South Africa’s first specialised listed property fund invested exclusively in hotels and resorts, Hospitality Property Fund, lists on the JSE today.

Hospitality is jointly promoted by Grapnel Property Group, which has assets in excess of R4 billion under management, including blue chip property unit trust Sycom, and Horwath Tourism and Leisure Consulting.

The listing comes after the significantly oversubscribed private placement of Hospitality Property Fund A and B linked units at R10 per linked unit for both in respect of R512 million. Applications received exceeded R3,9 billion, nearly eight times the amount on offer.

Gerald Nelson, MD of Grapnel Property Group, attributes Hospitality’s successful private placement to investors’ search for yield and is confident that the fund’s units will rerate after listing, which will create capital appreciation for investors with the long term yield remaining attractive.

“Hospitality’s aggregate yield of 10,55% is extremely favourable when compared to the listed property sector’s average forward yield of around 7,2%,” notes Nelson.

“Furthermore Hospitality will provide investors with the benefits of exposure to both the property and the hospitality sectors in South Africa, with a split unit structure catering for different investor profiles” points out Nelson.

Overall, the outlook for the hospitality sector is positive with tourism identified as the fastest growing industry in South Africa, while listed property was the top performing asset class of 2005 and has grown from a market capitalisation of R13 billion to R60 billion in three years.

This specialised listed fund consists entirely of stock that was previously unlisted, contributing to the overall market capitalisation of the sector. It includes a portfolio of 16 landmark hotels, independently valued at R1,11 billion. These are Mount Grace Country House & Spa, Champagne Sports Resort, Birchwood Executive Hotel and Conference Centre, Radisson SAS Waterfront, The Rosebank Hotel, Hotel The Winkler, Protea Hotel Marine Port Elizabeth, Protea Hotel Richards Bay, Protea Hotel East London and Courtyard (Sandton, Rosebank, Eastgate, Arcadia and Cape Town), Kopanong Hotel & Conference Centre, Park Inn Greenmarket Square.

The management of all these hotels, which were selected for inclusion in the portfolio as a result of the successful businesses they represent, will remain in place and the different hotels will retain their current unique identities and branding. 

Diversification in terms of geographic location, star grading, fixed and variable income, lease expiry profile, market mix and brands were important criteria in compiling the portfolio.

Joseph Aminzadeh of Horwath Tourism and Leisure explains that a high level of diversification was achieved in assembling the fund, with 3-, 4-, and 5-star hotels making up 33%, 45% and 22% of the portfolio respectively.

“In terms of market mix, patronage from the corporate and conference markets is the most stable and the leisure market, while the cream on top, is less predictable. As a result 68% of Hospitality’s portfolio has a corporate and conference profile,” points out Aminzadeh.

A financial year end of 30 June has been set for Hospitality which trades on the JSE under short names ‘Hosp A’ and ‘Hosp B’.

In terms of structure, both Hospitality A and B linked units will distribute 99,99% of net income. Hospitality A linked units will have a lower initial yield than the B linked units, but will have preferred claim to distributions.

The yield on the A linked units has been set at an initial annual yield of 9,8%. Thereafter the distribution on the A linked units will grow at 5% per annum for the first six years. After year 6, the distribution on the A linked units will grow at the lesser of 5% per annum or CPIX.

Hospitality B linked units will receive the residual net income after settlement of the A linked unit distribution entitlement and are anticipated to achieve an initial annualised yield of 11,3%.

Hospitality has also created the opportunity for a broad based BEE ownership initiative.

“The fund subscribes to the provisions of the draft Property Sector Transformation Charter and as a part of the listing, an empowerment ownership scheme with a black majority ownership has been set up with Nobuntu Investments which will own 14% of A linked units at listing,” explains Nelson. “This equates to 7% of the fund’s units in issue which makes strides towards complying with the draft charter’s five year ownership target.”

Subscriptions from empowered entities in terms of the private placing result in Hospitality’s BEE ownership component increasing to approximately 15%.

Nobuntu, a majority black-owned company, is held by Meago (Proprietary) Limited, Khomelela Property Investments (Proprietary) Limited (37.4% each) and Grapnel (25.2%). Meago is in turn held by BEE groups with broad business experience. Khomelela was founded in 2004 by eight women and is an organisation dedicated to women’s empowerment.

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Issued on behalf of:

Hospitality Property Fund
Gerald Nelson
Tel. +27 (0)11 775  6424

Or

Joseph Aminzadeh
T: +27 (0)21 469 1300

By Marketing Concepts
Sandy Davey / Bronwen Noble
Tel. +27 (0)11  783 0700
C: 083 453 6668 / 082 855 4349