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Consolidated interim results for the 6 months ended 30 November 2013
Tower Property Fund Limited
(formerly Reftin 1004 Proprietary Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2012/066457/06)
JSE share code: TWR
ISIN: ZAE000179040
(Approved as a REIT by the JSE)
(“Tower” or “the fund” or “the group”)
CONSOLIDATED INTERIM RESULTS
for the 6 months ended
30 November 2013
- Fund successfully listed as first new
REIT on JSE
- Maiden distribution of 33 cents
exceeds pre-listing forecast
- Headline earnings of R35.3 million
- Annualised income return of 9.6%
outperforms sector
- Portfolio expanded to 27 properties
- Greening strategy gaining traction
- 6 Star Green Building rating expected
on Sandton office property
PROFILE
Tower is a property fund which listed on the
JSE on 19 July 2013, becoming the country's
first real estate investment trust (“REIT”) to
list. The group owns a diversified portfolio of
27 commercial and retail properties valued
at R1.64 billion, located mainly in Gauteng
(51% by value) and in the Western Cape
(46% by value). The fund is underpinned
by a 'greening' strategy and managed by a
highly experienced property team.
- Basis of preparation
The unaudited consolidated interim financial results
are prepared in accordance with the information
required by IAS34: Interim Financial Reporting,
the SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee and the
requirements of the Companies Act of South Africa
and the JSE Listings Requirements. The accounting
policies adopted and methods of computation are in
accordance with International Financial Reporting
Standards (“IFRS”), and are consistent with those
applied in the financial statements for the year
ended 31 May 2013.
The following standards have been applied for
the first time as they became effective during the
current period:
- IFRS10 - Consolidated financial statements
- IFRS12 - Disclosure of interests in other entities
- IFRS13 - Fair value measurement
These consolidated interim results were prepared
under the supervision of Mr F Jenkings CA (SA), in
his capacity as group Chief Financial Officer.
These consolidated interim financial results have
not been reviewed or reported on by the group's
auditors.
Fair value of financial instruments recognised in
the statement of financial position.
The group measures fair values using the fair value
hierarchy that reflects the significance of the inputs
used in making the measurements.
- Level 1: Quoted prices (unadjusted) in an
active market for an identical instrument.
- Level 2: Valuation techniques based on
observable inputs, either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category
includes instruments valued using: quoted
market prices in active markets for similar
instruments; quoted prices for identical or similar
instruments in markets that are considered less
than active; or other valuation techniques where
all significant inputs are directly or indirectly
observable from market data.
- Level 3: Valuation techniques using significant
unobservable inputs. This category includes
all instruments where the valuation technique
includes inputs not based on observable data and
the unobservable inputs have a significant effect
on the instrument's valuation. This category
also includes instruments that are valued
based on quoted prices for similar instruments
where significant unobservable adjustments or
assumptions are required to reflect differences
between the instruments.
The valuation of interest rate swaps uses only observable market data and requires little
management judgement and estimation.
The availability of observable market prices and model inputs reduces the need for
management judgement and estimation and also reduces the uncertainty associated
with the determination of fair values. The interest rate swaps are valued using the
mark-to-market valuations, excluding transactions costs, as determined by Investec.
Interest rate swaps are classified as level 2 financial instruments and the fair value of
interest rate swap assets at 30 November 2013 is equal to R413 583.
Current swaps entered into:
End Effective rate Notional Amount
20 July 2015 6.04% R344 million
Dividend distribution
Notice is hereby given that dividend number 1 of 33 cents per share has been declared
in respect of the 6 months ended 30 November 2013. In accordance with Tower's status
as a REIT, shareholders are advised that the distribution meets the requirements of
a “qualifying distribution” for the purposes of section 25BB of the Income Tax Act, No.
58 of 1962 (“Income Tax Act”). Accordingly, qualifying distributions received by local tax
residents must be included in the gross income of such shareholders (as a non-exempt
dividend in terms of section 10(1)(k)(aa) of the Income Tax Act), with the effect that
the qualifying distribution is taxable as income in the hands of the shareholder. These
qualifying distributions are however exempt from dividend withholding tax.
Qualifying distributions received by non-resident shareholders will not be taxable as
income and instead will be treated as ordinary dividends but which are exempt in terms
of the usual dividend exemptions per section 10(1)(k) of the Income Tax Act. It should be
noted that until 31 December 2013 qualifying distributions received by non-residents
were not subject to dividend withholding tax. From 1 January 2014, any qualifying
distribution will be subject to dividends tax.
This distribution, similarly to any other normal distribution, may have tax implications
for resident as well as non-resident shareholders and shareholders are therefore
encouraged to consult their professional advisors should they be in any doubt as to the
appropriate action to take.
The dividend is payable to Tower shareholders in accordance with the timetable set out
below:
2014
Last day to trade cum dividend distribution Friday, 7 February
Shares trade ex dividend distribution Monday, 10 February
Record date Friday, 14 February
Payment date Monday, 17 February
No dematerialisation or rematerialisation of Tower shares may take place between
Monday, 10 February 2014 and Friday, 14 February 2014, both days inclusive.
Shares in issue at date of declaration: 114 395 963.
Tower income tax reference number: 9607/564/16/9
By order of the Board
Tower Property Fund Limited
23 January 2014
- Strategy
Tower aims to generate competitive investment performance by adding value through
active property asset management and the cost-effective greening of properties in
the portfolio. Greening of properties is expected to result in reduced occupation costs
for tenants, reduced vacancies over time as a result of the lower occupation costs and
higher returns for shareholders.
The investment strategy is to expand the portfolio by targeting mainly
medium-sized (R30 million to R200 million) properties and to ensure a diversified
sectoral and geographic portfolio. The longer term objective is for the portfolio to
comprise approximately 50% in retail space, followed by office (30%) and industrial (20%).
As a Cape-based fund, and recognising the relative stability of property performance
in the region, management will maintain a substantial exposure to the Western Cape,
while the greatest concentration of assets is likely to be in Gauteng, with lower exposure
in KwaZulu-Natal.
- Financial and operating
performance
Tower has produced a pleasing operational
and financial performance, generating
headline earnings of R35.3 million for the
six months ended 30 November 2013 (“the
period”). The directors have declared a
maiden distribution of 33 cents per share
for the period, exceeding the forecast
of 31.4 cents contained in the group's
pre-listing statement.
The results represent an annualised
income return to investors of 9.6%,
outperforming the listed sector by 2.8%.
The fund's net asset value grew by close
to 4% in the period to R9.07 per share.
The results include a negative fair value
adjustment on the acquisition of the
portfolio based on valuations conducted
by independent valuers as set out in the
pre-listing statement.
During the period the fund has taken on
the management of the 27 properties,
reduced operating costs across the
portfolio and engaged with all strategic
tenants. The fund is managed by part
of the highly experienced property team
which was previously responsible for
listing and managing Paramount Property
Fund.
Cape Quarter, the flagship property in
the portfolio located in Green Point,
Cape Town, has been actively marketed
as a destinational shopping centre to
drive foot traffic and attract national
tenants. Tenants in Cape Quarter have
reported increased turnover since Tower's
ownership of the property and a number
of very well supported community events
have been held at the centre which
has increased public awareness of the
property. Vacancies have reduced by 64%
since Tower took ownership of the asset
in June 2013.
The level of vacancies in the portfolio
increased to 11.5% at the end of the period
which was largely in line with expectations,
and covered by rental guarantees. These
vacancies were for a small number of
tenants in three of the properties in the
portfolio. Management has focused
intensely on attracting long-term tenants
to reduce vacancies across the portfolio
and has been successful in letting 4 746m²
of new space and 6 154m² of renewable
space. At the date of this report, vacancies
have been reduced to 8.5%.
- Greening the portfolio
Tower is committed to a strategy of
'greening' to increase the competitiveness
and values of buildings in the portfolio,
initially focusing on strategies with no or
low upfront capital costs. The focus is on
improving energy efficiency which serves
to reduce operational costs and lower
carbon footprints making properties more
valuable and marketable to prospective
tenants. The reduced demand for energy
also mitigates against inevitable electricity
tariff hikes.
The first of several planned lighting
retrofit programmes across the portfolio
has been initiated at the Cape Quarter.
This programme is expected to reduce
operating expenditure by more than
R800 000 per annum, with low capital cost
to the property, as well as lower kilowatt
hours by 69% and reduce carbon emissions
by 69%.
Tower's portfolio includes a 5 Star Green
Star rated property, with the highest level
6 Star rating expected on Block F, Upper
Grayston Drive in Sandton, which was
recently completed.
- Acquisitions (post period end)
After the end of the reporting period
Tower concluded the acquisition of two
small properties with a combined value of
R34.3 million. These properties are
19 Section Street, Paarden Eiland, at a cost
of R22.6 million (the purchase price being
settled by 52% debt and 48% Tower shares),
and Section 3, Constantia View, at a cost
of R11.7 million (to be settled by 75% debt
and 25% Tower shares). The latter property
is the final section of the Constantia View
Office Park which is owned by Tower.
- Borrowings
Tower has loan facilities with Investec
Bank and Standard Bank totaling
R661.2 million as at 30 November 2013.
Interest rates are hedged on 52% of
the total loan facility and the weighted
average rate of interest is 7.53% for the
portfolio. Based on investment properties
valued at R1.64 billion, the loan to value
(“LTV”) ratio of the fund was 40.2% at the
end of the period. The fund has a targeted
LTV of 40%.
- Prospects
Management continues to focus on
the acquisition of strategic properties
to ensure the sustainability of the fund
and to enhance returns for investors.
Commercial property totaling R300
million is currently under negotiation
with a pipeline of a further R500 million
in acquisitions being evaluated. Tower
will continue to upgrade and add value
to buildings over time, as well as seeking
'greenable' properties as the portfolio is
expanded.
Management aims to reduce debt costs
by funding a portion of the debt through
the debt capital markets as the fund
grows. Management will look to further fix
the fund's debt exposure on a sustainable
basis.
The directors remain committed to
meeting the earnings and dividend
forecasts for the 2014 financial year,
as detailed in the group's pre-listing
statement.
TOWER PROPERTY FUND LIMITED
Consolidated statement of comprehensive income
Unaudited
6 months ended
30 November 2013
R'000
Revenue
Contractual rental income 79 393
Straight line rental income accrual 5 839
85 232
Net property operating expenses (10 221)
Net property income 75 011
Other income
Administration expenses (4 650)
Net operating profit 70 361
Fair value adjustments on investment properties (68 506)
Profit from operations 1 855
Finance costs (24 510)
Interest received 1 105
Capital raising expenses (9 571)
Profit before taxation (31 121)
Taxation (2 075)
Total comprehensive loss for the period (33 196)
Basic and diluted earnings per share - weighted average
shares in issue (cents) (40)
Consolidated statement of financial position
Unaudited as at
30 November 2013
R'000
Assets
Non-current assets 1 642 357
Investment properties 1 636 518
Straight line rental accrual 5 839
Current assets 98 225
Trade and other receivables 35 455
Cash and cash equivalents 62 770
Total assets 1 740 582
Equity and liabilities
Equity 1 025 309
Stated capital 1 060 014
Retained income (34 705)
Liabilities
Non-current liabilities
Secured financial liabilities 660 519
Current liabilities 54 754
Secured financial liabilities 752
Current taxation 2 075
Trade and other payables 51 927
Total equity and liabilities 1 740 582
Shares in issue (000) 113 092
NAV per share (cents) 906,6
Consolidated statement of cash flows
Cash generated from operations 69 922
Interest received 1 105
Finance costs (24 510)
Net cash from operating activities 46 517
Acquisition of investment property (1 705 024)
Net cash from investing activities (1 705 024)
Proceeds from issue of linked units 1 076 147
Capital raising expenses (16 141)
Proceeds from secured financial liabilities 661 271
Net cash from financing activities 1 721 277
Net movement in cash and cash equivalents 62 770
Cash and cash equivalents at beginning of period 0
Cash and cash equivalents at end of period 62 770
Consolidated statement of changes in equity
Stated Retained
Capital Income Total
R'000 R'000 R'000
Balance at 1 March 2012 0
Issue of 845 000 shares 8 8
Loss for the period ended 31 May 2013 (1) (1)
Balance at 31 May 2013 8 (1) 7
Issue of 42 131 330 shares effective 1 June 2013 420 313 420 313
Issue of 36 348 892 shares effective 19 July 2013 318 661 318 661
Issue of 11 613 052 shares effective 15 August 2013 156 131 156 131
Issue of 14 990 615 shares effective 27 August 2013 147 706 147 706
Issue of 2 333 589 shares effective 1 September 2013 23 336 23 336
Issue of 1 149 425 shares effective 31 October 2013 10 000 10 000
Capital raising expenses (16 141) (16 141)
Total comprehensive loss for the period (33 196) (33 196)
Dividend paid (1 508) (1 508)
Balance at 30 November 2013 1 060 014 (34 705) 1 025 309
Calculation of headline earnings and distributable
earnings reconciliation
Total comprehensive loss for the period (33 196)
Adjusted for:
Change in fair value of investment properties 68 506
Headline earnings 35 310
Adjusted for:
Straight line rental income accrual (5 839)
Distributable profit 29 471
Adjusted for:
Capital raising expenses 9 571
Amortisation of debt raising fees 662
Distributable earnings 39 704
Basic and diluted headline earnings per share -
weighted average shares in issue (cents) 42,5
Basic earnings per share - shares in issue at
period end (cents) (29,4)
Headline earnings per share - shares in issue
at period end (cents) 31,2
Distributable earnings per share - shares in
issue at period end (cents) 35,1
Dividend per share (cents) 33,0
Weighted average number of shares in issue 82 994 339
Number of shares in issue at period end 113 092 004
Segmental analysis
Retail Office Total
R'000 R'000 R'000
Property assets 387 232 1 255 125 1 642 357
Segment liabilities 188 329 472 942 661 271
Revenue (excluding straight line lease adjustments) 22 300 57 093 79 393
Net operating costs (4 744) (5 477) (10 221)
Segment profit 17 556 51 616 69 172
Straight line lease adjustment 5 839
Non property related expenses (4 650)
Net operating profit 70 361
Notes:
1) No comparative figures are disclosed as this is the
company's first period of operation.
2) Related party transactions included:
Asset management fees paid to Tower Asset
Managers Proprietary Limited (R'000) 3 922
Property management fees paid tp Spire Property
Management Proprietary Limited (R'000) 2 955
Registered address 2nd Floor, Spire House, Tannery Park, 23 Belmont Road,
Rondebosch, 7700 (PO Box 155, Rondebosch, 7701)
Contact details +27 (0)21 685 4020 / info@towerpropertyfund.co.za
Company secretary Ovland Management Services Proprietary Limited
Auditors Mazars
Sponsor Java Capital
Transfer secretaries Link Market Services South Africa Proprietary Limited
Directors A Dalling* (Chairman), M Edwards (Chief Executive Officer),
J Bester*, K Craddock, M Evans*, F Jenkings
(Chief Financial Officer), B Kerswill, A Magwentshu*,
N Milne*, R Naidoo*
* non-executive directors
Date: 23/01/2014 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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