JSE-listed The Don Group (DON) is changing its business model in view of growing opportunities identified in the broader property industry sector, it said on Thursday while announcing its financial results for the year to June 2011.

The Don Group owns 100% of Lennoxley Investments, trading as the Don Suite Hotels, and 57% of the tour operator iKapa Tours & Travel.

Tough trading conditions took their toll on the group's results, with a loss of R35.7 million reported for the year, compared to a R2.5 million loss for the previous corresponding period, when the group was helped by the 2010 Fifa Soccer World Cup. Revenue of R90 million was posted for this year.

Properties were revalued in the current year in light of the change in use that resulted in a net devaluation of R17.5 million, taking the loss up to R53.2 million. No dividend has been declared.

Pre-tax losses in the hotel segment increased by 106% to R19.8 million during the 2011 year, as a result of weak trading conditions and increased competition in the hotel sector.

Given the challenges facing the tourism sector, the Don Group has decided to change direction into the property management sector. In addition, the Don is at advance stages of negotiations in respect of sale offers received for certain properties, proceeds of which will be used to settle all of its obligations.

The Don currently owns nine properties in prime locations: Sandton, Illovo, Bruma and Rosebank in Johannesburg, Arcadia in Pretoria and Sea Point in Cape Town. These will cease operating as hotels in October 2011 with the intention of conversion into fully-furnished rental apartments; therefore 142 affected staff members will as a consequence be retrenched.

Currently three properties; Arcadia, Bruma, and Sandton are operating as successful residential apartments.

"The last two years have been incredibly tough for the hospitality industry and as a smaller player on the JSE with a business model that is different to that of our counterparts, we were adversely affected," said CEO Thabiso Tlelai.

"As part of our commitment to enhancing shareholder value, we have therefore decided to change our business model and move from operating hotels to operating property assets. This includes moving into the residential letting business, which is the fastest growing area in this sector, experiencing rising demand. This, unfortunately has a negative effect in that we lose valued staff.

"We have not been able to extract value for shareholders in a tough market," said Tlelai. "Our new model will increase returns."

iKapa recorded a pre-tax loss of R3.3 million, from an R18 million profit for the previous period when it had been helped by the Soccer World Cup. The company will continue to operate as autonomous tour operator, and will not be affected by the Don's new business strategy.

Source: I-Net Bridge