| Thu 21 Aug 2008, 14:21 | | HPA - Hospitality Property Fund Limited - Reviewed results for the year ended 30 |
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HPA HPB
HPA
HPA - Hospitality Property Fund Limited - Reviewed results for the year ended 30
June 2008 and final interest payment declaration
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 2008 AND FINAL INTEREST PAYMENT
DECLARATION
- Annual distribution per A-linked unit 105,49c per distribution structure
- Annual distribution per B-linked unit 166,16c up 18,3% on previous year
- Acquisitions and developments totalling R760 million
Comments
1. Introduction
Hospitality is a property loan stock company, which invests exclusively in
hotel and leisure properties. 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 in terms of the distribution structure, whilst the B-linked
units receive the balance of earnings.
2. Results
The results achieved during the financial year ended 30 June 2008 continued to
exceed expectations.
The A-linked unit distribution amounts to 105,49c, which is per the Fund`s
fixed distribution structure. The B-linked unit distribution equates to
166,16c, which represents a growth in distribution of 18,3% over the previous
year.
The following table shows the financial results for the year ended June 2008
compared to 2007:
Year-end June
2008 2007
Actual Actual Variance
(R`000) (R`000) (%)
Contractual rental income 196 230 138 556 41,6
Fund expenses (26 851) (18 921) 41,9
Net finance costs (10 345) (24 206) (57,3)
Profit before debenture interest 159 034 95 429 66,7
Recoupment of debenture interest 8 278 3 356 146,7
Debenture interest (167 312) (98 785) 69,4
Distribution - "A linked units" (64 970) (41 177) 57,8
Distribution - "B linked units" (102 342) (57 608) 77,7
Distribution per "A linked unit" (cents) 105,49 100,46 5,0
Distribution per "B linked unit" (cents) 166,16 140,40 18,3
Some 32% of the Fund`s revenue is derived from lease income which is linked to
operational performance of the hotel properties. The high growth in
distribution of the B-linked units was primarily as a result of the favourable
trading conditions prevailing in the hotel and leisure industries for the
period under review, benefiting rentals derived from the hotels under variable
lease contracts. In addition, the comprehensive resource over lay in terms of
both hotel and asset management has benefited the Fund in terms of value
extraction.
As a result of the deteriorating economic environment during the latter half of
the reporting period and particularly the dramatic rise in interest rates, the
listed property sector reflected a decline in value of 37% from its highs
in 2007 to June 2008. Hospitality`s A- and B-linked units experienced declines
in values of 29% and 34% respectively over this period.
3. Rights Issue
The Fund successfully concluded a R500 million rights issue in October 2007 to
fund various capital projects and acquisitions. 15 903 352 A-linked units and
15 903 352 B-linked units were placed in respect of this transaction, which
included a recoupment of debenture interest in respect of the rights issue
units amounting to R8,3 million.
4. Property Portfolio
The Fund`s portfolio comprises interests in 22 hotel and resort properties in
South Africa. 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 entirely on EBITDA from
the property`s under lying operations.
Throughout the trading period all the properties were fully let. The average
lease period is 8,4 year s, with the first lease, accounting for 3,2% of the
Fund`s rental income expiring in February 2009. Negotiations for the renewal
of this lease are well advanced.
(Please see press for graphs)
The Fund`s portfolio was independently valued at 30 June 2008 by JHI
(Gensec Property Services Limited) at R2,3 billion. The Net Asset Value
(NAV) per combined linked unit equates to 1 562c, which represents a
year-on-year increase of 17%. At 30 June 2008 the combined units were trading
at an 18.2% discount to the NAV.
5. Acquisitions
During the reporting period the Fund acquired interests in four properties for
a total consideration of R260 million. These properties were independently
valued at R312 million, representing a valuation surplus of 20% on acquisition.
The acquisitions included: an extension to the Birchwood Hotel & Conference
Centre, the Hluhluwe Hotel & Safaris, the remaining 32% share in the Par k Inn
Greenmarket Square, the remaining 35% shareholding in 90 units at the Radisson
Hotel Waterfront, and the ONEwellness Spa located at the Radisson Hotel
Waterfront. The acquisitions are expected to be growth enhancing for the Fund.
Subsequent to the year-end, Hospitality entered into an agreement to acquire
the 4-star hotel known as the "Holiday Inn Sandton - Rivonia Road" adjacent to
the Village Walk Shopping Centre. The total purchase consideration is R400
million and the property was independently valued at R470 million,
representing a 17,5% valuation surplus on acquisition. The 301-key hotel is
currently under construction and is expected to be completed during September
2008. The purchase will become effective on approval of the transaction by the
Competitions Board and once the hotel is fully operational.
The acquisition is being funded by way of the Fund`s existing debt facilities
and an interest hedge has been structured in such a manner that the debt
service obligations are matched to the initial anticipated rental income
profile from the property. This should minimise any potential impairment in
the Fund`s earnings in the short term and ensure that the investment
remains growth enhancing in the longer term.
6. Development and Capital Projects
Hospitality has committed significant funds to expanding, redeveloping and
refurbishing a number of properties in the portfolio to strategically position
these for maximum long-term growth. The combined capital value of these
projects is approximately R500 million, the majority of which will be completed
during the coming financial year.
The redevelopment of The Rosebank Hotel is nearing final completion and the
hotel has commenced trading. Total capital costs incurred in the development
project, including the construction of a Seven Colours branded spa, are
approximately R300 million. The Mount Grace Country House & Spa is currently
being expanded and refurbished at an estimated capital cost of R140 million,
the development will be fully completed during the second half of the coming
financial year.
Other projects currently being under taken include the refurbishment and
repositioning of The Winkler Hotel and The Bayshore Inn, and the refurbishment
of The Richards Hotel and the Protea Hotel Richards Bay. Projects currently
under review are the expansion of the Imperial Hotel, and the refurbishment of
the Protea Hotel Victoria Junction, the Protea Hotel Marine and the Hazyview
Hotel.
On aggregate the developments are forecast to be initially earnings neutral,
but growth enhancing.
Bay. Projects currently under review are the expansion of the Imperial Hotel,
and the refurbishment of the Protea Hotel Victoria Junction, the Protea Hotel
Marine and the Hazyview Hotel.
On aggregate the developments are forecast to be initially earnings neutral,
but growth enhancing.
7. Borrowings
The Fund`s weighted average cost of debt during the reporting period was 9,4%
and the effective gearing level at 30 June 2008 was 12,4% of total property
value. During the reporting period, net finance costs reduced significantly due
to the cash raised in the rights issue not being fully utilised during the
financial year.
At listing the Fund entered into an interest rate swap agreement in respect of
the fixed portion of its debt at an all-in-rate of 8,83%. During the financial
year the Fund restructured its borrowings by entering into interest rate swap
agreements in respect R553 million of debt funding for periods of three to six
years at an average all-in-rate of 10,91%.
At 30 June 2008 the Fund had an unutilised debt facility of R312 million, with
the ability to increase this facility to R615 million.
8. Directorate
Mr W J Midgley is a non-executive director and was appointed to the Board on 2
January 2008.
Dr Z N Kubukeli was appointed to the Board as an independent non-executive
director with effect from 27 June 2008. The Board comprises a majority of
non-executive directors, of whom a majority are independent of management.
9. Units in Issue/Liquidity/BEE
At the end of the reporting period 61 591 087 A-linked units and an identical
number of B-linked units were in issue. During the course of this reporting
period, an additional 15 903 352 both A- and B-linked units were issued in
respect of the aforementioned rights issue and some 28,4% of the units in issue
were traded.
Hospitality`s black economic empowerment (BEE) partners currently hold some
22,6% of linked units in issue, both through BEE owner ship structures and
direct shareholding.
10. Prospects
South Africa`s economic growth prospects reduced significantly during the
latter half of the reporting period mainly due to electricity supply
constraints, rising fuel prices and increasing inflation rates. In addition to
this, the value of listed property stocks has been adversely affected by
higher interest rates.
Despite the challenging trading climate, the Fund`s diver se portfolio, with a
high domestic corporate consumer base, is well-positioned to deal with a
slowdown in economic growth. The foreign tourism climate remains positive, with
international tourist arrivals in South Africa continuing to grow at a
significantly higher rate than tourist arrivals globally. Whilst the coming
financial year is likely to present challenges, the Fund appear s to be
well-placed to benefit from the positive climate in the hotel industry as well
as the repositioned and newly refurbished hotels within the portfolio.
11. Payments of Debenture Interest
Unitholders will receive debenture interest payment number 5 for the 6-month
period ended June 2008, of 53,38c per A-linked unit and 85,01c per B-linked
unit.
2008
Last day to trade cum interest Friday, 5 September
Linked units will trade ex-interest Monday, 8 September
Record date Friday, 12 September
Payment date Monday, 15 September
Unitholders may not dematerialise or rematerialise their linked units between
Monday, 8 September 2008 and Friday, 12 September 2008, both days inclusive.
Basis of preparation and accounting policies
The financial statements are prepared in accordance with International
Financial Reporting Standards (IFRS), including IAS 34 and the requirements of
the Companies Act of South Africa (Act 61 of 1973), as amended.
KPMG Inc., the independent auditor, has reviewed the financial statements
contained in this preliminary report and has expressed an unmodified conclusion
on the preliminary financial statements. Their review report 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, Leases.
- Deferred taxation on the fair value adjustment of investment properties has
been calculated at 14% on land value and 28% on buildings.
- 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, Leases.
- Deferred taxation on the fair value adjustment of investment properties has
been calculated at 14% on land value and 28% on buildings.
By order of the Board
T E Sewell G A Nelson
(Chairman) (Chief Executive Officer)
21 August 2008
Directors: T E Sewell (Chairman)*+, G A Nelson (CEO), Y Aminzadeh (Deputy CEO)
(Dutch), R Asmal, K H Abdul-Karrim*+, Z N Kubukeli*+, B M Madumise*+,
W J Midgley*, A S Roger s, W C Ross*+
(*Non-Executive, +Independent)
Registered Office: "3 on Glenhove", Cnr Tottenham Avenue & Glenhove Road,
Melrose Estate, 2196
Tel: +27 11 994 6320 Fax: +27 11 994 6321
E-Mail: info@hpf.co.za Website: www.hpf.co.za
Financial results
Income statement
for the year ended 30 June Reviewed Audited
2008 2007
R`000 R`000
Revenue 200 594 142 391
Rental income - contractual 196 230 138 556
- straight-line accrual 4 364 3 835
Expenditure (26 851) (18 921)
Property and other operating expenses (26 851) (18 921)
Operating profit 173 743 123 470
Net finance cost (10 345) (24 206)
Finance income 24 022 4 240
Finance costs (34 367) (28 446)
Profit before debenture interest, fair value
adjustments and taxation 163 398 99 264
Recoupment of debenture interest 8 278 3 356
Debenture interest (167 312) (98 785)
Profit before fair value adjustments and taxation 4 364 3 835
Fair value adjustments 295 096 253 076
Revaluation of investment properties 269 149 237 857
Straight-line rental income accrual (4 364) (3 835)
Interest-rate swaps 30 311 19 054
Profit before taxation 299 460 256 911
Taxation (71 017) (68 351)
Profit for the year 228 443 188 560
Reconciliation between earnings, headline
earnings and distributable earnings:
Profit for the year 228 443 188 560
Adjustments:
Debenture interest 167 312 98 785
Earnings (linked units) 395 755 287 345
Adjustments:
Fair value - investment properties revaluation
(net of taxation) (198 132) (169 506)
Fair value - straight-line rental income 4 364 3 835
Headline earnings (linked units) 201 987 121 674
Fair value - interest rate swaps (30 311) (19 054)
Straight-line rental income (4 364) (3 835)
Distributable earnings 167 312 98 785
Number of units
A-linked unit 61 591 087 45 687 735
B-linked unit 61 591 087 45 687 735
Weighted average number of units
A-linked unit 56 637 584 39 530 070
B-linked unit 56 637 584 39 530 070
Distribution per linked unit (cents)
A-linked unit 105,49 100,46
- Interim 52,11 49,63
- Final 53,38 50,83
B-linked unit 166,16 140,40
- Interim 81,15 68,72
- Final 85,01 71,68
271,65 240,86
Earnings per linked unit (cents)
A-linked unit 349,38 363,45
B-linked unit 349,38 363,45
698,76 726,90
Headline earnings per linked unit (cents)
A-linked unit 178,32 153,90
B-linked unit 178,32 153,90
356,64 307,80
Earnings and diluted earnings per ordinary share
(cents) 201,67 238,50
Balance sheet
at 30 June Reviewed Audited
2008 2007
R`000 R`000
ASSETS
Non-current assets 2 300 495 1 678 863
Investment properties 2 249 704 1 662 747
Straight-line rent income accrual 9 976 5 612
Derivative asset 40 815 10 504
Investment in subsidiary - -
Current assets 207 128 20 970
Trade and other receivables 17 522 13 443
Cash and cash equivalents 189 606 7 527
Total assets 2 507 623 1 699 833
EQUITY AND LIABILITIES
Equity 770 990 360 289
Share capital and share premium 247 148 64 890
Retained earnings 980 4 815
Fair value reserve 522 862 290 584
Non-current liabilities 1 624 462 1 225 306
Debentures 1 157 912 858 929
Interest bearing liabilities 279 726 250 570
Deferred taxation 186 824 115 807
Current liabilities 112 171 114 238
Trade and other payables 26 935 58 266
Debenture interest payable 85 236 55 972
Total equity and liabilities 2 507 623 1 699 833
Net asset value per linked unit (Rand)
A-linked unit 15,66 13,34
B-linked unit 15,66 13,34
Statements of changes in equity
for the year ended 30 June Share Share Retained
capital premium earnings
R`000 R`000 R`000
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 year 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
Issue of ordinary shares 3 192 737
Share issue expenses (10 482)
Profit for the year/total income
and expenses for the year 228 443
Transfer to/(from) fair value reserve
- revaluation of investment properties
(net of deferred tax) (198 132)
Transfer to/(from) fair value reserve
- straight-line rental income (3 835)
Transfer to/(from) fair value reserve
- interest rate swaps (30 311)
Balance at 30 June 2008 12 247 136 980
for the year ended 30 June Fair value
reserve Total
R`000 R`000
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 year 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
Issue of ordinary shares 192 740
Share issue expenses (10 482)
Profit for the year/total income
and expenses for the year 228 443
Transfer to/(from) fair value reserve
- revaluation of investment properties
(net of deferred tax) 198 132 -
Transfer to/(from) fair value reserve
- straight-line rental income 3 835 -
Transfer to/(from) fair value reserve
- interest rate swaps 30 311 -
Balance at 30 June 2008 522 862 770 990
Condensed cash flow statement
for the year ended 30 June Reviewed Audited
2008 2007
R`000 R`000
Net cash (outflow)/inflow from operating activities (6 146) 68 963
Cash generated from operations 133 969 162 477
Finance income received 24 022 4 240
Finance costs paid (34 367) (28 446)
Distribution to unitholders (129 770) (69 308)
Net cash outflow from investment activities (322 172) (269 358)
Net cash inflow from financing activities 510 397 203 568
Net increase in cash and cash equivalents 182 079 3 173
Cash and cash equivalents at beginning of year 7 527 4 354
Cash and cash equivalents at end of year 189 606 7 527
Condensed segmental information
for the year ended 30 June Fixed lease C-Corp lease Variable lease
agreements agreements agreements
R`000 R`000 R`000
Income statement - 30 June
2008
Segment revenue 108 676 79 345 12 573
Expenditure
Segment operating results 108 676 79 345 12 573
Net finance cost
Profit before fair value
adjustments
and taxation 108 676 79 345 12 573
Fair-value adjustments 155 092 103 157 10 900
Profit before taxation 263 768 182 502 23 473
Taxation
Segment result 263 768 182 502 23 473
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
Balance sheet - 30 June 2008
Non-current assets 1 252 200 893 380 114 100
Current assets 1 843 13 221 775
Segment assets 1 254 043 906 601 114 875
Non-current liabilities - - -
Current liabilities 4 942 17 751 -
Segment liabilities 4 942 17 751 -
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
Non-current liabilities - - -
Current liabilities 4 575 6 260 -
Segment liabilities 4 575 6 260 -
Corporate Total
R`000 R`000
Income statement - 30 June 2008
Segment revenue 200 594
Expenditure (26 851) (26 851)
Segment operating results (26 851) 173 743
Net finance cost (169 379) (169 379)
Profit before fair value adjustments
and taxation (196 230) 4 364
Fair-value adjustments 25 947 295 096
Profit before taxation (170 283) 299 460
Taxation (71 017) (71 017)
Segment result (241 300) 228 443
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
Balance sheet - 30 June 2008
Non-current assets 40 815 2 300 495
Current assets 191 289 207 128
Segment assets 232 104 2 507 623
Non-current liabilities 1 624 462 1 624 462
Current liabilities 89 478 112 171
Segment liabilities 1 713 940 1 736 633
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
Non-current liabilities 1 225 306 1 225 306
Current liabilities 103 402 114 237
Segment liabilities 1 328 708 1 339 543
Date: 21/08/2008 14:21:01 Produced by the JSE SENS Department.
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