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Condensed unaudited consolidated interim financial statements for the six months ended 30 June 2014
CAPITAL PROPERTY FUND LIMITED
(PREVIOUSLY FRIEDSHELF 1497 PROPRIETARY LIMITED)
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
(REGISTRATION NUMBER 2013/226575/06)
(APPROVED AS A REIT BY THE JSE)
JSE SHARE CODE: CPF ISIN: ZAE000186821
(“CAPITAL” OR “THE COMPANY”)
CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED 30 JUNE 2014
DIRECTORS’ COMMENTARY
NATURE OF THE BUSINESS
Capital Property Fund (“Capital Trust”) was listed in 1984 as a property
unit trust, originally under the Unit Trust Control Act, 1981, and later
as a collective investment scheme in property (“CISIP”). Capital Trust was
approved as a REIT with effect from 1 January 2014, however, it did not
benefit from all the advantages of REIT legislation as its assets were
effectively still owned by a CISIP rather than a company. In terms of
CISIP legislation, Capital Trust also required an external asset
management company, Property Fund Managers Limited (“PFM”), which is not
considered global best practice.
On 5 April 2013, the boards of Resilient Property Income Fund Limited
(“Resilient”) and PFM recommended the internalisation of the management
company of Capital Trust and its conversion to a corporate REIT. Following
a lengthy process involving approvals by the FSB as regulator, the JSE
Limited, First National Bank as trustee and the Capital Trust unitholders,
Capital Trust became a corporate REIT, Capital Property Fund Limited
(“Capital”), on 30 June 2014. Resilient disposed of all of the shares it
held in PFM to Capital in exchange for 70 754 717 Capital shares
enabling Capital to internalise its asset management.
The group consolidated results reflect the combined position of Capital
Trust and Capital.
DISTRIBUTABLE EARNINGS
Capital’s distribution increased by 10.23% to 39.22 cents per share for
the six months ended 30 June 2014, from 35.58 cents per share for the
prior comparable period. This pleasing performance was marginally ahead of
the 9% guidance in the 2013 integrated report.
STRATEGY
Capital is the largest owner of A-grade logistics facilities in South
Africa and continues to acquire and develop land for A-grade logistics
facilities. In addition, Capital will develop selected prime grade offices.
The investment portfolio also includes A and B-grade offices, a portfolio
of prime retail properties and listed securities.Capital will continue to
reduce its exposure to B-grade and smaller offices.
REVIEW
The property portfolio performed well with overall vacancies decreasing
from 5.1% at 31 December 2013 to 4.2% at 30 June 2014. Tenant retentions
were better than anticipated which in turn resulted in lower costs of
occupation, particularly new tenant installations and letting commissions.
Demand for big-box space in A-grade logistics nodes remains firm and
Capital has been successful in letting its developments. Capital has
signed a lease for ten years with UTI for the speculatively developed 40
796m2 warehouse in Raceway Industrial Park.
Distributions from all listed equities were better than budget. The
distributions from the New Europe Property Investments plc and Rockcastle
Global Real Estate Company Limited investments, which are denominated in
Euro and US Dollar respectively, further benefitted from the depreciation
of the Rand.
Continued progress is being made with the environmental impact assessment
and re-zoning at Clairwood Logistics Park and all objections raised to
date have been addressed.
ACQUISITIONS AND DEVELOPMENTS
In line with its strategy, Capital acquired strategically located parcels
of land for the development of logistics facilities in Pomona, Linbro,
Westlake and Longmeadow in Gauteng and Rivergate in Cape Town.
The following developments were completed:
100%
Description % owned GLA Yield Completion
N1 Business Park 20% 12 584m2 10,0% Mar 14
N1 Business Park 20% 10 593m2 10,0% Jun 14
The following new developments are currently in progress:
100% Estimated Estimated
Description % owned GLA yield completion
Raceway Industrial Park 100% 40 796m2 9,0% Jul 14
Linbro Park 100% 30 971m2 9,0% May 15
Linbro Park 100% 28 000m2 9,0% Dec 15
Montague Business Park 25% 19 840m2 8,5% Aug 14
Montague Business Park 25% 14 000m2 8,0% Jul 15
N1 Business Park 20% 8 031m2 9,5% Mar 15
Capital owns the following land for future developments:
Estimated
100% Intended commence-
Description % owned GLA use ment
Clairwood Logistics Park 100% 358 000m2 Logistics *
Montague Business Park 25% 124 151m2 Logistics **
Sandton Offices 80% 60 000m2 Offices **
Tradeport City Deep 100% 55 000m2 Logistics **
Rivergate*** 100% 40 000m2 Logistics Jan 15
Westlake 100% 32 000m2 Logistics Feb 15
Pomona 100% 21 000m2 Logistics Oct 14
N1 Business Park 20% 12 000m2 Logistics Jan 15
*Timing subject to zoning.
**Subject to being tenanted.
***Not yet transferred.
The following redevelopments have commenced:
Redevelopment Estimated Estimated
Description % owned GLA yield completion
14 Fitzmaurice Avenue
Epping 2* 100% 12 000m2 8,0% Jul 14
Noursepack Epping 2** 100% 18 000m2 8,0% Aug 14
60 Electron Avenue 100% 17 000m2 8,0% Jul 15
*This redevelopment has been let to Distell.
**50% of this redevelopment has been let to Media 24 (a subsidiary of
Naspers) and 50% to Toll Group.
DISPOSALS
Apart from a small sub-division of Surprise Park, all properties held for
sale at 31 December 2013 were transferred during the period.
VACANCIES AND ARREARS
Logistics vacancies decreased from 4.1% at 31 December 2013 to 3.2% at 30
June 2014, office vacancies increased slightly from 8.0% to 8.2% and
industrial and manufacturing vacancies decreased from 14.6% to 9.3%.
Retail vacancies increased from 3.6% at 31 December 2013 to 4.3% at 30
June 2014. These figures are calculated based on gross lettable area.
There was no material change in arrears and potential bad debts are well
provided for.
EQUITY INVESTMENTS
June 2014 December 2013
Number Market value Number Market value
of shares R’000 of shares R’000
Rockcastle Global
Real Estate Company
Limited* 155 950 000 2 643 353 121 705 087 1 703 871
New Europe Property
Investments plc 18 280 000 1 736 600 16 024 304 1 297 969
Resilient Property
Income Fund Limited 17 350 000 1 041 868 16 200 000 899 100
Fortress Income Fund
Limited B 107 070 000 1 070 700 96 000 000 878 400
Fortress Income Fund
Limited A - - 23 200 000 341 040
Ascension Properties
Limited A - - 42 750 000 190 238
Ascension Properties
Limited B - - 45 600 000 114 000
Delta Property Fund
Limited - - 8 204 677 70 971
Tower Property Fund
Limited - - 4 021 474 32 976
6 492 521 5 528 565
*Equity accounted.
FUNDING
During the period Capital accepted three and five year facilities from
Standard Bank totalling R550 million and R650 million respectively.
Capital redeemed its commercial paper in issue during the period to
facilitate its conversion to a corporate REIT which resulted in a
temporary increase in the average cost of funding at the end of the period.
This will normalise once Capital re-issues commercial paper.
At 30 June 2014, the all-in weighted average cost of funding was 9,66%,
the average hedge term was 5,0 years and 81,5% of borrowings were hedged.
POST BALANCE SHEET EVENT
The last of the eight legal disputes relating to contracts entered into by
previous Pangbourne Properties Limited (“Pangbourne”) management has been
finalised. The arbitration appeal relating to the Coveway Trade and Invest
17 Proprietary Limited (“Coveway”) matter was upheld against Pangbourne
on 17 July 2014. Although the final quantum has not been finalised,
R90 million has been provided at 30 June 2014.
OUTLOOK
Based on forecast currency exchange rates of R10.00 to the US Dollar and
R13.75 to the Euro, the improvement in the vacancy levels and the
anticipated performance of the listed equities, the board anticipates that
Capital will achieve growth in distributions of approximately 10% for the
2014 financial year. This forecast has not been reviewed or reported on by
Capital’s auditors.
The forecast is based on the assumption that a stable macro-economic
environment will prevail, no major corporate failures will occur and that
tenants will be able to absorb the recovery of rising utility costs and
rates and taxes. Budgeted rental income was based on contractual
escalations and anticipated market related renewals and re-lets.
By order of the board
Barry Stuhler Rual Bornman
Managing director Financial director
30 July 2014
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited Unaudited
Jun 2014 Dec 2013 Jun 2013
R’000 R’000 R’000
ASSETS
Non-current assets 23 262 822 22 118 799 20 209 838
Investment property 15 290 341 15 241 095 14 946 544
Straight-lining of rental revenue
adjustment 411 725 399 104 136 744
Investment property under
development 1 477 063 1 045 365 979 578
Investments 3 849 168 3 824 693 4 146 972
Investment in associate company 2 234 525 1 608 542 -
Current assets 612 026 473 173 1 150 984
Investment property held for sale 10 500 183 286 873 888
Straight-lining of rental
revenue adjustment - 1 306 17 226
Capital Share Purchase Trust loans 214 648 - -
Trade and other receivables 349 143 261 056 251 230
Distribution receivable from
Resilient 27 750 - -
Cash and cash equivalents 9 985 27 525 8 640
Total assets 23 874 848 22 591 972 21 360 822
EQUITY AND LIABILITIES
Total equity attributable to
equity holders 16 943 926 16 575 133 14 932 894
Stated capital 10 023 620 9 273 620 9 273 620
Reserves/retained earnings 6 920 306 7 301 513 5 659 274
Total liabilities 6 930 922 6 016 839 6 427 928
Non-current liabilities 4 878 633 3 707 238 4 833 714
Interest-bearing borrowings 4 790 541 3 693 171 4 078 142
Deferred tax 88 092 14 067 755 572
Current liabilities 2 052 289 2 309 601 1 594 214
Trade and other payables 538 876 653 929 546 355
Shareholders for distribution 658 010 643 437 571 766
Taxation payable - 2 488 6 645
Interest-bearing borrowings 855 403 1 009 747 469 448
Total equity and liabilities 23 874 848 22 591 972 21 360 822
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Audited Unaudited
for the six for the year for the six
months ended ended months ended
Jun 2014 Dec 2013 Jun 2013
R’000 R’000 R’000
Net rental and related revenue 676 747 1 592 019 653 190
Recoveries and contractual
rental revenue 1 013 869 2 057 585 997 157
Straight-lining of rental
revenue adjustment 11 315 245 887 (553)
Rental revenue 1 025 184 2 303 472 996 604
Property operating expenses (348 437) (711 453) (343 414)
Distributable income from
investments 93 791 193 901 64 500
Fair value gain on investment
property and investments 268 108 1 475 978 725 351
Fair value (loss)/gain on
investment property (633) 813 418 79 884
Adjustment resulting from
straight-lining of rental revenue (11 315) (245 887) 553
Fair value gain on investments 280 056 908 447 644 914
Gain on disposal of portion
of associate - 39 353 45 690
Loss on Coveway surety (90 000) - -
Amortisation of management
Contract** (749 000) - -
Administrative expenses (45 741) (92 975) (47 919)
Income from associate 175 708 102 248 83 918
- non-distributable 120 610 44 302 44 302
- distributable 55 098 57 946 39 616
Profit before net finance income/
(costs) 329 613 3 310 524 1 524 730
Net finance income/(costs) 18 644 (126 568) 54 122
Finance income 179 813 242 529 206 624
Interest from loans 56 - -
Fair value adjustment on derivatives 151 278 233 470 201 762
Cum distribution 27 750 - -
Interest received 729 9 059 4 862
Finance costs (161 169) (369 097) (152 502)
Interest paid on borrowings (196 758) (380 995) (182 669)
Capitalised interest 57 653 82 135 39 633
Fair value adjustment on derivatives (22 064) (70 237) (9 466)
Profit before income tax 348 257 3 183 956 1 578 852
Income tax (71 454) 642 545 (38 027)
Profit for the period attributable
to equity holders 276 803 3 826 501 1 540 825
Total comprehensive income
for the period 276 803 3 826 501 1 540 825
Basic earnings per share (cents)* 16,50 238,12 95,88
*The Company has no dilutionary instruments in issue.
** Capital effectively acquired the contract that entitled PFM to manage
Capital Trust. As this was a reacquired intangible asset in terms of
IFRS 3 and had no contractual period, it was amortised in full.
RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS AND
DISTRIBUTABLE INCOME
Unaudited Audited Unaudited
for the six for the year for the six
months ended ended months ended
Jun 2014 Dec 2013 Jun 2013
R’000 R’000 R’000
Profit for the period attributable
to equity holders 276 803 3 826 501 1 540 825
Adjusted for: 8 712 (1 201 684) (67 755)
- Fair value loss/(gain) on
investment property 633 (813 418) (79 884)
- Adjustment resulting from
straight-lining of rental revenue 11 315 245 887 (553)
- Income tax effect (3 236) (634 153) 12 682
Headline earnings 285 515 2 624 817 1 473 070
Reconciliation of profit for the period to amount available for
distribution
Profit for the period attributable
to equity holders 276 803 3 826 501 1 540 825
Straight-lining of rental
revenue adjustment (11 315) (245 887) 553
Fair value loss/(gain) on
investment property 633 (813 418) (79 884)
Adjustment resulting from
straight-lining of rental revenue 11 315 245 887 (553)
Fair value gain on investments (280 056) (908 447) (644 914)
Loss on Coveway surety 90 000 - -
Amortisation of management contract 749 000 - -
Gain on disposal of portion of
associate - (39 353) (45 690)
Income from associate
- non-distributable (120 610) (44 302) (44 302)
Fair value adjustment
on derivatives (129 214) (163 233) (192 296)
Income tax 71 454 (642 545) 38 027
Distributable income 658 010 1 215 203 571 766
Less: distribution declared (658 010) (1 215 203) (571 766)
Interim (658 010) (571 766) (571 766)
Final (643 437)
Income not distributed - - -
Headline earnings per share (cents) 17,02 163,34 91,67
Basic earnings per share is 16,50 cents (Dec 2013: 238,12 cents; Jun 2013:
95,88 cents). The calculation of the basic earnings per share is based on
a weighted average number of shares in issue during the period of
1 677 740 996 (Dec 2013:1 606 986 279; Jun 2013: 1 606 986 279) and
earnings of R276,803 million (Dec 2013: R3 826,501 million; Jun 2013:
R1 540,825 million).
Headline earnings per share is 17,02 cents (Dec 2013: 163,34 cents;
Jun 2013: 91,67 cents). The calculation of headline earnings per share is
based on a weighted average number of shares in issue during the period of
1 677 740 996 (Dec 2013: 1 606 986 279; Jun 2013: 1 606 986 279) and
headline earnings of R1 034,515 million (Dec 2013: R2 624,817 million; Jun
2013: R1 473,070 million).
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Audited Unaudited
for the six for the year for the six
months ended ended months ended
Jun 2014 Dec 2013 Jun 2013
R’000 R’000 R’000
Cash (outflow)/inflow from
operating activities (217 040) 93 731 43 559
Cash outflow from investing
activities (744 526) (365 120) (178 505)
Cash inflow from financing
activities 944 026 284 861 129 533
(Decrease)/increase in cash
and cash equivalents (17 540) 13 472 (5 413)
Cash and cash equivalents
at beginning of period 27 525 14 053 14 053
Cash and cash equivalents
at end of period 9 985 27 525 8 640
Cash and cash equivalents consist of:
Current accounts 9 985 27 525 8 640
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non- Reserves/
Stated distributable retained
capital reserves earnings Total
Unaudited R’000 R’000 R’000 R’000
Balance at
31 December 2012 9 273 620 4 690 215 - 13 963 835
Total comprehensive
income for the period 1 540 825 1 540 825
Transfer to non-
distributable reserves 969 059 (969 059) -
Distribution (571 766) (571 766)
Balance at
30 June 2013 9 273 620 5 659 274 - 14 932 894
Total comprehensive
income for the period 2 285 676 2 285 676
Transfer to non-
distributable reserves 1 642 239 (1 642 239) -
Distribution (643 437) (643 437)
Balance at
31 December 2013 9 273 620 7 301 513 - 16 575 133
Total comprehensive
income for the period 276 803 276 803
Issue of shares –
70 754 717 on
30 June 2014 750 000 750 000
Transfer from
non-distributable
reserves (7 301 513) 7 301 513 -
Distribution (658 010) (658 010)
Balance at
30 June 2014 10 023 620 - 6 920 306 16 943 926
PREPARATION AND ACCOUNTING POLICIES
The condensed unaudited consolidated interim financial statements have
been prepared in accordance with International Financial Reporting
Standard, IAS 34 Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and the
Financial Reporting Pronouncements as issued by the Financial Reporting
Standards Council, the JSE Listings Requirements and the requirements of
the South African Companies Act. The accounting policies applied in the
preparation of these interim financial statements are in terms of
International Financial Reporting Standards and are consistent with those
applied in the previous periods.
This report was compiled under the supervision of Rual Bornman CA(SA), the
financial director. The directors are not aware of any matters or
circumstances arising subsequent to 30 June 2014 that require any
additional disclosure or adjustment to the financial statements.
The interim financial statements have not been audited or reviewed by the
Company’s auditors.
SUMMARY OF FINANCIAL PERFORMANCE
Jun 2014 Dec 2013 Jun 2013 Dec 2012
Distribution per
share (cents) 39,22 40,04 35,58 36,50
Shares in
issue 1 677 740 996 1 606 986 279 1 606 986 279 1 606 986 279
Net asset value R10,10 R10,31 R9,29 R8,69
Intererst-bearing
debt to asset
ratio* 23,6% 20,8% 21,3% 21,7%
* The interest-bearing debt to asset ratio is calculated by dividing
interest-bearing borrowings by total assets.
FACILITIES
Facility Margin
Expiry R’million over Jibar
2014 500 1,58%
2015 1 062 0,96%
2016 1 300 1,68%
2017 2 400 1,55%
2018 520 1,55%
2019 550 1,52%
6 332 1,48%
INTEREST RATE DERIVATIVES
Average
swap
Interest rate swap expiry R’million rate
2016 600 8,11%
2017 700 7,22%
2018 800 7,68%
2019 600 6,40%
2020 600 7,43%
2021 600 8,02%
2022 200 8,18%
4 100 7,52%
Average
cap
Interest rate cap expiry R’million rate
2019 200 7,39%
2023 300 8,11%
500 7,82%
SECTORAL SPLIT Based on
GLA Book value
Logistics 74% 59%
Industrial 5% 3%
Offices 14% 26%
Retail 6% 11%
Other 1% 1%
100% 100%
LEASE EXPIRY PROFILE Based on
Book
GLA value
Vacant 4,2%
Dec 14 14,3% 14,4%
Dec 15 24,7% 22,3%
Dec 16 20,3% 20,5%
Dec 17 15,1% 17,7%
Dec 18 11,3% 13,5%
> Dec 18 10,1% 11,6%
100,0% 100,0%
SEGMENTAL ANALYSIS
Unaudited Audited Unaudited
Jun 2014 Dec 2013 Jun 2013
R’000 R’000 R’000
Segmental revenue – recoveries
and contractual rental revenue
Logistics 564 267 1 080 005 503 728
Industrial 36 053 90 532 43 855
Offices 281 206 589 648 292 438
Retail 121 092 270 256 142 755
Other 11 251 27 144 14 381
Total 1 013 869 2 057 585 997 157
Property operating expenses
Logistics (178 699) (359 781) (160 577)
Industrial (21 310) (48 702) (22 589)
Offices (96 994) (193 067) (103 871)
Retail (49 181) (103 288) (52 346)
Other (2 253) (6 615) (4 031)
Total (348 437) (711 453) (343 414)
Segmental revenue - rental revenue
Logistics 697 483 1 120 286 508 033
Industrial 5 566 86 936 44 230
Offices 260 208 612 285 284 443
Retail 43 726 327 942 152 670
Other 18 201 156 023 7 228
Total 1 025 184 2 303 472 996 604
Profit for the period
Logistics 382 600 1 236 736 343 094
Industrial 14 740 27 468 21 267
Offices 185 641 575 681 224 557
Retail 82 444 271 889 134 359
Other (626) 47 776 10 350
Corporate (387 996) 1 666 951 807 198
Total 276 803 3 826 501 1 540 825
CAPITAL COMMITMENTS
Unaudited Audited Unaudited
Jun 2014 Dec 2013 Jun 2013
R’000 R’000 R’000
Authorised and contracted 752 332 606 695 575 150
Authorised and not yet contracted 18 904 40 542 46 518
771 236 647 237 621 668
INCOME DISTRIBUTION
Notice is hereby given that an interim cash distribution of 39,22 cents
interest per share has been declared and is payable to the shareholders
recorded in the books of Capital at the close of business on the record
date, Friday 22 August 2014. Shareholders are advised that the last day to
trade cum distribution will be Friday 15 August 2014. The shares will
trade ex distribution from Monday 18 August 2014. Payment will be made on
Monday 25 August 2014. Share certificates may not be dematerialised or
rematerialised during the period 18 August 2014 to 22 August 2014, both
days inclusive. An announcement informing shareholders of the tax
treatment of the income distribution will be released separately on SENS.
Registered office
4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191 (PO Box 2555,
Rivonia, 2128)
Transfer secretaries
Link Market Services South Africa Proprietary Limited, 13th Floor, Rennie
House, 19 Ameshoff Street, Braamfontein, 2001 (PO Box 4844, Johannesburg,
2000)
Sponsor
Java Capital
Company secretary
Inge Pick CA(SA)
Directors
Willy Ross (chairman)*, Barry Stuhler (managing director), Iraj Abedian*,
Rual Bornman, Andries de Lange, David Lewis, Protas Phili*, Jan Potgieter*,
Andrew Teixeira, Banus van der Walt*, Tshiamo Vilakazi*, Trurman Zuma*,
Fareed Wania (alternate to Andrew Teixeira).
*Independent non-executive director
Date: 30/07/2014 02:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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