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Audited Results for the year ended 30 June 2012 and Notice of AGM
Orion Real Estate Limited
(Incorporated in the Republic of South Africa)
(Registration number 1997/021085/06)
Share code: ORE ISIN: ZAE000075651
("Orion Real Estate" or "the company" or "the Group")
Audited Results
for the year ended 30 June 2012
and notice of annual general meeting
1. Commentary
The Board of Directors presents the Group's audited results for the year ended 30 June 2012. The results have been
prepared in accordance with International Financial Reporting Standards ("IFRS"), International Accounting Standards
("IAS 34") - Interim Financial Reporting, the JSE Limited Listing Requirements and the requirements of the South African
Companies Act, 2008, as amended.
The accounting policies have been consistently applied to all the years presented and to years prior to the transition
to IFRS, unless stated otherwise. The results have been audited by the company's auditors, PricewaterhouseCoopers,
whose unmodified audit report is available for inspection at the registered office of the company.
2. Financial and operational overview
The business environment both locally and internationally remains uncertain and this uncertainty poses various challenges.
The South African economy remains subdued and recent unrest in the mining sector has not contributed to a more positive
environment. The lack of service delivery on a broad front continues to hamper economic growth and in many instances
inhibits business in general. Unrest due to a lack of service delivery could also in the near future have a negative influence
on business activities.
The directors and staff members remain positive about the future of the Group and opportunities that still exist in the
broader market. Such opportunities are actively pursued to the benefit of the Group and shareholders.
The Group has shown growth in a number of key areas and continues to build on the solid platform established in previous
periods. Revenue increased by 10.7% from R82 million in 2011 to R90.8 million in 2012, despite an increase in the average
vacancy factor of the portfolio from 12.95% to 27.72%.
This area for improvement has become the core focus of management and it is our aim to reduce the average vacancy
percentage in the new reporting period to less than 10%. This will ensure a substantial growth in income in the next
reporting period.
Total comprehensive income for the year attributable to equity holders of the Group has improved from a loss of R1.8 million
in 2011 to a profit of R47.97 million in 2012. Headline earnings changed from a profit of R2.1 million (restated) in 2011 to
a profit of R417 647 in 2012. The continued improvement of occupancy rates across the portfolio will improve the position
in future years.
Headline earnings per linked unit weakened from 0.33 cents in 2011 to 0.07 cents in 2012. Basic earnings per linked unit
improved from (0.29) cents to 7.65 cents.
The key driver in improving overall headline profitability of the Group is a renewed focus on improving occupancy to
commercially competitive level. This strategy has been implemented alongside a detailed monitoring process to ensure
results.
The value of the property portfolio has increased by 10.04% from R646 523 400 in 2011 to R711 458 238 in 2012 as a
result of the remeasurement of investment property to fair value, further supported by lower interest rates. Properties to the
value of R16 264 535 were identified and reclassified as non-current assets held for sale.
Various opportunities to expand the current portfolio have been identified, however with limited success, with price
remaining a consistent challenge.
2012 2011
Earnings per linked unit
Basic earnings per linked unit (cents) 7.65 (0.29)
Diluted earnings per linked unit (cents) 7.65 (0.29)
Headline earnings per linked unit (cents) 0.07 0.33
Diluted headline earnings per linked unit (cents) 0.07 0.33
Net asset value per linked unit (cents) 69.86 63.11
Reconciliation of basic earnings and headline earnings:
Profit attributable to equity holders 47 966 586 (1 841 453)
Fair value adjustment to investment properties (72 376 415) (2 089 209)
Linked debenture interest (5 656 163) 5 700 000
Deferred tax raised on fair value adjustment to investment property 13 508 913 292 489
Loss on disposal of investment property 636 000 -
Change in capital gains tax rate 16 338 726 -
Headline earnings 417 647 2 061 827
The Group has undertaken an initiative to utilise available technology to effect substantial energy savings in all buildings
owned by the company. This will not only lead to substantial savings in terms of utility costs but will also enable the Group
to offer tenants lower recoverable utility costs in the future. It is critical that companies not only look after their own interests,
but for future sustainability and growth the interest of stakeholders on a broader front.
The Group has also commenced the planning and redevelopment of buildings within the portfolio to keep in line with
current market developments and changing needs. These initiatives have already identified opportunities to subdivide
identified industrial buildings into smaller units to meet new market needs, reduce risk and as such also utilise the
opportunity to generate more income per square meter. Buildings have also been identified where existing unused space
will be converted into rentable space and as such improve not only income but also the value of such properties.
The Bethlehem project has been hampered by delays in local government approval timelines, but indications are that it
should be resolved in the near future. Opportunities remain to make this planned initiative a major source of growth and
development for the future.
The Group has on a continuous basis been busy looking for new business opportunities, despite the current economic
environment. Mitigating strategies have been developed and implemented to ensure that such identified business
opportunities have minimal potential risks.
3. Restatement of comparative figures
In order to more accurately reflect the guidance contained in IAS 40, the Group have reclassified certain amounts presented
in comparative periods. The effect of these restatements is set out below:
Investment properties
IAS 40.50(c) requires an entity to consider the effect of double counting when performing a valuation of investment property
under the fair value model. In previous years the financial statements reflected the straight-lining lease adjustment as a
separate asset on the face of the statement of financial position. In order to correct this presentation, to take into
account the requirement under IAS 40 the following reclassification adjustment was processed against both the current
and prior year's previously issued financial statements.
The effect is limited to a reclassification within the statement of financial position and no change is required to either the
statement of comprehensive income or statement of changes in equity.
The effect of the change in restatement is:
Group
2011 2010
Statement of financial position
Investment properties previously reported 637 289 209 631 900 000
Increase in investment properties (previously other
receivables) 9 234 191 7 239 351
Adjusted investment properties 646 523 400 639 139 351
Deferred taxation
IAS 12.74 requires deferred tax assets and liabilities to be offset when the entity has a legally enforceable right to do
so. The previously issued financial statements reflected these balances on a gross basis within the Group figures.
This adjustment was processed against both the current and prior year's previously issued financial statements and
illustrated below.
The effect is limited to a reclassification within the statement of financial position and no change is required to either the
statement of comprehensive income or statement of changes in equity.
The effect of the change in reclassification is set out below:
Group
2011 2010
Deferred taxation previously reported (liability) 53 026 090 52 398 998
Decrease in deferred taxation liability (asset) (11 422 941) (7 856 492)
Adjusted deferred taxation (net tax liability) 41 603 149 44 542 505
Headline earnings
Circular 3/2012 Headline earnings requires interest and any adjustments related to linked debenture units to be taken
into account when calculating headline earnings. This adjustment was processed against both the current and prior year's
previously issued financial statements and illustrated below.
The effect of the restatement in headline earnings is set out below:
2011
Headline loss previously reported (3 638 173)
Adjusted for: Add back of linked debenture interest 5 700 000
Headline earnings (restated) 2 061 827
Headline loss per linked unit (cents) previously reported (0.58)
Restated headline earnings per linked unit (cents) 0.33
4. Dividends
No dividends were paid or declared during the financial period.
5. Debenture interest
Debenture interest distribution of R279 674 is payable by 30 November 2012.
6. Linked units issued
No linked units were issued during the reporting period.
7. Change to Board of Directors
Dr A Parker has joined the Board of directors during the reporting period and Prof A Boessenkool resigned as a director
with effective date 1 August 2012 due to other business commitments.
8. Prospects
The national and international business environment remains fluid, combined with political uncertainty both locally and
abroad. Business strategies have to continuously take cognisance of these business risks to ensure business stability.
Despite these challenges management remain confident that even in such an environment there are sufficient business
opportunities available to ensure continued business growth and success.
9. Notice of general meeting
Shareholders are advised that the annual general meeting will be held at 10:00 on Tuesday, 20 November 2012, in the
Boardroom, 16th Floor, Orion House, 49 Jorissen Street, Braamfontein, Johannesburg.
Johannesburg
28 September 2012
Statements of financial position
as at 30 June 2012
Group
Figures in Rand 2012 2011 (restated) 2010 (restated)
ASSETS
Non-current assets 695 784 321 646 904 513 639 747 239
Investment properties 695 193 703 646 523 400 639 139 351
Property, plant and equipment 590 618 381 113 607 888
Current assets 33 993 706 22 333 524 20 603 642
Loans to related parties 2 700 135 88 487
Loans to group companies
Trade and other receivables 28 335 287 22 333 524 20 426 684
Cash and cash equivalents 2 958 284 88 471
Investment properties held for sale 16 264 535
Total assets 746 042 562 669 238 037 660 350 881
EQUITY AND LIABILITIES
Capital and reserves
Share capital and share premium 74 235 526 74 235 526 74 235 526
Debenture reserve 10 675 886 10 675 886 10 675 886
Retained earnings 303 725 058 255 758 472 257 599 925
Total equity attributable to owners of the parent 388 636 470 340 669 884 342 511 337
Non-controlling interest (267 426) (180 457) (177 608)
Total equity 388 369 044 340 489 427 342 333 729
Non-current liabilities 169 806 707 241 682 450 279 157 750
Linked debentures 49 386 923 55 043 086 49 343 086
Borrowings 51 796 490 145 036 215 185 272 159
Deferred tax liabilities 68 623 294 41 603 149 44 542 505
Current liabilities 187 866 811 87 066 160 38 859 402
Current income tax liabilities 12 715 619 6 315 840 2 616 731
Loans from shareholders 1 998 792 1 471 907 1 359 768
Loans from directors 2 598 511 2 598 511 2 898 435
Loans from related parties 905 609 1 736 046 777 707
Loans from group companies
Tenant deposits 6 246 795 5 939 753 6 245 092
Trade and other payables 24 448 808 16 601 850 9 061 245
Borrowings 136 569 656 51 154 229 15 900 424
Bank overdraft 2 383 021 1 248 024
Total liabilities 357 673 518 328 748 610 318 017 152
Total equity and liabilities 746 042 562 669 238 037 660 350 881
Statements of comprehensive income
for the year ended 30 June 2012
Group
Figures in Rand 2012 2011
Revenue 90 828 412 82 042 959
Other income 3 043 398 1 753 375
Other direct property operating costs (60 791 997) (49 416 333)
Adminstrative and management expenses (11 965 192) (11 395 598)
Repairs and maintenance (4 951 860) (3 476 676)
Profit distribution from controlled trust
Fair value measurement of investment property 72 376 415 2 089 209
Operating profit 88 539 176 21 596 936
Finance income 2 274 522 1 803 626
Linked debenture interest 5 656 163 (5 700 000)
Finance costs (17 205 419) (18 671 378)
Profit/(Loss) before taxation 79 264 442 (970 816)
Taxation (31 384 825) (873 486)
Profit/(Loss) for the year 47 879 617 (1 844 302)
Total comprehensive income/(loss)
for the year 47 879 617 (1 844 302)
Profit/(Loss) and total comprehensive income/(loss) for the year
attributable to:
Owners of the parent 47 966 586 (1 841 453)
Non-controlling interest (86 969) (2 849)
47 879 617 (1 844 302)
Earnings per linked unit
Basic earnings per linked unit (cents) 7.65 (0.29)
Diluted earnings per linked unit (cents) 7.65 (0.29)
Statements of cash flows (Abridged)
for the year ended 30 June 2012
Group
Figures in Rand 2012 2011
Cash flows from operating activities 4 333 814 4 294 849
Cash flows from investing activities 8 317 458 (1 508 246)
Cash flows from financing activities (10 827 985) (4 123 098)
Net increase/(decrease) in cash and cash equivalents and bank overdrafts 1 823 287 (1 336 495)
Cash and cash equivalents and bank overdrafts at the beginning of the year (1 248 024) 88 471
Cash and cash equivalents and bank overdrafts at the end of the year 575 263 (1 248 024)
Investing and financing transactions that did not require the use of cash and cash equivalents are excluded from the cash flow
statement.
Statements of changes in equity
for the year ended 30 June 2012
Total share Non-
Share Share capital and Debenture Retained controlling Total
Figures in Rand capital premium premium reserve earnings Total interest equity
GROUP
Opening balance at
1 July 2010 6 270 098 67 965 428 74 235 526 10 675 886 257 599 925 342 511 337 (177 608) 342 333 729
Total comprehensive
income for the year (1 841 453) (1 841 453) (2 849) (1 844 302)
Balance at
30 June 2011 6 270 098 67 965 428 74 235 526 10 675 886 255 758 472 340 669 884 (180 457) 340 489 427
Total comprehensive
income for the year 47 966 586 47 966 586 (86 969) 47 879 617
Balance at
30 June 2012 6 270 098 67 965 428 74 235 526 10 675 886 303 725 058 388 636 470 (267 426) 388 369 044
Segment report
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments,
has been identified as the managing director in consultation with the Board of Directors. The chief operating decision-maker evaluates and
reports on the Group results per individual property trial balance on a monthly basis. It was decided not to list all buildings separately but
based on the specific industry due to practicality.
The risks and rewards faced by the entity relate primarily to the operating segments being retail, commercial, industrial, residential and
hospitality. Lettable space is classified as retail, commercial, industrial or hospitality according to the nature of the tenants.
2012 2011
R % R %
Revenue (excluding operating lease adjustment
and recoveries)
Commercial 30 539 465 43 30 176 545 46
Industrial 11 337 101 16 10 426 671 16
Retail 19 906 389 28 17 251 689 26
Hospitality 8 558 721 12 7 518 105 11
Residential 811 680 1 448 853 1
71 153 356 100 65 821 863 100
R % R %
Profit before taxation
Commercial 19 369 619 24 (10 960 420) 1 129
Industrial 27 753 993 36 6 661 319 (686)
Retail 21 436 987 27 6 581 746 (678)
Hospitality 15 983 352 20 10 920 169 (1 125)
Residential (3 589 035) (5) (2 204 070) 227
Land (1 690 474) (2) (11 969 560) 1 233
79 264 442 100 (970 816) 100
R % R %
Property values (including properties held for sale)
Commercial 269 395 965 38 247 672 592 38
Industrial 102 999 264 14 84 784 081 13
Retail 187 172 134 26 152 894 102 24
Hospitality 74 719 819 11 62 582 229 10
Residential 44 395 941 6 46 109 456 7
Land 32 775 115 5 52 480 940 8
711 458 238 100 646 523 400 100
R % R %
Borrowings (excluding instalment sales and loans)
Commercial 81 923 338 46 86 441 152 45
Industrial 31 574 055 17 35 159 462 18
Retail 42 648 757 24 46 723 253 24
Hospitality 14 981 669 8 16 565 844 8
Residential 9 910 358 5 10 584 883 5
181 038 177 100 195 474 594 100
R % R %
Rating of tenants (rental income)
Commercial A 5 639 728 10 9 785 061 18
B 14 922 327 26 11 136 738 21
C 8 936 218 15 14 650 454 26
Industrial A
B 6 089 744 10 664 326 1
C 3 530 484 6 613 797 1
Retail A 7 863 855 14 2 978 364 6
B 293 657 1 870 222 2
C 6 690 738 11 6 912 667 13
Hospitality A 879 153 2
B 3 425 743 6 2 122 181 4
C 2 776 990 5
Residential A
B
C 811 680 1 448 853 1
58 204 174 100 53 838 806 100
A: Represents major listed companies.
B: Represents smaller listed companies and big unlisted companies.
C: Represents smaller unlisted companies and private businesses.
Directors
R S Wilkinson*, F M Viruly*, A Parker*, A C Gmeiner**, F Gmeiner (MD), C B Nolte (FD)
*Independent non-executive **Non-executive Executive
Company secretary and registered office
Corporate Governance Facilitators CC
Transfer office
Computershare Investor Services (Pty) Limited
Sponsor
Arcay Moela Sponsors (Pty) Limited
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