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PREMIUM PROPERTIES LIMITED - Unaudited interim results of the group for the six months ended 31 August 2013

Release Date: 23/10/2013 07:10
Code(s): PMM     PDF:  
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'). 
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