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Reviewed condensed provisional consolidated financial results for the year ended 28 February 2014
PREMIUM PROPERTIES LIMITED
("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
REVIEWED CONDENSED CONSOLIDATED FINANCIAL RESUTS FOR THE YEAR ENDED 28 FEBRUARY 2014
- Distribution up by 19,4% to 150,7 cents per linked unit
- Investment assets of R5,3 billion
- Upgrade in GCR credit rating to A-
- Increase in net asset value of 18,5% to 2 010 cents per linked unit
- Obtained REIT status effective from 1 March 2014
- Weighted average cost of debt of 8,2% per annum
DIRECTORS' COMMENTARY
Introduction
Premium is a Real Estate Investment Trust ("REIT") listed in the "Diversified REITS" subsector of the JSE Limited ("JSE").
Premium holds a large residential portfolio and also invests in the retail, industrial and office property sectors. 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.
Review of results
Premium has delivered a total distribution for the year ended 28 February 2014 of 150,7 cents per linked unit (2013: 126,2)
representing growth in distributions to linked unitholders of 19,4%. The interim distribution was 66,2 cents per linked unit
(2013: 60,0) with a final distribution of 84,5 cents per linked unit (2013: 66,2).
Rental income and net rental income increased by 13,1% (2013: 10,7%) and 13,7% (2013: 8,3%) respectively, compared with the
prior comparative period. The residential portfolio, comprising 28,8% 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 quality accommodation.
Bad debt write-offs and provisions decreased during the period from 1% to 0,5% of total tenant income. Arrears and doubtful debt
provisions remain at acceptable levels and no significant deterioration is anticipated. Despite rapidly escalating utility charges,
the percentage of cost recovery in respect of electricity charges improved during the period due to increased focus on energy management
initiatives.
A saving in finance costs was achieved mainly due to the issuing of further notes on favourable terms persuant to the establishment of the
R1 billion Domestic Medium-term Note Programme during March 2012.
Property and investment portfolio
Premium completed three major projects during the year and a fourth is under construction. The total cost of these projects is approximately
R124,3 million of which an amount of R89,6 million had already been spent by 28 February 2014.
Details of these projects are:
- The upgrade of Prinsman Place, a residential property which is situated in the Pretoria CBD, was completed in September 2013. The
total cost of the project is R8 million.
- The redevelopment of the Demar flats, a block of flats situated in the Pretoria CBD. The total cost of the project is R7,3 million.
The upgrade of the residential units was completed in August 2013. The residential units are fully let.
- The construction of an additional 87 residential units and 87 parking bays at The Fields in Hatfield, Pretoria. The project was
completed in February 2014 at a total cost of R68,6 million. The project is expected to yield a return of 8,3% once fully let.
- The redevelopment of the mixed-use property Silver Place, situated in Silverton, Pretoria. The first phase consisted of the
revamp of the residential section as well as the construction of an additional 82 units and was completed in early 2013. The second
phase consists of the redevelopment of the retail component which is expected to be completed in early 2015. The total cost of the
retail project is R40,4 million.
Premium acquired and took transfer of two properties during the year. The Hangar which is situated in Centurion was transferred on
31 July 2013. The Hangar, comprising six blocks of residential accommodation, has enhanced Premium's residential property portfolio.
The total purchase consideration amounted to R114,7 million and is expected to yield an initial return of 8,0%.
Volksbank situated in the Pretoria CBD was transferred to Premium on 8 November 2013 for a purchase consideration of R19,4 million.
It is anticipated that the construction will commence in October 2014 and will consist of 141 residential units, parking and ground floor
retail space at a total estimated project cost of R129,7 million. The project is expected to yield an initial return of 8,0% once fully let.
IPS Investments Proprietary Limited ("IPS")
During the year Premium's associate company IPS repurchased City Property Administration Proprietary Limited's ("City Property") shares
and shareholders loan account in IPS ("City Property's interest in IPS") for a cash consideration of R127,5 million and R48,1 million
respectively. Prior to the repurchase Octodec Investments Limited ("Octodec") and Premium each held 40% of the issued share capital of
IPS and City Property held the remaining 20%. Following the repurchase, Octodec's and Premium's shareholdings in IPS increased to 50% each.
IPS also acquired the balance of the 50% shareholding in Vuselela Investments Proprietary Limited ("Vuselela") from its co-shareholder.
Premium's investment in IPS provided strong growth with profits earned from its associate company, excluding fair value gains, increasing to
R33,6 million. This is an increase of 51,7% on the prior period.
The performance of IPS was positively impacted by the improved occupancy levels achieved during the period at the mixed-use developments of
Kempton Place and Tali's Place. An increase in interest income was recorded as a result of increased funding to IPS to fund further investments
including the purchase of the 50% interest from its co-shareholder in Vuselela and City Property's interest in IPS. The construction of Jeff's
Place, a greenfield residential development situated in the Pretoria CBD, commenced in February 2012. The date of completion was March 2014.The
total cost of the project is R141,4 million and it is anticipated that this will yield an initial return of 9,2% once fully let.
Vacancies
Vacancies in the Premium portfolio at 28 February 2014, including properties held for redevelopment, amounted to 18,6% (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 % % %
28 February 2014
Offices 263 378 11,5 (3,2) 8,3
Retail 218 562 3,2 (1,4) 1,8
Industrial 115 656 3,0 (0,2) 2,8
Residential 164 059 0,9 (0,6) 0,3
Total 761 655 18,6 (5,4) 13,2
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. During the year, 6 296 m2 of office space was let. As
anticipated the vacancies are at a number of properties that are under development or housed for purposes of future development opportunities and which were
acquired in recent years by Premium with large vacancies and where no or little consideration was paid for the vacant space which offered redevelopment
opportunities. As the opportunities arise the value of the vacancies is being realised.
Borrowings
Premium's loan to value ratio at 28 February 2014 was 36,1% of the total value of the investment portfolio as against 31,6% at 28 February 2013. Premium
entered into various fixed interest rate and swap rate agreements the details of which are set out in the table below. In terms of these, interest rates
in respect of 58,3% of borrowings have been fixed with expiry dates in 2017 and 2018. As at 28 February 2014, the weighted average annual cost of debt was
8,2% with unutilised banking facilities in an amount of R528 million.
Premium increased its debt capital market ("DCM") issuance to R775 million, or 40,7% 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.
Details of the group's borrowings are:
Nominal amount Interest rate
R'000 %
Fixed rate borrowings expiry date
May 2018 160 000 12,15
160 000 12,15
Swap maturity
February 2017 400 000 7,66
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
Total 950 000 8,13
Total hedged borrowings 1 110 000 8,71
Variable rate borrowings 793 755 7,50
Total borrowings 1 903 755 8,21
Revaluation of property portfolio
It is the group's policy to perform directors' valuations of all the properties at the interim stage and at year-end.
At 28 February 2014 the entire portfolio was externally valued by independent external registered valuers in anticipation of the proposed merger of Octodec
and Premium. The internal and external valuation is based on the income capitalisation method which is consistent with the basis used in prior years.
The internal valuation of the portfolio of R4,7 billion represents an increase in the valuation amounting to R67,0 million or 1,6% for the twelve-month
period ended 28 February 2014. The valuation of the portfolio by the external valuer, amounts to R4,6 billion, which is 1,3% less than the directors' valuation.
Net asset value ("NAV")
The increase in NAV of 18,5% to 2 010 cents per linked unit as at 28 February 2014 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 serves on the audit, risk, social, ethics & remuneration
and nominations committees. Gerard brings to the board a wealth of knowledge and experience in the areas of corporate finance, black economic empowerment and
labour relations.
Cautionary
Linked unitholders are referred to the joint announcement released on SENS on 7 April 2014 by Octodec and Premium and are reminded that the company is still
trading under cautionary in respect of the proposed merger with Octodec.
Prospects
Premium is considering a number of larger 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 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 next six-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 40 AND INTEREST PAYMENT ("the distribution")
Notice is hereby given that dividend number 40 of 0,42 cents (2013: 0,33 cents) per ordinary share (out of income reserves) and interest of 84,08 cents per
debenture (2013: 65,87 cents) has been declared for the period 1 September 2013 to 28 February 2014, payable to linked unitholders recorded in the register
on Friday, 30 May 2014.
Salient dates relating to the dividend:
Last date to trade "CUM" distribution Friday, 23 May 2014
Commence trading "EX" distribution Monday, 26 May 2014
Record date Friday, 30 May 2014
Payment date Monday, 2 June 2014
No dematerialisation or rematerialisation of linked unit certificates may take place between Monday, 26 May 2014 and Friday, 30 May 2014, both days inclusive.
The dividend component of the distribution is subject to dividends withholding tax at 15%. In determining dividends withholding tax, secondary tax on
companies ("STC") credits must be taken into account. The STC credits utilised as part of this declaration amount to R658 447,06 being 0,42 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 0,42 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
6 May 2014
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited
Year to Year to
% 28 February 28 February
R'000 change 2014 2013
Revenue 658 020 585 918
Earned on contractual basis 13,1 650 621 575 112
Straight-line lease adjustment 7 399 10 806
Operating costs (286 125) (254 649)
Net property income 371 895 331 269
Earned on contractual basis 13,7 364 496 320 463
Straight-line lease adjustment 7 399 10 806
Administrative costs (33 431) (27 515)
Operating profit 11,4 338 464 303 754
Amortisation of debenture premium 22 825 23 797
Fair value adjustments of investment properties 67 036 204 860
Fair value adjustments on interest rate derivatives 38 642 (20 133)
Profit from operations 466 967 512 278
Profit on sale of investment properties 886 851
Investment income 69 017 39 239
Interest received 2 877 1 856
Associate 66 140 37 383
Profit from ordinary activities before finance costs 536 870 552 368
Finance costs 10,3 (131 164) (118 880)
Interest on borrowings (134 308) (125 200)
Interest capitalised 3 144 6 320
Profit before debenture interest 405 706 433 488
Debenture interest 19,4 (235 081) (196 860)
Profit before taxation 170 625 236 628
Taxation charge
Current taxation - (190)
Deferred taxation 345 347 (31 961)
Total comprehensive income for the year attributable to equity holders 152,3 515 972 204 477
Weighted linked units in issue ('000) 156 773 156 773
Linked units in issue ('000) 156 773 156 773
Basic and diluted earnings per share (cents) 152,3 329,1 130,4
Basic and diluted earnings per linked unit (cents) 87,1 479,1 256,0
Distribution per linked unit (cents)
Dividends 0,75 0,63
Interest 149,95 125,57
Total 19,4 150,70 126,20
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited
28 February 28 February
R'000 2014 2013
ASSETS
Non-current assets 5 275 000 4 691 091
Investment properties 4 660 604 4 320 082
Plant and equipment 6 727 8 111
Lease costs 16 902 16 744
Operating lease assets 53 028 45 629
Derivative financial instruments 9 529 -
Investment in associate 528 210 300 525
Current assets 39 484 30 202
Non-current assets held for sale - 7 770
Total assets 5 314 484 4 729 063
EQUITY AND LIABILITIES
Share capital and reserves 2 453 666 1 938 728
Share capital and premium 4 472 4 472
Non-distributable reserve 2 411 800 1 898 505
Retained earnings 37 394 35 751
Non-current liabilities 1 781 738 1 626 491
Debentures and premium 698 091 720 916
Interest-bearing borrowings 1 077 187 524 655
Derivative financial instruments - 29 113
Deferred taxation 6 460 351 807
Current liabilities 1 079 080 1 163 844
Interest-bearing 826 568 955 537
Non-interest-bearing 120 697 105 041
Linked unitholders for distribution 131 815 103 266
Total equity and liabilities 5 314 484 4 729 063
Linked units in issue ('000) 156 773 156 773
Net asset value per linked unit (cents) 2 010 1 696
Net asset value per linked unit (cents) - before providing for deferred tax 2 015 1 921
Loan to investment value ratio (%) 36,1 31,6
DISTRIBUTABLE EARNINGS
Reviewed Audited
Year to Year to
% 28 February 28 February
R'000 change 2014 2013
Revenue
Earned on contractual basis 13,1 650 621 575 112
Operating costs (286 125) (254 649)
Net property income 13,7 364 496 320 463
Administrative costs (33 431) (27 515)
Operating profit 13,0 331 065 292 948
Investment income
Interest received 2 877 1 856
Associate 33 573 22 137
Distributable profit before finance costs 16,0 367 515 316 941
Finance costs 10,3 (131 164) (118 880)
Unitholders' distributable earnings 19,3 236 351 198 061
Weighted linked units in issue ('000) 156 773 156 773
Distributable earnings per linked unit (cents) 19,3 150,8 126,3
Distribution per linked unit (cents) 19,4 150,7 126,2
RECONCILIATION - EARNINGS TO DISTRIBUTABLE EARNINGS
Reviewed Audited
Year to Year to
% 28 February 28 February
R'000 change 2014 2013
Earnings attributable to equity holders 515 972 204 477
Amortisation of deemed debenture premium (22 825) (23 797)
Profit on sale of investment property (886) (320)
Equity reserves
Associate (32 567) (15 246)
Fair value adjustments
Investment properties (67 036) (204 860)
Deferred tax (351 339) 38 106
Headline and diluted earnings/(loss) before debenture interest 41 319 (1 640)
Debenture interest 235 081 196 860
Headline and diluted earnings attributable to linked unitholders 276 400 195 220
Straight-line lease adjustment (7 399) (7 761)
Fair value adjustment on interest rate derivatives (38 642) 14 496
Deferred taxation adjustments 5 992 (3 894)
Distributable earnings 236 351 198 061
Headline earnings per linked unit (cents) 41.6 176,3 124,5
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Audited
Year to Year to
28 February 28 February
R'000 2014 2013
CASH FLOW FROM OPERATING ACTIVITIES
Net rental income from properties 331 065 292 948
Adjustment for:
Depreciation and amortisation 12 690 7 197
Working capital change 13 955 2 725
Cash generated from operations 357 710 302 870
Investment income 23 705 7 260
Finance costs (131 164) (118 880)
Distribution to linked unitholders paid (207 567) (188 128)
Net cash inflow from operating activities 42 684 3 122
CASH FLOW FROM INVESTING ACTIVITIES
Investing activities (467 242) (181 347)
Disposal of investment property 8 575 5 153
Net cash outflow used in investing activities (458 667) (176 194)
CASH FLOW FROM FINANCING ACTIVITIES
Increase in interest-bearing borrowings 429 690 172 937
Net cash generated from financing activities 429 690 172 937
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 13 707 (135)
Cash and cash equivalents at beginning of year (5 937) (5 802)
Cash and cash equivalents at end of year 7 770 (5 937)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Capital Fair value Retained
R'000 capital reserve reserve earnings Total
Balance at 28 February 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 - 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 year - - - 515 972 515 972
Transfer to capital reserve
Debenture premium amortised - 22 825 - (22 825) -
Profit on sale of investment properties - 886 - (886) -
Dividends paid - - (1 034) (1 034)
Reserves of associate - - 32 567 (32 567) -
Transfer of fair value adjustments
Investment properties - - 418 375 (418 375) -
Interest rate derivatives - - 38 642 (38 642) -
Balances at 28 February 2014 4 472 140 034 2 271 766 37 394 2 453 666
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:
28 February 28 February
2014 2013
Rental income by segment: R'000 % R'000 %
Offices 126 480 24,6 113 527 24,6
Retail 202 166 39,3 171 968 37,2
Industrial 37 701 7,3 43 883 9,5
Residential 148 433 28,8 132 343 28,7
Total rental income 514 780 100,0 461 721 100,0
Recoveries 135 841 113 391
Revenue 650 621 575 112
Further segment results cannot be allocated on a reasonable basis due to the "mixed use" of certain of the properties. It is the company's philosophy 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 financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for provisional
reports and the requirements of the Companies Act of South Africa. The Listings Requirements require provisional reports to be prepared in accordance with
the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards ("IFRS") and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and to also, as a minimum,
contain the information required by IAS 34 Interim Financial Reporting.
The accounting policies applied in the preparation of these condensed consolidated financial statements are in terms of IFRS and are consistent with those applied
in the previous annual financial statements. The group adopted the new, revised or amended accounting pronouncements as issued by the International Accounting
Standards Board which were effective and applicable to the group from 1 March 2013, none of which had any material impact on the group's financial results.
These condensed consolidated financial statements have been prepared under the historical cost convention except for investment properties which are measured at fair
value and certain financial instruments which are measured at either fair value or amortised cost. The fair value of investment properties is determined by directors
with reference to market-related information. Financial instruments measured at fair value include the derivatives (level 2 measurement using information based
indirectly on quoted prices). There were no transfers between level 1 and level 2 during the year. There have been no material changes in judgements or estimates of
amounts reported in previous reporting periods.
These condensed consolidated results were prepared under the supervision of Mr AK Stein CA(SA), in his capacity as group financial director.
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.
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 R213,6 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 28 February 2014, the suretyship amounted to R224,2 million.
Independent review by external auditors: These condensed consolidated financial statements for the year ended 28 February 2014 have been reviewed by our auditors,
Grant Thornton who express an unmodified review conclusion. A copy of their review report is available for inspection at the company's registered office together
with the financial statements identified in the auditor's report.
PREMIUM PROPERTIES LIMITED ("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
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
Sponsor: Nedbank Capital
Transfer secretaries: Computershare Investor Services Proprietary 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 Proprietary Limited, Email: premium@cityprop.co.za
www.premiumproperties.co.za
Date: 06/05/2014 01:12:00 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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