City Lodge to boost rest-of-Africa income

CITY Lodge Hotels, which is developing two new hotels in East Africa and evaluating at least three other opportunities outside its home market, could generate “30% plus” of its revenues outside SA from 2017.

For its six months ended December City Lodge earned 9% of its revenue from its rest-of-Africa business, which includes two hotels in Kenya and another in Botswana.

It said yesterday in addition to developing new hotels in Nairobi and Dar es Salaam it planned to open hotels in Ugandan capital Kampala, Namibian capital Windhoek and Mozambican capital Maputo.

The five hotels would cost about R880m in total and would be funded with debt and cash reserves. “We’re sitting with R185m worth of debt and that certainly can go quite a bit higher,” City Lodge financial director Andrew Widegger said.

The previously announced hotels in Nairobi and Dar es Salaam are expected to cost a combined $45m, with construction expected to start in the second quarter of 2015 and opening scheduled for late 2016.

City Lodge said yesterday it was in advanced negotiations to buy land in Maputo where it would build a 150-160-room City Lodge-branded hotel at a total cost of $23m.

The planned hotels in Kampala and Windhoek would use land and building leases, and would cost about R80m to establish.

City Lodge’s push into the rest of Africa is relatively new — the company as recently as last year bought out its joint venture partners on its two Kenyan hotels and opened its hotel in Gaborone, Botswana.

The company said yesterday its two operating Kenyan hotels, which usually generate higher profit per room than its South African ones, saw occupancies fall due to “the perceived Ebola threat” and foreign travel advisories about terrorism threats in the region.

City Lodge’s total comprehensive profit rose 16% to R141m for the six months ended December.

Revenue improved 20% to R642m, as average South African hotel occupancies rose to 68% from 64% a year before, and thanks to the Kenyan business being consolidated into its results.

Occupancies in SA’s hotel market have been gradually improving off a low base after a supply boom ahead of the 2010 World Cup left too many rooms countrywide.

City Lodge’s long-term occupancy rate is 73%. It expects to get back to these levels over time since a lack of new developments means the supply glut is being absorbed.

“We would obviously like economic growth to accelerate, but at the moment there’s no additional supply so any economic growth implies growth in demand, which should lead to growth in occupancies,” Mr Widegger said.

City Lodge CEO Clifford Ross said that despite heavy oversupply in areas such as Sandton, “we believe that there still are opportunities in SA — our growth of one to two hotels per year is still very much the way we look at it for the foreseeable future”.

The company opened all of its 149 rooms in its Waterfall City hotel earlier this month.

It plans to open its 148-room City Lodge hotel in Newtown, Johannesburg, and its 90-room Road Lodge in Pietermaritzburg by the end of the year.