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Unaudited interim financial results for the six months ended 31 December 2013
VUNANI PROPERTY INVESTMENT FUND LIMITED
Granted REIT status by the JSE
(Incorporated in the Republic of South Africa)
(Registration number 2005/019302/06)
JSE code: VPF
ISIN: ZAE000185872
UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS
ENDED 31 DECEMBER 2013
FINANCIAL HIGHLIGHTS
- Distribution per linked unit up by 5.26% from 38 cents to 40.00 cents
- Revenue up by 16.4% from R106.9 million to R124.5 million
- Portfolio growth up by 20.8% to R1.8 billion
- Net property income up by 10.4% to R82.8 million
- Linked unit price 965 cents
- Net asset value up by 18.2% from 742.44 to 877.81 cents per linked unit
NON-FINANCIAL HIGHLIGHTS
- 80% Blue chip tenants
- 6.2% Vacancy.
- 93% Tenant retention
COMMENTARY
Introduction
Vunani Property Investment Fund Limited (“VPIF” or “the company” or “the Fund”) recently
converted to a real estate investment trust (“REIT”) and offers investors an opportunity to
participate in an office-dominated JSE listed property fund. The portfolio currently comprises 29
strategically located, high quality buildings/office parks, located in South Africa with a total Gross
Lettable Area (“GLA”) of 163 324m2 valued at R1.8 billion.
The board of directors is pleased to announce the interim results for the period ended 31 December
2013. The interim results are attractive given the stagnant economy and VPIF was able to maintain
its high rating in all of its Key Performance Indicators due to tight, focussed management. The
growth in distribution per linked unit of 5.26% underplays the Fund’s performance as 48.5 million
units (an increase of 40%) were issued during the period. The underlying portfolio is performing well
and the Fund is on track to deliver on its guidance of between 84 and 86 cents per linked unit for
the full year, The Fund’s strategy has remained largely unchanged from inception in 2006 and it
will continue to extract value from its chosen market of A+, A and some B grade offices.
Refurbishment of existing stock continues to enhance earnings as do new acquisitions. Volatility in
the property sector has assisted sellers to be more realistic in their price expectations and the Fund
has a solid acquisition pipeline that will deliver value to its unitholders. Many deals that the Fund
has been assessing for some time can now be concluded at attractive yields. We anticipate that the
next reporting period will see a material increase in our acquisitions, but not at the expense of
yield and quality.
On 23 August 2013, VPIF successfully concluded its rights offer and issued 48.5 million new linked
units, raising R455 million. The proceeds were used to settle the acquisition price of the
Greenstone Hill Office Park properties and to settle existing variable debt to the extent of R180
million. The units were issued at a 4% discount to the closing clean price of VPIF linked units on the
JSE on 4 July 2013. The Fund provides investors with a well-managed, low risk platform that is well-
placed to deliver sustainable, above-market income growth.
Summary of financial performance Unaudited Audited Unaudited
6 months year to 6 months
31 Dec 2013 30 Jun 2013 31 Dec 2012
Net asset value per linked unit (cents) 877.81 861.86 742.44
Tangible net asset value per linked unit
(cents) 874.96 858.05 811.92
Distribution per linked unit (cents) 40.00 77.25 38.00
Linked unit price (cents) 965.00 1 005.00 960.00
Loan to value (%) 17.1% 31.3 35.0
%
Geographical profile by revenue per month
Gauteng 63.5
Western Cape 25.4
Eastern Cape 5.4
North West 3.4
Kwa-Zulu Natal 1.8
Northern Cape 0.6
100.0
Sectoral profile by revenue Vacancy profile Occupied Vacant
per month % % %
Commercial 94.3 Commercial 85.9 6.0
Retail 4.3 Retail 4.7 0.2
Industrial 1.4 Industrial 3.2 -
100.0 93.8 6.2
Tenant profile by revenue per month % Tenant profile by GLA %
National / government 63.8 National / government 54.5
Listed / large entities 15.9 Listed / large entities 15.3
Other 20.3 Other 30.2
Blue chip 79.7 Blue chip 69.8
At 31 December 2013 the property portfolio reported a vacancy level of 6.2%.
Vacant Vacant
31 Dec 30 Jun
Total GLA 2013 2013
2
(m ) % %
Office 149 976 6.0% 5.4%
Retail 8 096 0.2% 0.2%
Industrial 5 251 - -
Total 163 324 6.2% 5.6%
The abovementioned vacancy includes 2.2% of vacancy at Investment Place which was extensively
refurbished. The weighted average lease escalation is 8.4% for the portfolio.
Reconciliation of change in GLA of the Total GLA at 30 Net increase in Total GLA at 31
Fund: Jun 2013 GLA Dec 2012
2 2
(m ) (m ) (m2)
Office 132 247 17 729 149 976
Retail 8 096 - 8 096
Industrial 5 251 - 5 251
Total 145 594 17 729 163 324
Acquisitions/business combinations
During the period the Fund made the following acquisitions:
Weighted
Acquisition GLA Acquistion average
Transfer cost annual
2
date R’000 (m) yield escalation
1 Aug 2013 &
Greenstone Hill Office Park 30 Oct 2013 148 575 17 729 8.8% 7.0%
This office park consists of 10 buildings in the sectional title schemes known as Greenstone Hill
Office Park, situated at Erf 1841 Greenstone Hill Extension 22 Township, Gauteng and occupied 83%
by national and listed tenants with an average lease expiry of 4.2 years.
Net assets acquired Total
R’000
Investment property 266 775
Trade and other receivables 105
Income tax receivable 365
Cash and cash equivalents 323
Other financial liabilities (117 383)
Trade and other payables (1 610)
Net assets acquired 148 575
Cost of investment 148 575
Settlement of cost of investment:
Cash paid 148 575
Post balance sheet events
On 14 January 2014, in accordance with the general authority granted at the annual general
meeting of unitholders held on 27 September 2013, the company cumulatively purchased 5.3% (R86
million) of its linked units on the JSE Limited (“JSE”), through its subsidiary, Vunani Property
Investment Trust, at 965 cents per linked unit.
The management and board of VPIF are committed to the transformation and empowerment
objectives of South Africa and have expended considerable effort in addressing VPIF’s objective of
having a meaningful, sustainable and commercially driven black economic empowerment
shareholding at the listed level. This purchase is in anticipation of the proposed BBBEE structure
which will be implemented in the second quarter of 2014 once all relevant details and investors
have been identified and finalised.
On 16 January 2014 unitholders of the company approved the delinking of the linked units, the
termination of the Debenture Trust Deed, the termination of the debentures and the capitalisation
of the value of the debentures in the books of account of VPIF to form part of VPIF’s stated capital
as well as the conversion of the company’s ordinary par value shares into ordinary shares with no
par value.
Fair value adjustments
The entire portfolio, with the exception of the Greenstone property was independently valued at
30 June 2013 and the board of directors does not believe that a revaluation of the properties are
warranted as there were no factors that would materially affect the valuation of the portfolio for
the period ended 31 December 2013. The abovementioned properties were independently valued
on 1 April 2013.
The fair value adjustment reflected in the statement of comprehensive income relates to the
change in fair value of the interest rate swaps.
Arrears
Tight management of receivables resulted in total arrears increasing slightly to R4.2 million (30
June 2013 R4.1 million). Arrears are being managed carefully.
Borrowings
At 31 December 2013 the Fund had a loan to value of 17.1% (30 June 2013: 31.3%). The Fund
remains capitalised to take advantage of yield-enhancing acquisitions. The fund has an average cost
of debt of 9.2% with 100% of the outstanding debt hedged through the use of interest rate swaps.
Unaudited Audited Unaudited
6 months year to 6 months
31 Dec 30 Jun 31 Dec
R’000 2013 2013 2012
Standard Bank Limited loan – carried at cost 358 390 533 305 532 325
Fair value of interest rate swaps 4 887 5 796 21 260
Carried at fair value through profit or loss 363 277 539 101 553 585
Less amount to be settled within 12 months and included in
current liabilities - (319 196) (324 196)
Re-draw portion of facility (43 818) - -
Non-current portion of other financial liabilities 319 459 219 905 229 389
Amount to be settled within 12 months and included in
current liabilities - 319 196 324 196
Less redraw portion of facility - (43 400) (36 000)
Current portion of other financial liabilities - 275 796 288 196
At 30 June 2013, the current portion of the facilities were extended for a further 3 years.
Basis of accounting
The condensed financial results for the six months to 31 December 2013 have been prepared in
accordance with the recognition and measurement criteria of International Financial Reporting
Standards (“IFRS”), the presentation and disclosure requirements of IAS 34: Interim Financial
Reporting, the SAICA Financial Reporting Guides as Issued by the Accounting Practices Committee,
Financial Pronouncements as issued by the Financial Reporting Standards Council, the Companies
Act 71, of 2008 and the JSE Limited Listings Requirements.
The accounting policies applied in the preparation of the results for the period ended 31 December
2013 are in terms of IFRS and consistent with those adopted in the financial statements for the year
ended 30 June 2013. These interim condensed financial results have been prepared by Marelise de
Lange, B.Com(Hon)(Acc).
The accounting policies as set out in the audited financial statements for the year ended 30 June
2013 have been consistently applied. These condensed consolidated interim results incorporate the
financial results of the company and its subsidiaries. Results of subsidiaries are included from the
effective date of acquisition. Investment property comprises land and buildings held to generate
rental income and capital growth over the long term and are carried at fair value. Should any
properties no longer meet the company’s investment criteria and be sold, any profits or losses will
be of a capital nature and will be taxed at rates applicable to capital gains.
Share and debenture capital
The authorised share capital is two billion ordinary shares of R0.0025 each. Each ordinary share is
linked to one unsecured variable rate debenture of R2.4975. The ordinary shares and debentures
traded as linked units on the JSE at 31 December 2013. In terms of the Debenture Trust Deed, the
interest payable on the debenture is calculated in accordance with the distributable income
formula which is distributed 100% annually. During the period 48 503 939 new linked units were
issued in terms of a rights offer.
On 16 January 2014 unitholders of the company approved the delinking of the linked units, the
termination of the Debenture Trust Deed, the termination of the debentures and the capitalisation
of the value of the debentures in the books of account of VPIF to form part of VPIF’s stated capital
as well as the conversion of the company’s ordinary par value shares into ordinary shares with no
par value, which took effect on Monday, 17 February 2014.
Prospects
Despite the difficult economic climate, the portfolio has performed well over the past six months
and is on track to deliver on the guidance previously provided to the market. The board will
continue to focus on its strategy of growing the Fund with yield-enhancing assets without
compromising on quality. This prospects statement has not been reviewed or reported on by the
Fund’s independent external auditors.
Cash distribution
The board has approved and notice is hereby given of an interim distribution (distribution number
5) of 40.00 cents per linked unit for the six months ended 31 December 2013.
In accordance with VPIF’s status as a REIT, linked unitholders are advised that the distribution
meets the requirements of a “qualifying distribution” for the purposes of section 25BB of the
Income Tax Act, No. 58 of 1962 (“Income Tax Act”). Accordingly, qualifying distributions received
by local tax residents must be included in the gross income of such linked unitholders (as a non-
exempt dividend in terms of section 10(1)(k)(aa) of the Income Tax Act), with the effect that the
qualifying distribution is taxable as income in the hands of the linked unitholder. These qualifying
distributions are, however, exempt from dividend withholding tax in the hands of South African tax
resident linked unitholders, subject to provision of the required declarations to the unitholders’
Central Securities Depository Participant (“CSDP”) or broker, as the case may be, in respect of
uncertificated linked units, or the company, in respect of certificated linked units.
Qualifying distributions received by non-resident linked unitholders will not be taxable as income
and instead will be treated as ordinary dividends but which are exempt in terms of the usual
dividend exemptions per section 10(1)(k)(i) of the Income Tax Act. It should be noted that until 31
December 2013 qualifying distributions received by non-residents were not subject to dividend
withholding tax. From 1 January 2014, any qualifying distribution received by a non-resident from a
REIT will be subject to dividend withholding tax at 15%, unless the rate is reduced in terms of any
applicable agreement for the avoidance of double taxation between South Africa and the country of
residence of the linked unitholder. Assuming dividend withholding tax will be withheld at a rate of
15%, the net amount due to non-resident linked unitholders will be 34.00 cents per linked unit.
Local tax resident linked unitholders as well as non-resident linked unitholders are encouraged to
consult their professional advisors should they be in any doubt as to the appropriate action to take.
Summary of the salient dates relating to the cash distribution are as follow:
Declaration date Monday, 24 February 2014
Last date to trade in order to participate in the cash distribution Thursday, 20 March 2014
Linked units trade ex-distribution Monday, 24 March 2014
Record date Friday, 28 March 2014
Payment date Monday, 31 March 2014
Linked units may not be dematerialised or rematerialised between Monday, 24 March 2014 and
Friday, 28 March 2014, both dates inclusive.
On behalf of the board
PD Naidoo RF Kane
Chairman Chief executive officer
24 February 2014
Corporate information
Vunani Property Investment Fund Limited
Granted REIT status by the JSE
Incorporated in the Republic of South Africa
Registration number: 2005/019302/06
JSE code: VPF
ISIN: ZAE000185872
Listed on the JSE Limited (“JSE”)
Board of directors:
PD Naidoo* (Chairman) RR Emslie*#
RF Kane+(Chief Executive Officer) JR Macey*#
M de Lange+(Financial Director) EG Dube %
PW Mackenzie+ CE Chimombe-Munyoro %
PM Tau-Sekati*# KN Vundla*#
*Independent non-executive director
#Member of audit and risk committee
+Executive director
%Non-executive director
Company secretary: Probity Business Services Proprietary Limited (N Toerien)
Sponsor: Grindrod Bank Limited
Transfer secretary: Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
Physical/Registered and postal address:
Vunani House, Vunani Office Park, 151 Katherine Street, Sandown, Sandton, 2196
PO Box 652419, Benmore, 2010
Telephone number: +27 11 263 9500
Facsimile number: +27 11 388 6849
STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
6 months 6 months year to
31 Dec 31 Dec 30 Jun
R’000 2013 2012 2013
Investment property income 124 534 106 949 216 883
Straight-line rental adjustment 2 380 5 954 12 957
Revenue 126 914 112 903 229 840
Property expenses (44 133) (37 896) (74 948)
Net property income 82 781 75 007 154 892
Other income 5 800 52 1 967
Other operating expenses (2 231) (1 070) (3 169)
Asset management fees (4 502) (3 806) (8 120)
Operating profit 81 848 70 183 145 570
Finance income 1 107 676 1 616
Finance costs (16 110) (17 814) (40 821)
Fair value adjustments 909 (4 491) 45 405
Profit before debenture interest and income tax 67 754 48 554 151 770
Debenture interest (67 649) (45 835) (93 174)
Profit before amortisation of debenture premium 105 2 719 58 596
Amortisation of debenture premium 2 159 953 1 889
Profit before income tax 2 264 3 672 60 485
Income tax (593) (3 312) 84 849
Current tax (823) - (234)
Deferred tax 230 (3 312) 85 083
Profit for the period 1 671 360 145 334
Total comprehensive income for the period
attributable to equity holders 1 671 360 145 334
Unaudited Unaudited Audited
RECONCILIATION OF ATTRIBUTABLE INCOME TO 6 months 6 months year to
EARNINGS, HEADLINE EARNINGS AND DISTRIBUTABLE 31 Dec 31 Dec 30 Jun
INCOME 2013 2012 2013
Total comprehensive income for the period
attributable to equity holders 1 671 360 145 334
Debenture interest 67 649 45 835 93 174
Amortisation of debenture premium (2 159) (953) (1 889)
Earnings attributable to linked unit holders 67 161 45 242 236 619
Earnings attributable to linked unit holders 67 161 45 242 236 619
Profit on sale of subsidiary - - (1 927)
Gross revaluation of investment property - - (36 320)
Deferred tax on revaluation - - (80 840)
Headline earnings attributable to linked unit holders 67 161 45 242 117 532
Earnings attributable to linked unit holders 67 161 45 242 236 619
Straight-line rental adjustment (2 380) (5 954) (12 957)
Fair value adjustments (909) 4 491 (45 405)
Deferred tax (230) 3 312 (85 083)
Distributable income 63 641 47 091 93 174
NUMBER OF LINKED UNITS ‘000
Linked units in issue 169 122 120 618 120 618
Weighted average number of linked units in issue 142 850 120 618 120 618
Distribution per linked unit declared (cents) 40.00 38.00 77.25
Distribution per linked unit (cents) 37.63 39.04 77.25
Earnings per liked unit (cents) 47.00 37.51 196.17
Headline earnings per linked unit (cents) 47.00 37.51 97.44
STATEMENT OF FINANCIAL POSITION
Unaudited Audited Unaudited
6 months year to 6 months
31 Dec 30 Jun 31 Dec
R’000 2013 2013 2012
ASSETS
Non-current assets 1 856 056 1 586 016 1 534 207
Investment property 1 838 450 1 567 667 1 520 909
Property, plant and equipment 6 381 6 734 5 799
Other non-current assets 6 408 7 028 7 499
Deferred tax 4 817 4 587 -
Current assets 56 725 34 882 44 511
Trade and other receivables 15 211 11 261 13 514
Income tax receivable - 66 47
Cash and cash equivalents 41 514 23 555 30 950
Total assets 1 912 781 1 620 898 1 578 718
EQUITY AND LIABILITIES
Equity 454 317 452 524 307 550
Ordinary share capital 423 301 301
Accumulated loss (50 253) (46 061) (53 616)
Non-distributable reserve 504 147 498 284 360 865
Debentures 1 031 257 587 029 587 965
Linked unit holders’ interest 1 484 574 1 039 553 895 515
Other liabilities
Other non-current liabilities 319 459 219 905 313 196
Other financial liabilities 319 459 219 905 229 389
Deferred tax - - 83 807
Current liabilities 107 784 361 440 370 007
Current portion of other financial liabilities - 275 796 288 196
Trade and other payables 40 043 38 305 35 977
Linked unit holders for distribution 67 649 47 339 45 834
Current tax payable 56 - -
Total liabilities 427 207 581 345 683 203
Total equity and liabilities 1 912 781 1 620 898 1 578 718
Linked units in issue (‘000) 169 122 120 618 120 618
Net asset value per linked unit (cents) 877.81 861.86 742.44
Net tangible asset value less deferred tax per
linked unit (cents) 874.96 858.05 811.92
CONDENSED STATEMENT OF CASHFLOW
Unaudited Unaudited Audited
6 months 6 months year to
31 Dec 31 Dec 30 Jun
R’000 2013 2012 02013
Cash generated from operations 81 155 33 702 147 770
Finance income received 1 107 676 1 616
Finance costs paid (16 110) (17 814) (40 821)
Income tax paid (757) (10) (262)
Distributions paid to unit holders (47 339) (40 974) (86 810)
Net cash inflow from operating activities 18 056 24 420 21 493
Net cash outflow from investing activities (270 362) (87 446) (93 361)
Net cash inflow from financing activities 270 265 122 774 75 381
Net cash increase in cash and cash equivalents 17 959 10 908 3 513
Cash and cash equivalents at the beginning of the period 23 555 20 042 20 042
Cash and cash equivalents at the end of the period 41 514 30 950 23 555
STATEMENT OF CHANGES IN EQUITY
(Accumulated
Non- loss)/
Ordinary distributable retained
R’000 share capital reserve earnings Total
Balance at 31 December 2012 301 360 865 (53 616) 307 550
Total comprehensive income for the
period:
Profit for the period 144 974 144 974
Transfer to non-distributable
reserve 137 419 (137 419) -
Balance at 30 June 2013 301 498 284 (46 061) 452 524
Transactions with owners of the
company recognised directly in
equity:
Issue of linked units 122 122
Total comprehensive income for the
period:
Profit for the period 1 671 1 671
Transfer to non-distributable
reserve 5 863 (5 863) -
Balance at 31 December 2012 423 504 147 (50 253) 454 317
CONDENSED SEGMENTAL ANALYSIS
for the six months to 31 December 2013 Gauteng KwaZulu- Northern Western Cape Eastern Cape North West Total
R’000 Natal Cape
Province
Extracts from the statement of
comprehensive income
Investment property income 82 018 1 824 581 29 828 6 326 3 957 124 534
Straight-line rental adjustment (1 470) (43) 7 3 419 341 126 2 380
Property expenses (31 429) (407) (111) (10 015) (1 433) (738) (44 133)
Segmental results 49 119 1 374 477 23 232 5 234 3 345 82 781
Extracts from the Statement of
financial position
Investment property
Opening balance (30 June 2013) 973 891 29 237 9 746 402 576 92 499 59 718 1 567 667
Additions through business
combinations 266 775 - - - - - 266 775
Other additions 1 628 - - - - - 1 628
Straight-line rental adjustment (1 470) (43) 7 3 419 341 126 2 380
Closing balance 1 240 824 29 194 9 753 405 995 92 840 59 844 1 838 450
for the six months to 31 December 2012 Gauteng KwaZulu- Northern Western Cape Eastern Cape North West Total
R’000 Natal Cape
Province
Extracts from the statement of
comprehensive income
Investment property income 66 661 1 695 543 28 513 5 938 3 599 106 949
Straight-line rental adjustment 640 79 26 4 344 491 374 5 954
Property expenses (26 833) (410) (106) (8 439) (1 359) (749) (37 896)
Segmental results 40 468 1 364 463 24 418 5 070 3 224 75 007
Extracts from the Statement of financial
position
Investment property
Opening balance (30 June 2012) 864 436 29 552 9 496 376 309 89 601 57 000 1 426 394
Additions through business
combinations 64 579 - - 20 004 - - 84 583
Other additions 2 677 - - 1 288 13 - 3 978
Straight-line rental adjustment 640 79 26 4 344 491 374 5 954
Closing balance 932 332 29 631 9 522 401 945 90 105 57 374 1 520 909
Date: 24/02/2014 07:13:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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