Financial Director's review

  • Dividends paid per share for the year ended 31 March 2020 amounted to 35.40 cents. This dividend related to the interim period ended 30 September 2019. Hospitality did not declare a final dividend for the year ended 31 March 2020.
  • Revenue for the year ended 31 March 2020 decreased by R60 million (7%) to R768 million (2019: R828 million). The decrease in revenue was mainly due to prevailing weak macro-economic conditions, particularly in Gauteng where rental income decreased by 14% year on year, and the impact of Covid-19. Rental income for March 2020 amounted to R16 million compared to rental income for March 2019 of R111 million.

LTV ratio at


for the year ended 31 March 2020

Weighted average cost of net debt reduced to


(2019: 9.6%)

Riaan Erasmus


The Board did not declare a distribution for the six months ended 31 March 2020. Total distributable earnings per share for the year amounted to 90.37 cents (2019: 105.39 cents), of which 35.40 cents (2019: 42.11 cents) was distributed as a dividend on 17 December 2019. The Fund’s distributable earnings for the year decreased by 14% to R522 million, mainly due to the significant impact of Covid-19, and the prevailing weaker trading conditions in Gauteng. The Fund owns 54 properties valued at R10 billion (2019: R12 billion). The Western Cape is the largest contributor to rental income at 40%, followed by Gauteng at 30%, with the rest of South Africa and SUN1 contributing 23% and 7% respectively. Fixed rental income represented 67% of rental income (2019: 60%).

Hospitality’s operating expenses for the year decreased by R5 million, or 9%, to R51 million, excluding the R20 million transaction costs relating to the unsuccessful casino acquisition in the prior year. The decrease in costs relates primarily to payroll-related savings due to the implementation of efficiencies, and savings in legal and consulting fees.

Net finance costs of R195 million (2019: R167 million) are higher than the prior year due to the acquisition of Southern Sun Pretoria for R200 million and capital expenditures financed through borrowings, partially offset by lower margins negotiated in the new borrowing facilities raised during the year.

Year-on-year expenses (excluding transaction costs) are summarised as follows:

HPF expenses (R million)

The decrease in payroll costs is largely due to implementing efficiencies and restructuring the staff complement. The short-term incentive (‘STI’) bonus objectives consist of four categories. More information is available in the remuneration section.

Property-related costs include levies and property taxes on sectional title schemes. Property taxes of freehold hotel properties are accounted for in the hotel income statement before rent. Consulting fees include audit, investor relations-related and legal fees.

Cash flow analysis (R)


Hospitality successfully refinanced maturing borrowings during the year at lower margins.

Hospitality issued a secured corporate bond (HPF12) in April 2019 of R300 million to refinance borrowings of R230 million (HPF08 and HPF09), and to fund capital expenditures.

Hospitality issued a secured corporate bond (HPF13) in December 2019 of R800 million to refinance borrowings of R560 million (term loan and HPF06) and raised an additional revolving credit facility with Nedbank of R250 million to fund capital spend.

Total cash and unutilised borrowings amounted to R691 million at year end, and should provide sufficient liquidity to Hospitality over the next 12 months.

Borrowings Type Maturity Facility
R million
R million
Standard Bank Term 31 August 2022 500 500
Standard Bank Revolving credit facility 19 December 2022 500 200
Nedbank Revolving credit facility 13-month notice 250 150
Corporate bond – HPF11 Term 31 March 2023 600 600
Corporate bond – HPF12 Term 31 March 2024 300 300
Corporate bond – HPF13 Term 30 September 2024 800 800
Total facilities     2 950 2 550
Average maturity   3.20 years    

Hospitality entered into an interest rate swap of R500 million in January 2020 at a fixed rate of 6.69%, which will mature on 30 September 2024. Total effective fixed rate facilities amounted to R1.6 billion or 54%.

Interest rate hedges Maturity Fixed rate
Norminal value
R million
Swap 1 31 March 2022 7.42 500
Swap 2 30 June 2022 7.24 300
Swap 3 31 March 2023 7.16 300
Swap 4 30 September 2024 6.69 500
      1 600

Covenant requirements

Hospitality’s LTV ratio reduced from 37% in FY2014 to 16% in FY2019, but increased to 26% at 31 March 2020 due to increased borrowings (R610 million) to fund the Southern Sun Pretoria property and capital expenditures across the portfolio, together with a significant decrease in the valuation of the property portfolio (R2.5 billion). The decrease in the property portfolio was mainly due to the significant impact of Covid-19 on the valuation of the property portfolio. Due to the uncertainty of future trading conditions, the forecasts were significantly reduced in year one and two when compared to actuals as at 31 March 2020. The South African 10-year bond yield increased by 1.9% from 31 March 2019 (8.61%) to 31 March 2020 (10.51%). Hospitality used a risk-free rate of 8.65% in 2019, compared to 10.50% in 2020, resulting in higher exit yields and higher discount rates across the portfolio. Hospitality’s low gearing, together with its access to borrowing facilities, enables us to be financially resilient in volatile trading conditions.

LTV ratio

The interest cover ratio of 3.7 times (2019: 4.5 times) for the 12 months rolling to 31 March 2020 is well above the required debt covenant minimum of 2.0 times. Net debt to EBITDA for the 12-month rolling period to 31 March 2020 was 3.2 times (2019: 2.5 times), which was within the required maximum of 3.5 times. The weighted average cost of net debt to 31 March 2020 is 9.1% (2019: 9.6%). On 27 March 2020, Global Credit Ratings Co. affirmed Hospitality’s national long-term and short-term issuer ratings of A-(ZA) and A2(ZA) respectively; however, the ratings were placed on Rates Watch Negative. Concurrently, the ratings assigned to the senior secured notes issued by HPF were affirmed at AA(ZA)(EL), also on Rating Watch Negative. The rationale for the Rates Watch Negative reflects the projected loss of earnings for hotel operators due to restrictions imposed to combat Covid-19.


Hotel trading is expected to remain under pressure until the outlook for the South African economy improves. Covid-19 and the subsequent lockdown of the economy on 27 March 2020 had a profound impact on the tourism industry. Hospitality’s portfolio comprises 54 hotels operating in the hospitality sector, which is one of the industries most severely impacted by Covid-19.

The measures taken by government to limit the spread of Covid-19 and the resultant inability of people to travel internationally and inter-provincially will limit the demand for hotel rooms, which will significantly impact Hospitality’s revenue stream for FY2021.

Although the impact of Covid-19 is expected to have a longer-term impact on the hospitality industry and Hospitality, management could not quantify the full impact at the date of this report. It is expected that the recovery of the industry will be slow due to uncertainties around the health of travellers, and the negative economic impact on government, corporates and individuals to spend on hotel accommodation and conferences.

Due to the South African lockdown, we closed most of Hospitality’s portfolio. Our portfolio could not generate revenue during lockdown, and together with the expected slow recovery once the hotels can open and operate, Hospitality will not be able to meet its net debt to EBITDA and interest cover covenant requirements in terms of its funding agreements for the measurement periods 30 September 2020 and possibly 31 March 2021. Hospitality’s gearing levels remain manageable, with the LTV ratio being 26% at 31 March 2020.

To partially reduce the impact of Covid-19 on Hospitality, preserve cash and ensure we can continue operating as a going concern, the following steps were implemented:

Cash and undrawn facilities amounted to R691 million at year end, which will provide sufficient liquidity to Hospitality over the next 12 months. By regularly engaging with our lenders through updates on operations and cash flow forecasts, they remain informed and supportive of the Fund during this difficult period.

Due to the uncertainty regarding Hospitality’s ability to comply with its covenant requirements (as detailed above), the Board of Directors did not declare a final dividend for the year ended 31 March 2020.

As we look ahead, I want to thank our staff and teams for their dedication in this difficult time. To our other stakeholders, we look forward to serving you in the year ahead, as we navigate this challenging operating context together.

Riaan Erasmus
Financial Director