Tsogo Sun has become a leading player in SA’s hotel industry, owning some of the most sought-after hospitality assets in the country. It recently bought a stake in SA’s only hotel Real Estate Investment Trust (Reit), the Hospitality Property Fund (HPF). The question is how does Tsogo plan to make its investment in HPF a success?

Tsogo has already made substantial investments in hotel management companies and has now established its dominance with the investment in HPF. The investment of about R1.8bn — 10 hotel properties — gave it the controlling interest.

In doing so, Tsogo required HPF to collapse its dual share ownership structure. Under the old structure, A shareholders were first in line for dividends capped at the inflation rate, or 5%, whichever is lower. Only then did B shareholders receive an income, which meant they often got nothing, especially when HPF fares poorly.

On Friday, Tsogo said it would shift more assets into HPF in a deal worth about R3.3bn to give the company greater scale of economy. It did name the assets, which has led analysts to speculate that Tsogo may be about to place a premium property into HPF.

HTI Consulting CEO Wayne Troughton agrees. “In the first round, they injected mainly secondary hotels in secondary locations. There were various competition-related conditions placed on the deal. They are meeting those conditions and I think it would make sense for Tsogo really to beef up the HPF portfolio with one of their premium Sandton or Cape Town assets,” he says.

HPF owns 24 hotels and resorts in SA valued at R7.8bn.

Source: Business Day – Neels Blom edits Company Comment