African hotel investor sees potential for budget / mid-range hotels

The Kasada Hospitality Fund recently acquired the 414 room Safari Hotels and Conference Center in Windhoek, Namibia.

Kasada Capital Management is an independent investment platform within the Kasada group, dedicated to the hotel industry in sub-Saharan Africa. The group has hotels operated under the brands of its strategic partner Accor, including Ibis, Pullman, Novotel and Mövenpick. To date, Kasada has invested in Côte d’Ivoire, Senegal, Cameroon and Namibia.

We chat with CIO David Damiba about why he prefers mid-range hotels to five-star hotels and African countries where he sees the most attractive opportunities.

Kasada has invested in hotel properties in several countries on the continent. How do you choose your investments?

Like most private equity firms, we think in terms of regions: East Africa, Southern Africa and West Africa. We see value and good opportunities in every region. The Covid-19 pandemic has been a system shock to the entire hospitality industry, so we want to use the scale of Kasada’s platform and our deployment capabilities to energize the industry.

We tend to focus on key cities and countries. Specifically, we focus on concentrated and larger cities and economies across Africa, such as Abidjan, Dakar, Lagos, Abuja, Johannesburg and Nairobi. This has always been our strategy. Then we select a few countries, like Namibia, which are not necessarily as important or our main focus, but which offer attractive opportunities.

What particularly appealed to you about your recent acquisition of the 414-room Safari Hotels and Conference Center in Windhoek, Namibia?

Many families or individuals own hotels in Africa but there are not many physical institutional platforms that own hotels in Africa. We are solution providers; we are looking for the right solution for potential sellers.

Safari Hotels and Conference Center had been around for a long time – a whole generation – and it had grown organically, from a small structure to a large hotel. It is the largest in Windhoek, accounting for almost 35% of the number of rooms in Windhoek.

It had been successfully run as an independent hotel, so no international brand was running it. Our added value is to offer a financial solution that works for salespeople, by applying our international expertise – both financial and hotel – and by calling on our strategic partner Accor. The chord was a classic Kasada chord. We have found a solution for the seller, we are going to take back the property, set up operating and asset management goals to optimize the asset and raise it to another level.

David Damiba, Managing Partner and Chief Investment Officer of Kasada Capital Management.

David Damiba, Managing Partner and Chief Investment Officer of Kasada Capital Management.

Kasada focuses on the economy to mid-range segment of the hotel market. Why is it?

If you look at the current supply of hotels in sub-Saharan Africa – and we’re talking about international brand hotels – you’ll see an unusually high percentage towards the high end of the market. It’s a little paradoxical given the young age of the population and also the consumer’s wallet. In some ways that doesn’t make sense, but it does reflect the thinking of many homeowners. They tend to be successful entrepreneurs or families involved in multiple industries and they want a hotel positioned on the upper ladder. They build a hotel not so much as an economically viable asset, but rather as a status asset.

Instead, Kasada sees a strong need for high-quality budget and mid-range branded hotels on this huge continent to accommodate a massive and young population, and dynamic entrepreneurs moving to these different cities. These segments are not only where you should have the most supply, but also where there is the most demand. From a purely economic point of view, these types of hotels have an attractive return profile.

It is important to create a product that is attractive to the consumer. Just because he’s in a lower segment doesn’t mean he can’t be attractive. It should aim to be a differentiated and very pleasant user experience. Providing good value for money to the consumer in this context should always be considered a high priority.

The pipeline for the future supply of hotels in Africa over the next two to four years is still geared towards the higher scale. In some ways we are a bit against the grain, but our approach is a way to rebalance the current supply and reflect the dynamics of the economies in which we operate.

Which countries are you focusing on for your future investments?

We are looking at all of sub-Saharan Africa, but Nigeria in particular. We want to understand how to best deploy our capital there. It is a huge market that has seen recent macroeconomic challenges, but it is a valuable and evolving market. Hopefully we will get good results in the next six to eight months.

East Africa is also an interesting and important market. We are working to get things done in East Africa on time.

Could you share some of the main investing lessons you have learned?

I see it differently from an outright private equity person because I’ve been on the hedge fund side, the debt side and the equity side. A key lesson for me, especially as a pioneer investor, is to take a holistic approach to investing.

It is important to focus on the asset or business you are buying, but a clear understanding of risk at the macro level – which involves currency risk, political risk, and other risks unrelated to the transaction – is essential. essential. People tend to underestimate them, but they are very important drivers of return, especially when you are trading an asset class with good downside protection but without the kind of upside you will see in capital- risk or high growth sectors; you are not going to earn 10x on a hotel. Know how much risk you are taking on the macro and FX side to really quantify the actual risk-adjusted return expectations of an investment.

Then have a very clear understanding of people and personalities when you partner with them. When the going gets tough, these are the people you’ll fight with. So much time that we spend in Excel and modeling, at the end of the day it’s about having the EQ to understand people, to be able to build relationships and manage them in varied cultural contexts in each country. .

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