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Tsogo Sun plans to transfer more hotel assets, lift stake in Hospitality REIT

Tsogo Sun acquired a 50.6% stake in Hospitality Property Fund, a real estate investment trust (REIT), last year in exchange for selling 10 hotels.

Inside of a hotel. Picture: Facebook

JOHANNESBURG – South African hotelier Tsogo Sun said it could increase its stake in Hospitality Property Fund to as much as 60% as part of an exchange if it reaches agreement to sell more hotel assets to the fund.

Tsogo Sun acquired a 50.6% stake in Hospitality Property Fund, a real estate investment trust (REIT), last year in exchange for selling 10 hotels worth R1.78 billion to the fund. It is now in talks to sell additional hotel assets worth R3.3 billion to the fund.

“The fund is paying for properties from Tsogo with a combination of new shares and debt. We will therefore increase our holding to somewhere between 55 and 60%,” Tsogo Sun’s Chief Executive Marcel von Aulock told Reuters in an interview.

Tsogo, the owner of Gold Reef City and Montecasino, announced in 2015 that it planned to separately list its property portfolio but later abandoned the plan and said it would focus on building up a REIT to better compete with property rivals and create value for its hotel business and access new properties.

The current talks include selling 36 hotels to the fund, including 21 from the Sun1 brand, von Aulock said. Tsogo then plans to buy more property via the REIT in future.

“We are now busy working on putting in the balance of our hotels. It should push this fund up between R10 billion and R15 billion worth of assets is where we want to get to,” von Aulock said.

The fund was valued at R7.8 billion in December after the acquisition of the 10 hotels from Tsogo.

“In property you need scale, so by taking over the fund it gave us access to a whole lot of properties that are not managed by us but we’re very happy to own and we’re now able to bulk this thing up and that will unlock quite a bit of value,” von Aulock said.

The expansion plans reflect a trend for consolidation in the REIT sector in South Africa, where small-cap funds have either been bought or have merged with similar sized players to stay competitive.

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