Two listed entities, Letlole La Rona (LLR) and Cresta are eying a multi-million transaction that will see the latter acquire properties currently owned by LLR.
The proposed transaction involves the sale of four LLR-owned immovable hotel properties for P235 million.
However, the deal is subject to the approval of LLR unitholders, who are scheduled to hold an Extraordinary General Meeting (EGM) on February 12 to discuss the sale.
The four establishments to be sold are: Cresta Lodge and President Hotel in Gaborone, Thapama Hotel in Francistown and Bosele Hotel in Selebi Phikwe.
Cresta, a tenant of LLR ever since the latter listed in 2011, could not reach an agreement with its landlord as the current lease is set to come to the end in 2020.
This Tuesday, LLR CEO Chikuni Shenjere- Mutiswa told Voice Money the current lease is on a fixed rental structure with an annually compounded escalation, an arrangement he says is becoming increasingly uncommon in the industry.
“We started negotiations for renewal of the leases prior to the expiry date. Unfortunately, the parties were unable to settle on a mutually acceptable agreement which would satisfy both sides,” explained Mutiswa, adding it is highly likely there will be no lease agreement in place after the current lease comes to the end.
Following the collapse of these negotiations, Mutiswa said they then explored other options to secure a replacement tenant.
However, potential operators of hotels are said to have preferred either to enter into management contracts or variable rental agreements.
“Over the period, the hotel industry has become too competitive. Everyone and their cousin runs a Bed and Breakfast or a Guest House, so the competitive environment has changed quite dramatically from when Cresta was the single largest player in town,” he emphasised.
As well as the increased competition, Mutiswa says Cresta has been experiencing its own challenges, hence the stalemate in negotiations.
It is said that Cresta decried high rentals it is paying to LLR, which was considered above current market rates.
Should the deal get rejected by the shareholders at the EGM, LLR stands to suffer greater financial loss when the lease between the two parties expires in June 2020.
The company is likely to end-up with unoccupied hotels, which will subsequently lead to a loss in rental revenue.
LLR is owned in majority by government investment arm, Botswana Development Corporation (BDC) with a stake of 65.8 percent followed by Botswana Public Officers Pension Fund (BPOPF) with a 6.71 percent shareholding.
In essence, this will be a blow to government revenue as well as pensioners.