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CAPITAL PROPERTY FUND - Condensed audited consolidated financial statements for the year ended 31 December 2012

Release Date: 30/01/2013 15:03
Code(s): CPL     PDF:  
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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

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