| Thu 30 Aug 2007, 11:04 | | HPA/HPB - Hospitality - Reviewed Results for the y |
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HPA HPB
HPA
HPA/HPB - Hospitality - Reviewed Results for the year ended 30 June 2007
Hospitality Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/014211/06)
JSE code for A-linked units: HPA ISIN: ZAE000076790
JSE code for B-linked units: HPB ISIN: ZAE000076808
("Hospitality" or "the Fund")
REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2007
Distribution per A-linked unit 100,46c per forecast
Distribution per B-linked unit 140,40c up 17,9% on prospectus forecast
Total return on A-linked unit 38% and B-linked unit 116%
Black Economic Empowerment (BEE) shareholding more than doubles to 30,4%
Comments
1. Introduction
Hospitality Property Fund is a property loan stock company, which invests in
properties in the hotel and leisure industries. The Fund is a publicly traded
company and was listed on the main board of the JSE Limited (JSE) in February
2006.
The Fund`s units in issue comprise A- and B-linked units, with A-linked units
having a preferential claim to earnings with capped growth, whilst the B-linked
units receive the balance of earnings.
2. Results
The results achieved during this first full year trading period have
significantly exceeded expectations. The A-linked unit distributions amount to
100,46c, as set out in the listing prospectus forecast. The B-linked unit
distribution equates to 140,40c, which exceeds the prospectus forecast by 17,9%
and is 20,2% up on the previous year`s four-and-a-half month annualised
distribution.
The following table shows the actual performance compared to the previous year
and the forecast as set out in the listing prospectus.
Year end June 2007
2006
2007 Annualised
Actual Actual Variance
(R`000) (R`000) %
Contractual rental income 138 556 122 166
Fund expenses (18 921) (16 453)
Interest paid (24 206) (26 352)
Listing expenses (4 152)
Profit before debenture interest 95 429 75 209
Debenture interest (95 429) (77 273)
Distribution - "A-linked unit" (39 784) (35 024)
Distribution - "B-linked unit" (55 645) (42 249)
Distribution - "A-linked unit" (cents) 100,46 96,82 3,8
Distribution - "B-linked unit" (cents) 140,40 116,80 20,2
2007
Prospectus
forecast Variance
(R`000) %
Contractual rental income 116 829
Fund expenses (13 776)
Interest paid (23 617)
Listing expenses
Profit before debenture interest 79 436
Debenture interest (79 436)
Distribution - "A-linked unit" (36 342)
Distribution - "B-linked unit" (43 094)
Distribution - "A-linked unit" (cents) 100,46 0,0
Distribution - "B-linked unit" (cents) 119,13 17,9
Approximately 28% of the Fund`s earnings are derived from lease income which is
linked to the underlying operational performance of the hotel properties. The
B-linked units` outperformance is attributable to this income component having
benefited from robust trading conditions in the hotel industry as well as the
implementation of effective asset and hotel management structures. In addition,
a number of the Fund`s acquisitions have been yield enhancing.
The Fund`s total returns during the reporting period significantly outperformed
the listed property sector, with a total return of 38% on the A- linked units
and 116% on the B-linked units being achieved over the period.
Total returns refer to the sum of the distribution and the increase in the
linked unit`s market value over the year.
3. Regulatory reporting
Notwithstanding the above like-for-like comparison, in terms of regulatory
reporting requirements, the income statement below reports on the actual 12
month period ended June 2007 compared to the actual four-and-a-half month
trading period ended June 2006.
4. Property portfolio
The Fund`s portfolio comprises interests in 21 hotel and resort properties. The
portfolio is segmented into three lease types, namely: fixed lease properties,
C-Corp lease properties and variable lease properties.
Rentals under fixed lease agreements are determined by normal commercial lease
terms, with inflation-linked annual escalations. C-Corp lease agreements
comprise approximately 50% fixed lease rental, with the remainder being
variable rental equivalent to 90% of the hotels` earnings before interest, tax,
depreciation and amortisation (EBITDA) after deducting the fixed lease portion.
Variable lease agreements comprise rentals based fully on EBITDA from the
property`s underlying operations.
Throughout the trading period all the properties were fully let. The average
lease period is 8,8 years, with the first lease expiring in one-and-a-half
years.
5. Valuation of properties
The Fund`s portfolio was independently valued at 30 June 2007 by JHI (Gensec
Property Services Limited) at R1,7 billion. This represents a growth in the
portfolio value of 41,7% from the R1,2 billion value attributed in June 2006.
The resulting net asset value (NAV) totalled 1 334 cents per linked unit, which
represents a 16,8% year-on-year increase. At 30 June 2007 the combined units
were trading at a 30% premium to NAV compared to an aggregate 41% for the
listed property sector.
SEE ANNOUNCEMENT FOR GRAPHS
6. Acquisitions
During the reporting period the Fund acquired five hotel properties, namely:
Protea Hotel Victoria Junction (Cape Town), The Richards Hotel and The Bayshore
Inn (Richards Bay), The Hazyview Hotel (Hazyview) and The Imperial Hotel
(Pietermaritzburg), for a combined acquisition consideration of R245 million.
These properties all fall under the Fund`s C-Corp lease structure.
As announced to unitholders on 30 July 2007, the Fund has entered into
agreements to acquire the Hluhluwe Hotel & Safaris (Hluhluwe, KZN) under a C-
Corp lease structure, as well as further exposure to certain properties in
which the Fund is already invested, comprising the remaining 32% shareholding
in the Park Inn Greenmarket Square, the remaining 35% shareholding in 90 units
at the Radisson Hotel Waterfront and an extension to the Birchwood Executive
Hotel & Conference Centre (all fixed leases). These properties are to be
acquired for a total consideration of R195 million and were independently
valued at R238 million, representing a 23% surplus to acquisition price. These
acquisitions are likely to become effective between August and November 2007.
7. Capital projects
Various refurbishment and expansion projects within the Fund`s existing
portfolio are under review. The Rosebank Hotel is currently undergoing a R254
million redevelopment, which is expected to be completed by May 2008. This
major project commenced in July 2007 and although this has necessitated the
closure of the hotel for a nine-month period, the Fund`s earnings are unlikely
to be impaired as the rental income has been factored into the cost of the
redevelopment and will continue to be received by the Fund during this period.
Expansion opportunities at the Champagne Sports Resort, the Mount Grace Country
House & Spa, and The Imperial Hotel are further under review, whilst
refurbishment and/or repositioning projects are under review for The Winkler
Hotel, The Richards Hotel, The Bayshore Inn and the Protea Hotel Richards Bay.
Should the development projects prove to be viable, these projects are likely
to be completed during the course of the coming two financial years. The
development projects will position the portfolio to take advantage of the
favourable trading conditions in the hotel industry anticipated to continue
over the next few years, particularly in the lead up to 2010. The estimated
total potential investment in these capital projects is approximately R500
million and the financial criteria which has been set is for the expenditure on
aggregate to be at least earnings neutral.
8. Funding
In order to fund the various acquisitions and capital projects, the Fund is
looking to undertake a rights offer for R500 million, the details of which are
contained in an accompanying announcement. In order to facilitate the rights
offer, the Board of
Hospitality requires authority to issue linked units. This authority is to be
obtained by way of a special general meeting which is to be held on 14
September 2007, notice of which will be posted to unit holders on 30 August
2007.
The Fund`s weighted average cost of debt for the reporting period was 9,01% and
the effective gearing level was 18,3% of asset value at year-end. An interest
rate swap is in place in respect of interest bearing liabilities of R253
million at an all in rate of 8,83% per annum, expiring in February 2009.
At 30 June 2007 the fund had an unutilised debt facility of R192 million. The
facility has subsequently been increased to R335 million.
9. BEE initiatives
The Fund`s BEE partners, Nobuntu Investments (Pty) Limited and Nobuntu
Investments II (Pty) Limited, increased their shareholding to 26,3% of units in
issue during the reporting period; together with the National Empowerment Fund
Trust, this equates to a 30,4% BEE shareholding. The Fund currently exceeds the
ownership target of 25% as set out in the Property Sector Transformation
Charter and is strongly committed to achieving the targets as set out therein.
10. Units in issue/liquidity
As at year-end 91 375 470 linked units were in issue, comprising an equal
number of A- and B-linked units. During the course of this reporting period an
additional 19 026 024 linked units were issued to fund various acquisitions and
to expand the Fund`s BEE ownership component. In terms of liquidity, 38% of the
Fund`s units in issue were traded during the year ended June 2007.
11. Prospects
According to the latest Deloitte HotelBenchmark report, trading conditions
within the hotel industry remain buoyant with the revenue per available room
(RevPAR) across South Africa having grown 17,8% for the first six months of
this year. This was largely driven by improvements in average room rates which
grew by 15,3% compared to the same period last year, and to a lesser extent by
increases in occupancies which have seen a growth of 2,2% so far this year.
Economic and business conditions on balance remain favourable and the robust
trading conditions for the hotel industry look set to continue particularly in
the lead up to 2010. While the Fund has a relatively small exposure of around
28% of its earnings from underlying operational income, it should nonetheless
benefit from this positive environment.
12. Payments of debenture interest
Unitholders will receive debenture interest payment number 3 for the six-month
period ended June 2007, of 50,83c per A-linked unit and 71,68c per B-linked
unit.
2007
Last day to trade cum interest Friday, 14 September
Linked units will trade ex interest Monday, 17 September
Record date Friday, 21 September
Payment date Tuesday, 25 September
Unitholders may not dematerialise or rematerialise their linked units between
Monday, 17 September 2007 and Friday, 21 September 2007, both days inclusive.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The financial statements are prepared in accordance with International
Financial Reporting Standards (IFRS) and the requirements of the Companies Act
of South Africa. KPMG Inc. has reviewed the financial statements and their
unmodified review opinion is available for inspection at the Fund`s registered
office.
The financial statements are prepared on the historic cost basis, except for
investment properties and derivatives which are measured at fair value. The
significant accounting policies are as follows:
Investment property is initially recognised at cost including transaction
costs. Subsequent to initial measurement, investment property is measured at
fair value. Gains or losses arising from changes in fair value are included in
net profit or loss for the period in which they arise.These gains or losses are
transferred to a fair value reserve as they are not available for distribution.
Interest-bearing liabilities and debenture capital are measured at amortised
cost.
Revenue comprises rental income from the letting of investment property and
is accounted for on a straight-line basis over the period of the lease in terms
of IAS 17.
Deferred taxation on the fair value adjustment of investment properties has
been calculated at 14,5% on land value and 29% on buildings.
By order of the Board
T E Sewell (Chairman) G A Nelson (Chief Executive Officer) 29 August 2007
Directors: T E Sewell (Chairman)*+, G A Nelson (CEO), Y Aminzadeh (Deputy CEO)
(Dutch), R Asmal, K H Abdul-Karrim*+, B M Madumise*+, A S Rogers, W C Ross*+
(*Non-executive, +Independent)
Registered Office:
1st Floor, Building 2, 135 Patricia Road, Sandown, Sandton 2196
Tel: +27 11 775 6535 Fax: +27 11 775 6425 E-Mail: info@hpf.co.za
Website: www.hpf.co.za
Financial results
Income statement
for the year ended 30 June 2007
Four-and-
a-half months
2007 2006
R`000 R`000
Revenue 142 391 48 970
Rental income - contractual 138 556 47 193
- straight-line accrual 3 835 1 777
Expenditure (18 921) (6 355)
Property and other operating expenses (18 921) (6 355)
Operating profit 123 470 42 615
Listing expenses - (1 604)
Net finance cost (24 206) (10 180)
Finance income 4 240 1 586
Finance costs (28 446) (11 766)
Profit before debenture interest, fair
value adjustments and taxation 99 264 30 831
Recoupment of debenture interest 3 356 -
Debenture interest (98 785) (29 851)
Profit before fair value adjustments 3 835 980
Fair value adjustments 253 076 153 315
Revaluation of investment properties 237 857 163 642
Straight-line rental income accrual (3 835) (1 777)
Interest rate swaps 19 054 (8 550)
Profit before taxation 256 911 154 295
Taxation (68 351) (47 456)
Profit for the period 188 560 106 839
Reconciliation between earnings,
headline earnings
and distributable earnings
Profit for the period 188 560 106 839
Adjustments:
Debenture interest 98 785 29 851
Earnings (linked units) 287 345 136 690
Adjustments:
Fair value - investment properties
revaluation (net of taxation) (169 506) (116 186)
Fair value - straight-line rental income 3 835 1 777
Headline earnings (linked units) 121 674 22 281
Listing expenses not included in distribution - 797
Fair value - interest rate swaps (19 054) 8 550
Straight-line rental income (3 835) (1 777)
Distributable earnings 98 785 29 851
Number of units
A-linked unit 45 687 735 36 174 723
B-linked unit 45 687 735 36 174 723
Weighted average number of units
A-linked unit 39 530 070 36 174 723
B-linked unit 39 530 070 36 174 723
Distribution per linked unit (cents)
A-linked unit 100,46 37,40
- Interim 49,63 -
- Final 50,83 37,40
B-linked unit 140,40 45,12
- Interim 68,72 -
- Final 71,68 45,12
240,86 82,52
Earnings per linked unit (cents)
A-linked unit 363,45 188,93
B-linked unit 363,45 188,93
726,90 377,86
Headline earnings per linked unit (cents)
A-linked unit 153,90 30,80
B-linked unit 153,90 30,80
307,80 61,60
Earnings per share (cents) 238,50 147,67
Balance sheet
at 30 June 2007
2007 2006
R`000 R`000
ASSETS
Non-current assets 1 678 863 1 161 144
Investment properties 1 662 747 1 159 367
Straight-line rent income accrual 5 612 1 777
Derivative asset 10 504 -
Current assets 20 970 21 614
Trade and other receivables 13 443 17 260
Cash and cash equivalents 7 527 4 354
Total assets 1 699 833 1 182 758
EQUITY AND LIABILITIES
Equity 360 289 146 303
Share capital and share premium 64 890 39 464
Retained income 4 815 980
Fair value reserve 290 584 105 859
Non-current liabilities 1 225 306 987 363
Debentures 858 929 680 085
Interest-bearing liabilities 250 570 251 272
Derivative liability - 8 550
Deferred taxation 115 807 47 456
Current liabilities 114 238 49 092
Trade and other payables 58 266 19 241
Debenture interest payable 55 972 29 851
Total equity and liabilities 1 699 833 1 182 758
Net asset value per linked unit
A-linked unit R13,34 R11,42
B-linked unit R13,34 R11,42
Statement of changes in equity
for the year ended 30 June 2007
Share Share Retained
capital premium income
R`000 R`000 R`000
Issue of ordinary shares 7 43 402
Share issue expenses (3 945)
Profit for the period/total income
and expenses for the period 106 839
Transfer to/(from) fair value reserve
- revaluation of investment properties
(net of deferred tax) (116 186)
Transfer to/(from) fair value reserve
- straight-line rental income 1 777
Transfer to/(from) fair value reserve
- interest rate swaps 8 550
Balance at 30 June 2006 7 39 457 980
Issue of ordinary shares 2 25 424
Profit for the period/total income
and expenses for the period 188 560
Transfer to/(from) fair value reserve
- revaluation of investment properties
(net of deferred tax) (169 506)
Transfer to/(from) fair value reserve
- straight-line rental income 3 835
Transfer to/(from) fair value reserve
- interest rate swaps (19 054)
Balance at 30 June 2007 9 64 881 4 815
Fair value
reserve Total
R`000 R`000
Issue of ordinary shares 43 409
Share issue expenses (3 945)
Profit for the period/total income
and expenses for the period 106 839
Transfer to/(from) fair value reserve
- revaluation of investment properties
(net of deferred tax) 116 186 -
Transfer to/(from) fair value reserve
- straight-line rental income (1 777) -
Transfer to/(from) fair value reserve
- interest rate swaps (8 550) -
Balance at 30 June 2006 105 859 146 303
Issue of ordinary shares 25 426
Profit for the period/total income
and expenses for the period 188 560
Transfer to/(from) fair value reserve
- revaluation of investment properties
(net of deferred tax) 169 506 -
Transfer to/(from) fair value reserve
- straight-line rental income (3 835) -
Transfer to/(from) fair value reserve
- interest rate swaps 19 054 -
Balance at 30 June 2007 290 584 360 289
Condensed cash flow statement
for the year ended 30 June 2007
2007 2006
R`000 R`000
Net cash inflow from operating activities 68 963 31 035
Cash generated from operations 162 477 41 215
Finance income received 4 240 1 586
Finance costs paid (28 446) (11 766)
Distribution to unitholders (69 308) -
Net cash outflow from investment activities (269 358) (997 502)
Net cash inflow from financing activities 203 568 970 821
Net increase in cash and cash equivalents 3 173 4 354
Cash and cash equivalents at beginning of year 4 354 -
Cash and cash equivalents at end of period 7 527 4 354
Condensed segmental information
for the year ended 30 June 2007
R`000 Fixed lease C-Corp lease Variable lease
agreements agreements agreements
Income statement - 30 June 2007
Segment revenue 83 943 47 859 10 589
Expenditure
Segment operating results 83 943 47 859 10 589
Net finance cost
Profit before fair value
adjustments
and taxation 83 943 47 859 10 589
Fair value adjustments 118 682 82 210 33 130
Profit before taxation 202 625 130 069 43 719
Taxation
Segment result 202 625 130 069 43 719
Income statement - 30 June 2006
Segment revenue 31 224 13 693 4 053
Expenditure
Segment operating results 31 224 13 693 4 053
Listing expenses
Net finance cost
Profit before fair value
adjustments
and taxation 31 224 13 693 4 053
Fair value adjustments 114 853 61 028 13 402
Profit before taxation 146 077 74 721 17 455
Taxation
Segment result 146 077 74 721 17 455
Balance sheet - 30 June 2007
Non-current assets 865 000 700 159 103 200
Current assets 950 5 199 775
Segment assets 865 950 705 358 103 975
Liabilities
Non-current liabilities - - -
Current liabilities 4 575 6 260 -
Segment liabilities 4 575 6 260 -
Balance sheet - 30 June 2006
Non-current assets 732 725 358 350 70 069
Current assets 1 761 4 893 1 175
Segment assets 734 486 363 243 71 244
Liabilities
Non-current liabilities - - -
Current liabilities 14 143 - -
Segment liabilities 14 143 - -
R`000 Corporate Total
Income statement - 30 June 2007
Segment revenue - 142 391
Expenditure (18 921) (18 921)
Segment operating results (18 921) 123 470
Net finance cost (119 635) (119 635)
Profit before fair value adjustments
and taxation (138 556) 3 835
Fair value adjustments 19 054 253 076
Profit before taxation (119 502) 256 911
Taxation (68 351) (68 351)
Segment result (187 853) 188 560
Income statement - 30 June 2006
Segment revenue - 48 970
Expenditure (6 355) (6 355)
Segment operating results (6 355) 42 615
Listing expenses (1 604) (1 604)
Net finance cost (40 031) (40 031)
Profit before fair value adjustments
and taxation (47 990) 980
Fair value adjustments (35 968) 153 315
Profit before taxation (83 958) 154 295
Taxation (47 456) (47 456)
Segment result (131 414) 106 839
Balance sheet - 30 June 2007
Non-current assets 10 504 1 678 863
Current assets 14 046 20 970
Segment assets 24 550 1 699 833
Liabilities
Non-current liabilities 1 225 306 1 225 306
Current liabilities 103 403 114 238
Segment liabilities 1 328 709 1 339 544
Balance sheet - 30 June 2006
Non-current assets - 1 161 144
Current assets 13 785 21 614
Segment assets 13 785 1 182 758
Liabilities
Non-current liabilities 987 363 987 363
Current liabilities 34 949 49 092
Segment liabilities 1 022 312 1 036 455
Date: 30/08/2007 11:04:34 Produced by the JSE SENS Department.
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