City Lodge losses widen but CEO hopes worst of the pandemic is over

JSE-listed City Lodge Hotel Group is anticipating some easing of the severe Covid-19 storm the hotel and hospitality industry has been buffeted by over the past about 18 months.

City Lodge CEO Andrew Widegger said on Friday the group remains cautiously optimistic that the worst of the pandemic is behind the group because an encouraging portion of the South African population has been vaccinated and “very soon we can all once again embrace the freedom of travel and hospitality”.

“The success of the vaccination programme is integral to the recovery of the hospitality industry,” he said.

“There is pent-up demand as we emerge from the 18-month confinement within our homes, to begin to explore, socialise and experience life.”

Recovery will take time

However, Widegger said the impact of the prolonged economic recovery from the pandemic, and the resurgent waves of infections, has impacted the length of time it will take to return to pre-Covid-levels of operations and break-even.

Pandemic-related lockdowns significantly hurt the group, with City Lodge raising R1.2 billion in August 2020 from a rights offer and agreeing in July 2021 to sell its East Africa hotels.

Widegger said the group has also demonstrated agility and innovation in running a solutions-based operating environment in which its management team responds quickly and creatively to challenges, including its ability to temporarily suspend and reactivate hotels as demand determines.

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The group agreed to sell its hotel assets in Kenya – the 127-room Fairview Hotel, 84-room Town Lodge Upper Hill and 171-room City Lodge Hotel at Two Rivers Mall in Nairobi – to leading global real estate and infrastructure investor Ukarimu Limited, owned by Actis Africa Real Estate, for R140.96 million.

It also sold the 148-room City Lodge Hotel Dar es Salaam in Tanzania to Faraja Limited, which is also owned by Actis, for R1 million.

This follows City Lodge’s board expressing its desire to dispose of its entire East African hotel portfolio to reduce debt levels within the group, increase group liquidity and eliminate ongoing operating losses and further funding requirements.

Widegger said the sale is expected to be completed within 22 weeks of the signing date in July 2021.

Funding

He added that the group’s lenders have been very supportive during the ongoing operational challenges, the prolonged pandemic and the resurgent waves of infections, which have extended the economic recovery of the hospitality sector.

Widegger said the group has drawn R650 million of the total available loan facilities of R800 million and also has access to an overdraft facility of R115 million.

He pointed out that the group’s funders recently approved an extension of the repayment date of a R100 million loan from September 2021 to September 2022 and access to an additional R100 million, which is included in the total R800 million available facilities, in addition to waiving the original debt covenants to the September 2022 measurement period.

Occupancy rates

Widegger said occupancies based on total inventory in the group have steadily improved from 4% in the last quarter of the 2020 financial year to 7% in July 2020 when the group reopened a total of 36 hotels as the Level 5 hard lockdown regulations were slightly relaxed.

City Lodge ended the financial year in June 2021 with monthly occupancy of 25% in the midst of the third wave of infections and adjusted Level 4 restrictions.

Widegger said average occupancies for the year came in at 19%, compared to 38% in 2020 and 55% in 2019.

As at September 9, the group has 51 of its 56 hotels open in South Africa and five of seven hotels open in the rest of Africa.

Results, rebranding and repositioning

Revenue in the year decreased by 56% to R507.8 million from R1.16 billion in the prior year.

Operating costs, excluding depreciation and amortisation, dropped by 22% to R570.4 million from R735.8 million.

Widegger said the operating cost reductions were mainly due to the cost-containment measures put in place from April 2020 to mitigate the extent of the losses arising from minimal revenues.

The group also rebranded and repositioned the offering of two hotels to better suit the market needs of the area, with the Courtyard Hotel Eastgate now the City Lodge Hotel Eastgate and Town Lodge Sandton in Grayston Drive now the Road Lodge Sandton.

Widegger said the new brands and price points are more appealing to visitors to these two areas and ensure the properties stay relevant.

The group reported a 422% slump in operating profit to a loss of R138.49 million in the year to end-June from the R330.39 million profit in the previous year.

The group made a net loss of R804.6 million compared to the net profit of R486.6 million in the prior year.

Widegger said the prolonged recovery of the sector and the dependency on the successful vaccine rollout has also led to the recognition of additional impairments to property plant and equipment of R390.4 million.

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The headline loss per share improved to 161c from 440c.

Widegger attributed this improvement largely to the dilutive impact of the additional shares in issue following the rights offer.

Forecast positive

He added that with the third wave of infections beginning to wane and the arrival of warmer weather, the forecast for occupancies is positive as travel within and between South Africa and the world begins to recover.

“This is in no small part due to the success of the rollout of the vaccination programme, being the catalyst to growing confidence to travel by local and international travellers,” he said.

Shares in City Lodge dropped 1.96% on Friday to close at R4.00.

Listen to this episode of The Property Pod as Suren Naidoo interviews Capital Hotels group founder Marc Wachsberger (orthe transcript here):