Tsogo expects slow recovery

Tsogo Sun Hotels has warned that the outlook for the hotel industry as a result of Covid-19 is gloomy, with a big influx of foreign travellers expected only in the summer of 2021. Some hotels will not be open for more than a year, but the group has plans to allow it to quickly open or close hotels based on demand.

Tsogo Sun Hotels has warned that the outlook for the hotel industry in the wake of Covid-19 is gloomy, with a big influx of foreign travellers only expected in the summer of 2021.

Some hotels will not be open for more than a year, but the group has plans to allow it to quickly open or close hotels based on demand, said CEO Marcel von Aulock.

Covid-19 has shuttered hotels and brought tourism and business conferencing to a halt, with the group writing down its assets by an amount that exceeds its R1.5bn market capitalisation in the year to end-March as the pandemic hit cash flows.

March — usually a peak month for the group — had been “catastrophic”, said Von Aulock during an investor presentation, with the group seeing cancellation rates it had never experienced before.

“We were the canary in the coal mine for this, because of our forward-looking booking,” he said.

“We could see the drop-off before most people knew what was happening here.”

The group reported a R1.2bn loss, from a reported loss of R80m previously, with the group suffering exceptional losses of R1.7bn as it wrote down the value of investment properties and hotels.

The majority of these impairments are due to management’s assessment of the negative effect of Covid-19 on forecast cash flows generated by hotels for the financial years ending March 2021 and March 2022, the group said.

The impairments relate to management’s need to calculate future cash flows, as well as an assessment of the current value of future cash flows, which can be affected by market volatility.

“Having a March 31 year-end meant that we were right in the storm of having to recognise substantial levels of impairments. I will say upfront that I don’t think they are permanent,” said Von Aulock.

SA government bond yields had come down since the end of March, said Richard Cheesman, senior investment analyst at Protea Capital Management, so the expected positive effect on valuations would be of a technical nature.

“At the end of the day, the properties will have to generate sufficient cash flow to justify the valuations and it is too early to be able to tell if this will be the case,” Cheesman said.

Tsogo Sun’s share price closed 3.45% higher at R1.50.