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HPA/HPB - Hospitality Property Fund Limited - Medium term Profit Forecast 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 ("HPF" or "the Fund" or "the company") MEDIUM TERM PROFIT FORECAST Introduction The results announcement on 6 March 2012, stated that, the Fund will be publishing a detailed two-year financial forecast to provide the market with an assessment of the Fund`s financial position and future distribution prospects. This is with a view to HPF being able to engage with unitholders in order to assess the likely unitholder participation in the rights issue announced on 27 February 2012 and to settle the rights issue pricing. The profit forecast, including the assumptions on which they are based and the financial information from which they are prepared, are the responsibility of the directors of HPF. The profit forecast has been prepared in accordance with the group`s accounting policies and in compliance with IFRS. The profit forecast has been reviewed by KPMG Inc, the company`s external auditors. Forecast statement of comprehensive income for the financial years ending 30 June Forecast Forecast Forecast FY 2012 FY 2013 FY 2014
R`000 R`000 R`000 Revenue 311 121 349 617 378 196 Rental income - contractual 320 154 350 357 381 811 Rental income - straight line accrual (9 033) (740) (3 615) Operating expenses (36 368) (27 898) (29 503) Operating profit 274 753 321 719 348 693 Net finance cost (174 579) (139 178) (145 247) Profit before debenture interest and fair value adjustments 100 174 182 541 203 446 Recoupment of debenture interest 12 003 - - Debenture interest (121 210) (183 281) (207 061) Loss before fair value adjustments (9 033) (740) (3 615) Fair value adjustments 9 033 740 3 615 Straight line rental income accrual 9 033 740 3 615 Profit before taxation - - - Discount on debenture issue amortised (367) (4 404) (4 589) Equity accounted profit from associate after tax 183 120 134 Taxation - - - Total loss and comprehensive loss for the year (184) (4 284) (4 455) Reconciliation of earnings, headline earnings and distributable earnings Loss for the year (184) (4 284) (4 455) Adjustments: Debenture interest 121 210 183 281 207 061 Earnings (linked units) 121 026 178 997 202 606 Adjustments: Equity accounted profit from associate after tax (183) (120) (134) Fair value - straight line rental income (9 033) (740) (3 615) Debenture discount amortised 367 4 404 4 589 Headline earnings (linked units) 112 177 182 541 203 446 Straight line rental income 9 033 740 3 615 Distributable earnings 121 210 183 281 207 061 CONSOLIDATED HOTEL STATEMENT OF COMPREHENSIVE INCOME FOR FIXED & VARIABLE (F&V) AND VARIABLE LEASES FOR THE FINANCIAL YEARS ENDING 30 JUNE Forecast Forecast Forecast FY 2012 FY 2013 FY 2014 R`000 R`000 R`000 Revenue 871 902 100% 959 002 100% 1 040 648 100% - Rooms 551 296 63% 616 037 64% 668 763 64% - Food and Beverage 251 947 29% 272 289 28% 295 099 28% - Spa & Beauty Salon 19 144 2% 20 947 2% 22 770 2% - Golf & Safari 14 753 2% 16 267 2% 17 742 2% - Other 34 761 4% 33 463 3% 36 274 3% Departmental profit (% of Revenue) 534 758 61% 586 015 61% 637 748 61% - Rooms 423 446 49% 475 601 50% 516 764 50% - Food and Beverage 82 022 9% 82 799 9% 90 721 9% - Spa & Beauty Salon 5 702 1% 6 392 1% 7 084 1% - Golf & Safari 3 399 0% 3 796 0% 4 184 0% - Other 20 189 2% 17 428 2% 18 996 2% Other hotel expenses (% of Revenue) 240 775 28% 264 752 28% 283 346 27% Administration and General 98 455 11% 105 579 11% 111 286 11% Sales and Marketing 63 412 7% 68 998 7% 74 583 7% Heat, Light and Power 42 429 5% 49 955 5% 54 200 5% Repairs and Maintenance 36 479 4% 40 220 4% 43 278 4% Management Controllable profit (% of Revenue) 293 982 34% 321 263 33% 354 401 34% Fixed expenses 46 218 5% 48 508 5% 50 812 5% Management and Incentive fees 43 979 5% 46 758 5% 51 265 5% EBITDA (% of Revenue) 203 786 23% 225 997 24% 252 324 24% Fixed Rental 92 772 11% 98 215 10% 111 210 11% Variable Rental 102 858 12% 123 795 13% 136 397 13% Rent payable - HPF (% of Revenue) 195 630 22% 222 010 23% 247 607 24% HPF RENTAL INCOME RECON Fixed Lease rental income 124 524 128 348 134 204 F&V/Variable lease rental income 195 630 222 010 247 607 TOTAL RENTAL INCOME 320 154 350 357 381 811 Hotel room statistics Fixed and variable leases Growth 2012 FY 2012 vs 2011 FY 2013 Occupancy Fixed and Variable leases 59.1% 10.4% 61.4% Variable leases 48.9% (7.8%) 56.2% Total F&V and variable leases 57.3% 7.2% 60.5% Average Room Rate Fixed and Variable leases 940 (1.2%) 987 Variable leases 1 240 (0.5%) 1 265 Total F&V and variable leases 986 (1.8%) 1 032 RevPar Fixed and Variable leases 556 9.1% 606 Variable leases 606 (8.3%) 711 Total F&V and variable leases 565 5.6% 624 Fixed and variable leases Growth 2013 Growth 2014 vs 2012 FY 2014 vs 2013
Occupancy Fixed and Variable leases 4.0% 63.1% 2.8% Variable leases 14.8% 62.9% 12.1% Total F&V and variable leases 5.7% 63.1% 4.3% Average Room Rate Fixed and Variable leases 5.0% 1 039 5.3% Variable leases 2.0% 1 305 3.1% Total F&V and variable leases 4.7% 1 085 5.1% RevPar Fixed and Variable leases 9.1% 656 8.2% Variable leases 17.2% 821 15.5% Total F&V and variable leases 10.5% 685 9.7% ASSUMPTIONS APPLIED IN THE FORECAST Assumptions Basis and preparation The FY2012 forecast includes actuals for the period July to December 2011 and projections for January to June 2012. This forecast was reviewed by the Board in February 2012 and has been included as the "FY 2012 forecast" for the purposes of this announcement. Forecasts for two additional years (FY2013 and FY2014) were prepared utilising the FY2012 forecast 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 distributable earnings. Investment Property portfolio The forecast is based on the property portfolio as at the end of December 2011 and no acquisitions or disposals have been assumed. Other than a planned refurbishment of 101 rooms at Radisson Blu Waterfront over a four-month period ending August 2012 which has been factored into the forecast, all properties have been assumed to be fully operational with no major refurbishments or developments being undertaken. 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 FY 2013 FY 2014 CPI forecast 5.80% 5.40% GDP forecast 3.10% 3.70% Interest rates Current Mar 2013 July 2013 Prime interest rate forecast 9.00% 9.50% 10.00% 3 month JIBAR forecast 5.58% 6.08% 6.58% Interest rates Nov 2013 Mar 2014 Prime interest rate forecast 10.50% 11.00% 3 month JIBAR forecast 7.08% 7.58% Rental income Rental income for the fixed leases is based on contractual lease obligations escalated by the appropriate CPI-linked escalation factor. Rental income for the leases linked to F&V and variable rental income is based on an analysis of the performance of the individual hotels. FY 2012 Fixed Variable Total Contractual 206 015 102 858 308 874 Non-contractual 11 280 - 11 280 217 296 102 858 320 154 FY 2013 Fixed Variable Total
Contractual 214 284 123 542 337 826 Non-contractual 12 278 253 12 531 226 562 123 795 350 357 FY 2014 Fixed Variable Total Contractual 232 000 135 715 367 715 Non-contractual 13 414 682 14 096 245 414 136 397 381 811
Fund operating expenses General head office expenditure was based on the 2012 forecast, growing by CPI annually. Debt raising fees are expensed over the loan period. Contingent liability The dispute with the City of Johannesburg highlighted in the December 2011 interim results has not yet been resolved. The amount owing as at the end of December of R13,0 million has not been expensed in the forecast. Bad debts The forecast for 2012 assumed a bad debt provision of R4,8 million in December 2011. An amount of R1,9 million was forecast for FY 2013, being the average annual bad debt for the period 2006 to 2012. This amount was escalated by CPI for FY 2014. Bad debts are accounted for under operating expenses. Bridging finance The Absa debt facility of R1,35 billion matured on 10 February 2012 and a six- month bridge loan facility is assumed on the following terms: - Bridge loan will be utilised for the period 10 February to 31 May 2012; - Bridge loan interest rate assumed at prime +2% during this period; - A debt restructure facility fee of R6,75 million payable to Absa will be expensed in May 2012. Rights issue The forecast assumes a rights issue to the value of R500 million concluded by end May 2012. The effects on distribution, earnings and headline earnings per linked unit will be disclosed in the rights issue circular together with the reporting accountants` report thereon. Finance costs Nedbank The term loans totalling R606 million expire in 2015 and 2016. Interest is assumed throughout at JIBAR + 290 bps. Current Nedbank facility to be fully drawn by May 2012. Absa Bank - Absa current facility - R1,35 billion to 10 February 2012 at existing margins; - Absa bridging facility for R1,35 billion from 10 February 2012 to 31 May 2012 at prime + 2%; - Rights issue proceeds to be received on 31 May 2012; - Refinanced term loans totalling R850 million to be concluded with various banks through a club loan facility at JIBAR + 260 bps on conclusion of the rights issue effective 1 June 2012; - Current Absa access facility of R91 million. Rate to be lowered from prime plus 2% to prime less 0.5% on securing term loans from June 2012; - Where surplus cash is available this is invested in a call account at 6% per annum Interest rate derivatives The Fund has three interest rate swaps in place amounting to R1 040 million: - R337 million @ 7.42% expiring June 2013; - R337 million @ 7.75% expiring June 2014;and - R337 million @ 7.98% expiring June 2015; (Nominal rates) No further swaps have been factored in for the forecast period. Capital expenditure - Other than the budgeted capex on Radisson Blu, no provision has been made for major refurbishments or redevelopments in the forecast period. - Provision has been made for normal capital expenditure of R35 million in FY2012 escalating at CPI for the remaining years of the forecast period. Hotel rooms revenue The individual hotel operators prepared detailed rooms revenue forecasts for 2012, analysing the properties` market segments, and projecting the occupancies and average room rates (ARR) by month. Occupancy The 2012 occupancies per property were used as the base and room nights sold have generally been increased annually by GDP. All 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 historic maximum trading levels or STR area stats where historic levels were not available or relevant. Occupancies are assumed to grow by GDP until terminal occupancy levels are achieved. On reaching this level, the trading 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. With regards to the Courtyard portfolio, the current average occupancy level of 42% for FY 2012 is significantly below market. This is at variance with the historic trading performance which has been at least in line with the market. Accordingly a higher than GDP growth in occupancy to 52% for FY2013 and 61% for FY2014 has been assumed. This remains well below the terminal occupancy of 75% for this portfolio. Average room rates ARR`s grow by CPI annually up 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. A summary of occupancy, average room rates and RevPar for the forecast period is contained elsewhere in the announcement. This model has not recognised any growth in ARR through yield management on the back of growing occupancies up to the level of the terminal occupancies for the respective properties. Hotel operating expenses - Electricity costs take account of anticipated Eskom increases as well as savings through efficiency measures that have been implemented. - Hotel payroll expenses are forecast to grow by CPI + 2% to allow for inflationary increases as well as higher occupancy. Cautionary Linked unitholders are reminded of the renewal of the cautionary as part of the unaudited interim results for the six months ended 31 December 2011 published on SENS on 6 March 2012. Unitholders are advised to continue exercising caution when dealing in the company`s securities until a further announcement is made in this regard. 9 March 2012 Johannesburg Corporate advisor Java Capital Sponsor RAND MERCHANT BANK (a division of FirstRand Bank Limited) Date: 09/03/2012 12:42:01 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.
