Western Cape Business News

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HOSPITALITY: Tough Trading In Hotel Sector


Recent Western Cape Business News

IF the Table Bay Hotel in the V&A Waterfront is a proxy for the upper end of the Cape Town accommodation market then it’s clear that trading conditions are not getting any easier.

Sun International – the owner of the Table Bay – reported recently that the hotel achieved occupancy of less than 42% and an 11% decline in the average room rate to just under R2 000 in the six months to end December 2011.

A closer look at the trading figures makes even more worrying reading, and reiterates notions that too many upmarket hotels were brought onto the Cape Town market for the World Cup tournament in 2010.

Interim revenues from the Table Bay were down from R79 million to R69 million, while gross profits slipped R1 million into the red compared with a profit of R13 million for the corresponding six month period in 2010.

An operating loss of R10 million was generated compared with a profit of R2 million in the full-year to end June 2011.

While the Table Bay has a financially secure parent company in gaming giant Sun International to carry operating losses, other establishments are less fortunate.

In this regard CBN has been watching developments at 15-on-Orange, the luxury hotel situated just off the Company Gardens in central Cape Town, with some interest.

Quantum Property Group (QPG), the owners of 15-on-Orange, will be reporting their interim results to end February 2012 next month.

QPG holds 15-on-Orange as its only asset, and its balance sheet is lumbered with considerable debt and not a whole lot of free capital. So the trading performance (especially the cash flows) of the hotel will be most fascinating to gauge over the interim period, which includes the peak holiday season.

During the past reporting period to end August 2011 a poor performance (read: low occupancies and a growing debt burden) forced QPG to slash the value of 15-on-Orange – which opened its doors in late 2009 - from R895 million to R688 million. To put that R200 million downward re-valuation in perspective, it should be noted that the hotel development cost came in at around R400 million.

But the most interesting development during the previous financial period was a decision by Absa Bank to extend the facilities to QPG for another five years (until 2016) despite the company making very little headway in culling its long term loans of over R390 million and current borrowings of over R90 million.

Absa (remember banks are not well known for extending credit to companies in a squeeze) has seemingly bought into a long-term plan to drastically up returns from 15-on-Orange.

And not a moment too soon… In the year to end August 2011 QPG saw only R37 million in revenue from 15-on-Orange – not enough to cover the interest costs of R41 million (not to mention the cost of sales and operating costs, which topped R60 million).

The extended facility from Absa is of critical importance, because it allows QPG to complete a venue facility and enhancement programme at 15-on-Orange.

The enhancement programme includes fit out of a 240-seater multi-use, high-specification venue facility, furnishing of six penthouse units (for inclusion in the hotel inventory), a general exterior upgrade and improvements to the swimming pool area.

QPG directors argue that the expanded venue facility is based on demand from existing hotel clients as well as a shortage of superior deluxe venue facilities encompassing that catered for both the corporate and leisure markets.

More significantly, the directors note the venue’s forward bookings are looking extremely positive. “We anticipate the venue doing brisk trade in the coming year and contributing significantly towards hotel occupancy.”

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