Meikles Hotel was the last flagship business to carry the full name of the Meikles family. At over 100 years old, it was one of the oldest and probably the most well-known hotel in Zimbabwe.
By Tinashe Mukogo
Meikles Hotel in 1917.
Why would Meikles Limited sell such a significant asset?
When you look at the profit development of the Meikles Hotel division you can start to understand why.
The Hotels division has evolved over time but was, at various points, made up of Cape Grace Hotel in South Africa, and in Zimbabwe, the Meikles Hotel, and the Victoria Falls Hotel.
In the years immediately after Zimbabwe dollarized in 2009, foreign interest in the country rose. This was fuelled by double-digit GDP growth between 2010 and 2012 and a more stable USD operating environment.
About 75% of Meikles’ guests were foreign tourists, and a significant number of those were people travelling for business. This meant that the rise in interest in the country was a favourable trend and as a result, the Hotel Division was profitable between 2009 and 2012.
Unfortunately, that trend began to soften. To make it worse, regulatory changes, such as the new requirement to charge foreign visitors VAT, were introduced.
This is what Meikles’ Chairman said about these changes in the 2015 annual report:
“More than 75% of our hotel guests are foreign visitors, and the introduction in January 2015 of value-added tax (VAT) at the standard rate of 15% on accommodation charged to foreigners further hindered revenue growth.
The introduction of VAT could not immediately be passed onto guests in full given the weak demand. The introduction of VAT has effectively made Zimbabwe an expensive destination, and the South African source market, given the depreciating rand, was significantly affected.
This has impacted negatively on occupancy growth in the last quarter of the financial year.”
As expected, profits started to turn into losses.
While this drop in profitability for the Hotels Division overall was concerning, the losses for Meikles Hotel specifically were frightening.
The Meikles Hotel’s results are not disclosed separately in the financial statements, but we can derive them by taking out the profits of Cape Grace Hotel and the Victoria Falls Hotel, which were shown separately in the financial statements because of how those hotels were structured and held by the company.
When we do so, we can get numbers that should reasonably represent Meikles Hotel’s profits and losses, and those numbers are shocking.
Between 2014 and 2018, Meikles Hotel racked up close to $15m in losses.
Now, when you consider that by 2019, Meikles was constrained on capital and would have needed to invest another $ 30 million to renovate the hotel, it’s easy to understand why the decision was made to sell. One may even ask why it wasn’t done sooner.
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The sale of Meikles Hotel for $20 million was announced in 2019 and concluded in 2020. Given the losses that Meikles had been incurring, I think this was a good deal for Meikles, especially when you consider that the proceeds were allocated to better opportunities such as their agribusiness and the Victoria Falls Hotel.
One interesting observation as well. While the hotel in Harare was struggling which led to its sale, the hotel in Victoria Falls continued to be profitable. Victoria Falls is like its own country. The downturns that occur in other parts of Zimbabwe do not necessarily impact Victoria Falls.
This week, the Meikles Hotel was officially rebranded to “Hyatt Regency Harare The Meikles”.
I think it was a good idea to keep the Meikles Brand in the name, although I suspect that eventually, the Meikles name will be dropped, as is often the case in such deals.
The lesson for you? Nothing is sacred and any business can be sold. Meikles Hotel was over 100 years old and potentially had a lot of sentimental value for the Meikles family, but in the end, they decided that selling was the best option.
It is surprising how easily we can get attached to a specific business or opportunity even when it is clearly not working. Being able to identify when to cut your losses and pivot is a key to survival. This applies not only to businesses but also to life with relationships.
What are you holding onto that you need to let go of?
Thanks for reading! I am writing based on publicly available information, so my analysis could be missing something.
To read more of my research and analysis go to www.moneyandmoves.com
