Hospitality Property Fund hails its 26.2% distribution growth

Hospitality Property Fund CEO Andrew Rogers said the fund was very pleased with the performance‚ with rental income increasing 9.1% to R356m due to a 4.4% rise in average occupancies to 60.1%.

Hospitality Property Fund (HPA‚ HPB), a fund that invests exclusively in the real estate assets of the hotel industry, yesterday declared 26.2% growth in distributable earnings per combined unit for the year ended June 2013.

The A-linked unit distribution grew by 19.1% to 134.63 cents, in line with the Fund’s distribution structure. The distribution on the B-linked unit showed an increase of 128.6% to 18.08 cents compared to the previous corresponding period and was 28.1% above the forecast.

The distribution growth buoyed by proactive asset management strategy and the resolution of the debt refinancing issues in the previous year‚ both of which contributed to the 26.2% increase in distributable earnings per combined unit.

CEO Andrew Rogers said Hospitality was “very pleased” with the performance‚ with rental income increasing 9.1% to R356m due to a 4.4% rise in average occupancies to 60.1%.

Average room rates rose below inflation at 4.8% to R1‚020 for the portion of Hospitality’s portfolio which is subject to variable rental income.

The acquisition of the Radisson Blu Gautrain Hotel for a total consideration of R443.4 million on 30 April 2013 was a milestone towards this strategy. It was funded by a R275 million vendor consideration placement, the issuance of R150 million secured notes and the private placement of R18.4 million unsecured notes.

Rogers said the Fund has identified non-core properties valued at R318,9 million for disposal and is currently in various stages of negotiation regarding the disposals.

The fund was continuing its focus on major hubs‚ while selling noncore assets that were not in major nodes.

In relation to the hospitality business environment, Rogers said the recovery trend in the industry has been underpinned by consistent growth in RevPAR since October 2011.

The supply and demand fundamentals in the domestic trading environment are improving despite muted economic growth, as demand is improving and the oversupply of hotel rooms is dissipating with no new major hotel developments coming to market, he said. This is likely to lead to demand outstripping medium term supply in major markets.

Investec Asset Management portfolio manager Neil Stuart-Findlay said “supply-demand dynamics are slowly turning in Hospitality’s favour”‚ with the fund's occupancies increasing in line with improvements across the sector.

Stuart-Findlay said Hospitality was emerging from a difficult period since demand fell post-2008 and supply increased rapidly ahead of the 2010 World Cup.

“It seems as though they are starting‚ albeit slowly‚ to see some pricing power return to the industry” — which was a function of increasing occupancies.

Stuart-Findlay said Hospitality should‚ on the margin‚ also benefit from the weaker rand which would encourage foreign tourist arrivals as well as domestic leisure travellers to choose local rather than offshore destinations.

Alternative Real Estate fund manager Maurice Shapiro said the fund’s occupancy and average room rates had improved “in line with STR Global hotel industry statistics”.

Shapiro said while there had been a “solid recovery” in the hotel sector‚ few major hotels had been earmarked for development‚ “putting existing owners of hotel assets in an unique position”.

Hospitality’s application for REIT status was approved by the JSE Limited effective from 1 July 2013.

The Fund’s portfolio of interests in 27 hotel and resort properties in South Africa had a book value of R4.56 billion as at 30 June 2013.

The top seven flagship properties of the fund are the Westin Cape Town linked to the Cape Town International Convention Centre; Radisson Blu Waterfront in Granger Bay in Cape Town; Crowne Plaza Johannesburg in Rosebank; Holiday Inn Sandton on Rivonia Road; Mount Grace Country Hotel in Magaliesburg; Champagne Sports Resort in the Drakensberg; and the Arabella Hotel & Spa near Hermanus.