New low-cost ‘limited service’ hotels to launch in South Africa

Tsogo Sun has big plans to launch new “limited service” hotels in South Africa – with the first development already underway at Montecasino.

According to Tsogo Sun, the hotels are built following a modular design, and cost an estimated R75 million each, for around 120 rooms.

They will fall into the same portfolio segment as the group’s other ‘select service’ brands: Sun Square, Garden Court, and StayEasy.

Select service hotels typically offer limited amenities – excluding things like large conference facilities, banquet halls or internal restaurants. These types of hotels tend to feature simpler options like complimentary breakfasts, and room-only operations.

Because of this, they cater to ‘economy class’, and are often in the lower-price segment of the market.

The first 123 room site at Montecasino will launch in December 2019, while a second hotel is planned for Silverstar Casino during the 2021 full year.

The group has targeted at least 10 hotels, provided it can find suitable sites for them.



Financial performance

Tsogo Sun on Thursday (23 May) reported a drop in net profit for the year ended March 2019, to R1.622 billion (2018: R2.158 billion), following a drop to a loss in its hotel segment of R59 million, driven largely by a R445 million reduction in the fair value of its investment properties.

Total income across operations totalled R11.62 billion, 18% higher than the prior year, driven by the gaming segment which drew in R9.82 billion (up 21%). Operating profit increased by 13% to R3.13 billion.

The group declared a final dividend of 56 cents per share, taking the total dividend for the year to 188 cents per share.

Hotel performance

According to the group, occupancy levels across all its hotel operations decreased by 1.2 percentage points to 63.5%, with average room rates increasing 2% to R1,064 per room.

KwaZulu Natal hotel performance was in line with the prior year, with poor association business offset by good public sector support, it said, while inland hotels (Johannesburg and Pretoria) were largely in line with the prior year, with reasonable Sandton trading offset by weak Pretoria and a mixed performance in outlying regions.

The Cape region had a poor year, with the ‘Day Zero’ publicity around the Western Cape water crisis resulting in weak inbound visitors and poor association business.

“New supply exacerbated the weak demand situation,” it said.

Unbundling

The group is in the process of unbundling its hotel business from its far more lucrative gaming and other services business, which is set to take place in June 2019.

The hotels business will then be listed separately on the JSE, it said.

“The gaming and hotel divisions operate in distinctly different markets and service different customers. The separation of the group into two focused companies will provide Tsogo shareholders with greater investment choice and the ability to elect their exposure to Tsogo Sun Gaming (TSG) and Tsogo Sun Hotels (THL) respectively.

“The separate listing of THL will provide shareholders with transparent disclosure relating to hotel operations and allow for the valuation of the hotel group without discounts for gaming-related regulatory risks (gaming taxes, smoking regulations, etc.),” it said.


Read: The 2 South African hotels named in the world’s top 100 for 2019

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New low-cost ‘limited service’ hotels to launch in South Africa