To view the PDF file, sign up for a MySharenet subscription.

HOSPITALITY PROPERTY FUND LIMITED - Reviewed condensed consolidated financial results for the period ended 31 March 2017 and cash dividend declaration

Release Date: 24/05/2017 11:30
Code(s): HPB     PDF:  
Wrap Text
Reviewed condensed consolidated financial results for the period ended 31 March 2017 and cash dividend declaration

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” or “the Fund”)

REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESULTS
for the period ended 31 March 2017 and cash dividend declaration

Rental Income for 9 months increased to R499 million
Investment Property value increased to R8.1 billion
Distribution per share for 9 months 101.01 cents

COMMENTARY

INTRODUCTION
The nine months ended 31 March 2017 incorporated the completion of the acquisition of 10 hotel properties from
Tsogo Sun Holdings Limited ("Tsogo Sun") ("1st 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"), which brought about the alignment
of shareholder objectives.

FINANCIAL RESULTS
Hospitality's board has declared a distribution of 44.92 cents per share for the three months ended 31 March 2017
resulting in the total distribution per share for the nine months of 101.01 cents per share (in addition to a clean
out dividend, declared as at 31 August 2016, to A-shareholders of 9.29 cents per share). The Fund's distributable
earnings increased by 56.8% to R345 million compared to the nine months to 31 March 2016, mainly due to the
inclusion of the 10 properties from the 1st Transaction, effective from 1 September 2016. The Fund currently owns
24 properties relative to the 15 properties at 30 June 2016.

The following table reflects the operating financial results for the nine months ended 31 March 2017 compared
to the prior 12 month financial period and the prior corresponding illustrative nine month comparable period:

                                                              Illustrative
                                                                      Nine
                                  Nine months          Year         months         Nine
                                        ended         ended       ended(2)       months   Nine months
                                March 2017(1)     June 2016     March 2016     Variance      Variance
Summary of operating results            R'000         R'000          R'000        R'000             %
Contractual revenue                   498 803       474 553        370 181      128 622            35
Fund expenses                        (38 858)      (44 852)       (32 052)      (6 806)          (21)
Net finance cost                    (115 504)     (158 085)      (118 289)        2 785             2
Income from associates                    409           264            144          265           184
Taxation                                    -           (9)              -            -             -
Profit before distribution            344 850       271 871        219 984      124 866            57
Distribution                        (344 850)     (271 871)      (219 984)    (124 866)          (57)
A-share                              (13 406)     (224 539)      (167 816)   
B-share                                     -      (47 332)       (52 168)
No par value ordinary shares        (331 444)             -              -
Distribution - A-share (cents)           9.29        155.62         116.31
Distribution - B-share (cents)              -         34.81          36.14
No par value ordinary shares           101.01             -              -

(1) Hospitality changed its financial year end from June to March during the period under review. 
    This was done to align Hospitality's financial year end with that of its controlling shareholder, Tsogo Sun.
(2) The illustrative information has been extracted, without adjustment from management accounts for the period 
    1 July 2015 to 31 March 2016. The illustrative information is the responsibility of the directors of Hospitality 
    and has not been reviewed or reported on by Hospitality's auditors.

Rental income for the nine month period increased by 35% to R499 million (2016: R370 million) and includes the
impact of the 1st Transaction and the disposal of eight investment properties in the current and prior periods.
Rental income on a like-for-like basis, for a 12 month comparable period, grew by 10% (adjusted for the impact of
the 1st Transaction and the disposal of investment properties).

Hospitality's rental income is subject to seasonal variability and the nine months to 31 March 2017 included a
robust summer period in the Western Cape.

Hospitality's expenses for the nine month period are up 21% to R39 million (2016: R32 million). A once-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 a 3% reduction in expenses, predominantly due to payroll-related savings.

Net finance costs of R116 million (2016: R118 million) were in line with the previous comparable nine month
period with debt levels constant. The weighted average cost of net debt for the year to March 2017 is 10.4%
(Previously the company disclosed the gross cost of debt.)

TRADING RESULTS
For the purpose of comparison to the STR Global South African Hotel Review ("STR") and to mitigate against
the effect of seasonality in the nine month results, trading for the 12 month period ended 31 March 2017 has
been compared to the prior 12 month period. The trading results have been compared on a like-for-like basis
and exclude the disposed properties. Room occupancy increased 2.3% to 65.5% and average daily rates ("ADR")
increased by an above inflation 6.4% to R1 218. This resulted in revenue per available room ("RevPAR") growth of
8.9% to R797 and compares favourably with the STR reported RevPAR growth for South African hotels of 9.8%.

The Fund's hotel properties are predominantly located in the Western Cape and Gauteng provinces of South Africa
and these properties generate more than 75% of the Fund's rental income.

The Western Cape properties, predominantly located in the Cape Town CBD performed well. Room occupancy grew
4.8% to 71.1% whilst ADR grew by 7.4% to R1 751 and resulted in RevPAR growth of 12.6% to R1 245, whilst RevPAR
growth for the Western Cape properties participating in the STR survey was 17.9% . This was off a lower base than
that of the Fund and was driven by aggressive growth in the ADR of the participating 4- and 5-star hotels.

The Gauteng properties increased occupancy to 60.4%, a growth of 1.9% whilst ADR grew by 4.0%, resulting in
RevPAR growth of 6.0% which compares favourably with the growth in RevPAR of 4.5% for the STR participating
hotels in Gauteng.

PROPERTY PORTFOLIO
The Fund's portfolio comprises interests in 24 hotel and resort properties in South Africa. The Fund's property
portfolio was independently valued at 31 March 2017, resulting in a net fair value increase of R184 million to
R8.1 billion (2016: R5.2 billion). The fund has elected to measure investment properties at fair value. The fair value
is determined by discounting the rental income (based on expected net cash flows of the underlying hotels) after
considering the capital expenditure requirements. The expected cash flows are discounted using an appropriate
discount rate.

The weighted average lease expiry period is 13.4 years. As at 31 March 2017, the carrying amount of the portfolio
was R8.1 billion and the net asset value (NAV) per ordinary share amounted to R19.96. The market value per share
at 31 March 2017 traded at a 30% discount to the NAV.

ACQUISITIONS AND DISPOSALS
The Fund's investment strategy is to invest in well-located hotels in major urban centres with strong brands and
diverse source markets.

The 1st Transaction, which became effective from 1 September 2016, comprised the acquisition of 10 hotel
properties. Hospitality's inclusion in the Tsogo group, provided it with future growth prospects and an attractive
pipeline of acquisitions in the medium-term.

As announced on the Stock Exchange News Service of the JSE ("SENS") on 18 May 2017, Hospitality has entered
into transaction agreements with Tsogo Sun and/or its subsidiaries ("Tsogo Group") ("2nd Transaction"), to acquire
a portfolio of 29 established hotel properties for an aggregate purchase consideration of R3.6 billion, to be settled
by R1.0 billion in cash and R2.6 billion in shares.

The 2nd Transaction remains subject to the requisite shareholders' approval being obtained at the general meeting
scheduled for 5 July 2017. A circular containing the notice of the general meeting will be posted to shareholders
on 5 June 2017 in terms of the Companies Act No 71 of 2008 ("the Companies Act") and the JSE Limited Listings
Requirements.

The 2nd Transaction presents an attractive acquisition for Hospitality, in line with the Fund's growth strategy to
acquire value enhancing property acquisitions, both from within Tsogo Sun's existing portfolio and from external
opportunities, to increase the Fund's critical mass. The 2nd Transaction will continue to broaden Hospitality's
earnings base, brand and product offering and result in greater presence in primary metropolitan areas.

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 20 November 2016. The
Fund has provided certain warranties, which, in total, shall not exceed 10% of the purchase price or R5 million in
respect of any one warranty.

As announced on SENS on 11 April 2017, the Fund has also concluded an agreement with Savana Property
Proprietary Limited to acquire various additional sections and exclusive use areas in the Sandton Eye sectional
title scheme ("the Scheme"), increasing the Fund's interest in the scheme from 58.13% to 81.54% and including the
acquisition of an existing real right of extension of the scheme by some 10 000 bulk square meters or an additional
seven floors.

RIGHTS OFFER
Subject to receiving the requisite JSE approvals, Hospitality intends to undertake a fully underwritten rights offer
to raise R1.8 billion (the "Rights Offer"). Further details of the Rights Offer will be announced in due course and
a circular in respect of the Rights Offer will be posted to shareholders. The Rights Offer proceeds will be used to
partially settle the cash portion of the purchase consideration of the 2nd Transaction, with the balance being
utilised to reduce Hospitality's interest bearing debt.

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 R73 million during the period. Most notably, this included an upgrade of the Spa
at the Radisson Waterfront.

FUNDING
The group's debt facilities with financial institutions as at 31 March 2017 amounted to R2.0 billion. Total
drawn down 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 22.4% (2016: 32.6%). The reduction in gearing is mainly
due to the acquisition of the ungeared 1st Transaction portfolio. The interest cover ratio improved to 4.0 times
(2016: 2.7 times), well above the required debt covenant limit of 2.0 times.

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).

PROSPECTS
Growth in hotel trading is expected to remain under pressure given the weak economic growth prospects in
South Africa. Growth will further depend on the economy's future performance and the degree of policy certainty
emanating from the government going forward. The Fund remains positive that the rental income it derives from
its tenants is well-diversified, both geographically and in terms of product offering across brand segments. The
contribution from the elevated performances of the hotel properties in the Cape region could be at risk due to
additional supply entering the market.

The Fund continues with the following:
-  the integration of the 1st Transaction portfolio, which increased the Fund's room count by 1 978 rooms to
   5 232 rooms;
-  the implementation of the 2nd Transaction in relation to the acquisition of 29 additional hotels consisting of
   3 771 rooms; and
-  the implementation of the acquisition of various additional sections and exclusive use areas in the Sandton Eye
   Scheme.

The Fund's gearing is low at 22.4% and the Fund is committed to and able to fund its ongoing capital expenditure
programme over a five-year planning horizon.

DIVIDEND PAYMENT
The Board has approved and notice is hereby given of a gross dividend payment number 23 of 44.92012 cents per
share for the three months ended 31 March 2017.

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).

In accordance with Hospitality's REIT status, shareholders are advised that the distribution 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").

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. On 22 February 2017, the dividends withholding tax rate was increased from 15%
to 20% and any distribution received by a non-resident from a REIT will be subject to dividend withholding tax
at 20%, 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 20%, the net amount due to non-resident shareholders will be 35.93610 cents per
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 distribution 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 distribution is payable in accordance with the timetable below:

Last day to trade cum distribution                                                 Monday, 12 June 2017
Shares will trade ex distribution                                                 Tuesday, 13 June 2017
Record date                                                                      Thursday, 15 June 2017
Payment date                                                                       Monday, 19 June 2017

Shareholders may not dematerialise or rematerialise their shares between Tuesday, 13 June 2017 and Thursday,
15 June 2017, both days inclusive.

Payments of the distribution will be made to shareholders on Monday, 19 June 2017. In respect of dematerialised
shares, the dividend will be transferred to the CSDP accounts/broker accounts on Monday, 19 June 2017.
Certificated shareholders' dividend will be deposited on or about Monday, 19 June 2017.

Income tax reference number: 9770/799/1/47.

SUBSEQUENT EVENTS
Shareholders are referred to the announcement released on SENS on Tuesday, 11 April 2017, wherein shareholders
were advised that HPF Properties Proprietary Limited, a wholly-owned subsidiary of Hospitality has, subject to
certain conditions precedent, concluded:
   
- an agreement with Savana Property Proprietary Limited to acquire various sections and exclusive use areas of
  the Sandton Eye sectional title scheme;
- an agreement with Sandton Isle Investments Proprietary Limited to acquire an existing Real Right of Extension
  in the scheme;
    
  for an aggregate purchase consideration of R302 million.

Shareholders are also referred to the Category 1 announcement released on SENS on Thursday, 18 May 2017,
wherein shareholders were advised that Hospitality, subject to conditions precedent, concluded an agreement
with Tsogo Sun to acquire 100% of the share capital in The Cullinan Hotel Proprietary Limited and Merway Fifth
Investments Proprietary Limited. The acquisition of the portfolio includes 29 letting operations for an aggregate
purchase consideration of R3.6 billion, which was calculated on an income for income basis.

PRESENTATION
Shareholders are advised that a presentation that provides additional analysis and information, will be available
on the company's website at www.hpf.co.za.

By order of the Board

JA Copelyn               KG Randall
(Chairman)               (Chief Executive Officer)

24 May 2017

INDEPENDENT AUDITOR'S REVIEW REPORT ON CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TO THE SHAREHOLDERS OF HOSPITALITY PROPERTY FUND LIMITED

We have reviewed the condensed consolidated financial statements of Hospitality Property Fund Limited, set
out on pages 8 - 16 of the provisional report, which comprise the condensed consolidated statement of financial
position as at 31 March 2017 and the related condensed consolidated statements of comprehensive income,
changes in equity and cash flows for the period 1 July 2016 to 31 March 2017, and selected explanatory notes.

DIRECTORS' RESPONSIBILITY FOR THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The directors are responsible for the preparation and presentation of these condensed consolidated financial
statements in accordance with the requirements of the JSE Limited Listings Requirements for provisional reports,
as set out in note 1 to the financial statements, and the requirements of the Companies Act No.71 of 2008 ("the
Companies Act"), and for such internal control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR'S RESPONSIBILITY
Our responsibility is to express a conclusion on these financial statements. We conducted our review in accordance
with International Standard on Review Engagements (ISRE) 2410, which applies to a review of historical financial
information performed by the independent auditor of the entity. ISRE 2410 requires us to conclude whether
anything has come to our attention that causes us to believe that the financial statements are not prepared in all
material respects in accordance with the applicable financial reporting framework. This standard also requires us
to comply with relevant ethical requirements.

A review of financial statements in accordance with ISRE 2410 is a limited assurance engagement. We perform
procedures, primarily consisting of making inquiries of management and others within the entity, as appropriate,
and applying analytical procedures, and evaluate the evidence obtained. The procedures performed in a review
are substantially less than those performed in an audit conducted in accordance with International Standards on
Auditing. Accordingly, we do not express an audit opinion on these financial statements.

CONCLUSION
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated
financial statements of Hospitality Property Fund Limited for the period 1 July 2016 to 31 March 2017 are not
prepared, in all material respects, in accordance with the requirements of the JSE Listings Requirements for
provisional reports, as set out in the "basis of preparation and accounting policies" note to the financial statements,
and the requirements of the Companies Act.

PricewaterhouseCoopers Inc.
Director: V. Muguto
Registered Auditor
Sunninghill
24 May 2017

Notes to the revised condensed consolidated financial statements
for the period ended 31 March 2017

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES
   The condensed consolidated financial statements for the year ended 31 March 2017 have been
   prepared in accordance with the requirements of the JSE Listings Requirements for provisional reports
   and the requirements of the Companies Act. The JSE Listings Requirements require provisional reports
   to be prepared in accordance with the framework concepts and the measurement and recognition
   requirements of International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting
   Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the
   Financial Reporting Standards Council and to also, as a minimum, contain the information required by
   IAS:34 Interim Financial Reporting. Financial Director, M R de Lima CA(SA), supervised the preparation
   of the condensed consolidated financial statements. The accounting policies applied in the preparation
   of the condensed consolidated financial statements are in terms of IFRS and are consistent with those
   applied in the previous consolidated annual financial statements as at 30 June 2016. A copy of the
   auditors' review report is available for inspection at the company's registered address together with the
   financial statements identified in the auditors' report. The auditor's report does not necessarily report on
   all the information contained in these results. The directors take full responsibility for the preparation of
   these results and confirm that the financial information has been correctly extracted from the underlying
   financial statements. The condensed consolidated financial statements should be read in conjunction
   with the annual financial statements for the year ended 30 June 2016, which have been prepared in
   accordance with IFRS.

   These condensed consolidated financial statements for the year ended 31 March 2017 have been
   reviewed by PricewaterhouseCoopers Inc., and their unmodified review conclusion is included on page 7.

2. RESTRUCTURE OF SHARE CAPITAL
   As previously announced, in order to comply with REIT's gearing requirement in terms of the JSE Limited
   Listings Requirements, restructuring of the company's linked unit capital structure to a simple "all share"
   structure, by way of a scheme of arrangement in terms of sections 114 and 115 of the Companies Act and
   the adoption of a new Memorandum of Incorporation to take account of the change in the company's
   capital structure, received the requisite approval from both A- and B-linked unitholders at the Special
   General Meetings held on 21 August 2015. The change in the share capital structure was effective from
   11 October 2016.

3. INVESTMENT PROPERTY                                                                           R'000
   Opening net carrying amount                                                               5 169 000
   Acquisition of subsidiary at fair value (refer note 5)                                    2 657 717
   Acquisitions, maintenance and development of investment properties                           73 262
   Fair value adjustments recognised through profit or loss                                    205 333
   Disposal of investment property                                                           (107 639)
   Transfer of investment property from non-current assets held for sale/trading                63 365
   Closing net carrying amount                                                               8 061 038

   The group's investment properties have been categorised as level 3 values based on the inputs to the
   valuation technique used. The group has elected to measure investment properties at fair value. The fair
   value is determined by using the discounted cash flow method by discounting the rental income (based on
   expected net cash flows of the underlying hotels) after considering the capital expenditure requirements.
   The expected cash flows are discounted using an appropriate discount rate. The core discount rate is
   calculated using the R186 (long bond) at the time of valuation, to which is added premiums for market
   risk and equity and debt costs. The discount rate takes into account a risk premium associated with the
   local economy as well as that specific to the local property market and the hotel industry. Fair values are
   estimated annually by an appointed valuer.

   As at 31 March 2017 the significant unobservable inputs were as follows:
   -  A weighted average rental growth rate of 5.5%;
   -  A revisionary capitalisation rate of 7.26%; and
   -  A risk-adjusted discount rate of 12.76%

   The table below indicates the sensitivities of the aggregate property values for a 5% change in the net
   cash flows:
                                                                             Increase         Decrease
                                                                                   Rm               Rm
   5% change in the net cash flows                                                402             (402)
   25bps change in the terminal capitalisation rate                              (199)              162
   50bps change in the discount rate                                             (301)              279


4. PROFIT ON SALE OF INVESTMENT PROPERTY
   The Inn on the Square was disposed of for a cash consideration of R157 million on 20 November 2016. The
   fair value of the property at the date of sale was R108 million and a break fee of R12 million was paid to
   the management company due to the sale. The profit realised on the sale amounted to R36 million. Other
   profit on sale of investment properties realised in the period amounted to R1 million.

5. ACQUISITION OF SUBSIDIARY
   On 1 September 2016, the Fund acquired the entire share capital of Fezisource Proprietary Limited
   ("Fezisource"), a letting operation, from Southern Sun Hotels Proprietary Limited, in consideration for
   which, the Fund issued 145 000 000 no par value ordinary shares on the new structure to Southern Sun
   Hotels Proprietary Limited, to the value of R2 673 293. Management determined that the acquisition
   meets the definition of a business combination as opposed to an asset acquisition.

   5.1  The fair valuation of the net assets acquired equates to the fair value of the consideration paid at the
        date of acquisition, and the group has recognised goodwill of R16 million with no intangible assets
        having been identified in respect of this acquisition. The acquired business contributed incremental
        revenues of R119 million and distributable income of R119 million to the group for the period from
        date of control to 31 March 2017. Had the acquisition occurred on 1 April 2016, rental income and
        distributable income would have increased by an additional R66 million. These amounts have been
        calculated using the group's accounting policies. The fair value of net assets acquired is as follows:

                                                                                                            Rm
   Investment properties                                                                             2 657 717
   Other current assets                                                                                 12 963
   Cash and cash equivalents                                                                            88 047
   Other current liabilities                                                                         (101 437)
   Total identifiable net assets acquired                                                            2 657 290
   Less: Purchase consideration in the form of 145 000 000 no par value ordinary shares              2 673 293
   Goodwill(1)                                                                                          16 003
   Outflow of cash to acquire Fezisource net of cash acquired
   Cash consideration to acquire Fezisource                                                                  -
   Add cash and cash equivalents acquired with Fezisource                                               88 047
   Net inflow of cash - investing activities                                                            88 047
   
  (1) The goodwill was subsequently impaired as noted below

     5.2  Acquisition-related costs
          Transaction costs of R18 million were incurred with respect to the share restructure. The transaction
          cost is recognised in Stated Capital as shown on the Statement of Changes in Equity.

     5.3  Impairment of goodwill
          Opening balance                                                                               16 003
          Impairment loss                                                                             (16 003)
          Carrying amount at year end                                                                        -

          The goodwill resulted from the acquisition of the subsidiary noted above.

          Impairment testing for cash-generating unit containing goodwill
          For the purpose of the annual impairment testing of goodwill, the recoverable amount of the
          cash-generating unit was based on its value in use and a full impairment loss of R16 million was
          recognised.

          The recoverable amount was calculated by discounting the projected future cash flows for a period
          of five years generated from the continuing use of the unit and was based on the same assumptions
          noted in Note 3.

 6. PROVISION FOR SHAREHOLDERS REDEMPTION
    The provision relates to the dissenting shareholders appraisal rights. The Board determined a fair value of
    R2.90 per appraisal share, which amounts to a total fair value of R24 million. In terms of section 164(14)(b),
    the dissenting shareholders have applied to the court to determine a fair value.

 7. SEGMENTAL POLICY
    Information regarding the results of each reportable segment is included below. The reportable segments
    have been changed from the previous reporting period. 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. Geographical segments are used to measure performance as the group's CEO believes
    that such information is the most relevant in evaluating the results of certain segments relative to other
    entities that operate within these industries, particularly post the acquisition of the additional hotel
    properties during the period.

 8. CONTINGENT LIABILITY
    On 20 November 2016, the Inn on the Square was sold. The Fund has given certain guarantees, which in
    total shall not exceed 10% of the sales price of R157 million or R5 million in respect of any one guarantee,
    these guarantees expire on 19 October 2017. Management is of the view that the likelihood of any of the
    guarantees being claimed, which may result in a cash outflow, is remote.

 9. RELATED PARTY TRANSACTIONS
    Tsogo Sun acquired 55% of the HPF 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 HPF'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 March 2017,
    was R119 million.

10. CAPITAL COMMITMENT
    The board has committed a total of R127 million for maintenance and expansion capital items at its hotel
    properties of which R127 million is anticipated to be spent during the next financial year. R7 million of the
    committed capital expenditure has been contracted for.

CONDENSED CONSOLIDATED INCOME STATEMENT
for the period ended 31 March 2017

                                                                       Reviewed       Audited
                                                                    Nine months          Year
                                                                          March          June
                                                                           2017          2016
                                                                          R'000         R'000
Revenue                                                                 498 803       474 328
Rental income - contractual                                             498 803       474 553
              - straight-line accrual                                         -         (225)
Operating expenses                                                     (38 858)      (44 852)
Operating profit                                                        459 945       429 476
Profit/(loss) on sale of investment properties                           36 528      (13 556)
Goodwill impairment                                                    (16 003)      (12 000)
Net finance cost                                                      (115 504)     (158 085)
Finance income                                                           20 556        12 737
Finance costs                                                         (136 060)     (170 822)
Profit before fair value adjustments and taxation                       364 966       245 835

CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the period ended 31 March 2017

                                                                       Reviewed       Audited
                                                                    Nine months          Year
                                                                          March          June
                                                                           2017          2016
                                                                          R'000         R'000
Profit before fair value adjustments and taxation                       364 966       245 835
Fair value adjustments                                                  179 191       257 412
Investment properties, before straight-lining adjustment                184 173       251 024
Straight-line rental income accrual                                           -           225
Total fair value of investment properties                               184 173       251 249
Interest-rate swaps                                                     (4 982)         6 163
Profit before taxation                                                  544 157       503 247
Debenture discount amortisation                                               -       (2 313)
Equity accounted profit from associate after tax                            409           264
Taxation                                                                      -           (9)
Total profit and comprehensive income for the year                      544 566       501 189


SUPPLEMENTARY INFORMATION
for the period ended 31 March 2017


                                                                       Reviewed       Audited
                                                                    Nine months          Year
                                                                          March          June
Reconciliation between earnings,                                           2017          2016
headline earnings and distributable earnings                              R'000         R'000
Total profit and comprehensive income for the year                      544 566       501 189
Adjustments:
(Profit)/Loss on sale of investment properties                         (36 528)        13 556
Goodwill impairment                                                      16 003        12 000
Impairment to furniture, fitting and equipment                                -           265
Loss on disposal of furniture, fitting and equipment                          -             7
Fair value - investment properties revaluation                        (184 173)     (251 024)
Fair value - straight line rental income                                      -         (225)
Headline earnings (shares/linked units)                                 339 868       275 768
Fair value - interest rate swaps                                          4 982       (6 163)
Debenture discount amortisation                                               -         2 313
Impairment to furniture, fitting and equipment                                -         (265)
Loss on disposal of furniture, fitting and equipment                          -           (7)
Straight-line rental income                                                   -           225
Distributable earnings                                                  344 850       271 871
Number of shares/units
A - shares                                                                    -   144 285 503
B - shares                                                                    -   133 995 396
- Shares in issue                                                             -   144 285 503
- HPF Employee Incentive Trust shares                                         -   (1 969 710)
- Shareholder redemption                                                      -   (8 320 397)
No par value ordinary shares(1)                                     327 569 902             -
- Shares in issue                                                   330 509 932             -
- HPF Employee Incentive Trust shares                                 (562 774)             -
- Shareholder redemption (refer to note 6)                          (2 377 256)             -
Weighted average number of shares
No par value ordinary shares(1)                                     327 569 902   182 569 902
- Shares in issue                                                   330 509 932   185 509 932
- HPF Employee Incentive Trust shares                                 (562 774)     (562 774)
- Shareholder redemption (refer to note 6)                          (2 377 256)   (2 377 256)
Distribution per share (cents)(2)
No par value share                                                       105.09        148.54
- Interim                                                                 60.17         73.23
- Final                                                                   44.92         75.30

                                                                         105.09        148.54
Earnings and diluted earnings per share (cents)
No par value ordinary shares(1)                                          166.24        274.52
Headline earnings and diluted headline earnings per share (cents)
No par value ordinary shares(1)                                          103.75        151.05

(1) The weighted average number of shares in the prior year, have been restated into the current 
    capital structure as required by IAS 33, and as explained in note 3.
(2) The distribution per share has been restated as required by IAS 33.


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the period ended 31 March 2017


                                                                       Reviewed      Audited
                                                                    Nine months         Year
                                                                          March         June
                                                                           2017         2016
                                                                          R'000        R'000
Cash flows from operating activities
Cash generated from operations                                          329 152      453 473
Finance income received                                                  20 556       12 737
Finance costs paid                                                    (136 060)    (170 822)
Taxation                                                                      -        (109)
Net cash (outflow)/inflow from operating activities                     213 648      295 279
Cash flows from investing activities
Acquisition, maintenance and development of investment properties      (73 262)    (131 157)
Proceeds from the disposal of investment properties                     146 872      206 362
Acquisition of furniture and equipment                                    (153)        (202)
Acquisition of subsidiary, net of cash acquired (note 5.2)               88 047            -
Distribution paid to shareholders                                     (334 617)    (247 561)
Dividends received from associates                                          251          200
Net cash inflow from investing activities                             (172 862)    (172 358)
Cash flows from financing activities
Interest-bearing liabilities raised                                           -      232 200
Interest-bearing liabilities paid                                       (7 000)    (365 011)
Transaction costs                                                      (17 992)            -
Net cash inflow/(outflow) from financing activities                    (24 992)    (132 811)
Net increase/(decrease) in cash and cash equivalents                     15 794      (9 890)
Cash and cash equivalents at beginning of year                          194 260      204 150
Cash and cash equivalents at end of year                                210 054      194 260


CONDENSED CONSOLIDATED SEGMENTAL INFORMATION
for the period ended 31 March 2017
                                                                    Nine months         Year
                                                                          March         June
                                                                           2017         2016
                                                                          R'000        R'000
Total assets
Western Cape                                                          3 593 343    2 742 000
Gauteng                                                               2 532 781    2 062 491
Remainder of South Africa                                             2 000 522      494 000
Head Office                                                             328 417      280 096
                                                                      8 455 063    5 578 587
Rental revenue 
Western Cape                                                            238 487      224 398
Gauteng                                                                 149 697      174 483
Remainder of South Africa                                               110 619       75 672
                                                                        498 803      474 553
Operating profit for the period 
Western Cape                                                            238 487      224 398
Gauteng                                                                 149 697      174 483
Remainder of South Africa                                               110 619       75 672
Head Office                                                            (38 858)     (45 077)
                                                                        459 945      429 476

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2017
                                                                       Reviewed      Audited
                                                                          March         June
                                                                           2017         2016
                                                                          R'000        R'000
ASSETS                  
Non-current assets                                                    8 063 583    5 174 459
Investment properties                                                 8 061 038    5 169 000
Furniture, fittings and equipment                                           198          180
Derivative asset                                                          1 870        4 961
Investment in associates                                                    477          318
Current assets                                                          391 480      404 128
Non-current assets held for sale                                         65 610      129 491
Properties held for trading                                                   -       22 643
Derivative asset                                                            280          699
Trade and other receivables                                             115 536       57 035
Cash and cash equivalents                                               210 054      194 260
                  
Total assets                                                          8 455 063    5 578 587
EQUITY AND LIABILITIES                  
Equity                                                                6 597 503    3 732 253
Stated capital                                                        5 565 258    2 909 957
Retained earnings                                                       138 719      107 961
Fair value reserve                                                      893 526      714 335
Liabilities                  
Non-current liabilities                                               1 641 007    1 126 540
Interest-bearing liabilities                                          1 638 493    1 125 063
Derivative liability                                                      2 514        1 477
Current liabilities                                                     216 553      719 794
Trade and other payables                                                111 876       95 552
Short-term portion of interest-bearing liabilities                       80 000      600 000
Provision for shareholder redemption                                     24 129       24 129
Derivative liability                                                        548          113
                  
Total equity and liabilities                                          8 455 063    5 578 587


CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the nine months ended 31 March 2017


                                                                         Treasury
                                       Share       Share       Stated       share    Retained   Fair value
                                     capital     premium      Capital     reserve    earnings      reserve         Total
R'000                                  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 year                        -           -            -           -     501 189            -       501 189
Transactions with owners,
recorded directly in equity             (28)   (515 903)    2 919 952     (9 995)   (390 896)      257 187     2 260 317
Conversion of par value shares into
no-par value shares                     (28)   (515 903)      515 931           -           -            -             -
Conversion of debentures into
stated capital                             -           -    2 428 150           -           -            -     2 428 150
Conversion of no-par value treasury
shares into no-par value shares            -           -            -     (9 995)           -            -       (9 995)
Dividend paid - interim for
31 December 2016                           -           -            -           -   (133 709)            -     (133 709)
Provision for shareholders
redemption                                 -           -      (24 129)          -           -            -      (24 129)
Transfer to fair value reserve
- investment properties                    -           -            -           -   (251 024)      251 024             -
Transfer to fair value reserve
- interest rate swaps                      -           -            -           -     (6 163)        6 163             -

Balance at 30 June 2016                    -           -    2 919 952     (9 995)     107 961      714 335     3 732 253
Total profit and comprehensive
income for the year                        -           -            -           -     544 566            -       544 566
Transactions with owners,
recorded directly in equity                -           -    2 655 301           -   (513 808)      179 191     2 320 684
Transaction costs (capital
restructure and Tsogo transaction)         -           -     (17 992)           -           -            -      (17 992)
Issue of 145 000 000 no par value
ordinary shares                            -           -    2 673 293           -           -            -     2 673 293
Dividend paid - final for
30 June 2016 year-end                      -           -            -           -   (137 165)            -     (137 165)
Dividend paid - clean-out
dividend regarding the Tsogo
transaction                                -           -            -           -    (13 406)            -      (13 406)
Dividend paid - interim for
31 December 2016                                                                    (184 046)                  (184 046)
Transfer to fair value reserve
- investment properties                                                             (184 173)      184 173             -
Transfer to fair value reserve
- interest rate swaps                      -           -            -           -       4 982      (4 982)             -

Balance at 31 March 2017                   -           -    5 575 253     (9 995)     138 719      893 526     6 597 503

Directors: J A Copelyn (Chairman)*, L de Beer*# (Lead Independent Director), K G Randall (CEO), M R de Lima
(FD), D G Bowden*#, Z J Kganyago*, Z N Kubukeli*#, S A Halliday*#, L McDonald*, J R Nicolella*, G A Nelson*#,
Z N Malinga*#, W C Ross*#, M N Von Aulock*

* non-executive
# independent

Company Secretary: L R van Onselen

Transfer Secretaries: Computershare Investor Services Proprietary Limited

Sponsor: Java Capital Trustees and Sponsors Proprietary Limited

Registered Office: The Zone 2, Loft Offices East Wing, 2nd Floor, Cnr Oxford Road and Tyrwhitt Avenue,
Rosebank, 2196

Tel: +27 11 994 6320

www.hpf.co.za
Date: 24/05/2017 11:30:00 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.

Share This Story