Capital Markets

Why South African company disposed of its Nairobi hotels


An open space inside Fairview Hotel Nairobi. FILE PHOTO | NMG

South Africa’s City Lodge Hotel Group said it decided to sell three hotels in Nairobi and another property in Dar es Salaam after failing to gain traction in the markets, adding that the exit helped it sidestep a major marketing spend that would have been required to build its brand.

The multinational sold Nairobi’s Fairview Hotel, Town Lodge Upper Hill, City Lodge Hotel at Two Rivers Mall and City Lodge Hotel Dar es Salaam to private equity fund Actis last June for an aggregate net consideration equivalent to Sh3.3 billion.

Read: Actis concludes payment for City Lodge hotels after acquisision

City Lodge says it decided to accept the unsolicited offer by Ukarimu Limited and Faraja Limited, which are owned by Actis because it was staring at an unacceptably long path to profitability in the East African market.

“On reflection, we underestimated the value of our brand, which is strong in southern Africa but weak outside of our core markets. The sale allows us to focus our attention on our southern African operations, where our brand is recognised and trusted by travellers from the region,” the multinational said in its latest annual report.

“The directors approved the unsolicited offer for the disposal of our East African hotels due to the liquidity challenges brought on by the pandemic. The recovery from the pandemic was expected to take a lot longer in East Africa compared to southern Africa, as the main source markets for travel in this region are from North America and Europe.”

City Lodge added that the ongoing operating costs and marketing expenses that these hotels required to build brand recognition in the source markets undermined the original investment and this made the market exit more palatable.

Read: SA company gets nod to sell Fairview Hotel for Sh1 billion

The sale of the hotels came after two difficult years of reduced occupancies and revenue, the multinational said. Actis is meanwhile betting on medium-term growth of regional hotel bookings.

The hospitality industry, which was witnessing increased competition, took a major hit when the Covid-19 pandemic struck in March 2020.

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