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Unaudited results of the group for the six months ended 31 August 2012
PREMIUM PROPERTIES LIMITED and its subsidiaries
(Incorporated in the Republic of South Africa)
(Registration number 1994/003601/06)
Share code: PMM
ISIN: ZAE000009254
(Premium or the group or the company)
UNAUDITED RESULTS OF THE GROUP for the six months ended 31 August 2012
- Distribution up by 7,5% to 60,0 cents per linked unit
- Investment assets exceed R4,5 billion
- Presence established in the debt capital market
- Increase in net asset value by 4,3% to 1 651 cents per linked unit
- Weighted average cost of debt reduced to 8,8%
- 20,7% return to investors for the six-month period
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months Year to
% 31 August 31 August 29 February
R000 change 2012 2011 2012
Revenue 285 672 251 143 529 510
earned on contractual basis 12,4 281 641 250 646 519 570
straight-line lease adjustment 4 031 497 9 940
Operating costs (124 087) (108 136) (222 327)
Net rental income from properties 161 585 143 007 307 183
earned on contractual basis 11,0 157 554 142 510 297 243
straight-line lease adjustment 4 031 497 9 940
Administrative costs (13 426) (11 573) (22 325)
Depreciation (708) (854) (1 492)
Operating profit 12,9 147 451 130 580 283 366
Profit on sale of investment properties 3 872
Investment income 17 413 7 022 19 472
Interest received 526 1 001 3 533
Associate
share of after tax profit 7 662 5 192 10 823
fair value adjustment/capital reserves 6 570 (1 823) (201)
interest and management fee 2 655 2 652 5 317
Finance costs 16,6 (60 069) (51 501) (111 464)
Interest on borrowings (62 790) (53 542) (114 174)
Interest capitalised 2 721 2 041 2 710
Fair value adjustments of investment properties 141 513 98 734 161 168
Fair value adjustments of interest rate derivatives (23 701) (22 911) (15 785)
Amortisation of debenture premium 11 898 11 605 23 053
Profit before debenture interest 234 505 173 529 363 682
Debenture interest 7,5 (93 594) (87 040) (180 634)
Profit before taxation 140 911 86 489 183 048
Taxation charge
Deferred taxation (20 814) (7 547) (97 257)
Total comprehensive income for the year attributable
to equity holders 52,1 120 097 78 942 85 791
Weighted linked units in issue (000) 156 773 156 773 156 773
Linked units in issue (000) 156 773 156 773 156 773
Basic and diluted earnings per
share (cents) 52,1 76,6 50,4 54,7
Basic and diluted earnings per
linked unit (cents) 28,7 136,3 105,9 169,9
Distribution per linked unit (cents)
Dividends 0,30 0,28 0,58
Interest 59,70 55,52 115,22
Total 7,5 60,00 55,80 115,80
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited
31 August 29 February
R000 2012 2012
ASSETS
Non-current assets 4 539 275 4 281 368
Investment properties 4 208 816 3 965 296
Plant and equipment 8 816 9 524
Lease costs 9 873 11 808
Operating lease assets 38 854 34 823
Investment in associate 272 916 259 918
Current assets 27 522 31 465
Total assets 4 566 797 4 312 833
EQUITY AND LIABILITIES
Share capital and reserves 1 854 818 1 735 191
Share capital and premium 4 472 4 472
Non-distributable reserve 1 826 046 1 692 388
Retained earnings 24 300 38 331
Non-current liabilities 1 720 430 2 106 105
Debentures and premium 732 814 744 713
Interest bearing borrowings 614 275 1 032 565
Derivative financial instruments 32 681 8 980
Deferred taxation 340 660 319 847
Current liabilities 991 549 471 537
Interest bearing 789 799 275 202
Non-interest bearing 108 156 102 741
Linked unitholders for distribution 93 594 93 594
Total equity and liabilities 4 566 797 4 312 833
Linked units in issue (000) 156 773 156 773
Net asset value per linked unit (cents) 1 651 1 582
Net asset value per linked unit (cents) before providing for d/tax 1 868 1 786
Loan to investment value ratio (%) 30,9 30,7
DISTRIBUTABLE EARNINGS
The following additional information is provided and is aimed at disclosing to the users the basis on which the distributions are calculated:
Unaudited Unaudited Audited
Six months Six months Year to
R000 % 31 August 31 August 29 February
change 2012 2011 2012
Revenue
earned on contractual basis 12,4 281 641 250 646 519 570
Operating costs (124 087) (108 136) (222 327)
Net rental income from properties 11,0 157 554 142 510 297 243
Administrative costs (13 426) (11 573) (22 325)
Depreciation (708) (854) (1 492)
Operating profit 10,3 143 420 130 083 273 426
Investment income
Interest received 526 1 001 3 533
Investment income associate 10 317 7 844 16 140
Distributable profit before finance costs 11,0 154 263 138 928 293 099
Finance costs 16,6 (60 069) (51 501) (111 465)
Unitholders distributable earnings 7,7 94 194 87 427 181 634
Weighted linked units in issue (000) 156 773 156 773 156 773
Distributable earnings per linked unit (cents) 7,7 60.1 55.8 115.9
Distribution per linked unit (cents) 7,5 60.0 55.8 115.8
RECONCILIATION EARNINGS TO DISTRIBUTABLE EARNINGS
Unaudited Unaudited Audited
Six months Six months Year to
% 31 August 31 August 29 February
R000 change 2012 2011 2012
Earnings attributable to equity holders 120 097 78 942 85 791
Amortisation of deemed debenture premium (11 898) (11 605) (23 053)
Sale of investment property (3 872)
Fair value adjustments
associate (6 570) 1 822 201
investment properties (141 513) (98 734) (161 168)
deferred tax 26 323 13 823 101 143
Headline loss before debenture interest (13 561) (15 752) (958)
Debenture interest 93 594 87 040 180 634
Headline earnings attributable to linked unitholders 80 033 71 288 179 676
Straight-line lease adjustment, net of deferred tax (2 904) (358) (7 157)
Fair value adjustment on interest rate derivatives,
net of deferred tax 17 065 16 497 11 367
Deferred taxation adjustments (2 251)
Distributable earnings 94 194 87 427 181 635
Headline earnings per linked unit (cents) 12,3 51,1 45,5 114,6
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
Six months Six months Year to
R000 31 August 31 August 28 February
2012 2011 2012
CASH FLOW FROM OPERATING ACTIVITIES
Net rental income from properties 143 420 130 083 273 426
Adjustment for:
Depreciation and amortisation 3 501 2 972 6 821
Working capital changes 9 417 81 918 107 105
Cash generated from operations 156 338 214 973 387 352
Investment income 3 181 3 653 8 850
Finance costs (60 069) (51 501) (111 464)
Distribution to linked unitholders paid (94 064) (91 243) (178 722)
Net cash inflow from operating activities 5 386 75 882 106 016
CASH FLOW FROM INVESTING ACTIVITIES
Investing activities (101 632) (157 909) (280 385)
Disposal of investment property 8 400
Net cash outflow used in investing activities (101 632) (157 909) (271 985)
CASH FLOW FROM FINANCING ACTIVITIES
Increase/(decrease) in interest bearing borrowings 83 953 (228 900) (137 914)
Net cash generated from/(utilised in) financing activities 83 953 (228 900) (137 914)
NET DECREASE IN CASH AND CASH EQUIVALENTS (12 293) (310 927) (303 883)
Cash and cash equivalents at beginning of year (5 802) 298 081 298 081
Cash and cash equivalents at end of year (18 095) (12 846) (5 802)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
R000 Share Capital Fair value Retained
capital reserve reserve earnings Total
Balance at 1 March 2011 4 472 55 657 1 545 258 44 907 1 650 294
Total comprehensive income for the year 85 791 85 791
Transfer to capital reserve
Debenture premium amortised 23 053 (23 053)
Profit on sale of investment properties 13 496 (13 496)
Dividends paid (894) (894)
Reserves of associate (201) 201
Transfer of fair value adjustments
Investment properties, net of deferred taxation 60 025 (60 025)
Interest rate derivatives, net of deferred tax (4 900) 4 900
Balances at 29 February 2012 4 472 92 206 1 600 182 38 331 1 735 191
Total comprehensive income for the year 120 097 120 097
Transfer to capital reserve 11 898 (11 898)
Debenture premium amortised
Dividends paid (470) (470)
Reserves of associate 6 570 (6 570)
Transfer of fair value adjustments
Investment properties, net of deferred taxation 115 190 (115 190)
Balances at 31 August 2012 4 472 104 104 1 721 942 24 300 1 854 818
NOTES TO THE FINANCIAL STATEMENTS
Basis of preparation
The unaudited condensed consolidated financial statements have 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 information as
required by IAS 34: Interim Financial Reporting, the JSE Listings Requirements and the requirements of the South African Companies Act (71 of 2008), as amended.
These condensed consolidated results were prepared under the supervision of Mr AK Stein CA(SA), in his capacity as group financial director.
The accounting policies adopted and methods of computation are consistent with those applied in the financial statements for the year ended 29 February 2012.
Related party: City Property Administration Proprietary Limited is responsible for the property and asset management of the group.
Subsequent events: There have been no significant subsequent events that require reporting.
Commitments: Premium has capital commitments in an amount of R113 755 000 relating to various re-developments of properties.
Contingent liability: Premium has issued guarantees of R4,8 million in favour of City of Tshwane Metropolitan Municipality for the provision of services to its
subsidiaries. Premium has provided a suretyship to Nedbank Property Finance in favour of its 40% held associate company, IPS Investments Proprietary Limited
(IPS). At 31 August 2012 the suretyship amounted to R224,2 million.
Independent review by external auditors
These condensed consolidated financial statements have not been reviewed or audited by our auditors, BDO South Africa Incorporated.
DIRECTORS COMMENTARY
Review of results
All rental income received by the group, less operating expenses, administration expenses and interest on debt, is distributed semi-annually. The total distribution
per linked unit for the six months of 60,0 cents per linked unit represents an increase of 7,5% on that paid in the previous corresponding period. The growth in the
unit price from R15,00 to R17,50 at 31 August 2012 provided investors a capital growth of 16,7% for the six-month period. The distribution of 60,0 cents per linked
unit together with capital growth provided a total return of 20,7% for the six-month period.
Rental income and net rental income increased by 12,4% and 11,0% respectively, compared with the prior interim period. Local trading conditions continue to be
challenging. The core portfolio, representing those properties held for the previous six comparable months with no major development activity, reflects rental
income growth of 8,7%. The residential portfolio comprising 29,3% of the portfolio by rental income, achieved core growth of 7,0%. This was underpinned by low
vacancies and strong demand for affordable and secure accommodation. Property expenses increased to 43,8% of revenue (2011: 43,1%) with bad debt write-offs and
provisions increasing during the period from 0,7% to 1,4% of revenue. Arrears and doubtful debt provisions remain at acceptable levels and no significant
deterioration is anticipated.
A saving in finance costs was achieved due to the establishment of a R1 billion Domestic Medium Term Note Programme during March 2012 as well as a decrease in the
prime lending rate. Despite rapidly escalating utilities charges, the percentage of cost recovery from tenants has been maintained during the period. Rising utility
charges have impacted the total occupancy costs of tenants.
Property and investment portfolio
Premium had five major projects under construction during the period. The total cost of these projects is expected to be R196,9 million of which an amount of R107,2
million had been spent by 31 August 2012.
Details of these projects are:
- The upgrade of the Pavillion in Sunnyside, Pretoria. Construction of this 2 497 m² retail property was completed in March 2012. To date, leases in respect of
the entire property have been entered into. The total cost of this project is R9,3 million.
- The upgrade of the Protea Towers office block in the Pretoria CBD at a total estimated cost of R15,9 million. Construction commenced in June 2011 and was completed
in July 2012.
- The upgrade of Die Meents 5 258 m2 retail component situated in the Pretoria CBD. To date, leases in respect of more than 95% of the gross lettable area have already
been entered into at favourable rentals, with Pick n Pay as an anchor tenant. The project will be completed in November 2012 at a cost of R50,4 million.
- The redevelopement of the mixed-use property, Eastway Centre (Silway), situated in Silverton, Pretoria. The first phase of this project, which consists of the creation
of 104 new residential units, was completed in April 2012. The second phase, which consists of an upgrade of the existing residential units, is expected to be
completed by November 2012. The total cost of this project is estimated at R57,8 million.
- The construction of an additional residential block at The Fields in Hatfield, Pretoria. This project, which is progressing well, will create a further 87 residential
units with parking at an estimated cost of R63,5 million. The project is scheduled for completion in October 2013 and is expected to yield a return of 8,3% once
fully let.
Premiums investment in IPS provided strong growth with profits earned from the associate company, excluding capital profits increasing to R10,3 million. This is an
increase of 31,5% on the comparable period.
The performance of IPS was positively impacted by the mixed-use developments Kempton Place, Craigs Place and Talis Place due to the improved occupancy levels achieved
during the period.
Vacancies in the Premium portfolio at 31 August 2012 including properties held for redevelopment amounted to 21,8% of total lettable area. Details of these vacancies,
by sector, are set out in the table below:
Properties
Total Total held for Core
lettable area vacancies redevelopment vacancies
m2 % % %
31 August 2012
Offices 253 939 12,9 (5,9) 7,0
Retail 208 146 3,9 (2,2) 1,7
Industrial 132 503 3,1 (0,5) 2,6
Residential 136 718 1,9 (1,8) 0,1
Total 731 306 21,8 (10,4) 11,4
29 February 2012
Offices 252 202 12,5 (5,2) 7,3
Retail 206 201 5,0 (2,3) 2,7
Industrial 130 366 2,4 (0,8) 1,6
Residential 136 718 0,9 (0,7) 0,2
Total 725 487 20,8 (9,0) 11,8
Most of the properties remained fully let. As anticipated a number of properties under development or those which were recently upgraded for example, Die Meent, had high
vacancies. In recent years certain properties, for example, Protea Towers, were acquired by Premium with large vacancies and for little or no consideration for the vacant
space and that offered redevelopment opportunities. As the opportunities arise the potential of these vacancies is being realised.
Debt
Premiums gearing at 31 August 2012 was 30,9% of the total value of the investment portfolio against 30,5% at 29 February 2012. Premium entered into various fixed interest
rate and swap rate agreements as set out below. As a result, the interest rates on 54,3% of debt have been fixed with expiry dates from May 2013 to May 2018. As at 31 August
2012, the weighted average annual cost of debt was 8,8%, with unutilised banking facilities in excess of R500 million.
In March 2012, Premium made its debut in the local bond market by issuing R196 million of 90-day commercial paper under its R1 billion Domestic Medium Term Note Programme.
As at the date of this report the following are in place:
Pricing over
3 months
Amount Jibar
4 month issuance expiring on 25 January 2013 R90 million 5,68%
1 year issuance expiring on 13 June 2013 R100 million 6,13%
Gearing
Nominal Interest
amount rate
R000 %
Fixed rate borrowings expiry
May 2013 142 118 12,80
May 2018 160 000 12,15
302 118 12,46
Swap maturity
May 2017 50 000 9,47
June 2017 50 000 9,32
July 2017 50 000 8,94
August 2017 100 000 8,70
September 2017 50 000 9,31
January 2018 50 000 9,43
August 2018 100 000 9,00
450 000 9,10
Total hedged borrowings 752 118 10,45
Variable rate borrowings 633 712 6,82
Total gearing 1 385 830 8,79
Revaluation of property portfolio
It is the groups policy to perform a directors valuation of all the properties at the interim stage and at year-end. At the year-end a third of the properties in the
portfolio are valued by external registered valuers on a rotational basis. The directors valuation of the portfolio increased by R141,5 million to R4,2 billion, giving
rise to an increase in net asset value of 4,3% to 1 651 cents per linked unit.
Directorate
It is with great sadness that the directors note the passing of Mr Alec Wapnick, the founder of the company, on 29 August 2012.
Unitholders are referred to the SENS announcement on 4 September 2012 advising that Mr Michael (Mike) Holmes retired from the board of Premium as non-executive director,
with effect from 1 September 2012. The board wishes to express its appreciation and gratitude to Mr Holmes for his guidance and his invaluable contribution made to the
company over the years.
Mr Petrus (Pieter) Strydom was appointed to the board as an independent non-executive director from 6 February 2012. He is a chartered accountant and has many years
experience in the financial services sector. He also serves as the chairman of the audit and risk committees. He brings a wealth of experience to the board from an
accounting and corporate governance perspective and we look forward to his valued contribution.
Prospects
Growth in the local economy is expected to remain subdued. Notwithstanding this environment, and barring unforeseen events, Premium anticipates its growth in distributions
per linked unit for the full twelve-month period should be similar to that achieved in the first six-month period.
Unitholders are advised that the abovementioned information has not been reviewed nor reported on by the companys auditors.
DECLARATION OF DIVIDEND 37 AND INTEREST PAYMENT
(the distribution)
Notice is hereby given that dividend number 37 of 0,30 cents (2011: 0,28 cents) per ordinary share (out of income reserves) and interest of 59,70 cents per debenture
(2011: 55,52 cents) has been declared for the period 1 March 2012 to 31 August 2012, payable to linked unitholders recorded in the register on Friday, 16 November 2012.
The last date to trade CUM distribution is Friday, 9 November 2012. The units will commence trading EX distribution on Monday, 12 November 2012. Payment date will be
Monday, 19 November 2012.
No dematerialisation or rematerialisation of linked unit certificates may take place between Monday, 12 November 2012 and Friday, 16 November 2012, both days inclusive.
The dividend component of the distribution is subject to dividend withholding tax at 15%. In determining dividend withholding tax, secondary tax on companies (STC)
credits must be taken into account. The STC credits utilised as part of this declaration amount to R470 320 being 0,30 cents per share, and consequently no dividend
withholding tax is payable by shareholders who are normally not exempt from dividend withholding tax. Shareholders will receive the dividend of 0,30 cents per share.
The number of linked units in issue at the date of this declaration is 156 773 109 and the companys tax reference number is 9660/013/64/1.
By order of the Board
S Wapnick JP Wapnick
Chairman Managing Director
22 October 2012
Directors: S Wapnick (Chairman), JP Wapnick* (Managing), AK Stein* (Financial), MZ Pollack, DP Cohen PJ Strydom
* Executive Director Independent Non-executive Director Non-executive Director
Registered office: CPA House, 101 Du Toit Street, Pretoria, 0002, PO Box 15, Pretoria, 0001, Tel: (012) 319 8811 Fax: (012) 319 8812
Transfer secretaries: Computershare Investor Services Proprietary Limited (Reg. No: 2000/006082/06), 70 Marshall Street, Johannesburg, 2001,
PO Box 61051, Marshalltown, 2107, Tel: (011) 370 7700 Fax: (011) 688 7712
Property asset manager: e-mail: propworld@cityprop.co.za
www.premiumproperties.co.za
Date: 22/10/2012 10:35:00 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.