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HOSPITALITY PROPERTY FUND LIMITED - Summarised consolidated financial results for the year ended 31 March 2020

Release Date: 29/05/2020 09:30
Code(s): HPB HPF11 HPF12 HPF13     PDF:  
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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

Financial results

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

                                                      Variance    Variance 

                               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           -

Distribution comparative 

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.

Property portfolio

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

2020 (10.51%).

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 

A2 (ZA).


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 from 29 May 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 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 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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