Kasada Capital Management is an independent investment platform within the Kasada group, dedicated to hospitality in sub-Saharan Africa. The group owns hotels that are operated under its strategic partner Accor’s brands, which include Ibis, Pullman, Novotel and Mövenpick. To date, Kasada has invested in Côte d’Ivoire, Senegal, Cameroon and Namibia.
We speak to chief investment officer David Damiba about why he prefers mid-range over five-star hotels and the African countries where he sees the most attractive opportunities.
Kasada has invested in hotel properties in multiple countries across 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 each region. The Covid-19 pandemic has been a shock to the system for the entire hospitality industry, so we want to use the scale of Kasada’s platform and our deployment capabilities to boost the sector.
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. That has always been our strategy. Then we select a few countries, such as Namibia, that are not necessarily that sizable or our core focus but offer attractive opportunities.
What in particular drew you to your recent acquisition of the 414-room Safari Hotels and Conference Centre in Windhoek, Namibia?
Many families or individuals own hotels in Africa but there are not many material institutional platforms that own hotels in Africa. We’re solution providers; we look for the right solution for potential sellers.
Safari Hotels and Conference Centre had been around a long time – an entire generation – and it had grown organically from a small structure to a very sizable hotel. It’s the largest in Windhoek, accounting for close to 35% of the room count in Windhoek.
It had been run successfully as an independent hotel, so no international brands were managing it. Our value add is coming up with a financial solution that works for the sellers, applying our international expertise – both financially and in hospitality – and bringing in our strategic partner Accor. The deal was a classic Kasada deal. We found a solution for the seller, we will take over the property, set up operations and asset management goals to optimise the asset, and elevate it to a different level.
Kasada is focused on the economy to mid-scale segment of the hotel market. Why is this?
If you look at the current supply of hotels across sub-Saharan Africa – and we’re talking international branded hotels – you’ll see an abnormally large percentage towards the high end of the market. It’s a bit paradoxical considering the young age of the population and also the wallet of the consumer. In some ways, it doesn’t make sense but it reflects the thinking of a lot of owners. They tend to be successful entrepreneurs or families involved in multiple sectors and they want a hotel positioned in the upper scale. 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 economy and mid-scale branded hotels across this enormous continent to accommodate a massive and young population, and vibrant entrepreneurs moving around these different cities. These segments are not only where you should have the most supply, but it’s also where there is the most demand. From a pure economics perspective, these types of hotels have an attractive return profile.
It’s important to create a product that is attractive for the consumer. Just because it is in a lower segment doesn’t mean it can’t be attractive. It should aim to be a differentiated highly enjoyable user experience. Offering good value to the consumer within that context should still be considered a high priority.
The pipeline of the future supply of hotels in Africa in the next two to four years is still biased towards the upper scale. In some ways, we’re a bit contrarian but our approach is a way to rebalance the current supply and to mirror the dynamics of the economies in which we operate.
What countries are you focusing on for future investments?
We’re looking at all of sub-Saharan Africa but Nigeria in particular. We want to understand how best to deploy our capital there. It is an enormous market that has had some recent macroeconomic challenges but it’s a valuable and scalable market. Hopefully, we’ll have some good results in the next six to eight months.
East Africa is also an interesting and sizable market. We are working on getting things done in East Africa in due course.
Could you share some of the major investment lessons you’ve learnt?
I look at things differently from a pure-play private equity person because I’ve been on the hedge fund side, debt side and equity side. A key lesson for me, especially as a frontier investor, is to take a holistic approach to investing.
It’s important to focus on the asset or the company you’re buying but a clear understanding of the risks at the macro level – which involves FX, political risk and other non-deal-related risks – is essential. People tend to underestimate them, yet, they are very significant drivers of returns especially when you deal in an asset class with good downside protection but without the type of upside you’ll see in venture capital or high growth sectors; you’re not going to make 10x on a hotel. Know what risk you’re taking on the macro and FX side in order to really quantify the actual risk adjusted return expectations of an investment.
Then have a really clear understanding of people and personalities when partnering with them. When the going gets tough, these are the people you will be fighting alongside with. As much time as we spend in Excel and modelling, in the end, it’s about having the EQ to understand people, to be able to build relationships and manage them across varied cultural backdrops in each country.