Summarised consolidated financial results for the year ended 31 March 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)
("Hospitality" or "the company" or "the Fund")
Short-form announcement: Summarised consolidated financial results for the
year ended 31 March 2020
Hospitality's distributable earnings decreased by 14% for the year, mainly
due to the impact of the Covid-19 virus in March 2020. Hotel occupancies
decreased on the prior year by 2.5 percentage points ("pp") (or 4%) to 59%,
primarily as a result of lower volumes in Gauteng. The average room rate
("ARR") is up by 3% on the prior year at R1?131, resulting in a 1% decline
in revenue per available room ("RevPar") on the prior year.
Rental income at R768 million (2019: R828 million), is 7% down on the prior
year, mainly due to the poor performance from the Gauteng hotels, falling
14% below the prior year.
Hospitality's rental income is subject to seasonal variability and the
trading has been impacted by the macro-economic conditions and uncertainty,
mainly as a result of the Covid-19 pandemic. The Fund's year-on-year
expenses (excluding the transaction costs in the prior year) have decreased
by R5 million or 9% predominantly due to payroll-related savings.
Hospitality's expenses in the prior year include the transaction costs of
R20 million relating to the unsuccessful casino acquisition. Net finance
costs of R195 million (2019: R167 million) are higher than the prior year
due to the acquisition of the Southern Sun Pretoria and due to the capital
expenditure increasing borrowings, partially offset by the negotiated
interest rates being lower on the current borrowings.
The following table reflects the operating financial results for the year
ended 31 March 2020 compared to the prior year ended 31 March 2019:
Summary of operating results as at March 2020
Actual Actual on on
March March March March
2020 2019 2019 2019
R'000 R'000 R'000 %
Contractual revenue 767 695 827 631 (59 936) (7)
Sundry income 577 1 112 (535) (48)
Fund expenses 1 (51 112) (56 262) 5 150 (9)
Net finance cost (195 440) (166 988) (28 452) 17
Income from associates 208 720 (512) (71)
Distributable earnings 521 928 606 213 (84 285) (14)
No par value ordinary
shares 578 154 575 777 2 377 -
to prior years
Interim dividend 35.40 41.22 (5.82) (14)
Final dividend per share - 64.17 (64.17) (100)
Combined distribution 35.40 105.39 (69.99) (66)
1 Fund expenses in the prior year exclude the exceptional transaction costs
of R19 834.
The Fund's portfolio includes 54 hotel and resort properties in South Africa.
The Fund's property portfolio was independently valued at R10 billion (2019:
R12 billion) at 31 March 2020. The fair value is determined by discounting
the rental income (based on expected net future cash flows of the underlying
hotels) after considering capital expenditure requirements. The expected cash
flows are discounted using an appropriate discount rate.
The impact of Covid-19 and the associated impact on the hospitality industry
has had a significant impact on the expected future cash flows of hotels at
31 March 2020. Due to the uncertainty of future trading conditions, the
forecasts in year one and two have been reduced. The South African bond yield
10Y increased by 1.9 percentage points from 31 March 2019 (8.61%) to 31 March
Hospitality had used a risk-free rate of 8.65% in 2019, compared to 10.50% in
2020, resulting in higher exit yields and higher discount rates across the
portfolio. The result being a negative fair value adjustment of R2.5 billion
on the fair value of the Fund's property portfolio after capital expenditure
at 31 March 2020.
The weighted average lease expiry period is 13.3 years. As at 31 March 2020,
the carrying amount of the portfolio was R10 billion and the net asset value
("NAV") per ordinary share amounted to R13.27.
Hospitality's debt facilities with financial institutions as at 31 March 2020
amounted to R2.95 billion and the total drawn down facilities amounted to
R2.55 billion, resulting in a loan-to-value ("LTV") ratio (total interest-
bearing liabilities/investment properties plus properties held for sale) of
26% (2019: 16%).
The interest-cover ratio (earnings before interest, depreciation, tax and
amortisation/net finance costs) of 3.7 times (2019: 4.5 times) for the 12
months rolling to March 2020, is well above the required debt covenant minimum
of 2.0 times. The weighted average cost of net debt to 31 March 2020 is 9.1%.
A corporate bond (HPF12) of R300 million was issued in April 2019 to refinance
the maturing corporate bonds (HPF08 and HPF09) and to fund capital expenditure.
A corporate bond (HPF13) of R800 million was issued in December 2019 to
refinance bank term funding of R550 million, as well as to fund the acquisition
of Southern Sun Pretoria.
A further revolving credit facility of R250 million was raised through Nedbank
and the maturity date of the Standard Bank revolving credit facility of R500
million was extended by a further three years. The Fund has no facilities that
are repayable within the next 12 months and the average maturity profile of the
Fund's facilities is 3.20 years, global credit ratings maintained the Fund's
long-term credit rating at A- (ZA) and revised its short-term credit rating to
Hotel trading is expected to remain under pressure until the outlook on the
South African economy improves. The impact of the Covid-19 pandemic is still
unknown but is expected to have a longer-term effect on the industry. 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. All
capital expenditure has been postponed and only essential maintenance will
endure. Hospitality will not declare a final dividend for the year ended
31 March 2020 and may review this decision once there is more certainty around
the impact of the Covid-19 pandemic.
Shareholders are advised that a presentation that provides additional analysis
and information, will be available on the company's website at
http://www.hpf.co.za/investors/presentations/2020 from 29 May 2020.
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 29 May 2020 and does not include full or complete details.
The information contained in this announcement has not been reviewed or reported
on by the company's auditors.
The full announcement is available on the company's website
and can also be accessed using the following JSE link:
A copy of the full announcement may be requested from Palazzo Towers West,
Montecasino Boulevard, Fourways, Gauteng, 2055 or the sponsor, Java Capital
at firstname.lastname@example.org. 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.
The consolidated annual financial statements have been audited by the company's
auditors, PricewaterhouseCoopers Inc., who expressed an unmodified audit opinion
thereon. The auditor's opinion also includes communication of key audit matters.
This opinion is available, along with the consolidated annual financial statements,
on the company's website
29 May 2020
Sponsor: Java Capital
Debt sponsor: Rand Merchant Bank a division of FirstRand Bank Limited
Income tax reference number: 9770/799/1/47
Date: 29-05-2020 09:30:00
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