Weak trading conditions weigh on Hospitality Property Fund
HPF's dividend shrinks 12.4% in the year to March as its hotels go through a bad trading period
Hospitality Property Fund (HPF), a subsidiary of gaming and leisure group Tsogo Sun is struggling to perform amid weak operating conditions.
HPF's dividend fell as much as 12.4% in the year to March while its rental income weakened 4%, largely because of disappointing trading at its Western Cape assets.
A weak economic environment prompted increased price competition in the sector during the period, with HPF saying room occupancy for its hotels declined 2.3% to 62.6%, compared with a 1.6% fall to 62.4% for the market as a whole.
In the Western Cape, occupancy fell 7.8% to 61.8%.
HPF, which is the only hotel specialised real estate investment trust on the JSE, slashed its final dividend by 14.29% to 64.17c per share, bringing its combined distribution for the entire period to 105.39c, from 120.29c the year before.
The company which owns 53 hotel and resort properties in SA, also reported higher expenses, including R20m worth of transaction costs related to an unsuccessful casino acquisition.
Expenses rose 21% from the prior period owing to higher payroll and property-related costs.
Net finance costs rose to R167m, from R164m previously, while revenue per available room declined 2%, despite the average room rate rising marginally by 1% to R1,100.
“Hotel trading is expected to remain under pressure until the outlook for the SA economy improves,” the fund said.
Its loan-to-value was low at 16%, and HPF was “committed to and able to fund its ongoing capital expenditure programme”, it said.
HPF is 60% owned by Tsogo Sun and 40% by institutional and retail investors. Tsogo Sun is being broken into two companies Tsogo Sun Gaming and Tsogo Sun Hotels. The HPF stake will sit in Tsogo Sun Hotels along with directly held hotels including eight African hotels.
As a real-estate investment trust (Reit), HPF must pay the majority of its income out as dividends. It does not own hotels in other parts of Africa because it would then not be able to meet its Reit tax commitments. Only SA and Kenya use the Reit tax dispensation.