• African Sun has agreed to acquire Meikles’ remaining hospitality interest, subject to shareholder approval

• Meikles earmarks US$7.8 million for retail expansion and US$4 million for repayment of a 13% bank loan

• Deferred payments reduce the consideration’s assessed present value to US$14.4 million

Harare - Meikles Limited, the Zimbabwe Stock Exchange-listed retail and property group, is seeking shareholder approval to sell its 50% interest in the Victoria Falls Hotel Partnership to African Sun for US$15 million. The proposed disposal would complete its exit from hospitality and redirect capital into supermarket expansion, debt repayment and corporate restructuring.

The shareholder circular issued on October 9 puts a price and funding schedule around discussions first disclosed in June. Shareholders will consider the Category 1 transaction at an extraordinary general meeting on October 30, with completion also subject to the stipulated exchange, regulatory and contractual requirements.

Meikles plans to allocate US$7.8 million to retail expansion, US$4 million to retiring short-term borrowings and US$3.2 million to corporate office rationalisation, transaction tax, transaction expenses and working capital. Retail accounts for 52% of the consideration, and debt repayment takes approximately 26.7%.

The disposal follows earlier sales of Meikles Hotel and the group’s 35% holding in Mentor Africa, the parent of Cape Grace Hotel. Victoria Falls Hotel became its sole remaining hospitality operation, reducing the scale available to support management, marketing and capital expenditure across a hotel portfolio.

The board says continued ownership would require substantial capital commitments with returns it considers insufficient for the associated risks. It identifies significant refurbishment requirements and growing competition from internationally branded hotels in Victoria Falls among the reasons for selling.

Refurbishment expenditure is a contractual obligation of the operating partnership. The circular states that discussions with the landlord on the scope, specifications and timing have concluded, placing future capital contributions within the practical requirements of continued ownership.

Victoria Falls Hotel comprises 149 rooms and occupies a premium position overlooking the falls. Emerged Railways Properties owns the building, and the partnership holds a lease expiring on October 31, 2036, with an option to renew for another ten years.

African Sun is acquiring Meikles’ interest in that leased operating business. African Sun Zimbabwe, its subsidiary, already holds the other 50%, meaning the transaction would place the entire partnership within the African Sun group.

The investment being surrendered carries future hotel earnings, foreign-currency receipts and participation in tourism growth. Maintaining those cash flows requires expenditure on the property’s competitive position, service standards and operating capacity.

Growing tourism demand can increase the revenue available to hotels and attract additional investment into competing properties. International brands can expand room supply, distribution reach and customer expectations. An established hotel then needs sufficient refurbishment and pricing power to preserve its share of visitor expenditure.

Meikles’ decision concerns the return available after funding those requirements. Its board has concluded that the remaining hotel interest lacks sufficient portfolio scale and strategic synergies to justify continued participation.

The valuation provides evidence for assessing that conclusion. Independent financial adviser Corporate Excellence estimated the value of Meikles’ stake at between US$13.1 million and US$13.4 million, selecting US$13.2 million as its weighted value.

The US$15 million nominal consideration exceeds that selected valuation by US$1.8 million, or approximately 13.6%. Payment timing reduces the economic premium.

African Sun will pay US$5 million into escrow for release on the effective date. A second US$5 million is due by December 31, 2026, and the final US$5 million by March 31, 2027. Applicable VAT is additional to the consideration.

Corporate Excellence applied a 12.93% discount rate to the payment schedule and assessed its present value at US$14.4 million. That produces a premium of approximately US$1.2 million, or 9.1%, over the selected stake valuation.

The adviser used discounted cash flows and market multiples, including forecasts covering 2027 to 2036 and a finite value for the lease-renewal period. Its opinion found the transaction fair and reasonable, subject to its assumptions and qualifications.

Deferred consideration introduces settlement risk and postpones access to investment cash. The agreement provides a US$5 million on-demand bank guarantee and arrangements for a US$5 million mortgage bond over Hwange Safari Lodge Estate, alongside enforcement provisions.

Those protections support collection of the outstanding consideration. Meikles still needs to sequence expenditure around the actual receipt dates, particularly where retail projects or debt obligations require earlier payment.

Debt retirement offers a quantifiable benefit. The US$4 million local bank facility carries annual interest of 13% and was used primarily to refurbish a Bulawayo property.

Full repayment would remove approximately US$520,000 in annual interest at the stated rate, assuming the entire principal would otherwise remain outstanding for a year. The circular provides for repayment in tranches as disposal proceeds arrive, making the first-year saving dependent on timing.

The group also discloses a separate US$1 million Barak SPC Fund loan, inclusive of accrued interest. The parties are discussing regularisation after drawdown occurred before the required exchange-control approval. The proposed US$4 million repayment allocation therefore addresses a specified facility within the group’s wider borrowing position.

Retail expansion carries a less certain earnings contribution. Meikles owns 51% of TM Supermarkets, with South Africa’s Pick n Pay holding 49%. The circular describes a network of 60 stores operating under the TM and Pick n Pay brands.

The US$7.8 million allocation supplies capital to that existing operating platform. Shareholder returns will depend on the projects selected, sales generated, operating margins and cash required to sustain stock availability.

Supermarket investment commits capital to premises, equipment, inventory and distribution before additional sales produce a return. New capacity must attract sufficient customer spending to cover rent, electricity, labour, logistics and maintenance, with stock turnover determining how quickly cash returns to the business.

The circular identifies retail expansion as a use of proceeds without providing a project-level return schedule in that allocation. Meikles will need to establish the expected contribution of the programme through expenditure disclosures, commissioning dates and operating results.

Regional retail performance demonstrates the importance of execution. Pick n Pay’s South African supermarket business recorded 3.9% like-for-like sales growth in FY2026 and a trading loss of approximately R1 billion. The figures concern the South African business and show how sales growth can coexist with a cost structure that continues to absorb earnings.

Meikles’ illustrative financial effects also require careful interpretation. The disposal moves inflation-adjusted basic earnings per share from a loss of 50.56 ZWG cents to earnings of 75.65 cents. Headline earnings per share remain at a loss of 51.11 cents.

The projected improvement in basic earnings includes the disposal gain. Recurring earnings require subsequent benefits from debt repayment, retail investment and cost reductions. The pro forma figures illustrate a hypothetical transaction applied to the February 2026 accounts, with the actual accounting effect to be reported in FY2027.

Meikles also retains a property portfolio of 23 assets across five cities, with reported occupancy of 65% over 69,520 square metres of gross leasable area. Leasing vacant space provides another potential source of recurring income, dependent on tenant demand, refurbishment requirements and collection performance.

The hotel exit increases the group’s reliance on domestic retail and property cash flows. Meikles surrenders participation in future hospitality earnings and takes responsibility for converting the proceeds into productive assets and a lower financing burden.

The December and March instalments will determine the pace of that transition. Delayed receipts would postpone debt savings and constrain the cash available for retail expenditure, extending the period before shareholders receive replacement earnings.

The strongest near-term benefit is likely to come from retirement of the 13% facility. Retail expansion will require a longer assessment period, with returns dependent on implementation and customer demand. FY2027 results should begin to establish the interest saving achieved, the capital deployed and the operating cash generated by the remaining businesses.

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