City Lodge Hotels announces interim results – average room rates up

Town Lodge Bellville, co-working spaces

Highlights

• Revenue: R1.02bn (up 2%) HY2024: R1.00bn
  
• Return on equity: 10% (up 0.6% points) HY2024: 9.4%
  
• Group occupancy: 57% (down 4% points) HY2024: 61%
  
• Average room rate: up 10% HY2024: up 9%
  
• Profit for the period: R120m (up 12%) HY2024: R107m
  
• Earnings per share (undiluted): 21.6c (up 15%) HY2024: 18.8c
  
• Headline earnings per share (undiluted): 21.6c (up 15%) HY2024: 18.8c
  
• Adjusted headline earnings per share (diluted): 19.6c (down 2%) HY2024: 19.9c
  
• Adjusted EBITDAR: R319m (no change) HY2024: R319m
  
• Dividends declared per share: Interim: 6c (no change) HY2024: 6c

Commentary

City Lodge Hotels continues to deliver on its strategic initiatives to improve yield management, focus on cost containment and creating value by investing and modernising key properties in its 58-hotel portfolio. The group delivered a 10% room rate growth, and had nine refurbishment projects, at various stages of progress, underway during the six months under review.

The group invested R408m over the last 30 months in revitalising our hotel portfolio, and plans to invest an additional R200m over next six months.

Andrew Widegger, chief executive officer at City Lodge Hotels

“City Lodge Hotels has delivered a stable trading performance for the first half of the year, against strong headwinds in demand, as consumer and business spending remained subdued. While economic sentiment has improved following the outcome of the South African national government elections and the formation of the government of national unity (GNU), consumers and businesses have remained cautious until meaningful changes have been realised,” explains Andrew Widegger, chief executive officer.

Regionally, Gauteng, Western Cape and Free State have seen the most improved revenue growth as more employees return to work in their offices and business-related travel normalises. The increased volume of international travellers has benefited our Western Cape hotels. In contrast, leisure and business demand in KwaZulu-Natal has remained subdued due to water and sanitation challenges together with safety and security concerns lingering from the riots, and fresh disruptions in the lead up to the national elections.

National elections held in the other SADC countries in the second quarter have contributed in varying degrees to disruption in operations and occupancy. Unrest in Mozambique remains disruptive to both our operations and the group’s schedule to complete the remaining three floors of the hotel. However, the hotel remains operational and has served as a safe haven for guests.

Financial review

Dhanisha Nathoo, chief financial officer at City Lodge Hotels

“These challenges have dampened occupancies in the first half of the financial year, which is down four percentage points, compared to the prior six months. The decreased occupancies have been somewhat mitigated by the delivery on the group strategy for more effective yield management delivering a 10% increase in average room rates. This has resulted in an overall 2% increase in total revenue for the six months ended 31 December 2024 to R1.02bn (six months ended 31 December 2023 (HY2024): R1.00bn),” says Dhanisha Nathoo, chief financial officer.

Our enhanced food and beverage (F&B) offering is now well established across all brands, and is still showing promising prospects for further growth, notwithstanding that it has been negatively affected by the lower occupancies and the refurbishments in progress during the period. F&B revenue increased by 6% to R200.2m (HY2024: R188.5m), and it now accounts for 20% (HY2024: 19%) of total revenue.

“With constrained occupancies, together with the 35,500 (HY2024: 17,000) room nights taken out of inventory during the refurbishments, the group focused on cost containment resulting in a marginal 3% increase in total operating costs,” notes Andrew Widegger.

The 6% increase to salaries and wages to R288.8m (HY2024: R271.8m) was largely aligned to the annual inflationary increase offered to staff of 6.25% in August 2024.

“The group has mitigated the average 13% utility price increases over the last year, through the increased use of solar generated power from the additional 16 solar installations, and the reduced consumption of generator fuel, resulting in property costs increasing by only 2% to R95.9m (HY2024: R93.9m),” adds Nathoo.

Rooms related costs of R104.5m (HY2024: R110.5m) are mainly variable in nature, and decreased by 5% during the period. F&B costs of R77.6m (HY2024: R77.8m) have remained unchanged for the period, delivering further efficiencies against the F&B revenue growth of 6%. F&B gross profit margins have improved to 61% from 59% in the prior period.

The group generated EBITDAR of R330.1m (HY2024: R312.3m) for the period, and an EBITDAR margin of 32.3% (HY2024: 31.2%). Whilst adjusted EBITDAR margin, which excludes unrealised foreign currency gains/(losses), retracted slightly to 31.2% (HY2024: 31.8%).

Depreciation for the year of R89.5m (HY2024: R83.1 million) includes depreciation of capitalised leases. The 8% increase relates to higher refurbishment capital expenditure incurred by the group compared to the prior period.

Lease related expenses (i.e. depreciation on right-of-use assets of R45.8m and interest expense on leases of R62.9m) exceeds cash lease payments of R86.3m by R22.4m.

Taxation amounting to R47.2m (HY2024: R45.6m) increased by 3%, with an effective tax rate of 28% (HY2024: 29%)

Profit after tax increased by 12% to R120.4m (HY2024: R107.3m), and diluted earnings per share increased by 16% to 21.6 cents (HY2024: 18.7 cents).

Diluted headline earnings per share increased by 16% to 21.6 cents (HY2024: 18.7 cents per share), and adjusted headline earnings per share, which excludes unrealised foreign currency gains/(losses) and exceptional items, has decreased by 2% to 19.6 cents (HY2024: 19.9 cents).

City Lodge Hotel Lynnwood double room

Strategic update

“The board has approved an interim ordinary dividend of 6.00 cents per ordinary share (4.80 cents net after deducting withholding tax) in respect of the six months ended 31 December 2024 (HY2024: 6.00 cents and 4.80 cents net after deducting withholding tax),” announces Nathoo.

She adds: “The group has actively managed its debt position and cash generated by operations of R250.5m (HY2024: R265.9m) to fund its extensive refurbishment investment in key hotels and resilience initiatives around water and electricity. These investments ensure that the group is well positioned to respond to guest demands, is more sustainable, and continues to deliver value from its well-equipped and maintained portfolio of hotels. During the period, the group utilised R60.0m of its R600.0m loan facilities, to fund the capital expenditure incurred during the period, as well as the accrued expenditure as at 30 June 2024.”

The group completed five refurbishment projects during the period under review, which included City Lodge Hotel Lynnwood, Town Lodge Bellville, Road Lodge Durban, Road Lodge N1 City, and Courtyard Hotel Sandton – commercial area.

Four additional projects are in progress, and will be completed in the current financial year. These include Town Lodge George, City Lodge Hotel Umhlanga Ridge, City Lodge Hotel V&A Waterfront – commercial area, and the expansion at City Lodge Hotel Maputo.

“The doors to City Lodge Hotel Sandton, Katherine Street permanently closed in December 2024 after 35 years of operations. Loyal guests have been redirected to our other three hotels in the Sandton area, covering a range of budget options. The hotel is in the process of being sold for gross proceeds of R68m, and the sale is expected to complete in the financial year. The group intends to use a portion of the sales proceeds towards share buy-backs,” notes Widegger.

City Lodge Hotel Lynnwood, Sundowner Bar

Outlook

“The economic outlook is positive over the next 12 months owing to the stabilisation of electricity supply, three consecutive interest rate cuts, revised positive GDP growth projections and softening inflation, complimented by the introduction of the two-pot retirement system and the continued progress by the GNU. The upcoming G20 summit later this year and associated events and activities, are all expected to have a positive impact on consumer and business confidence, spending and elevated investor interest in South Africa,” comments Widegger.

Nathoo reports, “The group has benefited from these green shoots with occupancy growth in January 2025, which is typically our quietest month, up two percentage points to 44% (January 2024: 42%), with SA occupancy growth up three percentage points. The positive momentum has carried into February 2025, with month to date occupancy up by 3.8 percentage points to 60.3% (February 2024: 56.5%) compared to the same time last year.”

The strategy to deliver value from the group’s extensive hotel portfolio and its modernisation programme is progressing at pace and on conclusion of this current phase, we would have completed refurbishments to 21% of our portfolio.

“The group continues to seek and pursue selected opportunities for new hotels in high growth areas within South Africa,” adds Widegger.

We are actively partnering with provincial and municipal governments, and travel and tourism industry bodies to activate positive public relations and identify and pursue solutions for the upliftment and safety within our tourism hubs in KwaZulu-Natal and Gqeberha.