unaudited condensed consolidated interim results for the ... · as a result of the transaction, the...

Salient features• CompletionofTsogoSuntransaction• Completionofcapitalrestructure• Improvedcreditrating• RentalincomeincreasestoR302.7million• ProfitbeforedistributionincreasestoR197.5million

IntroductionThesixmonthsunderreviewsawthecompletionoftheTsogoSunHoldingsLimitedtransaction (“the Transaction”) as well as the restructure of the Company’s dual-classsharecapitalstructuretoasingle-classsharecapitalstructure,intheratioofoneordinaryshareforeveryA-shareheldandoneordinaryshareforevery3.5B-sharesheld(“the Restructure”).

The injection of 10 hotel properties resulting from the Transaction (the “Tsogo portfolio”) has diversified the spread of the Fund’s assets geographically and acrossthehotelgradingspectrum,broadening itsearningsbase. ItalsoprovidesHospitalitywithexcitingfuturegrowthprospectsandanattractivepipelineofacquisitionsinthemedium-term.

The Restructure resulted in the alignment of the previous A- and B shareholders’objectives.

OnconclusionoftheRestructureandinlinewiththeFund’sthendual-classdistributionpolicy,A-shares received a cleanoutdividendof 9.29 centsper share for theperiod1 July2016to31August2016.HospitalityordinarysharescontinuetotradeundertheJSEsharecodeHPB.

Trading environmentHospitality achieved a 46% improvement in distributable earnings to R197 million(2015: R135 million), impacted largely by theTransaction contributingR67million todistributableearnings,forfourmonthsfrom1September2016.Distributableearningsincreasedby8%onalike-for-likebasisadjustedfortheimpactoftheTransactionanddisposalofcertainproperties.

Dividends for the fourmonths to31December2016 amounted to56.09 cents perordinaryshareandarenotcomparabletothesixmonthsended31December2015asaresultoftheTransaction,theRestructureincludingthecleanoutdividendandthedisposaloftheInnontheSquareduringtheperiod.

Hospitality’s turnover isdependenton theunderlyinghotel tradingbusinessesand isexposedtoitscyclicalnature.Thesixmonthsto31December2016includesarobustsummerperiodfortheWesternCape.

A4% increase in foreignarrivalsduring the2016/2017holidayperiod supported theSouthAfricanhospitalitysector,however,domesticdemandremainssubduedasaresultoftheuncertainmacro-economicclimateandweakbusinesssentiment.

According to theSTRGlobal SouthAfricaHotelReview,SouthAfricanoccupanciesincreased by 1.0 percentage point to 66.7% and average daily rateswere up 8% toR1 183, resulting in revenueperavailable room(“RevPAR”)growthof10%toR789for the sixmonths to 31 December 2016. The Fund’s portfolio including the TsogoportfolioreflectedforthefourmonthstoDecemberandexcludingthepropertiessold,anoccupancy increaseof0.4 percentagepoints to65.9%andan averagedaily ratesincreaseof5%toR1229,resultinginaRevPARgrowthof5%toR810fortheperiod.

ResultsRental income for the Fund increased by 28% to R303million (2015: R236million),includingtheimpactoftheTsogoportfolioandthedisposaloftheInnontheSquare(effective21 November2016).Like-for-likerental income(adjustedforthe impactoftheTsogoportfolioandthedisposalofinvestmentproperties)grew3%toR225million.

Rental income from the Western Cape hotel properties grew as domestic andinternationaltravellersweredrawntotheregion.Theconferenceportfolio(propertiesgenerating revenuepredominantly fromconference facilities and foodandbeverage)wasunderpressureduetoreducedpublicsectortravelandthefocusbytheprivatesectortoreducecosts.

The Fund’s expenses were up 26% to R26 million (2015: R21.0 million). A one-offexpense of R8 million was incurred with the restructure of the asset managementdivisionandtheterminationcostsofthepreviousCEO,inlinewiththechangeofcontrolclausecontainedinhiscontractofemployment.Netoftheserestructurecosts,theFundachievedan11%reductioninexpenses.

NetfinancecostsofR78million(2015:R80million)reducedinlinewithdebtlevels.

The following table reflects theoperating financial results for the sixmonths ended31 December2016comparedtothecorrespondingpreviousfinancialperiod:Summary of operating results for the six months ended 31 December

Actual 2016

R’000

Actual2015R’000

VarianceR’000

Variance%

Rentalincome 302 678 236067 66611 28Fundexpenses (26 447) (20953) (5494) (26)Netfinancecost (78 789) (79817) 1028 1Incomefromassociates 10 144 (134) (93)Profitbeforedistribution 197 452 135441 62011 46Distribution (197 452) (135441) 62011 (46)Distribution per share classA-share (13 406)(1) (111093) (97687) (88)B-share – (24348) (24348) (100)No par value ordinary shares (184 046) – 184046 100Distribution comparative to prior years(1) Clean out dividend as at 31 August 2016.

Actual 2016

Actual2015 Variance

Variance%

Distribution–A-share(cents) 9.29 77.00 (67.71) (88)Distribution–B-share(cents) – 16.87 (16.87) (100)Dividend–noparvalueordinaryshares 56.09 – 56.09 100

FundingHospitality’sdebtfacilitieswithfinancialinstitutionsasat31December2016amountedtoR2.0billion.TotaldrawnfacilitieswereR1.7billionresultinginaloantovalue(“LTV”)ratio(totalinterest-bearingliabilities/investmentpropertiespluspropertiesheldforsale)of22.1%(2015: 34.9%).ThereductioningearingismainlyasaresultoftheacquisitionoftheungearedTsogoportfolio.Theinterestcoverratioimprovedto3.5times(2015:2.7 times),wellabovetherequireddebtcovenantlimitof2.0times.

Theweightedaveragecostofdebtwas9.5%(2015:9.5%)fortheperiodunderreview,with64%oftheGroup’sborrowingsbeinghedged.

The Fund agreed terms on a bridging facility from Rand Merchant Bank (“RMB”),servingasaninterimrefinancingsolutionforcurrentnotesofR600millionthatexpireinFebruary2017.

InOctober2016,GlobalCreditRatingsupgradedtheFund’screditratingtolong-termBBB+

(ZA)fromBBB(ZA)whileitsshort-termratingwasupgradedfromA3(ZA)toA2(ZA).

Property portfolio TheFund’sportfoliocomprisesofinterestsin24hotelandresortpropertiesinSouthAfrica.Theweightedaverageleaseexpiryperiodis12.9years(2015:10.8years).Asat31December2016,thecarryingamountoftheportfoliowasR7.8billionandthenetassetvalue(“NAV”)perordinaryshareamountedtoR19.57.Themarketvalueperordinaryshareat31 December2016tradedata32%discounttotheNAV.

Acquisitions and disposals

Todate,theFund’sinvestmentstrategyhasbeentoinvestinwell-located,largehotelsinmajorurbancentreswithstrongbrandsanddiversesourcemarkets.TheTransaction,which was approved by the Competition Tribunal on 10 August 2016 and becameeffective from1 September 2016, provided additional scale to the current portfolioand presents opportunities for further growth in line with the Funds’ propertyinvestmentstrategy.TheFundcontinuallyinvestigateslong-termgrowthandinvestmentopportunities.

Eight properties, which did not meet the Fund’s investment strategy, have beendisposedofinthelast18months.TheInnontheSquare,wasdisposedofforatotalcashconsiderationofR157millionon21November2016.

TheTsogoportfoliocomprisesof10establishedhotelproperties,whicharewelllocatedwithintheirrespectivenodes.ThepropertiesacquiredwereSouthernSunBloemfontein;Southern SunNewlands; Sunsquare Cape Town; Garden Court Kimberley; GardenCourtMilpark;GardenCourtORTambo;GardenCourtPolokwane;GardenCourtSouthBeach;StayEasyCenturyCityandStayEasyRustenburg.

Developments and capital projects In order tomaintain the appeal of its properties the Fund continually upgrades andinvestsinitshotels.TotalcapitalexpenditureamountedtoR33millionduringtheperiod.

ProspectsTheoutlookforthedomesticeconomyin2017isslightlyimproved,butremainsvolatile.Inflationisexpectedtoremainatcurrentlevels,withongoingpressureonhoteloperatingandadministeredcosts.Thecontinued stabilityof theRand, albeit at stronger levelsagainstmajorcurrenciesprovidessupportforthevaluepropositionoftheSouthAfricantourismsectortointernationaltourists.Demandforconferencingremainsmutedbothinthepublicandprivatesectorduetocontinuedausterityindiscretionaryspending.

TheFundcontinuestoassessvalueaccretivepropertyacquisitions,bothwithinTsogo’sexistingportfolioandexternalopportunitiestoincreasetheFund’scriticalmass.Themost significant of these would involve a proposed acquisition of additional hotelsfromTsogo,fundedthroughacombinationofdebtandequity.Accordingly,subjecttotheconclusionof formalagreements inrespectof theproposedacquisitionsandthesecuringofanynecessaryshareholderapprovals,theFundispreparingtoundertakeanunderwrittenrightsoffertoraiseapproximatelyR1.8billionatofferpricingbasedonthethenprevailingmarketpriceoftheFund’sshares.TheFundisalsonegotiatingafurtherincreaseindebtfacilities.Furtherdetailedannouncementsinthisregardwillbemadeinduecourse.

Board of DirectorsOn 1 September 2016, John Copelyn, Zibusiso Kganyago, Laurelle McDonald,Rob Nicolella andMarcel vonAulockwereappointedasnon-executivedirectors totheBoard.

Witheffectfrom30November2016,JohnCopelynwasappointedasChairmanoftheBoard,replacingDonBowdeninthatcapacity.DonBowdencontinuestoserveasanindependentnon-executivedirectorandassuchtheGroupwillcontinuetobenefitfromhisknowledgeandexpertise.LindadeBeerinhercapacityasindependentdirector,wasappointedasleadindependentdirector.

VincentJoyner’sterminationasChiefExecutiveOfficer(“CEO”)andamemberoftheBoardofHospitalitywasannouncedwitheffectfrom31December2016.KeithRandallwasappointedtothepositionofCEOeffectivefrom1January2017.MaradeLimawasappointedasFinancialDirector,effective30September2016.

Change of year-endHospitalityhaschangeditsyear-endfromJunetoMarchtoalignwiththatofitsmajorshareholder,TsogoSun.Resultsfortheyearending31March2017areexpectedtobereleasedonSENSonoraboutWednesday,24May2017.

Dividend paymentThe Board has approved and notice is hereby given of a gross dividend paymentnumber 22 of 56.090 cents per ordinary share for the four-month period ended31 December 2016.

InaccordancewithHospitality’sREITstatus,shareholdersareadvisedthatthedividendmeetstherequirementsofa“qualifyingdistribution”forthepurposesofsection25BBoftheIncomeTaxAct,No.58of1962(“Income Tax Act”).

Thenumberofsharesin issueatthedateofthedividenddeclarationis330509919ordinaryshares(forthepurposesofthedividenddeclaration,2377256ordinaryshareshavebeenexcludedfromthedividendpayment,duetodissentingshareholderrightshavingbeenexercised).

Local tax residents

Qualifyingdistributions receivedby local tax residentsmustbe included in thegrossincomeofsuchshareholders(asanon-exemptdividendintermsofsection10(1)(k)(aa)oftheIncomeTaxAct),withtheeffectthatthequalifyingdistributionistaxableasincomein thehandsof the shareholder.Thesequalifyingdistributions are, however, exemptfromdividendwithholdingtaxinthehandsofSouthAfricantaxresidentshareholders,providedthattheSouthAfricanresidentshareholdersprovidedthefollowingformstotheirCentralSecuritiesDepositoryParticipant(“CSDP”)orbroker,asthecasemaybe,inrespectofuncertificatedshares,ortheCompany,inrespectofcertificatedshares:

a. adeclarationthatthedistributionisexemptfromdividendstax;and

b. awrittenundertaking to inform theCSDP,brokeror theCompany, as the casemaybe,shouldthecircumstancesaffectingtheexemptionchangeorthebeneficialowner cease to be the beneficial owner, both in the form prescribed by theCommissionerfortheSouthAfricanRevenueService.ShareholdersareadvisedtocontacttheirCSDP,brokerortheCompany,asthecasemaybe,toarrangefortheabovementioneddocumentstobesubmittedpriortopaymentofthedistribution,ifsuchdocumentshavenotalreadybeensubmitted.

Non-resident

Qualifying distributions received by non-resident shareholders will not be taxableas incomeandinsteadwillbetreatedasordinarydividendsbutwhichareexempt intermsof theusualdividendexemptionsper section10(1)(k)of the IncomeTaxAct.It should be noted that until 31December 2013 qualifying distributions received bynon-residentswerenotsubjecttodividendwithholdingtax.From1January2014,anyqualifyingdistributionreceivedbyanon-residentfromaREITwillbesubjecttodividendwithholdingtaxat15%,unlesstherateisreducedintermsofanyapplicableagreementfortheavoidanceofdoubletaxation(“DTA”)betweenSouthAfricaandthecountryofresidenceoftheshareholder.Assumingdividendwithholdingtaxiswithheldatarateof15%,thenetamountduetonon-residentshareholderswillbe47.67650centsperordinaryshare.AreduceddividendwithholdingtaxrateintermsoftheapplicableDTA,mayonlybereliedonifthenon-residentshareholderhasprovidedthefollowingformstotheirCSDPorbroker,asthecasemaybe,inrespectofuncertificatedshares,ortheCompany,inrespectofcertificatedshares:

a. a declaration that the dividend is subject to a reduced rate as a result of theapplicationofaDTA;and

b. awrittenundertakingtoinformtheirCSDP,brokerortheCompany,asthecasemaybe,shouldthecircumstancesaffectingthereducedratechangeorthebeneficialowner cease to be the beneficial owner, both in the form prescribed by theCommissionerfortheSouthAfricanRevenueService.Non-residentshareholdersareadvisedtocontacttheirCSDP,brokerortheCompany,asthecasemaybe,toarrangefortheabovementioneddocumentstobesubmittedpriortopaymentofthedistributionifsuchdocumentshavenotalreadybeensubmitted, ifapplicable.Shareholdersarerequestedtoseekprofessionaladviceontheappropriateactiontotake.

Thedividend ispayabletoHospitalityshareholders inaccordancewiththetimetablesetoutbelow:

Last day to trade cum dividend Tuesday, 28 February 2017Shares will trade ex-dividend Wednesday, 1 March 2017Record date Friday, 3 March 2017Payment date Monday, 6 March 2017

ShareholdersmaynotdematerialiseorrematerialisetheirsharesbetweenWednesday,1 March2017andFriday,3March2017,bothdaysinclusive.

PaymentsofthedividendwillbemadetoshareholdersonMonday,6March2017.Inrespectofdematerialisedshares,thedividendwillbetransferredtotheCSDPaccounts/brokeraccountsonMonday,6March2017.Certificatedshareholders’dividendwillbedepositedonoraboutMonday,6March2017.

Income tax reference number9770/799/1/47

ByorderoftheBoard

JA Copelyn KG Randall(Chairman) (Chief Executive Officer)

Approved by the board:9February2017

Released on SENS: 10February2017

Directors: JA Copelyn (Chairman)*, L de Beer*# (Lead Independent Director),KG Randall (CEO), MR de Lima (FD), DG Bowden*#, ZJ Kganyago*,ZN Kubukeli*#,SAHalliday*#,LMcDonald*,JR Nicolella*,GA Nelson*#,ZNMalinga*#,WCRoss*#,MNvonAulock*

* Non-executive # Independent

Registered Office: TheZone2,LoftOfficesEastWing,2ndFloor,CnrOxfordRoadandTyrwhittAvenue,Rosebank,2196

Tel:+27119946320

Web:www.hpf.co.za

Company Secretary:LRvanOnselen

Sponsor: JavaCapital

Hospitality Property Fund Limited (Incorporated in the Republic of South Africa)

(Registration number 2005/014211/06) JSE share code: HPB

ISIN for ordinary shares: ZAE000214656(Approved as a REIT by the JSE)

(“Hospitality” or “the Company” or “the Fund”)Unaudited condensed

consolidated interim results for

the six months ended 31 December 2016 and cash dividend

declaration.

BASIS OF PREPARATION AND ACCOUNTING POLICIES

Theseresultswerepreparedunderthesupervisionof theFinancialDirector,MaradeLimaCA(SA).

Theunauditedcondensedconsolidatedinterimfinancialstatementsforthesixmonthsended31December2016arepreparedinaccordancewithInternationalFinancialReportingStandard(“IFRS”),IAS34:Interim Financial Reporting,theSAICAFinancialReportingGuidesasissuedbytheAccountingPracticesCommitteeandtheFinancialPronouncementsas issuedbytheFinancialReporting StandardsCouncil, the JSEListingsRequirements and the requirementsof theCompanies Act of South Africa. The accounting policies applied in the preparationof these interim financial statements are in terms of International Financial ReportingStandardsandareconsistentwiththoseapplied inthepreviousannual financialstatements.PricewaterhouseCoopers Inc., the independent auditor, has not reviewedor audited thesefinancialstatements.

Thedirectorsarenotawareofanycircumstancesormattersarisingsubsequenttotheperiod-endthatrequireanyadditionaldisclosureoradjustmenttothefinancialstatements.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEforthesixmonthsended31December2016

Unaudited31 Dec

2016R’000

Unaudited31Dec2015R’000

Audited30Jun2016R’000

Revenue 302 678 235 587 474 328

Rentalincome –contractual 302 678 236 067 474 553

–straight-lineaccrual – (480) (225)

Operating expenses (26 447) (20 953) (44 852)

Operating profit 276 231 214 634 429 476

Net finance cost (78 789) (79 817) (158 085)

Financeincome 11 232 4 499 12 737

Financecosts (90 021) (84 316) (170 822)

Profit/(loss) on sale of investment properties (Note 1) 36 132 (3 121) (13 556)

Fair value adjustments (2 049) 18 619 245 412

Investmentproperties,beforestraight-liningadjustment(Note1) 1 680 – 251 024

Straight-linerentalincomeaccrual – 480 225

Totalfairvalueofinvestmentproperties 1 680 480 251 249

Goodwillimpairment – – (12 000)

Interestrateswaps (3 729) 18 139 6 163

Profit before taxation 231 525 150 315 503 247

Debenture discount amortisation – (2 313) (2 313)

Equity accounted profit from associate after tax 10 144 264

Taxation – – (9)

Total profit and comprehensive income for the period 231 536 148 146 501 189

Reconciliation between earnings, headline earnings and distributable earnings

Total profit and comprehensive income for the period 231 536 148 146 501 189

Adjustments:

(Profit)/lossonsaleofinvestmentproperties(Note1) (36 132) 3 121 13 556

Goodwillimpairment – – 12 000

Impairmenttofurniture,fittingandequipment – – 265

Lossondisposaloffurniture,fittingandequipment – – 7

Fairvalue–investmentpropertiesrevaluation(Note1) (1 680) – (251 024)

Fairvalue–straight-linerentalincome – (480) (225)

Headline earnings (shares/linked units) 193 723 150 787 275 768

Fairvalue–interestrateswaps 3 729 (18 139) (6 163)

Debenturediscountamortisation – 2 313 2 313

Impairmenttofurniture,fittingandequipment – – (265)

Lossondisposaloffurniture,fittingandequipment – – (7)

Straight-linerentalincome – 480 225

Distributable earnings 197 452 135 441 271 871

Number of share linked units

A-shares – 144 285 503 144 285 503

B-shares – 142 315 793 133 995 396

–Sharesinissue – 144 285 503 144 285 503

–HPFEmployeeIncentiveTrustshares – (1 969 710) (1 969 710)

–Shareholderredemption – – (8 320 397)

No par value ordinary shares* 327 569 888 – –

–Sharesinissue 330 509 919 – –

–HPFEmployeeIncentiveTrustshares (562 774) – –

–Shareholderredemption (2 377 256) – –

Weighted average number of shares

A-shares – 142 380 569 144 285 503

B-shares – 140 506 693 135 154 796

–Sharesinissue – 142 380 569 144 285 503

–HPFEmployeeIncentiveTrustshares – (1 969 710) (1 969 710)

–Shareholderredemption – – (7 160 997)

No par value ordinary shares* 327 569 888 – –

–Sharesinissue 330 509 919 – –

–HPFEmployeeIncentiveTrustshares (562 774) – –

–Shareholderredemption (2 377 256) – –

Distribution per share (cents)

A-shares 9.29 77.00 155.62

– Interim 9.29 77.00 77.00

– Final – – 78.62

B-shares – 16.87 34.81

– Interim – 16.87 16.87

– Final – – 17.94

9.29 93.87 190.43

No par value share 56.09 – –

– Interim 56.09 – –

– Final – – –

56.09 – –

Earnings and diluted earnings per share (cents)

A-shares – 52.39 179.35

B-shares – 52.39 179.35

No par value ordinary shares* 59.14 – –

59.14 104.78 358.70

Headline earnings and diluted headline earnings per share (cents)

A-share – 53.32 98.69

B-share – 53.32 98.69

No par value ordinary shares* 59.14 – –

59.14 106.64 197.38

*The result of the restructure of the Company’s dual-class share capital structure to a single-class.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITIONasat31December2016

Unaudited31 Dec

2016R’000



ASSETS

Non-current assets 7 836 211 4 901 812 5 174 459

Investmentproperties(Note2) 7 817 008 4 873 266 5 169 000

Straight-linerentincomeaccrual – (255) –

Investmentpropertiesandrelatedaccrual 7 817 008 4 873 011 5 169 000

Furniture,fittingsandequipment 256 558 180

Goodwill 16 003 12 000 –

Derivativeasset 2 616 16 046 4 961

Investmentinassociates 328 197 318

Current assets 508 701 484 753 404 128

Non-currentassetsheldforsale 88 475 216 721 129 491

Propertiesheldfortrading – 22 309 22 643

Derivativeasset 490 – 699

Tradeandotherreceivables 61 845 50 839 57 035

Cashandcashequivalents 357 891 194 884 194 260

Total assets 8 344 912 5 386 565 5 578 587

EQUITY AND LIABILITIES

Equity 6 468 207 3 537 049 3 732 253

Statedcapital(Note3) 5 565 258 2 934 087 2 909 957

Retainedearnings 192 343 127 675 107 961

Fairvaluereserve 710 606 475 287 714 335

Non-current liabilities 1 047 632 1 547 863 1 126 540

Interest-bearingliabilities 1 045 492 1 547 863 1 125 063

Derivativeliability 2 140 – 1 477

Current liabilities 829 073 301 653 719 794

Tradeandotherpayables 124 320 71 653 95 552

Short-termportionofinterest-bearingliabilities 680 000 230 000 600 000

Provisionforshareholderredemption(Note4) 24 129 – 24 129

Derivativeliability 624 – 113

Total equity and liabilities 8 344 912 5 386 565 5 578 587

Net asset value per share (Rand)

A-share – 11.24 11.74

B-share – 11.24 11.74

No par value ordinary shares 19.57 – –

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYforthesixmonthsended31December2016

Share capital R’000

Share premium

R’000

Stated capitalR’000

Retained earnings

R’000

Fair value reserve

R’000

Treasury share

reserveR’000

TotalR’000

Balance at 1 July 2015 28 515 903 – (2 332) 457 148 – 970 747

Totalprofitandcomprehensiveincomefortheperiod – – – 148 146 – – 148 146

Transactionswithowners,recordeddirectlyinequity (28) (515 903)2 934 087 (18 139) 18 139 – 2 418 156

Conversionofparvaluesharesintonoparvalueshares (28) (515 903) 515 931 – – – –

Conversionofdebenturesintostatedcapital – – 2 418 156 – – – 2 418 156

Transfertofairvaluereserve–investmentproperties – – – – – – –

Transfertofairvaluereserve–interestrateswaps – – – (18 139) 18 139 – –

Balance at 31 December 2015 – – 2 934 087 127 675 475 287 – 3 537 049

Balance at 1 July 2016 – – 2 919 952 107 961 714 335 (9 995) 3 732 253

Totalprofitandcomprehensiveincomefortheperiod – – – 231 536 – – 231 536

Transactionswithowners,recordeddirectlyinequity – – 2 655 301 (147 154) (3 729) – 2 504 419

Transactioncosts(capitalrestructureandTsogotransaction)(Note3.4) – – (17 992) – – – (17 992)

Issueof145000000noparvalueordinaryshares(Note3.1) – – 2 673 293 – – – 2 673 293

Dividendpaid–finalfor30June2016year-end – – – (137 476) – – (137 476)

Dividendpaid–clean-outdividendregardingtheTsogotransaction – – – (13 407) – – (13 407)

Transfertofairvaluereserve–interestrateswaps – – – 3 729 (3 729) – –

Balance at 31 December 2016 – – 5 575 253 192 343 710 606 (9 995) 6 468 207

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWSforthesixmonthsended31December2016

Unaudited31 Dec

2016R’000



Cash flows from operating activities

Cashgeneratedfromoperations 199 248 221 117 453 473

Financeincomereceived 11 232 4 499 12 737

Financecostspaid (90 021) (84 316) (170 822)

Taxation – (100) (109)

Distributiontoshareholders (150 883) (113 852) (247 561)

Netcash(outflow)/inflowfromoperatingactivities (30 423) 27 348 47 718

Cash flows from investing activities

Acquisitionanddevelopmentofinvestmentproperties(Note2) (32 885) (78 773) (131 157)

Disposalofinvestmentproperties 157 000 122 148 206 362

Acquisitionoffurnitureandequipment (116) (178) (202)

Acquisitionofsubsidiary,netofcashacquired(Note3.2) 88 047 – –

Dividendsreceivedfromassociates – 200 200

Netcashinflowfrominvestingactivities 212 046 43 397 75 203

Cash flows from financing activities

Interest-bearingliabilitiesraised – – 232 200

Unaudited31 Dec

2016R’000



Interest-bearingliabilitiespaid – (80 011) (365 011)

Transactioncosts (17 992) – –

Netcashoutflowfromfinancingactivities (17 992) (80 011) (132 811)

Netincrease/(decrease)incashandcashequivalents 163 631 (9 266) (9 890)

Cashandcashequivalentsatbeginningoftheperiod 194 260 204 150 204 150

Cash and cash equivalents at end of year the period 357 891 194 884 194 260

CONDENSED CONSOLIDATED SEGMENTAL INFORMATIONforthesixmonthsended31December2016

Informationregardingtheresultsofeachreportablesegmentisincludedbelow.Performanceis measured based on operating profit before finance costs, as included in the internalmanagementreportsthatarereviewedbytheGroup’sCEO.Segmentprofitisusedtomeasureperformanceasmanagementbelievesthatsuchinformationisthemostrelevantinevaluatingtheresultsofcertainsegmentsrelativetootherentitiesthatoperatewithintheseindustries.Inter-segmentpricingisdeterminedonanarm’slengthbasis.

–Traditional portfolio: Properties on which revenue is generated predominately fromoccupation.

–Conference portfolio: Properties on which revenue is generated predominately fromconferencefacilitiesandfoodandbeverage.

– Head office:HeadofficerepresentsallthecostsatFundlevelandisreviewedseparatelyfromthepropertyportfolio

UnauditedDec2016

R’000

UnauditedDec2015R’000

AuditedJun

2016R’000

Total assets

Traditionalportfolio 7 139 643 4 324 014 4 504 625

Conferenceportfolio 765 840 771 532 849 982

HeadOffice 439 429 291 019 223 980

8 344 912 5 386 565 5 578 587

Rental revenue

Traditionalportfolio 272 412 201 951 412 261


302 678 236 067 474 553

Profit for the period

Traditionalportfolio 272 412 201 951 412 261


Headoffice (26 447) (21433) (45077)

276 231 214634 429 476

CONDENSED CONSOLIDATED NOTES TO THE FINANCIAL STATEMENTforthesixmonthsended31December2016

1. Profit on sale of Investment Property

The Inn on the Square was disposed of for a cash consideration of R157 million on21 November2016.ThefairvalueofthepropertyatthedateofsalewasR107.6millionandabreakfeeofR12millionwaspaidtothemanagementcompanyasaresultofthesale.TheprofitrealisedonthesaleamountedtoR35.6million.OtherprofitrealisedonthesaleofFF&EassetsintheperiodamountedtoR0.5million.

31 Dec 2016R’000

2. Investment property

Openingbalance 5 169 000

AcquisitionofFezisourceatfairvalue 2 657 717

AdditionstoInvestmentProperty 32 885

Revaluationofproperty(InnontheSquarepriortosale) 1 680

DisposalofInvestmentProperty (107 639)

TransferofInvestmentProperty 63 365

Closingbalance 7 817 008

3. Acquisition of subsidiary

On 1 September 2016, the Fund acquired the entire share capital of Fezisource (Pty)Ltd from Southern Sun Hotels (Pty) Ltd, in consideration for which, the Fund issued145 000 000noparvalueordinarysharesunderthenewsinglesharecapitalstructuretoSouthernSunHotels(Pty)LtdthevalueofwhichisR2673293.Hadtheeffectivedateof the acquisition been1 July 2016, the incremental revenuewould have amounted toR29.5 million.Profitwouldhaveremainedthesameastherewerenoassociatedcosts.

31 Dec 2016R’000

3.1 Purchase consideration

Issueof145000000noparvalueordinaryshares 2 673 293

3.2 Effect on cash flows of the Group

Cashandcashequivalents 503

Callaccount 87 545

Cashinflowonacquisition 88 047

3.3 Identifiable assets acquired and liabilities assumed

Cashandcashequivalents 503

Callaccount 87 545

Investmentproperty 2 657 717

Tradeandotherreceivables 12 963

Total assets 2 758 728

Tradeandotherliabilities 101 437

Total liabilities 101 437

Total identifiable net assets 2 657 290

Add: Goodwill 16 003

Purchase consideration 2 673 293

3.4 Acquisition related costs

Transaction costs of R17.99 million were incurred with respect to the share capitalrestructure.Thetransactioncostisrecognisedinstatedcapitalasshownonthestatementofchangesinequity.

4. Provision for Shareholder Redemption

Theprovisionrelatestothedissentingshareholderappraisalrights.TheBoarddeterminedafairvalueofR2.90perappraisalshare,whichamountstoatotalfairvalueofR24.1million.In termsofsection164(14)(b), thedissentingshareholdershaveappliedtothecourt todetermineafairvalue.

5. Contingent liability

On 21November 2016, the Inn on the Square was sold. The Fund has given certainwarranties,which in total shall not exceed10%of the sale pricebeingR157millionorR5millioninrespectofanyonewarranty,thesewarrantiesexpireon19October2017.Managementisoftheviewthatthelikelyhoodofanyofthewarrantiesbeingclaimed,whichmayresultinacashoutflow,isremote.

6. Related party transactions

Tsogo Sun acquired 55% of theHospitality B-linked units (27% of the voting interest)in August 2015. Tsogo Sun then acquired a controlling stake in the Fund, through theinjectionofhotelassetssuchthattheissueofsharestoTsogoSunresultedinTsogoSunowning50.6%ofthesharesfollowingthereconstitutionofHospitality’scapitalintoasingleclass of shares. The remaining administrative conditions precedent to the transactionwerefulfilledinAugust2016andtheeffectivedateofthetransactionwas1September2016.Theacquisitionwasin-linewiththeFund’sstrategyandhasthereforenotchangedthe composition of the Fund. Rental income received from Tsogo Sun, for the period1 September2016to31December2016,wasR74.2million.Theprofitintheperiodto31 December2016wasR74.2millionastherewerenorelatedcosts.Web: www.hp f . co. za

unaudited condensed consolidated interim results for the ... · as a result of the transaction, the...

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