| Fri 9 Mar 2012, 12:42 | | HPA/HPB - Hospitality Property Fund Limited - Medium term Profit Forecast |
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HPA HPB
HPA
HPA/HPB - Hospitality Property Fund Limited - Medium term Profit Forecast
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
("HPF" or "the Fund" or "the company")
MEDIUM TERM PROFIT FORECAST
Introduction
The results announcement on 6 March 2012, stated that, the Fund will be
publishing a detailed two-year financial forecast to provide the market with
an assessment of the Fund`s financial position and future distribution
prospects. This is with a view to HPF being able to engage with unitholders in
order to assess the likely unitholder participation in the rights issue
announced on 27 February 2012 and to settle the rights issue pricing.
The profit forecast, including the assumptions on which they are based and the
financial information from which they are prepared, are the responsibility of
the directors of HPF. The profit forecast has been prepared in accordance with
the group`s accounting policies and in compliance with IFRS. The profit
forecast has been reviewed by KPMG Inc, the company`s external auditors.
Forecast statement of comprehensive income
for the financial years ending 30 June
Forecast Forecast Forecast
FY 2012 FY 2013 FY 2014
R`000 R`000 R`000
Revenue 311 121 349 617 378 196
Rental income - contractual 320 154 350 357 381 811
Rental income - straight line accrual (9 033) (740) (3 615)
Operating expenses (36 368) (27 898) (29 503)
Operating profit 274 753 321 719 348 693
Net finance cost (174 579) (139 178) (145 247)
Profit before debenture interest
and fair value adjustments 100 174 182 541 203 446
Recoupment of debenture interest 12 003 - -
Debenture interest (121 210) (183 281) (207 061)
Loss before fair value adjustments (9 033) (740) (3 615)
Fair value adjustments 9 033 740 3 615
Straight line rental income accrual 9 033 740 3 615
Profit before taxation - - -
Discount on debenture issue amortised (367) (4 404) (4 589)
Equity accounted profit from
associate after tax 183 120 134
Taxation - - -
Total loss and comprehensive loss
for the year (184) (4 284) (4 455)
Reconciliation of earnings, headline
earnings and distributable earnings
Loss for the year (184) (4 284) (4 455)
Adjustments: Debenture interest 121 210 183 281 207 061
Earnings (linked units) 121 026 178 997 202 606
Adjustments:
Equity accounted profit from
associate after tax (183) (120) (134)
Fair value - straight line rental income (9 033) (740) (3 615)
Debenture discount amortised 367 4 404 4 589
Headline earnings (linked units) 112 177 182 541 203 446
Straight line rental income 9 033 740 3 615
Distributable earnings 121 210 183 281 207 061
CONSOLIDATED HOTEL STATEMENT OF COMPREHENSIVE INCOME FOR FIXED & VARIABLE
(F&V) AND VARIABLE LEASES FOR THE FINANCIAL YEARS ENDING 30 JUNE
Forecast Forecast Forecast
FY 2012 FY 2013 FY 2014
R`000 R`000 R`000
Revenue 871 902 100% 959 002 100% 1 040 648 100%
- Rooms 551 296 63% 616 037 64% 668 763 64%
- Food and
Beverage 251 947 29% 272 289 28% 295 099 28%
- Spa & Beauty
Salon 19 144 2% 20 947 2% 22 770 2%
- Golf & Safari 14 753 2% 16 267 2% 17 742 2%
- Other 34 761 4% 33 463 3% 36 274 3%
Departmental
profit (% of
Revenue) 534 758 61% 586 015 61% 637 748 61%
- Rooms 423 446 49% 475 601 50% 516 764 50%
- Food and
Beverage 82 022 9% 82 799 9% 90 721 9%
- Spa & Beauty
Salon 5 702 1% 6 392 1% 7 084 1%
- Golf & Safari 3 399 0% 3 796 0% 4 184 0%
- Other 20 189 2% 17 428 2% 18 996 2%
Other hotel
expenses (% of
Revenue) 240 775 28% 264 752 28% 283 346 27%
Administration
and General 98 455 11% 105 579 11% 111 286 11%
Sales and
Marketing 63 412 7% 68 998 7% 74 583 7%
Heat, Light and
Power 42 429 5% 49 955 5% 54 200 5%
Repairs and
Maintenance 36 479 4% 40 220 4% 43 278 4%
Management
Controllable
profit (% of
Revenue) 293 982 34% 321 263 33% 354 401 34%
Fixed expenses 46 218 5% 48 508 5% 50 812 5%
Management and
Incentive fees 43 979 5% 46 758 5% 51 265 5%
EBITDA (% of
Revenue) 203 786 23% 225 997 24% 252 324 24%
Fixed Rental 92 772 11% 98 215 10% 111 210 11%
Variable Rental 102 858 12% 123 795 13% 136 397 13%
Rent payable -
HPF (% of
Revenue) 195 630 22% 222 010 23% 247 607 24%
HPF RENTAL
INCOME RECON
Fixed Lease
rental income 124 524 128 348 134 204
F&V/Variable
lease rental
income 195 630 222 010 247 607
TOTAL RENTAL
INCOME 320 154 350 357 381 811
Hotel room statistics
Fixed and variable leases Growth 2012
FY 2012 vs 2011 FY 2013
Occupancy
Fixed and Variable leases 59.1% 10.4% 61.4%
Variable leases 48.9% (7.8%) 56.2%
Total F&V and variable leases 57.3% 7.2% 60.5%
Average Room Rate
Fixed and Variable leases 940 (1.2%) 987
Variable leases 1 240 (0.5%) 1 265
Total F&V and variable leases 986 (1.8%) 1 032
RevPar
Fixed and Variable leases 556 9.1% 606
Variable leases 606 (8.3%) 711
Total F&V and variable leases 565 5.6% 624
Fixed and variable leases Growth 2013 Growth 2014
vs 2012 FY 2014 vs 2013
Occupancy
Fixed and Variable leases 4.0% 63.1% 2.8%
Variable leases 14.8% 62.9% 12.1%
Total F&V and variable leases 5.7% 63.1% 4.3%
Average Room Rate
Fixed and Variable leases 5.0% 1 039 5.3%
Variable leases 2.0% 1 305 3.1%
Total F&V and variable leases 4.7% 1 085 5.1%
RevPar
Fixed and Variable leases 9.1% 656 8.2%
Variable leases 17.2% 821 15.5%
Total F&V and variable leases 10.5% 685 9.7%
ASSUMPTIONS APPLIED IN THE FORECAST
Assumptions
Basis and preparation
The FY2012 forecast includes actuals for the period July to December 2011 and
projections for January to June 2012. This forecast was reviewed by the Board
in February 2012 and has been included as the "FY 2012 forecast" for the
purposes of this announcement. Forecasts for two additional years (FY2013 and
FY2014) were prepared utilising the FY2012 forecast as the base and applying
the assumptions below. All forecasts are prepared on a "per property" basis
assessing the revenue and expenses at individual hotels. The fixed and
variable rentals payable by the tenants to the Fund are then calculated. Fund
expenses and finance costs are assessed for the respective periods resulting
in the computation of distributable earnings.
Investment Property portfolio
The forecast is based on the property portfolio as at the end of December 2011
and no acquisitions or disposals have been assumed. Other than a planned
refurbishment of 101 rooms at Radisson Blu Waterfront over a four-month period
ending August 2012 which has been factored into the forecast, all properties
have been assumed to be fully operational with no major refurbishments or
developments being undertaken.
Properties held for trading
No provision has been made for any sale of the residential erven arising from
the Arabella phase 2 development.
Economic indicators FY 2013 FY 2014
CPI forecast 5.80% 5.40%
GDP forecast 3.10% 3.70%
Interest rates Current Mar 2013 July 2013
Prime interest rate forecast 9.00% 9.50% 10.00%
3 month JIBAR forecast 5.58% 6.08% 6.58%
Interest rates Nov 2013 Mar 2014
Prime interest rate forecast 10.50% 11.00%
3 month JIBAR forecast 7.08% 7.58%
Rental income
Rental income for the fixed leases is based on contractual lease obligations
escalated by the appropriate CPI-linked escalation factor.
Rental income for the leases linked to F&V and variable rental income is based
on an analysis of the performance of the individual hotels.
FY 2012
Fixed Variable Total
Contractual 206 015 102 858 308 874
Non-contractual 11 280 - 11 280
217 296 102 858 320 154
FY 2013
Fixed Variable Total
Contractual 214 284 123 542 337 826
Non-contractual 12 278 253 12 531
226 562 123 795 350 357
FY 2014
Fixed Variable Total
Contractual 232 000 135 715 367 715
Non-contractual 13 414 682 14 096
245 414 136 397 381 811
Fund operating expenses
General head office expenditure was based on the 2012 forecast, growing by CPI
annually. Debt raising fees are expensed over the loan period.
Contingent liability
The dispute with the City of Johannesburg highlighted in the December 2011
interim results has not yet been resolved. The amount owing as at the end of
December of R13,0 million has not been expensed in the forecast.
Bad debts
The forecast for 2012 assumed a bad debt provision of R4,8 million in December
2011. An amount of R1,9 million was forecast for FY 2013, being the average
annual bad debt for the period 2006 to 2012. This amount was escalated by CPI
for FY 2014. Bad debts are accounted for under operating expenses.
Bridging finance
The Absa debt facility of R1,35 billion matured on 10 February 2012 and a six-
month bridge loan facility is assumed on the following terms:
- Bridge loan will be utilised for the period 10 February to 31 May 2012;
- Bridge loan interest rate assumed at prime +2% during this period;
- A debt restructure facility fee of R6,75 million payable to Absa will be
expensed in May 2012.
Rights issue
The forecast assumes a rights issue to the value of R500 million concluded by
end May 2012.
The effects on distribution, earnings and headline earnings per linked unit
will be disclosed in the rights issue circular together with the reporting
accountants` report thereon.
Finance costs
Nedbank
The term loans totalling R606 million expire in 2015 and 2016. Interest is
assumed throughout at JIBAR + 290 bps.
Current Nedbank facility to be fully drawn by May 2012.
Absa Bank
- Absa current facility - R1,35 billion to 10 February 2012 at existing
margins;
- Absa bridging facility for R1,35 billion from 10 February 2012 to 31 May
2012 at prime + 2%;
- Rights issue proceeds to be received on 31 May 2012;
- Refinanced term loans totalling R850 million to be concluded with various
banks through a club loan facility at JIBAR + 260 bps on conclusion of the
rights issue effective 1 June 2012;
- Current Absa access facility of R91 million. Rate to be lowered from prime
plus 2% to prime less 0.5% on securing term loans from June 2012;
- Where surplus cash is available this is invested in a call account at 6% per
annum
Interest rate derivatives
The Fund has three interest rate swaps in place amounting to R1 040 million:
- R337 million @ 7.42% expiring June 2013;
- R337 million @ 7.75% expiring June 2014;and
- R337 million @ 7.98% expiring June 2015;
(Nominal rates)
No further swaps have been factored in for the forecast period.
Capital expenditure
- Other than the budgeted capex on Radisson Blu, no provision has been made
for major refurbishments or redevelopments in the forecast period.
- Provision has been made for normal capital expenditure of R35 million in
FY2012 escalating at CPI for the remaining years of the forecast period.
Hotel rooms revenue
The individual hotel operators prepared detailed rooms revenue forecasts for
2012, analysing the properties` market segments, and projecting the
occupancies and average room rates (ARR) by month.
Occupancy
The 2012 occupancies per property were used as the base and room nights sold
have generally been increased annually by GDP. All properties have a terminal
occupancy. This occupancy is the theoretical maximum occupancy that each
property is likely to trade at during extended periods of high demand and is
based on historic maximum trading levels or STR area stats where historic
levels were not available or relevant.
Occupancies are assumed to grow by GDP until terminal occupancy levels are
achieved. On reaching this level, the trading volumes are assumed to remain
static for two years and then decline by 5% for one year, indicating
additional supply being introduced into the market in response to high demand.
With regards to the Courtyard portfolio, the current average occupancy level
of 42% for FY 2012 is significantly below market. This is at variance with the
historic trading performance which has been at least in line with the market.
Accordingly a higher than GDP growth in occupancy to 52% for FY2013 and 61%
for FY2014 has been assumed. This remains well below the terminal occupancy of
75% for this portfolio.
Average room rates
ARR`s grow by CPI annually up until terminal occupancy levels are achieved. On
reaching this level volumes stabilise and ARR is forecast to grow by CPI + GDP
indicating the higher rates that the market will be able to demand on the back
of limited supply.
A summary of occupancy, average room rates and RevPar for the forecast period
is contained elsewhere in the announcement.
This model has not recognised any growth in ARR through yield management on
the back of growing occupancies up to the level of the terminal occupancies
for the respective properties.
Hotel operating expenses
- Electricity costs take account of anticipated Eskom increases as well as
savings through efficiency measures that have been implemented.
- Hotel payroll expenses are forecast to grow by CPI + 2% to allow for
inflationary increases as well as higher occupancy.
Cautionary
Linked unitholders are reminded of the renewal of the cautionary as part of
the unaudited interim results for the six months ended 31 December 2011
published on SENS on 6 March 2012. Unitholders are advised to continue
exercising caution when dealing in the company`s securities until a further
announcement is made in this regard.
9 March 2012
Johannesburg
Corporate advisor
Java Capital
Sponsor
RAND MERCHANT BANK (a division of FirstRand Bank Limited)
Date: 09/03/2012 12:42:01 Produced by the JSE SENS Department.
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