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Activity in the South African hotel sector

Interview with...

Carl Liebenberg, founder of Arcay Capital Partners
Topics covered:
State of SA hospitality sector, regional analysis and merits of investing in hotels
CV:
Director of Sovereign Trust International; consulted on international tax planning, offshore company and trust establishment; headed Cape Town wealth management offering of Rand Merchant Bank Private Bank; advised high-net-worth clients on domestic and international investment and financial planning; founded asset management company; created first Financial Services Board-approved hedge fund index published on The Bond Exchange of SA; on team behind SA Government Bond, Exchange Traded Fund and Equity Index Fund
Expertise:
Investment management and corporate finance
Location:
 
Cape Town
SA

BusinessesForSale.com: So what's happening out there in the hotel sector in South Africa?

Carl Liebenberg: Some of our clients own hotels. We looked after one or two on the stock exchange and had a few clients looking at acquisitions in the sector.

In South Africa the sector is under a lot of pressure post-World Cup, so you've seen a lot of movement in Cape Town in particular but in the industry generally too. 

In Sub-Sahara it's quite an interesting space because in places like Angola and Zambia and Mozambique there's a lot of travelling - mainly business-related - and they are under-resourced, so room rates are quite high. 

Ironically, if you went to Rwanda you would pay $400-500 a night for a very average three-bedroom hotel room - and that is simply because of supply and demand. You have all these foreigners flying into Rwanda because they're involved in the oil industry and there's only five or six hotels there. 

We heard this morning that the Hilton Group just bought this very big hotel in Namibia because they foresaw this oil rush as they've just found oil and gas off the west coast. It's an interesting sector to be in but I think you must be very careful about where you spend your money.

Cape Town and the Western Cape area is the most popular tourist destination and where we've had a lot of investment in four- and five-star hotels, which has led to a glut of hotel rooms in that space

BFS: So is it a good time to invest in hotels right now do you think?

CL: It depends on the segment you're in. If you're in the high-end luxury market then I think you're in trouble. If you're in the mid-market business travel sector I think you probably stand a better chance of getting a more consistent revenue stream. 

In South Africa we have the full range - big brands like Hilton, some of the southern African brands, and then the smaller boutiques. The Raddison Group came in, so too did the Dutch Group Tulip, but we don't have a plethora of big brands. We have a number of very big South African brands like Southern Sun.

BFS: Where are the interesting regions right now?

CL: Cape Town and the Western Cape area is the most popular tourist destination and where we've had a lot of investment in four- and five-star hotels, which has led to a glut of hotel rooms in that space. Something like 3,000 five-star hotel rooms were built prior to the World Cup in 2010 - and that's just in Cape Town, where there is now a big squeeze. 

Five-star hotels are dropping their rates to get people through the door, so Cape Town is now probably oversupplied. In Johannesburg, where there's a huge amount of business travel and less tourist travel, the number of hotels is also fairly high and their rates are fairly good, so it depends what sector you're in.

 

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