Looking at a number of distressed hotel assets having already acted with The Grace, also investing in Suncoast casino Durban and “tweaks” at Silverstar

TSOGO Sun Holdings, the gaming and hotel group that merged with competitor Gold Reef Resorts , is planning to use its newly acquired muscle to invest in its gambling businesses and to buy financially vulnerable hotels.

“Once you have the cash generation we have got from the merger it gives you the ability to pursue projects on a greater scale,” Tsogo Sun CEO Marcel von Aulock said yesterday.

Commenting on the strategy the group is following for its hotels business, Mr von Aulock said Tsogo was planning to use some of the cash to make “opportunistic” investments in SA and possibly West Africa, where it is considering building hotels.

“There are a number of distressed hotel assets around; we have already acted with The Grace. I am pretty sure more of those will come up,” Mr von Aulock said. Additional investment in its Suncoast casino in Durban is planned, as well as some “tweaking” at its Silverstar casino, west of Johannesburg.

Tsogo Sun, which owns Montecasino, released its interim results for the six months to September yesterday, showing headline earnings per share flat at 50,1c. The performance of the financial first half of the year was in line with market expectations, De Wet Schutte, an analyst with Avior Research said.

Tsogo reported average occupancies were at 58,9% from 59,3% a year ago. The hotel sector is still struggling from an oversupply of new stock and drop in demand. Room rates on average declined 16% to R760, mostly as a result of the higher rates that were achieved last year during the Soccer World Cup, it said.

Gaming revenue rose 67% to R3bn. On a like-for-like basis, which strips out the merger effects, gaming revenue grew 6,6%, Mr von Aulock said.

“It is still tough out there. We are not seeing fabulous revenue growth. But the nature of this business is that cash flow is strong and there is not a lot of debt. They will be in a very good position to invest and to pay out to shareholders,” Mr Schutte said.

Source: SA Commercial Prop News