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Three year distribution forecast for Hospitality Property Fund Limited
Hospitality Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/014211/06)
Share code for A-linked units: HPA ISIN for A-linked units: ZAE000076790
Share code for B-linked units: HPB ISIN for B-linked units: ZAE000076808
Income tax reference number: 9770/799/1/47
("Hospitality" or "the Fund" or "the company")
THREE YEAR DISTRIBUTION FORECAST FOR HOSPITALITY PROPERTY FUND LIMITED
Set out below is the distribution forecast ("forecast") for the financial years 30 June 2015, 2016 and 2017
("the forecast period"). The Board emphasises that this forecast assumes a stable global and local economic
environment with the South African hotel industry continuing to reflect growth in trading volumes and room rates.
The detailed assumptions utilised in preparation of this forecast is included below and care should be taken
that these assumptions could change.
The forecast has been reviewed by KPMG Inc whose independent limited assurance opinion is available for inspection
at the company's registered office.
Distribution forecast for the years ending 30 June
Forecast Forecast Forecast
F2015 change F2016 change F2017 change
R'000 F2015/14 R'000 F2016/15 R'000 F2017/16
Rental - contractual 463 508 8.7% 498 537 7.6% 540 530 8.4%
Operating expenses (40 532) 0.0% (42 969) 6.0% (45 547) 6.0%
Operating profit 422 976 9.6% 455 568 7.7% 494 983 8.7%
Net finance cost (161 127) 10.1% (176 373) 9.5% (192 865) 9.4%
Distribution 261 849 8.8% 279 195 6.6% 302 118 8.2%
A-linked unit 213 693 9.8% 224 378 5.0% 235 597 5.0%
B-linked unit 48 156 4.6% 54 817 13.8% 66 521 21.4%
Number of units
A-linked units 143 970 038 4.2% 143 970 038 0.0% 143 970 038 0.0%
B-linked units 143 970 038 4.2% 143 970 038 0.0% 143 970 038 0.0%
Distribution per linked unit (cents)
A-linked unit 148.43 5.0% 155.85 5.0% 163.65 5.0%
- Interim 73.33 5.0% 77.00 5.0% 80.85 5.0%
- Final 75.10 5.0% 78.85 5.0% 82.80 5.0%
B-linked unit 33.45 0.0% 38.08 13.8% 46.20 21.4%
- Interim 16.40 -14.8% 19.59 19.5% 22.36 14.1%
- Final 17.05 20.0% 18.49 8.4% 23.84 29.0%
Combined-linked unit 181.88 4.0% 193.93 6.6% 209.85 8.2%
- Interim 89.73 0.7% 96.59 7.6% 103.21 6.8%
- Final 92.15 7.5% 97.34 5.6% 106.64 9.6%
CONSOLIDATED HOTEL STATEMENT OF COMPREHENSIVE INCOME FOR FIXED AND VARIABLE LEASES FOR THE FINANCIAL YEARS ENDING
30 JUNE
FORECAST 2015 FORECAST 2016 FORECAST 2017
REVENUE R 000 %Contr R 000 %Contr FORECAST %Contr
Rooms 950 981 61.9% 1 037 512 62.4% 1 122 371 62.6%
Food & Beverage 490 868 32.0% 526 371 31.6% 563 753 31.4%
Spa & Beauty Salon 24 295 1.6% 25 993 1.6% 27 783 1.5%
Golf and Safari 17 986 1.2% 19 270 1.2% 20 629 1.2%
Other 51 175 3.3% 54 776 3.3% 58 587 3.3%
TOTAL REVENUE 1 535 305 100.0% 1 663 922 100.0% 1 793 123 100.0%
DEPARTMENTAL INCOME (% of Revenue)
Rooms 738 725 77.7% 809 139 78.0% 878 013 78.2%
Food & Beverage 226 972 46.2% 242 914 46.1% 259 617 46.1%
Spa & Beauty Salon 6 885 28.3% 7 310 28.1% 7 762 27.9%
Golf and Safari 4 241 23.6% 4 530 23.5% 4 837 23.4%
Other 17 682 34.6% 15 626 28.5% 16 788 28.7%
TOTAL OPERATING INCOME 994 505 64.8% 1 079 519 64.9% 1 167 017 65.1%
OTHER HOTEL EXPENSES (% of Revenue)
Administration & General 159 285 10.4% 171 174 10.3% 183 627 10.2%
Sales & Marketing 109 658 7.1% 115 026 6.9% 123 895 6.9%
Heat, Light & Power 72 271 4.7% 79 809 4.8% 88 120 4.9%
Repairs & Maintenance 66 792 4.4% 71 771 4.3% 76 972 4.3%
TOTAL OTHER HOTEL EXPENSES 408 006 26.6% 437 780 26.3% 472 614 26.4%
MANAGEMENT CONTROLLABLE PROFIT 586 499 38.2% 641 739 38.6% 694 403 38.7%
Fixed Expenses 76 378 5.0% 80 413 4.8% 84 776 4.7%
Management Fees 85 052 5.5% 96 264 5.8% 103 951 5.8%
EBITDA (% of Revenue) 425 069 27.7% 465 062 27.9% 505 676 28.2%
Fixed Rental 195 131 45.9% 219 395 47.2% 237 001 46.9%
Variable Rental 228 793 53.8% 245 108 52.7% 267 590 52.9%
Total F&V, Variable Income 423 924 99.7% 464 503 99.9% 504 591 99.8%
Fixed lease rental income 39 584 34 034 35 939
Total Rental Income 463 508 498 537 540 530
FIXED AND VARIABLE LEASE (F&V) PORTFOLIO
Core Portfolio Secondary portfolio
1 Arabella Hotel & Spa 14 Bayshore Inn
2 Courtyard Rosebank 15 Courtyard Arcadia
3 Courtyard Sandton 16 Courtyard Eastgate
4 Crowne Plaza JHB - The Rosebank 17 Protea Hotel Hazyview
5 Holiday Inn Sandton 18 Protea Hotel Hluhluwe & Safaris
6 Inn on the Square 19 Protea Hotel Imperial
7 Mount Grace Country House & Spa 20 Protea Hotel Richards Bay
8 Protea Hotel Edward 21 Protea Hotel The Richards
9 Protea Hotel Marine 22 Protea Hotel The Winkler
10 Protea Hotel Victoria Junction Conference portfolio
11 Radisson Blu Waterfront 23 Birchwood Hotel & Conference Centre
12 Radisson Blu Gautrain 24 Kopanong Hotel & Conference Centre
13 Westin Cape Town
Fixed lease portfolio
25 Champagne Sports Resort
26 Premier King David
HOTEL ROOM STATISTICS (excluding fixed lease & conference portfolio)
change change change
Fixed and variable leases F2014 F2015 2015/14 F2016 2016/15 F2017 2017/16
Occupancy
Core Portfolio 65.4% 68.1% 4.1% 68.8% 1.1% 70.0% 1.7%
Secondary portfolio 49.4% 55.2% 11.7% 56.7% 2.8% 58.3% 2.8%
Total 61.4% 64.8% 5.5% 66.0% 1.8% 67.2% 1.9%
Average room rate
Core Portfolio R 1 274 R 1 353 6.2% R 1 456 7.6% R 1 552 6.6%
Secondary portfolio R 718 R 746 3.9% R 794 6.5% R 840 5.8%
Total R 1 162 R 1 248 7.4% R 1 322 5.9% R 1 406 6.4%
RevPar
Core Portfolio R 833 R 921 10.6% R 1 002 8.8% R 1 086 8.4%
Secondary portfolio R 355 R 411 16.0% R 450 9.5% R 490 8.7%
Total R 713 R 809 13.3% R 872 7.8% R 946 8.5%
ASSUMPTIONS APPLIED IN THE FORECAST
DETAIL ASSUMPTIONS
Basis and preparation The FY2015 forecast comprises the budget of the Fund which was prepared after
completing detailed reviews of the individual hotel's budgets together with the
tenants/management companies and obtaining HPF Audit Committee and Board
approval. Forecasts for two additional years (FY2016 and FY2017) were prepared
utilising the FY2015 budget as the base and applying the assumptions below. All
forecasts are prepared on a "per property" basis assessing the revenue and
expenses at individual hotels. The fixed and variable rentals payable by the
tenants to the Fund are then calculated. Fund expenses and finance costs are
assessed for the respective periods resulting in the computation of distributions.
The forecast is based on the property portfolio as at the end of August 2014 and no
Investment property portfolio acquisitions or disposals have been assumed. All properties have been assumed
to be fully operational during the period.
Properties held for trading No provision has been made for any sale of the residential erven arising from the
Arabella Phase 2 development.
Economic indicators
FY2015 FY2016 FY2017
CPI forecast 5.9% 5.6% 5.4%
GDP forecast 2.1% 2.8% 2.9%
Average of Nedbank and RMB economic forecasts
Interest rates
Prime 3 month
Interest rate JIBAR
forecast forecast
July 2014 9.25% 6.18%
Nov 2014 9.50% 6.43%
Mar 2015 9.75% 6.68%
Nov 2015 10.00% 6.93%
Dec 2015 10.25% 7.18%
Mar 2016 10.75% 7.68%
Sep 2016 11.00% 7.93%
Rental income
Fixed lease portfolio The Birchwood fixed lease converted to a Fixed and Variable (F&V) lease from 1
July 2014 which resulted in a R14m reduction in net income. The previous fixed
lease was concluded in 2006 with CPI + 2% escalations which resulted in the rental
escalating to a level which was higher than market on expiry. The reversion in
rental assumed on the F&V lease for FY2015 is R8m with a further R6m dilution
budgeted for additional equity funding costs on the R60m investment in the
Terminal Convention Centre.
The current fixed lease at Champagne Sport Resort's ("Champagne") was
concluded in February 2006 for a ten year period at a net rental escalating at CPI
+ 1%. This lease expires in February 2016 and due to the higher than inflation rental
increases, coupled with a downturn in the hotel industry from 2009, the tenant has
been under pressure to maintain a profitable business after servicing rentals.
Management have engaged with the tenant and explored alternative options to
lease the property. After exploring the options, the parties agreed to a renewal of
the lease for a further 5 year period from 1 July 2015 at a reduction in rentals of
20% (R7m per annum). The Fund will also acquire the furniture, fittings and
equipment ("FFE") from the tenant at book value of R14m and will invest R5m per
annum during the lease period to upgrade the FFE.
The Premier King David's lease expires in January 2015 and has been assumed to
convert to a F&V lease with a CPI linked rental increase on expiry.
From February 2015, Champagne will be the only fixed lease remaining. No further
rental income reversions are expected following the restructure of the
Champagne lease.
F&V and Variable leases Rental income from the leases linked to F&V and Variable rental income is based
on an analysis of the performance of the individual hotels.
Fund operating expenses General head office expenditure was based on the FY2015 budget, growing by
6% annually.
The FY2015 comparative to FY2014 is distorted due to the costs linked to the
settlement of the Absa facility of R6.8m in 2014. Also, the budget accounted for
twelve months additional employee costs compared to six months in FY2014
following the recruitment of additional specialist skills to enhance the Fund's
capacity to effectively manage its growing portfolio and the increasing
proportion of fixed and variable leases.
Bad debts The forecast for FY2015 assumed a bad debt provision of R2.0m which has been
escalated by 6% annually.
Finance costs The existing debt facilities and swap contracts are noted below. All facilities are
expected to be renewed at expiry at the same margin. The variable JIBAR rates
utilised are noted under Economic Indicators. Existing facilities will be utilised to
fund the R100m capex for FY2015. Additional corporate bonds are assumed to be
issued at JIBAR + 210bps in FY2016 and FY2017 to fund the capex of R128m and
R110m respectively.
DEBT FACILITY
Facility Interest rate Repmt date
NEDBANK
Loan 1 176 300 000 3 month JIBAR plus 2,9% July 2015
Loan 2 400 000 000 3 month JIBAR plus 2,8% Oct 2019
Loan 3 30 250 000 3 month JIBAR plus 2,85% Oct 2018
Loan 4 150 000 000 3 month JIBAR plus 2,38% Feb 2018
Loan 5 150 000 000 3 month JIBAR plus 2,84% June 2016
Loan 6 50 000 000 3 month JIBAR plus 2,38% Feb 2018
Loan 7 67 000 000 3 month JIBAR plus 2,38% July 2018
1 023 550 000
% of facility 54%
CORPORATE BONDS
Secured - HPF 01 50 000 000 3 month JIBAR plus 1.82% April 2016
Unsecured - HPF 02 40 000 000 3 month JIBAR plus 2.4% April 2015
Unsecured - HPF 03 80 000 000 3 month JIBAR plus 2.7% April 2016
Secured - HPF 04.1 300 000 000 3 month JIBAR plus 2,0% Feb 2017
Secured - HPF 04.2 100 000 000 3 month JIBAR plus 2,0% Feb 2017
Secured - HPF 05 200 000 000 Fixed at 9.89% Feb 2017
870 000 000
% of facility 46%
Total facility 1 893 550 000
SWAPS/FIXED
Expiry
Nedbank swap 1 150 000 000 Collar swap - Floor 6.0%/Ceiling 9.09% Sep 2016
Nedbank swap 2 150 000 000 Vanilla swap - 6.4% Oct 2016
Nedbank swap 3 100 000 000 Vanilla swap - 7.05% Sep 2017
RMB swap 2 346 667 000 Vanilla swap - 7.96% July 2016
RMB swap 3 250 000 000 Collar swap - Floor 6.65%/Ceiling 9.20% Feb 2016
RMB swap 4 100 000 000 Vanilla swap - 7.05% Sep 2017
Secured - HPF 05 200 000 000 Fixed at 9.89% Feb 2017
1 296 667 000
% Hedged of total debt 68%
Capital expenditure Provision has been made for the following capital expenditure which comprises
operating capex and elements of refurbishment in order to maintain the quality of
the portfolio. The additional capex is forecast to be funded by the issue of
additional corporate bonds.
FY2015 R100m
FY2016 R128m Includes acquisition of FFE and upgrades to Champagne
FY2017 R110m
Hotel rooms revenue The individual hotel operators prepared a detailed rooms revenue budget for
FY2015, analysing the properties by market segment, and projecting the
occupancy and average room rate (ARR) by month. The revenue budgets were
prepared assuming the hotel trading environment remains stable with limited new
supply being introduced during the forecast period.
Occupancy The FY2015 occupancy budgets per property were used as the base and room
nights sold increases have been linked to GDP.
All hotel properties have a terminal occupancy. This occupancy is the theoretical
maximum occupancy that each property is likely to trade at during extended
periods of high demand and is based on historical maximum trading levels or STR
area stats where historical levels were not available or relevant.
The portfolio has been separated between a "Core portfolio" and "Secondary
portfolio". As occupancy in the Core portfolio has grown significantly over the last
few years to over 65%, the growth for FY2016 and FY2017 has been limited to 50%
of GDP growth until terminal levels are reached. On reaching this level volumes
are assumed to remain static for two years and then decline by 5% for one year
indicating additional supply being introduced into the market in response to high
demand. The Secondary portfolio occupancy is assumed to grow on the same
terms except that volumes are linked to GDP growth and not 50% of GDP.
Average room rates Core portfolio ARR's grow by CPI + 2% in FY2016 and CPI + 1% in FY2017. These
higher than inflation increases have been forecast as volume growth has been
assumed at lower than GDP as these hotels are operating at capacity and are
able to drive rates more aggressively.
The Secondary portfolio ARR is assumed to grow in line with CPI until terminal
occupancy levels are achieved. On reaching this level volumes stabilise and ARR
is forecast to grow by (CPI+GDP) indicating the higher rates that the market will
be able to demand on the back of limited supply.
Food and Beverage and Forecast to grow in line with increase in room nights sold and inflation.
Conference Revenue
Hotel operating expenses Electricity costs account for anticipated Eskom increases of 10% per annum.
Rates and taxes are assumed to increase annually at CPI with no material
municipal revaluations included in the forecast.
Hotel payroll expenses are forecast to grow by CPI + 2% to allow for inflationary
increases as well as higher occupancy.
Distributions/Dividend payments Distributions paid every six months as detailed in debenture trust deed.
17 September 2014
Johannesburg
Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Date: 17/09/2014 03:54:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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