CAPE TOWN Don Group directors Marc Wainer and Sidney Ellerine have come to the aid of the cash-strapped suite hotel group by buying and leasing back to it six properties via a vehicle called Ellwain Investments.
The deal clears R105m of debt from the Don Group's balance sheet, reducing its long-term liabilities from R80m to R2,2m.
This will provide significant relief in the future as, according to results released yesterday, finance charges shaved R10,9m off the group's R13,1m operating profit for the year to June.
The year-end figures, which pre-date the refinancing transaction, showed that though the group made a headline loss of R1,5m for the year as a whole, the R2,7m loss made in the first six months of the year was partly offset by a R1,2m profit in the second six months. In the year to June last year, the headline loss was R8,3m.
Don Group chairman Thabiso Tlelai said the group's operational performance had improved over every six-month period since he took over its ownership and management. He attributed this to incremental increases in occupancy rates, keeping overheads under control, and effective management of staff.
The achievements came in spite of difficult operating conditions. But conditions could change for the worse after the September 11 attacks on the US, he said.
The group has not seen major cancellations in the past two weeks, but there could be long-term effects from the attacks.
Tlelai welcomed the sale and leaseback transaction with Ellwain. He said this was in line with current overseas trends for hoteliers to focus on managing hotels rather than properties.
The deal was also structured in such a way that it gave the Don Group the flexibility to buy these hotels back within the first three years at a price based on a pre-arranged formula, if it decided it preferred to own rather than rent.
This formula would protect the group in the event of a property boom and price increase.
Under the agreement, the Don Group will retain ownership of two Dons in Arcadia, three in Sandton, Rosebank, Bruma, Sea Point and Isando. It will rent the Dons in Wanderers, Illovo, Gardens, one in Rosebank and one in Sandton, as well as the property in Rudd Road and for these it will pay a monthly rental of R512000.
The transaction eliminates the need for the group to enter into any alliances and it will continue to operate under real black ownership.
Earlier this year the Don Group abandoned plans to link up with the Ramada International Hotels and Resorts Group, a subsidiary of Marriott International.
The Don Group's share price closed 1c higher at 4c on the JSE Securities Exchange SA yesterday.