THE Victoria Falls Stock Exchange (VFEX)-listed hospitality giant; African Sun Limited announced to shareholders that it has agreed to sell two assets in its portfolio.

The hotelier, whose history can be traced back to 1952 has been an integral part of the tourism sector in Zimbabwe, as it owns and operates some of the biggest hotels in the country including the Holiday Inn chain and Elephant Hills amongst others.

African Sun also wholly owns Dawn Properties, which is a property-owning company, after buying out minority shareholders in 2021.

The hotelier described the two assets namely Great Zimbabwe Hotel and Beitbridge Express Hotel as non-core to the company’s future.

In an effort to complement the company’s fund-raising efforts, African Sun will dispose of both assets for an estimated consideration of US$6,945 million.

Former Zimbabwean Sun, which changed its name to African Sun in 2008 to reflect its regional expansion at the time, will be looking to pocket US$4,445 million from Great Zimbabwe Hotel and US$2,5 million from Beitbridge Express Hotel.

Great Zimbabwe Hotel is part of the portfolio of 10 hotels currently managed by the group, whilst Beitbridge Express Hotel, which was constructed in 1998 has been classified as an asset available for sale since 2021.

The company, which once had a rights issue in 2009 to raise US$10 million, has again found itself with the need to raise capital for refurbishing their assets.

The refurbishment exercise of the group’s hotels has been a key pillar of their strategy over the past few years since the pandemic as they seek to enhance guest experience.

The group as of December 2023 had cumulatively deployed over US$7 million in this refurbishment exercise. According to the annual report, African Sun reported that its target in 2024 was to raise US$8 million to allow it to complete the Victoria Falls Hotel and Hwange Safari Lodge refurbishments and to make a start on the Elephant Hills public areas.

The US$7 million will probably go a long way in assisting the group to meet its capital expenditure requirements. The group also cautioned that it was now getting minimal contributions from these assets.

Great Zimbabwe Hotel, which has 87 rooms and a conference capacity of 530, had been facing challenges which resulted in a minimal contribution to the company’s profitability.

African Sun reached an agreement to discontinue operations at Beitbridge Express Hotel in 2016, citing prolonged losses as the rationale, which was now eroding the company’s equity.

Between 2015 and 2016, the hotel reported losses of US$336 311 and US$129 325 respectively before operations were discontinued.

The assets, i.e., the land and buildings at that time were owned by Dawn Properties, which is now a 100% subsidiary of African Sun.

African Sun has identified TD Hotels & Leisure (Private) Limited as a potential suitor, and the transaction is now at advanced stages after the agreements of sale were signed in mid-August.

TD Hotels & Leisure will be looking to purchase both properties and has been given 45 days to pay for the properties after the signing of the agreement. It would be interesting to understand what value the suitor sees in these assets and how they would fit into their portfolio and help them achieve their strategic goals.

The decision to sell non-core assets comes at a time when the group is experiencing a rise in occupancy levels post-pandemic, with the latest number being 52% occupancy.

Interestingly enough, Rainbow Tourism Group, a competitor to African Sun also reported similar occupancy levels. The average daily rates have also seen a recovery to pre-pandemic levels with African Sun averaging US$110 whilst Rainbow also reported a boost in these rates.

In 2023, African Sun recorded revenues of US$55 million in 2023 whilst its total assets were at US$142 million. This translates to an asset turnover of 38%, meaning every dollar in assets managed to generate 38 cents in revenue. 

On the other hand, its competitor Rainbow, although in a different currency has an asset turnover of 81%. However, the difference in currency might to some extent explain the difference between the two numbers.

Disposing of assets that have a minimal contribution to the group’s top line and bottom line will also help improve the asset turnover, assuming that the proceeds are deployed to enhance the remaining portfolio.

Analyst’s comment

First of all, it is a positive that the company has managed to find a suitor for Beitbridge Express Hotel. It has been clear since 2016 that African Sun could not extract much value from that asset as evidenced by the perennial losses that they were facing.

The fact that it has been classified as an asset available for sale since 2021 but the sale agreement has only been finalised this year, is a sign of the market’s perception towards the asset.

Again, I do not see any point in holding on to the Great Zimbabwe Hotel if the company felt that its contributions were reducing by the day.

Given the lower return on assets of the company, perhaps this is a good move to ensure that the group can only focus on assets that they can squeeze in as much as possible.

However, it would be critical to understand the valuations that were put on these properties by independent valuers concerning the price that the suitors will pay.

Using the proforma statement of the financial position to illustrate the effects, had this transaction been concluded before December 31 2023, it appears that the transaction prices are better than the book values, which is a positive for the shareholders.

The tourism sector has also been recovering well post-pandemic and has been one of the fastest-growing sectors in the economy.

According to Statista Market Insights the package holidays space, where hotel business falls, is anticipated to grow at an average of 14% in the following 5 years to 2029. At a time when key competitors like the Meikles Hotel, now Hyatt Regency and Rainbow Hotel are deploying capital to spruce up their assets, African Sun should also keep up.

In conclusion, this appears to be an exciting transaction, giving management the benefit of the doubt that their analysis of disposing assets and funding capex is in line with the strategic objectives of the business.

However, it appears quite clear that regardless of how refurbishment is financed, it is critical for the business at this stage.

  • Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.