Tsogo Sun raises the stakes on subsidiary turnaround

Tsogo Sun’s aggressive strategy for turning the fortunes of the only hotel-focused property group on the JSE, Hospitality Property Fund (HPF), is set to receive another boost.

Tsogo Sun is in turn a subsidiary of JSE-listed Hosken Consolidated Investments (HCI).

Tsogo said on Thursday it had progressed with its plan of injecting new assets into HPF to make the company the dominant owner of hotels on the African continent.

Tsogo gained control of HPF in 2016 when it injected 10 hotels worth R1.8bn into the company, which had been struggling to pay regular dividends and had suffered from a lack of business post the 2010 Fifa World Cup.

HPF had made inconsistent profits and had a complicated dual-share ownership structure for a number of years.

Tsogo cleaned up the ownership structure and took steps to smooth HPF’s income.

In 2017, it added more hotels to HPF’s portfolio and is working on another deal that will further expand HPF’s business.

Following this deal, “HPF is expected to own investment property with a fair market value of approximately R35bn,” Tsogo said.

Tsogo said it would also split into three divisions: a gaming division, a hotel management division and a property division.

The gaming division includes land-based casino operations and growth businesses in alternative gaming operations.

Its hotel management division includes Southern Sun Hotels, which it said it also wanted to list separately on the local exchange.

Southern Sun Hotels is a hotel management company with a portfolio of more than 90 hotels under its management spread across all industry grades, from deluxe to budget. It operates throughout SA, subSaharan Africa, the Seychelles and the United Arab Emirates.

“While these divisions have grown together, they operate in distinctly different markets and service different customers and thus provide limited opportunities for synergies,” Tsogo’s management said on Thursday.

The company also said that previous Group CEO, Marcel von Aulock, had agreed to join the hotel division as CEO and that he was tasked with, inter alia, achieving the unbundling and listing of the Southern Sun Hotels operation.

“This will then culminate in the separate listing of the hotel, property and gaming businesses, with all three resultant entities remaining subsidiaries of the HCI Group, which includes several additional listed and unlisted companies,” Tsogo said.

HPF’s share price is down 11.38% so far in 2018. It closed at R10.20 on Thursday.