Western Cape Business News

Send  Share  RSS  Twitter  26 Oct 2011

DEVELOPMENT: Hospitality Is Under Pressure


Recent Western Cape Business News

HOTEL and leisure specialist Hospitality Property Fund is pegging its hopes of an improved performance on its recently acquired Cape assets in form of the ‘Arabella Portfolio’ – including the possibility of selling off undeveloped land in Hermanus.

In August last year Hospitality proposed paying over R750 million to acquire the Arabella portfolio – comprising the central Cape Town situated Westin Grand hotel (including the Paulaner Brauhaus restaurant and micro brewery situated on the V&A Waterfront) and the Arabella Golf Course on the Arabella Country Estate near Hermanus. The deal also included a chunk of undeveloped land next to the Arabella Golf Course.

Hospitality is currently in quite a funk.

CEO Gerald Nelson noted recently that the hotel industry is in an extremely weak trading cycle - exacerbated by oversupply, which resulted in a set-back in Hospitality’s earnings growth in the year to end June.

Nelson said the pressure currently experienced by hotel owners across the country was mainly as a result of the significant excess in room stock that came onto the market in the run up to the 2010 Soccer World Cup.

The abnormal increase in supply has led to aggressive price competition among hotel owners to secure business.”

He said distributions from Hospitality – which holds the Victoria Junction Hotel and Courtyard in Mowbray – would remain under pressure in the short-term.

But Nelson said Hospitality was well positioned in the longer term with assets further enhanced by the Arabella Portfolio.

He said the Westin – adjacent to the Cape Town International Convention Centre - had a robust business model that would provide strong earnings support.

Nelson added that the Arabella portfolio also provided Hospitality with a future opportunity to realise profits from the sale of the land next to the Arabella Golf course. CBN understands the land covers some 460 hectares of undeveloped land.

While it may be some time before Hospitality can find a buyer or buyers for its Arabella land, the company can take some comfort in that because the transfer of the Arabella portfolio was only effective from mid-May this year, an agreement had been reached with the seller to pay R17.5 million as compensation for the delay in transferring the property. This effectively off-set the differential between the rights offer proceeds raised by Hospitality to fund the deal (invested at call rates) and the anticipated return from the property.

A small victory, but perhaps significant considering Hospitality has also recently spent some R74 million on refurbishing its two central Cape Town properties – the Protea Hotel Victoria Junction (Cape Town) and the Inn on the Square. Both hotels re-opened last month.

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