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PREMIUM PROPERTIES LIMITED - Unaudited results of the group for the six months ended 31 August 2012

Release Date: 22/10/2012 10:35
Code(s): PMM     PDF:  
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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.

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