The hotel sector may be in the doldrums due to Covid-19, but industry disruptor and founder of The Capital Hotels & Apartments group Marc Wachsberger is eyeing acquisition opportunities through distressed hotel properties hitting the market.
Wachsberger, a corporate finance whizz turned hotelier, tells Moneyweb the group is looking at a few potential deals. But he does not want to reveal details until the deals are sealed.
“Capital Hotels is a growth business. In fact, we grow best in bad times,” he says.
The group was launched back in 2008 around the time of the global financial crisis and today has nine hotels in the country’s major cities of Johannesburg, Pretoria, Cape Town and Durban.
It disrupted the market as a forerunner in the ‘apartment hotel’ space and has taken advantage of the Section 12J tax incentive to secure investment into developing several hotels.
Now, despite Capital Hotels also taking a hit from the Covid-19 economic crunch, Wachsberger sees long-term growth and acquisition opportunities.
Good time for those with access to cash
“Following 2008 and the 2010 World Cup hangover, there were opportunities to be had in the hotel sector. I believe now is another good time to buy, with an increasing number of hotels going into business rescue or facing bankruptcy – which means new buyers with access to cash can pick up distressed hotel assets at low prices,” he says.
He concedes that there is industry uncertainty as a result of Covid-19, adding that the hotel sector only expects to recover to 2019 levels by 2023.
“However, there is also value in looking to recapitalise the hotel sector at sustainable levels right now, through acquisition opportunities that present long-term growth prospects,” he points out.
“The Capital Hotels & Apartments Group has kept cash in the bank and is really ready for acquisition opportunities.
“We can also raise capital through our partners Westbrooke Capital Hospitality and the Buffet Investments consortium should we need further funds to take advantage of distressed hotel acquisition opportunities,” he adds.
Until September last year, the group had grown its portfolio to 10 hotels countrywide, with around 1 500 rooms and 550 staff.
However, Wachsberger says he made the decision to close the Capital 20 West hotel property in Sandton late last year.
“We’ve also had to adapt to the tough environment, especially with Capital Hotels being overtraded in Sandton. Unfortunately, we had to cut around 50 staff,” he says.
“However, this was a leased property in Sandton, where the group had around 140 rooms as part of a larger apartment development. Our strategy to lease offers us flexibility to reopen the hotel in future if there is demand.”
When the initial Covid-19 hard lockdown came into force in late March last year, Wachsberger says Capital Hotels was one of the only hotel groups to stay open.
Besides servicing tourists linked to repatriation flights as well as flight crews, the group secured a partnership with Discovery where its hotel rooms were used as a safer option for self-isolation of people who may have contracted Covid-19.
“This kept us going and we remain one of the only hotel groups to have all our current portfolio of hotels open for business.
“We are presently operating at around 40% occupancy levels, which is much higher than the overall average hotel industry occupancy level of between 8% to 10%,” says Wachsberger.
“Even at our group’s occupancy levels, we are losing money at the moment. But we are not wiped out and continue to employ around 500 staff. Capital Hotels continues to innovate and disrupt the market. We want to be in a prime spot when things turn around.”
Reinforcing his optimism that the tourism and hotel sectors will recover, the group is still planning new hotel developments – including a 200-room hotel in Nelspruit, Mpumalanga, that is currently under construction and set to open in 2021.