LEASE LIABILITIES AND COMMITMENTS

The group leases various hotel properties including the Garden Court Marine Parade, Southern Sun OR Tambo, Cape Town City Bowl Complex, Southern Sun Cape Sun, Sandton Sun, InterContinental Sandton Towers and Garden Court Sandton City. These rental contracts are typically made for fixed periods of 20 years to 30 years, but may have extension options as described below.

Variable lease payments

Some property leases contain variable payment terms that are linked to the EBITDA or revenue generated by the hotel. Due to the variable nature of Ebitda the variable lease payments cannot be predicted with reasonable assurance, these variable leases are not considered in determining the lease liability.

For five leases, up to 100% of lease payments are on the basis of variable payment terms with percentages of 98% of EBITDA or 18% of rooms revenue. Variable payment terms are used for a variety of reasons, including for the rental expense to correlate with the operating performance of the hotel property. Variable lease payments that are based on EBITDA or revenue generated by the hotel are recognised in profit or loss in the period in which the condition triggers those payments occurs.

A 10% increase in EBITDA across all hotels in the group with such variable lease contracts would increase total lease payments by approximately R1.5 million. The same increase in revenue would increase total lease payment by approximately R0.7 million.

Variable lease payments are included in other operating expenses.

Extension options and termination options

Extension options and termination options are included in certain property and equipment leases across the group. These are used to maximise operational profitability in terms of managing the assets used in the group’s operations. The majority of extension and termination options held are exercisable only by the group and not by the respective lessor.

The leases were individually assessed for management’s intention of extending the lease on an individual basis and the extension period was included in determining the lease liability where management was reasonably certain that the extension period would be exercised.

Residual value guarantees

The group has not provided residual value guarantees in relation to any of its leases as none of its leases contain residual value guarantees.

Lease commitments

At the balance sheet date the group had outstanding commitments under non-cancellable operating leases which are not capitalised because the lease payments relate to variable lease payments, short-term leases (leases with a lease term of 12 months or less) and low-value assets (comprising mainly small items of office equipment and furniture), which fall due as follows:

The group has no leases not yet commenced but committed nor does it have sale and leaseback transactions. None of the group’s leases imposes covenants or restrictions on the group’s performance.