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FAIRVEST PROPERTY HOLDINGS LIMITED - Condensed consolidated results for the six months ended 31 December 2013

Release Date: 06/03/2014 14:00
Code(s): FVT
Wrap Text
Condensed consolidated results for the six months ended 31 December 2013

FAIRVEST PROPERTY HOLDINGS LIMITED
Incorporated in the Republic of South Africa 
(Registration number: 1998/005011/06) 
Linked unit code: FVT   
ISIN: ZAE000034658 
(“Fairvest” or “the company” or “the group”)
Approved as a REIT by the JSE


CONDENSED CONSOLIDATED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2013


- 6.9% reduction in vacancies, bringing the total vacancies to 8.4% of the total lettable GLA

- Achieved distribution of 6.75 cents per linked unit

- Conversion of Fairvest to a REIT approved by JSE with effect from 1 July 2013 

- R235 million new equity raised in January 2014 through the Vukile acquisition


Condensed consolidated statements of financial position

                                                                     Unaudited      Unaudited        Audited
                                                                   31 December    31 December        30 June
                                                                          2013           2012           2013
                                                                         R’000          R’000          R’000
Assets      
Non-current assets                                                     799 716        403 289        774 810 
Investment property                                                    790 400        356 737        770 307 
Investment property under construction                                       –         41 040              –  
Equipment                                                                  537             24            354 
Operating lease asset                                                    8 779          5 488          4 149 
Current assets                                                          17 931         38 237         10 269
Trade and other receivables                                             13 300          8 462          7 506 
Taxation                                                                     –              –             59 
Cash and cash equivalents                                                4 631         29 775          2 704 
Total assets                                                           817 647        441 526        785 079 

Equity and liabilities      
Equity and reserves      
Ordinary share capital                                                   3 598          2 890          3 598      
Non-current liabilities                                                768 336        423 498        743 363 
Linked unit debentures and premium                                     546 814        386 862        543 309 
Interest-bearing borrowings                                            221 515         28 461        200 047 
Deferred taxation                                                            7          8 175              7 
Current liabilities                                                     45 713         15 138         38 118 
Taxation                                                                     7            406             – 
Trade and other payables                                                45 706         14 732         38 118 
Total equity and liabilities                                           817 647        441 526        785 079 


Condensed consolidated statements of comprehensive income
   
                                                                     Unaudited      Unaudited        Audited
                                                                   6 months to    6 months to   12 months to
                                                                   31 December    31 December        30 June
                                                                          2013           2012           2013 
                                                                         R’000          R’000          R’000 
Gross revenue                                                           62 724         10 384         54 184 
Rental income – contractual                                             57 871         10 313         50 376 
              – straight-line accrual                                    4 853             71          3 808 
Operating profit                                                        38 492          4 836         31 520 
Fair value adjustment to listed investments                                  –            284            284 
Fair value adjustment to investment properties                               –         12 991         67 745 
Fair value adjustment to debentures                                     (3 505)         4 436        (57 407)
Finance cost                                                            (9 535)          (118)        (7 048)
Foreign exchange gains                                                       –             42             42 
Investment revenue                                                         354            979          4 998 
Profit before debenture interest                                        25 806         23 450         40 134 
Debenture interest                                                     (24 284)        (5 551)       (27 255)
Profit after debenture interest                                          1 522         17 899         12 879 
Capital raising expenses                                                (1 522)       (12 900)       (16 126)
Profit/(loss) before taxation                                                –          4 999         (3 247)
Taxation                                                                     –         (4 999)         3 247 
Comprehensive income attributable to shareholders                            –              –              –      
Profit and total comprehensive income attributable to:      
– Owners of the parent                                                       –              –              –
– Non-controlling interest                                                   –              –              –
      
Reconciliation between profit attributable to shareholders 
 and headline earnings per linked unit      
Shares are traded as part of linked units      
Profit attributable to linked shareholders*                                  –              –              –
Capital raising expenses                                                 1 522         12 900         16 126 
Fair value adjustment to investment properties (net of taxation)             –        (10 568)       (67 745)
Headline and diluted headline earnings/(loss) 
 attributable to shareholders                                            1 522          2 332        (51 619)
Fair value adjustment to debentures                                      3 505         (4 436)        57 407 
Debenture interest                                                      24 284          5 551         27 255 
Headline and diluted headline profit 
 attributable to linked unitholders                                     29 311          3 447         33 043      
Distribution (debenture interest)*      
Special interest distribution per linked unit (cents)                        –           3.71           3.71 
Interim interest distribution per linked unit (cents)                     6.75           0.86           0.86 
Final interest distribution per linked unit (cents)                          –              –           6.00 
Total interest distribution per linked unit (cents)                       6.75           4.57          10.57 
      
Earnings per share      
Basic and diluted earnings per share (cents)**                               –              –              – 
Headline and diluted headline earnings/(loss) per share (cents)**          0.4            2.0          (24.5)
Headline and diluted headline earnings per linked unit (cents)**           8.1            3.0           15.7 
Net asset value per linked unit and net tangible 
  asset value per linked unit (cents)***                                 153.0          134.8          151.9 
Linked unit statistics (excluding treasury shares)      
Linked units in issue                                              359 762 307    289 048 021    359 762 307 
Effective linked units in issue                                    359 762 307    288 974 019    359 762 307 
Weighted average number of linked units                            359 762 307    116 651 643    210 840 698 

*   Debenture interest is calculated on the capital at a variable rate equal to 99.9% of the net profit of the company before taxation, 
    but after adjusting for extraordinary income and expenditure, capital gains and losses, and capital expenditure.

**  Headline earnings have been presented in accordance with IAS 33. The linked unit structure of the group whereby every shareholder 
    is a debenture holder, coupled with the terms of the Debenture Trust Deed which states that 99.9% of profits are attributable to 
    debenture holders, results in the benefits of improved trading which would be ordinarily attributable to shareholders being expensed 
    in the income statement as a fair value adjustment to debentures and debenture interest. This results in no profit being attributable 
    to ordinary shareholders.

*** Linked unit debentures are included in the net asset value and net tangible asset value calculation.


Condensed consolidated statements of cash flows

                                                                     Unaudited      Unaudited        Audited
                                                                   6 months to    6 months to   12 months to
                                                                   31 December    31 December        30 June
                                                                          2013           2012           2013 
                                                                         R’000          R’000          R’000 
Cash inflow/(outflow) from operating activities                            552        (23 207)        (1 859)
Cash outflow to investing activities                                   (20 093)      (250 214)      (567 995)
Cash inflow from financing activities                                   21 468        278 461        547 823 
Net increase/(decrease) in cash and cash equivalents                     1 927          5 040        (22 031)
Cash and cash equivalents at beginning of period                         2 704         24 735         24 735 
Cash and cash equivalents at end of period                               4 631         29 775          2 704 


Condensed consolidated statements of changes in equity  
  
                                                                         Share       Retained 
                                                                       capital         income          Total 
                                                                         R’000          R’000          R’000 
Balance at 1 July 2012                                                     857              –            857 
Total comprehensive income for the period                                    –              –              – 
Linked units issued                                                      2 033              –          2 033 
Balance at 31 December 2012                                              2 890              –          2 890 
Total comprehensive income for the period                                    –              –              – 
Disposal of treasury units                                                   1              –              1 
Linked units issued                                                        707              –            707 
Balance at 30 June 2013                                                  3 598              –          3 598 
Total comprehensive income for the period                                    –              –              – 
Balance at 31 December 2013                                              3 598              –          3 598 


Statements of changes in linked unit debentures
      
                                                                   Linked unit    Linked unit 
                                                                     debenture      debenture 
                                                                       capital        premium          Total 
                                                                         R’000          R’000          R’000 
Balance at 1 July 2012                                                     857        142 474        143 331 
Net fair value adjustment                                                    –         (4 436)        (4 436)
Linked units issued                                                      2 033        245 934        247 967 
Balance at 31 December 2012                                              2 890        383 972        386 862 
Net fair value adjustment                                                    –         61 843         61 843 
Disposal of treasury units                                                   1              –              1 
Linked units issued                                                        707         93 896         94 603 
Balance at 30 June 2013                                                  3 598        539 711        543 309 
Net fair value adjustment                                                    –          3 505          3 505 
Balance at 31 December 2013                                              3 598        543 216        546 814 


Condensed consolidated segment report
                                                                                                             
                                                                                                                 Reconciling
                                           Eastern         Free                      KwaZulu-        Western          items/
                                              Cape        State        Gauteng          Natal           Cape   (Eliminations)          Total
                                             R’000        R’000          R’000          R’000          R’000           R’000           R’000
For the 6 months ended 31 December 2013              
Revenue – external customers                 4 502        1 539         14 955         17 292         19 583               –          57 871 
Intersegmental revenue                           –            –              –              –              –               –               – 
Operating profit                             3 651        1 308          8 814         15 535         14 058          (4 874)         38 492 
Total assets                                39 989       18 822        187 575        308 085        250 241          12 935         817 647 
              
For the 6 months ended 31 December 2012              
Revenue – external customers                 4 103          606            611          3 899          1 094               –          10 313 
Intersegmental revenue                           –            –              –              –             81             (81)              – 
Operating profit                             3 319          414            201          2 431            736          (2 265)          4 836 
Total assets                                35 813        7 771         11 393        181 327        167 106          38 116         441 526 
              
For the 12 months ended 30 June 2013             
Revenue – external customers                 8 345        1 283          9 228         17 496         14 024               –          50 376 
Intersegmental revenue                           –            –              –              –            191            (191)               – 
Operating profit                             6 334          815          5 946         14 262         10 324          (6 161)         31 520 
Total assets                                38 872        8 452        195 849        290 114        243 820           7 972         785 079 


Other segmental information
                     
                                                                     Unaudited      Unaudited        Audited
                                                                   31 December    31 December        30 June
                                                                          2013           2012           2013 
Regional profile based on leasable area      
Eastern Cape                                                              6.3%          14.5%           6.4%
Free State                                                                1.9%           4.4%           1.9%
Gauteng                                                                  32.1%           5.9%          28.8%
KwaZulu-Natal                                                            29.1%          30.3%          32.0%
Western Cape                                                             30.6%          44.9%          30.9%

Vacancy profile based on gross lease area      
Gross lease area in metres squared as at end of period*                100 287         44 169        100 578 
Properties held                                                             28             18             28 
Vacancy area in metres squared*                                          8 402          3 743          9 023 
Vacancy area as % of gross lease area                                     8.4%           8.5%           9.0%

Regional vacancy profile      
Eastern Cape                                                                 –              –              –
Free State                                                                   –              –              –
Gauteng                                                                  42.8%          40.6%          37.2%
KwaZulu-Natal                                                            41.8%              –          46.4%
Western Cape                                                             15.4%          59.4%          16.4%

* Gross lease area and vacancy in the prior and current periods has been updated after the remeasurement of various properties and excludes
  unlettable space.


Basis of preparation and accounting policies
The accounting policies applied in the preparation of these condensed consolidated results for the six months ended 31 December 2013, 
which are based on reasonable judgements and estimates, are in accordance with International Financial Reporting Standards (“IFRS”) and 
are consistent with those applied in the annual financial statements for the year ended 30 June 2013. Any other new and amendments to IFRS 
and IFRIC interpretations did not impact on the financial position or performance of the company but has resulted in additional disclosures.
These condensed consolidated results as set out in this report have been prepared in accordance and containing the information required 
by IAS 34 – Interim Financial Reporting, the SAICA Financial Reporting Guidelines as issued by the Accounting Practices Committee, the 
Financial Pronouncements as issued by the Financial Reporting Standards Council, the Companies Act, 71 of 2008, and the Listings
Requirements of the JSE Limited.

These condensed consolidated results for the six months ended 31 December 2013 have been prepared in accordance with the historic cost basis,
except for the measurement of investment properties, debentures and certain financial assets and financial liabilities which are stated at
fair value.

The financial results are presented in rands, which is Fairvest’s functional and presentation currency and have been prepared on a going 
concern basis.

These condensed consolidated results are unaudited and have not been reviewed or reported on by the company’s auditors, 
BDO South Africa Inc.

Estimates and critical judgements
Except for the measurement of investment properties, debentures and certain financial assets and financial liabilities the financial 
statements do not include any material estimates.


COMMENTARY

Introduction

Fairvest’s objective is to build a retail focused property fund weighted toward non-metropolitan shopping centres and including convenience,
community and regional shopping centres, servicing the lower LSM market in high-growth nodes close to commuter networks.

Fairvest’s application to the JSE Limited for Real Estate Investment Trust (“REIT”) status was approved on 3 July 2013. The conversion to 
a REIT is effective from 1 July 2013.

Acquisitions and associated capital raising activities

Linked unitholders are referred to the company’s SENS announcement dated 31 January 2014, regarding the acquisition by the company from 
Vukile Property Fund Limited and its subsidiary MICC Properties Proprietary Limited of a portfolio of four retail properties. This 
transaction was implemented during January 2014 and all properties transferred to the company. 167 873 969 ordinary linked units were 
issued to Vukile and MICC in terms of an acquisition issue at an issue price of R1.40 per ordinary linked unit.

Review of results

Fairvest’s board of directors is pleased to announce a distribution of 6.75 cents per linked unit for the six months ended 31 December 2013
which is in line with expectations.

Vacancies reduced from 9.0% to 8.4% during the period under review. Included in the vacancy percentage is 2.4% which relates to St Georges 
Square and Clubview Corner which are currently being redeveloped and 3.0% to a vacant warehouse (Gingindlovu) currently under contract to 
be disposed of, bringing the effective vacancy percentage to 3.0%. We expect positive letting from the assets currently being redeveloped 
as the redevelopments complete.

Rentals across the portfolio have trended upwards over the six-month period by 9.1% annualised. A strong focus on renewals has seen tenant 
retention levels of 99.6% maintained across the portfolio, with an average escalation on renewals of 10.2%. The weighted average lease term
for the portfolio is 3.6 years. 

During the next 12 months, 20.0% of leases will expire. We do not foresee a material change in our tenant retention figures and anticipate 
renewal escalations to be between 8% and 10%. This gives us the opportunity to extract further value and improve our overall tenant quality.

The total property portfolio increased from R770.3 million in June 2013 to R790.4 million. The increase is mainly as a result of the 
acquisition of the Westville Junction and CHEP land, converting leasehold assets to freehold. All other assets are held at the 30 June 2013
valuation plus capital expenditure incurred. 

                                          Based on                    Based on 
Lease expiry profile                 rentable area         contractual revenue
Vacant                                        8.4%                           –
30 June 2014                                 15.4%                       18.4%
30 June 2015                                 13.6%                       17.0%
30 June 2016                                 14.0%                       14.6%
30 June 2017                                 11.7%                       13.2%
> 30 June 2018                               36.9%                       36.8%

New Developments and upgrades
Clubview Corner
The upgrade of the Spar was successfully completed within the period with turnover figures growing steadily. The balance of the centre 
received a cosmetic upgrade to maximise the lettability of the vacancy and we remain confident that the majority of the space will be 
let within the next 12 months.

Nyanga Junction
Phase 1 of the upgrade was successfully completed with Shoprite commencing trade in October 2013 after the successful negotiation with 
Pick n Pay to terminate their lease. Phase 2 of the upgrade is currently underway and due for completion by June 2014. Rentals on renewal 
have trended upwards at approximately 12%, with a continued focus being increasing the national tenant component within the building. 

Deals House
The property has been rebranded SASSA House and Phase 1 of the upgrade completed, being the installation of new windows and the painting 
of the facades. Phase 2 is currently underway which involves the replacement of the lifts and a new foyer to the property. This is due for 
completion by May 2014.

Borrowings
The interest bearing debt to asset ratio remains low at 27.4% and will reduce further to 22.2% after the Vukile acquisition which was 
funded through the issue of new equity. As at 31 December 2013 46.2% of the debt was fixed at a weighted average rate of 8.7%. The weighted
average all-in cost of funding is 8.3%, with a weighted average maturity of 37 months.

Following the announcement on 29 January 2014 of a 50 basis point increase in interest rates, the total weighted average cost of borrowings
has increased to 8.5%.

Prospects
The forecasted debenture interest distribution of 14.06 cents per linked unit for the 12 months to 30 June 2014, as reported to linked unit
holders in the company’s results for the year to 30 June 2013, has been updated to include the forecasted distribution on the Vukile
acquisition as per the circular sent to linked unit holders on 22 November 2013. The updated distribution for the full year to 30 June 2014
is 13.70 cents per linked unit and management is confident that this will be achievable. This forecast assumes that the current economic and
interest rate environment will remain stable, no major corporate failures will occur and tenants will be able to absorb increases in 
municipal and utility costs. This forecast is the responsibility of the board of Fairvest and has not been reviewed or reported on by the 
auditors.

Distribution
The board has approved and declared an interim gross distribution of 6.75 cents per linked unit for the 6 month period ended 
31 December 2013, payable to linked unitholders registered as such at the close of business on Friday, 28 March 2014. 

Last date to trade linked units cum distribution       Thursday, 20 March 2014
Linked units commence trading ex distribution            Monday, 24 March 2014
Record date                                              Friday, 28 March 2014
Payment date                                             Monday, 31 March 2014

Linked units may not be dematerialised or rematerialised between Monday, 24 March 2014 and Friday, 28 March 2014, both days inclusive.

In accordance with Fairvest’s status as a REIT, linked unitholders are advised that the distribution meets the requirements of a 
“qualifying distribution” for the purposes of section 25BB of the Income Tax Act, 58 of 1962 (“Income Tax Act”). Accordingly, qualifying 
distributions received by local tax residents must be included in the gross income of such linked unitholders (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 linked unitholder. These qualifying distributions are, however, exempt from dividend withholding tax in the hands of South African 
tax resident linked unitholders, provided that the South African resident linked unitholders have provided the following forms to their 
Central Securities Depository Participant (“CSDP”) or broker, as the case may be, in respect of uncertificated linked units, or the transfer
secretaries, in respect of certificated linked units:

a) a declaration that the distribution is exempt from dividends tax; and 
b) a written undertaking to inform the CSDP, broker or the Transfer Secretaries, as the case may be, should the circumstances affecting 
   the exemption change or the beneficial owner cease to be the beneficial owner, 

both in the form prescribed by the Commissioner for the South African Revenue Service. Linked unitholders are advised to contact their CSDP,
broker or the transfer secretaries, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the
distribution, if such documents have not already been submitted.

Qualifying distributions received by non-resident linked unitholders 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 from a REIT were not subject to dividend withholding tax. From 
1 January 2014, any qualifying distribution received by a non-resident from a REIT will be subject to dividend withholding tax at 15%, 
unless the rate is reduced in terms of any applicable agreement for the avoidance of double taxation (“DTA”) between South Africa and the 
country of residence of the linked unitholder. Assuming dividend withholding tax will be withheld at a rate of 15%, the net amount due to 
non-resident linked unitholders will be 5.7375 cents per linked unit. A reduced dividend withholding tax rate in terms of the applicable 
DTA, may only be relied on if the non-resident linked unitholder has provided the following forms to their CSDP or broker, as the case may 
be, in respect of the uncertificated linked units, or the transfer secretaries, in respect of certificated linked units:

a) a declaration that the dividend is subject to a reduced rate as a result of the application of a DTA; and
b) a written undertaking to inform their CSDP, broker or the Transfer Secretaries, as the case may be, should the circumstances affecting 
   the reduced rate change or the beneficial owner cease to be the beneficial owner, 

both in the form prescribed by the Commissioner for the South African Revenue Service. Non-resident linked unitholders are advised to 
contact their CSDP, broker or the Transfer Secretaries, as the case may be, to arrange for the abovementioned documents to be submitted 
prior to payment of the distribution if such documents have not already been submitted, if applicable.

Local tax resident linked unitholders as well as non-resident linked unitholders are encouraged to consult their professional advisors 
should they be in any doubt as to the appropriate action to take. 

Linked units in issue at the date of declaration of interim distribution: 527 636 277
Fairvest income tax reference number 9205/066/06/1

Directorate
Martin Epstein resigned as a director with effect from 15 January 2014, having served on the board since January 2010. Martin was a valued 
board member and the Board wishes him well in his future endeavours.

Subsequent events
Other than the Vukile acquisition which was implemented in January 2014 the directors of Fairvest are not aware of any other material 
matter or circumstance arising between 31 December 2013 and this report which may materially affect the financial position of the group 
or the results of its operations. 

Appreciation
We extend our appreciation to our directors, management and staff for their valued efforts as well as our advisors and linked unitholders 
for their continuing belief in and support of Fairvest.

For and on behalf of the board

Fairvest Property Holdings Limited

6 March 2014
Cape Town


Registered office
Office 18003, 18th Floor, Triangle House, 22 Riebeek Street, Cape Town, 8001, Postnet Suite 30, Private Bag X3, Roggebaai, 8012

Transfer secretaries
Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001, PO Box 61051, Marshalltown, 2107

Auditor
BDO South Africa Incorporated Registered Auditors  

Sponsor
PSG Capital Proprietary Limited 

Preparer of financial statements
BJ Kriel 

Directors
Executive: DM Wilder (Chief Executive Officer), BJ Kriel (Chief Financial Officer), AJ Marcus (Chief Operating Officer)

Non-executive: JF du Toit (Chairman), PJ van der Merwe (Lead Independent Non-executive)#, LW Andrag#, KR Moloko#   

# independent

Company secretary
SecCorp Secretarial Services Proprietary Limited

www.fairvest.co.za
Date: 06/03/2014 02:00:00 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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