Hospitality’s earnings drop as hotel, resort room occupancy down
CAPE TOWN - Hospitality Property Fund's distributable earnings fell 9percent to R215million in the six months to September 30 after it struggled to fill hotel and resort rooms in the weak economy.
The earnings for the Tsogo Sun gaming and leisure group subsidiary excluded an R11million settlement that it had to make for a shareholder appraisal rights matter. The distribution per share came to 35.40 cents.
Room occupancy in the first six months for the group's 54 hotels increased marginally by 0.2percent to 60.4percent, while the market experienced a marginal increase in occupancy of 0.5percent to 60.1percent.
Hotel trading was expected to remain under pressure until the outlook on the South African economy improves, directors said.
Gearing was low at 19percent. Rental income decreased 3percent to R335m, mainly due to weaker trading at Birchwood Hotel and OR Tambo Conference Centre, and utility costs in the hotels increasing above inflation.
Hospitality's rental income is also seasonally variable, and trading was impacted by the elections and misaligned school holidays.
Expenses increased by 7percent on the prior six months to R30m, mainly due to property rates and taxes.
Net finance costs of R92m (2018: R80m) were higher due to increased borrowings arising from capital expenditure. Some R90m was spent on capex in the six months.
The fund’s portfolio includes Southern Sun Pretoria, recently acquired for R200m and paid for with debt.
As at September 30, the carrying amount of the portfolio was R12.3billion and the net asset value per ordinary share amounted to R17.41 (R18.13).
A corporate bond of R300m was issued in April 2019 to refinance maturing corporate bonds and to fund capital expenditure.
On June 12, the high court ruled in the matter between Standard Bank Nominees, the bank, Nedbank Collective Investments, Nedgroup Investment Advisors and Hospitality, that the shareholder appraisal rights had not been properly exercised.
The court ordered that Standard Bank Nominees be reinstated as a Hospitality shareholder and that Hospitality make payment to Standard Bank Nominees of all dividends previously declared by the company from February 2016 to June 12 this year. Accordingly, on August 7, Hospitality made payment of R10.6m to Standard Bank Nominees.
The average room rate for the portfolio increased by 5.6 period on the prior period, mainly due to the performance of the Western Cape hotels. Revenue per available room increased by 5.8percent.
Hotel occupancy for the Western Cape hotels increased by 7.7percent to 55.7percent due to good group business and a partial recovery of the poor sentiment stemming from the Cape Town water crisis, in the prior year.
In Gauteng, hotel occupancy over the six months declined by 4.2percent on the prior six months, to an occupancy of 59.1 percent. The impact of the school holidays separated from the Easter weekend and the elections in May prevented the normal transient corporate and government business travel for the first quarter, directors said.
Occupancy for the hotels in the rest of South Africa remained largely flat on the prior year at 67.8 percent. and the average room rate increased by 3.5 percent to R988.