Investors in the proposed Afan Valley Adventure Resort at Pen y Bryn, between Caerau and Cymmer, stand to lose much or all of the money they paid in, but the scheme itself may be resurrected and financed with capital provided by corporate investors.
Neath Port Talbot County Borough Council’s planning committee agreed unanimously on September 24th to extend, by six months into March 2020, an expired deadline for a legal agreement between the developer and the council for structural landscaping, habitat management plans, improvements to a national cycle route, and provision of a farm of solar photovoltaic panels.
Mr Peter Moore, who was key to Center Parcs’ success in the UK, has told the council he is working with Zenzic Partners, merchant bankers for ‘alternative assets’, to achieve the resort development, but has now less than six months to achieve the crucial legal agreement with Neath Port Talbot Council.
Sales agents for Northern Powerhouse Developments, the troubled group of companies behind the adventure resort and numerous other hospitality ventures, offered lodges on the Afan Valley site for sale before Neath Port Talbot Council had granted outline planning permission. Mr Moore was formerly the non-executive chair of leisure at Northern Powerhouse Developments, but has severed his connection with the group.
The stacked network of companies specific to the resort project includes only one, Afan Valley Ltd, currently in administration, now managed by a branch of multinational Duff & Phelps in Manchester. Afan Valley Ltd is controlled by Northern Powerhouse Developments Adventure Resorts Ltd, which in turn is a subsidiary of Active Resorts UK Ltd, and that is a subsidiary of Northern Powerhouse Developments (Holdings) Ltd, listed as under the control of Mr Gavin Lee Woodhouse.
Active Resorts UK Ltd also has Northern Powerhouse Developments Adventure Resorts Management Ltd in its stable, and this company has, as a subsidiary, Afan Valley Management Ltd.
Northern Powerhouse Developments (Holdings) Ltd’s accounts for the year to March 31st 2018 included an independent assurance report by Manchester accountants Williamson & Croft Audit Ltd, who say on their website that “We truly understand that our business is invested in our clients, and that our success is reliant on theirs. This is why we go beyond the usual responsibilities of an accountancy firm, to ensure our clients have every possible chance at the success they desire.”
In the assurance statement, signed on November 27th 2018, Williamson & Croft say: “The terms of our engagement exclude any requirement to carry out a comprehensive assessment of the risks of material misstatement, a consideration of fraud, laws, regulations and internal controls, and we have not done so.”
Property revaluations inflated balance sheet
Those accounts highlight the extent to which revaluations of properties underlie the apparently rosy picture presented in 2018, when it looked as though the holding company was sitting on equity of £11,246,564, even after allowing for short-term liabilities of £19,055,076, and long-term liabilities of £40,564,056, namely the obligations to investors.
Revaluations of properties during the year amounted to £21,725,862, almost £22 million, showing in the profit and loss account and more than compensating for the operating loss of £14,193,019. The accounts state that “Consideration has been given by the directors as to the fair value of properties held by the group. In determining the fair value they used representations from suitably qualified third parties who have considered the open market value of the property based upon their knowledge of the open market.” One problem may be that there is little open-market experience of trade in rights to income from leased hotel rooms.
Afan Valley Adventure Resort took the invest-to-rent concept to the level of a whole resort, 327 acres on which would be built ski slopes, zip wires, high wire, an aqua park, equestrian centre, mountain biking track, BMX track and skate park, plus a 100-bed hotel, spa, retail and restaurants plaza, the European HQ of the Bear Grylls Instructor’s Academy, and parking for 800+ cars. There would also be 600 lodges as holiday homes, over phases 1 and 2 of construction.
What exactly do investors ‘own’?
There is already doubt whether the investors, as lessees, can be classed as ‘owners’ of their investments. The view of Northern Powerhouse Developments (Holdings) Ltd, expressed in the notes to the 2017-18 accounts, is this: “It is the belief of the management of the group that the risks and rewards of ownership do not pass to lessees of the hotel rooms, as the group maintains control over the room operation, maintenance and insurance. In addition, the lessee receives fixed annual rental income and there is a fixed price for the group to buyback the room in the future. As such the transaction is treated as an operating lease for the group as lessor.”
In this view, the investor does not acquire the physical asset for the stated number of years, but the right to a specified quantity of income from it.
This ‘management belief’ would also mean that the physical assets could be offered for sale without the agreement of investors.
It does seem clear that investors are down the pecking order when property is disposed of. Anyone with a secured charge on the company’s assets comes at the head of the list. In the case of Northern Powerhouse Developments (Holdings), that is Mysing Capital Ltd, which on December 6th 2018 recorded a charge over “All freehold and leasehold properties (whether registered or unregistered) and all common hold properties, now or in future (and from time to time) owned by the borrower, or in which the borrower holds an interest, and property means any of them.”
Mysing Capital Ltd is owned by Steven Turner, civil engineer Matthew John Ferguson and engineer Robert James (Rob) Coxon, the founding trio of the Castleford-based Stroma Group in 2002. Stroma provides building control and compliance services, certification for the construction industry and software to the energy and operational efficiency markets. Private equity firm LDC bought in to Stroma in 2014. LDC, Lloyds Development Capital, is a subsidiary of Lloyds Banking Group.
Investors’ prospects unclear
The dozen or so operational hotels within the Northern Powerhouse Developments (Holdings) group contributed turnover of only £6,413,624 in 2017-18, an average of about half a million pounds each. The hotels employed 422 people of the 466 in the group. The hotel workers were probably not among the highest paid, but even so could have accounted for over 80% of the £4,522,962 staff costs. The group’s ambitions to upgrade the hotels would appear to mean more staff, and therefore higher wage costs, further squeezing the possibility to pay room rents to investors.
When Northern Powerhouse Developments’ public website was online, the group’s financial model was explained like this:
“The group is funded utilising a tailored funding mechanism known as sale and lease back. The business operates an op co (operational company) prop co (property company) business model. In its most simplistic form the prop co provides individuals the opportunity to buy a room in the hotel and then rent the hotel room back to the hotel operator. This is an alternative to the residential buy-to-let market.
We sell our properties through a global network of sales agents who offer private and institutional buyers the opportunity to buy individual rooms, multiple rooms or whole developments within a given project.
Our team welcomes enquiries from agents, Financial Advisors, Fund managers, UK and overseas estate agents, wealth coaches or property networks.”
The word ‘buy’ appeared to have a conventional meaning in this publicity, and was compared with buy-to-let residential property. The language in the accounts, as highlighted above, contradicts this understanding by stating that investors are not owners. Foggy, puzzling language like this does not help investors to make sound decisions.
Currently it seems likely that investors in the hotels, and in the off-plan lodges at Afan Valley, will emerge with badly burnt pockets and depleted savings, but the adventure resort project itself lives on for another six months, at least.