The transaction is conditional on the restructure of Hospitality’s dual-class capital structure into a single share capital structure on a swap ratio of 3.5 B ordinary shares for every 1 A ordinary share. The purchase consideration will be settled through the issue of 145 million Hospitality shares. On completion of the transaction, Tsogo will hold more than 50% of Hospitality’s ordinary shares. 

In addition to enhancing Hospitality’s property portfolio with the injection of 10 successful and established hotel properties (“the Tsogo Portfolio”), the transaction also facilitates the restructure of the Company’s capital structure into a single share capital structure.

Hospitality has engaged with its shareholders who have indicated a high level of support for the conversion, which should enable the Company to more effectively deliver on its strategic objectives.

Historically, the differing interests of current A and B class shareholders has been a major impediment to the effective operation of Hospitality’s business. 

The introduction of the Tsogo Portfolio, being acquired debt free, will broaden the Company’s earning base and introduce additional stability through the relatively predictable cash flows generated by these properties. As a result of the transaction, Hospitality’s gearing ratio will drop from 36.2% to 26.9%, which, together with Hospitality’s greater scale and inclusion as part of the Tsogo Group, is expected to reduce the pricing of Hospitality’s future borrowings. 

Commenting on the acquisition, Gerald Nelson, on behalf of the Hospitality Property Fund Board explained: “We are pleased to have reached this agreement with Tsogo on the terms of the transaction, which supports our strategic objectives in terms of growing shareholder returns as well as achieving a sustainable capital structure. The Tsogo Portfolio has a carrying value of almost R1.8 billion, and is made up of 10 well-established hotel properties.

This will increase the Company’s number of rooms by 53% from 3,747 to 5,725 rooms and take the portfolio’s carrying value to some R6.8 billion. We believe that with its broadened property portfolio, Hospitality will be better positioned to deliver stronger returns in the future." 

In addition, Vincent Joyner, CEO of Hospitality Property Fund said: “This transaction delivers a mechanism to achieve our stated objective, dating back as far as 2011, of simplifying the capital structure, which has been a major impediment to growth, due to the differing objectives of our A and B class shareholders at various times.

The single share structure, with a high level of support from shareholders. to be implemented as part of the transaction, together with our reduced gearing ratio of 26.9% provide headroom to consider an attractive pipeline of acquisitions in the future, from Tsogo as well as third parties.”