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SAC - SA Corporate Real Estate Fund - Reviewed Final Results and Distribution
Declaration for the year ended 31 December 2011
SA Corporate Real Estate 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 ("SA Corporate Fund Managers")
(Registration number 1994/009895/06)
("SA Corporate" or "the Fund")
REVIEWED FINAL RESULTS AND DISTRIBUTION DECLARATION FOR THE YEAR ENDED 31
DECEMBER 2011
Distribution growth
- Full year 1.4% higher than December 2010
- 2nd half 2011 2.1% higher than 2nd half 2010
Gearing capacity
- Low gearing of 20.2%
- 87.0% of debt is fixed
Portfolio activity
- Standing portfolio value up 0.7% since December 2010
- Disposal of 7 properties above valuation for R195.4m
Property performance
- Overall vacancies decreased to 5.6%
- Commercial vacancies decreased to 13.6%
INTRODUCTION
SA Corporate Real Estate Fund is a JSE listed Property Unit Trust which owns a
portfolio of retail, industrial and commercial buildings located primarily in
the major metropolitan areas of South Africa.
FINANCIAL RESULTS AND PORTFOLIO PERFORMANCE
The distribution for the second half of the year to December 2011 (14.48cpu)
increased by 2.1% relative to the comparable period in 2010 (14.18cpu) and the
full year`s distribution (28.83cpu) increased by 1.4% compared with 2010
(28.42cpu). This was largely impacted by disposals made in 2010 and 2011. The
distribution growth relating to the standing portfolio increased by 4.7%. The
Fund outperformed the Listed Property sector during the year producing a total
return of 19.3% vs. 8.9% and the discount to net asset value improved from 8.0%
at December 2010 to a surplus of 3.4% (NAV: 335cpu, Unit price: 346cpu) at
December 2011. Industrial rental growth (10.6%) was underpinned by the take-up
of vacant space, solid tenant retentions combined with positive rental
reversions. Retail rental income decreased by 2.9% despite improved vacancies.
The reduction is attributable to a combination of the impact of disposals and
0.7% negative rental reversions. Commercial rental income decreased by 2.7%. The
decline is due to the impact of property disposals, partially off-set by the
decrease in vacancies by 5.9%, an increase in tenant retentions to 93.0% and
positive rental reversions of 1.8%. Standing portfolio rental growth (excluding
recoveries and turnover rental) increased by 6.1%, due to a reduction in
vacancies, improved tenant retention and positive rental reversions. Property
expenses increased by 10.1% compared with December 2010. Municipal costs
representing 57.0% of property expenses, increased by 10.1% due to an increase
in electricity and water of 25.5% and 13.3% respectively. Bad debt expenses
increased by 41.9%, from R16.8m to R23.8m driven by pressure on consumer
discretionary spend due to a slower economic recovery.
Net interest paid increased by 8.4%. Interest paid decreased by 0.8%, due to the
set-off of disposal proceeds placed in the debt access facility and favourable
market interest rates. Interest received decreased by 34.3%, resulting from a
low interest rate environment and excess cash being placed in the debt access
facility.
Fund expenses reduced by 12.4% compared to December 2010 due to the reduction in
service fees relating to an over accrual in 2010.
The breakdown of distributable earnings is set out below:
12 months to 12 months to
31.12.2011 31.12.2010
DISTRIBUTABLE EARNINGS (DR) (R000) Reviewed Audited
Rent (excluding straight lining adjustment) 891,049 871,994
Net property expenses (116,082) (108,003)
Property expenses (431,781) (392,325)
Recovery of property expenses 315,699 284,322
Net property income 774,967 763,991
Taxation on distributions (93) -
Interest income from associate company (Oryx) 16,970 15,620
Net funding cost (140,564) (129,666)
Interest received 23,597 35,892
Interest paid (164,161) (165,558)
Fund expenses (50,998) (58,217)
Prior year distributable income reallocated
to DR upon deregistration (80) -
Distributable earnings 600,202 591,728
Units in issue 2,081,869 2,081,869
Distribution (cents per unit) 28.83 28.42
- Interim 14.35 14.24
- Final 14.48 14.18
PROPERTY VALUATIONS
The value of the Fund`s independently valued property portfolio decreased by
R0,2bn to R8,6bn as at 31 December 2011 (31 December 2010: R8,8bn). The standing
portfolio, representing properties held for the full 12 months in December 2011,
increased by 0.7%, from December 2010.
The capitalisation and discount rates in the Fund`s standing portfolio at 31
December 2011 was calculated on a weighted basis:
Property type Capitalisation Discount rate (%) Growth in standing
rate (%) portfolio (%)
31.12.2011 31.12.2010 31.12.2011 31.12.2010 31.12.2011
Retail 9.5 9.5 15.5 15.5 (2.1)
Industrial 9.9 10.0 15.9 16.1 4.3
Commercial 10.0 10.0 16.0 16.0 (0.8)
Portfolio total 9.7 9.8 15.7 15.8 0.7
The portfolio valuation gives rise to a NAV of 335cpu, a 2.0% decrease over
December 2010 (342cpu).
PORTFOLIO INVESTMENT ACTIVITY
The portfolio comprised 157 properties. The sectoral and geographic weightings
by value are set out below:
Sectoral Spread
Industrial
R3,4bn
40%
701 429m2
91 properties
Retail
R4,5bn
52%
554 036m2
45 properties
Offices and other
R0,7bn
8%
75 363m2
21 properties
Geographic Spread
Gauteng
R3,9bn
46%
631 090m2
69 properties
KwaZulu Natal
R3,5bn
40%
524 476m2
63 properties
Western Cape
R0,7bn
9%
109 489m2
15 properties
Other
R0,5bn
5%
65 773m2
10 properties
The table below sets out the development activity during the year under review.
Developments Cost (Rm) Completion Yield Sector Region
date forecast 1st
12 months
(%)
Musgrave Shopping
Centre, Durban 144.0 12/2011 7.3 Retail KwaZulu
Natal
57 Sarel Baard
Crescent, Gauteng 58.0 04/2011 8.4 Industrial Gauteng
89 Davenport Road,
Glenwood, Durban 22.0 12/2011 11.0 Retail KwaZulu
Natal
Hayfields Mall,
Pietermaritzburg 22.0 03/2012 12.0 Retail KwaZulu
Natal
There were no acquisitions during the year.
Disposals recognised during the year
Properties Transfer Proceeds Carrying Exit yield
date (Rm) value at on sale
date of price (%)
sale (Rm)
191 Chapel Street, Durban 02/2011 19.0 18.7 12.1
17 Timber Street,
Pietermaritzburg 02/2011 11.0 10.8 11.7
40 Grey Street,
Bloemfontein 03/2011 2.4 2.4 7.8
Quarry, 57 Hilton Ave,
Hilton 03/2011 41.0 40.3 10.1
Montclair Mall, Durban 06/2011 78.5 73.4 10.8
Paradys Park, Brackenfell 07/2011 30.0 29.8 10.6
Whirlprops 25, Durban 10/2011 13.5 13.3 9.4
Total 195.4 188.7 10.7
Unconditional disposals
Property Expected Contracted Carrying Exit yield
transfer date sale price value at on sale
(Rm) 31 December price (%)
2011 (Rm)
24 - 28 Commercial Road,
Amanzimtoti 03/2012 3.7 3.7 9.7
94 Intersite Avenue, Durban 01/2012 7.5 7.5 8.1
6 Lanner Road, Durban 01/2012 22.5 22.5 9.6
Total 33.7 33.7 9.3
LEASE EXPIRIES AND VACANCIES
Vacancies in terms of rentable area and rental income were as follows:
Property type Vacancy as % of GLA Vacancy as % of rental income
31.12.2011 31.12.2010 31.12.2011 31.12.2010
Retail 9.7 10.4 6.6 6.6
Industrial 1.4 2.9 1.5 2.2
Commercial 13.6 19.5 9.2 14.6
Portfolio total 5.6 7.3 5.0 6.1
The retail sales environment, whilst showing signs of steady improvement,
remains under pressure. Retail vacancies as a percentage of GLA reduced by 0.7%
since December 2010, due to improved fundamentals and a focused tenant retention
strategy (82.2% - 2011 vs 70.4% - 2010). Vacancies as a percentage of rental
income has remained relatively unchanged attributable to a lower gross rental
impacted by disposals and lower expected market rental in respect of the
vacancies.
The high quality industrial portfolio remained robust in a challenging economic
environment. Industrial vacancies as a percentage of GLA reduced by 1.5%, due to
a focused leasing strategy. Industrial vacancies as a percentage of rental
income decreased by 0.7% attributable to a take-up of space and 10.2% positive
rental reversions.
The industry office sector vacancies continued their upward trend, increasing
for the 7th consecutive quarter, highlighting that the sector may take longer to
stabilise in an oversupplied office market. The vacancies as a percentage of GLA
have however improved by 5.9%, as a result of improved tenant retentions (93.0%
- 2011 vs 61.8% -2010) and gradual take up of vacant space. Refurbishment work
at Musgrave Centre has seen the vacant office component decrease from 2,512m2 at
December 2010 to 1,175m2 as at December 2011. Vacancies as a percentage of
rental has improved by 5.4% attributable to the take-up of vacancies and
positive rental reversions of 1.8%.
The lease expiry profile and vacancies are set out below:
Property Vacant (%) Expiring (%)
type GLA Monthly 2012 2013 2014 2015 Thereafter
Retail 9.7 9.1 15.4 13.4 14.2 13.1 25.1
Industrial 1.4 7.9 25.9 19.1 10.7 14.9 20.1
Commercial 13.6 2.4 20.8 21.2 19.1 13.5 9.4
Total 5.6 8.0 21.3 17.0 12.7 14.1 21.3
TENANT RETENTION AND RENTAL REVERSION
The table below reflects the Fund retention ratio and rental reversion per
sector for a rolling 12 month period ending December 2011:
Property type Expiries m2 Retention m2 Retention (%) Retention
reversion (%)
Retail 88,851 73,029 82.2 (0.7)
Industrial 108,806 84,605 82.8 10.2
Commercial 10,611 9,871 93.0 1.8
Total 208,268 167,505 83.1 2.7
BORROWINGS
Gearing remained low with debt amounting to 20.2% of the total portfolio (31
December 2010: 20.5%). 87.0% of the debt is fixed, with the earliest fix
expiring in December 2012. The debt profile is detailed below:
Type Maturity Fix Value Interest Swap
date expiry (Rm) Rate
(%)
Fixed 13/09/2013 13/09/2013 100 10.57 No
Fixed 31/12/2012 31/12/2012 500 10.82 No
Fixed 11/09/2014 05/06/2013 400 9.75 Yes
Variable 31/12/2013 N/A 202 7.25 No
Fixed 13/08/2013 31/07/2014 270 7.08 Yes
Fixed 13/08/2013 31/07/2014 30 7.08 Yes
Fixed 29/04/2015 31/07/2015 200 10.09 Yes
Variable 25/07/2016 25/07/2016 21 7.85 No
Total 1,723 9.71
The Fund has an additional R200m floating facility, of which R21.4m was
partially used to fund capital expenditure.
PROSPECTS
Strategy implementation is gaining ground, but the uncertainty of timing
relating to the transfer of contracted but conditional disposals amounting to
R492m, potential new disposals and acquisitions makes establishing the outlook
for distribution growth in 2012 challenging.
Improving the quality of the portfolio and sustainability of income growth has
entailed material disposals, and reinvestment (much of which has been defensive)
and weighed on short-term distribution growth. Net property income growth
expectations in the standing portfolio of 5-7% pa in each of the next 3 years
reflect the positive impact of past investment and disposals. The Fund has
embarked on establishing a Domestic Medium Term Note programme that should lower
the interest rate at which SA Corporate can borrow and increase flexibility.
Overall, the distribution in 2012 is unlikely to be better than the current
year. This forecast has not been reviewed or reported on by SA Corporate`s
auditors.
REVIEW BY INDEPENDENT AUDITORS
The condensed provisional financial information for the year ended 31 December
2011 has been reviewed by the Fund`s auditors, Deloitte & Touche. The review was
conducted in accordance with ISRE 2410 `Review of Interim Financial Information
performed by the Independent Auditor of the Entity`. A copy of their unmodified
review report is available for inspection at the Fund`s registered office. Any
reference to future financial performance included in this announcement, as well
as related information which is not based on the International Financial
Reporting Standards, has not been reviewed or reported on by the Fund`s
auditors.
12 months to 12 months to
CONDENSED CONSOLIDATED STATEMENT 31.12.2011 31.12.2010
OF FINANCIAL POSITION (R000) Reviewed Audited
Assets
Non-current assets 8,020,574 8,495,212
Investment property 7,812,992 8,185,492
At valuation 7,178,125 7,347,450
Straight line rental adjustment (210,833) (184,258)
Properties under development 845,700 1,022,300
Investment in associate - 155,892
Rental receivable - straight line adjustment 182,058 153,828
Other receivables 25,524 -
Current assets 1,285,481 929,763
Properties held for disposal 527,700 402,518
Investment in associate held for disposal 175,208 -
Trade receivables 26,555 17,226
Other receivables and accrued interest 153,592 169,111
Rental receivable - straight line adjustment 28,775 30,430
Cash resources and short term investments 373,651 310,478
Total assets 9,306,055 9,424,975
Unitholders` funds and liabilities
Unitholders` funds 6,967,767 7,125,735
Non-current liabilities 1,350,890 1,835,645
Interest bearing borrowings 1,222,982 1,684,330
Interest rate swap derivative 32,545 31,541
Deferred taxation 95,363 119,774
Current liabilities 987,398 463,595
Trade and other payables 179,424 147,915
Interest bearing borrowings 500,000 -
Capital gains taxation and secondary taxation
on companies 2,415 18,795
Unclaimed distributions 4,148 1,589
Distributions payable 301,411 295,296
Total unitholders` funds and liabilities 9,306,055 9,424,975
NAV cpu 335 342
Year ended Year ended
CONDENSED CONSOLIDATED STATEMENT 31.12.2011 31.12.2010
OF COMPREHENSIVE INCOME (R000) Reviewed Audited
Revenue 1,235,323 1,182,374
Income 1,300,061 1,257,105
Rent 891,049 871,994
Straight line rental adjustment 28,575 26,058
Recovery of property expenses 315,699 284,322
Income from associate company 41,141 38,839
- Interest income 16,970 15,620
- Share of post-acquisition reserves 24,171 23,219
Interest 23,597 35,892
Expenses (646,940) (616,100)
Accounting and secretarial fees (10,205) (10,369)
Audit fees (1,517) (1,427)
Administrative fees (7,737) (11,696)
Interest paid (164,161) (165,558)
Property expenses (431,781) (392,325)
Service fees (31,539) (34,725)
Operating income 653,121 641,005
Revaluation of interest rate swap (1,004) (31,540)
Debt restructure costs (27,473) (22,894)
Capital profit on disposal of investment properties 3,276 359
Revaluation of investment properties (28,892) 148,766
- Revaluations (317) 174,824
- Straight line rental adjustment (28,575) (26,058)
Revaluation of investment property under
development (206,875) 139,994
Impairment of investment in associate (4,855) (649)
Income before taxation 387,298 875,041
Taxation 27,463 (22,901)
Secondary tax on companies (864) -
Current capital gains and normal income tax 3,916 (1,997)
Deferred tax on property transactions 24,411 (20,904)
Deferred taxation on straight line valuation
adjustment (1,547) 4,042
Deferred taxation on straight line rental adjustment 1,547 (4,042)
Net profit attributable to unitholders 414,761 852,140
Other comprehensive income 27,473 13,934
Revaluation of interest rate swap - (8,960)
Amortisation of debt restructure 27,473 22,894
Total comprehensive income attributable to
unitholders 442,234 866,074
Units in issue (000) 2,081,869 2,081,869
Weighted units in issue (000) 2,081,869 2,081,869
Cents Cents
Distribution per unit 28.83 28.42
Interim 14.35 14.24
Final 14.48 14.18
Net profit per unit 19.92 40.93
Interim 18.08 17.26
Final 1.84 23.67
Headline earnings per unit 30.08 27.98
Interim 15.52 14.58
Final 14.56 13.40
Year ended Year ended
CONDENSED CONSOLIDATED STATEMENT OF CHANGES 31.12.2011 31.12.2010
IN UNITHOLDERS` FUNDS (R000) Reviewed Audited
Unitholders` funds at the beginning of the year 7,125,735 6,851,389
Total comprehensive income for the year 442,234 866,074
Net profit for the year 414,761 852,140
Hedge accounted interest rate swap valuation
adjustment - (8,960)
Amortisation of debt restructure 27,473 22,894
7,567,969 7,717,463
Distribution attributable to unitholders (600,202) (591,728)
Unitholders` funds at the end of the year 6,967,767 7,125,735
Year ended Year ended
ABRIDGED CONSOLIDATED STATEMENT OF 31.12.2011 31.12.2010
CASH FLOW (R000) Reviewed Audited
Net cash flows from operating activities 7,695 (68,228)
Net cash flows from investing activities 16,826 (133,675)
Net cash flows from financing activities 38,652 84,330
Net increase /(decrease) in cash 63,173 (117,573)
Cash resources at beginning of year 310,478 428,051
Cash resources at end of year 373,651 310,478
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial information has been prepared in accordance
with the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS), the AC 500 standards as
issued by the Accounting Practices Board, the requirements of the Collective
Investment Schemes Control Act and the information as required by IAS 34:
Interim Financial Reporting. The results have been prepared using accounting
policies that are consistent with those applied in the financial statements for
the prior year.
1 Headline earnings and distribution attributable to unitholders
Year ended Year ended
31.12.2011 31.12.2010
Reviewed Audited
R 000 CPU R 000 CPU
Net profit for the year 414,761 19.92 852,140 40.93
Adjustments for:
Capital profit on disposal of
investment properties (3,276) (359)
Revaluation of investment properties 28,892 (148,766)
Revaluation of investment property
under development 206,875 (139,994)
Impairment of investment in associate 4,855 649
Taxation on adjustments (25,916) 18,859
Headline earnings 626,191 30.08 582,529 27.98
Straight line rental adjustment (28,575) (26,058)
Taxation on straight line rental
adjustment (1,547) 4,042
Share of associate company`s after
tax profit (24,171) (23,219)
Debt restructure costs 27,473 22,894
Other (173) -
Revaluation of interest rate swap 1,004 31,540
Distributable income 600,202 591,728
Distributable income attributable to
unitholders 600,202 28.83 591,728 28.42
Interim 298,791 14.35 296,431 14.24
Final 301,411 14.48 295,297 14.18
Weighted headline earnings per unit 30.08 27.98
2 Primary operational segments (R000) Reviewed
Business segment Industrial Commercial Retail Group
Extract from statement of
comprehensive income
Revenue 435,214 103,449 696,660 1,235,323
Rental income (excluding
straight line rental adjustment) 363,118 79,586 448,345 891,049
Net property expenditure (30,901) (12,644) (72,537) (116,082)
Property expenses (84,705) (29,211) (317,865) (431,781)
Recovery of property expenses 53,804 16,567 245,328 315,699
Net property income 332,217 66,942 375,808 774,967
Straight line rental adjustment 18,292 7,296 2,987 28,575
Interest income from associate - - - 16,970
Net interest paid - - - (140,564)
Debt restructure costs - - - (27,473)
Fund expenses - - - (50,998)
Share of associate company`s
after tax profit - - - 24,171
Deferred taxation on straight
line rental adjustment 1,676 (33) (96) 1,547
Revaluation of interest rate
swap - - - (1,004)
Headline earnings 352,185 74,205 378,699 626,191
Other information
Properties 3,286,893 687,617 4,349,799 8,324,309
At valuation 3,358,850 711,500 3,107,775 7,178,125
Classified as held for
disposal 30,000 - 497,700 527,700
Property under development - - 845,700 845,700
Straight line rental
adjustment (101,957) (23,883) (101,376) (227,216)
Revaluation of investment
properties excluding straight
line adjustment, net of
taxation 108,780 (9,286) (282,275) (182,781)
Segment growth rates Industrial Commercial Retail Group
% % % %
Rental income (excluding
straight line rental adjustment) 10.6 (2.7) (2.9) 2.2
Property expenses 11.4 3.9 10.4 10.1
Recovery of property expenses (2.4) 11.7 13.1 11.0
Net property income 9.0 (2.3) (3.9) 1.4
3 Significant transaction
Oryx disposal
Subsequent to the reporting year end 31 December 2011, SA Corporate has disposed
of its shareholding in Oryx Properties Limited, representing 14 019 055 units at
a price of N$12.50pu. Details of this transaction have been published in the
SENS announcement on 11 January 2012.
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice is hereby given of the declaration of distribution no. 34 in respect of
the income distribution period 1 July 2011 to 31 December 2011. The distribution
amounts to 14.48cpu.
Last date to trade cum distribution Thursday, 15 March 2012
Units will trade ex-distribution Friday, 16 March 2012
Record date to participate in the distribution Friday, 23 March 2012
Payment of distribution Monday, 26 March 2012
Unit certificates may not be dematerialised or re-materialised between Friday,
16 March and Friday, 23 March 2012 both days inclusive.
SA Corporate Real Estate Fund Managers Limited
Registered office
5th Floor Mutual Park
Jan Smuts Drive
Pinelands
7405
PO Box 333
Mutual Park 7451
Tel: (021) 530-4500
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
Managed by Old Mutual Property
A licenced financial services provider
Directors: KM Roman (Chairman), LB van Niekerk (Managing)*, AM Basson
(Finance)*, RJ Biesman-Simons, GP Dingaan, KJ Forbes, P Levett, SH Mia,
R Morar, ES Seedat, WC van der Vent
*Executive
OLD MUTUAL PROPERTY (PTY) LTD
SECRETARIES
21 February 2012
Date: 22/02/2012 11:47:20 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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