18,3% distribution growth for Hospitality Property Fund B-linked unit investors

Posted On Thursday, 21 August 2008 02:00 Published by eProp Commercial Property News
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Hospitality Property Fund continues to exceed expectations on the back of favourable South African tourism and leisure conditions

Gerald NelsonThe JSE listed property loan stock company which invests exclusively in hotel and leisure properties has announced robust distribution growth of 18,3% for its B-linked units for its financial year ended 30 June 2008.

Its units in issue comprise A- and B-linked units, with A-linked units having a preferential claim to earnings with capped growth of 5% , whilst the B-linked units receive the balance of earnings.

The A-linked unit distributions amount to 105.49 cents per unit, which is in line with the company’s distribution structure. The B-linked unit distribution equates to 166.16 per unit, which represents a growth in distribution of 18,3% over the previous year.

South Africa’s economic growth prospects reduced significantly during the latter half of the company’s financial year, mainly due to electricity supply constraints, rising fuel prices and increasing inflation rates. In addition to this, the value of listed property stocks was adversely affected by higher interest rates.

Hospitality Property Fund CEO Gerald Nelson notes that the foreign tourism climate remains positive, however, with international tourist arrivals in South Africa continuing to grow at a significantly higher rate than tourist arrivals globally.

All of Hospitality’s properties were fully let during the year and its interests in 22 hotel and resort properties in South Africa were independently valued at R2,3 billion as at 30 June 2008. The average lease period is 8.4 years.

Hospitality acquired interests in four properties during the period, for a total consideration of R260 million. These properties were independently valued at R312 million, representing a valuation surplus of 20% on acquisition.

The acquisitions include an extension to the Birchwood Hotel & Conference Centre, the Hluhluwe Hotel & Safaris, the remaining 32% share in the Park Inn Greenmarket Square, the remaining 35% shareholding in 90 units at the Radisson Hotel Waterfront, and the ONE wellness Spa located at the Radisson Hotel Waterfront. The acquisitions are expected to be growth enhancing for Hospitality.

Subsequent to the year end, Hospitality entered into an agreement to acquire the 4-star hotel “Holiday Inn Sandton – Rivonia Road” adjacent to the Village Walk Shopping Centre for a total purchase consideration of R400 million. The property was independently valued at R470 million, representing a 17,5% valuation surplus on acquisition. The 301-key hotel which is currently under construction is expected to be completed during September 2008. The purchase will become effective once the hotel is fully operational.

Nelson reports that Hospitality has committed significant funds to expanding, re-developing and refurbishing a number of properties in the portfolio to strategically position these to maximise long term growth. The combined capital value of these projects is approximately R500 million, the majority of which will be completed during the coming financial year and, on aggregate, they will be initially earnings neutral, but growth enhancing.

“The redevelopment of The Rosebank Hotel is nearing final completion and the hotel has commenced trading. Total capital costs incurred in the development project, including the construction of a Seven Colours branded spa, are approximately R295 million,” reports Nelson.

Hospitality’s Mount Grace Country House & Spa is currently being expanded and refurbished at an estimated capital cost of R130 million. The development will be fully completed during the second half of the coming financial year.

Other projects currently being undertaken include: the refurbishment and repositioning of The Winkler Hotel and The Bayshore Inn, and the refurbishment of The Richards Hotel and the Protea Hotel Richards Bay. Other projects currently under review are: the expansion of the Imperial Hotel, and the refurbishment of the Protea Hotel Victoria Junction, the Protea Hotel Marine and the Protea Hotel Hazyview.

“The comprehensive resource overlay of both hotel and asset management has benefited Hospitality in terms of value extraction,” says Nelson. “Despite the challenging trading climate, Hospitality’s diverse portfolio, with a high domestic corporate consumer base, is well positioned to deal with a slowdown in economic growth.”

As at the end of the reporting period 61 591 087 A-linked units and an identical number of B-linked units were in issue. An additional 15 903 352 both A- and B-linked units were issued in respect of a successfully concluded R500 million rights issue in October 2007 to fund various capital projects and acquisitions.

Hospitality’s black economic empowerment (BEE) partners currently hold some 22,6% of linked units in issue, both through BEE structures and direct shareholding.

The company’s weighted average cost of debt during the reporting period was 9,4% and the effective gearing level as at 30 June 2008 was 12,4%. “Net finance costs reduced significantly due to the cash raised in the rights issue not being fully utilised during the financial year,” explains Nelson. At the close of the financial year, the fund had an unutilised debt facility of R312 million, with the ability to increase this facility to R615 million.

The net asset value (NAV) per combined Hospitality linked unit equates to 1,562c, which represents a year-on-year increase of 17%. At the close of the financial year, the combined units were trading at an 18.2% discount to the NAV.

“Whilst the coming financial year is likely to present challenges, Hospitality is well placed to benefit from the positive climate in the hotel industry, as well as from the repositioned and newly refurbished hotels within the portfolio,” says Nelson.

 

Last modified on Monday, 21 April 2014 11:43

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