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RDF - Redefine Properties Limited - Unaudited results for the six months ended
28 February 2011
REDEFINE PROPERTIES LIMITED
("Redefine" or "the company" or "the group")
Registration number 1999/018591/06
JSE share code: RDF
ISIN: ZAE000143178
UNAUDITED RESULTS
for the six months ended 28 February 2011
- Half-year distributions total 31 cents per linked unit
- Total tangible assets of R31.6 billion
- Market capitalisation R19.8 billion
- Property management internalisation
- Continued repositioning of core portfolio
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
28 February 28 February 31 August
2011 2010 2010
R`000 R`000 R`000
REVENUE
Property portfolio 1 443 862 1 223 277 2 657 976
Contractual rental income 1 395 238 1 184 996 2 502 135
Straight-line rental income accrual 48 624 38 281 155 841
Listed security portfolio 148 232 122 178 266 098
Fee income 83 394 116 999 193 364
Trading income 2 803 18 340 19 963
Total revenue 1 678 291 1 480 794 3 137 401
Operating costs (318 662) (277 368) (537 639)
Administration costs (137 208) (58 004) (135 904)
Net operating income 1 222 421 1 145 422 2 463 858
Changes in fair values of
properties, listed securities
and financial instruments 146 415 1 108 711 1 359 269
Amortisation of intangibles (48 271) (48 884) (108 142)
Impairment of financial assets - - (64 143)
Interest in associates (76 860) (25 024) (62 931)
Income from operations 1 243 705 2 180 225 3 587 911
Net interest (356 032) (234 581) (559 306)
Foreign exchange gain 79 238 49 600 28 967
Income before debenture interest 966 911 1 995 244 3 057 572
Debenture interest (832 131) (891 595) (1 777 412)
Profit before taxation 134 780 1 103 649 1 280 160
Taxation 37 012 (157 854) (161 478)
Profit for the period 171 792 945 795 1 118 682
Other comprehensive income/(expenses)
Exchange differences on
translating foreign operations 42 157 (49 486) (133 364)
Deferred profit on residential
property realised - (9 488) (9 488)
Revaluation of property, plant
and equipment (net of deferred taxation) - - 345
Other comprehensive income for the
period, net of taxation 42 157 (58 974) (142 507)
Total comprehensive income for
the period 213 949 886 821 976 175
Profit/(losses) for period
attributable to:
Redefine shareholders 141 866 936 762 1 135 752
Non-controlling interests 29 926 9 033 (17 070)
171 792 945 795 1 118 682
Total comprehensive
income/(losses) attributable to:
Redefine shareholders 180 534 877 788 996 788
Non-controlling interests 33 415 9 033 (20 613)
213 949 886 821 976 175
Reconciliation of earnings,
headline earnings and distributable
earnings
Profit for the period attributable
to Redefine shareholders 141 866 936 762 1 135 752
Changes in fair values of
properties (net of deferred (10 108) (133 049) (216 503)
taxation)
Changes in fair value of properties 46 885 (194 593) (295 909)
Deferred taxation (56 993) 61 544 79 406
Headline profit to shareholder 131 758 803 713 919 249
Debenture interest 832 131 891 595 1 777 412
Headline earnings attributable to
linked unitholders 963 889 1 695 308 2 696 661
Changes in fair values of listed
securities and financial instruments
(net of deferred taxation) (174 851) (817 822) (981 191)
Changes in fair values of listed
securities and
financial instruments (193 300) (914 118) (1 063 360)
Deferred taxation 18 449 96 296 82 169
Amortisation of intangibles 48 271 48 884 108 142
Impairment of financial assets - - 64 143
Align consolidated foreign profits
with anticipated dividends 19 991 5 532 17 505
Straight-line rental income accrual (48 624) (38 281) (155 841)
Foreign exchange gain (79 238) (49 520) (28 967)
Fair value adjustment of
associates and minorities 60 439 35 705 34 534
Fee income from foreign subsidiary - - 7 533
Capital write offs included in
administration costs 6 387 2 593 5 697
Pre-acquisition income on Hyprop
units acquired in prior year 35 867 9 196 9 196
Distributable earnings 832 131 891 595 1 777 412
Quarter ended 30 November 402 644 443 651 443 651
Quarter ended 28 February 429 487 447 944 447 944
Quarter ended 31 May 429 487
Quarter ended 31 August 456 330
Total distributions 832 131 891 595 1 777 412
Actual number of linked units in
issue (`000) 2 684 295 * 2 674 295 * 2 684 295 *
Weighted number of linked units in
issue (`000) 2 684 295 * 2 648 662 * 2 661 915 *
Earnings per linked unit (cents) 36.29 69.03 109.44
Headline earnings per linked unit
(cents) 35.91 64.01 101.31
Distribution per linked unit (cents) 31.00 33.50 66.50
*Excludes 5 876 766 treasury units.
Includes results of RI from the effective date of acquisition being
1 February 2010.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited Unaudited Audited
28 February 28 February 31 August
2011 2010 2010
R`000 R`000 R`000
ASSETS
Non-current assets 34 247 728 31 018 683 33 122 788
Investment property 22 531 809 21 033 471 21 650 529
Fair value of property portfolio
for accounting purposes 21 526 646 20 448 715 20 553 136
Straight-line rental income accrual 750 939 584 756 702 316
Properties under development 254 224 - 395 077
Listed securities portfolio 5 086 701 3 547 159 5 099 485
Goodwill and intangibles 4 547 565 4 754 428 4 682 809
Interest in associates and joint
ventures 326 950 428 849 346 227
Loans receivable 1 505 900 1 182 222 1 107 016
Other financial assets 4 058 - 4 115
Guarantee fees receivable 21 563 40 408 21 349
Property, plant and equipment 223 182 32 146 211 258
Current assets 1 100 111 978 919 1 497 974
Properties held for trading 120 763 163 207 128 317
Trade and other receivables 638 440 353 238 572 277
Guarantee fees receivable 20 669 20 127 37 037
Listed security income 109 459 102 277 153 363
Cash and cash equivalents 210 780 340 070 606 980
Non-current assets held for sale 788 323 96 700 351 359
Total assets 36 136 162 32 094 302 34 972 121
EQUITY AND LIABILITIES
Share capital and reserves 16 261 761 14 763 417 15 111 062
Share capital and premium 11 788 301 11 602 596 11 788 301
Reserves 2 727 418 2 472 072 2 669 922
Non-controlling interest 1 746 042 688 749 652 839
Non-current liabilities 17 927 563 15 869 033 16 781 037
Debenture capital 4 831 731 4 767 591 4 831 731
Interest-bearing liabilities 10 894 911 8 824 894 9 562 035
Interest rate swaps 48 222 95 219 199 933
Financial guarantee contract 12 439 6 323 8 596
Deferred taxation 2 140 260 2 175 006 2 178 742
Current liabilities 1 946 838 1 461 852 3 080 022
Trade and other payables 685 222 541 107 636 386
Interest-bearing liabilities 832 129 17 319 1 987 306
Bank overdraft - 11 831 -
Linked unitholders for distribution 429 487 891 595 456 330
Total equity and liabilities 36 136 162 32 094 302 34 972 121
Net asset value per linked unit
(excluding deferred taxation and
non-controlling interest) (cents) 800.50 785.90 799.79
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Unaudited Unaudited Audited
28 February 28 February 31 August
2011 2010 2010
R`000 R`000 R`000
Balance at beginning of the period 15 111 062 13 200 268 13 200 268
Issue of shares - - 185 466
Issue expenses written off - (239) -
Total comprehensive income for
the period 213 949 886 821 976 175
Changes in ownership interests in
subsidiaries - - 70 204
Transactions with non-controlling
interests 83 222 - (76 017)
Effective portion of cashflow hedge 27 029 - -
Non-controlling interests on
acquisition of subsidiaries 826 499 676 567 754 966
Total share capital and reserves 16 261 761 14 763 417 15 111 062
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Unaudited Unaudited Audited
28 February 28 February 31 August
2011 2010 2010
R`000 R`000 R`000
Cash flows from operating activities
Cash generated from operations 1 272 974 1 102 949 2 180 214
Net financing costs (356 032) (234 581) (559 306)
Linked unit distributions paid (858 974) (311 218) (1 632 300)
Payments to non-controlling
interests (8 432) (899) (14 522)
Net cash inflow/(outflow) from
operating activities 49 536 556 251 (25 914)
Net cash outflow from investing
activities (1 037 534) (763 277) (3 115 670)
Net cash inflow from financing
activities 656 566 435 942 3 678 382
Net movement in cash and cash
equivalents (331 432) 228 916 536 798
Cash and cash equivalents at
beginning of the period 606 980 111 154 111 154
Translation effects on cash and
cash equivalents
of foreign operations (64 768) - (40 972)
Cash and cash equivalents at end
of the period 210 780 340 070 606 980
SEGMENTAL ANALYSIS - PROPERTY PORTFOLIO
Office Retail Industrial
R`000 R`000 R`000
Six months ended 28 February 2011
Revenue (excluding straight-line
rental income accrual) 644 577 431 437 173 815
Operating costs (160 192) (101 417) (39 483)
Net property income 484 385 330 020 134 332
Investment property portfolio 8 384 578 6 941 530 3 043 856
Six months ended 28 February 2010
Revenue (excluding straight-line
rental income accrual) 531 231 474 357 166 382
Operating costs (130 595) (112 432) (31 935)
Net property income 400 636 361 925 134 447
Investment property portfolio 7 861 492 7 982 115 2 964 075
Year ended 31 August 2010
Revenue (excluding straight-line
rental income accrual) 1 182 781 898 132 321 043
Operating costs (275 691) (192 631) (57 793)
Net property income 907 090 705 501 263 250
Investment property portfolio 8 427 703 7 374 696 3 194 705
Foreign Total
R`000 R`000
Six months ended 28 February 2011
Revenue (excluding straight-line
rental income accrual) 145 409 1 395 238
Operating costs (17 570) (318 662)
Net property income 127 839 1 076 576
Investment property portfolio 3 907 621 22 277 585
Six months ended 28 February 2010
Revenue (excluding straight-line
rental income accrual) 13 026 1 184 996
Operating costs (2 406) (277 368)
Net property income 10 620 907 628
Investment property portfolio 2 225 789 21 033 471
Year ended 31 August 2010
Revenue (excluding straight-line
rental income accrual) 100 179 2 502 135
Operating costs (11 524) (537 639)
Net property income 88 655 1 964 496
Investment property portfolio 2 258 348 21 255 452
Includes results of RI from the effective date of acquisition being 1 February
2010.
DISTRIBUTABLE INCOME ANALYSIS
South African Foreign Total
R`000 R`000 R`000
Net property income (excluding
straight-line rental accrual) 948 737 127 839 1 076 576
Listed security portfolio 105 639 42 593 148 232
Trading income 2 803 - 2 803
Fee income 11 044 72 350 83 394
Total revenue 1 068 223 242 782 1 311 005
Administration costs (49 604) (87 604) (137 208)
Interest in associates (excluding
fair value adjustments) (2 301) 13 418 11 117
Net finance costs (288 096) (67 936) (356 032)
Net distributable profit before taxation 728 222 100 660 828 882
Taxation - (1 532) (1 532)
Net profit before distributable 728 222 99 128 827 350
adjustments
Non-controlling interest (excluding
fair value adjustments) 376 (57 840) (57 464)
728 598 41 288 769 886
Distribution adjustments: 42 254 19 991 62 245
Align consolidated foreign profits
with anticipated dividends - 19 991 19 991
Capital write offs included in
administration costs 6 387 - 6 387
Pre-acquisition income on Hyprop
units acquired in 2010 35 867 - 35 867
Distributable income 770 852 61 279 832 131
COMMENTARY
Profile
Redefine is the second largest South African property loan stock company by
market capitalisation listed on the Johannesburg Stock Exchange ("JSE") with a
diverse range of property assets under management exceeding R29 billion. The
company`s property portfolio consists of 382 properties located in South Africa
valued at R19 billion, a R4 billion portfolio of strategic listed securities,
and investments in associates and joint ventures of R1 billion. The Redefine
portfolio is further geographically diversified by 99 offshore properties and
listed securities valued at R5 billion held through Redefine Properties
International Limited ("RIN") and its 81.5% owned subsidiary Redefine
International plc ("RI"), listed on the JSE and United Kingdom AIM stock
exchange respectively.
Redefine is committed to being the landlord of choice and is focused on
achieving sustainable growth in distributions and long-term capital appreciation
for its unitholders. The company seeks to meet its objectives through continuous
improvement in the quality of the core property portfolio, prudent management of
debt, superior property management, effective management of strategic listed
investments and exploiting its ability to identify and execute value-adding
trading and corporate opportunities.
Financial results
Redefine has declared a distribution of 16 cents per linked unit for the quarter
ended 28 February 2011, which combined with the distribution of 15 cents for the
quarter ended 30 November 2010, results in a total distribution of 31 cents per
linked unit for the six months ended 28 February 2011. On a comparable recurring
income basis, the distribution of 31 cents per linked unit is marginally ahead
of the distribution for the same period last year, after excluding non-recurring
fee income of 3.19 cents per linked unit from the prior period`s distribution.
On a geographic basis, South Africa generated 93% of distributable income.
Contractual rental income comprises 86% of total revenue, income from listed
securities 9% and trading and fee income 5%. Operating costs represents 22.8%
(31 August 2010: 21.5%) of contractual rental income. The bulk of the cost creep
relates to the once-off duplication of property management costs that arose from
the internalisation of property management. RIN along with Redefine
International Fund Managers Limited ("RIFM"), the fund manager of RI,
contributed 2.3 cents per linked unit to the distribution for the half-year.
Changes in fair values
The property portfolio was internally valued at 28 February 2011 resulting in a
net decrease in value of R46.9 million. The South African portfolio increased by
R27.9 million while the offshore portfolio decreased by R74.8 million. The
investment in South African listed securities increased in value by R20.7
million during the period under review, while RI`s 19.8% interest in the
Cromwell Group ("Cromwell"), a listed Australian property trust, increased in
value by R48.2 million. The balance mainly relates to the mark to market of the
group`s interest rate swaps.
South African property portfolio
At 28 February 2011, the property portfolio comprised 382 properties with a
total gross lettable area ("GLA") of 3.59 million m2 valued at R19 billion.
Portfolio split by tenant type
Multi tenanted 74%
Single tenanted 26%
Sectoral spread by GLA
Sector GLA
Office 39%
Retail 32%
Industrial 29%
Geographical spread by GLA
Region GLA
Northern Cape 1%
Free State 1%
Limpopo 2%
Eastern Cape 2%
North West 4%
Mpumalanga 4%
KwaZulu-Natal 13%
Western Cape 17%
Gauteng 56%
Expiry Year Office Retail Industrial
31 Aug `11 171 353 78 276 143 321
31 Aug `12 241 339 206 553 174 414
31 Aug `13 245 881 204 635 281 750
31 Aug `14 138 830 114 974 129 163
Beyond 313 974 431 129 234 273
During the period under review leases totalling 246 412 m2 were renewed at an
average rental increase of 4.6%. A further 139 059 m2 was let across the
portfolio and together with vacancies from properties disposed of, the total
vacancy levels reduced to 8.5%, set out below as a percentage of GLA:
Vacancy levels as a percentage of GLS were as follows:
28 February 2011 31 August 2010
Office 11.9% 13.4%
Retail 6.5% 7.4%
Industrial 6.2% 10.1%
Total 8.5% 10.4%
Arrears amounted to R34.3 million (31 August 2010: R39.7 million) against which
a provision for possible bad debts of R8.1 million (31 August 2010: R9.7
million) is held.
Property acquisitions and disposals
During the period under review, Redefine disposed of 12 properties with a GLA of
39 705 m2 for an aggregate price of R190 million at an average yield of 9.1%. In
line with Redefine`s strategy to refocus the core property portfolio,
negotiations and feasibilities are under way to dispose of lower grade
properties, of approximately R2.9 billion, to be replaced by the acquisition of
higher quality properties for a similar amount. Should these transactions be
successfully concluded, the overall value of the core property portfolio will
remain unchanged at R19 billion with the number of properties declining to
approximately 240 resulting in the average value per property increasing from
R50 million to R76 million. In executing this strategy, Redefine announced today
that, subject to individual agreements, a framework agreement has been reached
with Zenprop Property Holdings to acquire a portfolio of seven high quality
properties for an aggregate purchase price in excess of R1.1 billion.
Listed securities portfolio
The listed securities portfolio comprises:
28 February 2011
Fund Value Interest held
R`000 %
Local listed securities
Hyprop Investments Limited 3 976 827 45.7
Oryx Properties Limited 154 494 26.4
Sycom Property Fund - -
4 131 321
Foreign listed securities
Cromwell 955 380 19.8
Total 5 086 701
31 August 2010
Fund Value Interest held
R`000 %
Local listed securities
Hyprop Investments Limited 3 959 361 45.7
Or yx Properties Limited 144 851 26.4
Sycom Property Fund 144 067 3.1
4 248 279
Foreign listed securities
Cromwell 851 206 19.8
Total 5 099 485
Hyrop Investments Limited ("Hyprop")
Hyprop is in the process of acquiring the Attfund retail portfolio for R9
billion payable through the issue of 92 million Hyprop units and the balance in
cash. The transaction which will see the merger of two high quality retail
portfolios and will entrench Hyprop` specialist retail focus, was approved by
the Competition Tribunal on 6 April 2011 and is now subject to unitholder
approval. Although Redefine`s shareholding in Hyprop declines from 45.7% to
29.4% as a consequence, the value of its investment remains unchanged.
Sycom Property Fund ("Sycom")
The investment in Sycom was sold for R140.8 million during the period under
review.
Cromwell
In line with RI`s objective of increasing its presence in the Australian
property market, a further 2.4% in Cromwell was acquired on 2 March 2011.
Distribution adjustment
It is Redefine`s policy to distribute its share of income from foreign
subsidiaries to the extent of dividends received. Accordingly, an adjustment has
been made to Redefine`s distributable earnings for the period to equate the
consolidated results from its foreign subsidiaries for the period to the
anticipated dividends.
Interest in associates and joint ventures
This includes RI`s 21.7% interest in Wichford P.L.C. ("Wichford"), valued at
R187.7 million, together with its interest in joint venture property investments
of R29.7 million. It also includes Redefine`s 49% interest in two enterprise
development initiatives, Dipula Property Investment Trust ("Dipula") and
Mergence Africa Property Investment Trust ("Mergence") valued at R105.3 million.
Dipula and Mergence have announced their intention to merge to create a R1.4
billion property portfolio spanning a GLA of 320 000 m2 serving in excess of 500
tenants throughout South Africa. It is planned to rename the merged entity the
Dipula Income Fund Limited and list on the JSE.
Borrowings
Excluding RI, as at 28 February 2011 Redefine`s borrowings of R7.9 billion
represent 32.8% of the value of its property and listed securities portfolio.
Redefine`s average cost of borrowing is 9.64% and the interest rates are fixed
on 70% of borrowings for an average period of six years. RI`s borrowings of R3.8
billion (GBP327.3 million) are all negotiated directly by RI and have no
recourse to Redefine`s South African balance sheet.
Contingencies
At 28 February 2011, Redefine had guarantees and suretyships in respect of its
BEE initiatives and joint ventures amounting to R547.4 million and R30.8 million
respectively.
Redefine International/Wichford potential merger
On 23 March 2011 RI and Wichford announced that agreement in principle had been
reached to merge the two UK-based companies to create a more liquid, enlarged,
income-focused investment property company listed on the main market of the
London Stock Exchange. It is proposed that Wichford will acquire all RI`s shares
on a swap ratio of 7.2 Wichford shares for every 1 RI share. The potential
merger is subject to various regulatory, unitholder and shareholder approvals
being obtained.
It is envisaged that following the potential merger, RIN`s interest in the
enlarged company will be 64%, value neutral and Redefine`s investment in RIN
will remain at 57.2%.
Property management
The property management function, which was previously outsourced, was brought
in-house during the period under review. Redefine believes that this will
enhance its tenant offering and result in increased efficiencies and economies.
The benefit of this initiative will begin to be realised in the second half of
the 2011 financial year.
Changes to the board
Janys Finn resigned as financial director effective 16 November 2010 and was
replaced by Andrew Konig who was appointed effective 12 January 2011.
Executive director David Rice was appointed as Chief Operating Officer on 2
February 2011.
Brian Azizollahoff and Mike Flax resigned as executive directors effective 28
February 2011. Mike Flax remains on the board as a non-executive director.
Prospects
Moderate growth is expected from the core property portfolio. Fee and trading
income are largely unpredictable and difficult to forecast, however the
transaction fee of 3.8 cents per linked unit from the Hyprop Attfund transaction
is anticipated to be received in the second half of the 2011 financial year.
Based on this, the company is anticipating a modest increase in distributions
for the year ending 31 August 2011. This forecast has not been reviewed or
reported on by the group`s independent external auditors.
Debenture interest distribution
Unitholders are advised that interest distribution number 44 of 16.0 cents per
linked unit has been declared for the three months ended 28 February 2011. The
distribution will be payable to Redefine linked unitholders in accordance with
the abbreviated timetable set out below:
2011
Last day to trade "cum" interest distribution Friday, 20 May
Linked units "ex" interest distribution Monday, 23 May
Record date Friday, 27 May
Payment date Monday, 30 May
There may be no dematerialisation or rematerialisation of linked units between
Monday, 23 May 2011 and Friday, 27 May 2011, both days inclusive. The next
interest distribution will be for the six months ending 31 August 2011.
Basis of preparation
The results for the six months ended 28 February 2011 have not been reviewed or
audited by the group`s independent external auditors PKF (Jhb) Inc. These
results have been prepared in accordance with International Financial Reporting
Standards, JSE Listings Requirements and the requirements of the South African
Companies Act. This report has been prepared in terms of IAS 34 - "Interim
Financial Reporting". The accounting policies used are consistent with those
applied in the annual financial statements for the year ended 31 August 2010.
By order of the board
Redefine Properties Limited
4 May 2011
Registered office: 3rd Floor, Redefine Place, 2 Arnold Road, Rosebank,
2196 (PO Box 1731, Parklands, 2121)
Directors: D Gihwala (Chairman), M Wainer* (CEO), MN Flax, GJ Heron,
MK Khumalo, AJ Konig*, GGL Leissner, HK Mehta, B Nackan, D Perton, DH Rice*#
*Executive #British
Transfer secretaries: Computershare Investor Services (Proprietary) Limited
Sponsor
Java Capital
Company secretary
Probity Business Services (Proprietary) Limited
Website: www.redefine.co.za
Date: 04/05/2011 16:05:36 Supplied by www.sharenet.co.za
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