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South Africa – Tsogo Sun to float assets after splitting hotels from casinos

By - 10 June 2019

South African operator Tsogo Sun is in the process of unbundling its casino and hotel interests, prior to listing the holding company THL on June 12.

The ‘unbundling’ aims to ‘unlock value’for its shareholders.

The company said: “In terms of the unbundling, Tsogo Sun will distribute its entire holding of THL Shares to its shareholders as a distribution in specie in the ratio of one THL Share for every Tsogo Sun Share held on the Unbundling Record Date, being 14 June 2019,” the company said.

Following the move, Tsogo Sun will be made up of its gaming division, casino and alternative gaming operations with the plan being to rename the entity as Tsogo Sun Gaming. The hotel part of casino complexes will be owned by the group and remain under the Tsogo Sun header although they will be operated under a management agreement by THL. THL will own, manage and lease hotels in South Africa and sub-Saharan Africa countries and the Seychelles and Abu Dhabi. THL will hold the group’s 59.2 per cent stake in the Hospitality Property Fund Limited, consisting of 110 hotels.

Robert Tout, Equity Analyst at All Weather Capital, believes that a separate float for the hotel side of the business ‘will likely be value enhancing’ providing ‘a cleaner investment case for the core mature casino properties and faster-growing alternative gaming assets.’

Former CEO of Tsogo Sun and the new chair of Tsogo Sun Hotels, Marcel von Aulock, said the new set up would give investors the choic of either investing in a hotels business and the regular income returns they provide or in a gaming business that had a mix of mature casino assets and newer gambling assets.

Mr. von Aulock said: “This company has a range of businesses within it and this diversification can protect it in down times. We have local hotels which we hold directly, eight African hotels, management businesses and also the 25 per cent of UK hotel group RBL.”

He said the group could perform better than its subsidiary, HPF, had in recent years. Tsogo took over HPF in 2016 when the real estate investment trust was struggling in a post 2010 Soccer World Cup lull. Since then new management has been appointed at HPF and the company’s portfolio has been reshaped.

In its last financials, Tsogo Sun said the last year had been a ‘challenging period’ with profits falling 24.8 per cent to R1.6bn.

“Trading for the year was impacted by the continued pressure on the consumer due to the macroeconomic environment,” the group said. “Given the continued weak state of the South African economy trading is expected to remain under pressure. Nevertheless, the group remains highly cash generative and is confident in achieving attractive returns from the growth strategy once the macroeconomic environment improves.”

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