The outbreak of Covid-19 could have devastating effects for the Cape Town hospitality sector, which has only recently recovered from the over-capacity issues that have dogged occupancy levels since the 2010 Soccer World Cup.
Last month Tsogo Hotels – which operates the Southern Sun brand that covers iconic Cape Town Southern Sun properties in the Waterfront, city centre, City Bowl, Woodstock and Newlands – issued a dire warning around a prolonged recovery from the prevailing pandemic.
Tsogo said that the impact of Covid-19 – combined with the acceleration in travel bans being imposed by many countries – had resulted in forward bookings for April through June reflecting a total collapse of demand.
The group said that given the environment of the past few weeks, actions to reduce costs and capital expenditure had already been taken. “These have now been expanded to eliminate virtually all variable costs, substantially reduce the fixed cost overheads, conserve cash in order to preserve the sustainability of our business and the people whose livelihoods depend on us.”
Tsogo explained that in order for this to be achieved, a reduction of excess capacity was required. This would be implemented through an orderly deactivation of a number of hotels in the key nodes where the Tsogo had multiple properties and consolidating the available demand into the remaining operating hotels in those areas.
Tsogo stressed it had the ability to reactivate this capacity on short notice should there be an upturn in demand. This meant all booking channels would remain active for the close monitoring of demand patterns.
Tsogo said the first phase would affect up to 36 hotels representing 7 700 rooms (or 40%) of the group’s portfolio over the next few weeks.
Tsogo noted that during this period, all capital expenditure had been postponed and only essential maintenance would endure.
Tsogo confirmed it had been approached by both the public and private healthcare sectors to assist in the provision of quarantine facilities through the use of hotels that would otherwise have been deactivated.
Although near impossible to predict, Tsogo said it was working on the assumption that hotels would begin to be reactivated by no later than July 2020. The group also expected the corporate and government travel sectors to recover relatively quickly.
“Many of the events and conferences that were to take place during the next three months have been postponed to the second half of 2020 as opposed to being cancelled.”
Sadly, Tsogo noted that March was typically a peak month – adding that until the effects of the Covid-19 pandemic began to impact trading the group was on track to achieve a satisfactory performance in the month. Despite the March impact, Tsogo said it would still meet the covenant obligations to its various debt providers for the 12 month period ended March.
But assuming exceptionally low occupancies and the deactivation of a number of hotels for a period of three to six months, Tsogo conceded it would be unlikely to meet the covenant requirements for the rolling 12-month period ending September this year. The group said it was engaging with its various lenders to request waivers of these covenants and to ensure that the loan facilities are still maintained.
Naturally, the V&A Waterfront – Cape Town’s biggest leisure and retail precinct – could also bear the brunt of social distancing and lock-down efforts aimed at containing the spread of Covid-19.
At the time of going to press, Growthpoint – the 50% owners of the V&A Waterfront – had not issued an updated statement regarding trading in the property.
But in the half year to end December 2019, the V&A Waterfront once again showed its reliance in operating in leaner economic times.
Growthpoint reported that net property income from the V&A Waterfront shifted up to R344 million – well ahead of the R315 million and R299 million recorded in corresponding periods for the previous two years.
Growthpoint now values its stake in the V&A Waterfront at R7.6 billion – inferring a value R15.2 billion for the precinct.
Incredibly vacancies stood at just 1% (previously 1.8%) with total rental arrears a mere R40 million. The property’s renewal success rate was an enviable 86% with the weighted average future escalations on rentals sitting at a sprightly 7.6%.
Growthpoint cautioned that the V&A Waterfront – which benefits from local and international tourism – was positioned to deliver growth but was not immune to the erosion in the domestic economy.
The group added that there was, however, still demand from corporates for offices at the V&A.
“This is positive for our investment returns.”
Growthpoint said the V&A Waterfront continued to look for opportunities to enhance earnings, increase bulk, densify the precinct and grow its footprint.
Of course, it remains to be seen whether the Covid-19 situation reins in further development efforts at the V&A Waterfront. Growthpoint indicated that development would focus on bulking up the Canal District and prioritising the Pierhead district.
Growthpoint indicated that the Granger Bay ‘masterplan’ was a work in progress – and would be the next area of focus.
Equites goes big in Brackenfell
CAPE TOWN-based property group Equites is joining forces with supermarket giant Shoprite for a mega distribution centre development in Brackenfell.
This entails Equites and Shoprite forming a joint venture company. Shoprite will contribute a portfolio of distribution centres and associated undeveloped bulk land in Brackenfell in the Western Cape and Centurion in Gauteng valued at R2 billion, Equites will contribute cash of R2.1 billion.
Equites will own 50.1% of the joint venture, and Shoprite the balance.
More specifically, the joint venture will acquire the Cilmor distribution centre in Brackenfell (with associated undeveloped bulk land) from Shoprite for R1.2 billion.
The joint venture will then conclude “triple net’ lease agreements for the Brackenfell Cilmor distribution centre, as well as manage the property and serve as a platform for the future development of the undeveloped bulk land.
Equites noted that the Cilmor and Brackenfell distribution centres were situated in one of the oldest and largest industrial hubs in Cape Town.
The group pointed out that major access routes are the N1 and the R300 – providing easy access to Cape Town International Airport, Cape Town Harbour and Container Depot and the Cape Town CBD.
