City Lodge hotel group swung back into annual headline earnings after a loss the previous year as occupancy rose.
The group, which owns most of its hotel buildings, has about half in Gauteng, meaning it relies on business travel, which ground to a halt during Covid-19.
As the pandemic ended, it was not clear how much business travel would resume as companies had become used to using technology for virtual meetings.
However, City Lodge’s occupancy rose to 56% from 38% and is now above the 2019 levels before the pandemic, with headline earnings per share of 30.3c in the year to end-June. It had a headline loss of 8.6c per share a year earlier.
While the group recorded an overall profit in 2022 thanks to the sale of its East African hotels in Kenya and Tanzania, this time the measure rose due to increased business.
The hotel break-even point is when occupancy sits at about 40%.
CFO Dhanisha Nathoo said “revenue for the year to end-June increased by 55% to R1.7bn, indicating that the recovery from the Covid-19 pandemic is well established”.
CEO Andrew Widegger told Business Day the financial services sector, retailers and mining firms are travelling and meeting clients again to build relationships or generate new business.
“They need to chase profitability and that involves travel,” he said.
City Lodge said it plans to sell its unprofitable Katherine Street hotel in Sandton, which has an oversupply of hotels. The clause will prevent the new owners from offering short-term leases such as Airbnb or rentals for less than three months which would compete with its other Sandton hotel in Morningside.
Widegger said: “It doesn’t make sense to sell it when there’s a problem of oversupply and then somebody just opens up as a hotel to compete with us. We’re getting rid of a loss-making hotel, [and] we’re shrinking the supply. And hopefully that’s a bit of a help for us going forward.”
The company expects to get about R80m for the hotel and will make a profit on it as the property depreciated over time and is not recorded as having a high value on the books.
City Lodge repaid R300m of its R600m debt and paid another R200m in debt after year-end.
This is a far cry from August 2020, when City Lodge had to go to the market for a R1.2bn rights issue as it struggled through the pandemic.
City Lodge’s cash flow was much better. In 2022, it ended with an overdraft of R59m, but in the year to end-June with R328m cash.
Healthy cash generation and a positive cash balance are usually seen as signs of a healthy business and are favoured by investors.
City Lodge is expanding its food and dining options at hotels where they were previously limited. This helps to boost occupancy as guests prefer to stay where they can eat, especially when on a business trip in an unknown location.
New menus were added at more upper-end City Lodge Hotels and Courtyard Hotels, and expanded lunch and dinner options at the middle-income Town Lodge and Road Lodge brands.
Food and beverage revenue now accounts for 17% of total revenue, up from 15% in the previous year.
Operating costs including food, salary, property costs and increased room costs rose about 36% year on year as more guests drove an increase in water and power use.
Salary costs rose significantly as the prior period included a Covid-19 30% salary cut as many hotels were shut. The group also increased the number of staff due to the higher number of guests. It has resumed refurbishing hotels after renovations and upgrades were stopped during Covid-19.
Update: September 11 2023
This article has been updated with additional information.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.