The medium to long-term outlook for the industry remains positive. While the short-term outlook for the hospitality industry is challenging, the 2010 FIFA World Cup will provide a much-needed boost to hotel profits, and the medium- to long-term outlook for the industry remains positive.
So explains Gerald Nelson, CEO of Hospitality Property Fund, which invests exclusively in hotel and leisure properties and has interests in 23 hotel and resort properties in South Africa. The Fund today issued a trading statement that its total distribution per linked unit for its next distribution period, ending 31 December 2009, is likely to be between 30% and 40% lower than that of the previous corresponding period.
The operating performance of the South African hotel industry has deteriorated significantly during the five months to November 2009 when compared to the same period in 2008. The latest STR Global HotelBenchmark statistics indicate that occupancies have declined some 14,2%, whilst average daily room rates have decreased by 0,5%, resulting in a decline of 14,6% in revenue per available room.
Hospitality confirms that this trend is reflected in the performance of its hotels. "The decline in revenues has occurred whilst staff and supplier costs have increased by 6% to 8%, which has further eroded profitability. Although operating expenses were reduced in anticipation of lower business volumes, some fixed expenses including rates and electricity have increased significantly year on year," notes Nelson.
Whilst Hospitality's forward bookings suggests that the corporate and conferencing market segments should pick up from February 2010, foreign leisure travel is likely to remain depressed in the early part of the new year and Government conferencing volumes have remained substantially below historic volumes to date.
In this environment, the 2010 FIFA World Cup is superbly timed and placed to revive South Africa's hotel profits.
Nelson reports that most of Hospitality's hotels are contracted to major clients, with deposits secured. "Now our focus is set on ensuring that maximum benefit is derived, both pre- and post-event".
Hospitality's units in issue comprise A- and B- linked units. A-linked units have a preferential claim to earnings, with growth of 5% per linked unit for the current reporting period, while the B-linked units receive the balance of the earnings and, due to the leveraging effect, distributions of this unit are expected to be 55% to 65% down.