Wrap Text
Unaudited Interim Results For The Six Months Ended 28 February 2014
VIVIDEND INCOME FUND LIMITED
(Incorporated in the Republic of South Africa under registration number 2010/003232/06)
JSE code: VIF ISIN: ZAE000150918
("Vividend" or "the company")
UNAUDITED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 28 FEBRUARY 2014
Highlights
- 24,00 cents per linked unit in line with forecast expectations
- R2,2 billion property portfolio
- R141,5 million investment in new properties during the year
- 34% loan to value
- R5,21 net asset value per linked unit
Statement of comprehensive income
Unaudited Unaudited Audited
six months six months 12 months
28 Feb 28 Feb 31 Aug
2014 2013 2013
Notes R'000 R'000 R'000
Revenue, excluding straight-line lease
income adjustment 129 693 94 045 190 616
Straight-line lease income adjustment 11 800 4 562 8 086
Revenue 141 493 98 607 198 702
Property expenses (27 545) (19 099) (41 706)
Net property income 113 948 79 508 156 996
Other operating expenses (8 894) (7 410) (12 460)
Operating profit 105 054 72 098 144 536
Fair value adjustments 5 951 7 597 7 018
Finance costs (32 006) (18 242) (40 428)
Capital costs - (125) (2 095)
Investment income 3 067 1 866 9 749
Profit before debenture interest and taxation 82 066 63 194 118 780
Debenture interest (64 400) (51 590) (106 417)
Profit before taxation 17 666 11 604 12 363
Taxation (1 415) (2 271) 11 295
Total comprehensive income 16 251 9 333 23 658
Distribution per linked unit (cents) 24,00 27,00 50,00
Interim 24,00 27,00 27,00
Final - - 23,00
Basic earnings and diluted earnings per share (cents) 2 6,07 4,88 10,97
DISTRIBUTION PER LINKED UNIT
Calculation of distributable earnings
Profit before debenture interest and taxation 82 066 63 194 118 780
Adjusted for:
Straight-line lease income adjustment (11 800) (4 562) (8 086)
Fair value adjustment - investment property - (5 853) (1 944)
Fair value adjustment - financial instruments (5 951) (1 744) (5 074)
Amortisation of debenture discount/premium 85 430 646
Capital costs - 125 2 095
Distributable earnings 64 400 51 590 106 417
Distribution comprises:
Debenture interest (64 400) (51 590) (106 417)
Ordinary dividend - - -
Total distribution (64 400) (51 590) (106 417)
Linked units in issue (000's) 268 332 191 075 267 678
Weighted average linked units in issue (000's) 267 772 191 075 215 586
Distribution to linked unitholders 64 400 51 590 106 417
Interim 64 400 51 590 51 590
Final - - 54 827
cents cents cents
Distributable earnings per linked unit 24,00 27,00 50,00
Distribution per linked unit 24,00 27,00 50,00
Reconciliation - earnings to distributable earnings
Basic earnings are reconciled to headline earnings as follows:
Earnings attributable to equity shareholders 16 251 9 333 23 658
Fair value adjustment - investment property, net of deferred taxation - (4 760) (13 824)
Amortisation of debenture discount/premium 85 430 646
Headline earnings before debenture interest 16 336 5 003 10 480
Debenture interest 64 400 51 590 106 417
Headline earnings attributable to linked unitholders 80 736 56 593 116 897
Fair value adjustment - financial instruments, net of
deferred taxation (4 536) (1 418) (2 567)
Straight-line lease income adjustment, net of deferred taxation (11 800) (3 710) (10 008)
Capital costs - 125 2 095
Distributable earnings attributable to linked unitholders 64 400 51 590 106 417
Headline earnings per linked unit (cents) 3 30,15 29,62 54,22
Statement of changes in equity
Ordinary
share Retained
capital earnings Total
R'000 R'000 R'000
Balance as at 31 August 2012 2 21 638 21 640
Shares issued - - -
Total comprehensive income - 9 333 9 333
Balance as at 28 February 2013 2 30 971 30 973
Shares issued 1 1
Total comprehensive income - 14 325 14 325
Balance as at 31 August 2013 3 45 296 45 299
Shares issued * - -
Total comprehensive income - 16 251 16 251
Balance at 28 February 2014 3 61 547 61 550
* Nominal amount
Statement of financial position
Unaudited Unaudited Audited
six months six months 12 months
28 Feb 28 Feb 31 Aug
2014 2013 2013
R'000 R'000 R'000
ASSETS
Non-current assets 2 232 772 1 536 008 2 035 854
Property assets 2 221 502 1 536 008 2 029 741
Fair value of investment property for accounting purposes 2 191 318 1 521 148 2 011 357
Straight-line lease income adjustment 30 184 14 860 18 384
Other non-current assets 11 270 - 6 113
Current assets 120 003 86 522 240 346
Trade and other receivables 39 305 20 185 68 543
Cash and cash equivalents 80 698 66 337 171 803
Total assets 2 352 775 1 622 530 2 276 200
EQUITY AND LIABILITIES
Shareholders' interest 61 550 30 973 45 299
Ordinary share capital 3 2 3
Retained income 61 547 30 971 45 296
Non-current liabilities - debentures 1 337 392 932 303 1 334 036
Linked unitholders' interest 1 398 942 963 276 1 379 335
Other non-current liabilities 780 427 570 503 751 908
Other non-current financial liabilities 778 944 556 868 751 839
Deferred taxation liability 1 483 13 635 69
Current liabilities 173 406 88 751 144 957
Trade and other payables 55 900 35 669 34 216
Other current financial liabilities 53 106 1 492 49 175
Linked unitholders for distribution 64 400 51 590 61 566
Total equity and liabilities 2 352 775 1 622 530 2 276 200
Linked units in issue (000's) 268 332 191 075 267 768
cents cents cents
Net asset value per linked unit 521 504 515
Net asset value per linked unit, excluding deferred tax liability 522 511 515
Statement of cash flows
Unaudited Unaudited Audited
six months six months 12 months
28 Feb 28 Feb 31 Aug
2014 2013 2013
R'000 R'000 R'000
Cash flows from operating activities
Cash received from tenants 216 151 132 834 223 124
Cash paid to suppliers (75 641) (71 788) (146 648)
Cash generated from operations 140 511 61 046 76 476
Investment income 3 067 1 866 9 749
Finance costs paid, excluding accrued expenses (29 111) (18 242) (40 428)
Distributions to linked unitholders (61 566) (49 680) (94 531)
Net cash inflow/(outflow) from operating activities 52 901 (5 010) (48 734)
Cash flows from investing activities
Investment in investment property (34 677) (9 831) (25 986)
Disposal of investment property - - 16 251
New acquisitions of business undertakings (91 535) (155 100) (649 314)
Net cash outflow from investing activities (126 212) (164 931) (659 049)
Cash flows from financing activities
Non-current loans raised 27 899 155 083 349 014
Current loans (repaid)/raised (48 964) - 47 860
Proceeds from the issue of linked units 3 271 - 401 517
Net cash (outflow)/inflow from financing activities (17 794) 155 083 798 391
Net (decrease)/increase in cash and cash equivalents (91 105) (14 858) 90 608
Cash and cash equivalents at the beginning of the period 171 803 81 195 81 195
Cash and cash equivalents at the end of the period 80 698 66 337 171 803
Segmental analysis
Retail Commercial Industrial Head office Total
R'000 '000 R'000 R'000 R'000
Statement of comprehensive income February 2014
Revenue, excluding straight-line lease income adjustment 91 708 31 955 6 030 - 129 693
Straight-line lease income adjustment 9 178 (380) 3 002 - 11 800
Total revenue 100 886 31 575 9 032 - 141 493
Net property income 80 075 24 949 8 924 - 113 948
Assets
Investment property 1 496 190 553 593 141 535 - 2 191 318
Straight-line lease income adjustment 22 954 4 228 3 002 - 30 184
Other assets 19 469 11 374 5 654 94 776 131 273
Total assets 1 538 613 569 195 150 191 94 776 2 352 775
Total liabilities (33 042) (18 032) (50 000) (852 759) (953 833)
Statement of comprehensive income February 2013
Revenue, excluding straight-line lease income adjustment 48 061 45 984 - - 94 045
Straight-line lease income adjustment 2 485 2 077 - - 4 562
Total revenue 50 546 48 061 - - 98 607
Net property income 35 617 43 891 - - 79 508
Assets
Investment property 705 448 815 700 - - 1 521 148
Straight-line lease income adjustment 10 151 4 709 - - 14 860
Other assets 9 375 10 254 - 66 893 86 522
Total assets 724 974 830 663 - 66 893 1 622 530
Total liabilities (16 994) (17 696) - (1 556 867) (1 591 557)
Analysis by usage (m2) Retail Commercial Industrial Total % of total
Number of properties 12 9 3 24
Vacant GLA 6 979 11 539 - 18 518 8
GLA occupied by A tenants 73 166 56 193 22 169 151 528 63
GLA occupied by B tenants 20 548 3 854 - 24 402 10
GLA occupied by C tenants 28 794 15 959 - 44 753 19
GLA available 129 487 87 545 22 169 239 201 100
Lease expiry profile to
28 February (GLA) (m2) Retail Commercial Industrial Total % of total
Vacant 6 979 11 539 - 18 518 8
Month to month 11 148 8 082 1 085 20 315 9
2014 4 656 7 055 - 11 711 5
2015 30 819 11 454 1 126 43 399 18
2016 34 917 44 695 - 79 612 33
2017 12 956 1 567 5 224 19 747 8
>2017 28 012 3 153 14 734 45 899 19
Total 129 487 87 545 22 169 239 201 100
Weighted average lease duration (years) 2,90 2,21 6,29 2,95
Weighted average lease escalation (%) 7,82 7,44 8,20 7,74
Reconciliation of vacant GLA (m2) Retail Commercial Industrial Total
Vacant as at 1 September 2013 6 630 12 073 - 18 703
Expired during the period 8 973 2 682 - 11 655
Re-let during the period (5 359) (2 087) - (7 446)
Tenanted during the period (3 265) (1 129) - (4 394)
GLA vacant as at 28 February 2014 6 979 11 539 - 18 518
Analysis by m2 Retail Commercial Industrial Total
Gross rental per m2 per month 93,81 87,97 90,90 91,59
Notes to the financial statements
1. Basis of preparation
The interim financial statements have not been reviewed or audited by the company's independent external auditors. These
interim financial statements have been prepared in accordance with the measurement and recognition requirements of
International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guide as issued by the Accounting Practices
Committee, the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the presentation and
disclosure requirements of IAS 34: Interim Financial Reporting, the requirements of the Companies Act 2008, as amended, and the
JSE Listings Requirements. This report was compiled under the supervision of Robert Amoils CA(SA), the financial director.
The company's accounting policies as set out in the audited financial statements for the year ended 31 August 2013 have been
consistently applied in the current year.
2. Basic, diluted and headline earnings per share
The directors are of the view that the disclosure of earnings per share, while obligatory in terms of IAS 33, Earnings per Share,
and the JSE Listings Requirements, is not meaningful to investors as the shares are traded as part of a linked unit and all the
revenue earnings are distributed in the form of debenture interest.
In addition, headline earnings include fair value adjustments for financial liabilities and accounting adjustments required to
account for lease income on a straight-line basis, as well as other non-cash accounting adjustments that do not affect distributable
earnings. The calculation of distributable earnings and the distribution per linked units as set out above is more meaningful.
3. Headline earnings per linked unit
In terms of Circular 3/2012, issued by SAICA, the fair value adjustments on investment property are added back in the calculation
of headline earnings per linked unit. The Circular does not make provision for the fair value adjustment on other non-current
financial liabilities to be added back.
4. Subsequent events
Linked unitholders are referred to the joint cautionary announcement released on SENS by the company and Arrowhead Properties Limited (Arrowhead)
on 24 February 2014 in which unitholders were advised that a) Arrowhead, being the owner of 31,7% of the company's linked units in issue,
had acquired the entire issued share capital of Vividend Management Group Proprietary Limited, being the external management company of
Vividend, with effect from 1 March 2014; b) Arrowhead had commenced discussions with the company regarding a potential scheme of arrangement
to acquire the linked units in Vividend that it did not already own; c) with effect from 1 March 2014, M Jacobson, G Rabinowitz, M Sandak-Lewin
and A Witt had resigned from the board of the company and d) by no later than 31 May 2014, A Jacobson, R Amoils and B Rubenstein would resign
from the board of the company. Accordingly, Vividend unitholders were advised to exercise caution when trading in the company's securities
until further announcements were made in this regard.
Linked unitholders are further referred to the joint announcement released on SENS by the company and Arrowhead on 1 April 2014 in which
linked unitholders were advised of a) a firm intention by Arrowhead to make an offer to acquire all the linked units in Vividend not already
held by Arrowhead by way of one of more indivisibly linked schemes of arrangement in terms of section 114 of the Companies 71 of 2008, as amended
(the scheme); b) a general offer made by Arrowhead to acquire all linked units in Vividend not already held by Arrowhead should certain of
the conditions precedent of the scheme not be fulfilled or waived where applicable by Arrowhead and c) a withdrawal of Vividend's
cautionary announcement.
By order of the board
Vividend Income Fund Limited
4 April 2014
Directors' commentary
INTRODUCTION
Vividend is a Real Estate Investment Trust listed on the JSE Limited (JSE) under Financial Services - Real Estate Investment Trusts, with a market
capitalisation, as at 28 February 2014, of R1 293 million and a portfolio of 24 directly owned properties valued at R2 221 million.
The company's primary objective is to identify value and value enhancing opportunities within target sectors of the South African property market
by using defined investment strategies that have a goal of creating a diverse and stable portfolio of assets capable of generating secure, consistent
and continually escalating free cash flows. Linked unitholders are entitled, through the debenture portion of their linked units, to the after-tax
profits of the company, excluding capital profits and losses and after adjusting for all non-cash items. The interest entitlement is calculated and
accrues to linked unitholders on the last days of February and August of each year and is payable within 90 days of accrual date, or such shorter
period as prescribed in the JSE Listings Requirements. The company does not distribute capital profits.
HIGHLIGHTS FOR THE PERIOD
Financial results
The distribution per linked unit for the six-month period ended 28 February 2014, being 24,00 cents, is a) in line with the forecasted distribution
per linked unit published in Forecast A of Appendix 2 of the Combined Claw-back and Rights Offer Circular dated 13 May 2013 (the Rights Offer Circular)
b) 4,4% higher than the actual distribution per linked unit for the immediately preceding six-month period ended 31 August 2013, being 23,00 cents and
c) 11,1% lower than the actual distribution per linked unit for the comparable period ended 28 February 2013, being 27,00 cents.
Net property income
The increase in revenue was due, in most part, to a) the inclusion of revenue from the Access Park and BEKA Industrial Parks Acquisitions which became
effective on 27 August 2013 and 1 December 2013, respectively b) the full year inclusion of revenue from the Sasol Kent Street acquisitions which became
effective on 10 December 2012 and c) contractual rental escalations within the property portfolio, which were 7,74% as at 28 February 2014. Earnings
associated with the property portfolio were in line with forecast expectations.
The ratio of property expenses to revenue increased marginally from 19,4% to 19,5% while the ratio of other operating expenses to revenue dropped
from 7,5% to 6,3% due to cost savings associated with the asset management fee arising from a lower average price per Vividend linked unit.
Fair value adjustments
Revaluation of the property portfolio, as at 28 February 2014, resulted in an upward revision of R11,8 million, including the straight-line lease
income adjustment, to R2 221 million. Interest-bearing borrowings were fair valued downwards by R5,1 million using the yield curve, as applied to the
applicable swaps at 28 February 2014, while the put and call options applicable to the 10% of the Access Park Property not owned by Vividend, as at
28 February 2014, resulted in a net positive revaluation of R0,9 million.
Finance costs
Finance costs increased by 75% to R32 million (2013: R18 million). This was due to the introduction of various borrowings secured by the Company to
facilitate growth in the property portfolio.
Arrears
At 28 February 2014, tenant arrears amounted to R7,7 million (2013: R6,0 million) with a provision of R3,6 million (2013: R2,0 million) having been
raised for potential bad debts. For the period ended 28 February 2014, the bad debts expense amounted to R0,6 million (2013: R0,1 million).
Vacancy levels
The company's vacancy levels, as a percentage of gross lettable area (GLA), as at 28 February, were:
Retail % Commercial % Total %
2014 2,9 4,8 7,7
2013 3,9 1,6 5,5
The increase in the vacancy levels within the property portfolio were due, in most part, to the expiry of a material lease within the Owl Street
Milpark Property on 1 May 2013.
Acquisitions, disposals and commitments
Vividend concluded the BEKA Industrial Parks Acquisition, with effect from 1 December 2013, for a total purchase consideration of R141,5 million,
R50 million of which is still owing to the sellers, adding 22 169m2 of Industrial GLA to the property portfolio. No other property acquisitions were
concluded during the reporting period.
The company disposed of no properties during the reporting period.
As at 28 February 2014, the company had capital commitments outstanding in respect of approved redevelopment expenditure of R18 million. These commitments
will be financed from available cash resources and committed borrowings.
In terms of the Asset Management Agreement concluded on 27 October 2010, the company is committed to acquire the Asset Manager on 18 November 2015 for
an amount equivalent to 4% of the enterprise value of the company.
Borrowings
As at 28 February 2014 the loan to value ratio (LTV) of the company, which is measured by dividing the nominal value of interest-bearing borrowings
(net of cash not allocated to linked unitholders at 28 February 2014) by the fair value of property assets was 33,9% (2013: 34,4%).
Other current financial liabilities include an amount of R50 million which will be payable to the sellers of the BEKA Industrial Parks acquisition
on transfer of the BEKA Industrial Parks Properties into the name of the company. The said amount, which does not accrue interest, will be settled
from committed borrowings secured by the company.
Share and debenture capital
The authorised share capital of the company is R50 000, divided into 5 000 000 000 ordinary shares of R0,00001 each. Each ordinary share is linked
to a variable rate debenture of R4,99999 each. The ordinary shares and debentures trade as linked units on the JSE Limited (JSE). In terms of the
debenture trust deed, the interest payable on the debenture component of the linked unit is equal to after-tax profits of the company, excluding
capital profits and losses and after adjusting for all non-cash items.
As at 28 February 2014, there were 268 331 688 linked units in issue (2013: 191 075 436).
Net asset value
The net asset value per linked unit increased by 3,4% to R5,21 (2013: R5,04) due to a) the upward revaluation of the property portfolio as at
28 February 2014 and b) an issue price of R5,40 applicable to the linked units issued on 26 April 2013 and 3 June 2013 in terms of the
Combined Claw-back and Rights Offer Circular dated 13 May 2013 (the Rights Offer) and c) favourable tax dispensations applicable to gains made
by Real Estate Investment Trusts on the sale of investment property which resulted in the elimination deferred taxation liabilities applicable
to the revaluation of property assets above their base cost. The net asset value per linked unit, excluding the deferred tax liability, increased
by 2,2% to R5,22 (2013: R5,11) due to a) the upward revaluation of the property portfolio as at 28 February 2014 b) an issue price of R5,40 applicable
to the linked units issued on 26 April 2013 and 3 June 2013 in terms of the Rights Offer.
Prospects
Should a) existing economic conditions continue to prevail and b) the property portfolio perform in line with current forecast expectations, the
distribution per linked unit for the year ended 31 August 2014 is expected to be in line with Forecast A in Appendix 2 of the Rights Offer Circular,
being 50,00 cents per linked unit.
Declaration of interest distribution number 7
Notice is hereby given that a gross interim distribution of 24,00 cents per linked unit has been declared and approved by the board, in accordance
with the debenture trust deed, for the period 1 September 2013 to 28 February 2014, payable to linked unitholders recorded in the register of the
company on Friday, 2 May 2014. The last day to trade cum distribution will be Wednesday, 23 April 2014 and trading will commence ex distribution
on Thursday, 24 April 2014.
In respect of dematerialised linked unitholders, the distribution will be transferred to the Central Security Depository Participant (CSDP) accounts
or brokers' accounts on Monday, 5 May 2014. Certificated linked unitholder distribution payments will be posted on or about Monday, 5 May 2014.
No dematerialisation or rematerialisation of linked units may take place between Thursday, 24 April 2014, and Friday, 2 May 2014, both days inclusive.
In accordance with Vividend'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 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 20,40 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.
Vividend linked units in issue at the date of declaration of interim distribution: 268 331 688
Vividend income tax reference number: 9142063180
Directors
KK Combi (Chairman)#, A Jacobson (Chief Executive Officer), R Amoils (Financial Director), AB Rubenstein*, S Slom#, B Bank#
* Non-executive # Independent
Registered office
Unit 6 Rozenhof Office Court
20 Kloof Street, Gardens, Cape Town 8001
Postnet Suite 137, Private Bag X1, Vlaeberg 8018
Transfer secretaries
Link Market Services South Africa Proprietary Limited
Asset manager
Vividend Management Group Proprietary Limited
Sponsor
PSG Capital Proprietary Limited
VIVIDEND INCOME FUND LIMITED
(Incorporated in the Republic of South Africa under registration number 2010/003232/06)
JSE code: VIF ISIN: ZAE000150918
Approved as REIT by the JSE
www.vividend.co.za
Date: 04/04/2014 12:00:00 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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