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HOSPITALITY PROPERTY FUND LIMITED - Condensed consolidated reviewed results & cash dividend distribution("distribution") for the year ended 30 June 2016

Release Date: 24/08/2016 07:15
Code(s): HPB HPA     PDF:  
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Condensed consolidated reviewed results & cash dividend distribution("distribution") for the year ended 30 June 2016

Hospitality Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2005/014211/06)
Share code for A shares: HPA ISIN for A shares: ZAE000203022
Share code for B shares: HPB ISIN for B shares: ZAE000203030
Income tax reference number: 9770/799/1/47
("Hospitality" or "the Company" or "the Fund")

Condensed consolidated reviewed results and cash dividend distribution 
("distribution") for the year ended 30 June 2016

Salient features

- Rental income up 9,3% to R474,6 million
- Profit before distribution up 16,8% to R272,0 million
- Exceptional performance from Western Cape properties
- Tsogo Sun transaction receives Competition Tribunal approval
- Disposal of seven non-core properties (for a total net consideration of R189,9 million)
- Capital restructure in process

Trading environment

Despite the uncertain global and domestic economy, Hospitality delivered a pleasing
performance for the year, with the combined distribution per A and B share improving 18,0%
(2015: down 14,44%) to 190,43 cents (2015: 161,36 cents) compared to the prior year. This
comprises the A share distribution, which is up 5,0% to 155,62 cents (2015: 148,21 cents)
in line with the A share distribution policy and the B share distribution of 34,81 cents
(2015: 13,15 cents), reflecting an increase of 164,7%.

Trading conditions remain challenging, however, the tourism sector has seen some increased
growth, particularly in the Cape Town node. This was driven mainly by an increase in
international and local leisure travellers as a result of the weak Rand.

The STR Global South Africa Hotel Review reflected improved occupancies and room rates
for the hotel industry during the year under review. Occupancy levels increased year-on-year
for the same period by 3,2% to 64,6% and average daily rates ("ADR") improved by 8,0% to
R1 133. Revenue per available room ("RevPAR") grew 11,4% for the year ended 30 June 2016
to R733.

The Fund's portfolio delivered (excluding the properties sold) the following performance
statistics for the year ended 30 June 2016:

                 ADR             Variance     Occupancy     Variance        RevPar        Variance
               F2016     F2015              F2016   F2015               F2016     F2015
Traditional   R1 457    R1 348       8,1%   69,1%   65,7%       5,2%   R1 007      R886      13,7%
Portfolio*
Conference      R852      R751      13,3%   50,4%   44,3%      13,8%     R429      R333      29,0%
Portfolio#
Total         R1 336    R1 233       8,4%   64,3%   60,1%       7,1%     R859      R740      16,0%


*  Traditional portfolio: Properties which generate revenue from room nights sold
#  Conference portfolio: Properties which generate revenue predominantly from
   conference facilities and food and beverage

Results

Rental income for the Fund increased 9,3% to R474,6 million (2015: R434,1 million), including
the impact of the seven non-core properties disposed of during the year and the disposal of
the Fund's 50% interest in the Courtyard portfolio in the prior year. Like-for-like rental income
(adjusted for the impact of disposals) grew 13,7% to R462,8 million.

The Fund's rental income growth was bolstered by its well-located hotel properties in the
Western Cape that continue to appeal to domestic and international travellers alike, with
overall rental income growth of 31,4% compared to the prior year. Furthermore, Mount Grace
Country House and Spa showed a significant improvement as the management company
bedded down its sales and marketing strategies with positive results, delivering a rental income
growth of 68,1% to R15,3 million. The new fixed lease at Champagne Sports Resort, which
commenced on 1 July 2015, dampened the overall growth in rental income by R6,2 million.

Hospitality's overall expenses increased 10,3% to R44,9 million (2015: R40,7 million). The
major impact was the staff incentive bonus provision of R5,8 million, reflecting the improved
performance of the Fund. Increases in other expenses were largely in line with inflation.

Net finance costs decreased marginally to R158,1 million (2015: R160,9 million) due to the
application of excess proceeds from the sale of properties to reduce debt.

The following table reflects the operating financial results for the year ended 30 June 2016
compared to the corresponding previous financial year:

                                                 Actual       Actual
Summary of operating results                       2016         2015   Variance     Variance
for the year ended 30 June 2016                 (R'000)      (R'000)    (R'000)          (%)
Contractual rental income                       474 553      434 112     40 441          9,3
Fund expenses                                  (44 852)     (40 674)    (4 178)         10,3
Net finance cost                              (158 085)    (160 888)      2 803          1,7
HPF Employee Incentive Trust            
net effects                                           –          178      (178)      (100,0)
Taxation                                            (9)        (116)        107         92,2
Income from associates                              264          203         60         29,6
Profit before distribution/            
debenture interest                              271 871      232 815     39 056         16,8
Distribution to shareholders/            
linked-unit holders                           (271 871)    (232 815)   (39 056)         16,8
A – share distribution                        (224 539)    (213 845)   (10 694)          5,0
B – share distribution                         (47 332)     (18 970)   (28 362)        149,5
 
Funding

The group's debt facilities with financial institutions as at 30 June 2016 amounted to
R2.04 billion. Total drawn facilities were R1.73 billion resulting in a loan to value (LTV) ratio
(total interest-bearing liabilities/investment properties plus properties held for sale) of 32.6%
(2015: 36.2%). The interest cover ratio improved to 2.72 times (2015: 2.45 times), well above
the required debt covenant limit of 2.00 times.

The weighted average cost of borrowings (WACC) was 9.58% (2015: 9.12%) for the period
under review, with 63.5% of the group's borrowings being hedged.

Summary of funding (R'000)                                  Facility       Drawn-down
Nedbank Limited                                            1 073 550          755 063
Corporate bonds                                              370 000          370 000
Total non-current                                          1 443 550        1 125 063
Corporate bonds                                              600 000          600 000
Total current                                                600 000          600 000
Total interest-bearing borrowings                          2 043 550        1 725 063
% of debt hedged                                                 63%

A new interest rate swap was entered into for R250 million at a rate of 7,88%, commencing
February 2016, which replaced an existing swap of the same amount.

The Fund is currently engaging with financial institutions and potential investors to refinance
or issue new notes to the total value of R600 million, to replace the current notes of the same
value, expiring in February 2017.

When issuing new debt the group endeavours to optimally spread the maturity to minimise its
exposure to large debt maturities in any single year.

REIT capital structure

As previously announced, in order to comply with REITs gearing requirement in terms of
the JSE Limited Listings Requirements, restructuring of the Company's linked unit capital
structure to a simple "all share" structure, by way of a scheme of arrangement in terms of
sections 114 and 115 of the Companies Act, 71 of 2008 ("the Act") and the adoption of a
new Memorandum of Incorporation to take account of the change in the Company's capital
structure, received the requisite approval from both A and B linked unitholders at Special
General Meetings ("SGMs") held on 21 August 2015.

Dissenting shareholder appraisal rights

Subsequent to the SGMs, shareholders representing 2,8% of total shares in issue or 8 320 397
B shares ("the appraisal shares") exercised their appraisal rights and demanded fair value for
their shares in terms of section 164(5) of the Act.

The Board determined a fair value of R2,90 per appraisal share, which amounts to a total fair
value of R24,1 million. In terms of section 164(14)(b), the dissenting shareholders have applied
to the court to determine a fair value. In-line with section 164(9), the appraisal shares have no
further rights, other than to be paid their fair value and as a result, the appraisal shares are now
considered treasury shares by the Company for accounting treatment purposes.

Had appraisal rights not been exercised, the B share distribution, for the period under review,
would have amounted to 15,93 cents, as opposed to declared distribution number 21 of
17,94 cents and would have amounted to an increase of 293,7%, instead of the current increase
of 345,2%.

Tsogo Transaction ("the Transaction") and
Capital Restructure ("the Restructure")

Salient terms

The acquisition by Hospitality from Southern Sun Hotels Proprietary Limited ("SSH"), (a
wholly-owned subsidiary of Tsogo Sun Holdings Limited ("Tsogo")) of a portfolio of 10 hotel
properties valued at R1,78 billion ("the Transaction") through the acquisition of 100% of the
issued shares of a newly incorporated company ("Newco"), and the restructure of Hospitality's
dual-class share capital structure to a single-class share capital structure ("the Restructure"),
was approved in general meeting by the requisite majority of shareholders. The applied ratio
of shares being issued in the Restructure is one ordinary share for every one A share held and
one ordinary share for every 3,5 B shares held.

The purchase consideration will be settled through the issue of 145 million Hospitality shares
("consideration shares"). On completion of the transaction, Tsogo's holding will increase to
more than 50% of Hospitality's ordinary shares. Rationale

The Transaction presents a highly attractive acquisition of 10 successful and established
hotel properties for Hospitality, all of which are well located within their respective nodes.  
The Transaction will contribute to a diversification of Hospitality's earnings base and should
introduce an additional element of stability to earnings, through exposure to the relatively
predictable cash flows generated by the Tsogo Portfolio. As the Tsogo Portfolio will be
acquired free of any debt, the Transaction will also bring about the reduction of Hospitality's
gearing ratio from 32,6% as at 30 June 2016 to 24,4%, which together with Hospitality's greater
scale and inclusion as part of the Tsogo group, is expected to both enhance Hospitality's BEE
ownership and credit rating. This should in turn reduce the Fund's future cost of funding.

The simplified capital structure will enable Hospitality to more fully deliver on its strategic
objectives in the longer term. It is also anticipated that the Transaction will see Hospitality
forming the platform for Tsogo's stated strategy of growing a hospitality-focused REIT. It
therefore provides Hospitality with exciting future growth prospects and an attractive pipeline
of acquisitions in the medium term.

Competition Tribunal and effective date

The Transaction was approved by the Competition Tribunal, subject to conditions accepted
by both parties, and a merger clearance certificate has been issued.

Accordingly, save for certain administrative conditions precedent that remain to be fulfilled,
including, inter alia, receipt of confirmation by the Companies and Intellectual Properties
Commission that it has accepted and placed on file all relevant documents required to effect
the Transaction.

Hospitality anticipate that the remaining conditions precedent to the
Transaction will be fulfilled by 31 August 2016, such that the effective date of the Transaction
will be 1 September 2016.

A further announcement will be released regarding fulfilment of the outstanding conditions
precedent to the Transaction at the appropriate time, which announcement will include a
detailed timetable for its implementation.

Property portfolio

The Fund's portfolio comprises interests in 15 hotel and resort properties in South Africa. The
weighted average lease expiry period is 10,72 years. As at 30 June 2016, the carrying value
of the portfolio was R5,3 billion and the net asset value (NAV) per combined A and B share
amounted to R12,93, an increase of 10,2% from 2015. The market value per combined A and
B share at the end of the financial year traded at a 41,3% discount to the NAV.

Acquisitions and disposals

To date, the Fund's investment strategy has been to invest in well-located, large hotels in
major urban centres with strong brands and diverse source markets and to dispose of certain
properties which do not meet these criteria. The Fund also continues to investigate long-term
growth and investment opportunities. The Tsogo transaction will provide additional scale to
the current portfolio and present opportunities for further growth in line with the Funds'
property investment strategy.

The Fund had previously identified several non-core properties for disposal. In the last
12 months, seven properties were disposed of amounting to a total net consideration of
R189,9 million. These included the Protea Hotel The Richards; Protea Hotel Hluhluwe and
Safaris; Premier Hotel King David and Protea Hotel Imperial: Protea Hotel The Winkler,
Bayshore Inn and the Protea Hotel Richards Bay properties. The Protea Hotel Hazyview and
Kopanong Hotel and Conference Centre remain on the disposal list.

During the year, the Fund acquired three additional units at the Radisson Blu Waterfront for
R14,3 million, bringing its total interest in the property rental pool to 55,8%.

Developments and capital projects

In order to maintain the appeal of its properties, the Fund continually upgrades and invests
in its properties. During the year, the total capital expenditure amounted to R102,9 million,
which included:
    
- during the year, 30 additional rooms were developed at the Protea Hotel Edward, at a total
  cost of R19,8 million increasing the number of rooms to 131;
- at Birchwood Hotel R14,0 million was spent on the refurbishment of 82 rooms that now
  forms part of the Silverbirch hotel section; and
- at Champagne Sports Resorts, R14,0 million was spent on acquiring all movable assets from
  the tenant.

The Fund is cognisant of future refurbishment projects that will require additional capital investment
and continues to investigate options to deal with this on a sustainable basis going forward.

Prospects

Although the local currency stabilised after the end of the financial year, the overall weakening
of the Rand buoyed the South African hospitality sector, despite the weak domestic economy.
South Africa has become a more affordable destination for international tourists and there
has been an increase in domestic travellers opting to travel locally. Although public sector
spending remains under pressure, the approval of increased rates on travel budgets is positive
for the Fund.

Inflation is expected to rise as a consequence of the weaker Rand and the drought impact,
thereby putting upward pressure on hotel operating costs.

Looking forward, the Fund is well positioned, with upside potential for rates in hotels located in
high tourist areas particularly the Western Cape. The domestic business and leisure sector is
expected to be stable. Public sector conferencing, which slowed in the run up to the municipal
elections, is expected to normalise.

Share trading liquidity

During the period under review, 20.8% of the A shares/linked units and 78,0% of the B shares/
linked units were traded on the JSE Limited. Of the total number B shares/linked unit traded,
55,0% related to open market acquisitions by Tsogo, as disclosed on SENS on 26 August 2015.

Dividend payment

Shareholders will receive a gross distribution payment number 21 for the six-month period
ended 30 June 2016 of 78,62 cents per A-share and 17,94 cents per B-share respectively.

In accordance with Hospitality's REIT status, shareholders are advised that the distribution
meets the requirements of a "qualifying distribution" for the purposes of section 25BB of the
Income Tax Act, No. 58 of 1962 ("Income Tax Act").

The number of shares in issue at the date of the declaration is 144 285 503 A shares and
135 965 106 B shares.

Local tax residents

Qualifying distributions received by local tax residents must be included in the gross income
of such shareholders (as a non-exempt dividend in terms of section 10(1)(k)(aa) of the Income
Tax Act), with the effect that the qualifying distribution is taxable as income in the hands of the
shareholder. These qualifying distributions are, however, exempt from dividend withholding
tax in the hands of South African tax resident shareholders, provided that the South African
resident shareholders provided the following forms to their Central Securities Depository
Participant ("CSDP") or broker, as the case may be, in respect of uncertificated shares, or the
company, in respect of certificated shares:

a)  a declaration that the distribution is exempt from dividends tax; and

b)  a written undertaking to inform the CSDP, broker or the company, as the case may be,
    should the circumstances affecting the exemption change or the beneficial owner ceases
    to be the beneficial owner, both in the form prescribed by the Commissioner for the South
    African Revenue Service. Linked shareholders are advised to contact their CSDP, broker
    or the company, as the case may be, to arrange for the abovementioned documents to be
    submitted prior to payment of the distribution, if such documents have not already been
    submitted.

Non-resident

Qualifying distributions received by non-resident shareholders will not be taxable as income
and instead will be treated as ordinary dividends but which are exempt in terms of the usual
dividend exemptions per section 10(1)(k) of the Income Tax Act. It should be noted that
until 31 December 2013 qualifying distributions received by non-residents were not subject
to dividend withholding tax. From 1 January 2014, any qualifying distribution received by a
non-resident from a REIT will be subject to dividend withholding tax at 15%, unless the rate is
reduced in terms of any applicable agreement for the avoidance of double taxation ("DTA")
between South Africa and the country of residence of the shareholder. Assuming dividend
withholding tax is withheld at a rate of 15%, the net amount due to non-resident shareholders
will be 66,827 cents per A-share and 15,249 cents per B-share. A reduced dividend withholding
tax rate in terms of the applicable DTA, may only be relied on if the non-resident shareholder
has provided the following forms to their CSDP or broker, as the case may be, in respect of
uncertificated shares, or the company, in respect of certificated shares:

a)  a declaration that the dividend is subject to a reduced rate as a result of the application of
    a DTA; and

b)  a written undertaking to inform their CSDP, broker or the company, as the case may be,
    should the circumstances affecting the reduced rate change or the beneficial owner ceases
    to be the beneficial owner, both in the form prescribed by the Commissioner for the
    South African Revenue Service. Non-resident shareholders are advised to contact their
    CSDP, broker or the company, as the case may be, to arrange for the abovementioned
    documents to be submitted prior to payment of the distribution if such documents have
    not already been submitted, if applicable. Shareholders are requested to seek professional
    advice on the appropriate action to take.

Last day to trade cum distribution                           Tuesday, 13 September 2016

Shares will trade ex-distribution                          Wednesday, 14 September 2016

Record date                                                   Friday, 16 September 2016

Payment date                                                 Tuesday, 19 September 2016

Shareholders may not dematerialise or rematerialise their shares between Wednesday,
14 September 2016 and Friday, 16 September 2016 both days inclusive.

By order of the Board

D G Bowden                              V M Joyner
(Chairman)                              (Chief Executive Officer)

Approved by the Board: 23 August 2016

Released on SENS: 24 August 2016

Directors:         D G Bowden (Chairman)*+, V M Joyner (CEO), L de Beer *+, S A Halliday *+,                 
                   Z N Kubukeli*+, G A Nelson*, Z Malinga*+, W C Ross *+
                   (*Non-Executive, +Independent)
  
Registered Office: The Zone 2, Loft Offices East Wing, 2nd Floor, Cnr Oxford Road and
                   Tyrwhitt Avenue, Rosebank, 2196

Tel: +27 11 994 6320

Web: www.hpf.co.za

Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited)

BASIS OF PREPARATION AND ACCOUNTING POLICIES

These results were prepared under the supervision of the Acting CFO, Riaan Erasmus CA(SA).
The condensed consolidated financial statements are prepared in accordance with the
requirements of the JSE Limited Listings Requirements for preliminary reports and the
requirements of the Companies Act of South Africa. The Listings Requirements require
preliminary reports to be prepared in accordance with the framework concepts and the
measurement and recognition requirements of International Financial Reporting Standards
(IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by Financial Reporting Standards Council
and to also, as a minimum, contain the information required by IAS 34 Interim Financial
Reporting. The accounting policies applied in the preparation of the condensed consolidated
financial statements are in terms of IFRS and are consistent with those applied in the previous
consolidated annual financial statements.

The directors take full responsibility for the preparation of the preliminary report.

AUDITOR'S REPORT

These condensed consolidated financial statements for the year ended 30 June 2016 have
been reviewed by KPMG Inc, who expressed an unmodified review conclusion. A copy of the
auditor's review report is available for inspection at the company's registered office together
with the financial statements identified in the auditor's report.

The auditor's report does not necessarily report on all of the information contained in this
announcement/financial results. Shareholders are therefore advised that in order to obtain
a full understanding of the nature of the auditor's engagement they should obtain a copy of
the auditor's report together with the accompanying financial information from the issuer's
registered office.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2016
                                                               Reviewed         Audited
                                                                   June            June
                                                                   2016            2015
                                                                  R'000           R'000
Revenue                                                         474 328         433 287
Rental income – contractual                                     474 553         434 112
              – straight-line accrual                             (225)           (825)
Operating income                                                      –               –
Expenditure                                                    (44 852)        (40 674)

Operating expenses                                             (44 852)        (40 674)

Operating profit                                                429 476         392 613
Net finance cost                                              (158 085)       (160 888)
Finance income                                                   12 737           9 696
Finance costs                                                 (170 822)       (170 584)

Profit before debenture interest, goodwill, fair value
adjustments and taxation                                        271 391         231 725
Debenture interest                                                    –       (232 815)
Profit/(loss) before fair value adjustments, goodwill and
taxation                                                        271 391         (1 090)
(Loss)/profit on sale of investment properties                 (13 556)             390
Fair value adjustments                                          245 412         143 531
Investment properties, before straight-lining adjustment        251 024         143 734
Straight-line rental income accrual                                 225             825
Total fair value of investment properties                       251 249         144 559
Goodwill impairment                                            (12 000)         (7 200)
Interest-rate swaps                                               6 163           6 172

Profit before taxation                                          503 247         142 831
Debenture discount amortisation                                 (2 313)         (8 633)
Equity accounted profit from associate after tax                    264             203
Taxation                                                            (9)           (116)
Total profit and comprehensive income
for the year                                                    501 189         134 285
Reconciliation between earnings, headline earnings and
distributable earnings
Total profit and comprehensive income for the year              501 189         134 285
Adjustment : Debenture interest                                       –         232 815
Profit (shares/linked units)                                    501 189         367 100
Adjustments :
Loss/(profit) on sale of investment properties                   13 556           (390)
Goodwill impairment                                              12 000           7 200
Impairment to furniture, fittings and equipment                     265               –
Loss on disposal of furniture, fitting and equipment                  7               –
Fair value – investment properties revaluation                (251 024)       (143 734)
Fair value – straight-line rental income                          (225)           (825)
Headline earnings (shares/linked units)                         275 768         229 351
Fair value – interest rate swaps                                (6 163)         (6 172)
Debenture discount amortisation                                   2 313           8 633
HPF Employee Incentive Trust effects                                  –              78
Taxation                                                              –             100
Impairment to furniture, fittings and equipment                   (265)               –
Loss on disposal of furniture, fitting and equipment                (7)               –
Straight-line rental income                                         225             825
Distributable earnings                                          271 871         232 815
Number of shares/units
A shares/linked unit                                        144 285 503     144 285 503
B shares/linked unit                                        133 995 396     142 315 793
– Shares/units in issue                                     144 285 503     144 285 503
– HPF Employee Incentive Trust shares/units                 (1 969 710)     (1 969 710)                                                        
– Shareholder redemption                                    (8 320 397)               –

Weighted average number of shares/units
A shares/linked unit                                        144 285 503     142 380 569

                                                               Reviewed         Audited
                                                                   June            June
                                                                   2016            2015
                                                                  R'000           R'000
B shares/linked unit                                        135 154 796     140 410 859
– Shares/units in issue                                     144 285 503     142 380 569
– HPF Employee Incentive Trust shares/units                 (1 969 710)     (1 969 710)
– Shareholder redemption                                    (7 160 997)               –
Dividend per share/distribution per linked unit (cents)
A shares/linked unit                                             155,62          148,21
– Interim                                                         77,00           73,33
– Final                                                           78,62           74,88
B shares/linked unit                                              34,81           13,15
– Interim                                                         16,87            9,12
– Final                                                           17,94            4,03

                                                                 190,43          161,36
Earnings and diluted earnings per share/linked unit (cents)
A shares/linked unit                                             179,35          129,81
B shares/linked unit                                             179,35          129,81
                                                                 358,70          259,62
Headline earnings and diluted headline earnings per share/
linked unit (cents)
A-linked share/unit                                               98,69           81,10
B-linked share/unit                                               98,69           81,10
                                                                 197,38          162,20

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2016
                                                               Reviewed         Audited
                                                                   June            June
                                                                   2016            2015
                                                                  R'000           R'000
ASSETS
Non-current assets                                            5 174 459       4 823 982
Investment properties                                         5 169 000       4 806 775
Straight-line rent income accrual                                     –             225
Investment properties and related accrual                     5 169 000       4 807 000
Furniture, fittings and equipment                                   180             573
Goodwill                                                              –          12 000
Derivative asset                                                  4 961           4 155
Investment in associates                                            318             254
Current assets                                                  404 128         626 033
Non-current assets held for sale                                129 491         329 228
Properties held for trading                                      22 643          21 620
Derivative asset                                                    699               –
Trade and other receivables                                      57 035          71 035
Cash and cash equivalents                                       194 260         204 150

Total assets                                                  5 578 587       5 450 015
EQUITY AND LIABILITIES
Equity                                                        3 732 253         970 747
Stated capital                                                2 909 957               –
Share capital and share premium                                       –         515 931
Retained earnings                                               107 961         (2 332)
Fair value reserve                                              714 335         457 148
Non-current liabilities                                       1 126 540       4 049 964
Debentures                                                            –       2 415 842
Interest-bearing liabilities                                  1 125 063       1 627 874
Derivative liability                                              1 477           6 248
Current liabilities                                             719 794         429 304
Trade and other payables                                         95 552          85 352
Short-term portion of interest-bearing liabilities              600 000         230 000
Taxation                                                              –             100
Provision for shareholder redemption                             24 129               –
Derivative liability                                                113               –
Debenture interest payable                                            –         113 852

Total equity and liabilities                                  5 578 587       5 450 015
Net asset value per share/linked unit (Rand)
A share/linked unit                                               12,93           11,74
B share/linked unit                                               12,93           11,74

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2016

                           Share      Share      Stated     Retained   Fair value       Treasury
                         capital    premium     capital     earnings      reserve  share reserve        Total
                           R'000      R'000       R'000        R'000        R'000          R'000        R'000
Balance at 1 July 2014        27    481 289           –       13 289      307 242              -      801 847
Total profit and                
comprehensive income                
for the year                   –          –           –      134 285            –              -      134 285
Transactions with                 
owners, recorded                 
directly in equity             1     34 614           –    (149 906)      149 906              -       34 615
Issue of shares                1     34 614           –            –            –              -       34 615
Transfer to fair value                 
reserve – investment                 
properties                     –          –           –    (143 734)      143 734              -            –
Transfer to fair value                    
reserve – interest rate                    
swaps                          –          –           –      (6 172)        6 157              -            –
                  
Balance at 1 July 2015        28    515 903           –      (2 332)      457 148              -      970 747
Total profit and                 
comprehensive income                 
for the year                   –          –           –      501 189            –              -      501 189
Transactions with              
owners, recorded              
directly in equity          (28)  (515 903)   2 919 952    (390 896)      257 187        (9 995)    2 260 317
Conversion of par                
value shares into                
no par value shares         (28)  (515 903)     515 931            –            –              -            –
Conversion of                 
debentures into no-par                 
value shares                   –          –   2 428 150            –            –              -    2 428 150
Conversion of treasury                
shares into no-par             
value shares                   –          –           –            –            –        (9 995)      (9 995)
Provision for             
shareholder             
redemption                     –          –    (24 129)            –            –              -     (24 129)
Dividend paid (interim)        –          –           –    (133 709)            –              -    (133 709)
Transfer to fair value             
reserve – investment             
properties                     –          –           –    (251 024)      251 024              -            –
Transfer to fair value             
reserve – interest rate             
swaps                          –          –           –      (6 163)        6 163              -            –
             
Balance at             
30 June 2016                   –          –   2 919 952      107 961      714 335        (9 995)    3 732 253

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2016
                                                                              Reviewed          Audited
                                                                                  June             June
                                                                                  2016             2015
                                                                                 R'000            R'000
Cash flows from operating activities           
Cash generated from operations                                                 453 473          377 433
Finance income received                                                         12 737            9 696
Finance costs paid                                                           (170 822)        (170 584)
Taxation                                                                         (109)            (150)
Dividends paid/distribution to unitholders                                   (247 561)        (237 105)
Net cash inflow/(outflow) from operating activities                             47 718         (20 710)
Cash flows from investing activities          
Acquisition and development of investment properties                         (131 157)        (244 204)
Disposal of investment properties                                              206 362           80 000
Acquisition of furniture and equipment                                           (202)            (224)
Dividends received from associates                                                 200              200
Net cash inflow/(outflow) from investing activities                             75 203        (164 228)
Cash flows from financing activities          
Proceeds from the issue of linked units                                              –          116 638
Interest-bearing liabilities repaid                                          (365 011)        (240 000)
Interest-bearing liabilities raised                                            232 200          325 247
Net cash (outflow)/inflow from financing activities                          (132 811)          201 885
Net (decrease)/increase in cash and cash equivalents                           (9 890)           16 947
Cash and cash equivalents at beginning of year                                 204 150          187 203
Cash and cash equivalents at end of year                                       194 260          204 150
          
CONDENSED CONSOLIDATED SEGMENTAL INFORMATION
for the year ended 30 June 2016

Information regarding the results of each reportable segment is included below. Performance
is measured based on operating profit before finance costs, as included in the internal
management reports that are reviewed by the group's CEO. Segment profit is used to
measure performance as management believes that such information is the most relevant in
evaluating the results of certain segments relative to other entities that operate within these
industries. Inter-segment pricing is determined on an arms' length basis.
                                                                               Total of all
                                      Traditional    Conference#         Head     operating
R'000                                  portfolio*     portfolio#      office^      segments
Statement of Comprehensive Income 
– 30 June 2016
Segment revenue                           412 261         62 292            –       474 553
Expenditure                                     –              –     (44 852)      (44 852)
Segment results                           412 261         62 292     (44 852)       429 701
Statement of Comprehensive
Income – 30 June 2015
Segment revenue                           370 416         63 585          111       434 112
Expenditure                                     –              –     (40 674)      (40 674)
Segment results                           370 416         63 585     (40 563)       393 438
Statement of Financial Position
– 30 June 2016
Non-current assets
Investment properties                   4 407 509        761 491            –     5 169 000
Current assets
Non-current assets held for sale           41 000         88 491            –       129 491
Trade and other receivables                56 116              –        1 919        57 035
Segment assets                          4 504 625        849 982        1 919     5 355 526
Statement of Financial Position
– 30 June 2015
Non-current assets
Investment properties                   4 045 272        761 728            –     4 807 000
Current assets
Non-current assets held for sale          249 500         79 728            –       329 228
Trade and other receivables                 3 584          1 236       66 215        71 035
Segment assets                          4 298 356        842 692       66 215     5 207 263

* Traditional portfolio: Properties to which revenue is generated predominately from
  occupation
# Conference portfolio: Properties to which revenue is generated predominantly from
  conference facilities and food and beverage 
^ Head office: Head office represents all the costs at Fund level and is reviewed separately
  from the property portfolio

Reconciliations of reportable segment revenues, profit or loss, 
assets and liabilities and other material items      
      
Revenues                                                                 2016          2015
Total revenue for reportable segments                        
Other revenue                                                         474 553       434 112 
Straight–line of leases                                                 (225)         (825)
Elimination of discontinued operations                                      -             -   
Consolidated revenue                                                  474 328       433 287 
                       
Profit or loss                        
Total profit or loss for reportable segments                          429 701       393 438 
Other profit or loss                        
Elimination of inter–segment profits                                                      -   
Operating income                                                            -             -   
Net finance costs                                                   (158 085)     (160 888)
Debenture interest                                                          -     (232 815)
Recoupment of debenture interest                                            -             -   
(Loss)/profit on disposal of investment properties                   (13 556)           390 
Fair value adjustments                                                245 187       142 706  
Profit before taxation                                                503 247       142 831 
 
SUBSEQUENT EVENTS      
The board is not aware of any matter or circumstances arising since the end of the financial 
year to the date of this report, not otherwise dealt with in this report that would 
significantly affect the operations, the results and the financial position of the Group. 
     
As announced on SENS on 11 August 2016, the Competition Tribunal has given their approval 
regarding the Tsogo Transaction, subject to conditions which have been accepted by the Fund 
and Tsogo Sun Holdings Limited (Tsogo). A merger clearance certificate has been issued. 
The Fund anticipates that the remaining conditions precedent to the Tsogo Transaction will 
be fulfilled by 31 August 2016, such that the effective date of the Tsogo Transaction will 
be 1 September 2016.       

NOTES TO THE CONDENSED ANNUAL FINANCIAL STATEMENTS
for the year ended 30 June 2016
                                                                     Reviewed          Audited
                                                                         June             June
                                                                         2016             2015
                                                                       R '000           R '000
1   Interest bearing borrowings
    Non-current                                                     1 125 063        1 627 874
    Current                                                           600 000          230 000
    Total interest bearing borrowings                               1 725 063        1 857 874
    Measurement of fair value
    The group recognises and measures its long-term
    loans at amortised cost. The fair value of the loans was
    determined using both external and internal inputs and
    is presented for disclosure purposes only.
    The external inputs applied, related to the interest rates
    contracted with the various sources of funding linked
    to jibar, whereas the internal inputs applied, related to
    the weighted average cost of funding (WACC) 9.58%
    (2015: 9.12%) determined for the group.
    Fair value is calculated based on the present value of
    future principal and interest cash flows, discounted at
    the market rate of interest at the reporting date.
    As both external and internal data was used to
    determine the fair value, the fair value measurement has
    been classified under Level 2.
    Non-current                                                     1 234 749       1 743 757
    Current                                                         1 017 230         237 661
    Total interest bearing borrowings at fair value                 2 251 979       1 981 418
2   Derivative assets/(liabilities)
    Non-current asset                                                   4 961           4 155
    Current asset                                                         699               –
    Non-current liability                                             (1 477)         (6 248)
    Current liability                                                   (113)               –
    Net derivative asset/(liability)                                    4 070         (2 093)
    Measurement of fair value
    Derivative financial instruments are recognised and
    measured at fair value through profit or loss, using both
    internal and external inputs.
    The external inputs applied, related to the interest rates
    contracted with the various sources of funding linked
    to jibar, whereas the internal inputs applied, related to
    the weighted average cost of capital (WACC) 9.58%
    (2015: 9.12%) determined for the group.
    The fair value of interest rate swaps is based on broker
    quotes.  Those quotes are tested for reasonableness by
    discounting estimated future cash flows based on the
    terms and maturity of each contract and using market
    interest rates for a similar instrument at the reporting
    date.
    As both external and internal data was used to
    determine the fair value, the fair value measurement has
    been classified under Level 2.
3   Other financial instruments
    Trade and other receivables                                        57 035          71 035
    Cash and cash equivalents                                         194 260         204 150
                                                                      251 295         275 185
    Trade and other payables                                           95 552          85 352
    
    The above financial assets and liabilities are carried at amortised cost, which approximates
    their fair value.
 
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