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HOSPITALITY PROPERTY FUND LIMITED - Supplementary information on the acquisition

Release Date: 20/04/2017 15:18
Code(s): HPB     PDF:  
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Supplementary information on the acquisition

HOSPITALITY PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2005/014211/06)
JSE share code: HPB
ISIN: ZAE000214656
(Approved as a REIT by the JSE)
(“Hospitality” or “the company”)



SUPPLEMENTARY INFORMATION ON THE ACQUISITION OF VARIOUS ADDITIONAL SECTIONS, XCLUSIVE USE AREAS AND A REAL RIGHT OF EXTENSION IN 
THE SANDTON EYE SECTIONAL TITLE SCHEME


1.   Introduction

     Shareholders are referred to the category 2 announcement released on SENS on Tuesday, 11 April 2017, wherein
     shareholders were advised that HPF Properties Proprietary Limited (“HPF”), a wholly owned subsidiary of Hospitality has,
     subject to certain conditions precedent, concluded:

     1.1   an agreement (the “scheme purchase agreement”) with Savana Property Proprietary Limited (“Savana”) to acquire
           various sections and exclusive use areas of the Sandton Eye sectional title scheme (the “scheme”) (the “scheme
           acquisition”); and
     1.2   an agreement (the “real right purchase agreement”) with Sandton Isle Investments Proprietary Limited to acquire an
           existing Real Right of Extension in the scheme (the “real right acquisition”).

2.   Supplementary information

     2.1   Details of the scheme and real right acquisition

           Hospitality currently owns 58.13% of the Sandton Eye sectional title scheme comprising 220 rooms, conference
           facilities, the Central One Restaurant and Bar, an outdoor swimming pool and sun deck of the upscale Radisson Blu
           Gautrain Hotel.

           The scheme acquisition, which will increase Hospitality’s interests in the scheme (“participation quota”) from 58.13%
           to 81.54%, comprises the following investments:

           Description                                                                              Gross Lettable Area (m²)
           Retail areas                                                                                                2 824
           Offices                                                                                                       192
           Other*                                                                                                       3038
           Total                                                                                                       6 054

                                                                                                                       Other
           Parking                                                                                                  146 bays
           *Conference and entertainment areas, store rooms, external signage and advertising rights

           In terms of the real right acquisition HPF will acquire 10 000m² of bulk rights to extend the scheme by an additional 7
           floors. The real right acquisition also includes pre-completed works towards the additional development. The weighted
           average rental per square metre of the scheme is R287.54/m2 per month.

     2.2 Forecast financial information

           Set out below are the forecast revenue, net property income, net operating profit, profit before taxation, total profit and
           comprehensive income and profit available for distribution of the scheme acquisition and the real right acquisition (“the
           forecast”) for the 12 months ending 31 July 2018 (“the forecast period”).

           The forecast has been prepared on the assumption that the scheme acquisition and real right acquisition will be
           implemented on 1 August 2017 and on the basis that the forecast includes forecast results for the duration of the
           forecast period.
           The forecast, including the assumptions on which it is based and the financial information from which it has been
           prepared, is the responsibility of the directors of Hospitality. The forecast has not been reviewed or reported on by
           independent reporting accountants.

           The forecast presented in the table below has been prepared in accordance with Hospitality’s accounting policies, which
           are in compliance with International Financial Reporting Standards.

                                                                                                                   Forecast for the
                                                                                                                   12 months ending
                                                                                                                        31 July 2018
                                                                                                                               R’000

          Revenue - Rental income                                                                                            22 447
                Retail and office areas                                                                                      14 649
                Parking and other                                                                                             7 798

          Net property income/net operating profit                                                                           19 600
          Straight-line rental income accrual                                                                                 1 109

          Profit before taxation                                                                                              2 823

          Total profit and comprehensive income                                                                               2 823

          Profit available for distribution                                                                                   1 723

                The forecast incorporates the following material assumptions in respect of revenue and expenses:
                 1. The net property income relates to the scheme acquisition only. There is no forecast net property income
                    relating to the real right acquisition as these are development rights only.
                 2. The forecast is based on information derived from the management accounts, budgets, and rental contracts
                    provided by Savana.
                 3. Rental income is derived from the forecasts provided to Hospitality by Savana. Contracted revenue is based
                    on existing lease agreements including stipulated increases, all of which are valid and enforceable. Leases
                    expiring during the forecast period have been forecast on a lease-by-lease basis, and have been assumed to
                    renew at current market rates unless the lessee has indicated its intention to terminate the lease. Of the rental
                    income of R22 447 000, 57% relates to contracted rental and 43% relates to uncontracted rental. No near
                    contracted rental income is forecast
                 4. Property operating expenditure has been forecast by the managing agent of the Body Corporate on a line-by-
                    line basis based on management’s review of historical expenditure, where available, and discussion with the
                    property manager.
                 5. A finance cost has been recognised for the additional interest bearing liabilities raised of R188 181 000 to
                    fund the cash portion of the purchase consideration relating to the scheme acquisition, based on the current
                    cost of debt of Hospitality of 9.5%. It is assumed that the finance cost relating to the interest bearing
                    liabilities raised of R83 214 000 to fund the cash portion of the purchase consideration relating to the real
                    right acquisition is capitalised in terms of IAS 23 Borrowing Costs.
                 6. No fair value adjustment is recognised.
                 7. There will be no unforeseen economic factors that will affect the lessee's ability to meet their commitments
                    in terms of existing lease agreements.

20 April 2017


Sponsor
Java Capital

Date: 20/04/2017 03:18:00 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.

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