City Lodge Hotels sets aside R475m for construction of two new hotels in East Africa

Posted On Monday, 18 August 2014 17:28 Published by
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City Lodge Hotels sets aside R475m to build two new hotels in East Africa, and is looking for other opportunities to add hotels in capital cities across East and Southern Africa.

 Clifford Ross

The company last year opened its 104-room Town Lodge Gaborone, and it recently bought the 50% it did not already own in two hotels in Nairobi.

In its year ended June City Lodge's normalised diluted headline earnings a share rose by 11% to 643.1c, with revenue growing 9% to exceed R1bn for the first time. But City Lodge said the second half of its financial year was disrupted by strikes, weak economic growth, and more public holidays than in the first half.

Occupancies in the company's domestic hotels rose slightly to 63% from 62%, continuing a gradual trend of improving occupancies after a post-2010 World Cup hangover in the industry. Vestact portfolio manager Byron Lotter said "the numbers look good and their expansion plans are quite exciting". Mr Lotter said City Lodge's Kenyan hotels generated far higher profits per room compared with its South African hotels.

The company's occupancies were historically closer to 80%, and it was "expanding in tougher times". He expected City Lodge to reap the benefits of its expansions as occupancies recovered with a healthy tourism industry, despite competition in the hotel sector. City Lodge said in addition to buying the remaining 50% of its Kenyan joint venture, "we have made significant progress towards growing our presence in East Africa".

The company had concluded an agreement to buy land in Nairobi for development of a 170room City Lodge Hotel at a cost of 23m. It expected construction to start in the first quarter of 2015 and to open in mid-2016. It said it had also concluded a long-term land lease to develop a 147-room City Lodge Hotel in Dar es Salaam, Tanzania, subject to regulatory approval. The development was expected to cost $22m and was also expected to start in the first quarter of 2015.

"We continue to explore additional opportunities in Nairobi as well as Kampala, Uganda. Investigations are also continuing into acquiring suitable sites in Maputo, Mozambique; in Windhoek, Namibia; and Lusaka, Zambia." City Lodge is still developing in SA, where occupancies are beginning to reach more attractive levels for both South African and international hotel chains. City Lodge is developing a 149room City Lodge Hotel at the Waterfall City precinct in Midrand at a cost of R130m.

The hotel is expected to open in December and be fully operational by February 2015. Construction of the company's 90-room Road Lodge Pietermaritzburg "has been delayed", but City Lodge said it expected the necessary approvals to be received for construction to begin in the new financial year. The company said it had concluded land and building lease agreements for the development of a 148-room City Lodge Hotel at Newtown Junction in the Johannesburg central business district, with construction "expected to commence shortly" and completion scheduled towards the end of 2015.

City Lodge said after various disruptions between January and May, "the pattern of slow but steady growth in occupancies has resumed, similar to the trend experienced over the past two to three years". The company's share price gained 1.27% to close at R121.26 on Friday.

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