South Africa: City Lodge’s exit from loss-making East Africa assets prompted by lucrative offer

By Xolisa Phillip, in Johannesburg
Posted on Friday, 3 September 2021 12:55

City Lodge in Kenya (twitter)

An unsolicited offer, accompanied by a lucrative number, swayed South Africa's City Lodge Hotel Group (CLHG) to dispose of its East Africa portfolio, CEO Andrew Widegger tells The Africa Report.

The East Africa assets consist of Fairview Hotel, City Lodge Hotel at Two Rivers and Town Lodge Upper Hill in Kenya as well as the City Lodge Hotel in Dar es Salaam, Tanzania. Actis, ‘a leading global investor in sustainable infrastructure’, has swooped on the properties.

  •  The Kenya assets will be disposed of for a R140m ($9.7m) consideration and the Tanzania assets for R1m.
  • As at 31 December 2020, the net asset value of the East Africa portfolio was R473m, excluding intercompany loans, according to CLHG.
  • For the six months ended 31 December 2020, losses attributable to the East Africa portfolio were R371m.

Widegger says: “There was an unsolicited offer we received. Given our current liquidity loss-making situation with Covid-19, the number that was put on the table was lucrative enough for our board to consider.”

In addition to the CLHG’s East Africa assets, Actis recently acquired Four Points Sheraton in Lagos, Nigeria as well as Sheraton Casablanca Hotel in Morocco, under a joint venture with the Westmont Hospitality Group – one of the largest privately held hospitality groups globally.

Actis declined to comment as the transaction is pending finalisation.

East Africa still holds promise

However, the CLHG’s East Africa disposals were “not necessarily a vote of no-confidence [in East Africa],” says Widegger.

“We liked East Africa. I think East Africa still has a lot of promise as a region; but [this transaction was driven] more by circumstance arising out of our current trading during the pandemic,” says Widegger.

We are going to start getting international tourists beginning to ask whether the people they are likely to encounter – be it at the front desk, be it taxi operators – have been vaccinated…

Two of the four hotels were brand new: City Lodge in Dar es Salaam and City Lodge in Two Rivers. “We’ve said [before, that] we would have had to spend quite a bit of money going forward on marketing activities [for the two new hotels] – and they were loss making. Our route to profitability with the disposals was also a bit quicker,” he says.

For the medium term, the group’s focus will be on Southern Africa, where, in addition to South Africa, the CLHG has hotels in Maputo, Gaborone and Windhoek; however, “who’s to say what’ll happen in the long term? Once, hopefully, Covid-19 is out of the way, and if we could all return to some kind of normality, East Africa may come back on the radar, but, certainly in the medium term, Southern Africa would be where our … focus is,” the group CEO says.

Cash conservation is key

“We’ve got to get through the pandemic. Everything about our current strategy is about getting through the pandemic from a liquidity and a solvency point of view. We haven’t made a profit since March 2020. We can’t carry on [like that] forever,” says Widegger.

Although the group previously stated that it would seek suitable opportunities throughout the continent, its liquidity crunch does not leave much room for expansion of capital expenditure “without possibly having to tap shareholders for more cash,” according to Widegger.

“We’ll continue to look out for what’s out there and what’s available. If there is something lucrative that fits into our medium-term strategy: who knows? But I can’t see massive expansion activities in the near term until we have a better visibility of what a post-coronavirus world looks like,” he says.

The East Africa portfolio transaction is scheduled to close 14 weeks from the date of signature on the Kenya sale agreement and 22 weeks from the date of signature on the Tanzania sale agreement. The successful conclusion of the transaction will also depend on the fulfillment of sale conditions in Kenya and Tanzania, including obtaining the requisite approvals from competition authorities in both countries.

South Africa red listing headache

Back home in South Africa, Widegger says the group was encouraged by the fact that the vaccine rollout in the country had picked up pace. “Vaccines are the only way out for the whole world; and, certainly, for South Africa to be considered as a destination,” he says.

“We are going to start getting international tourists [who] ask whether the people they are likely to encounter – be it at the front desk, be it taxi operators – have been vaccinated. Vaccinations are key. I am encouraged that we seem to have sorted out the supply concerns we had. It is now a matter of getting citizens to go out and get the vaccine,” he says.

Equally important was communication from the South African government on travel requirements for people visiting the country. “That’s […] one side of it.”

“Then, we need to do as much as possible in terms of lobbying foreign governments [that have placed travel restrictions on South Africa]. The UK, for example, has South Africa on the red list,” says Widegger.

That means visitors to South Africa who go back to the UK are obliged to spend 10 days in a government-nominated quarantine facility at their own cost.  “At quite considerable cost,” says Widegger. “We need to get those restrictions lifted.”

On the South Africa side, the sector requires clarity from the government about what is required for international visitors coming into the country. “In other words, if they’ve got their so-called vaccine passport; do they still require a PCR test and so forth?” says Widegger.

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