| Wed 19 Aug 2009, 17:43 | | HPA / HPB - Hospitality Property Fund Limited - Reviewed Results for the year |
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HPA HPB
HPA
HPA / HPB - Hospitality Property Fund Limited - Reviewed Results for the year
ended 30 June 2009 and 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" or "the company")
Reviewed Results
for the year ended 30 June 2009 and interest payment declaration
- Distribution per A-linked unit 110,76c UP 5%
- Distribution per B-linked unit 152,65c DOWN 8,1%
- Property portfolio R3,4 billion UP R1,1 billion
Comments
1. Introduction
Hospitality Property Fund Limited is a property loan stock company that
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, whilst the B-linked units receive the balance
of earnings.
The effect of the global financial crisis that is being felt across all sectors
of the South African economy has become particularly evident in the
hospitality sector since the latter part of last year. According to the Smith
Travel Research Global Hotel Benchmark report, average occupancies in South
Africa for the first six months of 2009 declined by 13,5% compared to the same
period in 2008.
A similiar decline in occupancies experienced by the Fund has resulted in lower
distributable earnings being achieved. While the A-linked units` distribution
for the year remained unaffected, the decrease in the Fund`s distributable
earnings has had a leveraged effect on the B-linked units` distribution.
2. Results
Total distributable earnings for the year decreased by 3% compared to 2008. The
A-linked units` annual distribution of 110,76 cents grew by 5% over the
previous year, in line with the Fund`s distribution structure, while
distributions in respect of the B-linked unit declined by 8,1% to 152,65 cents
over a 12-month period.
As a result of deteriorating trading conditions in the second half of the year
the total distributable earnings declined by 15,7% compared to the same period
in 2008. This resulted in the B-linked units distribution for this period
decreasing by 28,7% from 85,01 cents in 2008 to 60,61 cents. This decline was
primarily due to lower than anticipated rentals received from properties under
leases which are exposed to operational income. Trading conditions in the hotel
and leisure sector have been adversely affected by the deterioration in the
global and local economies with occupancies dropping dramatically in the last
six months of the financial year. In addition, average room rates have shown
limited growth, following a decline in business across all market segments
(corporate, government, conferencing, foreign and domestic leisure). This has
been further exacerbated by the entry of a number of new hotel developments
in certain of the areas where the Fund`s proper ties trade.
During the period under review, the Fund under took a number of major
refurbishments. While these initiatives will see the refurbished properties
well positioned in the future, the re-launch of these products in the present
environment has been particularly challenging.
A number of initiatives have been implemented to restructure business units to
address declining operating profits.
The following table reflects the financial results for the year ended 30 June
2009 compared to the previous year.
Year ended 30 June
2009 2008 Variance
(R`000) (R`000) (%)
Contractual Rental 256 686 196 230 30,8
Fund Expenses (31 276) (26 851) 16,5
Net Finance Costs (63 172) (10 345) 510,7
Profit before debenture interest 162 238 159 034 2,0
Recoupment of debenture interest - 8 278 (100,0)
Debenture interest (162 238) (167 312) (3,0)
Distribution - A-linked unit (68 219) (64 972) 5,0
Distribution - B-linked unit (94 019) (102 340) (8,1)
Distribution - A-linked unit (cents) 110,76 105,49 5,0
- Interim 54,72 52,11 5,0
- Final 56,04 53,38 5,0
Distribution - B-linked unit (cents) 152,65 166,16 (8,1)
- Interim 92,04 81,15 13,4
- Final 60,61 85,01 (28,7)
Approximately 75% of the Fund`s revenue was derived from fixed rental
agreements with CPI-linked escalations. The remaining 25% comprised variable
rental which is linked to under lying hotel operational performance.
3. Property Portfolio
The Fund`s portfolio comprises interests in 23 hotel and resort properties
in South Africa. As at 30 June 2009 the portfolio was valued at R3,4 billion,
translating to a net asset value per linked unit of R17,93 (excluding deferred
taxation).The portfolio is segmented into three lease types, namely; fixed
lease proper ties, C-Corp lease proper ties and variable lease properties.
Rentals under fixed lease agreements are determined by normal contractual lease
terms, with inflation linked annual escalations. C-Corp lease agreements
comprise approximately 50% initial fixed lease rental, with the remaining being
a variable rental equivalent to 90% of the hotel`s EBITDA (earnings before
interest, tax, depreciation and amortisation) after deducting the fixed lease
portion. Variable lease agreements consist of rentals based on EBITDA from the
property`s under lying operations.
All properties across the portfolio were fully let during the year. The
average lease expiry is 7,63 year s.
Star Grading (by Gross Rental Income) Locality (by Gross Rental Income)
R 000`s R 000`s
2-star 1,347 1% Gauteng 155,857 61%
3-star 100,264 38% KwaZulu-Natal 39,062 15%
4-star 127,344 50% Western Cape 38,014 15%
5-star 27,731 11% Eastern Cape 18,468 7%
Mpumalanga 5,285 2%
Lease type (by Gross Rental Income)
Fixed Variable Total
Fixed 123,872 5,656 129,528 50%
C-Corp 67,567 45,117 112,684 44%
Variable 14,474 14,474 6%
191,439 65,247 256,686
75% 25% 100%
4. Acquisitions
The Holiday Inn Sandton - Rivonia Road was acquired on 26 September 2008. The
total cost of the acquisition was R410 million. During the reporting period
the Fund also acquired an additional interest in Champagne Sports Resort for
a total sum of R11,5 million.
5. Development and Capital Projects
On completion of The Rosebank Hotel redevelopment, the hotel was branded as the
first Crowne Plaza in South Africa and is now par t of Intercontinental Hotels
Group (IHG) which is the largest hotel branding company worldwide. The Crowne
Plaza Johannesburg - The Rosebank was completed at a cost of R312 million. The
expansion and refurbishment of the Mount Grace Country House & Spa at a cost
of R145 million was completed in June 2009. The new conference centre and hotel
refurbishment at Protea Hotel The Winkler was completed in April 2009 at a cost
of R28 million. The refurbishments of the three properties in Richards Bay
were also completed towards the end of the financial year at a combined cost of
R47 million.
Management have taken the decision to delay proposed refurbishments to the
Protea Hotel Victoria Junction in Cape Town, Protea Hotel Marine in Port
Elizabeth and Protea Hotel Imperial until after the World Cup in 2010 to avoid
any disruption to operations during this period.
6. Borrowings
The Fund`s interest-bearing liabilities increased by R733,8 million to R1 013,6
million at year-end.# The Fund`s weighted average cost of debt for the year was
10,2% and the gearing ratio was 29,8% of total property value.
During the calendar year 2008 the Fund restructured its borrowings by entering
into various interest- rate-swap agreements as detailed below. In compliance
with International Financial Reporting Standards (IFRS) these swap agreements
have been valued on a mar k-to-market basis. The derivative liability of R70,4
million compared to an asset value of R40,8 million at June 2008 gives rise to
a fair value adjustment of R111,2 million being charged to the income
statement. This fair value adjustment has no effect on the distribution to
linked unitholders but adversely affects both the earnings and headline
earnings.
# In terms of Section 8.58(a) of the JSE Limited`s Listings Requirements,
Hospitality is required to disclose the effect of any exceptional increase in
borrowings on earnings per linked unit (EPLU) and headline earnings per linked
unit (HEPLU) during the period under review. As the borrowings were used mainly
to fund the acquisition of the Holiday Inn Sandton and to complete the
development projects detailed above, it would not be possible to measure the
effect of the increase in borrowings on EPLU and HEPLU.
All-in Fixed Rate Commencement Date Maturity Date
R253 million* 10,45% April 2008 May 2012
R150 million 11,45% August 2008 August 2013
R150 million** 11,15% December 2008 December 2011
R249 million*** 12,01% September 2008 September 2015
R170 million 11,33% September 2008 September 2018
R972 million
* Extendable at the option of the funder to May 2014.
** Extendable at the option of the funder to December 2013.
*** Step up swap structure - weighted average rate.
7. Unitholders
During the year some 17,8% of the A-linked units and 49,9% of the B-linked
units were traded. The Fund has a BEE owner ship component of 22,6%.
8. Subsequent events
Over the past few year s there has been a significant shift from externally to
internallty managed property companies, both internationally and in South
Africa. In line with this, the Board appointed an independent subcommittee and
corporate advisor s to investigate the internalisation of Hospitality`s
management company. The outcome of this investigation and subsequent
negotiations has resulted in the Board, on 19 August 2009, approving the
acquisition of the management company and the internalisation of the Fund`s
management.
Further details of this proposed transaction are published simultaneously with
this announcement.
9. Prospects
Despite the recent interest rate declines, the outlook for the property and
hospitality sector s remains challenging.
A continuing recessionary environment, budgetary constraints in the corporate
and government sector s as well as limited personal disposable income is
likely to result in continuing pressure on both occupancies and average room
rates for the remainder of 2009. The outlook for calendar year 2010 is more
positive with the prospect of economic recover y and enhanced returns as a
result of the lead up to and the event of the FIFA World Cup 2010. It is
important to note, however, that only half of the event will take place within
the 2010 financial year. The refurbished portfolio is well positioned to
benefit from improved market activity in the future.
10. Payments of Debenture Interest
Unitholders will receive debenture interest payment number 7 for the six-month
period ended June 2009, of 56,04 cents per A-linked unit and 60,61 cents per
B-linked unit.
2009
Last day to trade cum interest Friday, 4 September
Linked units will trade ex-interest Monday, 7 September
Record date Friday, 11 September
Payment date Monday, 14 September
Unitholders may not dematerialise or rematerialise their linked units between
Monday, 7 September 2009 and Friday, 11 September 2009, 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 opinion on the preliminary
financial statements. Their review report is available for inspection at the
Fund`s registered offices.
The accounting policies are consistent with those applied in the most recent
audited financial statements.
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% on land value and 28% on buildings.
By order of the Board
T E Sewell G A Nelson
(Chairman) (Chief Executive Officer)
19 August 2009
Directors: T E Sewell (Chairman)*+, G A Nelson (CEO), Y Aminzadeh (Dutch),
R Asmal, K H Abdul-Karrim*+, Z N Kubukeli*+, B M Madumise*+, W J Midgley*,
A S Rogers (Deputy CEO), 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
2009 2008
R`000 R`000
Revenue 261 919 200 594
Rental income - contractual 256 686 196 230
- straight-line accrual 5 233 4 364
Expenditure (31 276) (26 851)
Property and other operating expenses (31 276) (26 851)
Operating profit 230 643 173 743
Net finance cost (63 172) (10 345)
Finance income 24 139 24 022
Finance costs (87 311) (34 367)
Profit before debenture interest, fair value
adjustments and taxation 167 471 163 398
Recoupment of debenture interest - 8 278
Debenture interest (162 238) (167 312)
Profit before fair value adjustments and taxation 5 233 4 364
Fair value adjustments 88 116 295 096
Revaluation of investment properties 204 619 269 149
Straight-line rental income accrual (5 233) (4 364)
Interest-rate swaps (111 270) 30 311
Profit before taxation 93 349 299 460
Taxation (54 889) (71 017)
Profit for the year 38 460 228 443
Reconciliation between earnings, headline
earnings and distributable earnings:
Profit for the year 38 460 228 443
Adjustments:
Debenture interest 162 238 167 312
Earnings (linked units) 200 698 395 755
Adjustments:
Fair value - investment properties revaluation
(net of taxation) (149 730) (198 132)
Fair value - straight-line rental income 5 233 4 364
Headline earnings (linked units) 56 201 201 987
Fair value - interest rate swaps 111 270 (30 311)
Straight-line rental income (5 233) (4 364)
Distributable earnings 162 238 167 312
Number of units
A-linked unit 61 591 087 61 591 087
B-linked unit 61 591 087 61 591 087
Weighted average number of units
A-linked unit 61 591 087 56 637 584
B-linked unit 61 591 087 56 637 584
Distribution per linked unit (cents)
A-linked unit 110,76 105,49
- Interim 54,72 52,11
- Final 56,04 53,38
B-linked unit 152,65 166,16
- Interim 92,04 81,15
- Final 60,61 85,01
263,41 271,65
Earnings per linked unit (cents)
A-linked unit 162,93 349,38
B-linked unit 162,93 349,38
325,86 698,76
Headline earnings per linked unit (cents)
A-linked unit 45,62 178,32
B-linked unit 45,62 178,32
91,24 356,64
Earnings and diluted earnings per ordinary share
(cents) 31,22 201,67
Balance sheet
at 30 June Reviewed Audited
2009 2008
R`000 R`000
ASSETS
Non-current assets 3 404 252 2 300 495
Investment properties 3 389 043 2 249 704
Straight-line rent income accrual 15 209 9 976
Derivative asset - 40 815
Current assets 12 619 207 128
Trade and other receivables 2 791 17 522
Cash and cash equivalents 9 828 189 606
Total assets 3 416 871 2 507 623
EQUITY AND LIABILITIES
Equity 809 265 770 990
Share capital and share premium 246 963 247 148
Retained earnings 980 980
Fair value reserve 561 322 522 862
Non-current liabilities 2 483 644 1 624 462
Debentures 1 157 912 1 157 912
Interest-bearing liabilities 1 013 564 279 726
Derivative liability 70 456 -
Deferred taxation 241 712 186 824
Current liabilities 123 962 112 171
Trade and other payables 52 115 26 935
Debenture interest payable 71 847 85 236
Total equity and liabilities 3 416 871 2 507 623
Net asset value per linked unit (Rand)
A-linked unit 15,97 15,66
B-linked unit 15,97 15,66
Net asset value per linked unit (excluding deferred
taxation)
A-linked unit 17,93 17,18
B-linked unit 17,93 17,18
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 2007 9 64 881 4 815
Issue of ordinary shares 3 192 737
Share issue expenses (10 482)
Profit for the period/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
Share issue expenses (185)
Profit for the year/total income
and expenses for the year 38 460
Transfer (from)/to fair value reserve
- revaluation of investment properties
(net of deferred tax) (149 730)
Transfer to/(from) fair value reserve
- interest rate swaps 111 270
Balance at 30 June 2009 12 246 951 980
Fair value
reserve Total
R`000 R`000
Balance at 30 June 2007 290 584 360 289
Issue of ordinary shares 192 740
Share issue expenses (10 482)
Profit for the period/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
Share issue expenses (185)
Profit for the year/total income
and expenses for the year 38 460
Transfer (from)/to fair value reserve
- revaluation of investment properties
(net of deferred tax) 149 730 -
Transfer to/(from) fair value reserve
- interest rate swaps (111 270) -
Balance at 30 June 2009 561 322 809 265
Cash flow statement
for the year ended 30 June Reviewed Audited
2009 2008
R`000 R`000
Cash flows from operating activities
Cash generated from operations 265 321 133 969
Finance income received 24 139 24 022
Finance costs paid (87 311) (34 367)
Distribution to unitholders (175 627) (129 770)
Net cash inflow/(outflow) from operating activities 26 522 (6 146)
Cash flows from investing activities
Acquisition and development of investment
properties (939 953) (322 172)
Net cash outflow from investing activities (939 953) (322 172)
Cash flows from financing activities
Proceeds from the issue of linked units - 491 723
Share issue expenses paid (185) (10 482)
Interest-bearing liabilities raised 733 838 29 156
Net cash inflow from financing activities 733 653 510 397
Net (decrease)/increase in cash and cash equivalents(179 778) 182 079
Cash and cash equivalents at beginning of year 189 606 7 527
Cash and cash equivalents at end of year 9 828 189 606
Condensed segmental information
for the year ended 30 June
Fixed C-Corp Variable
lease lease lease
agreements agreements agreements
R`000 R`000 R`000
Income statement - 2009
Segment revenue 129 528 112 684 14 474
Expenditure
Segment operating results 129 528 112 684 14 474
Net finance cost
Profit before fair value
adjustments 129 528 112 684 14 474
Fair-value adjustments 141 465 47 550 10 371
Segment result 270 993 160 234 24 845
Income statement - 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 108 676 79 345 12 573
Fair-value adjustments 155 092 103 ,157 10 900
Segment result 263 768 182 502 23 473
Balance sheet - 2009
Non-current assets 1 411 000 1 868 780 124 472
Current assets 538 179 1 764
Segment assets 1 411 538 1 868 959 126 236
Non-current liabilities
Current liabilities 9 500 2 221
Segment liabilities 9 500 2 221
Balance sheet - 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
Corporate Total
R`000 R`000
Income statement - 2009
Segment revenue 5 233 261 919
Expenditure (31 276) (31 276)
Segment operating results (26 043) 230 643
Net finance cost (225 410) (225 410)
Profit before fair value adjustments (251 453) 5 233
Fair-value adjustments (111 270) 88 116
Segment result (362 723) 93 349
Income statement - 2008
Segment revenue 200 594
Expenditure (26 851) (26 851)
Segment operating results (26851) 173 743
Net finance cost (169 379) (169 379)
Profit before fair value adjustments (196 230) 4 364
Fair-value adjustments 25 947 295 096
Segment result (170 283) 299 460
Balance sheet - 2009
Non-current assets 3 404 252
Current assets 10 138 12 619
Segment assets 10 138 3 416 871
Non-current liabilities 2 241 931 2 241 931
Current liabilities 112 241 123 962
Segment liabilities 2 354 172 2 365 893
Balance sheet - 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 1 437 638 1 437 638
Current liabilities 89 478 112 171
Segment liabilities 1 527 116 1 549 809
Date: 19/08/2009 17:43:01 Produced by the JSE SENS Department.
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