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Update on capital restructure circular, REIT status and cautionary announcement
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 of B linked units: HPB
ISIN for B linked units: ZAE000076808
(“the Company” or “the Fund”)
UPDATE ON CAPITAL RESTRUCTURE CIRCULAR, REIT STATUS AND
CAUTIONARY ANNOUNCEMENT
1. Introduction
Linked unitholders are referred to the announcement released on SENS on 1 July
2015 relating to the proposed restructure of the Company’s linked unit capital to a
share only structure (“the Restructure Transaction”).
As set out in that announcement:
- the Restructure Transaction is necessary to ensure that Hospitality would meet
the JSE’s REIT gearing requirements (that total consolidated IFRS liabilities are
not more than 60% of total consolidated IFRS assets) once the dispensation from
the JSE for Hospitality to comply with the REIT gearing requirements falls away
on 30 September 2015;
- the Restructure Transaction is conditional on linked unitholder approval.
Hospitality has begun a process of engagement with linked unitholders to discuss
how they intend voting on the proposed Restructure Transaction. As part of that
engagement, it has become apparent that unitholders would appreciate additional
information on the impact to the Fund should the conversion from a linked unit to a
share structure not be successful, which information is provided below.
2. Regulatory and tax implications for unitholders if the Restructure Transaction
does not take place
If linked unitholders do not approve the Restructure Transaction, the Company will
not comply with JSE REIT gearing requirements. This is likely to result in
Hospitality’s REIT status being withdrawn by the JSE in terms of section 13.50 of the
JSE Listings Requirements.
On withdrawal of Hospitality’s REIT status by the JSE, the beneficial treatment
applicable to REITs in terms of s25BB of the Income Tax Act will no longer apply.
The Company has been advised that the effect of this is that income distributions
made by Hospitality on its debentures will, in all likelihood, be regarded as hybrid
interest in terms of section 8FA of the Income Tax Act. As a result, these
distributions will no longer be deductible against Hospitality’s taxable income and
corporate tax will become payable by the Company. Furthermore, unitholders will
(unless they are exempt) be subject to dividends withholding tax at a rate of 15% on
all income distributions. The Company will be able to utilise certain capital
allowances, not available to REITs, to reduce its taxable income and may be able to
make use of its assessed losses for a time. However, the net effect of the loss of
REIT status will be that Hospitality will face a significantly increased tax burden that
will ultimately reduce distributions by the extent of the tax payable and the reduced
distributions will be subject to dividends withholding tax. In addition, sales of property
by Hospitality will no longer enjoy the CGT exemption applicable to REITs.
B debenture holders will take the first impact of any reduction in Hospitality’s
distributable income resulting from the Company’s significantly increased tax burden
that will arise through a loss of REIT status. This is because the A units rank before
the B units for a priority distribution calculated in accordance with the provisions of
the debenture trust deed and a reduced distribution will consequently be absorbed
by the B debenture holders first. Distributions to A debenture holders will be
impacted only to the extent that the reduction in the distributable income is such, that
the distribution is insufficient to cover the priority A unit distribution.
The withdrawal of REIT status should not affect the solvency and liquidity of the
Company, the debt covenants or otherwise impact on its ability to continue operating
as a going concern.
3. Cautionary announcement
Having regard to the engagements that are being undertaken by Hospitality with its
linked unitholders in relation to the Capital Restructure Circular, linked unitholders
are advised to exercise caution when trading in their Hospitality linked units until a
further announcement is made.
14 July 2015
Corporate advisor
Java Capital
Corporate law and tax advisor and trustee for Debenture Holders
ENS Africa
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 14/07/2015 05:00:00 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.
