| Thu 1 Oct 2009, 14:41 | | HPA / HPB - Hospitality - Financial Effects In Respect Of The Proposed |
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HPA HPB
HPA
HPA / HPB - Hospitality - Financial Effects In Respect Of The Proposed
Acquisition, Salient Dates And Times And Cautionary Announcement
Hospitality Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/014211/06)
Share code for A-linked units: HPA
ISIN for A-linked units: ZAE000076790
Share code for B-linked units: HPB
ISIN for B-linked units: ZAE000076808
("Hospitality" or "the company")
FINANCIAL EFFECTS IN RESPECT OF THE PROPOSED ACQUISITION OF HOSPITALITY
PROPERTY FUND MANAGERS (PROPRIETARY) LIMITED ("HOSPITALITY MANCO"), SALIENT
DATES AND TIMES IN RESPECT OF THE PROPOSED ACQUISITION AND CAUTIONARY
ANNOUNCEMENT
INTRODUCTION
Linked unitholders are referred to the announcement dated 19 August 2009 in
which Hospitality advised that it had reached an agreement with the
shareholders of Hospitality Manco, being Grapnel Property Asset Managers
(Proprietary) Limited and Hotel Tourism and Leisure Asset Management
(Proprietary) Limited (collectively the "sellers") to acquire all of the
issued shares of and shareholders` claims against Hospitality Manco (the
"transaction"). The total purchase price is subject to a minimum purchase
price of R123 million ("minimum price") which is payable on or around the
effective date of the transaction and a potential top up payment ("top up
payment"), determined in terms of a formula, which is payable after the issue
of the annual financial statements of Hospitality for the 12 months ending 30
June 2012 and may result in a maximum purchase price of R180 million
(escalated at CPI between the effective date of the transaction and 30 June
2012).
This announcement presents the financial effects and the salient dates and
times regarding the transaction.
FINANCIAL EFFECTS
The pro forma financial effects of the transaction on Hospitality`s
distribution per linked unit, earnings per linked unit, headline earnings per
linked unit, earnings and diluted earnings per share and net asset value and
net tangible asset value per linked unit for the year ended 30 June 2009 are
set out below.
The pro forma financial effects are the responsibility of the directors of
Hospitality and have been prepared for illustrative purposes only, to provide
information on how the transaction may have impacted on the historical
financial results of Hospitality for the year ended 30 June 2009.
Due to its nature, the pro forma financial effects may not give a fair
reflection of Hospitality`s financial position, changes in equity, results of
operations and cash flows subsequent to the transaction.
The table below reflects the pro forma financial effects of the transaction on
a Hospitality linked unitholder in respect of:
- scenario 1, being the portion (R82 million) of the minimum price which
the sellers are not obliged to use to subscribe for Hospitality linked
units being funded with debt; and
- scenario 2, being the portion (R82 milion) of the minimum price which the
sellers are not obliged to use to subscribe for Hospitality linked units
being funded through the issue of 3 139 357 A-units and 3 139 357 B-
linked units at R11.83 per A-linked unit and R14.29 per B-linked unit,
being the 30 day VWAP of the A- and B-linked units, respectively, up to
and including 19 August 2009 which is the date the transaction was
announced.
Unadjusted Pro forma Pro forma
before the after the after the
transaction transaction transactio
(cents) (cents) % Change n (cents) % Change
(scenario 1) (scenario 1) (scenario (scenario
2) 2)
Distribution 110.76 110.76 0.0 110.76 0.0
per linked
unit 152.65 162.24 6.3 161.93 6.1
A-linked
units
B-linked
units
Earnings per 162.93 161.43 (0.9) 160.10 (1.7)
linked unit
A-linked 162.93 161.43 (0.9) 160.10 (1.7)
units
B-linked
units
Headline 45.62 52.56 15.2 56.38 23.6
earnings per
linked unit 45.62 52.56 15.2 56.38 23.6
A-linked
units
B-linked
units
Earnings and 31.22 24.93 23.75
diluted (20.1) (23.9)
earnings per
share
Net asset 159.70 158.83 157.49
value per (0.5) (1.4)
linked unit 159.70 158.83 157.49
(including (0.5) (1.4)
deferred
taxation)
A-linked
units
B-linked
units
Net asset 179.32 177.97 175.72
value per (0.8) (2.0)
linked unit 179.32 177.97 175.72
(excluding (0.8) (2.0)
deferred
taxation)
A-linked
units
B-linked
units
Net tangible 159.70 143.89 143.26
asset value (9.9) (10.3)
per linked 159.70 143.89 143.26
unit (9.9) (10.3)
A-linked
units
B-linked
units
Weighted 61 591 087 63 160 765 2.5 66 300 122 7.6
average
number of 61 591 087 63 160 765 2.5 66 300 122 7.6
linked units
in issue
A-linked
units
B-linked
units
Linked units 61 591 087 63 160 765 2.5 66 300 122 7.6
in issue at
30 June 2009 61 591 087 63 160 765 2.5 66 300 122 7.6
A-linked
units
B-linked
units
Notes and assumptions:
1. The amounts set out in the "Unadjusted before the transaction" column
have been extracted, without adjustment, from the reviewed published
results of Hospitality for the year ended 30 June 2009.
2. The transaction is assumed to be implemented on 1 July 2008 for income
statement purposes and on 30 June 2009 for balance sheet purposes.
3. The amounts set out in the "Pro forma after the transaction" columns were
calculated by consolidating the reviewed results of Hospitality for the
year ended 30 June 2009 and the audited results of Hospitality Manco for
the year ended 30 June 2009, subject to the assumptions and adjustments
set out below.
4. The "Pro forma after the transaction" columns have been based on the
following income statement assumptions:
4.1. It is assumed that the portion (R41 million) of the minimum price
which must be used by the sellers to subscribe for Hospitality
linked units, will be used to subscribe for 1 569 678 A-linked units
and 1 569 678 B-linked units at an issue price of R11.83 per A-
linked unit and R14.29 per B-linked unit, being the 30 day VWAP of
the A- and B-linked units, respectively, up to and including 19
August 2009 which is the date the transaction was announced.
4.2. Inter-company fees and expenses were eliminated.
4.3. Estimated transaction costs of R1.8 million were expensed in
accordance with IFRS 3 (Business Combinations).
4.4. Hospitality Manco charged Hospitality acquisition fees of R8 million
and development fees of R10.4 million for the year ended 30 June
2009 which Hospitality capitalised. If Hospitality Manco had been
internalised from 1 July 2008, the acquisition fees and development
fees would not have been incurred by Hospitality and it has been
assumed that this would have resulted in a saving of finance costs
on the acquisition fees and development fees at Hospitality`s
weighted average cost of debt of 10.2%.
4.5. In respect of scenario 1, finance costs on the portion (R82 million)
of the minimum price which the sellers are not obliged to use to
subscribe for Hospitality linked units, are assumed to be incurred
at Hospitality`s weighted average cost of debt of 10.2%.
4.6. In respect of scenario 2, it has been assumed that the portion (R82
million) of the minimum price which the sellers are not obliged to
use to subscribe for linked units will be funded through the issue
of 3 139 357 A-units and 3 139 357 B-linked units at R11.83 per A-
linked unit and R14.29 per B-linked unit, being the 30 day VWAP of
the A- and B-linked units, respectively, up to and including 19
August 2009 which is the date the transaction was announced.
Accordingly, although there will be no additional finance costs,
there is additional debenture interest as a result of the additional
number of A- and B-linked units which will be issued.
4.7. The additional distributable income which results from the
transaction is assumed to be earned evenly throughout the year.
4.8. The fair value adjustment in respect of the contingent consideration
was assumed to be recognised at Hospitality`s weighted average cost
of debt of 10.2% and amounted to approximately R7 million.
4.9. Hospitality Manco has an incentive scheme (the "Hospitality Manco
incentive scheme") to incentivise the Hospitality Manco employees.
In terms of the Hospitality Manco incentive scheme, Hospitality
Manco holds A- and B-linked units until the Hospitality Manco
employees become entitled to the Hospitality linked units. The
Hospitality Manco incentive scheme will be wound up as a result of
implementation of the transaction. The Hospitality Manco incentive
scheme was accounted for by Hospitality Manco in terms of IAS 19 and
IAS 39. Accordingly, the fair value adjustment in respect of the A-
and B-linked units which are held by Hospitality Manco as available-
for-sale investments and the fair value adjustment in respect of the
related option liability, the distributions received by Hospitality
Manco in respect of the A- and B- linked units and the finance costs
relating to the interest-bearing liability used to fund the purchase
of the A- and B-linked units, have been eliminated.
5. The "Pro forma after the transaction" columns have been based on the
following balance sheet assumptions:
5.1. It is assumed that the sellers will achieve the maximum purchase
price being R180 million escalated at average CPI for the years
ending 30 June 2010, 30 June 2011 and 30 June 2012. Average CPI has
been assumed to be 6% in each of the years ending 30 June 2010, 2011
and 2012 which results in an estimated maximum purchase price of
R214 million.
5.2. The difference between the maximum purchase price which is payable
and the minimum price represents a contingent consideration
amounting to R68.3 million. The contingent consideration has been
raised as a liability in compliance with IAS 32 (Financial
Instruments: Disclosure and Presentation) and has been present
valued over a three-year period using Hospitality`s weighted average
cost of debt of 10.2%.
5.3. It is assumed that the portion (R41 million) of the minimum price
which must be used by the sellers to subscribe for Hospitality
linked units, will be used to subscribe for 1 569 678 A-linked units
and 1 569 678 B-linked units at an issue price of R11.83 per A-
linked unit and R14.29 per B-linked unit, being the 30 day VWAP of
the A- and B-linked units, respectively, up to and including 19
August 2009 which is the date the transaction was announced.
5.4. In respect of scenario 1, it has been assumed that the portion (R82
million) of the minimum price which the sellers are not obliged to
use to subscribe for Hospitality linked units will be funded with
debt.
5.5. In respect of scenario 2, it has been assumed that the portion (R82
million) of the minimum price which the sellers are not obliged to
use to subscribe for linked units will be funded through the issue
of 3 139 357 A-units and 3 139 357 B-linked units at R11.83 per A-
linked unit and R14.29 per B-linked unit, being the 30 day VWAP of
the A- and B-linked units, respectively, up to and including 19
August 2009 which is the date the transaction was announced.
5.6. The acquisition of Hospitality Manco has been accounted for under
the revised IFRS 3 (Business Combinations) whereby furniture and
fittings and goodwill and intangible assets have been recognised.
5.7. An amount of R188.7 million was recognised in goodwill and
intangible assets. The allocation between goodwill and identifiable
intangible assets as a result of the excess of the cost of
acquisition over the fair value of the net tangible assets acquired
will be performed in terms of the revised IFRS 3 in the first
reporting period subsequent to the transaction. Consequently, no
deferred taxation has been recognised in respect of the excess which
is attributable to being goodwill and an intangible asset. Goodwill
will be tested on an annual basis for impairment, or more frequently
if events or circumstances indicate that it might be impaired.
5.8. Inter-company trade payables and trade receivables amounting to some
R2 million were eliminated.
5.9. The Hospitality Manco incentive scheme will be wound up as a result
of implementation of the transaction. The Hospitality Manco
incentive scheme was accounted for by Hospitality Manco in terms of
IAS 19 and IAS 39. Accordingly, the A- and B-linked units which were
held by Hospitality Manco as available-for-sale investments and the
related option liability and interest-bearing liability which were
recognised under IAS 19 and IAS 39, have been eliminated. Deferred
taxation which was recognised in respect of the available-for-sale
investments was eliminated.
5.10. In respect of scenario 1, estimated transaction costs of R1.8
million have been assumed to be paid in cash. R35 000 of the
estimated transaction costs which relate to the listing of
Hospitality linked units, was deducted against share premium in
accordance with IAS 32 (Financial Instruments: Presentation and
Disclosure).
5.11. In respect of scenario 2, estimated transaction costs of R1.8
million have been assumed to be paid in cash. R52 000 of the
estimated transaction costs which relate to the listing of
Hospitality linked units, was deducted against share premium in
accordance with IAS 32 (Financial Instruments: Presentation and
Disclosure).
SALIENT DATES AND TIMES
The salient dates and times for the transaction are as follows:
2009
Circular posted on Thursday, 1 October
Receipt of forms of proxy for the general Wednesday, 14 October
meeting of Hospitality shareholders by 10:00
on
Receipt of forms of proxy for the general Wednesday, 14 October
meeting of Hospitality debenture holders by
10:30 on
The general meeting of Hospitality Friday, 16 October
shareholders at 10:00 on
The general meeting of Hospitality debenture Friday, 16 October
holders at 10:30 on
Results of the general meetings published on Friday, 16 October
SENS on
Results of the general meetings published in Monday, 19 October
the press on
Notes:
1. If the general meeting of Hospitality shareholders referred to above is
not concluded or adjourned by 10:30 then the general meeting of
Hospitality debenture holders will commence as soon as the general
meeting of Hospitality shareholders is concluded or adjourned.
2. All dates and times are local times in South Africa. The above dates and
times are subject to change. Any changes will be released on SENS and
published in the press.
CAUTIONARY
Caution is no longer required to be exercised by Hospitality linked
unitholders in respect of this transaction when dealing in their linked units.
However, linked unitholders are referred to the announcement dated 30
September 2009 in relation to the proposed acquisition of a 4-star hotel in
Durban and are advised to continue to exercise caution when dealing in their
linked units until such time as a further announcement is released in this
regard.
A circular containing fuller information regarding the transaction was posted
to linked unitholders on Thursday, 1 October 2009.
1 October 2009
Transaction sponsor and independent advisor
Java Capital (Proprietary) Limited
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Legal advisor to Hospitality
Mkhabela Huntley Adekeye Inc.
Date: 01/10/2009 14:41:19 Produced by the JSE SENS Department.
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