CFO Riaan Erasmus says the tight control of cash spending resulted in better than expected results.
The Hospitality Property Fund has announced that it’s revenue for the interim period ended 30 September 2020 dropped to R85.5 million from R335.3 million due to the impact of Covid-19 on the hospitality industry.
“As the Hospitality Property Fund’s assets operate in the hospitality sector, the company has been significantly impacted by Covid-19 and the subsequent lockdown regulations being imposed – not only by the South African government, but also globally,” says CFO Riaan Erasmus. “This resulted in most of the company’s hotels being closed during the level 5 and level 4 lockdown periods.”
Subsequently, Riaan says that even though the sector could reopen and trade, demand has been subdued given that most corporates continued to work remotely, resulting in very little corporate travel, and limited travel from government.
“Demand from local leisure has been increasing slowly, however, there is still no traction from the international traveller,” he says.
Riaan explains that, due to the lease structures in place between the Hospitality Property Fund and its tenants, two of its tenants prematurely vacated their respective leased premises, and rental income from its total portfolio decreased by 74 percent, resulting in the company not being able to comply with all its minimum debt covenant requirements.
Mitigating the impact of Covid-19
Even though the impact of Covid-19 has been significant for the property fund, it could have been much worse. “As a result of the pandemic, we acted early and implemented the following measures before the lockdown, to ensure sustainability of the Hospitality Property fund and its tenants,” Riaan says.
The Hospitality Fund suspended all capital expenditure programmes, with only emergency capital expenditure being incurred. It obtained waivers from the company’s lenders regarding its minimum covenant requirements and placed employees on furlough to reduce employee costs. The fund also reduced other operating expenditures, renegotiated payment terms with its suppliers, and supported it’s tenants in terms of the various lease agreements in place to ensure sustainability.
“The speed in which we were able to respond to the President’s announcement in declaring a state of disaster allowed us to negotiate with banks, suppliers and employees before most of the market reacted,” Riaan says. “This enabled us to get favorable support and commitment from our stakeholders, which is still benefiting the Hospitality Property Fund today.”
He explains that the tight control of cash spending has resulted in the results being better than expected by shareholders, although the results reflect a loss.
The company also reported that it’s operating profit fell to R29 million from R305.2 million, with a loss of R133.4 million for the year.
“The company’s gearing is at a reasonable level and our current liquidity is at a comfortable level to meet our obligations,” Riaan concludes.
