Graham Wood

Southern Sun Hotels MD

THE LOWDOWN

Southern Sun buys Rosebank hotel The Grace at a 20% discount

The acquisition is expected to spin good profits over time

Southern Sun has scored a major coup in acquiring Rosebank’s five-star The Grace for a bargain R85m from Hyprop Investments, snapping up the grand dame at 20% below its 2010 valuation of R107m.

Southern Sun Hotels MD Graham Wood was quick to beat other potential suitors to the chase. Apparently international hotel players like Marriott and Starwood were also interested in acquiring the mothballed Johannesburg hotel.

JSE-listed Hyprop, which also owns Southern Sun Hyde Park, was forced to close The Grace’s doors at the end of August when its operator, Zimbabwe Stock Exchange-listed African Sun, pulled out of SA. African Sun blamed falling revenues and occupancies for the move.

Wood says the plan is to reopen the hotel, which is located a stone’s throw from the Gautrain’s Rosebank station, in the first quarter of 2012. The property will be repositioned as a five-star boutique hotel, most likely under a new name.

Wood stresses that Southern Sun didn’t buy The Grace because the group is exiting the four-star Grayston in Sandton’s Rivonia Road. Southern Sun doesn’t own the latter; it only manages the hotel and recently decided not to renew the lease with owner Cavaleros group when it expires at the end of December 2011.

Wood says the acquisition of the Grace is in line with Southern Sun’s strategy to own and operate its own hotels. “And it gives us the opportunity to enter a key growth node where we aren’t yet represented.’’

Wood concedes that SA’s hotel market is still “very depressed” but adds that Southern Sun wouldn’t have bought The Grace if it didn’t believe it could make it work.

Pam Golding Hospitality CEO Joop Demes says the acquisition is a smart, strategic move. “Southern Sun has acted quickly to take advantage of the current downturn to acquire a prime-located hotel at a discount. There’s no doubt the deal will prove extremely profitable over the longer term.’’

The R85m price tag for the 73-room hotel means that Southern Sun is effectively paying less than R1,2m/key. Demes says even if the group spends another 25% on refurbishment and rebranding, the total outlay would still be only half of the estimated R3m-R4m/room it currently costs to build a new five-star hotel.

Source: Financial Mail