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Provisional annual results for the year ended 31 May 2014
Tower Property Fund Limited
(formerly Reftin 1004 Proprietary Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2012/066457/06)
JSE share code: TWR
ISIN: ZAE000179040
(Approved as a REIT by the JSE)
("Tower" or "the fund" or "the group")
PROVISIONAL ANNUAL RESULTS
for the year ended
31 May 2014
- Maiden annual distribution of 74.6
cents exceeds pre-listing forecast
- Distributable earnings of R96.8 million
- Portfolio value increased by 25% to
R2.06 billion*
- Portfolio vacancies reduced by 19%**
- Net asset value increased from R8.75
to R9.07*
- Loan to value reduced to 37%
- Fixed debt increased to 72%
- Succesful greening programme
at Cape Quarter
PROFILE
Tower Property Fund became South
Africa's first new real estate investment
trust ("REIT") to list when the group made
its debut on the JSE Limited in July 2013.
The fund owns a diversified portfolio of 31
commercial and retail properties valued at
R2.06 billion, located mainly in the Western
Cape (51% by value) and Gauteng (42% by
value). Tower is committed to a ‘greening'
strategy to increase the competitiveness
and values of buildings in its portfolio.
* As compared to the PLS
** As compared to Interum Period 30 Nov 2013
- Basis of preparation
The reviewed financial results are prepared in
accordance with the framework concepts, the
measurement and recognition requirements of
IFRS and the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee or its
successor and the requirements of the Companies Act
of South Africa and the JSE Listings Requirements.
The reviewed financial results contain, as a minimum,
the information required by IAS 34: Interim Financial
Reporting, and the accounting policies adopted
and methods of computation are in accordance
with International Financial Reporting Standards
("IFRS") and are consistent with those adopted in the
Pre Listing Statement ("PLS") and applied where
applicable in the financial statements for the year
ended 31 May 2013.
The following standard has been applied for the first
time as it became effective during the current period:
- IFRS13 - Fair value measurement
The adoption of the above standard has not had a
significant impact on the reviewed financial results.
These financial results were prepared under the
supervision of Mr F Jenkings CA (SA), in his capacity as
group Chief Financial Officer.
These financial results have been reviewed by the
group's auditors, Mazars. The review was conducted in
accordance with ISRE2410 "Review of Interim Financial
Information Performed by the Independent Auditor of
the Entity". Their unqualified review opinion is available
for inspection at the company's registered office.
Fair value of financial instruments recognised in the
statement of financial position.
The group measures fair values using the fair value
hierarchy that reflects the significance of the inputs
used in making the measurements.
- Level 1: Quoted prices (unadjusted) in an active
market for an identical instrument.
- Level 2: Valuation techniques based on observable
inputs, either directly (i.e. as prices) or indirectly
(i.e. derived from prices). This category includes
instruments valued using: quoted market prices in
active markets for similar instruments; quoted prices
for identical or similar instruments in markets that
are considered less than active; or other valuation
techniques where all significant inputs are directly or
indirectly observable from market data.
- Level 3: Valuation techniques using significant
unobservable inputs. This category includes all
instruments where the valuation technique includes
inputs not based on observable data and the
unobservable inputs have a significant effect on the
instrument's valuation. This category also includes
instruments that are valued based on quoted
prices for similar instruments where significant
unobservable adjustments or assumptions are required
to reflect differences between the instruments.
The valuation of interest rate swaps uses only
observable market data and requires little management
judgement and estimation. The availability of
observable market prices and model inputs reduces
the need for management judgement and estimation
and also reduces the uncertainty associated with the
determination of fair values. The interest rate swaps
are valued using the mark-to-market valuations,
excluding transactions costs,. Interest rate swaps are
classified as level 2 financial instruments and the fair
value of interest rate swap assets at 31 May 2014 is
equal to R1 441 787.22
Current swaps entered into:
End Effective rate Notional
Amount
20 July 2015 6.04% R344 million
2 April 2017 7.41% R126 million
6 April 2017 7.20% R130 million
Dividend distribution
Notice is hereby given that dividend number 2 of 41.6 cents per share has been declared in
respect of the 6 months ended 31 May 2014. In accordance with Tower's status as a REIT,
shareholders are advised that the distribution meets the requirements of a "qualifying
distribution" for the purposes of section 25BB of the Income Tax Act No. 58 of 1962 ("Income
Tax Act").
Accordingly the dividend distribution received by South African tax residents must be included
in their gross income and will not be exempt in terms of the ordinary dividend exemption in
section 10(1)(k)(i) of the Income Tax Act No. 58 of 1962 ("the Act") as a result of paragraph (aa)
of the proviso thereto which provides that dividends distributed by a REIT are not exempt from
income tax.
The dividends received by South African tax residents will, however, be exempt from dividend
withholding tax provided that the shareholder has provided the following forms to their
Central Securities Depository Participant ("CSDP") or broker, as the case may be in respect of
uncertificated shares or the company, in respect of certificated shares:
a) a declaration that the distribution is exempt from dividends tax; and
b) a written undertaking to inform their CSDP or broker, 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.
South African tax resident shareholders are advised to contact their CSDP or broker, 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.
The dividend distribution received by non-resident shareholders will be exempt from income
tax in terms of section 10(1)(k)(i) of the Act, but will be subject to dividend withholding tax.
Dividend withholding tax is levied at a rate of 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 non-resident shareholder.
Assuming that dividend withholding tax will be withheld at a rate of 15%, the net dividend
amount due to non-resident shareholders is 35.36 cents per share. A reduced dividend
withholding rate in terms of the applicable DTA may only be relied on if the non-resident
shareholder has provided the following forms to their CSDP or broker, as the case may be in
respect of uncertificated shares or the company, in respect of certificated shares:
a) a declaration that the dividend is subject to a reduced rate as a result of the application
of a DTA; and
b) a written undertaking to inform the CSDP or broker, 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 shareholders are advised to contact their CSDP or broker, as the case may be,
to arrange for the abovementioned documents to be submitted prior to the payment of the
distribution if such documents have not already been submitted.
Both resident and non-resident shareholders are encouraged to consult their professional
advisors should they be in any doubt as to the appropriate action to take.
The dividend is payable to Tower shareholders in accordance with the timetable set out below:
2014
Last day to trade cum dividend distribution Friday, 8 August
Shares trade ex dividend distribution Monday, 11 August
Record date Friday, 15 August
Payment date Monday, 18 August
Share certificates may not be dematerialised or rematerialised between Monday,
11 August 2014 and Friday, 15 August 2014, both days inclusive.
Shares in issue at date of declaration: 137 214 674.
Tower income tax reference number: 9607/564/16/9
By order of the Board
Tower Property Fund Limited
24 July 2014
- Strategy
Tower aims to generate competitive investment performance
by adding value through property asset management and
the cost-effective greening of properties in the portfolio. This
results in lower operational expenditure and increased tenant
retention. Tower aims to continue to expand its portfolio through
management's network of contacts throughout South Africa.
The investment strategy is to expand the portfolio by targeting
mainly medium-sized (R30 million to R200 million) properties
and to ensure a diversified sectoral and geographic portfolio.
- Financial and operating
performance
Tower performed strongly in its first
year of operation, generating revenue of
R191.3 million and operating profit of
R161.3 million for the 12 months ended
31 May 2014 ("the period").
Distributable earnings totalled R96.8
million. The directors declared a final
distribution of 41.6 cents per share,
bringing the total distribution for the
period to 74.6 cents. This exceeds the
fund's pre-listing forecast of 71.7 cents.
During the six month period following
the initial interim period 23 760 993 new
shares were issued by the company.
6 150 930 shares were issued to vendors
for the purchase of new properties and
17 610 063 shares were issued for cash.
The market capitalisation of the group
has grown by 18% since listing to
R1.164 million at 31 May 2014. The results
represent an annualised historic income
return to investors of 9.6%, outperforming
the listed property sector.
The fund's net asset value grew by 4% (as
it appeared in the PLS) in the period to
R9.07 per share.
A strategy of active asset management
since the launch of the fund has resulted
in expense reduction through contractor
management and greening initiatives.
Cape Quarter, the flagship property in
the portfolio located in Green Point, Cape
Town, is now effectively fully let following
an innovative marketing campaign which
has been successful in driving foot traffic
and attracting national and international
tenants. Parking revenue has shown
a significant increase. Tenants have
generally reported increased turnovers
and Tower has engaged architects to
address concerns with the centre's
navigability as well as seeking to create
new lettable areas within the property.
Management has focused intensely on
attracting long-term tenants to reduce
vacancies across the portfolio and has
been successful in letting over 24 000m²,
including 11 000m² of new space and
13 000m² of renewable space.
The level of vacancies in the portfolio
reduced to 9.3% at year end (from 11.5% as
at 30 November 2013) and had reduced to
8.2% by the date of this report.
- Property acquisitions
In the past six months the fund acquired
properties totaling R329 million,
contributing to the increase in the
value of the portfolio to R2.06 billion.
These properties are the De Ville Shopping
Centre (Durbanville) for R226 million,
Clifton Place office building (Durban) for
R81 million and 19 Section Street, an
industrial property in Paarden Eiland,
Cape Town for R22 million.
- Portfolio greening
The lighting retrofit programme completed
at the Cape Quarter has resulted in an
estimated annual saving of R1 million
in operating costs. This programme is
expected to reduce kilowatt hours and
carbon emissions by 69%.
The focus of the fund's greening strategy
is on improving energy efficiency which
serves to reduce operating costs and lower
carbon footprints to make properties more
valuable and marketable to prospective
tenants. The reduced demand for energy
also mitigates against inevitable electricity
tariff hikes. Management views the
"greening" of its properties as a proactive
rather than defensive strategy.
- Borrowings
Tower has loan facilities with Investec
Bank, Standard Bank and Nedbank
totaling R843 million at year end. Interest
rates are hedged on 72% of the total loan
facility and the weighted average rate of
interest is 8.3% for the portfolio. Based
on investment properties valued at
R2.06 billion, the loan to value ("LTV") ratio
of the fund was 37.3% at year end. The
fund has a targeted LTV of 40%.
- Prospects
Management will continue to enhance
the portfolio and investor returns through
careful cost control of its existing portfolio
and the continued roll out of greening
initiatives. Well located, quality properties
will be sourced to strengthen the portfolio
and reduce risk to particular properties.
Over R1 billion of new acquisitions are
being negotiated and management is
currently undertaking extensive due
diligence on these properties.
Refurbishment opportunities within the
portfolio will be examined as will the
pipeline of development opportunities
which are becoming apparent.
Sectoral profile by value
Retail 35.1%
Office 63.7%
Other 1.2%
Geographic profile by value
Gauteng 42.1%
Western Cape 51.4%
KwaZulu-Natal 6.5%
Statement of comprehensive income
Reviewed year ended
31 May 2014
R'000
Revenue
Contractual rental income 174 168
Straight line rental income accrual 17 102
191 270
Net property operating expenses (19 785)
Net property income 171 485
Administration expenses (10 223)
Net operating profit 161 262
Fair value adjustments on investment properties (11 740)
Fair value adjustments on interest rate swaps (1 442)
Profit from operations 148 080
Finance costs (53 456)
Investment income 3 497
Capital raising expenses (11 487)
Profit before taxation 86 634
Taxation 0
Total comprehensive loss for the period 86 634
Basic and diluted earnings per share - weighted average
shares in issue (cents) 82
Statement of financial position
Assets
Non-current assets 2 060 847
Investment properties 2 043 745
Straight line rental accrual 17 102
Current assets 75 052
Trade and other receivables 36 881
Cash and cash equivalents 38 171
Total assets 2 135 899
Equity and liabilities
Equity 1 240 830
Stated capital 1 251 034
Retained income (10 204)
Liabilities
Non-current liabilities
Secured financial liabilities 769 518
Current liabilities 125 551
Trade and other payables 68 634
Shareholders for dividend 56 917
Total equity and liabilities 2 135 899
Shares in issue (000) 136 853
NAV per share (cents) 907
Statement of cash flows
Cash generated from operations 124 505
Interest received 3 497
Finance costs (53 456)
Net cash from operating activities 74 546
Acquisition of investment property (1 229 751)
Net cash from investing activities (1 229 751)
Proceeds from issue of shares 440 000
Capital raising expenses (16 142)
Proceeds from secured financial liabilities 769 518
Net cash from financing activities 1 193 376
Net movement in cash and cash equivalents 38 171
Cash and cash equivalents at beginning of period 0
Cash and cash equivalents at end of period 38 171
"Total distribution of 74.6 cents
exceeds pre-listing forecast"
Statement of changes in equity
Stated Retained
Capital Income Total
R'000 R'000 R'000
Balance at 1 March 2012 0
Issue of 845 000 shares 8 8
Loss for the period ended 31 May 2013 (1) (1)
Balance at 31 May 2013 8 (1) 7
Issue of 42 031 330 shares effective 1 June 2013 420 313 420 313
Issue of 36 348 892 shares effective 19 July 2013 318 661 318 661
Issue of 15 613 052 shares effective 15 August 2013 156 131 156 131
Issue of 14 770 615 shares effective 27 August 2013 147 706 147 706
Issue of 2 333 589 shares effective 1 September 2013 23 336 23 336
Issue of 1 149 425 shares effective 31 October 2013 10 000 10 000
Issue of 1 303 960 shares effective 24 December 2013 10 771 10 771
Issue of 17 610 063 shares effective 10 March 2014 140 000 140 000
Issue of 4 846 970 shares effective 15 April 2014 40 250 40 250
Capital raising expenses (16 142) (16 142)
Total comprehensive income for the period 86 634 86 634
Dividend paid and proposed (96 837) (96 837)
Balance at 31 May 2013 1 251 034 (10 204) 1 240 830
Calculation of headline earnings and distributable earnings
reconciliation
Total comprehensive income for the period 86 634
Adjusted for:
Change in fair value of investment properties 11 740
Change in fair value of interest rate swaps 1 442
Headline earnings 99 816
Adjusted for:
Straight line rental income accrual (17 102)
Distributable profit 82 714
Adjusted for:
Capital raising expenses 11 487
Amortisation of debt raising fees 2 640
Distributable earnings 96 841
Basic and diluted earnings per share - weighted average
shares in issue (cents) 82,0
Basic and diluted headline earnings per share - weighted
average shares in issue (cents) 94,4
Distributable earnings per share - weighted average shares
in issue (cents) 91,6
Dividend per share (cents) 74,6
Weighted average number of shares in issue 105 709 677
Number of shares in issue at period end 136 852 996
Segmental analysis
Retail Office Industrial Total
R'000 R'000 R'000 R'000
Property assets 557 355 1 478 492 25 000 2 060 847
Segment liabilities 245 705 512 023 11 790 769 518
Revenue (excluding straight line lease adjustments) 47 302 125 856 1 010 174 168
Net operating costs (5 480) (14 229) (76) (19 785)
Segment profit 41 822 111 627 934 154 383
Straight line lease adjustment 17 102
Non property related expenses (10 223)
Net operating profit 161 262
Notes:
1) No comparative figures are disclosed as this is the
company's first period of operation. It was dormant in
the prior year
2) Related party transactions included:
Asset management fees paid to Tower Asset Managers
Proprietary Limited (R'000) 8 353
Property management fees paid to Spire Property
Management Proprietary Limited (R'000) 6 400
Registered address 2nd Floor, Spire House, Tannery Park, 23 Belmont Road,
Rondebosch, 7700 (PO Box 155, Rondebosch, 7701)
Contact details +27 (0)21 685 4020 / info@towerpropertyfund.co.za
Company secretary Ovland Management Services Proprietary Limited
Auditors Mazars Inc
Sponsor Java Capital
Transfer secretaries Link Market Services South Africa Proprietary Limited
Directors A Dalling* (Chairman), M Edwards (Chief Executive Officer),
J Bester*, K Craddock, M Evans*, F Jenkings
(Chief Financial Officer), B Kerswill, A Magwentshu*,
N Milne*, R Naidoo*
* non-executive directors
www.towerpropertyfund.co.za
Date: 24/07/2014 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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