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Condensed unaudited consolidated interim financial statements for the six months ended 20 June 2012
CAPITAL PROPERTY FUND
(“Capital” or “the Fund”)
Share code CPL ISIN ZAE000001731
(A portfolio in Capital Property Trust Scheme, a Collective Investment
Scheme in Property established in terms of the Collective Investment
Schemes Control Act, No 45 of 2002)
Managed by Property Fund Managers Limited
(Registration No. 1980/009531/06)
(“PFM”)
Condensed unaudited consolidated interim financial statements for the six
months ended 30 June 2012
DIRECTORS’ COMMENTARY
1 DISTRIBUTABLE EARNINGS
Capital’s interim distribution of 33,28 cents per unit for the period
ended 30 June 2012 represents an increase of 6,12% over the 31,36 cents
for the interim period ended 30 June 2011.
2 REVIEW
The results were achieved in a difficult macro-economic environment. The
office market remains particularly challenging with high vacancy levels in
most nodes and with pressure on rentals. Despite considerable effort to
reduce the office vacancies, downsizing and rationalisation by tenants as
well as liquidations resulted in the vacancies remaining at a concerning
13,3%.
Industrial properties which constitute 51% of Capital’s property portfolio
again performed well. Tenant demand in industrial areas such as Linbro
Park, Longmeadow and Raceway Industrial Park in which Capital has a large
presence, continues to be strong. Encouragingly, demand for big boxes has
continued to improve, but demand for manufacturing space is in decline in
line with the downward trend in this sector. Capital’s strategy continues
to be to reduce its exposure to the manufacturing sector and enhance the
portfolio with the development of new distribution facilities.
Capital has achieved considerable success with the industrial developments
already undertaken. The Fund also made further progress by acquiring land
in strategic locations for its development pipeline. Capital will continue
to reduce its retail and non-core properties to focus on A-grade
industrial parks and offices.
Capital is currently exploring the economic internalisation of Property
Fund Managers Limited (“PFM”), its management company, to better align
investor interests with management of the Fund. As Capital is a Property
Unit Trust (PUT), it cannot own PFM and the economic internalisation will
be achieved by an amendment to the Trust Deed. This will result in costs
being recovered rather than the payment of a fixed asset management fee.
Should agreement be reached between the boards of Capital and Resilient
Property Income Fund Limited (the owner of PFM), the transaction will be
presented to unitholders for approval.
3 ACQUISITIONS AND DEVELOPMENTS
Capital has acquired Clairwood Racecourse at a cost of R430 million. The
property is situated adjacent to the old Durban airport which is planned
to be the major container port and terminal for KwaZulu-Natal. Capital
will develop approximately 400 000m2 of warehousing at the new Clairwood
Logistics Park at an estimated completion cost in excess of R2 billion.
The environmental approval, re-zoning and infrastructure installation is
anticipated to take two years.
The construction of an 11 200m2 warehouse development in Raceway
Industrial Park was completed in July 2012 and has been tenanted.
Construction of an additional 21 345m2 warehouse has commenced and has
been let to a blue chip multi-national tenant for five years. A 9 150m2
warehouse at N1 Business Park and a 12 000m2 warehouse development at
Montague Business Park have been completed and tenanted. The development
land at Tradeport in the City Deep node has attracted interest and
construction of a logistics park is scheduled to commence in October 2012.
The following developments have commenced:
Estimated
% GLA Estimated completion
Property name owned (100%) yield date
Raceway Industrial Park 100% 21 345m2 9,0% March 2013
Montague Business Park 25% 14 679m2 9,5% October 2012
Montague Business Park 25% 3 308m2 8,9% December 2012
14 Fitzmaurice Epping 100% 3 300m2 9,0% February 2013
Montague Business Park 25% 1 605m2 9,9% January 2013
253 covered
Grand Central 100% parking bays 10,0% October 2012
The following developments are currently being evaluated:
Estimated
% GLA Estimated commencement
Property name owned (100%) yield date
52 000m2
(additional
buildings in
Tradeport City Deep 100% park) 9,0% October 2012
40 000m2
(additional
buildings in
Raceway Industrial Park 100% park) 9,0% January 2013
Clairwood Logistics
Park* 100% 400 000m2 9,0% September 2014
* Transfer pending
4 DISPOSALS
The six stands in Raceway Industrial Park not required for Capital’s
development pipeline were sold and transferred. Capital is currently
engaged in negotiations to dispose of its non-core properties.
5 VACANCIES AND ARREARS
Total vacancies improved marginally from 6,3% at 31 December 2011 to 6,1%
at 30 June 2012. Vacancies comprised industrial 4,4% (Dec 2011: 4,8%),
offices 13,3% (Dec 2011: 13,4%) and retail 6,5% (Dec 2011: 4,7%) based on
gross lettable area. Pineslopes Shopping Centre which is currently
undergoing extensive redevelopment, accounts for most of the increase in
retail vacancies. The office market remains under pressure and no
significant improvement is forecast for the remainder of the financial
year.
The difficult economic environment has resulted in a slight deterioration
in the arrears, however, bad debts are well provided for and no
significant increase in bad debts is anticipated.
6 EQUITY INVESTMENTS
Jun 2012 Dec 2011
Number of Market Number of Market
units/shares value units/shares value
R’000 R’000
Fortress Income Fund
Limited
A linked units * 42 000 000 564 060 50 600 000 622 380
Fortress Income Fund
Limited
B linked units * 96 000 000 595 200 96 000 000 484 800
New Europe Property
Investments plc 13 351 692 534 866 3 900 000 126 750
Resilient Property
Income Fund Limited 16 200 000 695 790 16 200 000 562 950
2 389 916 1 796 880
*The investment in Fortress Income Fund Limited is equity accounted and
has not been revalued for accounting purposes.
7 BORROWINGS
In terms of its unsecured Domestic Medium Term Note programme, Capital has
R350 million of commercial paper, R850 million in three year bonds and
R200 million in five year bonds in issue.
In July 2012 Capital settled its R621 million Commercial Mortgage Backed
Securitisation (“CMBS”) programme managed by RMB. The remaining CMBS
programme of R470 million, managed by ABSA, will be repaid in October
2012.
Capital has renewed the R600 million facility from Standard Bank which
expired at the end of June 2012 for a further five years and has
negotiated a new R800 million five year facility with RMB.
Capital increased its gearing from 22,2% at 31 December 2011 to 22,8% at
30 June 2012. The board is comfortable with gearing of up to 30%.
8 OUTLOOK
Capital is operating in an environment that is characterised by
significant pressure on office lease renewals with lower rentals achieved
on new lettings. Combined with additional costs being incurred to attract
and install tenants, this is limiting Capital’s ability to increase net
property income. The results have, however, been positively impacted by
the new industrial developments and will in future be supported by reduced
cost of funding.
The board forecasts growth in distributions of between 4% and 7% per
Capital unit for the 2012 financial year. This forecast has not been
reviewed or reported on by Capital’s auditors.
The growth is based on the assumptions that a stable macro-economic
environment will prevail, no major corporate failures will occur and that
tenants will be able to absorb the recovery of rising utility costs.
Budgeted rental income was based on contractual escalations and
anticipated market related renewals.
By order of the board
Barry Stuhler Rual Bornman
Managing director Financial director
31 July 2012
Johannesburg
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited Unaudited
Jun 2012 Dec 2011 Jun 2011
R'000 R'000 R'000
ASSETS
Non-current assets 18 429 247 17 949 605 17 644 178
Investment property 15 783 116 15 728 251 16 843 215
Straight-lining of rental revenue
adjustment 122 029 125 413 102 541
Investment property under development 473 148 468 241 441 322
Investments 1 230 656 689 700 257 100
Investment in associate company 820 298 938 000 –
Current assets 271 818 262 810 212 259
Trade and other receivables 187 277 198 411 183 054
Cash and cash equivalents 84 541 64 399 29 205
Total assets 18 701 065 18 212 415 17 856 437
EQUITY AND LIABILITIES
Capital of Fund 12 750 572 12 520 641 11 880 707
Trust capital 9 273 620 9 273 620 9 273 620
Non-distributable reserves 3 476 952 3 247 021 2 607 087
Retained earnings – – –
Total liabilities 5 950 493 5 691 774 5 975 730
Non-current liabilities 2 893 904 2 502 069 3 525 426
Interest-bearing borrowings 2 365 316 1 949 538 2 949 386
Deferred tax 528 588 552 531 576 040
Current liabilities 3 056 589 3 189 705 2 450 304
Trade and other payables 626 560 543 955 462 739
Unitholders for distribution 534 805 550 714 503 951
Taxation payable 2 911 3 894 –
Interest-bearing borrowings 1 892 313 2 091 142 1 483 614
Total equity and liabilities 18 701 065 18 212 415 17 856 437
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Jun 2012 Dec 2011 Jun 2011
R'000 R'000 R'000
Net rental and related revenue 700 478 1 312 883 507 865
Recoveries and contractual rental
revenue 1 055 427 1 909 449 744 733
Straight-lining of rental revenue
adjustment (3 384) 36 746 13 874
Rental revenue 1 052 043 1 946 195 758 607
Property operating expenses (351 565) (633 312) (250 742)
Distributable income from investments 29 506 16 093 5 068
Fair value gain on investment
property and investments 267 698 796 358 19 347
Fair value gain on investment
property 8 951 661 560 5 413
Adjustment resulting from straight-
lining of rental revenue 3 384 (36 746) (13 874)
Fair value gain on investments 255 363 171 544 27 808
Gain on disposal of portion of
associate 21 758 – –
Administrative expenses (43 984) (74 864) (32 596)
Impairment of goodwill – (98 042) (98 042)
Distributable income from associate 34 835 5 970 –
Profit before net finance costs 1 010 291 1 958 398 401 642
Net finance costs (262 227) (263 768) 52 197
Finance income 603 178 879 193 261
Fair value adjustment on
derivatives – – 14 709
Interest on units issued cum
distribution – 175 900 175 900
Interest received 603 2 979 2 652
Finance costs (262 830) (442 647) (141 064)
Interest paid on borrowings (209 050) (376 795) (154 194)
Capitalised interest 19 033 29 245 13 130
Fair value adjustment on
derivatives (72 813) (95 097) –
Profit before income tax expense 748 064 1 694 630 453 839
Income tax expense 16 672 (45 043) 5 100
Profit for the period attributable
to equity holders 764 736 1 649 587 458 939
Total comprehensive income for
the period 764 736 1 649 587 458 939
Basic earnings per unit (cents)* 47,59 102,65 28,56
*The Fund has no dilutionary instruments in issue.
RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS AND
DISTRIBUTABLE INCOME
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Jun 2012 Dec 2011 Jun 2011
R'000 R'000 R'000
Profit for the period attributable
to equity holders 764 736 1 649 587 458 939
Adjusted for: (20 717) (480 632) 101 860
– Fair value gain on investment
property (8 951) (661 560) (5 413)
– Adjustment resulting from straight-
lining of rental revenue (3 384) 36 746 13 874
– Impairment of goodwill – 98 042 98 042
– Income tax effect (8 382) 46 140 (4 643)
Headline earnings 744 019 1 168 955 560 799
Reconciliation of profit for the
period to amount available for
distribution
Profit for the period attributable
to equity holders 764 736 1 649 587 458 939
Straight-lining of rental revenue
adjustment 3 384 (36 746) (13 874)
Fair value gain on investment
property (8 951) (661 560) (5 413)
Adjustment resulting from straight-
lining of rental revenue (3 384) 36 746 13 874
Gain on disposal of portion of
associate (21 758) – –
Fair value gain on investments (255 363) (171 544) (27 808)
Impairment of goodwill – 98 042 98 042
Fair value adjustment on derivatives 72 813 95 097 (14 709)
Income tax expense (16 672) 45 043 (5 100)
Distributable income 534 805 1 054 665 503 951
Less: distribution declared (534 805) (1 054 665) (503 951)
Interim (534 805) (503 951) (503 951)
Final – (550 714) –
Income not distributed – – –
Headline earnings per unit (cents) 46,30 72,74 34,90
Basic earnings per unit is 47,59 cents (Dec 2011: 102,65 cents; Jun 2011:
28,56 cents). The calculation of the basic earnings per unit is based on
a weighted average number of units in issue during the period of
1 606 986 279 (Dec 2011: 1 606 986 279; Jun 2011: 1 606 986 279) and
earnings of R764,736 million (Dec 2011: R1 649,587 million; Jun 2011:
R458,939 million).
Headline earnings per unit is 46,30 cents (Dec 2011: 72,74 cents; Jun
2011: 34,90 cents). The calculation of headline earnings per unit is based
on a weighted average number of units in issue during the period of 1 606
986 279 (Dec 2011: 1 606 986 279; Jun 2011: 1 606 986 279) and headline
earnings of R744,019 million (Dec 2011: R1 168,955 million; Jun 2011:
R560,799 million).
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Jun 2012 Dec 2011 Jun 2011
R'000 R'000 R'000
Net cash inflow/(outflow) from
operating activities 12 640 (88 167) 157 230
Cash (outflow)/inflow from investing
activities (209 447) 825 450 328 855
Cash inflow/(outflow) from financing
activities 216 949 (640 874) (424 870)
Increase in cash and cash equivalents 20 142 96 409 61 215
Cash and cash equivalents at the
beginning of the period 64 399 (32 010) (32 010)
Cash and cash equivalents at the end
of the period 84 541 64 399 29 205
Cash and cash equivalents consist of:
Cash on call iro securitisation 53 280 59 621 29 205
Current accounts 31 261 4 778 –
84 541 64 399 29 205
CONSOLIDATED STATEMENT OF CHANGES IN UNITHOLDERS’ INTEREST
Non–
distri-
Trust butable Retained
capital reserves earnings Total
Unaudited R'000 R'000 R'000 R'000
Balance at
31 December 2010 2 645 963 2 652 099 – 5 298 062
Total comprehensive
income for the period 458 939 458 939
Issue of units –
889 408 220 on
4 April 2011 6 627 657 6 627 657
Transfer from non-
distributable reserves (45 012) 45 012 –
Distribution (503 951) (503 951)
Balance at 30 June 2011 9 273 620 2 607 087 – 11 880 707
Total comprehensive
income for the period 1 190 648 1 190 648
Transfer to non-
distributable reserves 639 934 (639 934) –
Distribution (550 714) (550 714)
Balance at
31 December 2011 9 273 620 3 247 021 – 12 520 641
Total comprehensive
income for the period 764 736 764 736
Transfer to non-
distributable reserves 229 931 (229 931) –
Distribution (534 805) (534 805)
Balance at 30 June 2012 9 273 620 3 476 952 – 12 750 572
PREPARATION AND ACCOUNTING POLICIES
The condensed unaudited consolidated interim financial statements have
been prepared in accordance with the measurement and recognition
requirements of IFRS, the AC500 standards as issued by the Accounting
Practices Board, the information contained in IAS 34: Interim Financial
Reporting, the JSE Listings Requirements, the requirements of the South
African Companies Act and the Collective Investment Schemes Control Act
(Act 45 of 2002). This report was compiled under the supervision of Rual
Bornman CA(SA), the financial director. The interim financial statements
have not been audited or reviewed by the Fund’s auditors.
The accounting policies adopted are consistent with those applied in the
prior periods.
The directors are not aware of any matters or circumstances arising
subsequent to 30 June 2012 that require any additional disclosure or
adjustment to the financial statements.
SUMMARY OF FINANCIAL PERFORMANCE
Jun 2012 Dec 2011 Jun 2011 Dec 2010
Distribution per
unit (cents) 33,28 34,27 31,36 31,78
Units in issue 1 606 986 279 1 606 986 279 1 606 986 279 717 578 059
Net asset value R7,93 R7,79 R7,39 R7,38
Gearing ratio* 22,8% 22,2% 24,8% 18,6%
*The gearing ratio is calculated by dividing interest-bearing borrowings
by total assets.
FACILITIES
Average
Facilities margin
Expiry R' million over Jibar
2012* 820 0,46%
2013 620 1,68%
2014 500 1,60%
2015 1 534 1,56%
2016 700 1,80%
2017 1 600 1,78%
5 774 1,51%
*The R621 million CMBS expiring in July 2012 has been replaced with a
facility expiring in 2017.
The all in cost of borrowings at 30 June 2012 was 10,01%.
SWAP PROFILE
Average
Expiry R' million swap rate
2012 10 8,22%
2013 600 9,27%
2014 250 8,03%
2015 800 8,38%
2016 800 8,21%
2017 800 8,08%
2018 700 7,93%
3 960 8,32%
SECTORAL SPLIT
Based on: GLA Book value
Offices 18% 33%
Industrial 72% 51%
Retail 9% 14%
Other 1% 2%
100% 100%
LEASE EXPIRY PROFILE
GLA Rental
Based on: revenue
Vacant 6,1%
Dec 12* 16,2% 17,6%
Dec 13 20,3% 21,9%
Dec 14 20,1% 23,3%
Dec 15 18,5% 17,5%
Dec 16 9,7% 9,7%
>Dec 16 9,1% 10,0%
100,0% 100,0%
*Subsequent to 30 June 2012, leases have been entered into which
constitute 7,8% of GLA.
SEGMENTAL ANALYSIS
Unaudited Audited Unaudited
Jun 2012 Dec 2011 Jun 2011
R'000 R'000 R'000
Segmental revenue – recoveries and
contractual rental revenue
Offices 330 543 577 318 242 084
Industrial 545 437 892 103 342 340
Retail 155 378 405 273 149 508
Other 24 069 34 755 10 801
Total 1 055 427 1 909 449 744 733
Property operating expenses
Offices (109 874) (186 050) (82 780)
Industrial (180 861) (290 626) (113 292)
Retail (55 014) (149 352) (52 244)
Other (5 816) (7 284) (2 426)
Total (351 565) (633 312) (250 742)
Segmental revenue – rental revenue
Offices 324 485 594 167 244 265
Industrial 548 353 918 946 353 918
Retail 155 463 384 347 150 068
Other 23 742 48 735 10 356
Total 1 052 043 1 946 195 758 607
Profit for the period
Offices 211 946 534 548 159 794
Industrial 360 927 852 375 235 630
Retail 121 687 528 212 95 606
Other 18 253 22 562 8 374
Corporate 51 923 (288 110) (40 465)
Total 764 736 1 649 587 458 939
CAPITAL COMMITMENTS
Unaudited Audited Unaudited
Jun 2012 Dec 2011 Jun 2011
R'000 R'000 R'000
Authorised and contracted 637 443 160 163 137 377
Authorised and not yet contracted 174 926 78 067 123 874
812 369 238 230 261 251
INCOME DISTRIBUTION
Notice is hereby given that a cash distribution of 33,28 cents interest
per unit, being number 58 for Capital Property Fund, has been declared in
respect of the period 1 January 2012 to 30 June 2012 and is payable to the
unitholders recorded in the books of Capital at the close of business on
the record date, Friday, 24 August 2012. Unitholders are advised that the
last day to trade cum distribution will be Friday, 17 August 2012. The
units will trade ex distribution from Monday, 20 August 2012. Payment will
be made on Monday, 27 August 2012. Unit certificates may not be
dematerialised or rematerialised during the period 20 August 2012 to
24 August 2012, both days inclusive. This interest distribution is not
subject to dividend withholding tax.
Registered office
4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
(PO Box 2555, Rivonia, 2128)
Transfer secretaries
Link Market Services South Africa Proprietary Limited
13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2001
(PO Box 4844, Johannesburg, 2000)
Sponsor
Java Capital
Company secretary
Inge Pick
Directors
Willy Ross (chairman)*, Barry Stuhler (managing director), Iraj Abedian*,
Rual Bornman, Des de Beer, Andries de Lange, Protas Phili*, Andrew
Teixeira, Banus van der Walt*, Tshiamo Vilakazi*, Trurman Zuma*
*Independent non-executive director
Date: 31/07/2012 04:59:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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