Wrap Text
Audited condensed consolidated results for the year ended 31 March 2014
Vukile Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
JSE share code: VKE
ISIN: ZAE000056370
NSX share code: VKN
Granted REIT status with the JSE
("Vukile" or "the company" or “the group”)
Audited condensed consolidated results for the year ended 31 March 2014
FINANCIAL HIGHLIGHTS
Property portfolio exceeds R10 billion to R10.3 billion up 33.6%
Earnings per linked unit to 229.7 cents down 16.0%
Headline earnings per linked unit to 163.68 cents up 20.2%
Gross property revenue to R1.389 billion up 19.1%
Profit available for distribution R694 up 24.7%
Annualised normalised distribution per linked unit to 126.49 cents up 5.0%
Net asset value per linked unit to 1 498 cents up 9.42%
10 year compound annualised total return to unitholders 23.6%
Return on capital for the year 18.0%
STRATEGIC AND OPERATIONAL HIGHLIGHTS
- Portfolio transformation resulting in a better quality, lower risk portfolio:
*Acquisition of 50% of East Rand Mall for R1.1 billion.
*Acquired R1.04 billion Sovereign Tenant portfolio.
*Successful re-launch of the revamped Randburg Square Shopping Centre.
*Realised R287.0 million of sales of higher risk non-core properties
- Continued strong operational performance of the property portfolio.
*Like-for-like growth in net property revenue of 6.8%.
*Vacancies (as a % of gross rental) down to 6.7% (March 2013: 7.1%).
*Positive reversions across all sectors.
*Weighted average base rentals increased by 12.5% (March 2013: 12.79%).
- Successful completion of one of the most significant empowerment transactions in the listed property sector.
- Special distribution of 13.83 cents per linked unit.
- Loan to value ratio, net of cash, remains conservative at 30.8%, with 88% hedged.
- Strategic investments acquired in Synergy Income Fund Limited (34%) and Fairvest Property Holdings Limited (32.2%).
- Successful debt and equity raised of R507.6 million and R640.0 million respectively.
1.BASIS OF PREPARATION
The audited condensed consolidated financial results for the year ended 31 March 2014 included in this announcement have been
prepared in accordance with the measurement and recognition criteria of International Financial Reporting Standards (IFRS) and
have been prepared in accordance with the presentation and disclosure requirements of IAS 34, Interim Financial Reporting,
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued
by the Financial Reporting Standards Council, the Companies Act and the JSE Limited Listings Requirements.
Except for the new standards adopted as set out below, all accounting policies applied by the group in the preparation of these
financial statements are consistent with those applied by the group in its consolidated financial statements as at and for the
year ended 31 March 2013. The group has adopted the following new standards:
- Amendment of IFRS 7 – Disclosures – Offsetting Financial Assets and Financial Liabilities.
- IFRS 10 – Consolidated Financial Statements.
- IFRS 11 – Joint Arrangements.
- IFRS 12 – Disclosure of Interest in Other Entities.
- IFRS 13 – Fair Value Measurement.
- Amendments to IAS 1 – Presentation of Items of Other Comprehensive Income.
- Revised IAS 27 and 28 – Investments in Associates and Joint Ventures.
- Amendments to IAS 32 – Financial Instrument Presentation.
There was no material impact on the condensed financial statements identified based on management’s assessment of these standards,
apart from additional disclosure required in terms of IFRS 13.
Grant Thornton, the group’s independent auditor, has audited the consolidated annual financial statements of Vukile Property Fund Limited
for the year ended 31 March 2014 from which the condensed consolidated financial results for the year ended 31 March 2014 have
been derived (but which is not itself audited) and have expressed an unqualified audit opinion on the consolidated annual financial statements.
The auditor’s report does not necessarily cover all information contained in this announcement. Shareholders are therefore advised that in order
to obtain a full understanding of the nature of the auditor’s work, they should obtain a copy of that report together with the accompanying financial
information from the registered office of the company.
The preparation of the financial results for the year ended 31 March 2014 was supervised by Michael Potts, CA(SA), financial director.
The directors take full responsibility for the preparation of the condensed consolidated financial results for the year ended 31 March 2014
and for ensuring that the financial and other information has been correctly extracted from the Integrated Annual Report and the audited annual
financial statements for the year ended 31 March 2014.
2.FINANCIAL RESULTS
The group’s net profit available for distribution increased by R137.5 million (24.7%) to R693.9 million for the year ended 31 March 2014
(March 2013: R556.4 million).
SIMPLIFIED INCOME STATEMENT
2014 2013
March March
Group Group
Calculation of distributable earnings R'000 R'000
Net profit from property operations excluding
straight-line income adjustment 847 301 696 488
Net income from asset management business(1) 79 544 63 593
Income from listed property investments 14 862 -
Investment and other income 49 417 25 615
Administrative expenses (34 968) (29 192)
Finance costs (256 605) (194 285)
Taxation (including deferred tax on timing differences) (5 678) (5 772)
Available for distribution 693 873 556 447
(1)Internal asset management and other fees of R25.8 million (2013: R17.6 million) that are
eliminated on consolidation are included as property expenditure above and hence reduces net profit
from property operations and increases fee income generated in the asset management business segment.
Property portfolio results
During the past financial year, the property portfolio performed well in a difficult economic environment. The retail sector continued
to outperform the other sectors while the industrial sector started showing signs of improvement. The commercial sector still battled
with high vacancies in selected properties due to an oversupply of space in those nodes. Vacancies on the total portfolio reduced
slightly from 7.1% to 6.7% (% of gross rentals) while the expiry profile improved substantially compared to previous reporting periods,
thereby reducing the risk in the portfolio significantly. Positive reversions were achieved on renewals across all sectors, but more so
in the retail sector with reversions of 7.8% being achieved. New transactions were concluded higher than budget in the retail sector
but below budget in the industrial and commercial sectors in an effort to reduce vacancies.
Gross rental receivables (tenant arrears)
The size of the property portfolio increased by 33.6% from the previous year. Tenant arrears increased by 22% from the prior year
to R32.5 million at 31 March 2014, which indicates that tenant arrears have been well controlled.
Impairment allowance
The allowance for the impairment of receivables has decreased from R13.7 million at 31 March 2013 to R11.3 million at 31 March 2014,
which is considered adequate at this stage. The impairment allowance represents 0.81% of property revenue (March 2013: 1.17%).
A summary of the movement in the impairment allowance of trade receivables is set out below.
R'000
Impairment allowance 1 April 2013 13 653
Allowance for receivable impairment for the year 2 550
Receivables written off as uncollectable (4 859)
Impairment allowance 31 March 2014 11 344
Bad debt write-off per the income statement 7 867
Asset management business
The asset management business segment generated a net profit of R79.5 million for the year against R63.6 million in the prior year.
This segment’s profit is reported gross of a consolidation adjustment of R25.8 million (March 2013: R17.6 million). Refer to note 1
of the simplified income statement in the table on the previous page. Asset management and other fees received of R48 million were
in line with the previous year. The lower asset management fees from Sanlam were compensated by the higher asset management fees
allocated to the Vukile portfolio following the R1.7 billion property acquisitions by Vukile.
Asset management fees are made up as follows:
2014 2013
R'm R'm
Asset management fees received from Sanlam 22.9 31.8
Asset management fees received in respect of the Vukile portfolio(1) 25.8 17.6
48.7 49.4
(1)These fees are eliminated on consolidation.
Sales commission and other income received of R69.8 million was R23.6 million higher than the previous year, mainly due to the sale
of East Rand Mall for R2.2 billion which generated a sales commission net of expenses of c.R66 million.
The asset management agreement between Sanlam and Vukile in respect of Sanlam’s commercial property portfolio, is evergreen and can
only be terminated in specific circumstances. In March 2014, Sanlam advised Vukile of its intention to repurchase the asset management
agreement and business function due to a change in strategy in relation to its portfolio. The price and terms and conditions for the
business are yet to be finalised between the parties and hence the discussions are still at an early stage.
The valuation methodology has been changed to the calculation of an arms-length selling price based on discounted future cash flows
net of tax in testing for impairment. Previously the internal valuations excluded any tax impact due to the flow through nature of
the net income generated. The asset management business has been valued by the directors at fair value less costs to sell, using a
discounted cash flow methodology, at R242.1 million.
The intangible asset was tested for impairment by comparing the estimated fair value less costs to sell with the carrying value.
The change in assumptions has resulted in a reversal of previous impairment losses of R89.1 million.
Finance costs
Group finance costs, net of interest income (excluding interest receivable of R14.86 million from listed property investments),
have increased by R38.5 million, from R168.7 million to R207.2 million. The increase in finance costs is primarily due to interest
arising on additional debt of R550 million and R535 million raised to partly finance the acquisitions of 50.0% of East Rand Mall
in April 2013 and the Encha Sovereign portfolio which was transferred on 30 September 2013, respectively.
The average cost of finance for the year ended 31 March 2014, based on the average of opening and closing interest-bearing debt,
(excluding development debt), equates to 8.2% with 88% of interest-bearing debt hedged.
Group corporate administrative expenditure
Group corporate administrative expenditure of R35.0 million is R5.8 million higher than the previous year's expenditure of R29.2 million.
Short-term bonus costs under-provided for in the previous year (R3.6 million) and the amortisation of conditional unit plan awards in July 2013
(R1.3 million) were the main contributing factors to this increase.
Distribution
The normalised distribution for the full year ended 31 March 2014 increased by 5% to 126.49 cents per linked unit
(March 2013: normalised 120.44 cents per linked unit), which represents 99.9% of the profit available for distribution.
The distribution for the six months ended 31 March 2014 is 71.675 cents per linked unit which represents a 95% increase over the
comparable six month period.
Treatment of non-recurring income earned
The company advised unitholders previously that, in order to report a more predictable and stable income stream for investors
going forward, abnormal sales commission and other non-recurring income earned would be paid as a separately identified special
distribution in the financial year in which such non-recurring income is earned. The company has reported on its core property
earnings as part of the normalised distribution with any special distributions arising from non-recurring income less non-recurring
expenditure being declared separately therefrom.
To facilitate ease of comparison, the following schedule reflects the distinction between normalised distributions and non-recurring
distributions (sales commission plus other) over the past two financial years.
2014 2013
March March
Cents per Cents per %
linked unit linked unit increase
Normalised distribution 126.49 120.44 5.0
Non-recurring distribution 13.83 11.15 24.0
Total distribution 140.32 131.59 6.6
The bulk of sales commission generated was paid as a R63.0 million special distribution in December 2013 and was clearly distinguished
from the normalised distribution generated by the group.
Summary of group financial performance
2014 2013
March March
Headline earnings of linked units (R’m) 765 561
Net asset value per linked unit (cents) 1 498 1 369
Normalised distributions (cents) 126.49 120.44
Special distributions (cents) 13.83 11.15
Total distributions per linked unit
(normalised and special) (cents) 140.32 131.59
Loan to value ratio (%)(I) 33.10 33.50
Loan to value ratio net of cash (%)(I) 30.80 22.20(III)
Gearing ratio (%)(II) 29.10 31.00
(I)Based on directors valuations of the group’s portfolio at 31 March 2014.
(II)The gearing ratio is calculated by dividing total interest-bearing borrowings by the total assets.
(III)Cash utilised to finance the acquisition of East Rand Mall reduced this percentage in the previous year – refer paragraph below.
Cash flow and net asset value
The bulk of the opening cash balance of R1.267 billion was utilised to acquire 50% of East Rand Mall (R1.1 billion) on 2 April 2013.
Borrowings of R456 million, share issuances of R1.3 billion and proceeds from property sales (R522 million) were primarily utilised to
acquire investment properties and investments in listed property companies totalling R2.2 billion.
The net asset value of the group increased over the reporting period by 9.42%, from 1 369 cents per linked unit to 1 498 cents per
linked unit at 31 March 2014.
Borrowings
The group’s finance strategy is to minimise funding costs and refinance risk. The business objectives that are necessary
to implement this strategy can be summarised as follows:
Strategy Current position
Diversify funders to at least three providers Five funders
Diversify funding structures to incorporate,
where appropriate: % of total
Bank debt 52
Secured bonds 39
Commercial paper 9
100
Spread expiry terms of all interest-bearing debt
to less than 25% per annum Achieved
Hedge or fix >75% of interest-bearing debt 88% hedged
Maximise interest income and limit negative carry Achieved through increase in
access facilities repayable
without break costs
The Global Credit Rating Company (Pty) Ltd (GCR) has recently re-affirmed an AA (RSA) rating on its DMTN programme and an
“A” corporate rating for Vukile.
During March 2014 the company successfully issued R300 million commercial paper, as follows:
Interest
Term rates
Maturity date months R'm %
September 2014 6 75 6.38
March 2015 12 225 6.43
300
The table below sets out the debt that has been hedged/fixed.
Interest rate
VUKILE Borrowings hedges/fixed Hedged
Loans R'000 R’000 %
DMTN Corporate bonds 1 320 000 1 320 000 100
DMTN Commercial paper 300 000 - -
ABSA term facility 290 000 140 000 48
RMB (R1.5 billion Sanlam acquisition) 245 000 245 000 100
SCM (R1.5 billion Sanlam acquisition) 245 000 245 000 100
Standard Bank (Encha acquisition)(I) 184 550 320 000 173
RMB (Encha acquisition) 222 271 150 000 67
Nedbank Limited – fixed rate loan 398 777 398 777 100
Total Interest-bearing(II) 3 205 598 2 818 777 88
Development loans(III) 195 681 - -
Group Total 3 401 279 2 818 777
(I)A further drawdown of R135.45 million is available (total R320 million) once certain mortgage bond issues have been resolved.
(II)The interest on this debt is reflected in the income statement as finance costs.
(III)Interest on development loans is capitalised until the development is completed and does not impact on distributable earnings.
It is not the policy of the company to hedge commercial paper (R300 million), development debt (R196 million) and revolving access
facilities (R72 million).
The company’s borrowing capacity is unlimited in terms of its Memorandum of Incorporation (MOI). The group’s LTV ratio at 31 March 2014
based on external and director’s valuations was 33.5% and 33.10% respectively compared to the bank’s covenants of 50% and the DMTN
covenants of 40% in respect of those properties mortgaged as security under the DMTN programme and 45% in respect of total group debt
as a percentage of group investment properties. The group has unutilised bank facilities of R484 million at 31 March 2014.
Post period refinancing
A R440 million bank facility was replaced with a R500 million bank facility in April 2014 and comprises the following:
Finance
Term costs
Year R'm %
Access facility 1 200 7.06
Term facility(1) 3 200 8.97
Term facility(1) 4 100 9.65
(1)These facilities have been hedged through interest rate swaps.
The above finance costs are inclusive of bank margins, debt raising costs and interest rate hedge costs, where applicable.
Valuation of portfolio
The accounting policies of the group require that the directors value the entire portfolio every six months at fair market value.
Approximately one half of the portfolio is valued every six months, on a rotational basis, by registered independent third party valuers.
The directors have valued the group’s property portfolio at R10.3 billion as at 31 March 2014. This is R2 582 million or 33.6% higher
than the valuation as at 31 March 2013 mainly due to the acquisition of East Rand Mall (50%), the Encha Portfolio, Letlhabile Mall,
Hammarsdale Junction, Ga-Kgapane Modjadji Plaza (30%) and undeveloped land in Midrand. The calculated recurring forward yield for the
portfolio is 9.6%.
The external valuations by Broll Valuation and Advisory Services (Pty) Ltd, part of the CBRE Affilliate Network, and Jones Lang LaSalle (Pty) Ltd
at 31 March 2014 of 47.9% of the total portfolio are in line with the directors’ valuations of the same properties.
3. GROUP PROPERTY PORTFOLIO OVERVIEW
The group property portfolio at 31 March 2014 consisted of 79 properties with a total market value of R10.3 billion and gross
lettable area of 1 144 841m², with an average value of R130 million per property.
The geographical profile as a % of gross income is as follows: Gauteng (58%), KwaZulu-Natal (18%), Western Cape (7%), Namibia (7%),
Free State (4%), Northwest (1%), Limpopo (2%), Mpumalanga (2%) and Eastern Cape (1%).
The portfolio is well-represented in most of the South African provinces and Namibia. 90% of the gross income is derived from
Gauteng, KwaZulu-Natal, Western Cape and Namibia.
The sectoral profile as a % of gross income is as follows: Retail (55%), Offices (25%), Industrial (10%), Sovereign (7%)*,
Hospital (2%) and Motor Related (1%).
*The Sovereign portfolio has only been in the portfolio for 8 months.
The tenant profile as a % of GLA comprised the following: Large national and listed tenants and major franchises (45%),
Government (12%), National and listed tenants, franchised and medium to large professional firms (8%), and Other (35%).
Vukile’s tenant concentration risk is considered to be low as the top 10 tenants account for 33.6% of total GLA. Local, provincial
and national government is the single largest tenant, occupying 12.0% of total GLA with Shoprite the second largest at 5.3% of total GLA.
Top 10 properties by value
Directors’
valuation
at
Rentable 31 March
area 2014 % Valuation
Property Location Sector m² R'000 of total R/m²
East Rand Mall (50%)* Boksburg Retail 31 258 1 029.1 10.0 32 922
Durban Phoenix Plaza Durban Retail 24 363 587.2 5.7 24 101
Pretoria Navarre Building Pretoria Sovereign 47 518 471.2 4.6 9 915
Pretoria De Bruyn Park Pretoria Sovereign 41 418 367.3 3.6 8 869
Randburg Square Randburg Retail 51 326 332.2 3.2 6 472
Cape Town Bellville Louis Leipoldt Bellville Hospital 22 311 328.3 3.2 14 714
Pinetown Pine Crest (50%)* Pinetown Retail 20 056 310.3 3.0 15 473
Soweto Dobsonville Shopping Centre Soweto Retail 23 177 301.9 2.9 13 026
Oshakati Shopping Centre Oshakati Retail 24 632 253.5 2.5 10 290
Johannesburg Isle of Houghton Houghton Offices 28 074 244.2 2.4 8 700
Total Top 10 314 133 4 225.2 41.1 13 450
*Represents an undivided 50% share in this property.
Property portfolio performance
New leases and renewals of 285 098m² with a contract value of R1 060 million were concluded during the year. 91% of leases to be
renewed during the year ended 31 March 2014 were renewed or are in the process of being renewed which is up from 87% in 2013.
Details of large contracts
Contract Lease
value duration
Tenant Property Sector R'm Years
Pick n Pay Daveyton Shopping Centre Retail 62.1 12
DPW: SAPS Pretoria Arcadia Suncardia Offices 31.6 5
Marley Pipe Pretoria Rosslyn Warehouse Industrial 30.4 10
Eskom Sandton Sunninghill Sunhill Park Offices 33.0 3
Shoprite Checkers Ondangwa Shoprite Centre Retail 26.2 10
Medi-Clinic Cape Town Bellville Tijger Park Offices 27.5 6
Viva Gym SA Roodepoort Hillfox Power Centre Retail 22.7 10
Gym Company Randburg Square Retail 22.4 11
Game Stores Oshakati Shopping Centre Retail 23.1 7
Shoprite Checkers Durban Phoenix Plaza Retail 21.4 5
Group lease expiry (% of GLA)
Total Vacant March 2015 March 2016 March 2017 March 2018 March 2019 Beyond March 2019
GLA 6.5% 27% 17% 19% 6% 13% 11%
Cumulative as at March 2014 6.5% 34% 50% 70% 76% 89% 100%
Cumulative as at March 2013 6.8% 61% 76% 85% 91% 93% 100%
The group lease expiry profile above reflects that 27% of the leases are due for renewal in 2015.
The cumulative lease expiry profile improved substantially compared to March 2013. This is the result of sales and acquisitions
as well as the renewal of a number of lease agreements on the balance of the portfolio. 24% of leases are due to expire in 2019
and beyond.
Vacancies
At 31 March 2014, the portfolio’s vacancy (measured as a percentage of gross rental) was 6.7% compared to 7.1%
at 31 March 2013.
On 31 March 2014 the portfolio’s vacancy (measured as a percentage of gross lettable area) was 6.5% compared to 6.8%
at 31 March 2013.
Vukile has signed a sales agreement for the sale of Pretoria Midtown building while Johannesburg Bedfordview 1 Kramer Road
will be auctioned during June 2014. Once the above sales have been concluded the office vacancies, excluding offices held for sale,
will reduce from 17.5% to 12.6% (as a % of GLA) whilst the total portfolio vacancies will drop from 6.5% to 5.3%. At Pretoria De Bruyn Park
± 2 000m² of the vacant area is storage currently occupied by the Department of Public Works (DPW). Vukile is in the process of
obtaining an addendum to the lease agreements for this area which will improve the vacancies reflected at this property.
1 320m² of the remaining vacancy can only be occupied by DPW as it is only accessible via their premises.
Vukile is engaged in various initiatives in an effort to reduce the vacancies on the portfolio including broker focus groups,
the publishing of vacancy information directly to brokers and also on the Vukile vacancy website, leasing incentives on
selected properties, incentives to property management companies and leasing brokers.
Vacancies as a % of rentals are set out in the table below:
Motor
Retail Offices Industrial Sovereign Hospital related Total
% % % % % % %
March 2013 3.9 12.5 7.2 - - - 7.1
March 2014 3.3 14.9 4.8 4.8 - 8.9 6.7
March 2014(1) 3.3 12.4 4.8 4.8 - 8.9 5.9
(1)Excluding Pretoria Midtown and Bedfordview Kramer Road.
BASE RENTALS
(excluding recoveries)
The weighted average monthly base rental rates per sector, between 31 March 2013 and 31 March 2014, are set out in the table below.
Motor
Retail Offices Industrial Sovereign Hospital related Total
R/m² R/m² R/m² R/m² R/m² R/m² R/m²
March 2013 86.76 83.07 38.89 - 82.87 84.68 74.09
March 2014 102.56 86.80 40.16 83.44 89.09 104.50 89.39
% increase 18.2 4.5 3.3 - 7.5 23.4 12.5
The high increase in base rentals is due to the acquisitions as well as the sale of lower value properties during the year.
Contractual rental escalation profile
The average contractual rental escalation of 8% is in line with the previous year (8.1%) and is made up as follows : Retail (7.8%),
Offices (8.0%), Industrial (8.6%), Sovereign (8.9%), Hospital (7.5%) and Motor Related (7.0%).
Escalations on expiry rentals
The average escalation on expiry rentals on the total portfolio of 4.5% is positive against the backdrop of a difficult trading
enviornment and is made up as follows : Retail (7.8%), Offices (1.7%) and Industrial (2.1%).
The low escalation on offices is to be expected during the current over supply of office space. Industrial escalations of 2.1%
have dropped due to leasing incentives offered at industrial parks in an effort to retain tenants to prevent the vacancy from
increasing further.
New leases concluded
Leasing activity – New leases concluded as a percentage of budget are as follows : Retail (102.2%), Office (92.5%), Industrial (88.8%)
and average (96.1%).
The low percentage reflected for industrial (88.8%) is due to leasing incentives offered to tenants to reduce the vacancies.
Expense categories and ratios
Recurring property expenses have increased year-on-year mostly due to excessive increases in electricity and water tariffs
and rates and taxes.
The various cost components comprises the following : Government services (46%), Rates & taxes (19%), Cleaning & security (11%),
Property management fee (8%), Maintenance contracts (6%), Asset management fee (6%), Insurance premiums (2%), Bad debt (1%),
Sundry expenses (1%).
The ratio of gross recurring cost to property revenue for the stable portfolio is set out in the table below:
All recurring All recurring expenses excluding
expenses rates & taxes and electricity
(%) (%)
Mar-07 31.6 18.5
Mar-08 30.3 17.8
Mar-09 30.8 17.2
Mar-10 33.0 17.7
Mar-11 33.1 16.9
Mar-12 35.3 17.0
Mar-13 36.5 17.6
Mar-14 34.8 16.8
The group continuously evaluates methods of containing costs in the portfolio and the stable portfolio’s recurring costs
to property revenue ratios (excluding electricity and rates and taxes) have decreased from 17.7% in March 2010 to 16.8%
in March 2014 and hence have been well contained.
Rent collection and arrears
An important part of protecting the group against the likelihood of tenants defaulting on their lease agreements is our
credit vetting process prior to the acceptance of a tenant. We have developed a comprehensive screening process for each applicant,
which assesses the tenant according to type (national, government, SMMEs, and other), nature of business, main shareholders and other
relevant characteristics, and in the case of renewals, payment history.
As such, it is important to closely monitor our arrears book and any changes to tenant payment processes. We measure the effectiveness
of our collections process based on the percentage collected by the fifth business day of each month.
On average, our collection percentages (including legal cases) on the fifth business day of the month for the last two years are as follows:
2014 2013
Sector % %
Retail 76.3 76.5
Offices 88.3 79.8
Industrial 76.1 66.9
Hospital 100.0 100.0
Motor Related 83.8 90.5
Portfolio growth, redevelopments and sales
Acquisitions
50% interest in East Rand Mall
As part of an on-going strategy to grow the portfolio, increase its retail exposure and improve the quality of its portfolio,
the company acquired a 50% undivided share of East Rand Mall on 2 April 2013 for R1.1 billion.
East Rand Mall, regarded as one of the top regional malls in South Africa, has a gross lettable area of 62 516m² and is situated
in Boksburg, Gauteng. It has an 85% comprehensive national tenant component which includes Edgars, Mr Price, Woolworths and Foschini.
The strong performing mall, supported by good trading densities among national tenants, has become the focal point of this eastern Gauteng
retail node with a catchment radius of approximately 10 kilometres. The inclusion of the 50% undivided share of East Rand Mall has enhanced
the quality of and strengthened the revenue of the portfolio.
Encha Properties
As part of the company’s transformation strategy, the company concluded an agreement with Encha Properties Proprietary Limited (Encha)
in one of the most significant Black Economic Empowerment (BEE) initiatives in the listed property sector to date.
Vukile acquired four predominantly national government-tenanted properties from Encha for c.R1.04 billion at a yield of 9.5%. A put and
call option over the Pretoria Momentum Building has not yet been exercised as one of the conditions precedent relating to the finalisation
of a five year lease has not yet been met. The properties purchased comprise Navarre Wachthuis, the Koedoe Arcade, De Bruyn Park in Pretoria
and the Bloemfontein Fedsure Building. A sovereign tenant sub-portfolio has been established within Vukile to house the new properties,
which are being managed by Encha on an external management company basis. The portfolio carries a longer dated lease expiry profile with
contractual escalations of 8.9%.
Fairvest
Four properties at a consideration of R231.6 million were sold to Fairvest Property Holdings Limited (Fairvest) in exchange for 165 426 429
Fairvest shares at a consideration of R1.40 per share resulting in Vukile holding a 31.5% interest in Fairvest. A further 2.1 million shares
in Fairvest were acquired in the market by Vukile. The stake in Fairvest is strategically aligned to Vukile’s focus on lower LSM retail. It allows
the company to stay housed in lower LSM retail assets by getting exposure to smaller centres and doing so in a managed and time efficient manner.
The transaction was done on a yield enhancing basis.
Synergy
Vukile acquired a strategic equity stake in Synergy Income Fund Limited (Synergy) by concluding an agreement in December 2013 to acquire
52 300 000 Synergy B linked units, representing a 34% interest in Synergy, from Liberty Group Limited. The purchase consideration was discharged
by an issue of approximately 20.6 million Vukile linked units to Liberty, and was done on a yield enhancing basis.
The Synergy portfolio is comprised of 15 assets valued at c.R2.2 billion and shows a strong fit with the Vukile portfolio. Discussions are in
progress with Synergy to explore further opportunities with the fund.
Hammarsdale Junction Shopping Centre
The Hammarsdale Junction Shopping Centre measuring 19 400m² and anchored by Pick n Pay, Spar and Mr Price, opened in June 2013. The centre is
located within the Mpumalanga Township of KwaZulu-Natal. The national tenant component of the centre at opening date was 74%. The average monthly
foot count since opening has been 480 000. Permanent job opportunities for approximately 450 people were created.
The centre was acquired for R197 million at an initial yield of c.9.5%.
Mini factory/warehousing complex Linbro Park
Stratford Property Ventures commenced with the development of a 15 000m² mini factory/warehousing complex at Linbro Park during October 2013.
Transfer of the land was registered during February 2014. Linbro Park is one of Johannesburg’s prime industrial areas. The development is
incorporated into Linbro Business Park, firmly established as a desirable business address, which enjoys excellent accessibility to the N3
and Sandton CBD via Marlboro Road while offering the added benefit of being located approximately three kilometres from the Gautrain Marlboro Station.
The development comprises 22 units with a wide variety of unit sizes ranging from 350m² to 1 870m². The anticipated capital expenditure is
R124 million at an initial yield of 10% which is underpinned by a one year income guarantee. The completion date is August 2014.
30% interest Modjadji Plaza (15 200m²) and Maake Plaza (9 800m²)
Transfer of Modjadji Plaza was registered during February 2014 while Maake Plaza’s transfer is imminent. The purchase price for the shares in
these centres amounts to R61.5 million at a blended anticipated initial yield of 12%. The centres are located in the rural areas surrounding
Tzaneen in the Limpopo Province. Both centres are anchored by Shoprite and the national tenant composition is 88%.
Letlhabile Mall, North West Province
The Letlhabile Mall was acquired in March 2014 for R194.2 million at a yield of 9.2%. The centre with a GLA of 17 600m², is situated in
Letlhabile about 30 kilometres north of Brits in the North West Province.
Shoprite is the food anchor. Other national tenants include Pep Stores, Ackermans, Mr Price, Jet Stores, Dunns, Capitec and Nedbank. The national
tenant component comprises approximately 88% of the total GLA. The mall opened on 28 March 2014.
A decision has been taken not to pursue the acquisition of Edendale Mall as reported previously.
In terms of JSE Listings Requirements we are required to report on a circular distributed to unitholders in January 2012, relating to the
acquisition of 20 properties from the Sanlam Group. The circular net property revenue for the year to 31 March 2014
at R142.6 million. This excludes the straight-line rental accrual contained in the forecast. Actual net rental income achieved for the
year ended 31 March 2014 amounted to R141.5 million, despite the sale of Bassonia Office Park in the previous year and the sale of
Bloemfontein Trador Cash & Carry on 13 August 2013, which reduced net property revenue generated by this portfolio for the
year ended 31 March 2014. As such the actual net rental income achieved exceeded the forecasts contained in the abovementioned circular.
Post year end
“A” grade quality offices were acquired for R54 million in April 2014 situated on 9th Street, Melrose Estate, within walking distance
of the Rosebank Gautrain station.
Upgrades/Redevelopments
As part of the on-going strategy to improve the quality of the existing portfolio, the following projects as set out below have
been completed, or are in progress.
East Rand Mall : Extension and upgrade
The extension of East Rand Mall by about 7 300m² and the upgrade of the centre at a total cost of R307 million, of which
R255 million and R52 million comprises income generating and defensive capex respectively was approved by the company’s
Property Investment Committee in April 2014. A projected net rental yield of 8.1% is projected for the income generating capex.
Vukile and Redefine Properties Limited, who each own an undivided share of 50% in the centre, will contribute R153.5 million each.
Food Lovers Market will be the food anchor for c.4 500m²
Randburg Square
The R207 million redevelopment of the Randburg Square was completed in the past financial year.
The overall project encompassed improving sightlines through the reconfiguration of central areas, the broadening of the
internal walkways, the introduction of new wider and higher shop fronts, the installation of new bulkheads and completely revamping
the aesthetic appeal of the centre. In addition to the original two phases, a third phase was added which incorporated improving
all services to the retail suites to comply with current legislation, all within the original budget.
Management has noted that in addition to the overall increase in foot count, improved tenant mix and strong turnover growth as
communicated to the market during the re-launch in October last year, the spend per head patterns have also since shown a significant
increase on a comparative basis. This is a firm indication that the quality of the shopper has also improved since the completion of
the redevelopment. This will bode well for the future growth of the asset.
On the letting front we continue to receive very healthy positive reversions from expiring tenants. Preliminary feedback and trading
data from national tenants has also shown a steady increase with Mr Price, Foschini, Truworths and Ackermans amongst the top performing
tenants in the centre in terms of trading densities since the re-launch.
This project continues to be an example of a well-considered capital allocation decision to brownfield developments which gears our
properties for growth in an ever competitive environment. Such investments ensure strong and sustainable future growth in the standing
investment portfolio.
Durban Workshop*
Certain of the upgrades to The Durban Workshop at a budgeted cost of R47.7 million were initially delayed due to protracted negotiations
with the KZN Heritage Resources Agency regarding the approval of the plans. The plans have now been approved. Due to the delays with the
approval of the plans, the projected completion date has been extended to November 2015.
The following aspects of the upgrade have been completed/are in process:
- The cinema area has already been converted into retail space at a cost of R7.3 million and let to Ackermans, Pep and Dunns who have
commenced trading, resulting in a yield of 11.1% on this conversion.
- The upgrade of the various ablution facilities has started.
- The reconfiguration and upgrade of the food court has also started.
This centre is well located with a footfall of more than a million per month.
The upgrade will coincide with the Durban City centre project of ± R500 million for the general upgrade of the surrounding area and the
construction of a library which will be completed in 2018. This new world class facility will be adjacent to the Durban Workshop and is
expected to have a significant impact on the City centre and the Workshop.
Cape Town Bellville Tijger Park
The upgrade to the exterior and interior of buildings 1, 2 and 3, the construction of a new parking garage and the landscaping upgrade
was completed in November 2013 at a total cost of R49.8 million.
Cape Town Bellville Barons
The upgrade to the Barons VW premises at a cost of R17.5 million has been completed. The new 10 year lease concluded with Barloworld Auto
commenced on 1 December 2013.
Cape Town Bellville Louis Leipoldt
The upgrade for Medi-Clinic was completed in May 2013. Vukile’s share of the costs of the upgrade amounted to R33.5 million.
Roodepoort Hillfox Power Centre*
The third phase of the upgrade at a cost of R20 million commenced in April 2014 for completion by November 2014.
The work will include:
- Upgrading the existing signage towers to improve the centre’s visibility, especially from Hendrik Potgieter Road.
- New cladding to the façade to hide the dated roofline and to provide better signage opportunities for tenants.
- Replacing existing shop fronts with new anodised aluminium shop fronts.
- Replacing mall paving and tiling in selected areas.
- Upgrading the existing ablution facilities.
- Repainting the exterior of the centre (excluding the roofs).
*Post the above upgrades and expansions we expect to achieve higher rentals on renewals and reduced vacancies.
Daveyton Shopping Centre
Work on the expansion of the Pick n Pay commenced in March 2013. The R6.9 million, yield enhancing project, has expanded the
store by an additional 700m². The project was completed at the end of October 2013. As part of the expansion, Pick n Pay has entered
into a new 10 year lease expanding its offering to 3 700m². This expansion is well justified by the strong historic performance of the
store and should bode well for sustained, solid future trade.
Ondangwa Shoprite Centre
The extension of the Shoprite premises in the Ondangwa Centre at a cost of R9.5 million has been completed and the new 10 year Shoprite
lease commenced on 1 December 2013.
Property sales during the year net of selling costs
Sales price Yield
Property R'000 %
Durban Embassy 235 611 9.9
Durban Qualbert Centre* 68 778 9.6
Malamulele Plaza* 64 766 9.6
Kimberley Kim Park* 53 012 9.6
Giyani Spar Centre* 48 466 9.6
Midrand Allandale Land (Halfway House Ext 65) 24 320 -
Bloemfontein Bree Street Warehouse 13 900 6.7
Randburg Triangle 13 458 10.5
Total 522 311
*Sold to Fairvest
The proceeds from property sales will be utilised to acquire properties that conform to Vukile’s investment requirements and/or
to fund expansions and revamps, thereby further enhancing the quality of the portfolio.
Property sales after year end
Sales price Yield
Property R'000 %
Cape Town Kenilworth Motor Showrooms 34 750 12.2
Lichtenburg Shopping Centre 48 600 9.9
4.OPERATING SEGMENTS
Condensed operating segment report for the year ended 31 March 2014
GROUP
Retail Offices Industrial Sovereign Hospital Motor Total Asset Total
R’000 R’000 R’000 office R’000 related R’000 manage- Group
R’00 R’000 ment R’000
business
R’000
Group income for the year ended 31 March 2014
Property revenue 773 328 349 151 135 872 94 879 26 393 10 002 1 389 625 92 654 1 482 279
Straight-line rental income accrual 29 299 12 580 5 512 4 137 1 446 519 53 493 - 53 493
802 627 361 731 141 384 99 016 27 839 10 521 1 443 118 92 654 1 535 772
Property expenses (295 104) (143 827) (45 908) (27 356) (2 784) (1 538) (516 517) (38 917) (555 434)
Profit from property and other operations 507 523 217 904 95 476 71 660 25 055 8 983 926 601 53 737 980 338
Group statement of financial position
at 31 March 2014
Assets
Investment properties 5 327 347 2 108 030 1 060 488 1 010 906 328 287 128 279 9 963 337 9 963 337
Add: Lease commissions 26 657 26 657
9 989 994 9 989 994
Goodwill 53 169 3 889 57 058 57 058
Intangible asset 242 059 242 059
Investment properties held for sale 195 558 117 009 - 312 567 312 567
5 576 074 2 225 039 1 064 377 1 010 906 328 287 128 279 1 359 619 242 059 10 610 678
Add: Excluded items
Development expenditure 29 732
Investments 592 300
Furniture, fittings and computer equipment 4 660
Available-for-sale financial asset 20 313
Derivative financial instrument 18 757
Loans to directors 23 000
Deferred taxation assets 3 424
Trade and other receivables 86 165
Cash and cash equivalents 298 175
Total assets 11 678 204
Liabilities
Linked debentures and premium 2 432 989 980 191 467 175 445 332 144 619 56 510 4 526 816 4 526 816
Interest-bearing borrowings 1 822 211 734 125 349 896 333 535 108 314 42 324 3 390 405 3 390 405
4 255 200 1 714 316 817 071 778 867 252 933 98 834 7 917 221 7 917 221
Add: Excluded items
Equity 3 108 689
Deferred taxation liabilities 7 870
Trade and other payables 274 926
Current taxation liabilities 4 262
Linked unitholders for distribution 365 236
Total equity and liabilities 11 678 204
GROUP
Retail Office Industrial Total Asset Total
R’000 R’000 R’000 R’000 manage- Group
ment R’000
business
R’000
Group income for the year ended
31 March 2013
Property revenue 615 405 415 611 135 924 1 166 940 77 974 1 244 914
Straight-line rental income accrual 2 547 1 720 562 4 829 - 4 829
617 952 417 331 136 486 1 171 769 77 974 1 249 743
Property expenses (255 098) (151 476) (46 237) (452 811) (32 022) (484 833)
Profit from property and other 362 854 265 855 90 249 718 958 45 952 764 910
operations
Group statement of financial
position at 31 March 2013
Assets
Investment properties 3 829 929 2 532 533 1 008 272 7 370 734 7 370 734
Add: Lease commissions 18 922 18 922
7 389 656 7 389 656
Goodwill 59 713 3 889 63 602 63 602
Intangible asset 152 965 152 965
Investment properties held for sale 40 509 262 536 20 157 323 202 323 202
3 930 151 2 795 069 1 032 318 7 776 460 152 965 7 929 425
Add: Excluded items
Deffered capital expenditure 138 385
Furniture, fittings, computer equipment and other 5 129
Available-for-sale financial asset 19 417
Financial asset at amortised cost
(loans and receivables) 1 152
Trade and other receivables 84 360
Cash and cash equivalents 1 267 304
Total assets 9 445 172
Liabilities
Linked debentures and premium 1 647 602 1 189 830 437 790 3 275 222 3 275 222
Interest-bearing borrowings 1 576 968 1 007 768 342 722 2 927 458 2 927 458
3 224 570 2 197 598 780 512 6 202 680 6 202 680
Add: Excluded items
Equity and reserves 2 626 187
Derivative financial instruments 59 330
Deferred taxation liabilities 6 293
Trade and other payables 228 117
Current taxation liabilities 1 343
Linked unitholders for distribution 321 222
Total equity and liabilities 9 445 172
5.CAPITAL COMMITMENTS
The group has authorised and contracted refurbishment and expansions totalling R180.5 million.
The group is authorised, but has not yet contracted, to upgrade shopping centres, replace air-conditioning units, refurbish lifts,
tenant installations and other minor capital expenditure at an estimated cost of R88 million.
The above refurbishment programme, capital expenditure and developments will be funded out of surplus cash, bank facilities and
proceeds from property sales.
6.PROSPECTS
Vukile is in a strong and healthy position for the future.
Our gearing is conservative with high levels of interest rate hedging, which puts us in a defensive position ahead of an expected
rising interest rate cycle. Our portfolio is solid with its improved quality and lower risk profile. Our team benefits from
excellent skill, knowledge and experience.
We’ve battened down the hatches for what could be a more challenging time for the sector. But, we remain vigilant for opportunities
to grow the fund with value-adding transactions, whether they be in direct property investments or other listed funds strategically
aligned to Vukile.
Notwithstanding the dual headwinds of a stubbornly sluggish economy and rising interest rates, distribution growth for the listed
property sector is forecast at between 7% and 8% for the next year. We are confident that Vukile will deliver growth in distributions
at least in line with the top end of this projected sector growth. This view is premised on interest rates rising by no more than
200 basis points over the course of our financial year and there being no material deterioration in the macro-economic environment
relative to current levels. Forecast rental income is based on contractual lease terms and anticipated market related renewals.
The forecast information contained in this paragraph has not been reviewed or audited by Vukile’s auditors.
7.ACKNOWLEDGEMENTS
My thanks go to the Vukile management team and staff for the fantastic results, their hard work and commitment this year. The growing depth
of knowledge and experience in the team continues to strengthen Vukile. A special thanks must go to the chairman and the board for their
unwavering support and significant input provided over the past year. We would also like to express our gratitude to Vukile’s business partners.
Their dedication and exceptional efforts are invaluable in driving our performance.
8.BOARD CHANGES
The company announced the appointment of Dr Renosi Mokate to the board as an independent non-executive director with effect
from 11 December 2013.
Dr Mokate has over twenty-seven years of experience in the field of development economics and planning and has served in various
academic and executive roles. She is a former executive director of the WorldBank Group as well as a former deputy governor of the
South African Reserve Bank and currently serves as a board member of Bidvest Bank Limited and chairperson of the
Government Employees Pension Fund.
Dr Mokate holds a BA-degree from Lincoln University, Pennsylvania, USA and MA and PhD degrees from the University of Delaware,
Newark, USA.
9.PAYMENT OF CASH DISTRIBUTION) WITH AN ELECTION TO REINVEST THE DISTRIBUTION IN RETURN FOR VUKILE LINKED UNITS
Notice is hereby given of a distribution amounting to 71.675 cents per linked unit, for the six-month period to 31 March 2014.
Linked unitholders will be entitled to elect (in respect of all or part of their linked unitholding) to reinvest the cash
distribution of 71.675 cents per linked unit, in return for linked units (the linked unit reinvestment alternative), failing
which they will receive the cash distribution in respect of (all or part of) their linked unitholdings.
A circular providing further information in respect of the cash distribution and the linked unit reinvestment alternative will
be posted or otherwise distributed to linked unitholders on 29 May 2014.
Linked unitholders who have dematerialised their linked units are required to notify their duly appointed Central Securities
Depository Participant (CSDP) or broker of their election in the manner and time stipulated in the custody agreement governing the
relationship between the linked unitholder and their CSDP or broker.
Vukile was granted REIT status by the JSE Limited with effect from 1 April 2013 in line with the REIT structure as provided for
in the Income Tax Act, No. 58 of 1962, as amended (the Income Tax Act) and section 13 of the JSE Listings Requirements.
The REIT structure is a tax regime that allows a REIT to deduct qualifying distributions paid to investors, in determining its
taxable income.
The cash distribution of 71.67500 cents per linked unit meets the requirements of a qualifying distribution for the purposes of
section 25BB of the Income Tax Act (a qualifying distribution) with the result that:
- qualifying distributions received by resident Vukile linked unitholders must be included in the gross income of such linked
unitholders (as a non-exempt dividend in terms of section 10(1)(k)(i)(aa) of the Income Tax Act), with the effect that the qualifying
distribution is taxable as income in the hands of the Vukile linked unitholder. These qualifying distributions are however exempt from
dividends withholding tax, provided that the South African resident linked unitholders provided the following forms to their CSDP or broker,
as the case may be, in respect of uncertificated linked units, or the company, in respect of certificated linked units:
* a declaration that the distribution is exempt from dividends tax; and
* a written undertaking to inform the CSDP, broker or the company, 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 company, 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 Vukile 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 were not subject to dividends withholding tax.
From 1 January 2014, any qualifying distribution are subject to dividends 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 dividends withholding tax will be withheld at a rate of 15%, the net distribution amount due to non-resident linked unitholders is
60.92375 cents per linked unit. A reduced dividend withholding rate in terms of the applicable DTA, may only be relied upon if the non-resident
linked unitholder has provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated linked units,
or the company, in respect of certificated linked units:
* a declaration that the distribution is subject to a reduced rate as a result of the application of a DTA; and
* a written undertaking to inform their CSDP, broker or the company, 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 company, 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.
Linked unitholders who are South African residents are advised that in electing to participate in the linked unit reinvestment alternative,
pre-taxation funds are utilised for the reinvestment purposes and that taxation will be due on the total cash distribution amount of
71.67500 cents per linked unit.
Linked unitholders are further advised that:
- the issued share capital of Vukile is 509 573 007 linked units of one cent each at year end;
- there are no secondary tax on company credits available to be utilised; and
- Vukile’s tax reference number is 9331/617/14/3.
This cash distribution or linked unit reinvestment alternative may have tax implications for resident as well as non-resident
linked unitholders. Linked unitholders are therefore encouraged to consult their tax and/or professional advisors should they be in
any doubt as to the appropriate action to take.
The salient dates relating to the cash distribution and linked unit alternative are as follows:
2014
Circular and form of election posted to linked unitholders Thursday, 29 May
Finalisation information including the linked unit ratio and
price per linked unit published on SENS Thursday, 5 June
Last day to trade in order to participate in the election to
receive the linked unit reinvestment alternative or to receive
a cash distribution (LDT) Thursday, 12 June
Linked units trade ex-distribution Friday, 13 June
Listing of maximum possible number of linked units under the
linked unit reinvestment alternative Wednesday, 18 June
Last day to elect to receive the linked unit alternative or
to receive a cash distribution (no late forms of election
will be accepted) at 12:00 (SA time) Friday, 20 June
Record date for the election to receive the linked unit
reinvestment alternative or to receive a cash distribution
(record date) Friday, 20 June
Results of cash distribution and linked unit reinvestment
alternative published on SENS Monday, 23 June
Cash distribution cheques posted to certificated linked
unitholders on or about Monday, 23 June
Accounts credited by CSDP or broker to dematerialised linked
unitholders with the cash distribution payment Monday, 23 June
Linked unit certificates posted to certificated unitholders
on or about Wednesday, 25 June
Accounts updated with new linked units (if applicable) by
CSDP or broker to dematerialised linked unitholders Wednesday, 25 June
Adjustment to linked units listed on or about Thursday, 26 June
Notes:
1.Linked unitholders electing the linked unit reinvestment alternative are alerted to the fact that the new linked units
will be listed on LDT + 3 and that these new linked units can only be traded on LDT +3, due to the fact that settlement
of the linked units will be three days after record date, which differs from the conventional one day after record date
settlement process.
2.Linked units may not be dematerialised or rematerialised between Friday, 13 June 2014 and Friday, 20 June 2014,
both days inclusive.
3.The above dates and times are subject to change. Any changes will be released on SENS.
On behalf of the board
AD Botha LG Rapp
Melrose Estate
23 May 2014
Condensed consolidated statement of financial position
as at 31 March 2014
2014 2013
GROUP R’000 R’000
Assets
Non-current assets 10 739 238 7 777 306
Investment properties 9 787 413 7 241 245
Investment properties 9 989 994 7 389 656
Straight-line rental income adjustment (202 581) (148 411)
Other non-current assets 951 825 529 061
Investments - 152 965
Straight-line rental income asset 202 581 148 411
Investments 592 300 -
Deferred capital expenditure 29 732 138 385
Furniture fittings, computer equipment and other 4 660 5 129
Available-for-sale financial asset 20 313 19 417
Loans and receivables - 1 152
Goodwill 57 058 63 602
Derivative financial instrument 18 757 -
Deferred taxation assets 3 424 -
Long-term loans granted 23 000 -
Current assets 626 399 1 351 664
Intangible asset 242 059 -
Trade and other receivables 86 165 84 360
Cash and cash equivalents 298 175 1 267 304
Investment properties held for sale 312 567 323 202
Total assets 11 678 204 9 445 172
Equity and reserves 3 108 689 2 626 187
Non-current liabilities 6 668 564 5 755 367
Linked debentures and premium 4 526 816 3 275 222
Other interest-bearing borrowings 2 133 878 2 414 522
Derivative financial instruments - 59 330
Deferred taxation liabilities 7 870 6 293
Current liabilities 1 900 951 1 063 618
Trade and other payables 274 926 228 117
Short-term borrowings 1 256 527 512 936
Current taxation liabilities 4 262 1 343
Linked unitholders for distribution 365 236 321 222
Total equity and liabilities 11 678 204 9 445 172
Net asset value per linked unit (cents) 1 498 1 369
Net tangible asset value per linked unit (cents) 1 440 1 319
Condensed consolidated statement of comprehensive income
for the year ended 31 March 2014
2014 2013
GROUP R’000 R’000
Property revenue 1 389 625 1 166 940
Straight-line rental income accrual 53 493 4 829
Gross property revenue 1 443 118 1 171 769
Property expenses (516 517) (452 811)
Net profit from property operations 926 601 718 958
Net income from asset management business 53 737 45 952
Corporate administrative expenses (34 964) (29 192)
Investment and other income 64 279 25 615
Operating profit before finance costs 1 009 653 761 333
Finance costs (256 605) (194 285)
Profit before debenture interest 753 048 567 048
Debenture interest (691 667) (554 368)
Profit before capital items 61 381 12 680
Profit on sale of investment properties 41 201 903
Amortisation of debenture premium 9 959 6 804
Goodwill written-off on sale of subsidiary/properties
by a subsidiary (6 544) (821)
Reversal of impairment/(impairment) of intangible asset 89 094 (114 131)
Impairment of goodwill - (1 121)
Loss on sale of furniture, fittings and equipment (4) -
Fair value gain on investments 17 228 -
Profit on sale of subsidiary - 1 160
Profit/(loss) before fair value adjustments 212 315 (94 526)
Fair value adjustments 174 784 255 329
Gross change in fair value of investment properties 228 277 260 158
Straight-line rental income adjustment (53 493) (4 829)
Profit before taxation 387 099 160 803
Taxation (5 678) 412 834
Profit for the year 381 421 573 637
Other comprehensive income/(loss) for the year 66 162 (52 053)
Total comprehensive income for the year 447 583 521 584
Earnings per linked unit (cents) 229.71 273.53
Headline and diluted headline earnings per linked
unit (cents) 163.69 136.16
Diluted earnings per linked unit (cents) 229.71 273.53
Number of linked units in issue 509 573 007 431 040 218
Weighted average number of linked units in issue 472 371 428 412 394 876
Reconciliation of earnings to headline earnings
and to profit available for distribution
for the year ended 31 March 2014
2014 2013
Group Cents per Group Cents per
R’000 linked unit R’000 linked unit
Earnings per share 381 421 81.65 573 637 139.10
Adjusted for:
Debenture interest 691 667 148.06 554 368 134.43
Earnings per linked unit 1 073 088 229.71 1 128 005 273.53
Change in fair value of investment properties (174 784) (37.42) (255 329) (61.91)
Total tax effects of adjustments - - (418 606) (101.51)
Write-off in goodwill on sale of 6 544 1.40 821 0.20
subsidiary/properties sold by a subsidiary
Impairment of goodwill - - 1 121 0.27
Loss on sale of subsidiary - - (1 160) (0.28)
Profit on sale of investment properties (41 201) (8.82) (903) (0.22)
Loss on disposal of furniture, fittings and equipment 4 - 188 0.05
Reversal/(impairment) of intangible asset (89 094) (19.07) 114 131 27.68
Amortisation of debenture premium (9 959) (2.12) (6 804) (1.65)
Headline earnings of linked units 764 598 163.68 561 464 136.16
Loss on disposal of furniture, fittings and equipment (4) - (188) (0.05)
Revaluation surplus on investments (17 228) (3.69) - -
Straight-line rental accrual (53 493) (11.45) (4 829) (1.17)
Profit available for distribution 693 873 148.54 556 447 134.94
Condensed consolidated statement of cash flow
for the year ended 31 March 2014
2014 2013
Group Group
R'000 R'000
Cash flow from operating activities 969 578 738 201
Cash flow from investing activities (2 753 714) (1 446 725)
Cash flow from financing activities 815 007 1 759 881
Net (decrease)/increase in cash and cash equivalents (969 129) 1 051 357
Cash and cash equivalents at the beginning of the year 1 267 304 215 947
Cash and cash equivalents at the end of the year 298 175 1 267 304
Condensed consolidated statement of changes in equity
for the year ended 31 March 2014
Share capital Non-
and share distributable Retained
premium reserves earnings Total
GROUP R’000 R’000 R’000 R’000
Balance at 31 March 2012 32 263 2 013 225 28 982 2 074 470
Issue of shares 23 853 - - 23 853
Dividend distribution - - (1 131) (1 131)
56 116 2 013 225 27 851 2 097 192
Profit for the year - - 573 637 573 637
Change in fair value of investment
properties - 260 158 (260 158) -
Deferred taxation rate change - 426 790 (426 790) -
Share-based remuneration - 7 411 - 7 411
Transfer from non-distributable reserve - (122 194) 122 194 -
Other comprehensive loss
Revaluation of available-for-sale financial asset - (18 367) - (18 367)
Revaluation of cash flow hedges - (33 686) - (33 686)
Balance at 31 March 2013 56 116 2 533 337 36 734 2 626 187
Issue of shares 25 747 - - 25 747
Dividend distribution - - (1 412) (1 412)
81 863 2 533 337 35 322 2 650 522
Profit for the year - - 381 421 381 421
Change in fair value of investment properties - 228 277 (228 277) -
Share-based remuneration - 10 584 - 10 584
Transfer to non-distributable reserve - 140 978 (140 978) -
Other comprehensive loss
Revaluation of available-for-sale financial asset - (11 925) - (11 925)
Revaluation of cash flow hedges - 78 087 - 78 087
Balance at 31 March 2014 81 863 2 979 338 47 488 3 108 689
Notes to the condensed financial statements
for the year ended 31 March 2014
1. Measurements of fair value
1.1 Financial Instruments
The financial assets and liabilities measured at fair value in the statement of financial position are grouped into
the fair value hierarchy as follows:
2014 2013
Level 1 Level 2 Total Level 1 Level 2 Total
GROUP R’000 R’000 R’000 R’000 R’000 R’000
Assets
Investments 592 300 - 592 300 - - -
Available-for-sale financial assets 20 313 - 20 313 19 417 - 19 417
Derivative financial instruments - 18 757 18 757 - - -
Total 612 613 18 757 631 370 19 417 - 19 417
Liabilities
Derivative financial instruments - - - - (59 330) (59 330)
Total - - - - (59 330) (59 330)
Net fair value 612 613 18 757 631 370 19 417 (59 330) (39 913)
Measurement of fair value
The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the
previous reporting period.
Investments
This comprises shares held in listed property companies at fair value which is determined by reference to quoted
closing prices at the reporting date.
Available-for-sale financial assets
This comprises equity-settled share-based long-term incentive reimbursement rights stated at fair value. Fair value
has been determined by reference to Vukile’s quoted closing price at the reporting date after deduction of executive and
management rights.
Derivative financial instruments
The fair values of these swap contracts are determined by ABSA Capital, Rand Merchant Bank, Standard Bank and Investec
Bank Limited using a valuation technique that maximises the use of observable market inputs. Derivatives entered into
by the group are included in Level 2 and consist of interest rate swap contracts.
1.2 Non-financial assets
The following table reflects the levels within the hierarchy of non-financial assets measured at fair value at
31 March 2014:
2014 2013
Level 3 Level 3
R’000 R’000
Assets
Investment properties 9 899 994 7 389 656
Investment properties held for sale 312 567 323 202
Fair value measurement of non-financial assets (investment properties)
The fair value of commercial buildings are estimated using an income approach which capitalises the estimated rental
income stream, net of projected operating costs, using a discount rate derived from market yields. The estimated rental
stream takes into account current occupancy levels, estimates of future vacancy levels, the terms of in-place leases and
expectations of rentals from future leases over the remaining economic life of the buildings.
The most significant inputs, all of which are unobservable, are the estimated rental value, assumptions regarding
vacancy levels, the discount rate and the reversionary capitalisation rate. The estimated fair value increases if the
estimated rental increases, vacancy levels decline or if discount rates (market yields) and reversionary capitalisation rates
decline. The overall valuations are sensitive to all four assumptions. Management considers the range of reasonable
possible alternative assumptions is greatest for reversionary capitalisation rate rental values and vacancy levels and that
there is also an inter-relationship between these inputs. The inputs used in the valuations at 31 March 2014 were:
- The range of the reversionary capitalisation rates applied to the portfolio are between 7.47% and 13.81% with the weighted
average being 10.04% (March 2013: 10.2%).
- The discount rates applied range between 13.3% and 17.81% with the weighted average being 14.52% (March 2013: 14.4%).
- Changes in discount rates attritable to changes in market conditions can have a significant impact on property valuations.
A 25 basis points increase in the discount rate will decrease the value of the investment property by R271 million (2.6%).
A 25 basis points decrease in the capitalisation rate will increase the value of investment property by R264 million (2.6%).
In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated demand.
JSE sponsor: Java Capital, 2 Arnold Road, Rosebank, 2196
NSX sponsor: IJG Securities (Pty) Ltd, Windhoek, Namibia
Executive directors: LG Rapp (CEO), MJ Potts (Financial director), HC Lopion (Executive director : asset management),
GS Moseneke (Executive director)
Non-executive directors: AD Botha (Chairman)*, SF Booysen*, RD Mokate*, PS Moyanga*, H Ntene*, NG Payne*, HM Serebro*,
SEN Sebotsa* *Independent directors
Registered office: One-on-Ninth, corner Glenhove and Ninth Street, Melrose Estate, 2196
Company Secretary: J Neethling
Transfer secretaries: Link Market Services South Africa (Pty) Ltd, Johannesburg
Investor and media relations: Marketing Concepts, Telephone +27 11 783 0700, Fax +27 11 783 3702
www.vukile.co.za
Date: 26/05/2014 07:53:00 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
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