Shock for luxury sector

Banking giant Absa has called up its R581m loan at Quantum Property Group, the owner of Cape Town upmarket hotel and leisure development 15 on Orange.

The development should send shock waves through the Cape leisure sector. The much-expanded luxury hotel niche has been struggling for viability in the lull that followed the 2010 soccer World Cup in SA.

Absa’s decision, which could leave Quantum shareholders badly out of pocket, comes scarcely nine months after Quantum outlined in its annual report an agreement with the bank to extend its facilities to subsidiary company AMU for a five-year period.

Quantum’s annual report shows the Absa facility was restructured into a senior debt facility and two bridging facilities, the senior facility expiring on June 30 2016 and the other two on March 31 2012 and November 30 2013.

Absa’s decision to extend its facilities was key to Quantum’s plans to complete a conference centre and put finishing touches to the hotel, which was completed in late 2009.

Quantum also bought out Protea Hotels’ share of 15 on Orange Hotel (Pty) Ltd for R22m — a deal that was openly criticised at a recent AGM by former directors and major shareholders.

Last week Quantum unsuccessfully pitched a business rescue application for “financially distressed” AMU. The application was opposed by Absa.

This means that unless Quantum can find a white knight willing to provide new capital, the repayment of the loan to Absa can be funded only by the sale of 15 on Orange. The development, Quantum’s only asset, has been valued at R688m, a valuation that a number of property industry commentators feel is on the optimistic side. The market places a value of around R53m on Quantum, supporting a notion that the official valuation of 15 on Orange is inflated.

Rumours suggest that Protea Hotels, which manages the hotel, may bid for 15 on Orange — though not pitching an offer anywhere close to the development’s inferred value.

Recent operating results from 15 on Orange showed significant losses. Vacancies in the top end of the Cape Town hotel market are stretching ominously after the 2010 soccer World Cup.

Last week, a trading update from Quantum warned shareholders to expect a basic loss per share of between 13c and 15c for the six months to end February.

Despite the losses, Quantum directors maintained that there had been an increase in hotel revenue and occupancy levels, adding that the new conference centre was enjoying brisk trade.