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Condensed unaudited consolidated interim financial statements for the six months ended 31 December 2012
FORTRESS INCOME FUND LIMITED
INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA
REGISTRATION NUMBER 2009/016487/06
SHARE CODES: FFA ISIN ZAE000141313
FFB ISIN ZAE000141321 RESPECTIVELY
(“FORTRESS” OR “THE GROUP”)
CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2012
DIRECTORS’ COMMENTARY
Fortress is a property loan stock company that has been listed on the
Johannesburg Stock Exchange since October 2009. Fortress owns 111
investment properties with a gross lettable area of 650 942m2 and a value
of R4,2 billion. In addition, Fortress has an equity portfolio worth
R1,9 billion.
In accordance with the group’s strategy, the exposure to the lower LSM
retail market has been increased, while disposing of industrial and office
investments. The segmental breakdown of direct property holdings (based on
property value) as at 31 December 2012 was as follows:
Retail 71,2%
Industrial 19,4%
Office 7,6%
Residential 1,8%
100,0%
1 DISTRIBUTABLE EARNINGS
During the six months ended 31 December 2012 Fortress achieved total
distribution growth of 10,89% over the prior comparable period. The
combined distribution for the A and B units is 69,47 cents compared to the
total distribution of 62,65 cents for the prior comparable period.
Of the total distribution for the interim period, 56,01 cents accrues to
the A linked units and 13,46 cents to the B linked units, representing
growth of 5,0% and 44,6% respectively.
2 VACANCIES
At 31 December 2012 vacancies remained at 5,1% of the portfolio. The bulk
of the vacancies were in the office (14,8%) and industrial (6,9%)
portfolios, while the retail portfolio was only 3% vacant.
3 DISPOSALS
Ten properties were sold during the period under review, seven of which
were transferred.
Book value Net
Jun 2012 proceeds Exit Transfer
Property name R’000 R’000 yield date
2 Skeen Boulevard 46 500 46 500 9,8% Aug 2012
396 Voortrekker Road Parow 33 300 35 250 9,9% Oct 2012
Fort Gale Estate commercial
(60% interest) 27 780 32 212 10,3% Nov 2012
27 – 29 Maitland Street 21 100 21 674 11,0% Nov 2012
Grand Central Industrial Park 16 700 18 150 10,0% Oct 2012
#
Zenith Drive Umhlanga 17 400 18 100 10,0%
Kindon Street Robertsham* 10 200 11 550 11,2% Jan 2013*
#
85 North Coast Road 7 450 8 000 9,4%
2 Andrea Street 5 100 5 700 11,0% Dec 2012
#
Brits Office Park 5 500 5 450 12,0%
Total 191 030 202 586
*Transferred post reporting period.
#
Transfer pending.
Fortress disposed of its interest in RMS Manzini Investments Proprietary
Limited, which owned the 22,37% undivided interest in Bhunu Mall,
Swaziland for R26 million.
4 PROPERTY ACQUISITIONS
Fortress purchased a 50% undivided interest in The Flamwood Walk in
Klerksdorp for R62,5 million. The purchase is unconditional and transfer
is anticipated before the financial year-end.
With effect from 1 January 2013, Fortress acquired the remaining 40%
interest in York Road Mthatha at a yield of 11%.
5 EXTENSIONS AND REFURBISHMENTS
Evaton Mall
The 7 884m2 extension to the former Evaton Plaza commenced in January 2013.
The extension will introduce Game, Edgars and a number of national
clothing retailers to the centre and the current open mall will be
converted to an enclosed mall. The extension is anticipated to yield 8% on
the capital cost of R130 million.
Shoprite Kokstad
This retail centre is being refurbished and re-tenanted to accommodate
Standard Bank, Studio 88 and Capitec. The shopfronts are being replaced
throughout the centre, the parking area is being expanded and the access
is being improved.
Sebokeng Plaza
The Shoprite store is being extended by 650m2 at a cost of R7 million.
Shoprite has entered into a new 10-year lease commencing upon completion
in March 2013.
Game Makhado
The Game store is being extended by 900m2 to introduce a food offering to
the store. Game has agreed to a new 10-year lease commencing September
2013, which is the anticipated completion date. The capital cost for
Fortress’ 50% interest is R5,5 million.
6 LISTED EQUITIES
Dec 2012 Jun 2012
% of % of
Number units/ Carrying Number units/ Carrying
of units/ shares value of units/ shares value
shares in issue R’000 shares in issue R’000
Capital
(CPL) 40 400 000 2,5% 427 028 38 500 000 2,4% 380 765
Nepi
(NEP) 16 900 000 11,7% 895 700 15 000 000 12,0% 600 900
Resilient
(RES) 5 930 000 2,1% 305 929 5 678 053 2,0% 243 872
Rockcastle
(ROC) 27 900 000 19,9% 281 791 – – –
Total 1 910 448 1 225 537
7 FUNDING
In addition to the 3-month commercial paper, Fortress issued R250 million
each in 1-year and 3-year notes under its R1 billion unsecured DMTN
programme.
Gearing at December 2012 was 22,3% which remains below the board’s target
of between 30% and 35%.
8 PROSPECTS
The board remains confident that Fortress will achieve growth in
distributions of approximately 10% for the 2013 financial year. The growth
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 market related renewals.
This forecast has not been audited or reviewed by Fortress’ auditors.
By order of the board
Mark Stevens Wiko Serfontein
Managing director Financial director
Johannesburg
13 February 2013
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited Unaudited
Dec 2012 Jun 2012 Dec 2011
R'000 R'000 R'000
ASSETS
Non-current assets 6 652 953 5 755 600 4 737 178
Investment property 4 027 991 4 035 002 3 575 922
Straight-lining of rental revenue
adjustment 77 365 37 539 35 976
Investment property under
development 57 981 48 222 28 184
Investments 1 910 448 1 225 537 823 400
Fortress Unit Purchase Trust loans 311 197 202 644 151 469
Loan to BEE vehicle 193 218 175 711 102 859
Loans to development partners 74 753 30 945 19 368
Current assets 78 708 169 683 314 441
Investment property held for sale 42 450 123 595 261 934
Straight-lining of rental revenue
adjustment 650 905 3 472
Fortress Unit Purchase Trust loans 5 620 5 499 4 537
Loans to development partners – – 7 503
Trade and other receivables 26 446 31 333 28 150
Cash and cash equivalents 3 542 8 351 8 845
Total assets 6 731 661 5 925 283 5 051 619
EQUITY AND LIABILITIES
Total equity attributable to
equity holders 1 938 152 1 658 860 1 053 371
Share capital 5 992 5 862 5 716
Share premium 709 256 633 974 565 041
Non-distributable reserves 1 222 904 1 019 024 482 614
Retained earnings – – –
Total liabilities 4 793 509 4 266 423 3 998 248
Non-current liabilities 3 379 737 3 411 099 3 520 797
Linked debentures 2 696 350 2 637 760 2 572 150
Interest-bearing borrowings 466 193 650 862 894 799
Deferred tax 217 194 122 477 53 848
Current liabilities 1 413 772 855 324 477 451
Trade and other payables 172 289 171 377 106 401
Linked debenture interest payable 208 128 185 493 179 050
Income tax payable – 1 088 1 282
Interest-bearing borrowings 1 033 355 497 366 190 718
Total equity and liabilities 6 731 661 5 925 283 5 051 619
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Dec 2012 Jun 2012 Dec 2011
R'000 R'000 R’000
Net rental and related revenue 246 542 379 719 178 738
Recoveries and contractual
rental revenue 319 255 560 630 264 223
Straight-lining of rental revenue
adjustment 39 801 9 241 10 245
Rental revenue 359 056 569 871 274 468
Property operating expenses (112 514) (190 152) (95 730)
Distributable income from
investments 51 013 62 057 32 390
Fair value gain on investment
property and investments 288 662 699 732 72 225
Fair value gain on
investment property 4 279 447 370 17 792
Adjustment resulting from
straight-lining of rental revenue (39 801) (9 241) (10 245)
Fair value gain on investments 324 184 261 603 64 678
Nepi underwriting fee – 2 143 2 143
Administrative expenses (12 603) (23 669) (9 016)
Profit on sale of subsidiary 115 – –
Profit before net finance costs 573 729 1 119 982 276 480
Net finance costs (270 241) (460 068) (224 127)
Finance income 24 740 65 347 42 252
Interest from loans 20 834 33 036 14 232
Fair value adjustment on
derivatives – 2 031 –
Interest on linked units issued
cum distribution 3 906 30 280 28 020
Finance costs (294 981) (525 415) (266 379)
Interest on borrowings (64 374) (112 079) (57 745)
Capitalised interest 2 611 2 297 533
Fair value adjustment on
derivatives (25 090) (51 090) (30 117)
Interest to linked debenture
holders
– A linked units (167 803) (308 774) (152 443)
– B linked units (40 325) (55 769) (26 607)
Profit before income tax expense 303 488 659 914 52 353
Income tax expense (99 608) (72 703) (1 552)
Profit for the period attributable
to equity holders 203 880 587 211 50 801
Total comprehensive income
for the period 203 880 587 211 50 801
Cents Cents Cents
Basic earnings per A share 34,03 101,44 8,89
Basic earnings per B share 34,03 101,44 8,89
Basic earnings per A linked unit 90,04 208,12 62,23
Basic earnings per B linked unit 47,49 120,71 18,20
Fortress has no dilutionary instruments in issue.
RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS AND
DISTRIBUTABLE INCOME
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Dec 2012 Jun 2012 Dec 2011
R'000 R'000 R’000
Basic earnings (shares) – profit
for the period attributable
to equity holders 203 880 587 211 50 801
– interest to A linked debenture
holders 167 803 308 774 152 443
– interest to B linked debenture
holders 40 325 55 769 26 607
Basic earnings (linked units) 412 008 951 754 229 851
Adjusted for: 70 161 (383 777) (5 056)
– fair value loss/(gain) on
investment property 35 522 (438 129) (7 547)
– income tax effect 34 639 54 352 2 491
Headline earnings (linked units) 482 169 567 977 224 795
Straight-lining of rental revenue
adjustment (39 801) (9 241) (10 245)
Fair value gain on investments (324 184) (261 603) (64 678)
Fair value adjustment on
derivatives 25 090 49 059 30 117
Profit on sale of subsidiary (115) – –
Income tax effect 64 969 18 351 (939)
Distributable income 208 128 364 543 179 050
Less: distributions declared (208 128) (364 543) (179 050)
Income not distributed – – –
Cents Cents Cents
Headline earnings per A share 45,74 35,14 8,00
Headline earnings per B share 45,74 35,14 8,00
Headline earnings per A linked unit 101,75 141,82 61,34
Headline earnings per B linked unit 59,20 54,41 17,31
Basic earnings per share, basic earnings per linked unit, headline
earnings per share and headline earnings per linked unit are based on the
weighted average of 299 594 493 (Jun 2012: 289 439 493; Dec 2011: 285 794
493) shares/linked units in issue during the period for both A and B
shares/linked units.
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Dec 2012 Jun 2012 Dec 2011
R'000 R'000 R’000
Cash (outflow)/inflow from
operating activities (7 660) 36 176 50 474
Cash outflow from investing
activities (486 377) (352 788) (842 912)
Cash inflow from financing
activities 489 228 321 056 797 376
(Decrease)/increase in cash
and cash equivalents (4 809) 4 444 4 938
Cash and cash equivalents at
the beginning of the period 8 351 3 907 3 907
Cash and cash equivalents
at the end of the period 3 542 8 351 8 845
Cash and cash equivalents
consist of:
Current accounts 3 542 8 351 8 845
NOTES
1 PREPARATION AND ACCOUNTING POLICIES
The condensed unaudited consolidated interim financial statements have
been prepared in accordance with the measurement and recognition
requirements of IFRS and its interpretations adopted by the Independent
Accounting Standards Board, 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
requirements of IAS 34: Interim Financial Reporting, the JSE Listings
Requirements and the requirements of the South African Companies Act.
This report was compiled under the supervision of Wiko Serfontein 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.
This report was not audited or reviewed by the group’s auditors.
2 SUMMARY OF FINANCIAL PERFORMANCE
Dec 2012 Jun 2012 Dec 2011 Jun 2011
Distribution per
A linked unit
(cents) 56,01 53,34 53,34 50,80
Distribution
per B linked
unit (cents) 13,46 9,95 9,31 6,63
A linked units
in issue 299 594 493 293 084 493 285 794 493 231 000 000
B linked units
in issue 299 594 493 293 084 493 285 794 493 231 000 000
Net asset value
per combined
linked unit* R15,47 R14,66 R12,69 R12,30
Net asset value
per A linked unit# R14,24 R13,20 R12,22 R10,88
Net asset value
per B linked unit R1,23 R1,46 R0,47 R1,42
Gearing ratio** 22,3% 19,4% 21,5% 24,8%
*Net asset value includes total equity attributable to equity holders and
linked debentures.
#
60-day volume weighted average trading price at reporting date limited to
combined net asset value.
**The gearing ratio is calculated by dividing interest-bearing borrowings
by total assets.
3 FACILITIES AND INTEREST RATE DERIVATIVES
Average
Amount margin
Facility expiry R’000 over Jibar
Jun 2013 316 000 0,70%
Jun 2014 1 146 185 1,45%
Jun 2015 – –
Jun 2016 250 000 1,65%
Jun 2017 392 313 1,71%
2 104 498 1,41%
Amount Average
Interest rate swaps expiry R’million swap rate
Jun 2013 100,0 8,04%
Jun 2014 300,0 7,56%
Jun 2015 150,0 8,20%
Jun 2016 266,0 7,57%
Jun 2017 200,0 7,45%
Jun 2018 200,0 7,74%
1 216,0 7,69%
The all-in weighted average cost of funding of Fortress was 8,46% at
31 December 2012.
4 LEASE EXPIRY PROFILE
Based on
Based on contractual
rentable rental
Lease expiry area revenue
Vacant 5,1% –
Jun 2013 20,3% 16,5%
Jun 2014 22,9% 22,0%
Jun 2015 15,8% 18,1%
Jun 2016 13,4% 13,4%
Jun 2017 7,3% 10,5%
>Jun 2017 15,2% 19,5%
Total 100,0% 100,0%
5 SEGMENTAL ANALYSIS
Unaudited Audited Unaudited
Dec 2012 Jun 2012 Dec 2011
Recoveries and contractual
rental revenue R’000 R’000 R’000
Retail 214 477 347 834 150 185
Industrial 72 945 145 735 77 444
Office 26 755 57 584 30 904
Residential 5 078 9 477 5 690
Total 319 255 560 630 264 223
Property operating expenses
Retail (76 485) (118 987) (53 291)
Industrial (25 367) (49 361) (29 626)
Office (9 609) (19 755) (11 414)
Residential (1 053) (2 049) (1 399)
Total (112 514) (190 152) (95 730)
Rental revenue
Retail 259 372 357 442 154 116
Industrial 65 523 145 573 81 868
Office 29 083 57 379 32 794
Residential 5 078 9 477 5 690
Total 359 056 569 871 274 468
Profit before net finance costs
Retail 148 935 571 622 96 894
Industrial 40 914 164 200 47 818
Office 17 146 73 641 19 490
Residential 4 025 8 385 4 291
Corporate 362 709 302 134 107 987
Total 573 729 1 119 982 276 480
6 PAYMENT OF INTERIM DISTRIBUTIONS
The board has approved and notice is hereby given of cash interim interest
distributions (distributions no 7) of 56,01 cents per A linked unit and
13,46 cents per B linked unit for the six months ended 31 December 2012.
The interest distributions are not subject to dividend withholding tax.
The last date to trade linked units cum distribution will be Friday,
1 March 2013 and trading will commence ex distribution on Monday, 4 March
2013. The record date to participate in the distribution will be Friday,
8 March 2013.
Linked unit certificates may not be dematerialised or rematerialised
between Monday, 4 March 2013 and Friday, 8 March 2013, both days
inclusive. Payment of the distribution will be made to linked unitholders
on Monday, 11 March 2013.
In respect of dematerialised linked unitholders, the distribution will be
transferred to the Central Securities Depository Participant
accounts/broker accounts on Monday, 11 March 2013. Certificated linked
unitholders’ distribution payments will be posted on or about Monday,
11 March 2013.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non–
distri–
Share Share butable Retained
capital premium reserves earnings Total
Unaudited R’000 R’000 R’000 R’000 R’000
Balance at
30 June 2011 4 620 325 464 431 813 – 761 897
Issue of linked units
(equal number of
A and B units) 1 096 239 577 240 673
Total comprehensive
income for the
period 50 801 50 801
Transfer to
non-distributable
reserves 50 801 (50 801) –
Balance at
31 December 2011 5 716 565 041 482 614 – 1 053 371
Issue of linked units
(equal number of
A and B units) 146 68 933 69 079
Total comprehensive
income for the
period 536 410 536 410
Transfer to
non-distributable
reserves 536 410 (536 410) –
Balance at
30 June 2012 5 862 633 974 1 019 024 – 1 658 860
Issue of 6 510 000
units effective
3 December 2012
(equal number of
A and B units) 130 75 282 75 412
Total comprehensive
income for the period 203 880 203 880
Transfer to
non-distributable
reserves 203 880 (203 880) –
Balance at
31 December 2012 5 992 709 256 1 222 904 – 1 938 152
Non-distributable reserves comprise those profits and losses that are not
distributable to unitholders and are made up of revaluation adjustments on
investment property, investment property held for sale and investments,
straight-lining adjustments and other non-distributable balances.
Registered office
3rd 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
Stephanie Botha
Directors
Jeff Zidel (chairman) Mark Stevens (managing director)* Kura Chihota
Nontando Kunene Chris Lister-James Djurk Venter Wiko Serfontein*
(*executive director)
Date: 13/02/2013 03:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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