Wrap Text
Unaudited condensed consolidated interim results for the 6 months ended 31 December 2016 and dividend declaration
Hospitality Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/014211/06)
JSE share code: HPB
ISIN for ordinary shares: ZAE000214656
(Approved as a REIT by the JSE)
("Hospitality" or "the Company" or "the Fund")
Unaudited condensed consolidated interim results for the six months
ended 31 December 2016 and cash dividend declaration
Salient features
- Completion of Tsogo Sun transaction
- Completion of capital restructure
- Improved credit rating
- Rental income increases to R302.7 million
- Profit before distribution increases to R197.5 million
Introduction
The six months under review saw the completion of the Tsogo Sun Holdings Limited
transaction ("the Transaction") as well as the restructure of the Company's dual-
class share capital structure to a single-class share capital structure, in the ratio of one
ordinary share for every A-share held and one ordinary share for every 3.5 B-shares
held ("the Restructure").
The injection of 10 hotel properties resulting from the Transaction (the "Tsogo
portfolio") has diversified the spread of the Fund's assets geographically and across
the hotel grading spectrum, broadening its earnings base. It also provides Hospitality
with exciting future growth prospects and an attractive pipeline of acquisitions in the
medium-term.
The Restructure resulted in the alignment of the previous A- and B shareholders' objectives.
On conclusion of the Restructure and in line with the Fund's then dual-class distribution
policy, A-shares received a cleanout dividend of 9.29 cents per share for the period
1 July 2016 to 31 August 2016. Hospitality ordinary shares continue to trade under the
JSE share code HPB.
Trading environment
Hospitality achieved a 46% improvement in distributable earnings to R197 million
(2015: R135 million), impacted largely by the Transaction contributing R67 million to
distributable earnings, for four months from 1 September 2016. Distributable earnings
increased by 8% on a like-for-like basis adjusted for the impact of the Transaction and
disposal of certain properties.
Dividends for the four months to 31 December 2016 amounted to 56.09 cents per
ordinary share and are not comparable to the six months ended 31 December 2015
as a result of the Transaction, the Restructure including the cleanout dividend and the
disposal of the Inn on the Square during the period.
Hospitality's turnover is dependent on the underlying hotel trading businesses and is
exposed to its cyclical nature. The six months to 31 December 2016 includes a robust
summer period for the Western Cape.
A 4% increase in foreign arrivals during the 2016/2017 holiday period supported the
South African hospitality sector, however, domestic demand remains subdued as a result
of the uncertain macro-economic climate and weak business sentiment.
According to the STR Global South Africa Hotel Review, South African occupancies
increased by 1.0 percentage point to 66.7% and average daily rates were up 8% to
R1 183, resulting in revenue per available room ("RevPAR") growth of 10% to R789
for the six months to 31 December 2016. The Fund's portfolio including the Tsogo
portfolio reflected for the four months to December and excluding the properties sold,
an occupancy increase of 0.4 percentage points to 65.9% and an average daily rates
increase of 5% to R1 229, resulting in a RevPAR growth of 5% to R810 for the period.
Results
Rental income for the Fund increased by 28% to R303 million (2015: R236 million),
including the impact of the Tsogo portfolio and the disposal of the Inn on the Square
(effective 21 November 2016). Like-for-like rental income (adjusted for the impact of
the Tsogo portfolio and the disposal of investment properties) grew 3% to R225 million.
Rental income from the Western Cape hotel properties grew as domestic and
international travellers were drawn to the region. The conference portfolio (properties
generating revenue predominantly from conference facilities and food and beverage)
was under pressure due to reduced public sector travel and the focus by the private
sector to reduce costs.
The Fund's expenses were up 26% to R26 million (2015: R21.0 million). A one-off
expense of R8 million was incurred with the restructure of the asset management
division and the termination costs of the previous CEO, in line with the change of control
clause contained in his contract of employment. Net of these restructure costs, the Fund
achieved an 11% reduction in expenses.
Net finance costs of R78 million (2015: R80 million) reduced in line with debt levels.
The following table reflects the operating financial results for the six months ended
31 December 2016 compared to the corresponding previous financial period:
Summary of operating Actual Actual
results for the six months 2016 2015 Variance Variance
ended 31 December R'000 R'000 R'000 %
Rental income 302 678 236 067 66 611 28
Fund expenses (26 447) (20 953) (5 494) (26)
Net finance cost (78 789) (79 817) 1 028 1
Income from associates 10 144 (134) (93)
Profit before distribution 197 452 135 441 62 011 46
Distribution (197 452) (135 441) 62 011 (46)
Distribution per share
class
A-share (13 406)(1) (111 093) (97 687) (88)
B-share – (24 348) (24 348) (100)
No par value ordinary
shares (184 046) – 184 046 100
Distribution comparative
to prior years
(1) Clean out dividend as at 31 August 2016.
Actual Actual Variance
2016 2015 Variance %
Distribution – A-share (cents) 9.29 77.00 (67.71) (88)
Distribution – B-share (cents) – 16.87 (16.87) (100)
Dividend – no par value
ordinary shares 56.09 – 56.09 100
Funding
Hospitality's debt facilities with financial institutions as at 31 December 2016 amounted
to R2.0 billion. Total drawn facilities were R1.7 billion resulting in a loan to value ("LTV")
ratio (total interest-bearing liabilities/investment properties plus properties held for sale)
of 22.1% (2015: 34.9%). The reduction in gearing is mainly as a result of the acquisition
of the ungeared Tsogo portfolio. The interest cover ratio improved to 3.5 times (2015:
2.7 times), well above the required debt covenant limit of 2.0 times.
The weighted average cost of debt was 9.5% (2015: 9.5%) for the period under review,
with 64% of the Group's borrowings being hedged.
The Fund agreed terms on a bridging facility from Rand Merchant Bank ("RMB"),
serving as an interim refinancing solution for current notes of R600 million that expire
in February 2017.
In October 2016, Global Credit Ratings upgraded the Fund's credit rating to long-term
BBB+ (ZA) from BBB (ZA) while its short-term rating was upgraded from A3 (ZA) to A2 (ZA).
Property portfolio
The Fund's portfolio comprises of interests in 24 hotel and resort properties in South
Africa. The weighted average lease expiry period is 12.9 years (2015: 10.8 years). As at
31 December 2016, the carrying amount of the portfolio was R7.8 billion and the net asset
value ("NAV") per ordinary share amounted to R19.57. The market value per ordinary
share at 31 December 2016 traded at a 32% discount to the NAV.
Acquisitions and disposals
To date, the Fund's investment strategy has been to invest in well-located, large hotels
in major urban centres with strong brands and diverse source markets. The Transaction,
which was approved by the Competition Tribunal on 10 August 2016 and became
effective from 1 September 2016, provided additional scale to the current portfolio
and presents opportunities for further growth in line with the Funds' property
investment strategy. The Fund continually investigates long-term growth and investment opportunities.
Eight properties, which did not meet the Fund's investment strategy, have been
disposed of in the last 18 months. The Inn on the Square, was disposed of for a total cash
consideration of R157 million on 21 November 2016.
The Tsogo portfolio comprises of 10 established hotel properties, which are well located
within their respective nodes. The properties acquired were Southern Sun Bloemfontein;
Southern Sun Newlands; Sunsquare Cape Town; Garden Court Kimberley; Garden
Court Milpark; Garden Court OR Tambo; Garden Court Polokwane; Garden Court
South Beach; StayEasy Century City and StayEasy Rustenburg.
Developments and capital projects
In order to maintain the appeal of its properties the Fund continually upgrades and
invests in its hotels. Total capital expenditure amounted to R33 million during the period.
Prospects
The outlook for the domestic economy in 2017 is slightly improved, but remains volatile.
Inflation is expected to remain at current levels, with ongoing pressure on hotel operating
and administered costs. The continued stability of the Rand, albeit at stronger levels
against major currencies provides support for the value proposition of the South African
tourism sector to international tourists. Demand for conferencing remains muted both
in the public and private sector due to continued austerity in discretionary spending.
The Fund continues to assess value accretive property acquisitions, both within Tsogo's
existing portfolio and external opportunities to increase the Fund's critical mass. The
most significant of these would involve a proposed acquisition of additional hotels
from Tsogo, funded through a combination of debt and equity. Accordingly, subject to
the conclusion of formal agreements in respect of the proposed acquisitions and the
securing of any necessary shareholder approvals, the Fund is preparing to undertake an
underwritten rights offer to raise approximately R1.8 billion at offer pricing based on the
then prevailing market price of the Fund's shares. The Fund is also negotiating a further
increase in debt facilities. Further detailed announcements in this regard will be made
in due course.
Board of Directors
On 1 September 2016, John Copelyn, Zibusiso Kganyago, Laurelle McDonald,
Rob Nicolella and Marcel von Aulock were appointed as non-executive directors to
the Board.
With effect from 30 November 2016, John Copelyn was appointed as Chairman of the
Board, replacing Don Bowden in that capacity. Don Bowden continues to serve as an
independent non-executive director and as such the Group will continue to benefit from
his knowledge and expertise. Linda de Beer in her capacity as independent director, was
appointed as lead independent director.
Vincent Joyner's termination as Chief Executive Officer ("CEO") and a member of the
Board of Hospitality was announced with effect from 31 December 2016. Keith Randall
was appointed to the position of CEO effective from 1 January 2017. Mara de Lima was
appointed as Financial Director, effective 30 September 2016.
Change of year-end
Hospitality has changed its year-end from June to March to align with that of its major
shareholder, Tsogo Sun. Results for the year ending 31 March 2017 are expected to be
released on SENS on or about Wednesday, 24 May 2017.
Dividend payment
The Board has approved and notice is hereby given of a gross dividend payment
number 22 of 56.090 cents per ordinary share for the four-month period ended
31 December 2016.
In accordance with Hospitality's REIT status, shareholders are advised that the dividend
meets the requirements of a "qualifying distribution" for the purposes of section 25BB
of the Income Tax Act, No. 58 of 1962 ("Income Tax Act").
The number of shares in issue at the date of the dividend declaration is 330 509 919
ordinary shares (for the purposes of the dividend declaration, 2 377 256 ordinary shares
have been excluded from the dividend payment, due to dissenting shareholder rights
having been exercised).
Local tax residents
Qualifying distributions received by local tax residents must be included in the gross
income of such shareholders (as a non-exempt dividend in terms of section 10(1)(k)(aa)
of the Income Tax Act), with the effect that the qualifying distribution is taxable as
income in the hands of the shareholder. These qualifying distributions are, however, exempt
from dividend withholding tax in the hands of South African tax resident shareholders,
provided that the South African resident shareholders provided the following forms to
their Central Securities Depository Participant ("CSDP") or broker, as the case may be,
in respect of uncertificated shares, or the Company, in respect of certificated shares:
a. a declaration that the distribution is exempt from dividends tax; and
b. a written undertaking to inform the CSDP, broker or the Company, as the case
may be, should the circumstances affecting the exemption change or the beneficial
owner cease to be the beneficial owner, both in the form prescribed by the
Commissioner for the South African Revenue Service. Shareholders are advised to
contact their CSDP, broker or the Company, as the case may be, to arrange for the
abovementioned documents to be submitted prior to payment of the distribution, if
such documents have not already been submitted.
Non-resident
Qualifying distributions received by non-resident shareholders will not be taxable
as income and instead will be treated as ordinary dividends but which are exempt in
terms of the usual dividend exemptions per section 10(1)(k) of the Income Tax Act.
It should be noted that until 31 December 2013 qualifying distributions received by
non-residents were not subject to dividend withholding tax. From 1 January 2014, any
qualifying distribution received by a non-resident from a REIT will be subject to dividend
withholding tax at 15%, unless the rate is reduced in terms of any applicable agreement
for the avoidance of double taxation ("DTA") between South Africa and the country
of residence of the shareholder. Assuming dividend withholding tax is withheld at a rate
of 15%, the net amount due to non-resident shareholders will be 47.67650 cents per
ordinary share. A reduced dividend withholding tax rate in terms of the applicable DTA,
may only be relied on if the non-resident shareholder has provided the following forms
to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the
Company, in respect of certificated shares:
a. a declaration that the dividend is subject to a reduced rate as a result of the
application of a DTA; and
b. a written undertaking to inform their CSDP, broker or the Company, as the case
may be, should the circumstances affecting the reduced rate change or the beneficial
owner cease to be the beneficial owner, both in the form prescribed by the
Commissioner for the South African Revenue Service. Non-resident shareholders
are advised to contact their CSDP, broker or the Company, as the case may be, to
arrange for the abovementioned documents to be submitted prior to payment of
the distribution if such documents have not already been submitted, if applicable.
Shareholders are requested to seek professional advice on the appropriate action to
take.
The dividend is payable to Hospitality shareholders in accordance with the timetable
set out below:
Last day to trade cum dividend Tuesday, 28 February 2017
Shares will trade ex dividend Wednesday, 1 March 2017
Record date Friday, 3 March 2017
Payment date Monday, 6 March 2017
Shareholders may not dematerialise or rematerialise their shares between Wednesday,
1 March 2017 and Friday, 3 March 2017, both days inclusive.
Payments of the dividend will be made to shareholders on Monday, 6 March 2017. In
respect of dematerialised shares, the dividend will be transferred to the CSDP accounts/
broker accounts on Monday, 6 March 2017. Certificated shareholders' dividend will be
deposited on or about Monday, 6 March 2017.
Income tax reference number 9770/799/1/47
By order of the Board
JA Copelyn KG Randall
(Chairman) (Chief Executive Officer)
Approved by the board: 9 February 2017
Released on SENS: 10 February 2017
Directors: JA Copelyn (Chairman)*, L de Beer*(#) (Lead Independent Director),
KG Randall (CEO), MR de Lima (FD), DG Bowden*(#), ZJ Kganyago*,
ZN Kubukeli*(#), SA Halliday*(#), L McDonald*, JR Nicolella*, GA Nelson*(#),
ZN Malinga*(#), WC Ross*(#), MN von Aulock*
* Non-executive
(#) Independent
Registered Office: The Zone 2, Loft Offices East Wing, 2nd Floor, Cnr Oxford Road
and Tyrwhitt Avenue, Rosebank, 2196
Tel: +27 11 994 6320
Web: www.hpf.co.za
Company Secretary: LR van Onselen
Sponsor: Java Capital
BASIS OF PREPARATION AND ACCOUNTING POLICIES
These results were prepared under the supervision of the Financial Director, Mara de Lima CA(SA).
The unaudited condensed consolidated interim financial statements for the six months ended
31 December 2016 are prepared in accordance with International Financial Reporting Standard
("IFRS"), IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee and the Financial Pronouncements as issued by the
Financial Reporting Standards Council, the JSE Listings Requirements and the requirements
of the Companies Act of South Africa. The accounting policies applied in the preparation
of these interim financial statements are in terms of International Financial Reporting
Standards and are consistent with those applied in the previous annual financial statements.
PricewaterhouseCoopers Inc., the independent auditor, has not reviewed or audited these
financial statements.
The directors are not aware of any circumstances or matters arising subsequent to the period-
end that require any additional disclosure or adjustment to the financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 December 2016
Unaudited Unaudited Audited
31 Dec 31 Dec 30 Jun
2016 2015 2016
R'000 R'000 R'000
Revenue 302 678 235 587 474 328
Rental income – contractual 302 678 236 067 474 553
– straight-line accrual – (480) (225)
Operating expenses (26 447) (20 953) (44 852)
Operating profit 276 231 214 634 429 476
Net finance cost (78 789) (79 817) (158 085)
Finance income 11 232 4 499 12 737
Finance costs (90 021) (84 316) (170 822)
Profit/(loss) on sale of investment
properties (Note 1) 36 132 (3 121) (13 556)
Fair value adjustments (2 049) 18 619 245 412
Investment properties, before straight-lining
adjustment (Note 1) 1 680 – 251 024
Straight-line rental income accrual – 480 225
Total fair value of investment properties 1 680 480 251 249
Goodwill impairment – – (12 000)
Interest rate swaps (3 729) 18 139 6 163
Profit before taxation 231 525 150 315 503 247
Debenture discount amortisation – (2 313) (2 313)
Equity accounted profit from associate
after tax 10 144 264
Taxation – – (9)
Total profit and comprehensive income for
the period 231 536 148 146 501 189
Reconciliation between earnings, headline
earnings and distributable earnings
Total profit and comprehensive income for
the period 231 536 148 146 501 189
Adjustments:
(Profit)/loss on sale of investment
properties (Note 1) (36 132) 3 121 13 556
Goodwill impairment – – 12 000
Impairment to furniture, fitting and
equipment – – 265
Loss on disposal of furniture, fitting and
equipment – – 7
Fair value – investment properties
revaluation (Note 1) (1 680) – (251 024)
Fair value – straight-line rental income – (480) (225)
Headline earnings (shares/linked units) 193 723 150 787 275 768
Fair value – interest rate swaps 3 729 (18 139) (6 163)
Debenture discount amortisation – 2 313 2 313
Impairment to furniture, fitting and
equipment – – (265)
Loss on disposal of furniture, fitting and
equipment – – (7)
Straight-line rental income – 480 225
Distributable earnings 197 452 135 441 271 871
Number of shares/linked units
A-shares – 144 285 503 144 285 503
B-shares – 142 315 793 133 995 396
– Shares in issue – 144 285 503 144 285 503
– HPF Employee Incentive Trust shares – (1 969 710) (1 969 710)
– Shareholder redemption – – (8 320 397)
No par value ordinary shares* 327 569 888 – –
– Shares in issue 330 509 919 – –
– HPF Employee Incentive Trust shares (562 774) – –
– Shareholder redemption (2 377 256) – –
Weighted average number of shares
A-shares – 142 380 569 144 285 503
B-shares – 140 506 693 135 154 796
– Shares in issue – 142 380 569 144 285 503
– HPF Employee Incentive Trust shares – (1 969 710) (1 969 710)
– Shareholder redemption – – (7 160 997)
No par value ordinary shares* 327 569 888 – –
– Shares in issue 330 509 919 – –
– HPF Employee Incentive Trust shares (562 774) – –
– Shareholder redemption (2 377 256) – –
Distribution per share (cents)
A-shares 9.29 77.00 155.62
– Interim 9.29 77.00 77.00
– Final – – 78.62
B-shares – 16.87 34.81
– Interim – 16.87 16.87
– Final – – 17.94
9.29 93.87 190.43
No par value share 56.09 – –
– Interim 56.09 – –
– Final – – –
56.09 – –
Earnings and diluted earnings per share
(cents)
A-shares – 52.39 179.35
B-shares – 52.39 179.35
No par value ordinary shares* 59.14 – –
59.14 104.78 358.70
Headline earnings and diluted headline
earnings per share (cents)
A-share – 53.32 98.69
B-share – 53.32 98.69
No par value ordinary shares* 59.14 – –
59.14 106.64 197.38
*The result of the restructure of the Company's dual-class share capital structure to a single-class.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2016
Unaudited Unaudited Audited
31 Dec 31 Dec 30 Jun
2016 2015 2016
R'000 R'000 R'000
ASSETS
Non-current assets 7 836 211 4 901 812 5 174 459
Investment properties (Note 2) 7 817 008 4 873 266 5 169 000
Straight-line rent income accrual – (255) –
Investment properties and related accrual 7 817 008 4 873 011 5 169 000
Furniture, fittings and equipment 256 558 180
Goodwill 16 003 12 000 –
Derivative asset 2 616 16 046 4 961
Investment in associates 328 197 318
Current assets 508 701 484 753 404 128
Non-current assets held for sale 88 475 216 721 129 491
Properties held for trading – 22 309 22 643
Derivative asset 490 – 699
Trade and other receivables 61 845 50 839 57 035
Cash and cash equivalents 357 891 194 884 194 260
Total assets 8 344 912 5 386 565 5 578 587
EQUITY AND LIABILITIES
Equity 6 468 207 3 537 049 3 732 253
Stated capital (Note 3) 5 565 258 2 934 087 2 909 957
Retained earnings 192 343 127 675 107 961
Fair value reserve 710 606 475 287 714 335
Non-current liabilities 1 047 632 1 547 863 1 126 540
Interest-bearing liabilities 1 045 492 1 547 863 1 125 063
Derivative liability 2 140 – 1 477
Current liabilities 829 073 301 653 719 794
Trade and other payables 124 320 71 653 95 552
Short-term portion of interest-bearing
liabilities 680 000 230 000 600 000
Provision for shareholder redemption
(Note 4) 24 129 – 24 129
Derivative liability 624 – 113
Total equity and liabilities 8 344 912 5 386 565 5 578 587
Net asset value per share (Rand)
A-share – 11.24 11.74
B-share – 11.24 11.74
No par value ordinary shares 19.57 – –
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 December 2016
Treasury
Share Share Stated Retained Fair value share
capital premium capital earnings reserve reserve Total
R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at 1 July 2015 28 515 903 – (2 332) 457 148 – 970 747
Total profit and
comprehensive income
for the period – – – 148 146 – – 148 146
Transactions with owners,
recorded directly in
equity (28) (515 903) 2 934 087 (18 139) 18 139 – 2 418 156
Conversion of par value
shares into no par value
shares (28) (515 903) 515 931 – – – –
Conversion of debentures
into stated capital – – 2 418 156 – – – 2 418 156
Transfer to fair value
reserve – investment
properties – – – – – – –
Transfer to fair value
reserve – interest rate
swaps – – – (18 139) 18 139 – –
Balance at 31 December
2015 – – 2 934 087 127 675 475 287 – 3 537 049
Balance at 1 July 2016 – – 2 919 952 107 961 714 335 (9 995) 3 732 253
Total profit and
comprehensive income
for the period – – – 231 536 – – 231 536
Transactions with owners,
recorded directly in
equity – – 2 655 301 (147 154) (3 729) – 2 504 419
Transaction costs (capital
restructure and Tsogo
transaction) (Note 3.4) – – (17 992) – – – (17 992)
Issue of 145 000 000 no
par value ordinary shares
(Note 3.1) – – 2 673 293 – – – 2 673 293
Dividend paid – final for
30 June 2016 year-end – – – (137 476) – – (137 476)
Dividend paid – clean-out
dividend regarding the
Tsogo transaction – – – (13 407) – – (13 407)
Transfer to fair value
reserve – interest rate
swaps – – – 3 729 (3 729) – –
Balance at 31 December
2016 – – 5 575 253 192 343 710 606 (9 995) 6 468 207
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 31 December 2016
Unaudited Unaudited Audited
31 Dec 31 Dec 30 Jun
2016 2015 2016
R'000 R'000 R'000
Cash flows from operating activities
Cash generated from operations 199 248 221 117 453 473
Finance income received 11 232 4 499 12 737
Finance costs paid (90 021) (84 316) (170 822)
Taxation – (100) (109)
Distribution to shareholders (150 883) (113 852) (247 561)
Net cash (outflow)/inflow from operating
activities (30 423) 27 348 47 718
Cash flows from investing activities
Acquisition and development of investment
properties (Note 2) (32 885) (78 773) (131 157)
Disposal of investment properties 157 000 122 148 206 362
Acquisition of furniture and equipment (116) (178) (202)
Acquisition of subsidiary, net of cash
acquired (Note 3.2) 88 047 – –
Dividends received from associates – 200 200
Net cash inflow from investing activities 212 046 43 397 75 203
Cash flows from financing activities
Interest-bearing liabilities raised – – 232 200
Unaudited Unaudited Audited
31 Dec 31 Dec 30 Jun
2016 2015 2016
R'000 R'000 R'000
Interest-bearing liabilities paid – (80 011) (365 011)
Transaction costs (17 992) – –
Net cash outflow from financing activities (17 992) (80 011) (132 811)
Net increase/(decrease) in cash and cash
equivalents 163 631 (9 266) (9 890)
Cash and cash equivalents at beginning of
the period 194 260 204 150 204 150
Cash and cash equivalents at end of year
the period 357 891 194 884 194 260
CONDENSED CONSOLIDATED SEGMENTAL INFORMATION
for the six months ended 31 December 2016
Information regarding the results of each reportable segment is included below. Performance
is measured based on operating profit before finance costs, as included in the internal
management reports that are reviewed by the Group's CEO. Segment profit is used to measure
performance as management believes that such information is the most relevant in evaluating
the results of certain segments relative to other entities that operate within these industries.
Inter-segment pricing is determined on an arm's length basis.
– Traditional portfolio: Properties on which revenue is generated predominately from
occupation.
– Conference portfolio: Properties on which revenue is generated predominately from
conference facilities and food and beverage.
– Head office: Head office represents all the costs at Fund level and is reviewed separately from
the property portfolio
Unaudited Unaudited Audited
Dec Dec Jun
2016 2015 2016
R'000 R'000 R'000
Total assets
Traditional portfolio 7 139 643 4 324 014 4 504 625
Conference portfolio 765 840 771 532 849 982
Head Office 439 429 291 019 223 980
8 344 912 5 386 565 5 578 587
Rental revenue
Traditional portfolio 272 412 201 951 412 261
Conference portfolio 30 266 34 116 62 292
302 678 236 067 474 553
Profit for the period
Traditional portfolio 272 412 201 951 412 261
Conference portfolio 30 266 34 116 62 292
Head office (26 447) (21 433) (45 077)
276 231 214 634 429 476
CONDENSED CONSOLIDATED NOTES TO THE FINANCIAL STATEMENT
for the six months ended 31 December 2016
1. Profit on sale of Investment Property
The Inn on the Square was disposed of for a cash consideration of R157 million on
21 November 2016. The fair value of the property at the date of sale was R107.6 million
and a break fee of R12 million was paid to the management company as a result of the sale.
The profit realised on the sale amounted to R35.6 million. Other profit realised on the sale
of FF&E assets in the period amounted to R0.5 million.
31 Dec 2016
R'000
2. Investment property
Opening balance 5 169 000
Acquisition of Fezisource at fair value 2 657 717
Additions to Investment Property 32 885
Revaluation of property (Inn on the Square prior to sale) 1 680
Disposal of Investment Property (107 639)
Transfer of Investment Property 63 365
Closing balance 7 817 008
3. Acquisition of subsidiary
On 1 September 2016, the Fund acquired the entire share capital of Fezisource (Pty)
Ltd from Southern Sun Hotels (Pty) Ltd, in consideration for which, the Fund issued
145 000 000 no par value ordinary shares under the new single share capital structure to
Southern Sun Hotels (Pty) Ltd the value of which is R2 673 293. Had the effective date
of the acquisition been 1 July 2016, the incremental revenue would have amounted to
R29.5 million. Profit would have remained the same as there were no associated costs.
31 Dec 2016
R'000
3.1 Purchase consideration
Issue of 145 000 000 no par value ordinary shares 2 673 293
3.2 Effect on cash flows of the Group
Cash and cash equivalents 503
Call account 87 545
Cash inflow on acquisition 88 047
3.3 Identifiable assets acquired and liabilities assumed
Cash and cash equivalents 503
Call account 87 545
Investment property 2 657 717
Trade and other receivables 12 963
Total assets 2 758 728
Trade and other liabilities 101 437
Total liabilities 101 437
Total identifiable net assets 2 657 290
Add: Goodwill 16 003
Purchase consideration 2 673 293
3.4 Acquisition related costs
Transaction costs of R17.99 million were incurred with respect to the share capital
restructure. The transaction cost is recognised in stated capital as shown on the statement
of changes in equity.
4. Provision for Shareholder Redemption
The provision relates to the dissenting shareholder appraisal rights. The Board determined
a fair value of R2.90 per appraisal share, which amounts to a total fair value of R24.1 million.
In terms of section 164(14)(b), the dissenting shareholders have applied to the court to
determine a fair value.
5. Contingent liability
On 21 November 2016, the Inn on the Square was sold. The Fund has given certain
warranties, which in total shall not exceed 10% of the sale price being R157 million or
R5 million in respect of any one warranty, these warranties expire on 19 October 2017.
Management is of the view that the likelyhood of any of the warranties being claimed, which
may result in a cash outflow, is remote.
6. Related party transactions
Tsogo Sun acquired 55% of the Hospitality B-linked units (27% of the voting interest)
in August 2015. Tsogo Sun then acquired a controlling stake in the Fund, through the
injection of hotel assets such that the issue of shares to Tsogo Sun resulted in Tsogo Sun
owning 50.6% of the shares following the reconstitution of Hospitality's capital into a single
class of shares. The remaining administrative conditions precedent to the transaction
were fulfilled in August 2016 and the effective date of the transaction was 1 September
2016. The acquisition was in-line with the Fund's strategy and has therefore not changed
the composition of the Fund. Rental income received from Tsogo Sun, for the period
1 September 2016 to 31 December 2016, was R74.2 million. The profit in the period to
31 December 2016 was R74.2 million as there were no related costs.
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