby if you didn’t believe in the centre’s future?

ANDREW MORRIS: Yes. We looked at Gateway as well as Moorlands Development, with all their offices. A point to note is that there has been a huge influx of A-grade offices into the area and our traditional market is a business market to the business traveller, and Gateway was the logical place to develop next to. The first decision that we made was to identify that we had sufficient business hotel users, and there is in excess of 130,000 square metres of developed A-grade offices which are tenanted. And we traditionally believe that a hotel development can sustain itself with a 100,000 square metres. So that was the first reason. The second reason was obviously Gateway, and we believe that Gateway has a future. We can’t comment obviously on Old Mutual and its investment, but it certainly is an attraction. It has lots of facilities which our hotel guests can make use of, being the restaurants, the entertainment areas, the cinemas – which are the most popular cinemas or have the highest usage in the country. And I think Old Mutual is getting things right. A big centre like that takes quite a bit of time to bed down its tenants, so there has been an unsettling period for the last year. But, talking to the guys at Old Mutual, they are 91% let now. So I think it’s turned the corner and we would like to be the first business hotel group in the area. We’ve secured ourselves a wonderful site, right opposite Fountain Court in Palm Boulevard. And the users of the centre will notice us, they will certainly see us, and the feet through the door of Gateway will allow us to capitalise off that.

MONEYWEB: It’s a R50m investment. Who makes that investment?

ANDREW MORRIS: Essentially we do, City Lodge. We basically fund all our own developments internally through cash. I get accused sometimes of spending too much of our cash, but we have to grow the company. And we are looking at markets both internally here in South Africa, also looking at the smaller metropolitan areas, again focusing on the business. Obviously the spin-off of this tourism boom that we are having at the moment is helping us. But we are also looking north and looking at Africa.

MONEYWEB: Andy, when you say you fund your own businesses, do you actually build all your own hotels? How many of those do you own?

ANDREW MORRIS: We effectively own about 90% of the hotels we have – we have 34 hotels. The balance are on long-term leases, where we’ve been unable to secure ownership of the property.

MONEYWEB: Where is this in your balance sheet because, if I have a look at your balance sheet, you’ve got land and buildings and they are R27m, and you’ve got furniture and equipment at R75.

ANDREW MORRIS: No, I think that’s R270m.

MONEYWEB: I’ll get the annual report for you and show you, unless there was a mistake by your printers. Are you writing down the value of those properties?

ANDREW MORRIS: We are writing them down.

MONEYWEB: There’s a big hidden asset then in your balance sheet.


MONEYWEB: If this hotel is costing your R50m, and most of the 34 are in there – David Shapiro, you know about these things, can you do that?

DAVID SHAPIRO: You can write them down, but I think effectively, when you look at the earnings, you will take that into consideration, because I don’t know if a hotel has any other use other than selling it on as a hotel.

MONEYWEB: What do you do, Andy, if a hotel is in the wrong position?

ANDREW MORRIS: We do look at that when we initially choose the site. But also we design the hotels to be re-used. So effectively the structure is considered for other uses, being apartments or …

MONEYWEB: Have you ever sold any?

ANDREW MORRIS: Not to date. Fortunately, all our units are operating, getting us acceptable returns. But, to minimise the risk, we look at that design aspect of the hotel.

MONEYWEB: Fascinating story. Andy Morris is the property development director at City Lodge.

Publisher: Moneyweb
Source: Moneyweb

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