'World Cup to boost hotel profits'

Posted On Tuesday, 05 January 2010 02:00 Published by eProp Commercial Property News
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While the short-term outlook for the hospitality industry is challenging, the 2010 Soccer World Cup is expected to provide a much-needed boost to hotel profits.

Gerald NelsonHospitality Property Fund CEO Gerald Nelson said yesterday the industry’s medium- to long term outlook remained positive.

JSE-listed Hospitality Property Fund invests exclusively in hotel and leisure properties and has interests in 23 hotel and resort properties in SA.

Nelson said the operating performance of the South African hotel industry had deteriorated significantly during the five months to November compared with the corresponding period in 2008. The latest STR Global HotelBenchmark statistics indicated that occupancies had declined 14,2%, while average daily room rates had decreased 0,5%, resulting in a decline of 14,6% in revenue per available room.

Hospitality confirmed that this trend was reflected in the performance of its hotels.

“The decline in revenues has occurred whilst staff and supplier costs have increased by 6%-8%, which has further eroded profitability,” Nelson said. Although operating expenses were reduced in anticipation of lower business volumes, some fixed expenses such as rates and electricity had increased significantly.

While Hospitality’s forward bookings suggested that the corporate and conferencing market segments should pick up from next month, foreign leisure travel was likely to remain depressed in the early part of this year and government conferencing volumes had remained substantially below historic volumes.

Nelson said that in this environment, the Soccer World Cup was superbly timed and placed to revive SA’s hotel profits. Most of Hospitality’s hotels were contracted to major clients, with deposits secured.

“Now our focus is set on ensuring that maximum benefit is derived, both pre- and post event.”

Hospitality’s units in issue comprise A- and B-linked units. A linked units have a preferential claim to earnings, with growth of 5% per linked unit for the current reporting period, while B-linked units receive the balance of the earnings. Due to the leveraging effect, distributions of this unit are expected to be 55%-65% down.

Last month, the hospitality fund issued a trading statement warning that its total distribution per linked unit for its next distribution period, ending December, was likely to be between 30% and 40% lower than that of the previous corresponding period.

Last modified on Monday, 28 April 2014 18:30

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