Wrap Text
Preliminary summarised audited consolidated financial statements for the year ended 31 December 2014
SA Corporate Real Estate Fund
("SA Corporate" or "the Fund")
Incorporated in the Republic of South Africa
Share Code: SAC; ISIN Code: ZAE000083614
A Collective Investment Scheme in property registered in terms of the
Collective
Investment Schemes Control Act, No. 45 of 2002 and managed by SA
Corporate Real Estate Fund Managers Limited ("ManCo")
(Registration number 1994/009895/06)
REIT status approved from 1 January 2014
PRELIMINARY SUMMARISED AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED 31 DECEMBER 2014
Distribution growth
- 2nd half 2014 9.4% higher than 2nd half 2013
- Full year 9.0% higher than 2013
Capital structure
- Premium to NAV increased to 25.5%
- LTV increased to 29.1%
- 82.5% of debt fixed
- 17.3m units issued
Portfolio activity
- Acquisition of AFHCO portfolio for R1 086,0m
- Standing portfolio value up 5.9%
- Acquisition of 8 other properties for R316,8m
Property performance
- NPI growth of 19.4% (standing portfolio 8.6%)
- Vacancy as % of rental income improved to 3.1% 1
- Tenant Retention at 75.9% 1
1 Excludes the AFHCO Group
INTRODUCTION
SA Corporate Real Estate Fund is a JSE listed Property Unit Trust which
owns a portfolio of industrial, retail, commercial and residential
buildings located primarily in the major metropolitan areas of South
Africa.
REVIEW OF FINANCIAL RESULTS AND PORTFOLIO PERFORMANCE
Distribution Growth
SA Corporate achieved a second half distribution of 18.02 cents per unit
(“cpu”) representing growth of 9.4% relative to the comparable period
December 2013 of 16.47cpu. The Fund delivered a full year distribution of
35.70 cpu, representing growth of 9.0% relative to the comparable period
(32.75cpu). This is in line with guidance given during the interim
announcement.
The R1,1bn business acquisition of AFHCO Holdings Proprietary Limited and
its subsidiaries (“AFHCO Group”) and further R305,9m acquisition of
investment properties at a weighted average yield of 9.8% impacted
positively on distribution growth.
The net property income (“NPI”) contribution of these and prior year
acquisitions to growth in distribution was 13.9%. This was underpinned by
standing portfolio NPI growth of 8.6%, contributing at an NPI level to
9.4% of growth, offset largely by increased financing costs by 13.6%.
Portfolio Performance
The total NPI increased by 19.4% due mainly to R1.7bn of acquisitions over
the last two years. The standing portfolio growth of 8.6% was driven by
5.3% rental growth, improved recoveries on the back of reduced vacancies
and expense reductions. Reductions in property management fees in the
first half against the comparable period, focused energy management and
improved collections contributed to the reduced expenses.
The industrial net property income growth (11.8%) was supported by R164m
of acquisitions at a 9.2% yield, weighted average escalations of 8.1% and
good retentions. The retail portfolio net property income growth of 12.8%
was underpinned by further reductions in vacancies, also contributing to
improved recoveries, strong retentions and positive reversions. The
commercial portfolio net property income growth increased by 40.2%, driven
mainly by the acquisition of World Trade Center in November 2013 at a 9%
yield, together with the disposal of largely vacant B and C grade office
buildings.
Property expenses increased by 11.9%, due to net positive acquisitions.
Expenses relating to the standing portfolio were marginally down by 0.4%.
Municipal costs (representing 60% of property expenses) decreased by 0.4%,
due to improved energy management. Standing portfolio property expenses
excluding municipal costs decreased by 0.3%, driven mainly by reduced
property management fees (with the first full year of Broll management),
reduced bad debts and legal costs, arising from improved collections and
reduced maintenance costs as the quality of the portfolio improves.
The premium to net asset value (“NAV”) increased to 25.5% at December 2014
(NAV: 381cpu, Unit price: 478 cpu), compared to a premium of 8.4% at
December 2013 (NAV: 368cpu, Unit price: 399cpu).
Finance Costs
Net interest expense increased by 120.7%. This was driven by the increased
gearing from 18.3% to 29.1% predominantly to fund the R1,4bn acquisitions.
Interest costs in respect of development properties are currently being
capitalised and therefore do not have any impact on the net finance costs.
Group and Other Expenses
Group Expenses decreased by 18.0% with the execution of the
internalisation of the ManCo with effect from 1 May 2014 (elimination of
the service fee based on enterprise value plus debt, to a cost recovery
model) and the inclusion of the VAT provision in the first half of 2013.
The 58,896,063 units repurchased in the open market in January and
February 2013, gave rise to a lapsed distribution of R8,8m, as these were
purchased cum dividend. These lapsed distributions were available for re-
distribution as part of the 2013 distribution.
The breakdown of distributable earnings is set out below:
Year ended Year ended
31.12.2014 31.12.2013
DISTRIBUTABLE EARNINGS (R000) Audited Audited
Rent (excluding straight line rental
adjustment) 1,034,231 878,077
Net property expenses (115,689) (109,078)
Property expenses (494,474) (441,832)
Recovery of property expenses 378,785 332,754
Net property income 918,542 768,999
Taxation on distributable earnings - 102
Net funding cost (162,795) (73,751)
Interest income 30,478 20,811
Interest expense (193,273) (94,562)
Group expenses (45,793) (55,822)
Lapsed distribution on units repurchased - 8,823
Distributable earnings 709,954 648,351
Units in issue (000) 1,997,395 1,980,093
Weighted number of units in issue (000) 1,988,341 1,985,703
Distribution (cents per unit) 35.70 32.75
Interim 17.68 16.28
Final 18.02 16.47
PROPERTY VALUATIONS
The value of the Fund's independently valued property portfolio increased
by R1,80bn to R10,67bn as at December 2014 (December 2013: R8,87bn). The
standing portfolio, representing properties not under development, held
for the full 12 months to December 2014, increased by R445,45m (5.9%)
from December 2013.
The capitalisation and discount rates in the Fund's standing portfolio at
31 December 2014 were calculated on a weighted basis:
Sector Capitalisation Discount rate (%) Growth in standing
rate (%) portfolio (%)
31.12.2014 31.12.2013 31.12.2014 31.12.2013 31.12.2014
Industrial 8.9 9.0 14.4 14.5 6.5
Retail 8.7 8.7 14.2 14.2 5.8
Commercial 8.7 9.3 14.2 14.8 4.0
Portfolio total 8.8 8.8 14.3 14.3 5.9
The recently acquired AFHCO portfolio, excluding properties under
development and the development bulk, was valued at 31 December 2014 at a
weighted average capitalisation rate of 10.1%.
PORTFOLIO INVESTMENT ACTIVITY
The portfolio comprised 166 properties (December 2013: 134). The sectoral
and geographic weightings by value as at 31 December 2014 are set out
below:
Sectoral Spread
Retail
R4,4bn
376,221m2
28 properties
41%
Industrial
R4,3bn
793,395m2
93 properties
40%
AFHCO
R0,9bn
132,898m2
26 properties
9%
Commercial
R1,1bn
85,575m2
19 properties
10%
Geographic Spread
Gauteng
R5,7bn
780,631m2
95 properties
53%
KwaZulu-Natal
R4,0bn
443,808m2
53 properties
38%
Western Cape
R0,7bn
82,800m2
11 properties
6%
Other
R0,3bn
80,850m2
7 properties
3%
Committed developments:
Properties Cost Commence- Forecast Yield Sector Region
(Rm) ment date completion forecast
date 1st 12
months
(%)
East Point, Boksburg 420,1 05/2014 06/2016 9.0 Retail Gauteng
Umlazi Mega City,
Umlazi 331,5 11/2014 09/2016 9.2 Retail KwaZulu
Natal
Stuttafords House,
Johannesburg CBD 65,1 09/2014 03/2016 11.0 AFHCO Gauteng
Connaught Mansions
and Gemdawn, New
Doornfontein 43,3 09/2014 08/2015 11.0 AFHCO Gauteng
Jeppe Street Mall,
New Doornfontein 36,6 09/2014 09/2015 11.0 AFHCO Gauteng
Stellenbosch Square,
Stellenbosch 1 16,2 11/2014 09/2015 11.1 Retail Western
Cape
Total 912.9 9.4
1 50% Undivided share of development cost
Acquisitions:
Properties Cost Acquisition Yield Sector Region
(Rm) date forecast 1st
12 months
(%)
AFHCO portfolio 1 1 086,0 07/2014 9.9 AFHCO Gauteng
Eveready &
Continental Tyres,
New Brighton,
Port Elizabeth 124,5 01/2014 9.0 Industrial Eastern
Cape
Celtis Ridge Shopping
Centre, Centurion 106,0 01/2014 9.0 Retail Gauteng
50 Mangosuthu Highway,
Umlazi 43,4 04/2014 9.0 Retail KwaZulu
Natal
Truck World (39
Viewpoint Road),
Bardene 16,0 12/2014 11.1 Industrial Gauteng
19 Brunton Circle,
Founders View 14,1 03/2014 9.0 Industrial Gauteng
16 Friesland Crescent,
Longmeadow 9,4 07/2014 9.0 Industrial Gauteng
Multi Glass 3,3 11/2014 8.4 AFHCO Gauteng
Normandi Court Flat 0,1 12/2014 11.0 AFHCO Gauteng
Total 1 402,8 9.6
1 Includes R169m with payment and economic interest deferred to 2015
Contracted and unconditional acquisitions:
Properties Cost Acquisition Yield Sector Region
(Rm) date forecast 1st
12 months
(%)
Morulat Property
Investments 4
Portfolio* 243,6 01/2015* 10.6 AFHCO Gauteng
Total 243,6 10.6
*Transferred in January 2015
Disposals:
Property Transfer Gross Carrying Exit yield
date selling value at on sale
price latest price (%)
(Rm) valuation
date (Rm)
90 Electron Avenue,
Isando 10/2014 20,0 20,5 5.9
Total 20,0 20,5 5.9
Contracted disposals:
Properties Expected Gross Carrying Exit yield
transfer date selling value on sale
price (Rm) price (%)
(Rm)
Stellenbosch Square,
Stellenbosch 1 2 02/2015 40,0 46,3 7.8
36 Wierda Road West,
Wierda Valley 2 02/2015 39,0 39,0 7.5
The Boulevard, Melville 03/2015 31,2 31,2 7.4
293 Hebbard Road,
Robertville 04/2015 23,5 23,5 5.5
Lebombo Road, Garsfontein
(portion) 05/2015 12,0 7,5 6.2
3 Remblok Street, Strydom
Park 03/2015 10,7 10,4 8.3
110 Zastron Road,
Bloemfontein 3 01/2015 6,9 6,9 6.8
Total 163,3 164,8 7.2
1 50% Undivided share
2 Transferred in February 2015
3 Transferred in January 2015
LEASE EXPIRIES AND VACANCIES
Vacancies in terms of rentable area and rental income were as follows:
Sector Vacancy as % of GLA* Vacancy as % of rental income
31.12.2014 31.12.2013 31.12.2014 31.12.2013
SA Corporate Portfolio:
Industrial 1.4 0.2 1.2 0.2
Retail 5.9 8.9 3.4 4.6
Commercial 12.7 11.8 7.8 7.0
Portfolio total 3.7 4.0 3.1 3.2
AFHCO Portfolio:
Residential 7.9 - 8.9 -
Retail / Commercial 1.8 - 2.3 -
Portfolio total 6.1 - 6.3 -
* GLA=Gross Lettable Area
The Fund has made good progress with the vacancy take-up with overall
vacancies reducing by 0.3% based on GLA and 0.1% based on rental income.
The Fund's industrial vacancy, although marginally up at 1.4% as at
December 2014 (December 2013: 0.2%), remains well below the sector average
of 2.7%. We continue to pro-actively manage the portfolio, understanding
and providing for our tenants needs, thereby ensuring good retention.
Retail vacancies continued their positive downward trend reducing by 3% to
5.9% as at 31 December 2014 (December 2013: 8.9%). Further reductions are
anticipated as we seek to improve the quality of the portfolio through
redevelopments.
In the current economic climate the office market remains challenging. The
current year saw an increase in commercial vacancies from 11.8% to 12.7%.
Stand alone office vacancies reduced by 0.65%, while retail office
vacancies (offices in or above retail centres) increased by 5.4%. Office
remains a small component of the portfolio and the focus will continue to
be to divest from non-performing B to C grade properties in this sector.
A general trend in inner city residential vacancies as experienced every
year, is that vacancies increase in December due to tenants vacating
apartments over the vacation period. Consequently whilst AFHCO's
residential vacancies increased to 7.9% as at December 2014 these have
reduced to 4.9% in February 2015. AFHCO retail / commercial vacancies have
reduced to 1.8% from 3.1% when the portfolio was acquired in July 2014.
The lease expiry profile and vacancies (by GLA) are set out below:
Sector Vacancy (%) Expiries (%)
Monthly 2015 2016 2017 2018 Thereafter
SA Corporate
Portfolio:
Industrial 1.4 1.8 18.2 12.9 30.4 15.2 20.1
Retail 5.9 8.9 17.9 16.4 11.9 18.0 21.0
Commercial 12.7 8.0 23.2 22.1 10.4 5.7 17.9
Total 3.7 4.3 18.6 14.7 23.4 15.2 20.1
AFHCO Portfolio:
Retail /
Commercial 1.8 12.2 16.7 24.0 10.4 7.7 27.2
Residential 1 7.9 58.0 34.1
1 Calculated on number of units
TENANT RETENTION AND RENTAL REVERSION
The table below reflects the Fund's tenant retention ratio and rental
reversion per sector for a rolling 12 month period ending December 2014:
Sector Expiries(m2) Retention(m2) Retention (%) Rental
reversion(%)
SA Corporate Portfolio:
Industrial 81,090 58,235 71.8 0.4
Retail 61,008 49,743 81.5 3.5
Commercial 20,925 15,719 75.1 (3.2)
Total 163,023 123,697 75.9 1.7
AFHCO Portfolio:
Retail / commercial 4,169 4,077 97.8 16.2
Tenant retention remains a focus area and has improved from 73.1% in 2013
to 75.9%. With 28.4% of industrial leases having expired this year,
industrial retentions have improved by 5.4%, due to proactive management
of this portfolio. The AFHCO portfolio continues its historical trend of
solid retentions.
Whilst the industrial lease reversions were marginally positive, pressure
still remains on renewal rentals, as administered costs continue to rise.
The retail portfolio showed good positive reversions, despite a year of
weak annual retail sales growth of 2.4% for South Africa. There were a
number of significant leases renewed, in respect of the commercial
portfolio, coming off long lease terms where contractual escalation rates
exceeded growth in market rentals, resulting in negative reversions. The
AFHCO portfolio has achieved healthy reversions, despite the subdued
economic climate, bearing testament to the robustness of the inner-city
retail/commercial shopping environment.
BORROWINGS
The debt profile is detailed below as at 31 December 2014:
Facility Maturity date Value (Rm) Interest Rate (%)
Term revolver 31.12.2015 - 8.07
Term revolver 25.07.2016 101 8.95
Term 31.12.2016 500 8.17
Term 15.12.2017 1,152 8.22
Term 13.08.2018 200 9.02
Term 30.09.2018 270 8.38
Term 30.09.2018 30 8.38
Term 15.12.2019 848 8.52
Total /weighted average 3,101 8.39
Having entered a net acquisitive phase of investment, the Fund's
effective loan to value (“LTV”) increased to 29.1% (December 2013:
18.3%). The weighted average cost of debt, in respect of the effective
debt excluding fixes, was 7.7%, (December 2013: 6.8%) at a weighted
average margin of 1.7% (December 2013: 1.1%) and a weighted average tenor
of 3.4 years (December 2013: 2.5 years).
At 31 December 2014, 82.5% of the debt drawn was fixed via interest rate
hedges, at a weighted average rate and margin of 6.9% and 0.78%
respectively and a weighted average tenor of 3.1 years. The total
weighted average cost of debt inclusive of fixes, depicted above, amounts
to 8.4%. This is up 0.57% from December 2013, due to increase in funding
and funding tenors.
STRATEGY AND PROSPECTS
During the current year the Fund completed the ManCo internalisation
transaction, acquired a R1,1bn inner city residential and retail
portfolio and commenced the conversion to a Corporate REIT, being the
final stage of its 4 pillar turnaround strategy.
In the latter half of the year, the Fund successfully concluded a R2bn
syndicated loan facility at competitive pricing to term out some of the
temporary facilities, fund acquisitions and retail developments.
Cognisant of the volatility of the interest rate market and aligned to
its strategic intent of sustainable distribution growth the Fund’s debt
facilities remain adequately hedged at 82.5%.
The platform has been set for sustainable growth aligned to the Fund’s
strategic objectives of:
- A diversified portfolio that generates stable growing income and
capital gains
- Improving the portfolio through quality acquisitions, developments of
inner-city properties, improving industrial properties to meet the
operational needs of tenants and the redevelopment of shopping centres
unlocking value in the retail portfolio
- Enhanced returns by managing liquidity and interest rate risk through
the effective use of debt and equity, that is appropriately structured
- Efficient and effective property operations to enhance property
fundamentals
- Reducing the business impact on the environment and reducing costs
through green initiatives
The Board is pleased with the execution of the strategy and performance
of the Fund and anticipates that distribution growth in excess of
inflation will be achieved in 2015.
As at As at
SUMMARISED CONSOLIDATED STATEMENT 31.12.2014 31.12.2013
OF FINANCIAL POSITION (R000) Audited Audited
Assets
Non-current assets 10,621,038 8,927,419
Investment property 10,291,993 8,654,251
Letting commissions and tenant installations 63,430 63,116
Property, plant and equipment 1,427 -
Intangible asset 71,800 -
Interest rate swap derivatives 21,204 39,644
Rental receivable - straight line adjustment 169,468 170,408
Other financial assets 1,019 -
Deferred taxation 697 -
Current assets 719,311 515,248
554,939 515,248
Trade receivables 15,312 16,637
Other receivables and accrued interest 167,713 146,143
Other financial assets 24,429 -
Rental receivable - straight line adjustment 41,871 40,566
Interest rate swap derivatives 4,042 382
Taxation receivable 321 -
Inventory 27 -
Cash resources and short term investments 301,224 311,520
Properties classified as held for disposal 163,000 -
Letting commissions and tenant installations 1,372 -
Total assets 11,340,349 9,442,667
Unitholders' funds and liabilities
Unitholders' funds 7,603,215 7,280,242
Non-current liabilities 3,106,491 1,625,913
Interest bearing borrowings 3,100,650 1,625,913
Interest rate swap derivatives 5,841 -
Current liabilities 630,643 536,512
Trade and other payables 253,560 198,506
Taxation payable 480 -
Distributions payable 359,910 326,030
Interest rate swap derivatives 16,684 11,976
Bank overdraft 9 -
Total unitholders' funds and liabilities 11,340,349 9,442,667
NAV cpu 381 368
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT 31.12.2014 31.12.2013
OF COMPREHENSIVE INCOME (R000) Notes Audited Audited
Revenue 1,408,879 1,186,412
Income 1,439,357 1,207,223
Rent 1,034,231 878,077
Straight line rental adjustment (4,137) (24,419)
Recovery of property expenses 378,785 332,754
Interest income 30,478 20,811
Expenses (761,610) (592,216)
Accounting and secretarial fees (1,843) (6,082)
Audit fees (2,183) (1,845)
Administrative fees (35,770) (10,460)
Depreciation (688) -
Interest expense (193,273) (94,562)
Operating expense (20,538) -
Property expenses (467,657) (412,714)
Property administration fees (26,817) (29,118)
Service fees (12,841) (37,435)
Operating income 677,747 615,007
Amortisation of debt restructure costs - (10,504)
Capital loss on disposal of investment
properties (3,634) (4,086)
Gain on acquisition of subsidiary 4 102,000 -
Internalisation fee 3 (185,000) -
Loss on disposal of property, plant and
equipment (29) -
Revaluation of investment properties 401,547 380,625
- Revaluations 397,410 356,206
- Straight line rental adjustment 4,137 24,419
Revaluation of interest rate swap derivatives (25,329) 31,506
Income before taxation 967,302 1,012,548
Taxation (122) 146,846
Net profit attributable to unitholders 967,180 1,159,394
Other comprehensive income
Amortisation of hedge reserve - 10,516
Total comprehensive income attributable to
unitholders 967,180 1,169,910
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT OF 31.12.2014 31.12.2013
CHANGES IN UNITHOLDERS’ FUNDS (R000) Audited Audited
Unitholders' funds at the beginning of the year 7,280,242 6,973,355
Total comprehensive income for the year 967,180 1,169,910
Profit for the year 967,180 1,159,394
Amortisation of hedge reserve - 10,516
Repurchase of units - (222,986)
Unit repurchase cost - (509)
Lapsed distribution on units repurchased - 8,823
17,301,905 units issued 65,747 -
Distribution attributable to unitholders (709,954) (648,351)
Unitholders' funds at the end of the year 7,603,215 7,280,242
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT 31.12.2014 31.12.2013
OF CASH FLOWS (R000) Audited Audited
Operating profit before working capital changes 683,145 744,967
Working capital changes 8,524 (19,333)
Cash generated from operations 691,669 725,634
Operating activities changes (850,747) (695,993)
Net cash flows from operating activities (159,078) 29,641
Net cash flows from investing activities (783,072) (395,668)
Net cash flows from financing activities 931,845 270,266
Net decrease in cash (10,305) (95,761)
Cash resources and short term investments at
beginning of year 311,520 407,281
Cash resources and short term investments at
end of year 301,215 311,520
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The summarised audited consolidated financial statements have been
prepared in accordance with the requirements of the JSE Limited Listings
Requirements and the requirements of the Collective Investment Schemes
Control Act, No.45 of 2002 (“CISCA”) for preliminary reports applicable
to summarised financial statements. The Listings Requirements require
preliminary reports to be prepared in accordance with the framework
concepts and the measurement and recognition requirements of
International Financial Reporting Standards (“IFRS”), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting Standards
Council, and to also, as a minimum, contain the information required by
IAS 34, Interim Financial Reporting. The accounting policies applied in
the preparation of the consolidated financial statements, from which the
summarised consolidated financial statements were derived, are in terms
of IFRS and are consistent with the accounting policies applied in the
preparation of the previous consolidated financial statements. This
report and the consolidated financial statements were compiled under the
supervision of AM Basson CA(SA), the financial director and have been
audited in compliance with the CISCA. The auditors, Deloitte & Touche,
have issued their unmodified opinion on the group's financial statements
for the year ended 31 December 2014. A copy of their audit report is
available for inspection at the Fund's registered address. The audit was
conducted in accordance with International Standards on Auditing. These
preliminary summarised consolidated financial statements have been
derived from the group financial statements and are consistent, in all
material respects, with the group financial statements. This preliminary
report has been audited by Deloitte & Touche and an unmodified audit
opinion has been issued. The auditor's report does not necessarily report
on all of the information contained in this announcement. Unitholders are
therefore advised that in order to obtain a full understanding of the
nature of the auditor's engagement, they should obtain a copy of that
report together with the accompanying financial information from SA
Corporate's registered address.
1. Reconciliation of net profit to headline earnings to distributable
earnings attributable to unitholders
Year ended Year ended
31.12.2014 31.12.2013
Audited Audited
R 000 CPU R 000 CPU
Net profit 967,180 48.42* 1,159,394 58.39*
Adjustments for:
Capital loss on disposal of investment
properties 3,634 4,086
Taxation - (102)
Revaluation of investment properties (401,547) (380,625)
Taxation on adjustments - (124,929)
Gain on acquisition of subsidiary (102,000) -
Headline earnings 467,267 23.50* 657,824 33.13*
Amortisation of debt restructure costs - 10,504
Cost of acquisition of subsidiary 15,795 -
Debt facility fees 11,616 -
Depreciation 688 -
Taxation 122 -
Internalisation fee 185,000 -
Lapsed distribution on units repurchased - 8,823
Revaluation of interest rate swap
derivatives 25,329 (31,506)
Straight line rental adjustment 4,137 24,419
Taxation on distributable earnings - 102
Taxation on straight line rental
adjustment - (21,815)
Distributable earnings attributable to
unitholders 709,954 35.70 648,351 32.75
Interim 350,044 17.68 322,315 16.28
Final 359,910 18.02 326,036 16.47
* Calculated on weighted average number of units in issue
2. Primary operational segments (R000)
Business segment Industrial Retail Commercial AFHCO Group
Extract from statement of
comprehensive income
Revenue 531,554 660,554 144,833 71,938 1,408,879
Rental income (excluding
straight line rental
adjustment) 459,682 402,165 118,894 53,490 1,034,231
Net property expenditure (44,542) (33,647) (20,610) (16,890) (115,689)
Property expenses (116,177) (294,008) (49,042) (35,247) (494,474)
Recovery of property
expenses 71,635 260,361 28,432 18,357 378,785
Net property income 415,140 368,518 98,284 36,600 918,542
Straight line rental
adjustment 237 (1,972) (2,493) 91 (4,137)
Net interest expense - - - - (162,795)
Internalisation fee - - - - (185,000)
Group expenses - - - - (74,014)
Revaluation of interest
rate swap derivatives - - - - (25,329)
Headline earnings 415,377 366,546 95,791 36,691 467,267
Other information
Properties 4,178,739 4,287,465 1,094,375 891,835 10,452,414
Non-current assets: 4,145,096 4,218,090 1,036,972 891,835 10,291,993
At valuation 4,265,500 2,809,200 1,053,200 742,457 8,870,357
Straight line rental
adjustment (120,404) (67,535) (16,228) (7,172) (211,339)
Property under
development - 1 476 425 - 156,550 1,632,975
Current assets: 33,643 69,375 57,403 - 160,421
Properties classified
as held for disposal 33,900 71,200 57,900 - 163,000
Straight line rental
adjustment (257) (1,825) (497) - (2,579)
Revaluation of investment
properties excluding
straight line rental
adjustment 197 308 138 060 47 120 14 922 397 410
Additions and
acquisitions 220 918 314 640 6 743 883 361 1 425 662
Segmental growth
rates (%) Industrial Retail Commercial Group
Rental income (excluding
straight line rental adjustment) 10.3 7.3 37.6 17.8
Property expenses 5.9 (0.7) 36.5 11.9
Recovery of property expenses 10.8 4.8 44.1 13.8
Net property income 11.6 12.7 40.0 19.4
3. Amendments to the Trust Deed
During the reporting period, the unitholders voted in favour of the
following amendments to the Trust Deed:
- To amend the existing service charge arrangement in respect of the Fund
from a monthly charge based on 0.4% of the aggregate market
capitalisation of the Fund plus borrowings, to a monthly charge equal to
the actual operating costs incurred by the ManCo in administering the
Fund as well as the cancellation of the initial charge of 5% on the value
of any new units issued.
This was settled with the payment by the Fund to the ManCo of a
consideration of R185 million excluding VAT. As a consequence of the
above amendment, the Fund was deemed to gain control over its ManCo with
effect from 1 May 2014. The results of the ManCo were consolidated in the
SENS announcement dated 26 August 2014. However, as the Fund is not
entitled to the ManCo's variable returns and therefore does not control
the Manco, the ManCo is no longer consolidated in the Fund's results.
This has no impact on the distributable earnings as the Manco is on the
cost recovery model post internalisation and the impact on distributable
earnings remains unchanged. The impact on the profit after tax has
subsequently been reversed with a total impact of R8.0m mainly due to the
gain on bargain purchase of R8.9m.
- To increase the borrowing limits imposed on the Fund from 30% to 60% of
the value of its underlying investment property value.
4. Significant transactions
On 1 July 2014 the Group acquired the AFHCO Group for a consideration of
R249 360 000. The AFHCO Group was acquired to enter the residential
Johannesburg inner-city sector and thus further diversify the Fund's
property portfolio. The acquisition was funded with a combination of
units and cash:
R'000
17 301 905 units at a price of 380cpu 65,747
Cash 183,613
Total 249,360
Under a contingent consideration arrangement the purchase price may be
adjusted in the event that the AFHCO Group do not meet the forecasted
income used in determining the price of this acquisition. This adjustment
is limited to 12.5% of the aggregate gross value of the AFHCO Group's
property portfolio.
The directors are of the opinion that no adjustment to the purchase price
is necessary as at 1 July 2014 as they expect AFHCO Group to meet their
forecasts. This opinion had not changed at the reporting date and no
asset has been raised for this amount as at 31 December 2014.
Assets acquired and liabilities recognised at date of acquisition:
R'000
Non-current assets
Investment property 795,406
Letting commissions and tenant installations 1,458
Property, plant and equipment 2,248
Intangible asset 71,800
Deferred taxation 214
Current assets
Trade and other receivables 27,287
Rental receivable - straight line rental adjustment 7,081
Taxation receivable 321
Inventory 11
Cash and cash equivalents 51,203
Non-current liabilities
Borrowings (542,892)
Current liabilities
Trade and other payables (52,621)
Taxation payable (10,156)
351,360
Gain on acquisition of subsidiary: R'000
Consideration 249,360
Less fair value of identifiable assets acquired and
liabilities assumed (351,360)
Gain on acquisition of subsidiary (102,000)
The gain on acquisition of subsidiary arose mainly due to as the
intangible asset which arose upon acquisition to the amount of R71,8m and
the tax benefit that the AFHCO Group obtained in becoming a subsidiary of
a REIT, resulting in a reversal of a deferred tax liability to the amount
of R37,6m.
Net cashflow on acquisition: R'000
Consideration paid in cash 183,613
Less cash and cash equivalents balances acquired (51,203)
132,410
Included in the consolidated profit for the year is R50,6m attributable
to the AFHCO Group. Revenue for the year includes R71,8m in respect of
the AFHCO Group. Had these business combinations been in effect at 1
January 2014, the revenue of the Group would have been R1 480,7m, and the
profit for the year would have been R1 018,9m. Management considers these
estimated numbers to represent an approximate measure of the performance
of the combined group on an annualised basis and to provide a reference
point for future comparisons.
5. Interest rate swap derivatives
The interest rate swap derivatives are valued based on the discounted
cash flow method. Future cash flows are estimated based on forward
interest rates (from observable yield curves at the end of the reporting
period) and contract interest rates, discounted at a rate that reflects
the credit risk. This is classified as a level 2 financial asset in terms
of the degree to which the fair value is observable.
6. Events after the reporting period
Subsequent to year end, Morulat Property Investments 4 Proprietary
Limited was acquired for R122 654 000, aligned to the strategic intent of
growing the inner-city residential portfolio and was partly settled by
the issuance of 26 767 491 units at a price of 448.31 cents. The initial
accounting for the business combination is incomplete at the time these
financial statements have been authorised for issue. The disclosures
required by paragraph B64 of the IFRS 3 Business combinations have not
been made as the fair value of the assets acquired and liabilities
assumed have not yet been determined.
The directors are not aware of other significant events between the end
of the financial year under review and the date of signature of these
financial statements.
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice is hereby given of the declaration of distribution no.40 in
respect of the income distribution period 1 July 2014 to 31 December
2014. The distribution amounts to 18.02 cpu. The source of the
distribution comprises net income from property rentals and interest
earned on cash investments. Please refer to the statement of
comprehensive income for further details.
As SA Corporate has REIT status, unitholders are advised that the
distributions meet the requirements of a "qualifying distribution" for
the purposes of section 25BB of the Income Tax Act, No. 58 of 1962
("Income Tax Act"). The distributions on SA Corporate units will be
deemed to be dividends, for South African tax purposes, in terms of
section 25BB of the Income Tax Act.
The distributions received by or accrued to South African tax residents
must be included in the gross income of such unitholders and are not
exempt from income tax (in terms of the exclusion to the general dividend
exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the
Income Tax Act) because they are dividends distributed by a REIT, with
the effect that the distribution is taxable in the hands of the
unitholder. These distributions are, however, exempt from dividend
withholding tax in the hands of South African tax resident unitholders,
provided that the South African resident unitholders have provided the
following forms to their CSDP or broker, as the case may be, in respect
of uncertificated units, or the transfer secretaries, in respect of
certificated units:
a) a declaration that the distribution is exempt from dividends tax; and
b) a written undertaking to inform the CSDP, broker or the transfer
secretaries, as the case may be, should the circumstances affecting the
exemption change or the beneficial owner ceases to be the beneficial
owner, both in the form prescribed by the Commissioner for the South
African Revenue Service.
SA Corporate unitholders are advised to contact the CSDP, broker or
transfer secretaries, as the case may be, to arrange for the
abovementioned documents to be submitted prior to payment of the
distribution, if such documents have not already been submitted.
Distributions received by non-resident unitholders will not be taxable as
income and instead will be treated as ordinary dividends which are exempt
from income tax in terms of the general dividend exemption in section
10(1)(k)(i) of the Income Tax Act. It should be noted that until 31
December 2013 distributions received by non-residents from a REIT were
not subject to dividend withholding tax. From 1 January 2014, any
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 ("DTA")
between South Africa and the country of residence of the unitholder.
Assuming dividend withholding tax will be withheld at a rate of 15%, the
net dividend amount due to non-resident unitholders is 15.317 cents per
SA Corporate unit. A reduced dividend withholding rate, in terms of the
applicable DTA, may only be relied on if the non-resident unitholder has
provided the following forms to the CSDP or broker, as the case may be,
in respect of uncertificated units, or the transfer secretaries, in
respect of certificated units:
a) a declaration that the dividend is subject to a reduced rate as a
result of the application of a DTA; and
b) a written undertaking to inform the CSDP, broker or the transfer
secretaries, as the case may be, should the circumstances affecting the
reduced rate change or the beneficial owner ceases to be the beneficial
owner, both in the form prescribed by the Commissioner for the South
African Revenue Service. Non-resident unitholders are advised to contact
the CSDP, broker or the transfer secretaries, as the case may be, to
arrange for the abovementioned documents to be submitted prior to payment
of the distribution if such documents have not already been submitted, if
applicable.
1,997,394,919 SA Corporate units are in issue at the date of this
distribution declaration and SA Corporate's income tax reference number
is 2951279203.
Last date to trade cum distribution Friday, 20 March 2015
Units will trade ex-distribution Monday, 23 March 2015
Record date to participate in the distribution Friday, 27 March 2015
Payment of distribution Monday, 30 March 2015
Unit certificates may not be dematerialised or re-materialised between
Monday, 23 March and Friday, 27 March 2015 both days inclusive.
SA Corporate Real Estate Fund Managers Limited
Registered office
South Wing, First Floor
Block A
The Forum
North Bank Lane
Century City
7441
Tel 021 529 8410
Registered auditors
Deloitte & Touche
1st Floor
The Square
Cape Quarter
27 Somerset Road
Cape Town
8005
Transfer secretaries
Computershare Investor Services (Pty) Ltd
Ground Floor
70 Marshall Street
Johannesburg
2001
PO Box 61051
Marshalltown
2107
Sponsor
Nedbank Capital
A division of Nedbank Limited
135 Rivonia Road
Sandton
2196
Directors: J Molobela (Chairman), TR Mackey (Managing)*, AM Basson
(Finance)*, RJ Biesman-Simons, GP Dingaan, KJ Forbes, EM Hendricks
(appointed 2 April 2014), P Levett, SH Mia (retired 15 May 2014), MA
Moloto (appointed 7 July 2014), R Morar (resigned 28 February 2014), ES
Seedat
* Executive
B Swanepoel
Company Secretary
27 February 2015
Date: 02/03/2015 07:35:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
