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INVESTMENT OVERVIEW

Challenger Acquisitions expects investments in giant observation wheel projects to pay off

Challenger expects construction of New York Wheel to get back on track soon after a temporary setback last year
picture of observation wheel
INVESTMENT OVERVIEW: CHAL The Big Picture
The company has invested in two giant observation wheels in the US

Challenger Acquisitions Ltd (LON:CHAL) is confident its investments in giant observation wheel projects in New York and Dallas will deliver returns for the company and its shareholders once constructed.  

The leisure-and-entertainment-focused company has a US$3mln investment in New York Wheel Investors LLC, which operates the 192-metre tall New York Wheel (NYW) being built on the New York Harbour.

The wheel is expected to become a major tourist attraction, providing views across the Big Apple.

Construction of the NYW has been postponed since the dismissal of contractor, Mammoet-Starneth, in July last year but the operator has been taking steps to get the project rolling again.

Challenger expects construction to recommence in the not-so-distant future despite the ongoing legal process related to the contractual dispute between the developer and the former wheel erectors.  

The operator has been in talks with American Bridge Co to take over the construction of the US$600mln project.

The main components for the NYW have been completed, with the components for the four 275-foot legs being stored in Brooklyn ready to be assembled on site.

The Odyssey project on track 

For the wheel in Dallas – named The Odyssey – seven acres of land has been secured for the project with activity and development set to increase.

Developers have now received approval from the Dallas City Plan Commissioners for zoning changes for the land in South Dallas for a new entertainment area, which will include The Odyssey.

The next stage is a review and approval by the Dallas City Council.

Challenger has invested US$300,000 towards the pre-development costs and has the option to invest a further US$1mln. The group also has the option to become operator of The Odyssey once the 165-metre wheel is constructed.

“This project represents a very exciting, and potentially highly lucrative growth opportunity for our company,” chief executive Mark Gustafson said in the group’s full year results statement.

Challenger recoups loan for cancelled Star Sanctum event

Challenger’s focus is on seeing through the construction of the observation wheels following the cancellation of Star Sanctum – the action film fan convention it was backing.  

Originally scheduled for May 2018, the event was cancelled following inadequate ticket sales and a resulting cash deficit to fund the appearances of actors at the event, with Benedict Cumberbatch and Chiwetel Ejiofor being scheduled to appear.

Challenger has agreed on a repayment plan regarding its £100,000 loan to the owner of Star Sanctum. The owner has agreed to repay the full loan, starting with a £35,000 payment on or before 30 September 2018, then quarterly payments with the balance on or before 30 June 2019.

In return, Challenger said it had agreed to not take any legal action against the owner on the condition that the payments were completed as agreed.

"Under the circumstances, this is a mutually beneficial outcome for both parties and we look forward to receiving these payments,” Gustafson said.

Challenger narrows loss, improves balance sheet

In the year to 31 December 2017, Challenger narrowed its pre-tax loss from continuing operations to £999,000 from £1.9mln the year before.

The firm generated £600,000 in net cash inflows from financing activities, with cash used in operations totalling £592,000 for the year.

Last year the company successfully disposed of its interest in engineering group Starneth following an unsuccessful attempt to secure a contract to construct another observation wheel in Jakarta.

Challenger said the disposal removed a significant cash drain while also maintaining the potential to receive up to US$6mln in fees less a payment of €1.25mln upon closing at least two major developments –  including the wheel in Jakarta – up until January 2019.

“The year under review has been one of stabilisation for Challenger, as we have looked to re-focus our strategies, identify new opportunities for investment, and ultimately ensure we are positioned for growth,” Gustafson said.

Since the full year results were published in April, the group has reduced its debt position after cancelling convertible loan notes. In August it said it cancelled £544,556 in convertible loan notes and will record a gain on the transaction and the related interest savings.

"This reduction in the overall debt level and the related interest savings has been a very important development for Challenger in order to move the company forward,” Gustafson said.

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