Wrap Text
Condensed consolidated interim results for the six months ended 28 February 2014
INGENUITY PROPERTY INVESTMENTS LIMITED
("the Company" or "the group" or "Ingenuity")
(Incorporated in the Republic of South Africa)
Registration number: 2000/018084/06
JSE share code: ING
ISIN: ZAE000127411
CONDENSED CONSOLIDATED INTERIM RESULTS for the six months ended 28 February 2014
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
at 28 February 2014
Unaudited Reviewed Audited
6 months 6 months year
ended ended ended
28 Feb 14 28 Feb 13 31 Aug 13
R'000 R'000 R'000
ASSETS
Non-current assets 2 417 314 1 179 020 1 396 380
Investment properties 2 252 275 767 925 1 259 876
Straight-line lease accrual 44 537 30 935 38 845
Investment properties under development 114 720 370 485 87 790
Property and equipment 5 782 86 61
Loans receivable - 9 589 9 808
Current assets 55 404 18 413 29 783
Trade and other receivables 6 028 2 950 5 649
Straight-line lease accrual 16 270 223 2 576
Tax receivable 1 105 2 822 1 105
Cash and cash equivalents 32 001 12 418 20 453
Total assets 2 472 718 1 197 433 1 426 163
EQUITY AND LIABILITIES
Shareholders' interest 949 303 506 594 615 094
Share capital 12 004 7 385 8 055
Share premium 683 690 321 024 361 224
Treasury shares (34 928) (34 928) (34 928)
Non-distributable reserve 174 987 111 584 171 464
Retained earnings 106 561 94 604 102 412
Total equity attributable to equity
holders of the parent 942 314 499 669 608 227
Non-controlling interest 6 989 6 925 6 867
Non-current liabilities 1 491 217 650 163 782 361
Borrowings 1 411 763 605 283 727 753
Other financial liabilities - 6 303 -
Finance lease liability 3 584 - -
Deferred tax 75 870 38 577 54 608
Current liabilities 32 198 40 676 28 708
Trade and other payables 15 016 37 831 14 199
Other financial liabilities - - 1 440
Prepaid rent received 9 484 2 845 6 632
Share-based payment 7 698 - 6 437
Total equity and liabilities 2 472 718 1 197 433 1 426 163
Net asset value per share (based on shares
in issue at end of period/year net of
treasury shares) 84 76 84
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
for the six months ended 28 February 2014
Unaudited Reviewed Audited
6 months 6 months year
ended ended ended
28 Feb 14 28 Feb 13 31 Aug 13
R'000 R'000 R'000
Revenue 123 324 39 989 95 675
Contractual 104 340 36 777 82 200
Straight-lining 18 984 3 212 13 475
Net operating expenses (34 867) (14 896) (38 755)
Profit before fair value adjustments 88 457 25 093 56 920
Fair value adjustments to investment properties 3 452 - 74 438
Profit before interest and taxation 91 909 25 093 131 358
Interest received 553 1 003 1 872
Interest paid (52 205) (16 877) (45 181)
Profit before taxation 40 257 9 219 88 049
Taxation (12 887) (2 977) (17 471)
Profit for the period/year 27 370 6 242 70 578
Attributable to:
Equity holders of the parent 23 861 6 087 70 274
Non-controlling interest 3 509 155 304
27 370 6 242 70 578
Profit for the period/year 27 370 6 242 70 578
Other comprehensive income:
To be reclassified subsequently to profit or loss:
Cash flow hedges 1 440 3 849 8 711
Income tax relating to components of other
comprehensive income (403) (1 078) (2 439)
Other comprehensive income for the period/year,
net of tax 1 037 2 771 6 272
Total comprehensive income for the period/year 28 407 9 013 76 850
Total comprehensive income attributable to:
Equity holders of the parent 24 898 8 858 76 546
Non-controlling interest 3 509 155 304
28 407 9 013 76 850
Total shares in issue 1 200 358 432 738 550 000 805 550 000
Number of shares in issue, net of
treasury shares 1 131 425 205 669 616 773 736 616 773
Weighted average number of shares 1 065 896 544 669 616 773 693 296 225
Basic and diluted earnings per share (cents) 2.2 0.9 10.1
NOTES TO THE CONSOLIDATED STATEMENTS OF
PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Headline earnings
Headline and diluted headline earnings
per share (cents) 2.0 0.9 2.0
Workings
Headline earnings are calculated as follows:
Earnings attributable to equity holders 23 861 6 087 70 274
Fair value adjustment of investment properties (3 452) - (74 438)
Deferred tax on fair value adjustment 967 - 18 059
Adjusted earnings for HEPS 21 376 6 087 13 895
STATEMENTS OF CHANGES IN EQUITY
for the six months ended 28 February 2014
Non-
distribut-
Share Share Treasury able
capital premium shares reserve
R'000 R'000 R'000 R'000
Balance at 1 September 2012 7 385 321 024 (34 928) 108 813
Decrease in non-controlling interest - - - -
Total comprehensive income for
the period - - - 2 771
Profit for the period - - - -
Other comprehensive income - - - 2 771
Net change in fair value of cash flow hedge
recognised directly in other comprehensive
income - - - 2 771
Realisation of share-based payment - - - -
Dividend paid - 1.0 cent per share - - - -
Balance at 28 February 2013 7 385 321 024 (34 928) 111 584
Decrease in non-controlling interest - - - -
Total comprehensive income for the period - - - 3 501
Profit for the period - - - -
Other comprehensive income - - - 3 501
Net change in fair value of cash flow hedge
recognised directly in other comprehensive
income - - - 3 501
Issue of 67 000 000 shares 670 40 200 - -
Transfer to non-distributable reserve
- fair value adjustments to investment
properties - - - 56 379
Balance at 31 August 2013 8 055 361 224 (34 928) 171 464
Decrease in non-controlling interest
(settlement of agreement) - - - -
Increase in non-controlling interest
(business acquired)
Total comprehensive income for the period - - - 1 037
Profit for the period - - - -
Other comprehensive income - - - 1 037
Net change in fair value of cash flow hedge
recognised directly in other comprehensive
income - - - 1 037
Issue of 394 808 432 shares 3 949 322 466 - -
Transfer to non-distributable reserve
- fair value adjustments to investment
properties - - - 2 486
Dividend paid - 1.5 cents per share - - - -
Balance at 28 February 2014 12 004 683 690 (34 928) 174 987
Share- Non-con-
based Retained trolling
payment earnings interest Total
R'000 R'000 R'000 R'000
Balance at 1 September 2012 863 94 520 6 977 504 654
Decrease in non-controlling interest - - (207) (207)
Total comprehensive income for the period - 6 087 155 9 013
Profit for the period - 6 087 155 6 242
Other comprehensive income - - - 2 771
Net change in fair value of cash flow hedge
recognised directly in other comprehensive
income - - - 2 771
Realisation of share-based payment (863) 863 - -
Dividend paid - 1.0 cent per share - (6 866) - (6 866)
Balance at 28 February 2013 - 94 604 6 925 506 594
Decrease in non-controlling interest - - (207) (207)
Total comprehensive income for the period - 64 187 149 67 837
Profit for the period - 64 187 149 64 336
Other comprehensive income - - - 3 501
Net change in fair value of cash flow hedge
recognised directly in other comprehensive
income - - - 3 501
Issue of 67 000 000 shares - - - 40 870
Transfer to non-distributable reserve
- fair value adjustments to investment
properties - (56 379) - -
Balance at 31 August 2013 - 102 412 6 867 615 094
Decrease in non-controlling interest
(settlement of agreement) - - (9 808) (9 808)
Increase in non-controlling interest
(business acquired) - - 6 421 6 421
Total comprehensive income for the period - 23 861 3 509 28 407
Profit for the period - 23 861 3 509 27 370
Other comprehensive income - - - 1 037
Net change in fair value of cash flow hedge
recognised directly in other comprehensive
income - - - 1 037
Issue of 394 808 432 shares - - - 326 415
Transfer to non-distributable reserve
- fair value adjustments to investment
properties - (2 486) - -
Dividend paid - 1.5 cents per share - (17 226) - (17 226)
Balance at 28 February 2014 - 106 561 6 989 949 303
STATEMENTS OF CASH FLOWS
for the six months ended 28 February 2014
Unaudited Reviewed Audited
6 months 6 months year
ended ended ended
28 Feb 14 28 Feb 13 31 Aug 13
Note R'000 R'000 R'000
Cash flows from operating activities
Cash generated from operations 1 81 100 33 207 36 689
Interest received 2 362 592 1 034
Interest paid 3 (57 853) (16 877) (39 271)
Taxation paid 4 - (1 265) (627)
Dividends paid (17 226) (6 866) (6 867)
Net cash inflow/(outflow) from
operating activities 6 383 8 791 (9 042)
Cash flows from investing activities
Additions to property and equipment (5 767) (32) (31)
Acquisitions/Additions to investment properties (915 373) (25 805) (118 460)
Acquisitions/Additions to investment properties
under development (26 930) (83 922) (111 570)
Interest capitalised to investment properties
and investment properties under development (259) - (15 567)
Prepayments for investment property acquired
after period/year-end (105) - (2 284)
Business combination 5 (42 910) - -
Net cash (outflow) from investing activities (991 344) (109 759) (247 912)
Cash flows from financing activities
Finance lease payments (109) - -
Proceeds from the issue of shares 326 415 - 40 870
Financial liabilities raised 671 643 82 719 205 870
Settlement of interest rate swap (1 440) - -
Net cash inflow from financing activities 996 509 82 719 246 740
Net increase/(decrease) in cash and
cash equivalents 11 548 (18 249) (10 214)
Cash and cash equivalents at the beginning of
the period/year 20 453 30 667 30 667
Cash and cash equivalents at the end of
the period/year 32 001 12 418 20 453
NOTES TO THE STATEMENTS OF CASH FLOWS
for the six months ended 28 February 2014
Unaudited Reviewed Audited
6 months 6 months year
ended ended ended
28 Feb 14 28 Feb 13 31 Aug 13
R'000 R'000 R'000
1 Cash generated from operations
Profit before taxation 40 257 9 219 88 049
Adjusted for:
Bad debts written off 87 - 215
Bonus accrual 363 - 490
Interest received (553) (1 003) (1 872)
Interest paid 52 205 16 877 45 181
Depreciation 69 21 46
Amortisation of finance costs 1 221 230 619
Amortisation of tenant installations 2 106 965 2 202
Amortisation of letting commission 234 122 284
Share-based payment fair value adjustment 1 261 1 181 6 437
Straight-lining of operating leases (income) (18 984) (3 212) (13 475)
Increase in fair value of investment
properties (3 452) - (74 438)
74 814 24 400 53 738
Decrease/(Increase) in trade and other
receivables 904 649 (144)
Increase/(Decrease) in trade and other
payables 5 382 8 158 (16 905)
81 100 33 207 36 689
2 Interest received
Amount outstanding at the beginning of the
period/year 4 932 4 094 4 094
Interest income per statements of profit or loss 553 1 003 1 872
Amount outstanding at the end of the
period/year (5 123) (4 505) (4 932)
362 592 1 034
3 Interest paid
Amount outstanding at the beginning of the
period/year 5 910 - -
Interest paid per statements of profit or loss 52 205 16 877 45 181
Interest on finance lease (262) - (5 910)
57 853 16 877 39 271
4 Taxation paid
Amount refundable at the beginning of the
period/year (1 105) (1 557) (1 557)
Taxation charge per statements of profit
or loss - - (175)
Amount outstanding at the end of the
period/year 1 105 2 822 1 105
- 1 265 (627)
5 Business combination
On 1 September 2013 the group acquired 67% of the issued share capital of Insight
Property Developers (Palmyra Road) Proprietary Limited. The company's only asset
is a shopping centre situated in Palmyra Road with a GLA of 2 868 square metres.
The purchase price was settled in cash.
28 Feb 14
R'000
Net assets acquired:
Carrying amount of net assets - 1 September 2013
Investment property 68 834
Other current assets 402
Trade and other receivables 8 996
Cash and cash equivalents 759
Total assets 78 991
Financial liabilities (34 107)
Deferred tax (7 971)
Finance lease liability (3 430)
Trade and other payables (2 575)
Total liabilities (48 083)
Net assets 30 908
67% share of net assets (cost of shares) 20 708
Loan account ceded to Ingenuity Property Investments Limited 22 961
Purchase consideration settled in cash 43 669
Less: Cash on hand 1 September 2013 (759)
Net cash outflow from acquisition of business 42 910
Revenue since acquisition 4 353
After-tax profit since acquisition 2 776
The beginning of the annual reporting period is the same date as the acquisition
date, 1 September 2013.
Non-controlling interests were measured at the group's proportionate share of the
fair value of the assets acquired.
There was no contingent consideration.
The carrying amount of the trade receivables and liabilities approximates fair value.
SEGMENTAL RESULTS
for the six months ended 28 February 2014
Unaudited Reviewed Audited
6 months 6 months year
ended ended ended
28 Feb 14 28 Feb 13 31 Aug 13
R'000 R'000 R'000
Offices
Segmental revenue 61 682 24 979 54 414
Segmental results 43 715 17 766 37 311
Property assets 1 410 149 569 188 905 794
Retail
Segmental revenue 25 662 6 580 16 162
Segmental results 18 351 5 306 11 627
Property assets 508 043 115 679 237 614
Special (Gym)
Segmental revenue 6 301 1 687 3 410
Segmental results 5 633 1 526 3 096
Property assets 151 050 41 016 43 750
Parking
Segmental revenue 10 555 3 531 8 214
Segmental results 7 972 3 036 6 499
Property assets 237 507 73 200 114 139
Other
Segmental revenue 140 - -
Segmental results (41) (123) (250)
Property assets 6 333 - -
Reconciliation to the profit before interest and
taxation in the statements of profit or loss
Segmental revenue 104 340 36 777 82 200
Allocated operating expenses (28 710) (9 266) (23 917)
Segmental results 75 630 27 511 58 283
Unallocated operating expenses (6 157) (5 630) (14 838)
Fair value adjustment 3 452 - 74 438
Straight-lining adjustment 18 984 3 212 13 475
Profit before interest and taxation 91 909 25 093 131 358
Reconciliation to the statement of
financial position
Property assets 2 313 082 799 083 1 301 297
Unsegmental assets 159 636 398 350 124 866
Total assets 2 472 718 1 197 433 1 426 163
NOTES TO THE FINANCIAL STATEMENTS
BASIS OF PREPARATION
The unaudited condensed consolidated financial statements have been prepared in
accordance with and containing the information required by IAS 34: Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee, the Listings Requirements of the JSE Ltd and the requirements of the
Companies Act 71 of 2008 of South Africa, as amended.
The accounting policies adopted and methods of computation are in accordance with
International Financial Reporting Standards ("IFRS"), and are consistent with those
applied in the financial statements for the year ended 31 August 2013, except as
outlined below.
The following standards have been applied for the first time as they became effective
during the current period:
- IFRS 10: Consolidated Financial Statements
- IFRS 11: Joint Arrangements
- IAS 28: Investments in Associates and Joint Ventures
- IFRS 12: Disclosure of Interests in Other Entities
- IFRS 13: Fair Value Measurement
The adoption of the above-mentioned standards has not had a material impact on the
results of the group but will result in more disclosure than was previously shown in
the annual financial statements.
Fair value of financial instruments measured at fair value:
The interest rate swaps were settled during the current financial period. There are no
new interest rate swaps and therefore the group does not have any financial instruments
measured at fair value in the statement of financial position as at 28 February 2014.
These consolidated results were prepared under the supervision of Mr M Wagenheim
CA (SA), in his capacity as group financial director.
These consolidated interim financial results have not been audited or reviewed by the
group's auditors.
DIRECTORS' COMMENTARY
GENERAL REVIEW
Ingenuity's property portfolio continued to perform well during the period under review.
The investment property portfolio comprises 95% of the property portfolio and is well
managed, with a strong tenant base delivering good quality sustainable long-term
contractual rental income. The remaining 5% comprises property in process of development
and land held for future development. The asset base of the investment property
portfolio has increased significantly to R2.3 billion and by 189% over the comparative
period due to the completion of the developments of Glacier Place and Atlantic Centre,
the acquisition of strategic investments made and transferred during the period under
review and fair value revaluations at 31 August 2013. Management has also made
significant progress in reducing vacancies arising from the development initiatives and
those that existed in the portfolio. The current vacancy percentage is 5.7%, which is
well within accepted industry norms.
PROPERTY ACQUISITIONS AND DEVELOPMENTS
During the period under review the Company took transfer of 12 previously reported,
prime Cape-based investment properties at a total cost in excess of R1 billion. Whilst
contributing materially to our earnings base, some have further development and
value-add opportunities that will be unlocked in the future.
The development of the Reeds Parking Garage and the Glacier Parking Garage extensions
commenced during the period under review and both are due for completion in July 2014.
The total capital cost of these two schemes is estimated to be R146 million. The
combined initial return on capital expenditure is expected to exceed 9%.
Both of these developments are being financed by borrowings from facilities granted by
Nedbank Limited.
OPERATIONS
Net property income, which comprises gross rental income less direct property expenses,
has increased by 175% to R75.6 million (2013: R27.5 million) due mainly to the properties
acquired during the period, development properties being completed and coming on stream
and rental escalations from existing leases. Property expenses and non-property overhead
expenses were within budget and are well controlled.
Interest paid during the period is in respect of funding for the investment properties.
The interest rate swaps were settled in October and November 2013 and currently all
borrowings are floating. The weighted average rate of interest is 7.7% (2013: 8.4%).
The basic earnings per share is 2.2 cents (2013: 0.9 cents) and the headline earnings
per share is 2.0 cents (2013: 0.9 cents).
At the reporting date the total value of investment properties increased to
R2.3 billion (2013: R798.9 million) whilst properties under development and land held
for future development decreased to R114.7 million (2013: R370.5 million) due to the
completion of the properties under development which are now classified as investment
properties.
Borrowings increased to R1.4 billion (2013: R605.3 million) as a result of the property
acquisitions and developments which were partly funded by way of bank loans. The gearing
ratio is 57% (2013: 51%) which is within accepted industry norms. This ratio is expected
to improve by year-end when property portfolio valuations are done. The fair value
adjustment for the six-month period ended 28 February 2014 comprises the fair value
adjustment recorded in the annual financial statements of a subsidiary, Insight Property
Developers (Palmyra Road) Proprietary Limited, as the company has a February year-end.
All the other investment properties will be fair valued at the group's year-end at
31 August 2014. The year-end of Insight Property Developers (Palmyra Road) Proprietary
Limited has subsequently been changed to 31 August 2014 to coincide with the group's
year-end.
The Company terminated, by mutual agreement, the agreement with the Melrose Trust which
held a 20% interest in the Virgin Active property in Lower Long Street, Cape Town. This
resulted in an adjustment of R2.9 million through the statements of profit or loss and
other comprehensive income by way of a non-controlling interest charge. The loan
receivable from the Melrose Trust and the non-controlling interest in the statement of
financial position was settled during the period. The termination of the agreement did
not have any cash flow effects.
The net asset value per share (based on shares in issue net of total treasury shares)
is 84 cents (2013: 76 cents).
Total cash on hand at the end of this interim period amounted to R32 million
(2013: R12.4 million). Any surplus cash is used to reduce borrowings on an access
facility basis.
PROSPECTS
Ingenuity's core focus remains that of building a superior quality Cape-focused
investment fund. It seeks to achieve this by acquiring good quality income-producing
investments, the conversion of development properties into income-earning assets
and the maximising of value-add opportunities on existing income-earning properties.
The Company made significant strides during the period under review completing the
tenanting and occupation of its two major developments, namely Glacier Place and
Atlantic Centre. Two further developments commenced during the period under review
and both are due for completion during the last quarter of the current financial year.
Collectively, these properties will add to our quality long-term earnings base and
will translate to superior investment returns for our shareholders.
DIRECTORATE
There have been no changes to the directorate during the period under review.
SUBSEQUENT EVENTS
During the period under review the Company concluded an agreement to acquire the
property known as "Vineyard Centre" and situated on the corner of Dreyer Street and
Vineyard Road, Claremont at a cost of R28.2 million. The acquisition was funded by way
of a loan facility from Nedbank for R16.9 million and the balance from internal cash
resources. Transfer of this property was registered on 13 March 2014.
The Company also concluded an agreement to acquire the property known as "Tellumat
Retreat" situated at 64 White Road, Retreat at a cost of R124.5 million. The
acquisition will be funded by way of a loan facility from Nedbank for R64.5 million
and the balance by way of a combination of a vendor placement of shares to be issued
and from internal cash resources. Registration of transfer is expected during May 2014.
The Company also concluded two agreements to acquire a central city block of two
adjacent properties situated at 102 - 105 Strand Street and 117 Strand Street,
Cape Town costing R26 million and R60 million respectively. These acquisitions will
be funded by way of loan facilities from Nedbank for R14.4 million and R36 million
respectively, with the balances settled by way of a combination of vendor placements
of shares to be issued and from internal cash resources. These properties collectively
comprise an entire city block situated in Strand Street, Cape Town at the gateway
into the Cape Town CBD. They were acquired as a value-add opportunity and for
redevelopment. Registration of transfer of both these properties is expected during
May 2014.
Other than as reported above, there are no other material subsequent events which have
occurred between the end of this interim period being reported on and the date of
this report.
On behalf of the board
AA MARESKY
Chief Executive Officer
R SQUIRE-HOWE
Chairman
M WAGENHEIM
Financial Director and Company Secretary
Cape Town
12 May 2014
DIRECTORS
R Squire-Howe*^ (Chairman), AA Maresky (CEO), M Wagenheim (Financial), J Bielich,
AJ Branch*^ (British), LH Cohen*, DB Fabian*^, RS Schur*^,
* non-executive ^ independent
REGISTERED OFFICE and POSTAL ADDRESS
Suite 102, Intaba, 25 Protea Road, Claremont, Cape Town, 7708
COMPANY SECRETARY
M Wagenheim
CONTACT DETAILS
Tel: 021 674 5170
Fax: 021 674 5135
E-mail: info@ingenuityproperty.com
www.ingenuityproperty.com
TRANSFER SECRETARIES
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
Tel: 011 370 5000
SPONSOR
Nedbank Capital, a division of Nedbank Limited
AUDITORS
Mazars Inc.
BANKERS
Absa Bank Limited and Nedbank Limited
ATTORNEYS
Edward Nathan Sonnenbergs Inc.
Date: 12/05/2014 01:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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