PROPERTY, PLANT AND EQUIPMENT

The group reassessed the useful lives of property, plant and equipment during the year. Changes in useful lives and residual values are not considered significant estimates and judgement as any changes in useful lives and residual values have historically been gradual and any adjustments made, where necessary, have not been significant. The group also reviewed the residual values during the year and the impact is an increase in the residual value that resulted in a decrease in depreciation of R14 million (2019: Rnil).

During the year, the group impaired property, plant and equipment by R716 million (2019: R94 million) as a consequence of the downward medium-term trading expectations due to the current economic environment which has been exacerbated by the global COVID-19 pandemic. The recoverable amount of R1 805 million for the below mentioned properties has been determined by calculating the value in use using a discounted cash flow model (‘DCF’). The weighted average cost of capital (‘WACC’) utilised in the valuation was 14% for the South African hotels and range between 9% and 13.5% for the offshore properties. In order to reflect the cash flow impact of the total collapse in demand caused by the COVID-19 pandemic, management assumed a 96% reduction in revenue for the first six months of the 2021 financial year. Cash flows for the second half of 2021 and the first half of 2022 reflect a slow recovery in both occupancy and rate with the group’s entire portfolio assumed to be fully operational by September 2022 and trading at similar levels achieved in the 2019 financial year. The annual growth rate applied to the cash flow forecasts for the 2023 to 2025 financial years ranged between 4.5% and 5.5%. The terminal growth rate applied for the offshore properties is between 1.4% and 2.1% and 5% for the South African properties.

The carrying values of land, buildings, plant and equipment of the following hotel properties were impaired during the year. Unless indicated otherwise the impairments were as a result of the downward medium-term trading expectations due to the impact of COVID-19 on current trading environments and the consequential reduction in the hotel properties’ value in use which totalled R750 million and R1 055 million for the SA and Offshore hotel properties respectively. For the SA hotel properties, the value in use per hotel brand are as follows: Garden Court R206 million, Holiday Inn R265 million, Southern Sun R264 million and Stay Easy R15 million. The value in use for the Offshore Southern Sun brand is R1 055 million.

The table below indicates the sensitivities of the aggregate impairment for the following changes to assumptions:

Where the group is the lessor

The group rents out retail space within hotel properties.

Property rentals (included in other income) earned during the year was R10 million (2019: R6 million).