Rental income tracked industry trends for the period, increasing 9.1% to R356 million led by increases in occupancy of 4.4% to 60.1% while average room rates ("ARR") rose 4.8% to R 1020 for that portion of its portfolio which is subject to variable rental income.
The distribution per combined linked unit increased 26.2% on prior year and 2.7% on forecast. 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.
Hospitality continues to focus on deploying its strategy to enhance long-term unitholders’ returns by sustainably growing its property base through acquisitions and developments. This includes further diversifying the portfolio in South Africa by geographic location, patronage and star grading with a particular focus on large, well-located properties in major metropolitan areas with a diverse patronage base.
Commenting on the Fund's performance, CEO Andrew Rogers, said: "We are pleased that the Fund's positive recovery trend that emerged in the first six months of the year under review accelerated in the second half. While we have benefited from the improved hospitality environment, our proactive asset management strategy and the resolution of the debt refinancing issues in the previous year contributed positively to the 26.2% increase in distributable earnings per combined unit and also ahead of our forecast for the year. This was underscored by a 9.1% increase in rental income while fund expenses and net finance costs were down 25.9% and 25.1%, rolling down to real growth in returns for unitholders."
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.
Virtually all fixed and variable (“F&V”) lease properties have been refurbished during the last five years, and therefore require minimal further capital expenditure in the short term, providing a solid platform to benefit from improved trading in a recovering market.
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.No deals have to date been finalised andHospitality is under no pressure to lower its asking prices to expedite sales as these properties are generally trading profitably.
Hospitality's application for REIT status was approved by the JSE Limited effective from 1 July 2013. In terms of tax legislation REITS are exempt from capital gains tax and profits are effectively taxed in the hands of investors providing an investment akin to direct ownership of the underlying property.
Portfolio review
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, translating into a net asset value per linked unit of R10.95 (excluding deferred taxation) which was up 9.5% from 2012.
The application process for the development rights on the Phase 2 land at Arabella Hotel and Spa is in progress and the Fund expects a response from the relevant authorities in 2013. There is a potential to realise a profit from the sales of 352 residential stands, to be classified as distributable income if the development rights are secured.
In relation to the hospitality business environment and the outlook for the Fund, Rogers added: "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. This is likely to lead to demand outstripping medium term supply in major markets. Accordingly, we believe that the outlook for the hospitality industry is positive, particularly in major cities where business volumes have shown a strong recovery. Against this backdrop, our short-term focus continues to be on optimally growing room rates in order to further improve profitability as occupancies continue to track upwards across the industry. We expect that the Fund's distribution for the 12 months ending 30 June 2014 will be at least in line with the Forecast"
