City Lodge identifies East Africa as a preferred region

After assessing opportunities in Australia, South America, India and Europe, City Lodge Hotel Group is focusing instead on East and Southern Africa, where it is investing close to R1-billion, a capital investment programme that will be completed by the third quarter of next year.

"There were so many factors which really didn't make us happy going to these offshore places," said City Lodge CEO Clifford Ross .

The group was far down the line with negotiations in Argentina a number of years ago, but decided to wait for the pending elections - "which were a disaster. They dumped the dollar and went back to the peso, prices were off the scale and it would have been a very big risk."

In Australia, the numbers didn' t work. I n India, it would have probably taken five or six years to get any return on investment, said Ross.

"It doesn't mean we've taken the eye off the ball there; if we could find a small group, we may pursue it," he said.

The team spent a lot of time in Nigeria, but "we just felt that was just far too risky, not only because of the political situation but the fact that they're very reliant on one commodity, oil - and we all know what happened there. With the pipelines of hotels coming into Nigeria, we were very worried about the room rates and what would happen when these hotels came online."

The group also considered Ghana, but the oil debacle created a huge problem for the Ghanaian economy as well.

So City Lodge is expanding its Town Lodge, Road Lodge and City Lodge brands in East Africa.

The group recently bought the balance of the Fairview Hotel in Nairobi, Kenya, and is investing in a 172-room City Lodge in what is possibly the biggest mall in East Africa, Two Rivers, in Gigiri, Nairobi - a mixed-use development regarded as the Sandton of Nairobi.

The group is also planning the 147-room City Lodge Hotel Dar es Salaam in Tanzania.

Ross said there were good opportunities in Uganda, and City Lodge was pursuing these.

The group is keen on Rwanda, too, but "the pipeline of international branded hotels is taking the number of hotel rooms from 350 to 1450 in the next year or so. It's one that we will watch."

Ross said there were opportunities for a business hotel in Port Louis, Mauritius, as most of the hotels in the country were focused on leisure.

The group is building the 147-room Town Lodge Windhoek in Namibia and the 148-room City Lodge Hotel Maputo in Mozambique.

"This is the one we've probably had the most difficulties with because of language and red tape. We are now on site," said Ross.

City Lodge plans to go into Zambia too - "We've been looking at Zambia for about eight years already."

The group plans to develop one or two hotels a year in Africa over the next five years.

"We certainly believe in East Africa. It's a good area as far as regional travel is concerned. They've got low-cost airlines flying in, which they never had before, and it's really opened up the region."

De Wet Schutte, an equity analyst at Avior Research, said: "They have ambitious plans for East Africa; they've clearly identified that as a preferred region for the continent. It's important for their model to secure tenure of hotels as they own their hotels."

Schutte said hotel room rates were generally higher in the rest of Africa than in South Africa. "The flipside is the risk of doing business, and building costs, which are significantly higher. These things offset each other," he said.

"The question is whether City Lodge can replicate the brand presence in another region, and we think they can."

The group still sees opportunities in South Africa, although Ross said prospects in the country were really depressed.

"In South Africa we believe we can still do on average two hotels a year over the next four to five years.

"Our model is so different to everybody else. We are operators, developers, constructors and we use our own money.

"Currently in South Africa I don't see any move to increase capacity in any great way because of the economic situation."

The new investments will take City Group' s room numbers to 7686 by early next year in South Africa, Kenya, Tanzania, Namibia, Botswana and Mozambique, from the current 7072 in South Africa, Botswana and Kenya. The group will have seven hotels outside South Africa by the middle of next year.

Competitor Tsogo Sun has hotels in Nigeria, Mozambique, Kenya, Tanzania and the United Arab Emirates, and two hotels each in Zambia and the Seychelles. Sun International has casinos in Panama, Colombia and Peru, and hotels in Nigeria and Swaziland.