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QUEENSGATE HOTELS and Leisure – which hopefully will still be rescued through the intervention of a new empowerment investor – scored a very costly own goal in the run-up to this year’s Soccer World Cup. What transpired at Queensgate is surely a timely reminder about not losing sight of basic fundamentals (cash flow, gearing) in a football frenzy.
Queensgate held a number of lucrative leases on fancy Cape Town hotels – including the Radisson, situated opposite the Green Point stadium. If there was a leisure company with a portfolio positioned to score handsomely from an influx of well-heeled fans…
Admittedly, the global financial crisis has turned the screws on leisure travel, which was clearly evident in Queensgate’s results, showing the effects of larger-than-expected vacancies. But the company merely had to hold on until June, when full houses would surely ensure sufficient cash flow to service its leases.
Unfortunately, Queensgate’s creditors – which included some rather large landlords – got edgy in the lull and when its cash flow dried up. Queensgate’s hotel operating arm was placed in provisional liquidation. The company’s future now hinges on what a new strategic shareholder – the media-shy Joseph Khumalo – can rebuild in the company’s property development division.
A post mortem of developments at Queensgate might show classic symptoms of why a company collapses when seemingly at full tilt: too much too soon… and not enough on the balance sheet to build a second wind for the incline ahead.
Finweek is also keeping a beady eye on another Cape Town-based World Cup hopeful: Quantum Property Group, which has developed a swanky luxury hotel – “15 on Orange” – at the edge of Cape Town’s CBD. In December last year we commented on Quantum’s bookkeeping boost for “15 on Orange” – which the company’s annual report describes as an “opulent” all-suite five-star hotel with 12 luxury penthouse apartments, 2 467sq m of boutique retail space and a four-storey parking garage.
Quantum’s annual report to end-August 2009 placed a value of R848m on the development. The valuation breakdown showed that, at the beginning of March 2008, the property was valued at R176m. Additions and capital development of R174m were added, leaving a revaluation surplus of more than R500m. Quantum’s interim report to end-February this year – released last week – now values “15 on Orange” at almost R900m, despite the development – which opened in December 2009 – generating revenues of only R2,3m against costs of R10m.
Quantum’s interim report also suggests apartment sales were impacted by stricter lending criteria “which saw certain approved sales collapse and the purchasers forfeit their deposits”. Though it’s early days, one property sector source already asks whether Quantum might be looking at “15 on Lemon”.
Quantum also disclosed the development experienced a cost overrun (construction delays caused by excessive rain, higher than budgeted steel prices and a spike in interest rates for a large portion of the period of development). The net effect was that the development bond – now sitting at more than R400m – was increased to partly cover the increased costs.
Queensgate held a number of lucrative leases on fancy Cape Town hotels – including the Radisson, situated opposite the Green Point stadium. If there was a leisure company with a portfolio positioned to score handsomely from an influx of well-heeled fans…
Admittedly, the global financial crisis has turned the screws on leisure travel, which was clearly evident in Queensgate’s results, showing the effects of larger-than-expected vacancies. But the company merely had to hold on until June, when full houses would surely ensure sufficient cash flow to service its leases.
Unfortunately, Queensgate’s creditors – which included some rather large landlords – got edgy in the lull and when its cash flow dried up. Queensgate’s hotel operating arm was placed in provisional liquidation. The company’s future now hinges on what a new strategic shareholder – the media-shy Joseph Khumalo – can rebuild in the company’s property development division.
A post mortem of developments at Queensgate might show classic symptoms of why a company collapses when seemingly at full tilt: too much too soon… and not enough on the balance sheet to build a second wind for the incline ahead.
Finweek is also keeping a beady eye on another Cape Town-based World Cup hopeful: Quantum Property Group, which has developed a swanky luxury hotel – “15 on Orange” – at the edge of Cape Town’s CBD. In December last year we commented on Quantum’s bookkeeping boost for “15 on Orange” – which the company’s annual report describes as an “opulent” all-suite five-star hotel with 12 luxury penthouse apartments, 2 467sq m of boutique retail space and a four-storey parking garage.
Quantum’s annual report to end-August 2009 placed a value of R848m on the development. The valuation breakdown showed that, at the beginning of March 2008, the property was valued at R176m. Additions and capital development of R174m were added, leaving a revaluation surplus of more than R500m. Quantum’s interim report to end-February this year – released last week – now values “15 on Orange” at almost R900m, despite the development – which opened in December 2009 – generating revenues of only R2,3m against costs of R10m.
Quantum’s interim report also suggests apartment sales were impacted by stricter lending criteria “which saw certain approved sales collapse and the purchasers forfeit their deposits”. Though it’s early days, one property sector source already asks whether Quantum might be looking at “15 on Lemon”.
Quantum also disclosed the development experienced a cost overrun (construction delays caused by excessive rain, higher than budgeted steel prices and a spike in interest rates for a large portion of the period of development). The net effect was that the development bond – now sitting at more than R400m – was increased to partly cover the increased costs.
