Pegasus Hotel which was considered the first 5-Star Hotel to be established according to the recently released financial report has recorded a net profit of Rs. 4.5 million for the quarter ended December 31, 2009 compared to a loss of Rs. 4.1 million for the corresponding period 2008. Accordingly net profit growth has been commendable 208%. Revenue has recorded a growth of 35% from Rs. 36 million to Rs. 49 million.

The company is expected to repeat the performance this quarter too due to unusual high occupancy and a net profit of around Rs. 10 million expected to be earned during the current financial year.

It should be noted real value of the hotel is far in excess of recorded data due to the following factors.

A). Rs. 189m as recorded under the current assets of the balance sheet represents approximate compensation receivable from the government for the acquisition of 10 acres of unutilized land in May 2008, out of which 2.2 acres reserved for green cover to retain the beauty of the hotel surroundings. The company presently has 13.2 acres enough for further expansion too. On receipt of compensation the company would be in a position to repay the total debt of Rs. 139m and the excess sum appr. Rs. 50 m could be invested for a reasonable return. Since the land has been acquired nearly 2 years back the compensation is long overdue and would make the company very early one of the very few debt free companies in the stock market and only company in the hotel sector

B). The above land has been acquired for a massive ultra modem harbour project with Dutch funding to the tune of Euro 44m (Rs. 7040m) mainly for local and foreign trawlers, multiday boats which would lead to a massive infrastructure development and increased economic activity in the surrounding areas. The fisheries harbour is considered at least one of the largest in south Asia stretching over I km of coastal line which has been already cleared for development. The project is scheduled for completion in 2 years. The harbour is huge that it can accommodate 30 large trawlers and 300 multiday boats and almost full production is intended for export to up-markets such as Japan and EU. It is proposed to construct a wide bridge under the project connecting the Channel Road in close proximity to the hotel so that present long road use could be discontinued ensuring easy access from the main road restricted to only 150 meters. These factors would enhance property values very substantially.

C). At present access from Colombo is via Wattala to the hotel. It is expected modem new road connecting the main road from Fort up to newly built Mattakuliya bridge would be completed shortly. This would again tremendously increase the land values due to easy direct access to Colombo and would also increase business activities for the hotel.

D) With the defeat of terrorism, IMF approval, proposed massive developments in the North and East and substantial increase in other foreign funding would result in overall increased economic activity in the country which would lead to substantial increase in land values especially in Colombo city and its suburbs.

The research division of Lanka Securities (Pvt) Ltd in their report of September 2008 has valued the net assets, value per share at Rs. 70 on the basis of replacement cost.

Due to the factors under (B) (C) (D) it is likely for the present net assets value to jump to Rs. 70 in the medium term.

It is estimated due to debt-free position, return on Rs. 50m investment and high occupancy and in rates the company would be in a position to record net profits in the range of Rs. 40 million to Rs50 million during the financial year 2010/11. Considering prospects for debt free position, net assets value per share the price has potential to rise in the range of Rs. 55 to Rs. 65 within a short period.