Wrap Text
Unaudited interim results of the group for the six months ended 31 August 2013
PREMIUM PROPERTIES LIMITED and its subsidiaries
("Premium" or "the group" or "the company")
(Incorporated in the Republic of South Africa)
(Registration number 1994/003601/06)
Share code: PMM ISIN: ZAE000009254
REIT status approved
UNAUDITED INTERIM RESULTS OF THE GROUP FOR THE SIX MONTHS ENDED 31 AUGUST 2013
Highlights
- Distribution up by 10,3% to 66,2 cents per linked unit
- Investment assets exceed R5,0 billion
- Upgrade in GCR credit rating
- Obtained REIT status effective from 1 March 2014
- Increase in net asset value of 19,3% to 2 023 cents per linked unit
- Weighted average cost of debt reduced to 7,8% per annum
DIRECTORS' COMMENTARY
Introduction
Premium invests in the retail, industrial and office property sectors and holds a large residential portfolio. The company has a great confidence in the future of
the Pretoria and Johannesburg CBDs. All rental income received by the group, less operating costs and interest on debt, is distributed bi-annually. The group does
not distribute capital profits and fair value gains.
Review of results
Premium has delivered a total distribution for the six months ended 31 August 2013 of 66,2 cents per linked unit representing growth in distributions to linked
unitholders of 10,3%.
Rental income and net rental income increased by 10,5% and 6,4% respectively, compared with the prior comparative period. Economic and trading conditions and
consumer confidence remained challenging during the financial period. The residential portfolio, comprising 28,0% of the total property portfolio by rental income,
achieved strong growth in rental income. This was underpinned by low vacancies and strong demand for affordable and secure accommodation. Bad debt write-offs and
provisions decreased during the period from 1,4% to 0,4% of total tenant income. Arrears and doubtful debt provisions remain at acceptable levels and no significant
deterioration is anticipated. Despite rapidly escalating utilities charges, the percentage of cost recovery from tenants has been maintained during the period.
However, these escalating charges have impacted the total occupancy costs of tenants.
A saving in finance costs was achieved mainly due to the establishment of a R1 billion Domestic Medium-term Note Programme during March 2012.
Property and investment portfolio
Premium had three major projects under construction during the period. The total cost of these projects is approximately R86,8 million of which an amount of
R58 million had already been spent by 31 August 2013.
Details of these projects are:
- The construction of an additional residential block at The Fields in Hatfield, Pretoria. This project, which is progressing well, will create a further 87
residential units and 87 parking bays at an estimated cost of R71,3 million. The project is scheduled for completion in November 2013 and is expected to yield
a return of 8,3% once fully let.
- The upgrade of the Demar Building, a mixed-use property situated in the Pretoria CBD. The total cost of the project is R7,5 million. The residential units were
completed in August 2013 and the retail upgrade will be completed in October 2013.
- The upgrade of Prinsman Place, situated in the Pretoria CBD, a mixed-use property at a total cost of R8 million. The project was completed in September 2013.
The transfer of the Hangar in Centurion took place on 31 July 2013. The Hangar, comprising six blocks of residential accommodation, will further enhance Premium's
residential property portfolio. The total purchase consideration amounted to R114,7 million.
Premium's investment in Investments Proprietary Limited ("IPS") provided strong growth with profits earned from its associate company, excluding fair value gains,
increasing to R14,5 million. This is an increase of 40,6% on the prior period.
The performance of IPS was positively impacted by the improved occupancy levels achieved during the period at Craig's Place and the mixed-use developments of
Kempton Place and Tali's Place. The construction of Jeff's Place (previously known as Marchie Mansions), a greenfield residential development situated in the
Pretoria CBD, commenced in February 2012. The total cost of the project is R139 million and it is anticipated that this will yield an initial return of 9,2% once
fully let. The expected date of completion is November 2013.
Vacancies in the Premium portfolio at 31 August 2013, including properties held for redevelopment, amounted to 18,8% (28 February 2013: 20,4%) of total lettable area.
Details of these vacancies with reference to their sectoral spread are set out in the table below:
Properties
Total Total held for Core
lettable area vacancies redevelopment vacancies
m2 % % %
31 August 2013
Offices 254 777 11,4 (3,1) 8,3
Retail 207 188 2,9 (1,6) 1,3
Industrial 136 909 3,3 (0,2) 3,1
Residential 152 397 1,2 (0,9) 0,3
Total 751 271 18,8 (5,8) 13,0
28 February 2013
Offices 253 419 12,8 (3,4) 9,4
Retail 207 475 3,3 (1,5) 1,8
Industrial 137 272 2,4 - 2,4
Residential 135 737 1,9 (1,6) 0,3
Total 733 903 20,4 (6,5) 13,9
Significant progress has been made in letting some of the retail and office space at The Fields. Recently, 6 296 m2 of office space has been let at a rental of R135
per m2. The lease commenced on 18 May 2013. Most of the properties remained fully let. As anticipated a number of properties under development or those which were
recently upgraded, for example Demar, Prinsman Place and Centre Walk (Die Meent), had high vacancies. In recent years certain properties for example, Fedsure House,
were acquired by Premium with large vacancies and for little consideration for the vacant space which offered redevelopment opportunities. As the opportunities arise
the potential vacancies are being realised.
Borrowings
Premium's loan to value ratio at 31 August 2013 was 33,7% of the total value of the investment portfolio as against 31,5% at 28 February 2013. Premium entered into
various fixed interest rate and swap rate agreements which are set out below. As a result, interest rates in respect of 41,7% of borrowings have been fixed with
expiry dates from May 2017 to August 2018. As at 31 August 2013, the weighted average annual cost of debt was 7,8% with unutilised banking facilities in an amount
in excess of R431,8 million.
Premium increased its debt capital market ("DCM") issuance in June and July 2013 to R465 million, or 28% of borrowings. In August 2013 Global Credit Ratings upgraded
the long and short-term national scale issuer ratings of Premium to A- (ZA) and A1-(ZA) respectively.
Nominal Interest
amount rate
R'000 %
Fixed rate borrowings expiry
May 2018 160 000 12,15
160 000 12,15
Swap maturity
May 2017 50 000 9,47
June 2017 50 000 9,32
July 2017 50 000 8,94
August 2017 100 000 8,70
September 2017 50 000 9,31
January 2018 50 000 9,43
April 2018 100 000 5,68
August 2018 100 000 9,00
550 000 8,50
Total hedged borrowings 710 000 9,30
Variable rate borrowings 993 009 6,70
Total gearing 1 703 009 7,80
Revaluation of property portfolio
It is the group's financial policy to perform directors' valuations of all the properties every six months of the financial year. At the financial year-end,
one-third of the properties is valued by external valuers on a rotational basis. The directors' valuation of the property portfolio increased by R111,9 million to
R4,7 billion, an increase of 2,6% for the six-month period.
Net asset value ("NAV")
The substantial increase in NAV per linked unit was mainly as a result of the elimination of deferred capital gains taxation on the fair value adjustment to
investment property; in anticipation of the conversion to a REIT on 1 March 2014.
Changes to the directorate
Mr Gerard Kemp (58) was appointed as an independent non-executive director, on 1 October 2013. Gerard will also serve on the audit, risk, social and ethics, and
remuneration and nominations committees. Gerard brings to the board a wealth of knowledge and experience in the areas of black economic empowerment, corporate
finance and labour relations.
Prospects
Premium is considering a number of redevelopment opportunities for certain existing properties which will enhance the quality of the property portfolio and result
in sustainable growing distributions in the future.
It is anticipated that the growth in the local economy will remain subdued in the short term. Notwithstanding this environment, and barring unforeseen events,
Premium anticipates that the percentage growth rate in distributions per linked unit for the full twelve-month period should be in line with the sector average
growth rate.
Unitholders are advised that the abovementioned information has not been reviewed nor reported on by the company's auditors.
DECLARATION OF DIVIDEND 39 AND INTEREST PAYMENT ("the distribution")
Notice is hereby given that dividend number 39 of 0,33 cents (2012: 0,30 cents) per ordinary share (out of income reserves) and interest of 65,87 cents per
debenture (2012: 59,7 cents) has been declared for the period 1 March 2013 to 31 August 2013, payable to linked unitholders recorded in the register on Friday,
15 November 2013. The last date to trade "CUM" distribution is Friday, 8 November 2013. The units will commence trading "EX" distribution on Monday, 11 November 2013.
Payment date will be Monday, 18 November 2013.
No dematerialisation or rematerialisation of linked unit certificates may take place between Monday, 11 November 2013 and Friday, 15 November 2013, both days inclusive.
The dividend component of the distribution is subject to dividends withholding tax at 15%. In determining dividend withholding tax, secondary tax on companies ("STC")
credits must be taken into account. The STC credits utilised as part of this declaration amount to R517 351,26 being 0,33 cents per share, and consequently no
dividends withholding tax is payable by shareholders who are normally not exempt from dividends withholding tax. Shareholders will receive the dividend of 0,33
cents per share.
The number of linked units in issue at the date of this declaration is 156 773 109 and the company's tax reference number is 9660/013/64/1.
By order of the board
S Wapnick JP Wapnick
Chairman Managing director
23 October 2013
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months Year to
% 31 August 31 August 28 February
R'000 change 2013 2012 2013
Revenue 317 442 285 672 585 918
earned on contractual basis 10,5 311 307 281 641 575 112
straight-line lease adjustment 6 135 4 031 10 806
Operating costs (143 741) (124 087) (253 238)
Net rental income from properties 173 701 161 585 332 680
earned on contractual basis 6,4 167 566 157 554 321 874
straight-line lease adjustment 6 135 4 031 10 806
Administrative costs (15 482) (13 426) (27 514)
Depreciation (705) (708) (1 412)
Operating profit 6,8 157 514 147 451 303 754
Profit on sale of investment properties 386 - 851
Investment income 28 756 17 413 39 239
Interest received 1 128 526 1 856
Associate
share of after-tax profit 10 496 7 662 16 733
reserves 13 121 6 570 15 246
interest and management fee 4 011 2 655 5 404
Finance costs 5,1 (63 128) (60 069) (118 880)
Interest on borrowings (64 552) (62 790) (125 200)
Interest capitalised 1 424 2 721 6 320
Fair value adjustments of investment properties 111 872 141 513 204 860
Fair value adjustments on interest rate derivatives 29 697 (23 701) (20 133)
Amortisation of debenture premium 11 208 11 898 23 797
Profit before debenture interest 276 305 234 505 433 488
Debenture interest 10,3 (103 266) (93 594) (196 860)
Profit before taxation 173 039 140 911 236 628
Taxation charge 350 386 (20 814) (32 151)
Current taxation - - (190)
Deferred taxation 350 386 (20 814) (31 961)
Profit for the period 523 425 120 097 204 477
Other comprehensive income for the period - - -
Total comprehensive income for the period attributable to equity holders 523 425 120 097 204 477
Weighted linked units in issue ('000) 156 773 156 773 156 773
Linked units in issue ('000) 156 773 156 773 156 773
Basic and diluted earnings per share (cents) 335,8 333,9 76,6 130,4
Basic and diluted earnings per linked unit (cents) 193,3 399,7 136,3 256,0
Distribution per linked unit (cents)
Dividends 0,33 0,30 0,63
Interest 65,87 59,70 125,57
Total 10,3 66,20 60,00 126,20
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited
31 August 28 February
R'000 2013 2013
ASSETS
Non-current assets 5 052 009 4 691 091
Investment properties 4 625 741 4 320 082
Plant and equipment 7 406 8 111
Lease costs 19 249 16 744
Operating lease assets 51 764 45 629
Derivative financial instruments 584 -
Investment in associate 347 265 300 525
Current assets 39 060 30 202
Non-current assets held for sale 6 970 7 770
Total assets 5 098 039 4 729 063
EQUITY AND LIABILITIES
Share capital and reserves 2 461 636 1 938 728
Share capital and premium 4 472 4 472
Non-distributable reserve 2 407 585 1 898 505
Retained earnings 49 579 35 751
Non-current liabilities 1 635 932 1 626 491
Debentures and premium 709 708 720 916
Interest-bearing borrowings 924 803 524 655
Derivative financial instruments - 29 113
Deferred taxation 1 421 351 807
Current liabilities 1 000 471 1 163 844
Interest-bearing borrowings 788 206 955 537
Non-interest-bearing 118 999 105 041
Linked unitholders for distribution 103 266 103 266
Total equity and liabilities 5 098 039 4 729 063
Linked units in issue ('000) 156 773 156 773
Net asset value per linked unit (cents) 2 023 1 696
Net asset value per linked unit (cents) - before providing for deferred tax 2 024 1 921
Loan to investment value ratio (%) 33,7 31,5
DISTRIBUTABLE EARNINGS
Unaudited Unaudited Audited
Six months Six months Year to
% 31 August 31 August 28 February
R'000 change 2013 2012 2013
Revenue
earned on contractual basis 10,5 311 307 281 641 575 112
Operating costs (143 742) (124 087) (253 238)
Net rental income from properties 6,4 167 565 157 554 321 874
Administrative costs (15 482) (13 426) (27 514)
Depreciation (705) (708) (1 412)
Operating profit 5,5 151 378 143 420 292 948
Investment income
Interest received 1 128 526 1 856
Associate 14 507 10 317 22 137
Distributable profit before finance costs 8,3 167 013 154 263 316 941
Finance costs 5,1 (63 128) (60 069) (118 880)
Unitholders distributable earnings 10,3 103 885 94 194 198 061
Weighted linked units in issue ('000) 156 773 156 773 156 773
Distributable earnings per linked unit (cents) 10,3 66,3 60,1 126,3
Distribution per linked unit (cents) 10,3 66,2 60,0 126,2
RECONCILIATION - EARNINGS TO DISTRIBUTABLE EARNINGS
Unaudited Unaudited Audited
Six months Six months Year to
% 31 August 31 August 28 February
R'000 change 2013 2012 2013
Earnings attributable to equity holders 523 425 120 097 204 477
Amortisation of deemed debenture premium (11 208) (11 898) (23 797)
Profit on sale of investment properties (386) - (320)
Equity reserves
associate (13 121) (6 570) (15 246)
Fair value adjustments
investment properties (111 872) (141 513) (204 860)
deferred tax (351 304) 26 323 38 106
Headline earnings/(loss) before debenture interest 35 534 (13 561) (1 640)
Debenture interest 103 266 93 594 196 860
Headline earnings attributable to linked unitholders 138 800 80 033 195 220
Straight-line lease adjustment, net of deferred tax (4 418) (2 904) (7 761)
Fair value adjustment on interest rate derivatives, net of deferred tax (21 381) 17 065 14 496
Deferred taxation adjustments (9 114) - (3 894)
Distributable earnings 103 885 94 194 198 061
Headline earnings per linked unit (cents) 73,4 88,5 51,1 124,5
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
Six months Six months Year to
31 August 31 August 28 February
R'000 2013 2012 2013
CASH FLOW FROM OPERATING ACTIVITIES
Net rental income from properties 151 378 143 420 292 948
Adjustment for:
Depreciation and amortisation 7 966 3 501 7 197
Working capital changes 11 033 9 417 2 725
Cash generated from operations 170 377 156 338 302 870
Investment income 15 635 3 181 7 260
Finance costs (63 128) (60 069) (118 880)
Distribution to linked unitholders paid (103 783) (94 064) (188 128)
Net cash inflow from operating activities 19 101 5 386 3 122
CASH FLOW FROM INVESTING ACTIVITIES
Investing activities (236 785) (101 632) (181 347)
Disposal of investment property 800 - 5 153
Net cash outflow used in investing activities (235 985) (101 632) (176 194)
CASH FLOW FROM FINANCING ACTIVITIES
Increase in interest-bearing borrowings 228 944 83 953 172 937
Net cash generated from financing activities 228 944 83 953 172 937
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 12 060 (12 293) (135)
Cash and cash equivalents at beginning of period (5 937) (5 802) (5 802)
Cash and cash equivalents at end of period 6 123 (18 095) (5 937)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital
and Capital Fair value Retained
R'000 premium reserve reserve earnings Total
Balance at 1 March 2012 4 472 92 206 1 600 182 38 331 1 735 191
Total comprehensive income for the year 204 477 204 477
Transfer to capital reserve
Debenture premium amortised 23 797 (23 797) -
Profit on sale of investment properties, net of capital gains tax 320 (320) -
Dividends paid (940) (940)
Reserves of associate 15 246 (15 246) -
Transfer of fair value adjustments
Investment properties, net of deferred taxation 166 754 (166 754) -
Balances at 28 February 2013 4 472 116 323 1 782 182 35 751 1 938 728
Total comprehensive income for the period 523 425 523 425
Transfer to capital reserve
Debenture premium amortised 11 208 (11 208) -
Profit on sale of investment properties, net of capital gains tax 194 (194) -
Dividends paid (517) (517)
Reserves of associate 13 121 (13 121) -
Transfer of fair value adjustments
Investment properties, net of deferred taxation 463 176 (463 176) -
Interest rate derivatives, net of deferred taxation 21 381 (21 381) -
Balances at 31 August 2013 4 472 127 725 2 279 860 49 579 2 461 636
SEGMENTAL INFORMATION
The group earns revenue in the form of property rentals. On a primary basis the group is organised into four major operating segments:
Office
Retail
Industrial
Residential
2013 2012
Rental income by sector: R'000 % R'000 %
Offices 64 024 25,9 58 401 23,0
Retail 93 823 37,4 82 955 37,0
Industrial 20 422 8,3 18 293 10,4
Residential 69 221 28,0 67 485 29,6
Total rental income 247 490 100,0 227 134 100,0
Recoveries 63 817 54 507
Revenue 311 307 281 641
Further segmental results cannot be allocated on a reasonable basis due to the "mixed use" of certain of the properties. It is the company's policy to invest
predominantly in properties situated in the Gauteng area, therefore the company has not reported on a geographical basis.
NOTES TO THE FINANCIAL STATEMENTS
Basis of preparation
The condensed consolidated interim financial information has been prepared in accordance with the framework, concepts and the measurement and recognition
requirements of International Financial Accounting Standards ("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 as required by IAS 34: Interim Financial Reporting,
the JSE Listings Requirements and the requirements of the South African Companies Act (71 of 2008), as amended.
These condensed consolidated results were prepared under the supervision of Mr AK Stein CA(SA), in his capacity as group financial director.
The accounting policies adopted and methods of computation are consistent with those applied in the financial statements for the year ended 28 February 2013.
Deferred taxation: Premium's application to the JSE Limited ("JSE") for Real Estate Investment Trust ("REIT") status has been approved by the JSE. Accordingly,
Premium will qualify as a REIT from the commencement of its next financial year, being 1 March 2014. In determining the aggregate capital gain or capital loss
of a REIT or a controlled property company for purposes of the Income Tax Act 1958, as amended, any capital gain or capital loss determined in respect of the
disposal of immovable property; a share in a REIT; or a share in a controlled property company, must be disregarded. This resulted in a reversal of the group's
deferred taxation liability amounting to R351,3 million at 1 March 2013. It is anticipated that no capital gains tax will become payable on the disposal of any
of the company's investment properties prior to 1 March 2014.
Related party: City Property Administration Proprietary Limited is responsible for the property and asset management of the group.
Commitments: Premium has capital commitments in an amount of R53,3 million relating to various redevelopments of properties.
Subsequent events: There have been no significant subsequent events that require reporting.
Contingent liability: Premium has issued guarantees of R5,0 million to City of Tshwane Metropolitan Municipality for the provision of services to its subsidiaries.
Premium has provided a suretyship to Nedbank Property Finance in favour of its associate company, IPS. At 31 August 2013, the suretyship amounted to R224,2 million.
Independent review by external auditors: These condensed consolidated financial statements have not been reviewed or audited by our auditors, Grant Thornton.
Directors: S Wapnick# (Chairman), JP Wapnick* (Managing), AK Stein* (Financial), MZ Pollack#, DP Cohen+, PJ Strydom^, GH Kemp^
* Executive director ^ Independent non-executive director # Non-executive director + Lead independent non-executive director
Registered office: CPA House, 101 Du Toit Street, Pretoria, 0002, PO Box 15, Pretoria, 0001, Tel: (012) 319-8781 Fax: (012) 319-8812
Transfer secretaries: Computershare Limited (Reg. No: 2000/006082/06), 70 Marshall Street, Johannesburg 2001, PO Box 61051, Marshalltown, 2107,
Tel: (011) 370-7700 Fax: (011) 688-7712
Property administrator, asset manager and company secretary: City Property Administration (Pty) Limited,
Email: premium@cityprop.co.za, Website address: www.premiumproperties.co.za
www.premiumproperties.co.za
Date: 23/10/2013 07:10:00 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.