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Send  Share  RSS  Twitter  07 Feb 2011

HOSPITALITY: This Orange Is In A Squeeze

 



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ANY notions that the Cape’s high class hospitality sector had over-extended itself in the run-up to the Soccer World Cup, will be firmly reinforced by developments at Quantum Property Group (QPG).

QPG spent a few hundred million rand developing the opulent 15 on Orange hotel and leisure precinct on the edge of Cape Town’s Company Gardens. It was one of a handful of new upmarket hotel developments in Cape Town – including the One and Only and the Taj Mahal.

Last time CBN looked QPG had slapped a value of close to R900 million on the development. The valuation may have been fanciful in the eyes of some of the older Cape property observers, but the more immediate issue for QPG was an outstanding development loan of some R400 million.

Without putting too fine a point on the matter, 15 on Orange needed to generate a far whack of cash flow to service this kind of debt.

Judging by a recently issued trading statement from QPG, 15 on Orange is not exactly pumping profits. The trading statement – covering the 12 months to end August 2010 – estimated that QPG would generate a loss of between 17.57c/share and 20.45c/share.

QPG said the decrease in basic and headline earnings per share was mainly due to the write-off of the balance of the restraints of trade totalling R23 million as well as pre-opening expenses for 15 on Orange and QPG‘s 50% management joint venture with Protea Hotels Group.

But if these factors were stripped out of the equation QPG would still have notched up a loss of some 2c/share – which is rather underwhelming considering the trading period incorporated the Soccer World Cup period.

The results, QPG said, were also driven by the global recession, unforeseen delays (which resulted in the 15 on Orange Hotel opening later than anticipated in mid-December 2009) and a “short-term, temporary over supply” of five star hotel rooms in Cape Town. Despite the poor performance, QPG directors declared 15 on Orange to be currently enjoying healthy occupancies “in contrast to the negative industry trend” as well as “leveraging” a strong reputation and distinct offering established since opening.

While the directors remained confident that 15 on Orange’s performance would meet expectations going forward, the traders on the JSE remain sceptical. QPG’s shares are trading at levels that value the company at a fire sale price of around R200 million – which is half the last stated net asset value (NAV) of R400 million.


 
 
 
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