Quantum Hotel's lemon

Posted On Friday, 09 December 2011 02:00 Published by
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Property group Quantum has written down the value of its sole asset, the 15 On Orange hotel and leisure development in Cape Town, by a hefty R225m.

MEANS

Absa offers breathing space

Huge writedown in value

Property group Quantum has written down the value of its sole asset, the 15 On Orange hotel and leisure development in Cape Town, by a hefty R225m.

That puts the value of 15 On Orange, which cost around R400m to develop, at around R688m or R755m if stock (mainly apartments for sale) is included.

Some property pundits in Cape Town reckon that Quantum should perhaps have written down the value of the property by more, noting that revenue of R37m in the year to end-August 2011 yielded an operating loss of R20m.

The JSE makes an even more startling pronouncement, valuing Quantum at just R50m against a last stated tangible net asset value of R185m (121c/share). But it should be noted that Quantum’s shares are thinly traded on the JSE.

If anything, the marked reduction in the value of Quantum’s property does intensify the focus on the company’s debt burden, which stands at around R400m.

With turnover for the year to endAugust less than R40m, there is still a lot of work to be done in building sufficient cash flows to service the debt, which sits with Absa

Absa, though, has extended its banking facilities at a floating rate (currently 9,5%), giving Quantum breathing space to operate 15 On Orange until 2016.

Quantum director Peter Shaff says the company’s new board believed the writedown in value was needed to reflect prevailing post-World Cup market conditions. “It’s a more pragmatic view on the property value taken after many, many days of discussions with the operator Protea Hotels, our bankers and property specialists. It’s absolutely conservative .”

The FM would estimate that occupancies in the year to end-August were between 40% and 50%, with 15 On Orange capturing much of the nearby legal and parliamentary clientele. Shaff, though, points out that occupancies in November were close to 70%.

He says not only have occupancies firmed but 15 On Orange’s new venue facility, which has already bagged bookings worth R13m, is chipping in strongly to revenue.

What could ease the gearing in the shorter term is if Quantum can sell a handful of penthouse apartments in the development and enjoy bustling holiday bookings.

A fundraising exercise, either via a rights issue or a debenture/preference share arrangement, still seems inevitable, though.

Source: Financial Mail


Publisher: I-Net Bridge
Source: I-Net Bridge
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