The tourism and hospitality industry has been one of the worst-affected sectors in the face of the global Covid-19 pandemic, which has been around for some 22 months now. However, there are some green shoots.
South Africa did not see any lockdowns during the December holiday season – barring, of course, the initial international travel bans on the country owing to the discovery of the Omicron variant in November.
On the green shoots front, in this episode of The Property Pod, we speak to Hamza Farooqui, CEO of Johannesburg-based Millat Investments.
A key part of the group’s investments is in the property and hospitality space. Millat owns the Hyatt Regency Cape Town hotel property, and in November opened the Hyatt House hotel in Sandton. At the opening, the group announced that Hyatt House Sandton is part of the R300 million investment into new hotel properties in South Africa.
However, Millat has more plans in the pipeline. Farooqui gives us some insights into the group and these plans.
Highlights of his interview appear below. You can also listen to the full podcast above or download it from iono, Spotify or Apple Podcasts.
“We obviously don’t disclose that [monetary value of the portfolio] … as we keep it privately held. But the tourism and the property portfolio is of a significant size and a significant holding, which during this Covid time we’ve been able to grow significantly.”
“We’re a privately held organisation which focuses on unique opportunities – I wouldn’t say special situations only, but also where there is some kind of a value arbitrage.”
“Over the last two years and in a climate like this we have found much opportunity in the tourism and leisure space.”
“We’ve always had the property in Cape Town, which we [re] opened in December 2020 [under the Hyatt brand], but over the last year or two we’ve been able to build a thesis which focuses on optimised performance of assets in this climate, branding hotels – a very important part of our thesis – and really seeing how we can position ourselves as a group to get ready for a recovery, which is imminent at some point in time.”
“Our view is that this should be a very strong recovery. We have, as you said in your introduction, opened our Hyatt House Sandton property, which is for extended stay and which is the first globally branded extended stay on the African continent, and we are very excited about doing more.”
“We also, just towards the end of last year, announced our third hotel, the Hyatt House in Rosebank, which is due for opening in the middle of February.
“So it’s been a very busy time for us. When people are shutting hotels, having a very jaundiced view on the sector, we’re actually opening hotels, branding them and trying to build a story of scale and how we can really get traction in the market, which I think has been very under-looked and has underperformed in this country.”
You must be pretty confident in the future of the hospitality industry and the property sector to be investing currently?
“Absolutely. If I give you our personal outlook, we are almost at the end of this pandemic – which is now becoming an endemic. The world is learning to live with it, and I think that in itself is creating significant opportunity.
“I can first-hand tell you that in December, while we were not able to get the kind of traction on pricing, most of our hotels were full. People realise that they want to get out, they want to travel. I think we as human beings are meant for face-to-face personal travel interaction. It’s a fundamental part of who we are.
“So for the sector and the industry broadly, I think the fundamentals remain strong and I think they’re going to come back. I think that’s even further [demonstrated] when you look at a country like South Africa, which is still very deeply undervalued, where you have great climate and a lot of authentic opportunity for tourists. Yes, it is a long-haul destination, but we have all of these factors where historically not much has happened in the tourism infrastructure space.”
“The last time that the hotel sector really got a shake-up was in 2010 during the Fifa World Cup. Since then, there’s been no real supply. There’s been no real innovation. There’s been no real fire in the belly.”
“If you see what keeps big global centres like New York, London and Dubai active, there’s consistently new tourism product, and new restaurants. That hasn’t been the case in South Africa. Our house view from an investment standpoint is that this is the best time to actually go out and make that innovation and to get into this sector and build scale. So we are doing just that.”
Further investment …
“In terms of what our outlook is, we are absolutely doing more. Obviously I can’t give more details at this stage, but in the coming weeks there should be a significant announcement coming through where we’ll be growing the portfolio even more.
“That too is something very compelling from a product standpoint. So we are very bullish.”
“That being said … We’re also very cautious and judicious operators. We don’t open hotels for the sake of opening hotels. We get into the business, we get to the P&L [profit and loss side]. We don’t just let the big brands dictate and drive what needs to happen. We pay attention to detail and that’s really what’s been missing in the sector.
“You’ve got the big operators, the big listed companies, who pretty much drive hotel/gaming companies, and they’ve been there for ages. But then there’s no one in the middle who has really understood the sector, understood the innovation.
“If you look at Hyatt House Sandton, it’s priced as a select-service product, but you come in and you feel like you’re in a full-service hotel. It makes use of huge outdoor spaces. It makes use of great weather. It has a food and beverage outlet which is compelling. These are all drivers which make South African tourism and what South Africa has to offer compelling – not just to the international tourists, but also to the local tourists.”
Partnership with Hyatt …
“We’ve worked with big global brands. We had a deep relationship with Hilton. We also owned a Conrad brand for a number of years before we exited from that property. One of the things with the big brands is they’re all very good, but it’s about how you approach and work with them and how you make their brand and engine work. Many of them battle to localise, many of them battle to really unlock value.
“That’s why, if you look at South Africa, you don’t have a landscape of all the big [international hotel] brands really clamouring for this market because you’ve got very strong local brands in place.”
“That being said, that’s changing and that’s going to change even more. As South Africa becomes more intertwined with the international tourist market, as South Africans start travelling more and more, they’re going to recognise these brands. They’re going to expect a certain kind of quality and brand standard.
“We’ve been very fortunate to have significant alignment with the Hyatt group, where they understand what matters to us, they understand what our vision is, and there’s been a very significant meeting of the minds – and on that basis we are growing the portfolio.”
“I am a strong believer that part of that innovation and that uniqueness comes from these global brands. If you go to any major centre again in the world, these global brands drive and dominate primarily because of the scale of distribution, the scale of what they bring, and obviously service and guest satisfaction.”
“If you stay in a Hyatt hotel, you know issues around fire, light, safety and guest comfort are on par with the best. It’s expensive to implement, but these are all pieces which matter. I think the South African consumer is becoming more and more aware and cognisant that that’s what they want.”
“So we are very excited. We are very happy with the partnership that we have formed. These properties are managed by them [Hyatt] under a management agreement and over the years the group has understood how to get the best out of these agreements, which very few frankly in the country have.
“Banks don’t like management agreements, and many owners don’t understand management agreements. We’ve been able to form a very specific niche on how to get the best out of, and how to be in a relationship with, these global brands and make that work.”
“So we’re very excited and we believe the future holds great things for us and, I think, for Hyatt.”
Focus on Gauteng …
“I think there’s going to be significant focus from our standpoint in Gauteng. I think the luxury segment with a strong leisure focus is something we’re currently working on and I think it’s going to be a significant announcement.
“We are quite excited about the opportunity we have with Hyatt and what we’re planning on doing. But that being said, there’s also opportunity we’re looking at in the select-service market.”
“So a lot of it is probably going to be in Gauteng, because we see growing demand here. It is one of the centres of growth for the African continent and a centre where we see strong recovery coming forward.”
“But we are very much open to more opportunities. We have a very rigorous framework; we don’t take everything which comes through.”