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Unaudited condensed consolidated financial results for the six months ended 30 September 2020
Hospitality Property Fund Limited
(Incorporated in the Republic of South Africa)
Registration number: 2005/014211/06
JSE share code: HPB ISIN: ZAE000214656
Bond company code: HPAI
(Approved as a REIT by the JSE)
('The Fund' or 'Hospitality' or 'Group')
Sponsor: Java Capital Debt sponsor: Rand Merchant Bank, a division
of FirstRand Bank Limited
Short-form announcement: Unaudited condensed consolidated financial
results for the six months ended 30 September 2020
FINANCIAL RESULTS
Hospitality Property Fund Limited's ('The Fund' or 'Hospitality' or
'Group') distributable earnings decreased by 147% to a loss of R102
million (2019: profit of R215 million) for the period due to the
impact of the Covid-19 virus, which resulted in the closure of
hotels during lockdown and subsequent restrictions imposed on the
hospitality and travel sectors. As a result of the distributable
loss of R102 million, the board did not declare a dividend for the
interim period (2019: 35.40 cents).
Hotel occupancies decreased on the prior year by 33.3 percentage points
('pp') (or 58.4%) to 23.7% (based on those hotels that were open and
trading), primarily due to the lockdown measures implemented by
Government in March 2020, resulting in almost all the properties being
temporarily closed during this reporting period. The average room rate
('ARR') decreased by 49% on the prior year to R538, resulting in a 73%
decline in revenue per available room ('RevPar') on the prior year.
Rental income for the six months ended 30 September 2020 was R82 million
(2019: R335 million), which is 75% down on the prior year. Hotel revenue
of R3 million relates to the revenue generated for the 21 days that
Mount Grace operated during the month of September 2020 under a
management agreement.
The Fund's year-on-year expenses increased by R20 million or 66%
predominantly due to the property-related costs of R26 million and a bad
debt provision of R6 million. These property-related costs are normally
carried by the hotels, before rental income is received by the Fund, but
due to the supervening impossibility of performance as a result of the
restrictions imposed by the Government, the hotels did not have the ability
to pay these expenses. These expenses include security and administered
costs, which remain the responsibility of the landlord. Excluding these
extraordinary property-related costs and bad debt provision, like-for-like
Fund expenses decreased to R18 million (2019: R30 million), albeit that
staff and non-executive directors have been on reduced salaries and fees of
between 33% and 40% for the period and no short-term incentives were
provided for.
Net finance costs of R98 million (2019: R92 million) are higher than the prior
year due to the increased borrowings, partially offset by the reduction in
interest rates.
Income tax of R32 million was paid on 30 September 2020, due to the distributions
withheld at year end, resulting in some of the distributable profit not being
deductible in terms of section 25BB of the Income Tax Act.
The following table reflects the operating financial results for the six months
ended 30 September 2020 compared to the prior period ended 30 September 2019:
SUMMARY OF OPERATING RESULTS AS AT SEPTEMBER 2020
Actual Actual Variance on Variance on
30 September 30 September 30 September 30 September
2020 2019 2019 2019
R'000 R'000 R'000 %
Contractual rental income 82 473 335 352 (252 879) (75)
Hotel revenues 3 089 - 3 089 100
Sundry income 310 1 689 (1 379) (82)
Fund expenses (50 125) (30 131) (19 994) (66)
Hotel operating expenses (6 428) - (6 428) (100)
Net finance cost (98 446) (91 789) (6 657) (7)
Income from associates - - - -
Income tax expense (32 451) - (32 451) (100)
Distributable (loss)/
earnings (101 578) 215 121* (316 699) (147)
No par value ordinary
shares 577 591 577 591 - -
Weighted average number of
shares 577 591 577 591 - -
Basic and diluted earnings
per share (cents) (28.72) 34.72 (63.44) 183
Basic and diluted headline
earnings per share (cents) (28.74) 34.68 (63.42) 183
Distribution comparative to
prior years Interim
dividend (cents) - 35.40 (35.40) (100)
* 2019 distributable earnings before the appraisal rights dividend of R10 663.
PROPERTY PORTFOLIO
The Fund's portfolio includes 54 hotel and resort properties in South Africa. As at
30 September 2020, the carrying amount of the portfolio was R10.0 billion and the
net asset value ('NAV') per ordinary share amounted to R12.99 (2019: R17.41).
Management have assessed the fair value of the group's investment property by
reviewing the cash flow forecasts, which we believe, based on the information
available, still adequately reflect the negative impact of Covid-19 on the cash
flows generated by the underlying hotels for the financial years ending March 2021
and March 2022. In addition, various technical inputs have been reviewed including
the 10Y bond yield which has declined from its peak in March 2020 of 10.51% to 9.45%
as at 30 September 2020 and no additional fair value adjustment is required at
30 September 2020. Based on these factors, management is of the view that the fair
values of investment properties are fairly stated at 30 September 2020 and no
additional fair value adjustment is required at 30 September 2020.
At 30 September, 51 hotels were under lease, with the weighted average lease expiry
period being 13.16 years (2019: 13.52 years). A management agreement was signed for
the Mount Grace hotel, resulting in the Fund now carrying all the risks and rewards
and accounting for such accordingly.
CAPITAL PROJECTS
As a result of the Covid-19 pandemic impact on the cash resources, all capital
projects were suspended where possible, with only emergency capital expenditures
being incurred. Total capital expenditure amounting to R12 million (2019:
R90 million) was spent during the first six months to September 2020.
FUNDING
Hospitality's debt facilities with financial institutions as at 30 September 2020
amounted to R2.95 billion and the total drawn-down facilities amounted to
R2.58 billion, resulting in a loan-to-value ('LTV') ratio (total interest-bearing
liabilities/investment properties plus property, plant and equipment) of 26%
(2019: 19%).
The interest cover ratio (earnings before interest, depreciation, tax and
amortisation/net finance costs) for the 12 months rolling to September 2020,
was 2.2 times (2019: 4.4 times), above the required debt covenant minimum of
2.0 times. The maximum net debt to EBITDA requirement of 3.5 times was breached,
ending at 5.8 times for the rolling 12 months to 30 September 2020 (2019:
3.1 times). The Fund obtained required covenant waivers from its lenders for
the measurement period ended 30 September 2020 and has received approval for
the waiver of the same minimum covenant requirements for the measurement
period ending 31 March 2021. As part of the approval for the covenant waiver,
lenders have introduced a new minimum liquidity covenant requirement of
R125 million at 31 March 2021, which includes cash and available facilities.
The weighted average cost of net debt to 30 September 2020 was 8.7% (2019:
9.2%).
The Fund has no facilities that are repayable within the next 12 months and the
average maturity profile of the Fund's facilities is 2.74 years. Global Credit
Ratings downgraded the Fund's long and short-term credit ratings to BBB(ZA)/A3(ZA)
respectively. Concurrently, the ratings assigned to the Senior Secured Notes issued
by Hospitality have been downgraded to A+(ZA)(EL) from AA(ZA)(EL). The outlook on
all the ratings has been maintained on Rating Watch Negative. The downgrade to
Hospitality reflects the extremely uncertain operating environment in which it
operates, with its income drastically reduced due to the Government efforts to
curtail the Covid-19 pandemic.
PROSPECTS
The impact of the Covid-19 pandemic is still having a significant impact on the
tourism industry. The city hotels are reliant on corporate and government travel
within the country and corporate travel is only expected to regain some momentum
when employees return to their office buildings. The Western Cape is dependent
on international travel, as well as international events, like the Mining Indaba,
which has been cancelled for February 2021. The Fund's gearing is at a reasonable
level of 26%. Hospitality is conserving its cash resources and has implemented
actions to reduce costs where possible, like the reduction in staff salaries and
non-executive directors' fees to between 33% and 40%. All capital expenditure has
been postponed and only essential maintenance will endure.
13 November 2020
SHORT-FORM ANNOUNCEMENT
This short-form announcement is the responsibility of the board of directors of
Hospitality. This short-form announcement is a summary of the full announcement
released on SENS on 13 November 2020 and does not include full or complete details.
The full announcement is available on the Company's website on
http://www.hpf.co.za/investors/financial-reports/interim-final-results
and can also be accessed using the following JSE link:
https://senspdf.jse.co.za/documents/2020/jse/isse/HPBE/HPF2020INT.pdf.
A copy of the full announcement may be requested from Palazzo Towers West,
Montecasino Boulevard, Fourways, Gauteng, 2055 or the sponsor, Java Capital at
sponsor@javacapital.co.za. Any investment decisions by shareholders should be based
on a consideration of the full announcement, which shareholders are encouraged to
view on SENS and on the Company's website.
Date: 13-11-2020 05:30:00
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