Pretoria – Listed Hospitality Property Fund is planning to undertake a fully underwritten rights offer to raise R1.8 billion to partially settle the cash portion of its planned acquisition of a portfolio of 29 established hotel properties from Tsogo Sun.

The purchase consideration for this transaction, which the fund announced last week, would be settled by the payment of R1 billion in cash and R2.6 billion in shares. The transaction is still subject to shareholder and other approvals.

Keith Randall, chief executive of the fund, said on Wednesday that this transaction presented an attractive acquisition for Hospitality and was in line with the fund’s growth strategy to increase its critical mass by acquiring value enhancing property acquisitions from both within Tsogo Sun’s existing portfolio and from external opportunities.

Hospitality last month also concluded an agreement with Savana Property to acquire various additional sections and exclusive use areas in the Sandton Eye sectional title scheme and with Sandton Isle Investments to acquire an existing real right of extension in the scheme for a total consideration of R302 million.

These planned acquisitions follow Hospitality’s acquisition effective from September of 10 hotel properties from Southern Sun Hotels, which is owned by Tsogo Sun Holdings.

Randall said Hospitality’s inclusion in the Tsogo group provided it with future growth prospects and an attractive pipeline of acquisitions in the medium term.

But Randall said growth in hotel trading was expected to remain under pressure, given the weak economic growth prospects in South Africa.

Randall said growth would further depend on the economy’s future performance and the degree of policy certainty emanating from the government going forward.

But he said the fund remained positive that the rental income it derived from its tenants was well diversified both geographically and in terms of product offering across brand segments.

However, Randall said the contribution from the elevated performances of the hotel properties in the Cape region could be at risk, because of additional supply entering this market.

Hospitality on Wednesday reported a distribution a share of 101.01 cents for the nine months to March.

There is no comparable distribution for the previous period, because the company changed its financial year end from June to March and restructured its dual class share capital structure to a single class share capital structure.

Hospitality’s distributable earnings increased by 56.8 percent to R344.8 million from R271.9 million in June last year, largely because of the inclusion of the 10 properties from its first transaction with Tsogo Sun. Rental income increased by 5 percent to R498.8 million from R474.5 million. Expenses rose 21 percent to R39 million from R32 million. A dividend a share of 44.92c was declared.

Shares in Hospitality dropped 0.28 percent on the JSE to close at R14.20.

Source: Business Report – Roy Cokayne