Wrap Text
Audited condensed results for the year ended 31 March 2013 and cautionary announcement
Vukile Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
ISIN: ZAE000056370 JSE Share code: VKE NSX Share code: VKN
Granted REIT status with the JSE
("Vukile" or "the company" or “the group”)
AUDITED CONDENSED RESULTS for the year ended 31 March 2013 AND CAUTIONARY
ANNOUNCEMENT
FINANCIAL HIGHLIGHTS
- Annual distribution per linked unit (cents): 131.6 Up 5.4%
- Earnings per linked unit (cents): 273.5 Up 18.9%
- Headline earnings per linked unit (cents): 136.16 Up 1.2%
- Gross property revenue (R000): 1 166 940 Up 25.0%
- Profit available for distribution (R000): 556 447 Up 26.7%
- Increase in net asset value per linked units (cents) 176.0 Up 14.8% to 1 369
STRATEGIC AND OPERATIONAL HIGHLIGHTS
- Portfolio growth of 26% since March 2012 and improved quality through:
o Acquisition of R1.5 billion portfolio from Sanlam in April 2012
o Sales of R372 million of non-core properties
- Acquisition of 50% of East Rand Mall for R1.1 billion transferred on 2 April 2013
- Ranked top property fund and first in the industrial and office sector by IPD over a three year period
- Successful equity and debt capital raised
o R1.57 billion corporate bonds and commercial paper issued during the year
o R1.2 billion raised through a vendor placement and general issues for cash during the year
- Overall total cost of funding reduced from 9.36% (31 March 2012) to 8.1% p.a. at 31 March 2013
- Gearing remains conservative at 33.5% with 91% of all interest bearing debt hedged
- Vukile’s application for REIT status has been approved by the JSE effective 1 April 2013
- Vacancies (as % of GLA) down to 6.8% (7.6% - 30 September 2012)
- Positive reversions across all sectors with an average escalation on expiry rentals of 8.2%
- Weighted average base rentals increased by 12.7%
1. BASIS OF PREPARATION
The condensed financial results included in this announcement have been prepared in accordance
with the measurement and recognition criteria of International Financial Reporting Standards (IFRS)
and have been prepared in accordance with the presentation and disclosure requirements of IAS 34,
Interim Financial Reporting, SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting
Standards Council, the Companies Act and the JSE Limited Listings Requirements.
The accounting policies used in the preparation of the condensed financial results for the year ended
31 March 2013 are consistent with those applied in the previous financial year, other than the
change in the accounting policy relating to deferred taxation. The company has adopted the
amendments to IAS 12 published on 20 December 2010. The effect is that deferred taxation on
investment properties is now calculated at the capital gains tax rate as opposed to a blended rate, on
the rebuttable presumption that the carrying value of the investment properties will be recovered
through sale. These amendments have been applied retrospectively in accordance with IAS 8.
Grant Thornton, the group’s independent auditor, has audited the consolidated annual financial
statements of Vukile from which the condensed consolidated financial results have been derived and
have expressed an unqualified audit opinion on the consolidated annual financial statements. The
audit report is available for inspection at Vukile’s registered office.
The preparation of the financial results for the year ended 31 March 2013 was supervised by
Michael Potts, CA (SA), financial director.
2. FINANCIAL RESULTS
The group’s net profit available for distribution increased by R117.3 million to R556.4 million for the
year ended 31 March 2013 (March 2012: R439.1 million), an increase of 26.7%.
The distribution for the full year ended 31 March 2013 increased by 6.78 cents per linked unit to
131.59 cents per linked unit (March 2012: 124.81 cents per linked unit), an increase of 5.43%. The
distribution represents 99.8% of the profit available for distribution.
Treatment of non-recurring income earned
The company advised unitholders in the interim results announcement issued on 23 November 2012
that, in order to report a more predictable and stable income stream for investors going forward,
abnormal sales commission and other non-recurring income earned less non-recurring expenses
would be paid as a separately identified special distribution in the financial year in which such non-
recurring income is earned. As such, going forward, the company will report on its core property
earnings as part of the normalised distribution with any special distributions arising from non-
recurring income being declared separately therefrom.
To facilitate ease of comparison, the schedule below reflects the distinction between normalised
distributions and non-recurring distributions (sales commission plus other) over the past two financial
years.
March 2013 March 2012 % increase
Cents per linked unit Cents per linked unit
Normalised distribution 120.44 111.43 8.1
Non-recurring distribution 11.15 13.38
Total distribution 131.59 124.81 5.4
The increase in normalised distributions year-on-year at 31 March 2013 equates to 8.1% and is a
much stronger and more accurate reflection of the performance of the portfolio.
As highlighted in the unaudited condensed interim financial statements and results for the six
months ended 30 September 2012 issued on 23 November 2012, the sale of East Rand Mall by
Sanlam has generated significant sales commission for Vukile. As the date of transfer was
2 April 2013 this non-recurring income falls within the March 2014 financial year.
This sales commission will be paid as a special distribution and clearly distinguished from the
normalised distribution generated by the group.
Unitholders are therefore advised that a special distribution of non-recurring income amounting to
c.R64 million will be paid at or around the same time as the company’s first distribution for the six
month period ending 30 September 2013, payable in December 2013.
SUMMARY OF GROUP FINANCIAL PERFORMANCE
2013 2012
March March
Headline earnings of linked units (Rm) 561 472
Net asset value per linked unit (cents) 1 369 1 193
Distribution per linked unit (cents) 131.59 124.81
(1)
Loan to value ratio (%) 33.5 27.6
(1)
Includes East Rand Mall at a director’s valuation of R1.09 billion in the calculation as debt was raised in March 2013 to
partly fund this acquisition.
SIMPLIFIED INCOME STATEMENT
2013 2012
March March
Group Group
Calculation of distributable earnings R000 R000
Net profit from property operations excluding straight-line
696 488 588 348
income adjustment
(1)
Net income from asset management business 63 593 33 025
Investment and other income 25 615 13 557
Corporate administrative expenses (29 192) (25 919)
(2)
Finance costs (194 285) (165 633)
Taxation (excluding deferred tax on revaluation adjustments) (5 772) (4 278)
Available for distribution 556 447 439 100
(1)
Asset management and other fees of R17.6 million (2012: R10.5 million) eliminated on consolidation are included as
property expenditure above and hence reduces net profit from property operations and increases fee income generated in the
asset management business segment.
(2)
The increase in finance costs primarily relates to interest on the R540 million loans raised to part finance the R1.5 billion
portfolio acquisition on 25 April 2012.
NET PROFIT FROM PROPERTY OPERATIONS
The property portfolio performed well in a difficult economic environment during the year under
review. On a like-for-like basis (stable portfolio) net property revenue increased by 7.0% year-on-
year, excluding a once-off lease payment of R27.8 million which was received on the expiry of a
long-term structured lease in the prior year. Eleven non-core properties were sold during the year as
part of the strategy to improve the quality of the portfolio. This resulted in a reduction in net property
revenue of R26.2 million for the year.
Gross Rental Receivables (Tenant arrears)
Tenant arrears increased by R6.6 million from the prior year to R26.9 million at 31 March 2013. This
increase has mainly arisen due to the acquisition of the R1.5 billion portfolio in April 2012, which
increased the size of the portfolio by c.25%.
Impairment allowance
The allowance for the impairment of receivables increased from R10 million at March 2012 to
R13.7 million at 31 March 2013, which is considered adequate at this stage. This represents 50.9%
of tenant arrears. A summary of the movement in the impairment allowance of trade receivables is
set out below:
R000
- Impairment allowance 1 April 2012 10 028
- Allowance for receivable impairment for the year 5 997
- Receivables written off as uncollectable (2 372)
- Impairment allowance 31 March 2013 13 653
Bad debt write-off per the statement of comprehensive income 6 079
NET INCOME FROM ASSET MANAGEMENT BUSINESS
The asset management business segment generated a net profit of R63.6 million for the year
against R33 million in the prior year. This segment’s profit is reported gross of a consolidation
adjustment of R17.6 million (March 2012: R10.5 million). Refer to note 1 of the simplified income
statement above. Asset management and other fees received of R49 million were 12% higher than
the previous year, due to an increase in the size of the Vukile portfolio and as a result of an internal
charge to Vukile for asset management as highlighted in the table below.
Asset management fees are made up as follows:
2013 2012
Rm Rm
- Asset management fees received from Sanlam 31.8 33.5
- Asset management fees received from Vukile 17.6 10.5
49.4 44.0
Sales commission received of R46.2 million was R26.7 million higher than the previous year, mainly
due to the sale of a R1.5 billion portfolio on 25 April 2012 by Sanlam which was acquired by Vukile.
The intangible asset of R362.8 million, which arose on the acquisition of the Sanlam asset
management contract, has been tested for impairment. A change in the income profile due to sales
of properties in excess of R5.7 billion from 1 January 2010 to 30 April 2013 (generating sales
commission for Vukile of R162 million) will result in lower asset management fees going forward,
which together with variable future sales from the Sanlam portfolio, has resulted in an impairment of
R114 million in intangible assets from R267 million in the prior year to R153 million at 31 March
2013. This impairment does not impact on distributable earnings.
FINANCE COSTS
Group finance costs, net of investment income, have increased by R17.2 million, from R152.1 million
to R168.7 million. The increase in finance costs is primarily due to interest arising on additional debt
of R540 million raised to partly finance the acquisition of the R1.5 billion portfolio in April 2012.
Following the introduction of the Domestic Medium Term Note (DMTN) programme and the
refinancing of bank debt, the total cost of debt has reduced from 9.36% (March 2012) to 8.1% at 31
March 2013.
CORPORATE ADMINISTRATION COSTS
Group corporate administrative expenditure of R29.2 million is 12.7% higher than the previous year
of R25.9 million. Additional consulting fees (tenant and customer surveys) and the cost of issuing a
Circular on 27 March 2013 contributed towards the increase.
NET ASSET VALUE
The net asset value of the group has increased over the reporting period by 15%, from 1 193 cents
per linked unit to 1 369 cents per linked unit at 31 March 2013.
3. BORROWINGS
The group’s finance strategy is to minimise funding costs and refinance risk. The business
objectives that are necessary to implement this strategy can be summarised as follows:
STRATEGY Current position
• Diversify funders to at least three providers. 4 Funders
• Diversify funding structures to incorporate, where appropriate:
o Bank debt 47% of total debt
o Secured bonds }
o Commercial paper }53% of total debt
o DMTN notes }
• Spread expiry terms of all interest bearing debt to less than 25% Achieved.
per annum.
• Hedge or fix >90% of interest bearing debt. 91% hedged
• Maximise interest income and limit negative carry Achieved through
increase in access
facilities repayable
without break costs
The R1.02 billion securitisation programme was refinanced through a new R5 billion DMTN
programme in May 2012. Secured corporate bonds of R1.02 billion were issued under this
programme on 8 May 2012. The Global Credit Rating Company (Pty) Ltd (GCR) awarded a AA
(RSA) rating to these secured notes.
The average weighted all-in cost of the R1.02 billion corporate bonds issued equates to 8.6%,
including the extension of existing interest rate swaps and new hedges over three to five year
periods.
This represents a reduction of 1.0% over the previous weighted average all-in finance costs of the
CMBS programme. The secured corporate bond debt of R1.02 billion is fully hedged.
A R450 million bank facility was replaced with a R640 million bank facility in July 2012 and
comprises the following:
Term Rm Finance
Months costs
• Access facility 12 150 6.39%
(1)
• Term facility 20 150 7.71%
(1)
• Term facility 32 140 7.60%
• Development facility 18 200 6.80%
640
(1)
These facilities have been hedged through interest rate swaps.
During March 2013 the company successfully issued R250 million commercial paper and R300
million unsecured corporate bonds under its R5 billion DMTN programme to partly finance the
acquisition of East Rand Mall, as follows:
Maturity date Term Year/s Rm Interest rates
2013/09/28 0.5 75 5.59%
(1)
2014/03/28 1 175 5.91%
(1)
2016/03/28 3 200 6.82%
(1)
2018/03/28 5 100 7.36%
550 6.46%
(1) These facilities have been hedged through interest rate swaps .
The above finance costs are inclusive of bank margins, debt raising costs and interest rate hedge
costs, where applicable.
The clearing spreads of the three and five year unsecured bonds were the same as those achieved
for secured bonds issued in May 2012. The unsecured bonds carry an ’A‘ rating from GCR.
Following the successful launch of the DMTN programme, the refinancing of a R640 million bank
facility and the new DMTN issuance of R550 million the current all-in cost of finance, including
margins and amortised debt raising fees, equates to 8.1% at 31 March 2013, down from 9.36% at 31
March 2012.
The company’s borrowing capacity is unlimited in terms of its Memorandum of Incorporation (MOI).
The board policy however is to limit the group’s loan-to-value ratio (LTV) to 45%. The group’s LTV
ratio at 31 March 2013 was 33.5% compared to the bank’s covenant of 50% and the DMTN
covenant of 40% in respect of those properties mortgaged as security in the DMTN programme.
The group has unutilised bank facilities of R638 million.
4. GROUP PROPERTY PORTFOLIO
The group property portfolio at 31 March 2013 consisted of 78 properties with a total market value of
R7.694 billion and gross lettable area of 1 028 960m², with an average property value of R99 million.
The inclusion of East Rand Mall, which was finalised post year end, increases the portfolio value to
R8.8 billion and the average property value to R111 million.
The portfolio is well-represented in most of the South African provinces and Namibia. 86% of the
gross income is derived from Gauteng, KwaZulu-Natal, Western Cape and Namibia.
The sectoral profile as a percentage of gross rentals is as follows:
- Retail: 54%
- Offices: 34%
- Industrial: 12%
Post the 50% acquisition of East Rand Mall on 2 April 2013 the retail exposure will increase to 59%
with offices dropping to 30% and industrial reducing to 11%.
The portfolio tenant profile is as follows:
- Large national and listed tenants, government and major franchises: 54%
- National and listed tenants, franchised and medium to large professional firms: 9%
- Other: 37%
The average outstanding lease period is 2.25 years. Vukile’s tenant concentration risk is considered
to be moderate as the top 10 tenants account for 27.2% of total GLA. Shoprite is the single largest
tenant, occupying 5.3% of total GLA with Local, Provincial and National Government the second
largest at 4.5% of total GLA.
TOP 10 PROPERTIES BY VALUE
Directors'
valuation at
Rentable 31 March
area 2013 % of Valuation
Property Location m² R 000 total R/m²
Durban Phoenix Plaza Durban 24 348 541 044 7.0 22 221
Cape Town Bellville Louis Leipoldt Bellville 22 311 313 021 4.1 14 030
Pinetown Pine Crest (50%)* Pinetown 20 056 277 499 3.6 13 836
Jhb Isle of Houghton Houghton 28 074 274 708 3.6 9 785
Soweto Dobsonville Shopping Centre Soweto 23 177 263 238 3.4 11 358
Randburg Square Randburg 51 397 240 602 3.1 4 681
Oshakati Shopping Centre Oshakati 24 632 223 010 2.9 9 054
Durban Embassy Durban 32 365 206 425 2.7 6 378
Daveyton Shopping Centre Daveyton 17 095 186 623 2.4 10 917
Cape Town Bellville Tijger Park Bellville 20 225 170 926 2.2 8 451
263 680 2 697 096 35.0 10 229
.
* Represents an undivided 50% share in this property
PROPERTY PORTFOLIO PERFORMANCE
New leases and renewals of 277 911m² with a contract value of R1.015 billion were concluded
during the year. 87% of leases to be renewed during the year ended 31 March 2013 were renewed
or are in the process of being renewed which is up from 74% in 2012.
The group lease expiry profile reflects that 35% of the leases are due for renewal in 2014. Of the
35% of leases due for renewal in 2014, approximately 21 000m² (13%) is from properties in the
process of being sold. Once transfer is registered, the expiries on the remaining portfolio reduces to
33%, which equates to the normal average lease period of three years across the portfolio.
VACANCIES
On 31 March 2013 the portfolio’s vacancy (measured as a percentage of gross lettable area) was
6.8% compared to 7.6% as at 30 September 2012 and 6.1% at 31 March 2012.
The increase relative to March 2012 is largely due to the inclusion of the portfolio acquired from
Sanlam in April 2012. Progress has been made in reducing the vacancies on the acquired portfolio.
Vukile is engaged in various additional initiatives in an effort to reduce the vacancies on the portfolio
including broker focus groups, the implementation of a vacancy website, leasing incentives on
selected properties, incentives to property management companies and leasing brokers.
BASE RENTALS (excluding recoveries)
The weighted average monthly base rental rates per sector have increased between 31 March 2012
and 31 March 2013 as follows: Retail (11.7%), offices (10.8%), industrial (6.6%)and total (12.7%)
The high increase in base rentals is due to the portfolio purchased from Sanlam in April 2012 as well
as the sale of lower value properties during the year.
The average annual contracted rental escalation profile per sector is as follows:
Retail 8.0%
Offices 8.1%
Industrial 8.7%
Total 8.1%
LEASE RENEWALS-Escalation on expiry rentals by sector:
Retail 11.6%
Offices 4.0%
Industrial* 6.7%
Total 8.2%
* Excluding the short-term renewal at Pretoria Rosslyn Warehouse where the previous rentals exceeded market rentals
significantly.
The average escalation on expiry rentals on the total portfolio of 8.2% is very positive against the
backdrop of a difficult trading environment. The retail sector showed improved escalations mainly
due to renewals done at recently renovated centres such as Randburg Square and Oshakati
Shopping Centre. The relatively low escalation on offices is to be expected during the current
oversupply of office space.
New leases concluded-rentals concluded vs budget (market) by sector:
Retail* 108%
Offices 94%
Industrial* 101%
Total 104.7%
* Excluding the Durban Workshop transaction on the old cinema premises which are being converted to retail space to obtain
much higher rental rates.
The higher than budgeted lease rates concluded on retail is due to contracts concluded at the
recently renovated Sandton Bryanston Grosvenor Shopping Centre.
EXPENSE CATEGORIES AND RATIOS
Recurring property expenses have increased year-on-year mostly due to excessive increases in
electricity and water consumption costs and rates and taxes.83% of recurring property expenses are
made up by: electricity, water and sanitation costs (48%), rates and taxes (17%), cleaning and
security (10%) and property management fees (8%)
The group continuously evaluates methods of containing costs in the portfolio and the stable
portfolio’s recurring costs to property revenue ratios (excluding electricity and rates and taxes) have
decreased from 18.2% in March 2007 to 17.8% in March 2013 and hence have been well contained.
RENT COLLECTION AND ARREARS
An important part of protecting the group against the likelihood of tenants defaulting on their lease
agreements is our credit vetting process prior to the acceptance of a tenant. We have developed a
comprehensive screening process for each applicant, which assesses the tenant according to type
(national government, SMMEs, and other), nature of business, main shareholders and other relevant
characteristics, and in the case of renewals, payment history.
As such, it is important to closely monitor our arrears book and any changes to tenant payment
processes. We measure the effectiveness of our collections process based on the percentage
collected by the fifth business day of each month.
On average, our collection percentages (including legal cases) on the fifth business day of the month
for the last two years are as follows:
Sector 2013 2012
Retail 76.8% 76.6%
Offices 81.9% 74.2%
Industrial 68.2% 63.8%
PORTFOLIO GROWTH, REDEVELOPMENTS AND SALES
Acquisition of 50% of East Rand Mall
As part of an on-going strategy to grow the portfolio, increase its retail exposure and improve the
quality of its portfolio, the company acquired a 50% undivided share of East Rand Mall from
Redefine Properties Limited (Redefine) on 2 April 2013 for R1.112 billion. The 50% acquisition was
concluded on the same terms and conditions and effected at the same time that Redefine acquired
the property from Sanlam Life Insurance Limited.
East Rand Mall, regarded as one of the top regional malls in South Africa, has a gross lettable area
of 62 446m² and is situated in Boksburg, Gauteng. It has an 85% comprehensive national tenant
component which includes Edgars, Mr Price, Woolworths and Foschini. The strong performing mall,
supported by good trading densities among national tenants, has become the focal point of this
Eastern Gauteng retail node with a catchment area of approximately 10 kilometres. The inclusion of
the 50% undivided share of East Rand Mall will enhance the quality of and strengthen the revenue of
the portfolio. The purchase price was R1.112 billion at an initial yield of 6.72%. With the weighted
average cost of capital for the acquisition in year one of 6.69%, the acquisition is earnings enhancing
from inception and accretive thereafter.
Encha Properties
As part of the company’s transformation strategy, the company has concluded an agreement with
Encha Properties (Encha) in one of the most significant Black Economic Empowerment (BEE)
initiatives in the listed property sector to date.
As part of the BEE initiative, Vukile will acquire four predominantly national government-tenanted
properties from Encha for an approximate R1.04 billion at a yield of 9.5%. A put and call option over
the Pretoria Momentum Building has been concluded on the same terms and condition as the main
portfolio, which options can be exercised once a new lease has been concluded with National
Government, anticipated date of renewal is 1 November 2013, which has a lease term of at least five
years. On the assumption that the call or put options are exercised, the acquisition of the
Momentum Building will increase the value of the Encha portfolio to approximately R1.4 billion. The
properties within the initial portfolio to be purchased, comprise Navarre Wachthuis, the Koedoe
Arcade and De Bruyn Park in Pretoria and the Bloemfontein Fedsure Building. A sovereign tenant
sub-portfolio will be established within Vukile to house the new properties, which will be managed by
Encha on an external management company basis.
Wingspan
The company has entered into negotiations with Wingspan to acquire five small regional shopping
centres. The acquisition, if consummated, will be subject to normal terms and conditions.
Hammarsdale Shopping Centre
The Hammarsdale Shopping Centre measuring 19 200m² anchored by Pick n Pay, Spar and
Mr Price will open in June 2013. The national tenant component will be approximately 85%. The
Hammarsdale catchment area has about 42 000 households with a population of some 210 000
people. The centre will breathe a new life into the community by providing residents with their first
large-scale, conveniently located, retail experience. The anticipated capital expenditure is R194
million at an initial yield of 9.5%.
Mini factory/warehousing complex Linbro Park
Agreement has been reached with Stratford Property Ventures for the development of a 15 000m²
mini factory/warehousing complex at Linbro Park, one of Johannesburg’s prime industrial areas.
The proposed development will be incorporated into Linbro Business Park, firmly established as a
desirable business address which enjoys excellent accessibility to the N3 and Sandton CBD via
Marlboro Road, while offering the added benefit of being located approximately three kilometres
from the Gautrain Marlboro Station. The proposed development will comprise 22 units with a wide
variety of unit sizes ranging from 350m² to 1 870m². The anticipated capital expenditure is
R119 million at an initial yield of 10.0% and will come on stream in April 2014.
50% interest in Edendale Mall
The acquisition of a 50% interest in Edendale Mall, Pietermaritzburg a 31 700m² retail centre, has
been delayed due to certain suspensive conditions not having been fulfilled to our satisfaction. On
fulfilment of the suspensive conditions, the mall would be a good fit to the portfolio. The mall is
enclosed, has good visibility, accessibility, adequate parking and taxi facilities. Further, the mall has
a strong tenant mix comprising national, franchise and regional brands. The node is further
strengthened by the close proximity of the Edendale Provincial Hospital, SA police station, medical
clinics and local schools. It is estimated that there are 90 000 households with about 450 000
people in the catchment area. The anticipated capital expenditure is R205 million at an initial yield of
8.3%. The purchase price in underpinned by a three year income guarantee. The remaining 50%
will be held by McCormick Properties.
JV with the McCormick Group
A joint venture agreement has been entered into with the McCormick Group to acquire a 50%
interest in five retail developments totalling 69 000m². The first three of these developments are now
under construction with completion dates scheduled for the end of July and end October 2013. The
anticipated capital expenditure is R380 million at an average initial yield of 9.0%.
5. ACQUISITIONS, DEVELOPMENTS, UPGRADES AND DISPOSALS
5.1 Revamps and upgrades
PROPERTIES COMPLETED
Total
Additional capex Yield Completion
Property Project detail GLA Rm % date
Randburg Square Upgrade and
maintenance Phase 1 - 80.8 - June 2012
Roodepoort Hillfox Phase 1 of the
Power Centre upgrade to the exterior
of the centre - 6.5 - April 2012
Roodepoort Hillfox Phase 2 of the
Power Centre upgrade to the exterior
of the centre - 4.0 - May 2012
Oshakati Centre Redevelopment of the
ex-Standard Bank
premises 2 312 20.1 11.1 July 2012
Kimberley Kim Park Upgrade - 5.2 - June 2012
PROJECTS APPROVED AND IN PROGRESS
Total
Additional capex Yield Completion
Property Project detail GLA Rm % date
Randburg Square Upgrade and
maintenance August
Phases 2 and 3 - 207.5 (1) 2013
Bellville Louis Upgrade for Medi
Leipoldt Hospital Clinic - 33.5 (2) May 2013
Durban Workshop Upgrade to the mall
areas and conversion
of cinema area to retail November
premises - 55.0 (1) 2013
Bellville Tijger Park Upgrade and
Offices additional 102 parking October
parking decks bays 49.8 (1) 2013
Bellville Barloworld Upgrade to Barloworld October
Barons premises 17.5 9.4 2013
Roodepoort Hillfox Third (final) phase of
Power Centre the upgrade to the November
exterior of the centre - 20.0 (1) 2013
Daveyton Shopping Pick n Pay extension October
Centre 700 7.8 9.5 2013
Ondangwa Shoprite Extension to Shoprite November
Centre 166 8.7 6.0 2013
(1)Post the upgrade/revamps higher rentals on renewals and reduced vacancies can be expected.
(2)This capex was agreed as part of a new 15 year lease.
5.2 Approved developments
Lethlabile Mall : North West Province
The Lethlabile Mall is being developed by Aroprop 78 (Pty) Ltd at a capital outlay of R194.2 million
and a yield of 9.2%. The centre with a GLA of 17 600m², is situated in Lethlabile about 30 kilometres
north of Brits in the North West Province.
Shoprite is the food anchor. Other national tenants include Pep Stores, Ackermans, Mr Price, Jet
Stores, Dunns, Capitec and Nedbank. The national component will comprise approximately 85% of
the GLA of 17 600m². The anticipated completion date is April 2014.
5.3 Property sales during the year
Sales price Yield
Property R000 %
Pretoria VWL 103 000 12.5
th
Midrand 179 15 Road (Sony Building) 57 000 8.1
Johannesburg Truworths Building { 43 680 7.8
Glencairn Building Eloff Street { 23 520 7.8
Randburg Cresta Eva Park 40 000 8.3
Nelspruit Prorom 38 354 12.5
Midrand Allandale (Land) (Halfway House Ext 64) 20 700 -
Katimo Mulilo Pep Stores 18 000 11.7
Johannesburg John Griffen 16 500 12.0
Johannesburg Bassonia Office Park 8 300 13.4
Rundu Ellerines 2 800 14.7
Total 371 854
The proceeds from property sales will be utilised to acquire properties that conform to Vukile’s
investment requirements and/or to fund expansions and revamps, thereby further enhancing the
quality of the portfolio.
Property sales after year end
Sales price Yield
Property R000 %
Durban Embassy 238 000 9.9
Randburg Triangle 13 500 10.5
Total 251 500
6. VALUATION OF PORTFOLIO
The accounting policies of the group require that directors value the entire portfolio every six months
to fair market value. Approximately one half of the portfolio is valued every six months, on a
rotational basis, by registered independent third party valuers. The directors have valued the
group’s property portfolio at R7.7 billion as at 31 March 2013. This is R1 581 million or 25.9% higher
than the valuation as at 31 March 2012 mainly due to the acquisition of the R1.5 billion portfolio.
The initial annual yield for the portfolio is 9.4%.
The external valuations by Broll Valuation and Advisory Services (Pty) Ltd and Jones Lang LaSalle
(Pty) Ltd at 31 March 2013 of 48.3% of the total portfolio are in line with the directors’ valuations of
the same properties.
7. OPERATING SEGMENTS –
CONDENSED OPERATING SEGMENT REPORT
for the year ended 31 March 2013
Asset
manage-
ment
Industrial Offices Retail Total business Total
GROUP R000 R000 R000 R000 R000 R000
March 2013
Group income for the year
ended 31 March 2013
Property revenue 135 924 415 611 615 405 1 166 940 77 974 1 244 914
Straight-line rental income
accrual 562 1 720 2 547 4 829 4 829
136 486 417 331 617 952 1 171 769 77 974 1 249 743
Property expenses (46 237) (151 476) (255 098) (452 811) (32 022) (484 833)
Profit from property and
other operations 90 249 265 855 362 854 718 958 45 952 764 910
Group statement of
financial position at
31 March 2013
Assets
Investment properties 1 008 272 2 532 533 3 829 929 7 370 734 7 370 734
Add: Lease commissions 18 922 18 922
7 389 656 7 389 656
Goodwill 3 889 59 713 63 602 63 602
Intangible asset 152 965 152 965
Investment properties held for
sale 20 157 262 536 40 509 323 202 323 202
1 032 318 2 795 069 3 930 151 7 776 460 152 965 7 929 425
Add: Excluded items
Deferred capital expenditure 138 385
Furniture, fittings and other
equipment 5 129
Available-for-sale financial
asset 19 417
Financial asset at amortised
cost 1 152
Trade and other receivables 84 360
Cash and cash equivalents 1 267 304
Total assets 9 445 172
Liabilities
Linked debentures and
premium 437 790 1 189 830 1 647 602 3 275 222 3 275 222
Interest bearing borrowings 342 722 1 007 768 1 576 968 2 927 458 2 927 458
780 512 2 197 598 3 224 570 6 202 680 6 202 680
Add: Excluded items
Equity 2 626 187
Derivative financial
instruments 59 330
Deferred taxation liabilities 6 293
Trade and other payables 228 117
Current taxation liabilities 1 343
Linked unitholders for
distribution 321 222
Total equity and liabilities 9 445 172
March 2012
Group income for the year
ended 31 March 2012
Property revenue 130 222 255 126 547 921 933 269 53 317 986 586
Straight-line rental income
accrual 6 539 13 156 26 298 45 993 - 45 993
136 761 268 282 574 219 979 262 53 317 1 032 579
Property expenses (45 632) (88 875) (199 914) (334 421) (30 792) (365 213)
Profit from property and
other operations 91 129 179 407 374 305 644 841 22 525 667 366
Group statement of
financial position at 31
March 2012
Assets
Investment properties 1 016 662 1 585 937 3 189 276 5 791 875 5 791 875
Add: Lease commissions 14 283 14 283
5 806 158 5 806 158
Goodwill 3 917 931 60 696 65 544 65 544
Intangible asset 267 096 267 096
Investment properties held for
sale 16 500 200 437 104 258 321 195 321 195
1 037 079 1 787 305 3 354 230 6 192 897 267 096 6 459 993
Add: Excluded items
Deferred capital expenditure 4 411
Furniture, fittings and other
equipment 1 985
Available-for-sale financial
asset 28 468
Financial asset at amortised
cost 2 967
Trade and other receivables 50 934
Cash and cash equivalents 215 947
Total assets 6 764 705
Liabilities
Linked debentures and
premium 357 152 617 527 1 138 534 2 113 213 2 113 213
Interest bearing borrowings 283 838 490 767 904 825 1 679 430 1 679 430
640 990 1 1 08 294 2 043 359 3 792 643 3 792 643
Add: Excluded items
Equity 2 074 470
Derivative financial 25 644
instruments
Deferred taxation liabilities 434 503
Trade and other payables 188 692
Current taxation liabilities 1 267
Linked unitholders for
distribution 247 486
Total equity and liabilities 6 764 705
8. CHANGE IN ACCOUNTING POLICY – DEFERRED TAX
Vukile has adopted the amendment to IAS 12 in accounting for deferred tax assets and liabilities, as
documented under the basis of the preparation paragraph. The impact hereof is set out below:
GROUP
2012 2011
Effect on statement of financial position R000 R000
Deferred tax
Balance as originally stated 727 785 544 548
Restated balance after the IAS 12 amendment (434 503) (253 033)
Impact of change in accounting policy 293 282 291 515
Non-distributable reserve
Balance as originally stated 1 719 943 1 347 992
Related balance after IAS 12 amendment (2 013 225) (1 639 507)
Impact of change in accounting policy (293 282) (291 115)
Effect on the statement of comprehensive income
Taxation
As originally stated 189 754
Restated as per IAS 12 amendment (187 987)
Impact of change in accounting policy 1 767 -
Change in capital gains tax rate
Vukile’s application for REIT status has been approved by the JSE Limited. The conversion to a
REIT will be effective from 1 April 2013.
As such, the group will not be liable for capital gains tax effective from 1 April 2013. The restated
balance of deferred tax at 1 April 2012 on the upliftment of investment properties has been reduced
to nil as, prospectively, capital gains tax will no longer apply.
Deferred tax is no longer calculated on the straight-line rental income accrual as the rental accrual
will form part of the company’s distributions in the future. Given the group’s conversion to a REIT,
such distributions are fully deductible for tax purposes and hence no tax liability will arise on straight-
line rental income accruals.
9. CAPITAL COMMITMENTS
The group has authorised and contracted refurbishment and expansions totalling R486.2 million.
The group is authorised, but has not yet contracted, to upgrade shopping centres, replace air-
conditioning units, refurbish lifts, tenant installations and other minor capital expenditure at an
estimated cost of R133 million.
The above refurbishment programme, capital expenditure and developments will be funded out of
surplus cash, bank facilities and proceeds from property sales.
10. PROSPECTS
With both the local and international economic environment remaining stubbornly sluggish we expect
the forthcoming year to be a challenging one and very much in line with the past year from an
operating perspective. We are however happy with the quality and performance of our underlying
property portfolio. We anticipate our retail assets to continue performing well, whilst the office sector
is expected to remain tough and there will be an added impetus to try move vacant space in the year
ahead. Our deal pipeline remains full and the introduction of various new assets, specifically the
Encha portfolio, will add positively to the portfolio in all material respects and are expected to be
earnings enhancing from inception.
Having adopted our new disclosure protocol of separating out the impact of non-recurring income
and declaring it as a special distribution and distinct from our normalised or core earnings base, we
currently expect to deliver a growth in normalised distribution of between 4% and 6% for the year to
March 2014 (March 2013: 120.44 cents per linked unit). We expect this figure to rise to between 6%
and 8% for the total distribution for the year ending 31 March 2014 (March 2013: 131.59 cents per
linked unit) when taking into account a special distribution of c.R64 million that will be declared in
respect of sales commission earned on the sale of East Rand Mall from the Sanlam portfolio. The
growth is based on the assumptions that the macro-economic environment will not deteriorate
further, no major corporate failure will occur and that tenants will be able to absorb the rising
property operating costs. The forecast information in this paragraph 10 has not been reviewed or
audited by Vukile’s auditors.
11. BOARD CHANGES
The company announced the appointment of Ms Sonja de Bruyn Sebotsa to the board as an
independent non-executive director with effect from 16 May 2013. Ms Sebotsa has extensive
experience in the investment banking industry, is co-founder of Identity Capital Partners and was
previously a vice president in the investment banking division of Deutsche Bank and an executive
director of Women’s Development Bank Investment Holdings. She holds an LLB (Hons) from the
London School of Economics; a MA in Economics and Business from McGill University and has
completed the Harvard Executive Programme and is also a Young Global Leader of the World
Economic Forum.
12. PAYMENT OF DEBENTURE INTEREST AND CASH DIVIDEND (THE DISTRIBUTION) WITH AN
ELECTION TO REINVEST THE DISTRIBUTION IN RETURN FOR VUKILE LINKED UNITS
Notice is hereby given of a distribution amounting to 74.56 cents per linked unit, for the six-month
period to 31 March 2013. The distribution comprises interest on debentures of 74.41 cents per
linked unit and a cash dividend of 0.15 cents per linked unit.
Linked unitholders will be entitled to elect to reinvest the distribution of 74.56 cents per linked unit
(after the applicable dividend withholding tax), in return for linked units (linked unit alternative), failing
which they will receive the distribution in respect of (all or part of) their linked unitholdings.
Linked unitholders who have dematerialised their linked units are required to notify their duly
appointment Central Securities Depository Participant (CSDP) or broker of their election in the
manner and time stipulated in the custody agreement governing the relationship between the linked
unitholder and their CSDP or broker.
Linked unitholders are further advised that:
- the cash dividend has been declared out of income reserves;
- the local dividend tax rate is 15%;
- the gross local dividend amount for the ordinary cash dividend is 0.152 cents per linked unit
for shareholders exempt from paying Dividends Tax;
- the net local dividend amount for the ordinary cash dividend is 0.129 cents per linked unit for
shareholders liable to pay Dividends Tax;
- the issued share capital of Vukile is 431 040 218 linked units of one cent each at year end;
and
- Vukile’s tax reference number is 9331/617/14/3.
Summary of the salient dates relating to the distribution and linked unit alternative are as follows:
2013
Circular and form of election posted to linked unitholders Thursday, 30 May
Announcement of linked unit ratio and finalisation information Thursday, 6 June
Last day to trade (LDT) cum distribution Thursday, 13 June
Linked units trade ex distribution Friday, 14 June
Listing of maximum possible number of linked units under the
linked unit alternative Tuesday, 18 June
Last day to elect to receive the linked unit alternative and to
receive a cash distribution (no late forms of election will be
accepted) at 12:00 (SA time) Friday, 21 June
Record date Friday, 21 June
Monday, 24
Announcement of results of cash distribution and linked unit
alternative on SENS
Cash distribution cheques posted to certificated linked unitholders
on or about Monday, 24 June
Accounts credited by CSDP or broker to dematerialised linked
unitholders with teh cash distribution payment Monday, 24 June
Linked unit certificates posted to certificated unitholders on or
about Tuesday, 25 June
Accounts updated with the new linked units (if applicable) by
CSDP or broker to dematerialised linked unitholders Tuesday, 25 June
Announcement of results of cash distribution and linked unit
alternative in the press Tuesday, 25 June
Adjustment to linked units listed on or about Wednesday, 26 June
Notes:
1. Linked unitholders electing the linked unit alternative are alerted to the fact that the new linked
units will be listed on LDT + 2 and that these new linked units can only be traded on LDT + 2,
due to the fact that settlement of the linked units will be two days after record date, which differs
from the conventional one day after record date settlement process.
2. Linked units may not be dematerialised or rematerialised between Friday 14 June 2013 and
Friday 21 June 2013, both days inclusive.
3. The above dates and times are subject to change. Any changes will be released on SENS and
published in the press.
CAUTIONARY
Unitholders are referred to the previous announcements released on SENS relating to Vukile's proposed
empowerment transaction and are advised that the circular will be posted to unitholders during the course of
June. Accordingly unitholders are advised to continue exercising caution when dealing in their Vukile units.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2013
2013 2012 2011
Restated Restated
GROUP R000 R000 R000
ASSETS
Non-current assets 7 770 306 6 176 629 5 487 419
Investment properties 7 241 245 5 674 979 4 984 840
Investment properties 7 389 656 5 806 158 5 083 993
Straight-line rental income adjustment (148 411) (131 179) (99 153)
Other non-current assets 529 061 501 650 502 579
Intangible asset 152 965 267 096 312 832
Straight-line rental income asset 148 411 131 179 99 153
Deferred capital expenditure 138 385 4 411 2 723
Furniture fittings, computer equipment and
other 5 129 1 985 1 774
Available-for-sale financial asset 19 417 28 468 10 208
Financial asset at amortised cost 1 152 2 967 4 782
Goodwill 63 602 65 544 71 107
Current assets 1 351 664 266 881 409 218
Trade and other receivables 84 360 50 934 71 409
Cash and cash equivalents 1 267 304 215 947 337 809
Investment properties held for sale 323 202 321 195 281 422
Total assets 9 445 172 6 764 705 6 178 059
2013 2012 2011
Restated Restated
GROUP R000 R000 R000
EQUITY AND RESERVES 2 626 187 2 074 470 1 696 065
Non-current liabilities 5 755 367 3 022 150 3 618 098
Linked debentures and premium 3 275 222 2 113 213 2 116 916
Other interest bearing borrowings 2 414 522 448 790 1 226 282
Derivative financial instruments 59 330 25 644 21 867
Deferred taxation liabilities 6 293 434 503 253 033
Current liabilities 1 063 618 1 668 085 863 896
Trade and other payables 228 117 188 692 173 277
Short-term borrowings 512 936 1 230 640 449 600
Current taxation liabilities 1 343 1 267 5 416
Linked unitholders for distribution 321 222 247 486 235 603
Total equity and liabilities 9 445 172 6 764 705 6 178 059
CONDENSED CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2013
2013 2012
Restated
GROUP R000 R000
Property revenue 1 166 940 933 269
Straight-line rental income accrual 4 829 45 993
Gross property revenue 1 171 769 979 262
Property expenses (452 811) (334 421)
Net profit from property operations 718 958 644 841
Net income from asset management business 45 952 22 525
Corporate administrative expenses (29 192) (25 919)
Investment and other income 25 615 13 557
Operating profit before finance costs 761 333 655 004
Finance costs (194 285) (165 633)
Profit before debenture interest 567 048 489 371
Debenture interest (554 368) (437 224)
Profit before capital items 12 680 52 147
Profit on sale of investment properties 903 3 084
Amortisation of debenture premium 6 804 3 703
Goodwill written-off on sale of
subsidiary/properties by a subsidiary (821) (762)
Impairment of intangible asset (114 131) (45 736)
Impairment of goodwill (1 121) (4 801)
Profit on sale of subsidiary 1 160 1 428
(Loss)/profit before fair value adjustments (94 526) 9 063
Fair value adjustments 255 329 549 253
Gross change in fair value of investment
properties 260 158 595 246
Straight-line rental income adjustment (4 829) (45 993)
Profit before taxation 160 803 558 316
Taxation 412 834 (187 987)
Profit for the year 573 637 370 329
Earnings and diluted earnings per linked unit
(cents) 273.53 230.06
Headline and diluted headline earnings per
linked unit (cents) 136.16 134.48
Number of linked units in issue 431 040 218 351 015 218
Net asset value (cents per linked unit) 1 369 1 193
RECONCILIATION OF EARNINGS TO HEADLINE EARNINGS AND TO PROFIT AVAILABLE FOR
DISTRIBUTION
for the year ended 31 March 2013
2013 2012
Group Cents per Group Cents per
R000 linked unit R000 linked unit
Attributable profit after taxation 573 637 139.10 370 329 105.50
Adjusted for:
Debenture interest 554 368 134.43 437 224 124.56
Earnings 1 128 005 273.53 807 553 230.06
Change in fair value of investment
properties (255 329) (61.91) (549 253) (156.48)
Total tax effects of adjustments (418 606) (101.51) 170 638 48.62
Write-off in goodwill on sale of
subsidiary/properties sold by a subsidiary 821 0.20 762 0.22
Impairment of goodwill 1 121 0.27 4 801 1.37
Profit on sale of subsidiary (1 160) (0.28) (1 428) (0.41)
Profit on sale of investment properties (903) (0.22) (3 084) (0.88)
Loss on disposal of furniture, fittings and
equipment 188 0.05 - -
Impairment of intangible asset 114 131 27.68 45 736 13.03
Amortisation of debenture premium (6 804) (1.65) (3 703) (1.05)
Headline earnings 561 464 136.16 472 022 134.48
Straight-line rental accrual net of deferred
taxation (4 829) (1.17) (32 922) (9.38)
Loss on disposal of furniture, fittings and
equipment (188) (0.05) - -
Profit available for distribution 556 447 135.04 439 100 125.10
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
for the year ended 31 March 2013
2013 2012
Group Group
R000 R000
Cash flow from operating activities 738 201 638 685
Cash flow from investing activities (1 446 725) (167 450)
Cash flow from financing activities 1 759 881 (593 097)
Net increase/(decrease) in cash and cash equivalents 1 051 357 (121 862)
Cash and cash equivalents at the beginning of the year 215 947 337 809
Cash and cash equivalents at the end of the year 1 267 304 215 947
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2013
R000 Share Non- Retained Total
capital and distributable earnings
share reserves
premium
GROUP
Restated balance at 31 March 2011 32 263 1 639 507 24 295 1 696 065
Balance at 31 March 2011 as previously
reported 32 263 1 347 992 24 295 1 404 550
Change of rate in deferred taxation
including straight line rental accrual - 291 515 - 291 515
Dividend distribution - - (892) (892)
32 263 1 639 507 23 403 1 695 173
Profit for the year - - 370 329 370 329
Change in fair value of investment
properties - 595 246 (595 246) -
Deferred taxation on change in fair
value of investment properties and
straight-line rental accrual - (184 333) 184 333 -
Share-based remuneration - 9 927 - 9 927
Transfer from non-distributable reserves - (46 163) 46 163 -
Other comprehensive income
Revaluation of available-for-sale
financial asset - 3 453 - 3 453
Revaluation of cash flow hedges - (4 412) - (4 412)
Restated balance at 31 March 2012 32 263 2 013 225 28 982 2 074 470
Balance at 31 March 2012 as previously
reported 32 263 1 719 943 28 982 1 781 188
Change of rate in deferred taxation
including straight line rental accrual - 293 282 - 293 282
Issue of shares 23 853 - - 23 853
Dividend distribution - - (1 131) (1 131)
56 116 2 013 225 27 851 2 097 192
Profit for the year - - 573 637 573 637
Change in fair value of investment
properties - 260 158 (260 158) -
Deferred taxation rate change - 426 790 (426 790) -
Share-based remuneration - 7 411 - 7 411
Transfer from non-distributable reserves - (122 194) 122 194 -
Other comprehensive loss
Revaluation of available-for-sale
financial asset - (18 367) - (18 367)
Revaluation of cash flow hedges - (33 686) - (33 686)
Balance at 31 March 2013 56 116 2 533 337 36 734 2 626 187
On behalf of the board
AD Botha LG Rapp
Melrose Estate
27 May 2013
JSE sponsor: Java Capital, 2 Arnold Road, Rosebank, 2196
NSX sponsor: IJG Securities (Pty) Ltd, Windhoek, Namibia.
Executive directors: LG Rapp (CEO), MJ Potts (Financial director), HC Lopion (Executive director: asset
management).
Non-executive directors: AD Botha (Chairman), PJ Cook, S de Bruyn Sebotsa
JM Hlongwane, PS Moyanga, HM Serebro, NG Payne, SF Booysen
Registered office: One-on-Ninth, corner Glenhove Road and Ninth Street, Melrose Estate, 2196
Company Secretary: J Neethling.
Transfer secretaries: Link Market Services South Africa (Pty) Ltd, Johannesburg.
Investor and media relations: Contact Helen McKane on vukile@dpapr.com, or Tel: 011 728-4701.
www.vukile.co.za
Date: 27/05/2013 08:55:00 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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