Wrap Text
HOSPITALITY PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2005/014211/06)
JSE share code: HPB ISIN: ZAE000214656
Bond company code: HPAI
(Approved as a REIT by the JSE)
('Hospitality' or 'the company')
TRADING UPDATE AND REIT STATUS
Trading update
In terms of the Listings Requirements published by the JSE Limited, property entities are required to publish a
trading statement as soon as they are satisfied that a reasonable degree of certainty exists that the financial results
for the period to be reported on, will differ by at least 15% from that of the previous corresponding period. Given
the nature of its business, Hospitality uses dividend per share as its key performance measure.
As a direct result of the impact of the COVID-19 coronavirus, which resulted in the closure of hotels during
lockdown and subsequent restrictions imposed on the hospitality and travel sectors, Hospitality did not achieve any
distributable earnings in the six months ended 30 September 2020 and therefore could not declare an interim
dividend. The dividend declared for the six months ended 30 September 2019 (prior year) was 35.40 cents per
ordinary share.
Management have assessed the fair value of the group's investment properties by reviewing the cash flow forecasts,
which we believe, based on the information available, still adequately reflect the negative impact of Covid-19 on
the cash flows generated by the underlying hotels for the financial years ending March 2021 and March 2022. In
addition, various technical inputs have been reviewed including the 10Y bond yield which has declined from its
peak in March 2020 of 10.51% to 9.45% as at 30 September 2020. Based on these factors, management is of the
view that the fair values of investment properties are fairly stated at 30 September 2020 and no additional fair value
adjustment is required at 30 September 2020. The fair value assessments will be revised at year-end to take into
account any changes in the assumptions and the impact of any economic decisions made in the period, on the
estimated future cash flows. The fair values will be reassessed at 31 March 2021 by an external appointed valuer.
Hospitality's results for the six months ended 30 September 2020, is expected to be published on SENS on or about
the 13 November 2020.
The negative impact of COVID-19 on the hospitality and tourism industry has had an impact on the solvency and
liquidity of some of Hospitality's tenants, which has given rise to these tenants being unable to meet their rental
obligations under the lease agreements held with Hospitality. As previously announced, the Company has had to
act swiftly in finding solutions in the current climate in relation to the relevant underlying properties, which include
the Mount Grace Hotel & Spa, The Edward and Hazyview, and from 1 October 2020 and 1 November 2020, this
includes the tenant companies, Vexicure (Pty) Ltd ('Vexicure') and Ash Brook Investments 72 (Pty) Ltd (Ash
Brook), respectively, previously associate companies within Hospitality.
On 1 October 2020, Hospitality has entered into a sale of shares agreement ('Vexicure Sale Agreement') with the
previous controlling shareholders of Vexicure. Hospitality previously held 5% of the issued shares of Vexicure and
through the Vexicure Sale Agreement, Hospitality has increased its shareholding in Vexicure to 85% of the total
issued shares thereof, by acquiring 80% of the shares in Vexicure. Vexicure is the tenant company for the Westin
hotel in Cape Town and the current lease agreement between Hospitality and Vexicure will remain in force.
On 1 November 2020, Hospitality also entered into a sale of shares agreement ('Ash Brook Sale Agreement')
with the previous controlling shareholders of Ash Brook. Hospitality previously held 15% of the issued shares of
Ash Brook and through the Ash Brook Sale Agreement, Hospitality has increased its shareholding to 100% of the
total issued shares thereof, by acquiring 85% of the shares in Ash Brook. Ashbrook is the tenant company for the
Radisson Blu Gautrain hotel in Sandton and the current lease agreement between Hospitality and Ash Brook will
remain in force.
As a result of the implementation of the Vexicure Sale and Ash Brook Sale Agreements and the inclusion of the
three properties mentioned above (under management agreements with subsidiaries of Tsogo Sun Hotels Limited),
Hospitality anticipates that non-rental income could comprise more than 25% of gross income in respect of the year
ending 31 March 2021, notwithstanding that the lease agreements with the Tsogo Sun Hotels group, will remain in
place.
Impact on REIT status
Paragraph 13.52 of the JSE Listings Requirements provides that an issuer must release an announcement containing
full details of the implications thereof for the issuer and the security holders, without delay, if, inter alia, it fails the
REIT tax test or believes that it will not qualify for a tax deduction of distributions under section 25BB(2) of the
Income Tax Act 58 of 1962 ('ITA') ('qualifying distribution').
Having regard to the trading update included in this announcement, the board of directors (the 'board') believes
that it will not meet the requirements for a qualifying distribution for the financial year ending 31 March 2021.
Further, with reference to the joint firm intention announcement issued by Hospitality and Tsogo Sun Hotels
Limited on 7 October 2020, subject to obtaining the necessary shareholder approvals, an application will be made
for the delisting of all of Hospitality's shares from the Main Board of the JSE (the 'delisting'). Following the
delisting Hospitality will no longer meet the requirements for a REIT.
Shareholders are accordingly advised that having taken into account all the relevant factors noted in this
announcement which affect Hospitality's REIT status and in accordance with paragraph 13.54 of the JSE Listings
Requirements, the board intends to (and believes that it is obliged to) adopt a resolution to approve the application
to the JSE for the removal of Hospitality's REIT status.
A further announcement will be issued as soon as possible after the application for the removal of Hospitality's
REIT status has been processed by the JSE.
Tax considerations
Impact on Hospitality
Hospitality will be subject to income tax under the general rules applicable to a company where it ceases to be a
REIT. Losing its REIT status would among other things have the following income tax implications:
' Hospitality and its subsidiaries will no longer be entitled to deduct distributions paid to investors in
determining its taxable income;
' Hospitality and its subsidiaries will be liable for capital gains tax ('CGT') on the disposal of immovable
property and certain shares; and
' Hospitality and its subsidiaries will again be entitled to claim capital allowances on immovable property.
Hospitality and its subsidiaries' year of assessment will be deemed to end on the day preceding the date on which
it ceases to be a REIT and the succeeding year of assessment will be deemed to commence on the day on which it
ceases to be a REIT.
Impact on investors
Qualifying distributions received by resident investors in a REIT must be included in income (as a non-exempt
dividend), with the effect that the qualifying distribution is taxable as income in the hands of the investor. Such
qualifying distributions are, however, exempt from dividends tax.
Qualifying distributions received by non-resident investors in a REIT are not taxable as income. Qualifying
distributions to non-residents are, however, subject to dividends tax.
Following the removal of Hospitality's REIT status:
' Dividends received or accrued to both resident and non-resident shareholders will generally be exempt
from income tax in terms of the dividend exemption provided for in section 10(1)(k)(i) of the Income Tax
Act; and
' The dividend will be subject to dividends tax at a rate of 20%, unless, in the case of:
' Resident shareholders, the beneficial owner is exempt from dividends tax; or
' Non-resident shareholders, the rate is reduced in terms of any applicable agreement for the avoidance
of double taxation between South Africa and the country of residence of the shareholder.
Delisting
The updated Independent Expert Report takes into account the interim results of Hospitality and Tsogo Sun Hotels
for the period ended 30 September 2020, current market conditions and the outlook for each business. The report
can be accessed on http://www.hpf.co.za/investors/regulatory-documents. The valuation range and conclusion per
the Independent Expert Report remain unchanged and BDO Corporate Finance has confirmed that, for purposes of
paragraph 1.15(d) of the Listings Requirements, BDO Corporate Finance is of the opinion that the offer
consideration is fair insofar as the delisting is concerned.
10 November 2020
Sponsor
Java Capital
Debt Sponsor
Rand Merchant Bank
(A division of FirstRand Bank Limited)
Date: 10-11-2020 05:40:00
Supplied by www.sharenet.co.za
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
