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HOSPITALITY: Quantum's Orange In A Squeeze

 



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IF there’s any way of quantifying the persistent rumours that some of Cape Town’s newer luxury hotels are suffering a rather bad post World Cup hangover then the recent results from Quantum Property Group present some really sorry numbers.

Quantum is the owner of the upmarket 15-on-Orange luxury hotel and leisure precinct at the edge of the parliamentary gardens – a development that cost the company some R400 million to re-create a site that used to house the old NG Kerk building.

According to Quantum’s latest annual results a value of R900 million has been placed on 15-on-Orange despite a less-than-encouraging start to trading at the venue.

While CBN is not big on number crunching there is certainly a need to dig into Quantum’s figures for the half-year to end February – a six month trading period that included the traditionally strong festive period.

Turnover for the half-year came in at just below R14 million. This pales in comparison to the R36 million generated in the 12 months to end August 2010 – a period which obviously included the bumper trading period during the Soccer World Cup.

With second half trading covering mostly the winter months it would be surprising if 15-on-Orange – which must be running on modest occupancies at discounted prices – can generate R30 million for the full financial year.

That could be a bit of a problem for Quantum. Operating costs for the interim period came in at R15 million – unceremoniously wiping out the top line. Then there is a R21 million interest bill to deal with as well.

Pre-tax profits ended up a rather ominous R24 million in the red.

The biggest problem for Quantum is the R468 million loan attached to 15-on-Orange. If the hotel and leisure development cannot spin sufficient cash flows to cull the borrowings the interest bill will continue to mount.

Quantum CEO Gary Shaff is putting on a brave face. In comments accompanying the interim results he notes 15-on-Orange’s occupancy levels were stable and on target in a challenging trading environment.

But he concedes that the market is significantly overtraded across the board. “Significant discounting has become a feature of the market resulting in many travellers on three and four star budgets trading up without an increase in spend. This has impacted negatively on expected revenue per available room industry wide.”

Shaff remains confident in 15-on-Orange’s longer-term prospects, arguing the oversupply of beds in the market is expected to stabilise in the medium term.

CBN is sincerely hoping (and we’re sure Quantum’s bankers are too) that the first evidence of that ‘stability’ is already evident when the company reports its full-year results in November.


 
 
 
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