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Condensed audited consolidated financial statements for the year ended 31 December 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 AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012
DIRECTORS’ COMMENTARY
UNIT STRUCTURE
Capital Property Fund is a Property Unit Trust (“PUT”) which was established in
June 1984 in terms of the Unit Trust Control Act and is the oldest listed PUT.
PUTs are obliged to distribute all their net rental income to unitholders.
Capital is exempt from income tax and assets held in the trust are exempt from
capital gains tax.
NATURE OF THE BUSINESS
Capital owns a portfolio of 262 industrial, office, retail and other properties
from which rental income is derived. Capital also owns a portfolio of listed
property securities.
STRATEGIC DIRECTION
Capital’s strategy remains the investment in and development of A-grade
distribution and warehousing facilities in nodes preferred by corporate tenants,
and P-grade office blocks in nodes such as Sandton CBD. Capital will continue to
dispose of industrial properties utilised in manufacturing, smaller retail
properties and properties in the Eastern Cape. Properties tenanted by government
have been sold.
DISTRIBUTABLE EARNINGS
Total distributions for the year ended 31 December 2012 increased by 6,32% to
69,78 cents per unit. Capital’s distribution of 36,50 cents per unit for the
final six months represents an increase of 6,51% over the distribution of 34,27
cents per unit for the comparable period in the previous year.
REVIEW
With the exception of a few nodes, such as the Sandton CBD, the office market
remains characterised by high vacancy rates with resultant pressure on rentals.
Capital has expended considerable resources on ensuring that the properties in
its office portfolio are well maintained, refurbished and attractive to the
letting market. Strong tenant relationships are maintained to facilitate tenant
retention and vacancies are aggressively marketed directly and through the broker
network. Despite the fact that the office portfolios which were sold were nearly
fully let, vacancies on the office portfolio only increased marginally from 13,3%
to 13,6%. This is due to the improvement in the vacancies in the remaining office
portfolio from 14,7% to 13,6%. Fourways remains the most challenging office
market for Capital.
Warehousing and distribution properties within the portfolio continue to perform
well. Areas such as Linbro Park, Longmeadow and Raceway Industrial Park have
experienced strong tenant demand. Interest in large A-grade warehouses remains
firm, while demand for manufacturing space continues to decline in line with the
downward trend in this sector in South Africa. The retail properties have
continued to perform well.
The boards of Capital and Resilient Property Income Fund Limited, the owner of
Capital’s management company, Property Fund Managers Limited (“PFM”), are
exploring the possibilities of economically internalising PFM to better align
investor and management interests. Any changes to the current structure will
require unitholder approval.
ACQUISITIONS AND DEVELOPMENTS
In line with its strategy of acquiring strategically located land for warehousing
and distribution facilities, Capital acquired Clairwood Racecourse. This 76,6ha
property, to be renamed Clairwood Logistics Park, was acquired at a cost of R430
million. Approximately 400 000m2 of warehousing will be developed at a
construction cost exceeding R2 billion. The environmental approval and re-zoning
processes are progressing well.
The 21 345m2 warehouse currently being developed in Raceway Industrial Park will
be completed in September 2013 and has been let for five years to a multi-
national tenant.
Capital has entered into an agreement to purchase an 80% undivided share in two
prime office sites in the Sandton CBD. The sites have a combined approved bulk of
approximately 60 000m2. Transfer of the sites is expected by August 2013.
The redevelopment of Pineslopes Shopping Centre, a mixed use development, has
resulted in a significantly improved tenant mix including Checkers as an
additional anchor.
The following developments have been completed:
% 100% Completion
Property name owned GLA date
Raceway Industrial Park 100% 11 200m2 Jul 12
Montague Business Park 25% 14 679m2 Dec 12
Montague Business Park 25% 3 308m2 Nov 12
N1 Business Park 20% 9 150m2 Aug 12
The following new developments have commenced:
Estimated
% 100% Estimated completion
Property name owned GLA yield date
Raceway Industrial Park 100% 21 345m2 9,0% Aug 13
16 Industry Rd 100% 11 182m2 8,0% Aug 13
Montague Business Park 25% 6 134m2 8,4% Aug 13
Montague Business Park 25% 1 605m2 9,9% Feb 13
N1 Business Park 20% 7 355m2 9,5% Mar 13
14 Fitzmaurice Epping 100% 3 300m2 9,0% Feb 13
The following additional developments are planned for 2013:
Estimated
% Estimated commencement
Property name owned GLA yield date
Tradeport City Deep 100% 20 000m2
(additional
buildings
in park) 9,0% Mar 13
Raceway Industrial Park 100% 40 000m2
(additional
buildings
in park) 9,0% Feb 13
DISPOSALS
Capital sold two large portfolios of properties with government associated
tenants. Six properties were sold to Ascension Properties Limited (“Ascension”)
for R989,1 million at a yield of 9,1%, settled 50% in cash and 50% in Ascension
units. Capital received 91 592 255 Ascension A units issued at R4,05 and 61 824
772 Ascension B units issued at R2,00. Three properties were sold to Delta
Property Fund Limited (“Delta”) at a yield of 9,7% for R122,6 million and settled
40% in cash and 60% in Delta units. Capital received 9 001 220 Delta units issued
at R8,20. These sales, together with the new warehousing developments, have
reduced the office exposure in the portfolio.
The six stands in Raceway Industrial Park not required for Capital’s development
pipeline were sold and transferred.
The following properties were sold during 2012:
Property name Sales Valuation at Exit
proceeds 31 Dec 2011 yield Effective
R’000 R’000 % date
Grand Central 492 393 408 400 9,00% 01 Dec 12
Infinity Office Park 203 165 167 000 9,00% 01 Dec 12
Medscheme 133 988 112 800 9,00% 01 Dec 12
238 Roan Crescent
Corporate Park 90 936 84 500 9,75% 01 Dec 12
Cape Road
Port Elizabeth 56 400 50 800 9,50% 02 Nov 12
Meyersdal 51 880 44 900 9,50% 01 Dec 12
North Ridge Road
Morningside 41 220 53 000 9,50% 02 Nov 12
78 Lechwe Street
Corporate Park 26 500 26 500 9,67% 17 Aug 12
Richmond Forum
Richmond 25 000 23 050 10,50% 02 Nov 12
Harbouredge 25 000 20 600 9,19% 21 Aug 12
108 Elizabeth Avenue 21 750 20 400 9,86% 30 Aug 12
Eastwood Park
Bedfordview 19 050 11 700 4,22% 21 Dec 12
Kingfisher Crescent
Meyersdal 16 833 13 900 9,50% 01 Dec 12
3 Craighall Park 2 250 1 100 – 07 Jan 12
VACANCIES AND ARREARS
There was a marginal deterioration in tenant arrears, however, these are well
provided for and no significant increase in bad debts is anticipated.
Industrial vacancies increased to 4,5% (30 June 2012: 4,4%), office vacancies
increased to 13,6% (30 June 2012: 13,3%) and retail vacancies decreased to 4,9%
(30 June 2012: 6,5%) based on gross lettable area. Total vacancies improved
marginally from 6,1% at 30 June 2012 to 5,9% at 31 December 2012.
EQUITY INVESTMENTS
Dec 2012 Jun 2012
Number of Market value Number of Market value
units/shares R’000 units/shares R’000
Resilient Property
Income Fund Limited 16 200 000 835 758 16 200 000 695 790
New Europe Property
Investments plc 15 041 719 797 211 13 351 692 534 866
Fortress Income Fund
Limited A linked
units* 34 200 000 499 320 42 000 000 564 060
Fortress Income Fund
Limited B linked
units* 96 000 000 672 000 96 000 000 595 200
Rockcastle Global
Real Estate Company
Limited 11 650 000 117 665 – –
Ascension Properties
Limited A linked
units* 91 592 255 404 838 – –
Ascension Properties
Limited B linked
units* 61 824 772 132 923 – –
Delta Property Fund
Limited 4 500 000 37 800 – –
3 497 515 2 389 916
*The investments in Fortress Income Fund Limited and Ascension are equity
accounted and have not been revalued for accounting purposes.
CAPITAL STRUCTURE AND SECURITISATION
The Commercial Mortgage Backed Securitisation (“CMBS”) programme of
R470 million managed by ABSA was repaid in October 2012. Capital repaid the CMBS
programme of R621 million with RMB in July 2012 and Capital has no further
exposure to CMBS financing structures.
The Meago Siyam and Tokoloho Investments BEE schemes have matured and Capital and
its subsidiaries have been released from all financial commitments in this
regard.
In terms of its unsecured Domestic Medium Term Note programme, Capital has
R450 million of commercial paper, R1,1 billion in three year bonds and
R200 million in five year bonds in issue.
Capital has renewed a R600 million facility from Standard Bank for a further
period of five years. A new R800 million facility expiring in
June 2017 was accepted from RMB.
Capital’s gearing decreased from 22,8% at 30 June 2012 to 21,7% at 31 December
2012. This was the result of the revaluation of the property and equity
portfolios as well as the cash proceeds from property sales. The board remains
comfortable with gearing levels of up to 30%.
OUTLOOK
The property market, particularly in offices, is expected to remain challenging
during 2013. The growth in the South African economy has been revised down to
2,6%, which does not augur well for the property market. The quality of Capital’s
portfolio nevertheless places it in a position to provide a solid performance.
The board forecasts growth in distributions of between 4% and 7% per Capital unit
for the 2013 financial year. This forecast has not been reviewed or reported on
by Capital’s auditors.
The forecast 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
30 January 2013
Johannesburg
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
Dec 2012 Dec 2011
R'000 R'000
ASSETS
Non-current assets 20 082 071 17 949 605
Investment property 15 910 791 15 728 251
Straight-lining of rental revenue adjustment 154 523 125 413
Investment property under development 870 009 468 241
Investments 1 788 434 689 700
Investment in associate companies 1 358 314 938 000
Current assets 257 577 262 810
Trade and other receivables 243 524 198 411
Cash and cash equivalents 14 053 64 399
Total assets 20 339 648 18 212 415
EQUITY AND LIABILITIES
Capital of Fund 13 963 835 12 520 641
Trust capital 9 273 620 9 273 620
Non-distributable reserves 4 690 215 3 247 021
Retained earnings – –
Total liabilities 6 375 813 5 691 774
Non-current liabilities 4 379 852 2 502 069
Interest-bearing borrowings 3 643 718 1 949 538
Deferred tax 736 134 552 531
Current liabilities 1 995 961 3 189 705
Trade and other payables 635 072 543 955
Unitholders for distribution 586 550 550 714
Taxation payable – 3 894
Interest-bearing borrowings 774 339 2 091 142
Total equity and liabilities 20 339 648 18 212 415
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
for the year for the year
ended ended
Dec 2012 Dec 2011
R'000 R'000
Net rental and related revenue 1 446 479 1 312 883
Recoveries and contractual rental revenue 2 140 307 1 909 449
Straight-lining of rental revenue adjustment 29 110 36 746
Rental revenue 2 169 417 1 946 195
Property operating expenses (722 938) (633 312)
Distributable income from investments 73 822 16 093
Fair value gain on investment property
and investments 1 496 665 796 358
Fair value gain on investment property 930 742 661 560
Adjustment resulting from straight-lining
of rental revenue (29 110) (36 746)
Fair value gain on investments 595 033 171 544
Gain on disposal of portion of associate 62 218 –
Administrative expenses (91 030) (74 864)
Impairment of goodwill – (98 042)
Income from associate 189 255 5 970
Non-distributable 117 907 –
Distributable 71 348 5 970
Profit before net finance costs 3 177 409 1 958 398
Net finance costs (413 082) (263 768)
Finance income 13 334 178 879
Fair value adjustment on derivatives 12 231 –
Interest on units issued cum distribution – 175 900
Interest received 1 103 2 979
Finance costs (426 416) (442 647)
Interest paid on borrowings (408 112) (376 795)
Capitalised interest 56 855 29 245
Fair value adjustment on derivatives (75 159) (95 097)
Profit before income tax expense 2 764 327 1 694 630
Income tax expense (199 778) (45 043)
Profit for the year attributable to
equity holders 2 564 549 1 649 587
Total comprehensive income for the year 2 564 549 1 649 587
Basic earnings per unit (cents)* 159,59 102,65
*The Fund has no dilutionary instruments in issue.
RECONCILIATION OF PROFIT FOR THE YEAR TO HEADLINE EARNINGS AND DISTRIBUTABLE
INCOME
Audited Audited
for the year for the year
ended ended
Dec 2012 Dec 2011
R'000 R'000
Profit for the year attributable
to equity holders 2 564 549 1 649 587
Adjusted for: (812 044) (480 632)
– Fair value gain on investment property (930 742) (661 560)
– Adjustment resulting from straight-lining
of rental revenue 29 110 36 746
– Impairment of goodwill – 98 042
– Fair value adjustment on investment property
of associate (80 464) -
– Income tax effect 170 052 46 140
Headline earnings 1 752 505 1 168 955
Reconciliation of profit for the year to
amount available for distribution
Profit for the year attributable
to equity holders 2 564 549 1 649 587
Straight-lining of rental revenue adjustment (29 110) (36 746)
Fair value gain on investment property (930 742) (661 560)
Adjustment resulting from straight-lining
of rental revenue 29 110 36 746
Fair value gain on investments (595 033) (171 544)
Gain on disposal of portion of associate (62 218) –
Impairment of goodwill – 98 042
Income from associate – non-distributable (117 907) –
Fair value adjustment on derivatives 62 928 95 097
Income tax expense 199 778 45 043
Distributable income 1 121 355 1 054 665
Less: distribution declared (1 121 355) (1 054 665)
Interim (534 805) (503 951)
Final (586 550) (550 714)
Income not distributed – –
Headline earnings per unit (cents) 109,06 72,74
Basic earnings per unit is 159,59 cents (2011: 102,65 cents). The calculation of
the basic earnings per unit is based on a weighted average number of units in
issue during the year of 1 606 986 279 (2011: 1 606 986 279) and earnings of R2
564,549 million (2011: R1 649,587 million).
Headline earnings per unit is 109,06 cents (2011: 72,74 cents).
The calculation of headline earnings per unit is based on a weighted average
number of units in issue during the year of 1 606 986 279
(2011: 1 606 986 279) and headline earnings of R1 752,505 million
(2011: R1 168,955 million).
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited
for the year for the year
ended ended
Dec 2012 Dec 2011
R'000 R'000
Net cash outflow from operating activities (29 373) (88 167)
Cash (outflow)/inflow from investing activities (398 350) 825 450
Cash inflow/(outflow) from financing activities 377 377 (640 874)
(Decrease)/increase in cash and cash equivalents (50 346) 96 409
Cash and cash equivalents at the beginning
of the year 64 399 (32 010)
Cash and cash equivalents at the end of the year 14 053 64 399
Cash and cash equivalents consist of:
Cash on call iro securitisation – 59 621
Current accounts 14 053 4 778
14 053 64 399
CONSOLIDATED STATEMENT OF CHANGES IN UNITHOLDERS’ INTEREST
Non-distri-
Trust butable Retained
capital reserves earnings Total
Audited 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 year 1 649 587 1 649 587
Issue of units – 889 408 220
on 4 April 2011 6 627 657 6 627 657
Transfer to non-distributable
reserves 594 922 (594 922) –
Distribution (1 054 665) (1 054 665)
Balance at 31 December 2011 9 273 620 3 247 021 – 12 520 641
Total comprehensive income
for the year 2 564 549 2 564 549
Transfer to non-distributable
reserves 1 443 194 (1 443 194) –
Distribution (1 121 355) (1 121 355)
Balance at
31 December 2012 9 273 620 4 690 215 – 13 963 835
PREPARATION, ACCOUNTING POLICIES AND AUDIT OPINION
The condensed audited consolidated financial statements have been prepared in
accordance with the measurement and recognition requirements of IFRS, the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and
Financial Reporting Pronouncements as issued by the Financial Reporting Standards
Council, the information required by 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 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
31 December 2012 that require any additional disclosure or adjustment to the
financial statements.
Deloitte & Touche have issued their unmodified opinion on the group financial
statements for the year ended 31 December 2012. These condensed financial
statements have been derived from the group financial statements and are, in all
material respects, consistent with the group financial statements. These
financial statements have been audited in compliance with all applicable
requirements of the Acts. A copy of their audit report is available for
inspection at Capital’s registered office.
SUMMARY OF FINANCIAL PERFORMANCE
Dec 2012 Jun 2012 Dec 2011 Jun 2011
Distribution
per unit (cents) 36,50 33,28 34,27 31,36
Units in issue 1 606 986 279 1 606 986 279 1 606 986 279 1 606 986 279
Net asset value R8,69 R7,93 R7,79 R7,39
Gearing ratio* 21,7% 22,8% 22,2% 24,8%
*The gearing ratio is calculated by dividing interest-bearing borrowings by total
assets.
FACILITIES
Average
Facilities margin
Expiry R' million over Jibar
2013 970 0,91%
2014 500 1,60%
2015 1 184 1,40%
2016 1 300 1,63%
2017 1 700 1,69%
5 654 1,47%
The overall cost of borrowings at 31 December 2012 was 8,60%.
SWAP PROFILE
Average
Expiry R' million swap rate
2013 200 8,12%
2014 200 7,87%
2015 600 7,97%
2016 800 8,21%
2017 700 7,22%
2018 800 7,68%
2019 300 6,18%
3 600 7,67%
SECTORAL SPLIT (Unaudited)
Based on GLA Book value
Offices 16% 29%
Industrial 74% 55%
Retail 9% 14%
Other 1% 2%
100% 100%
LEASE EXPIRY PROFILE (Unaudited)
Rental
Based on GLA revenue
Vacant 5,9%
Dec 13 22,1% 22,5%
Dec 14 21,7% 22,3%
Dec 15 22,5% 20,6%
Dec 16 11,5% 13,2%
Dec 17 9,6% 12,6%
>Dec 17 6,7% 8,8%
100,0% 100,0%
SEGMENTAL ANALYSIS
Audited Audited
Dec 2012 Dec 2011
R'000 R'000
Segmental revenue – recoveries and
contractual rental revenue
Offices 653 129 577 318
Industrial 1 126 124 892 103
Retail 311 488 405 273
Other 49 566 34 755
Total 2 140 307 1 909 449
Property operating expenses
Offices (216 267) (186 050)
Industrial (385 603) (290 626)
Retail (109 948) (149 352)
Other (11 120) (7 284)
Total (722 938) (633 312)
Segmental revenue – rental revenue
Offices 654 546 594 167
Industrial 1 139 919 918 946
Retail 323 773 384 347
Other 51 179 48 735
Total 2 169 417 1 946 195
Profit for the year
Offices 627 915 534 548
Industrial 1 231 862 852 375
Retail 421 829 528 212
Other 66 505 22 562
Corporate 216 438 (288 110)
Total 2 564 549 1 649 587
CAPITAL COMMITMENTS
Audited Audited
Dec 2012 Dec 2011
R'000 R'000
Authorised and contracted 555 212 160 163
Authorised and not yet contracted 58 355 78 067
613 567 238 230
Income distribution
Notice is hereby given that a cash distribution of 36,50 cents interest per unit,
being number 59 for Capital Property Fund, has been declared in respect of the
period 1 July 2012 to 31 December 2012 and is payable to the unitholders recorded
in the books of Capital at the close of business on the record date, Friday 22
February 2013. Unitholders are advised that the last day to trade cum
distribution will be Friday, 15 February 2013. The units will trade ex
distribution from Monday, 18 February 2013. Payment will be made on Monday, 25
February 2013. Unit certificates may not be dematerialised or rematerialised
during the period 18 February 2013 to 22 February 2013, both days inclusive.
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 CA(SA)
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: 30/01/2013 03:03:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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