Wrap Text
Reviewed results for the year ended 30 June 2014 and income distribution and directorate changes
Emira Property Fund
(A property fund created under the Emira Property Scheme, registered
in terms of the Collective Investment Schemes Control Act No. 45 of
2002)
Share code: emi ISIN: zae000050712 (“Emira” or “the Fund”) Tax
number: 0047/321/15/3
(Approved as a REIT by the JSE)
Reviewed financial results
For the year ended 30 June 2014 and income distribution declaration
and changes to Directorate
Growth in distributions +7,5%
Distributable income growth of 5,5% to R601,1m
Distribution per PI 123,18c
Net asset value growth per PI of 9,2% to 1 447c
Commentary
The board of directors of Strategic Real Estate Managers (Pty) Ltd
(“STREM”) is pleased to announce a distribution of 123,18 cents per
Emira participatory interest (PI) for the 12 months to 30 June 2014.
This is an increase of 7,5% on the previous comparable period and a
further improvement on the 6,5% growth in distributions per PI
reported for the six months to 31 December 2013.
Vacancies and tenant renewals
Over the past two financial years vacancies improved from 10,2%
(June 12) to 5,6% (June 13) to 4,5% (June 14). All sectors are well
below SAPOA and national levels. This represents a substantial
decline in vacancies of 67 575m2, which was driven by leasing in the
office and industrial sectors, and is the lowest vacancies have been
since 2005.
Tenant retention by GLA improved from an already impressive 78% to
80%.
Major leases concluded
A total of 33 leases over 2 000m2 were concluded during the financial
year, comprising 150 000m2 with a lease value of R508m. The average
weighted lease period of these leases is four years. The three biggest
new leases concluded were at Epping Warehouse (6 267m2), Cochrane Avenue
(5 870m2) and 7 Naivasha Road (4 673m2), and three biggest renewals at
Epping Warehouse (14 156m2), Defy (10 199m2) and Taylor Blinds (7 794m2)
— all to high quality tenants.
Acquisitions and developments
Subsequent to the previous financial year end, the Fund took
transfer of three buildings in the Highgrove Office Park, Centurion,
for R24,6m, taking the Fund’s exposure in this A-Grade office park
to R157,9m.
Acquisitions during the period comprised: (i) a vacant stand in the
Gateway Landing Industrial Park for R12,4m on which a modern
industrial facility of 9 371m2 is being developed at a total cost of
R57,4m with the initial yield on the development, assuming fully let,
estimated at 10%, transfer taking place in January 2014, (ii) an
industrial building of 7 533m2 leased to Lithotec (a division of Bidvest)
in Airport Industria, Cape Town for R34,5m at a yield of 9,2%, transfer
of which took place in February 2014, (iii) with effect from 1 June
2014, Emira acquired a prestigious office development, Menlyn
Corporate Park, situated in Menlyn, Pretoria for R614m. The 25 767m2
P-grade development is fully let and is expected to yield 8,6% in
the first year. This brings total acquisition during the period to
R705m at a forward yield of 8,7%.
Disposals
The strategy to dispose of non-core buildings continued during the
period under review. Four properties totalling R119,0m, which had
been sold but not yet transferred at 30 June 2013 — Georgian Place,
261 Surrey Avenue, Fleetway House and Montana Value Centre — were
transferred out of Emira during the period. A further two buildings,
Lynnridge Mall and Olivedale Office Park were transferred in 2014,
bringing the total value of sales to R313,1m with a forward yield of
8,1%.
Seven buildings with a total value of R188,0m and a forward yield of
7,6% were sold at June 2014, but had not yet been transferred.
The proceeds of these disposals are to be used to partially fund the
acquisitions and developments mentioned above.
Refurbishments and extensions
Several projects totalling approximately R614,8m are underway, the
most significant of which is a major upgrade and extension to
Wonderpark Shopping Centre, where the centre is being enlarged at a
cost of R551,8m at an initial yield in excess of 8%, from 63 000m2
to 90 000 m2 to accommodate extensions for existing national tenants
including Game, Woolworths, Jet and Edgars and the introduction of new
anchor tenants, Checkers, Dis-Chem, HiFi Corp, PQ Clothing, Cotton
On and The Hub, among others.
Repurchases of participatory interests (PIs)
The board previously approved the implementation of a PI repurchase
programme which was confirmed by PI holders at the AGM in November
2013. In terms of the programme a portion of the proceeds from the
sale of properties can be used to repurchase PIs in the open market.
During the period, the Fund purchased 13 418 843 PIs at a total cost
of R182,8m, an average cost of R13,61 per PI. Excluding the
dividends paid out on these PIs, the clean price was R13,02 cents,
proving to be both earnings and NAV enhancing for PI holders. The
Fund will continue to repurchase PIs at prices considered beneficial
to PI holders.
Gearing
Emira continued to take advantage of the lower rates of funding
available in the debt capital markets.
Debt funding activities totalling almost R3,7bn during the year
comprised:
Date Amount All-in-rate
(Rm) (%)
22 August 2013 Repayment of 3-month
commercial paper 400 5,30
22 August 2013 Issue of 6-month
commercial paper 399 5,80
22 August 2013 Issue of 3-month
commercial paper 100 5,30
13 September 2013 Issue of 12-month
commercial paper 230 5,90
7 November 2013 Roll over of 12-month
commercial paper 450 5,90
20 November 2013 Repayment of 3-month
commercial paper 100 5,30
20 November 2013 Issue of 12-month
commercial paper 100 5,90
20 February 2014 Repayment of 6-month
commercial paper 399 5,80
20 February 2014 Issue of 12-month
commercial paper 400 6,40
30 May 2014 Issue of 4-year domestic
medium term notes 300 7,40
A new R500m, three year loan facility was granted by RMB in March
2014, at Jibar plus 170 basis points. At 30 June 2014, R100m had been
drawn down.
In order to partly fund the acquisition of Menlyn Corporate Park, a
new three year loan of R314m, was concluded with Nedbank, at a rate
of Jibar plus 163 basis points, in June 2014.
During the year, the following swap contracts totalling R1,23bn
were entered into with RMB. At 30 June 2014 87,1% of the Fund’s debt
had been hedged.
Amount Rate
Date (Rm) Expiry date (%)
18 December 2013 83,3m 1 July 2017 6,96
18 December 2013 83,3m 1 October 2017 7,14
18 December 2013 83,3m 1 January 2018 7,26
13 March 2014 55,0m 12 March 2017 7,68
13 March 2014 60,0m 12 March 2017 7,69
26 March 2014 50,0m 25 March 2017 7,58
26 March 2014 150,0m 25 March 2018 7,80
9 April 2014 100,0m 31 December 2016 7,30
9 April 2014 100,0m 31 December 2018 7,84
14 May 2014 155,0m 1 July 2016 6,97
14 May 2014 310,0m 1 July 2017 7,25
Growthpoint Australia Limited (GOZ)
Emira participated in the rights issue held by GOZ in December 2013,
taking up an additional 2 441 777 units at AUD 2,45 per unit at a
cost of R 56,9m. At June 2014, GOZ’s unit price as quoted on the ASX
was AUD2,45 resulting in Emira’s investment of 27 225 813 units,
amounting to 5,0% of the units in issue, being valued at R666,0m
compared to a cost of R372,0m.
Results
Contractual escalations on the bulk of the portfolio, significant
leasing progress made during the period and stringent cost control,
which includes savings from the property management tender, has
resulted in the Fund achieving a substantial increase in distributable
income during the period.
Excluding the straight-lining adjustments in respect of future
rental escalations, revenue rose by 7,0% over the comparable period.
This was positively impacted by the leasing of vacant space,
acquisitions and organic growth from the existing portfolio and
increased recoveries of municipal expenses, offset by disposals.
Property expenses increased by 11,3% over the previous comparable
period, mainly due to increases in municipal costs, leasing expenses
— which are expensed in the first year of the lease — and
refurbishment costs. Excluding these items, the balance of property
expenses increased by 2,5%.
Income from the Fund’s listed investment in Australia increased by
21,7% due to an increase in the distribution per unit received from
GOZ, the depreciation of the rand against the Australian dollar and
increased units being held as a result of the Fund following its
rights in respect of a rights issue held in December 2013. Excluding
income received in respect of the rights issue, the increase
amounted to 15,4%.
Net finance costs increased by 4,1% as a result of the increase in
interest rates, the income received from the PI buybacks and
utilisation of debt facilities for new developments and acquisitions.
Following the revaluation of investment properties and the revaluation
of the investment in GOZ, net asset value increased by 9,2% from 1 325
cents per PI at 30 June 2013, to 1 447 cents per PI at 30 June 2014.
Distribution statement
Year ended Year ended
30 June 30 June %
R’000 2014 2013 change
Operating lease rental income and
tenant recoveries excluding
straight-lining of leases 1 448 914 1 353 853 7,0
Property expenses excluding
amortised upfront lease costs (563 474) (506 371) 11,3
Net property income 885 440 847 482 4,5
Income from listed investment 44 225 36 332 21,7
Management expenses
Reimbursement to STREM (27 980) (20 779) 34,7
Administration expenses (42 282) (44 227) (4,4)
Depreciation (11 581) (12 006) (3,5)
Net finance costs (246 711) (236 946) 4,1
Finance costs (260 074) (245 000) 6,2
Interest paid and amortised
borrowing costs (276 019) (247 036) 11,7
Interest capitalised to the cost of
developments 15 945 2 036
Investment income 13 363 8 054 65,9
Distribution payable to
participatory interest holders 601 111 569 856 5,5
No of units in issue 483 881 040 497 299 883 (2,7)
Distribution per participatory
interest (cents) 123,18 114,59 7,5
Disposals
In accordance with the strategy of the Fund, certain properties that
are underperforming or pose excessive risk to the Fund are earmarked
and disposed of.
Properties transferred out of Emira during the 12 months to June 2014
Property Sector Location GLA (m2)
Georgian Place
(Sectional title units) Office Kelvin, Gauteng 9 485
261 Surrey Avenue Office Ferndale, Gauteng 1 752
Fleetway House Office Cape Town, CBD 7 090
Montana Value Centre Retail Montana, Gauteng 9 717
Lynnridge Mall Retail Pretoria, Gauteng 20 022
Olivedale Office Park Office Randburg, Gauteng 3 222
51 288
Properties transferred out of Emira during the 12 months to June 2014
Valuation Sale Exit
June 2013 price yield Effective
Property (Rm) (Rm) (%) date
Georgian Place August, October
(Sectional title units) 32,4 29,1 5,1 and November 2013
261 Surrey Avenue 6,4 7,2 8,4 September 2013
Fleetway House 33,4 32,7 3,3 October 2013
Montana Value Centre 39,2 50,0 7,0 October 2013
Lynnridge Mall 175,0 175,0 9,5 March 2014
Olivedale Office Park 15,3 19,1 10,3 June 2014
301,7 313,1 8,1
Properties sold but not yet transferred out of Emira at June 2014
Property Sector Location GLA (m2)
Woodmead Office Park Office Woodmead, 8 162
(50% undivided share) Johannesburg
Executive City Industrial Kya Sands, 4 558
Randburg
Kya Sands (Cnr Precision Industrial Kya Sands, 1 452
and Staal Street) Randburg
(Siliconics)
Harrogate Park Office Hatfield, 1 711
Pretoria
Tokai Shopping Centre Retail Ferndale, 2 603
Johannesburg
WorldWear Fashion Mall Retail Fairlands, 14 172
Johannesburg
500 Smuts Drive Office Midrand,
Gauteng 5 201
37 859
Properties sold but not yet transferred out of Emira at June 2014
Effective/
Valuation Sale anticipated
June 2013 price effective
Property (Rm) (Rm) date
Woodmead Office Park
(50% undivided share) 60,2 60,0 July 2014
Executive City 11,3 11,2 July 2014
Kya Sands (Cnr Precision and Staal
Street) (Siliconics) 5,3 5,0 August 2014
Harrogate Park 15,3 17,5 August 2014
Tokai Shopping Centre 15,0 16,0 September 2014
WorldWear Fashion Mall 37,0 34,8 December 2014*
500 Smuts Drive 46,0 43,5 December 2014
190,1 188,0
* An effective possession date of 15 April 2013 has been agreed with
the purchaser.
Vacancies
Number of GLA Vacancy
Buildings June 2013 June 2013
June 2013 (m2) (m2) %
Office 69 431 859 46 200 10,7
Retail 37 363 391 10 157 2,8
Industrial 42 338 568 7 387 2,2
Total 148 1 133 818 63 744 5,6
Number of GLA
Buildings June 2014 Vacancy
June 2014 (m2) June 2014 %
Office 63 435 299 38 420 8,8
Retail 35 352 969 9 558 2,7
Industrial 43 348 393 3 510 1,0
Total 141 1 136 661 51 488 4,5
Valuations
One-third of Emira’s portfolio is valued by independent valuers at
the end of every financial year, with the balance being valued by the
directors.
Total portfolio movement
Sector June 2013 June 2014
(R’000) R/m2 (R’000) R/m2
Office 4 557 146 10 552 5 381 621 12 363
Retail 3 312 760 9 116 3 669 868 10 397
Industrial 1 530 500 4 521 1 707 515 4 901
9 400 406 10 759 004
Sector Difference Difference
(%) (R’000)
Office 18,1 824 475
Retail 10,8 357 108
Industrial 11,6 177 015
14,5 1 358 598
Investment properties increased by R1358,6m made up of capital
expenditure including capitalised interest of R1190,0m, less
disposals of R313,1m, depreciation of R11,6m and a net upward
revision in property values of R493,3m.
Debt
Emira has a moderate level of gearing with debt to total assets at
30 June 2014 equating to 34,0%. As at 30 June 2014, 87,1% of the
Fund’s debt had been fixed for periods of between 2 and 10 years,
with a weighted average length of 4 years and 7 months.
Weighted Weighted Amount % of
average rate % average term (Rm) debt
Debt — Swap 9,1 4 years 7 months 3 446,6 87,1
Debt — Floating 7,2 510,9 12,9
Total 8,8 3 957,5 100,0
Less: Costs capitalised
not yet amortised (3,7)
Per balance sheet 3 953,8
Directorate
With effect from 12 August 2014, Nocawe Makiwane has indicated that
she can no longer be considered an independent director and
accordingly has resigned as a member of the Audit and Risk
Committees. She will remain on the STREM board as a non-executive
director. Gerhard van Zyl has been appointed to these committees in
her place.
Peter Thurling, the Chief Financial Officer, has indicated that he
wishes to retire with effect from 31 December 2014. A replacement is
currently being sought.
REIT status
Emira was awarded REIT status by the JSE, with effect from 1 July 2013.
Change in distribution policy – depreciation
Since inception Emira has provided for depreciation, in respect of
certain fixed assets, in line with tax allowances. This has resulted
in its distributable income being lower than its peers on a comparable
basis.
In order to align Emira with other listed property funds, from FY15,
Emira will no longer include a depreciation charge in its
distributable income. This will result in an increase in future
distributions payable, of approximately R12m.
Prospects
The benefit of the improved occupancies in FY14 and the forecast
containment of property expenses in the coming financial year are
expected to result in a further healthy improvement in distribution
growth per PI in the 12 months to June 2015. The benefit of the
distribution policy change regarding depreciation will further enhance
distribution growth.
The forecast information contained in this paragraph has not been
reviewed by Emira’s auditors.
Subsequent to year-end
The acquisition of a portfolio of eight properties for R830m has been
conditionally concluded, pending Competition Commission approval,
which is expected mid-August 2014. This portfolio comprising two
retail properties, three office buildings and three industrial
properties has been acquired at a forward yield of 9,4% with effect
from 1 July 2014.
The weighted average lease length is in excess of five years, with an
average escalation of 8,4%, let to high quality tenants such as
Massmart, Intercare, Auditor-General and Cipla-Medpro.
Funding for the acquisition will be through a combination of debt
and equity, for which an accelerated bookbuild of R310m was
concluded on 17 July 2014. The transaction is expected to be earnings
neutral in the first year and enhancing thereafter.
In addition, Emira has purchased a 60% undivided share in Ben Fleur
Boulevard, an 8 500m2 convenience centre situated in Emalahleni
(Witbank), for R66m at an expected yield of 9,4%.
Income distribution declaration
Notice is hereby given that a final cash distribution of 63,87 cents
(2013: 58,90 cents) per participatory interest has been declared,
payable to participatory interest holders on 15 September 2014. The
source of the distribution comprises net income from property
rentals, income earned from the Fund’s listed property investment
and interest earned on cash on deposit. Please refer to the
Statement of Comprehensive Income for further details. The number of PIs
in issue as at the date of declaration is 506 103 262.
In accordance with Emira’s status as a REIT, PI holders 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, qualifying
distributions received by local tax residents must be included in the
gross income of such participatory interest holders (as a non-exempt
dividend in terms of section 10(1) (k) (aa) of the Income Tax Act),
with the effect that the qualifying distribution is taxable as income
in the hands of the PI holder. These qualifying distributions are,
however, exempt from dividend withholding tax in the hands of South
African tax resident participatory interest holders, provided that
the South African resident participatory interest holders have
provided the following forms to their Central Securities Depository
Participant (“CSDP”) or broker, as the case may be, in respect of
uncertificated PIs, or the Transfer Secretaries, in respect of
certificated PIs:
a) a declaration that the distribution is exempt from dividends tax;
and
b) a written undertaking to inform the CSDP, broker or the Transfer
Secretaries, as the case may be, should the circumstances affecting
the exemption change or the beneficial owner cease to be the
beneficial owner, both in the form prescribed by the Commissioner for
the South African Revenue Service. Participatory interest holders are
advised to contact their CSDP, broker or the Transfer Secretaries, as
the case may be, to arrange for the abovementioned documents to be
submitted prior to payment of the distribution, if such documents
have not already been submitted.
Qualifying distributions received by non-resident participatory
interest holders 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 dividend
withholding tax. From 1 January 2014, any qualifying distribution
received by a non-resident from a REIT will be subject to dividend
withholding tax at 15%, unless the rate is reduced in terms of any
applicable agreement for the avoidance of double taxation (“DTA”)
between South Africa and the country of residence of the PI holder.
Assuming dividend withholding tax will be withheld at a rate of 15%,
the net amount due to non-resident participatory interest holders
will be 54,2895 cents per participatory interest. A reduced dividend
withholding tax rate in terms of the applicable DTA, may only be
relied on if the non-resident PI holder has provided the following
forms to their CSDP or broker, as the case may be, in respect of the
uncertificated PIs, or the Transfer Secretaries, in respect of
certificated PIs:
a) a declaration that the dividend is subject to a reduced rate as a
result of the application of a DTA; and
b) a written undertaking to inform their CSDP, broker or the Transfer
Secretaries, as the case may be, should the circumstances affecting
the reduced rate change or the beneficial owner cease to be the
beneficial owner, both in the form prescribed by the Commissioner for
the South African Revenue Service. Non-resident PI holders are
advised to contact their CSDP, broker or the Transfer Secretaries, as
the case may be, to arrange for the abovementioned documents to be
submitted prior to payment of the distribution if such documents have
not already been submitted, if applicable.
Local tax resident participatory interest holders as well as non-
resident participatory interest holders are encouraged to consult
their professional advisors should they be in any doubt as to the
appropriate action to take.
Last day to trade cum distribution Friday, 5 September 2014
Participatory interests trade ex
distribution Monday, 8 September 2014
Record date Friday, 12 September 2014
Payment date Monday, 15 September 2014
PI certificates may not be dematerialised or rematerialised between
Monday, 8 September 2014 and Friday, 12 September 2014, both days
inclusive.
By order of the STREM Board
Martin Harris Ben van der Ross James Templeton
Company Secretary Chairman Chief Executive Officer
Bryanston
13 August 2014
Basis of preparation and accounting policies
The condensed consolidated preliminary financial statements of Emira
Property Fund (“Emira” or “the Fund”) have been prepared in
accordance with International Financial Reporting Standards (“IFRS”)
including IAS 34 Interim Financial Reporting, and are in compliance
with the Listings Requirements of the JSE Limited. Except for the
new standards adopted as set out below, all accounting policies used
in the preparation of these financial statements are consistent with
those used in the annual financial statements for the year ended
30 June 2013. Emira adopted the following new standards:
IFRS 10 — Consolidated Financial Statements
IFRS 11 — Joint Arrangements
IFRS 12 — Disclosure of Interest in Other Entities
IFRS 13 — Fair Value Measurement
Amendment of IFRS 7 — Disclosures — Offsetting Financial Assets and
Financial Liabilities
Amendments to IAS 32 — Financial Instrument Presentation
Except for additional disclosure required in terms of IFRS 13, there
was no other material impact on the condensed financial statements.
In terms of IFRS 10, and in line with the annual financial
statements for the year ended 30 June 2013, Emira continues to
consolidate the financial statements of Strategic Real Estate Managers
(Pty) Ltd (STREM) due to the existence of substantive potential
voting rights.
This report was compiled under the supervision of Peter Thurling CA
(SA), the Chief Financial Officer.
These condensed consolidated preliminary financial statements for
the year ended 30 June 2014 have been reviewed by
PricewaterhouseCoopers Inc., who expressed an unmodified review
conclusion. A copy of the auditor’s review report is available for
inspection at the company’s registered office together with the
financial statements identified in the auditor’s report. The
distribution statement was not reviewed.
Condensed consolidated statement of financial position at 30 June
2014
Reviewed Audited
R’000 30 June 2014 30 June 2013
Assets
Non-current assets 11 259 150 9 366 817
Investment properties 10 371 073 8 640 590
Allowance for future rental
escalations 162 190 130 605
Unamortised upfront lease costs 45 413 39 306
Fair value of investment properties 10 578 676 8 810 501
Listed property investment 665 992 537 102
Derivative financial instruments 14 482 19 214
Current assets 199 523 158 004
Accounts receivable and prepayments 148 048 131 162
Derivative financial instruments 6 172 4 204
Cash and cash equivalents 45 303 22 638
Investment properties held for sale 180 328 589 905
Total assets 11 639 001 10 114 726
Equity and liabilities
Participatory interest holders'
capital and reserves 7 003 785 6 590 162
Non-current liabilities 2 617 964 1 440 682
Interest-bearing debt 2 573 916 1 362 722
Derivative financial instruments 44 048 62 737
Deferred taxation — 15 223
Current liabilities 2 017 252 2 083 882
Short-term portion of interest-
bearing debt 1 379 864 1 510 000
Accounts payable 313 316 262 043
Derivative financial instruments 15 017 18 929
Distribution payable to
participatory interest holders 309 055 292 910
Total equity and liabilities 11 639 001 10 114 726
Condensed statement of changes in equity for the year ended 30 June
2014
Revaluation
Participatory and other
R’000 interest reserves
Balance at 30 June 2012 3 669 396 2 105 118
Participatory interests repurchased (51 141)
Total comprehensive income/(loss)
for the year
Distribution to participatory
interest holders
Transfer to fair value reserve
(net of deferred taxation) 871 588
Balance at 30 June 2013 3 618 255 2 976 706
Participatory interests repurchased (182 821)
Total comprehensive income for the year
Distribution to participatory
interest holders
Transfer to fair value reserve
(net of deferred taxation) 596 494
Balance at 30 June 2014 3 435 434 3 573 200
Condensed statement of changes in equity for the year ended 30 June
2014
Non-
Retained controlling
R’000 earnings interest Total
Balance at 30 June 2012 (1 287) 1 994 5 775 221
Participatory interests
repurchased (51 141)
Total comprehensive income/(loss)
for the year 1 441 444 (5 506) 1 435 938
Distribution to participatory
interest holders (569 856) (569 856)
Transfer to fair value reserve
(net of deferred taxation) (871 588) —
Balance at 30 June 2013 (1 287) (3 512) 6 590 162
Participatory interests
repurchased (182 821)
Total comprehensive income for
the year 1 195 343 2 212 1 197 555
Distribution to participatory
interest holders (601 111) (601 111)
Transfer to fair value reserve
(net of deferred taxation) (596 494) —
Balance at 30 June 2014 (3 549) (1 300) 7 003 785
Condensed consolidated statement of comprehensive income
Reviewed Audited
year ended year ended
R’000 30 June 2014 30 June 2013
Revenue 1 476 358 1 342 244
Operating lease rental income and tenant
recoveries 1 448 914 1 353 853
Allowance for future rental escalations 27 444 (11 609)
Income from listed property investment 44 225 36 332
Property expenses (559 216) (500 970)
Acquisition costs (2 262) —
Fee paid on cancellation of interest-
rate swap agreements — (28 713)
Administration expenses (68 178) (70 572)
Depreciation (11 637) (12 052)
Operating profit 879 290 766 269
Net fair value adjustments 529 891 577 023
Net fair value gain on investment
properties 461 603 471 542
Change in fair value as a result of
straight-lining lease rentals (27 444) 11 609
Change in fair value as a result of
amortising upfront lease costs (4 257) (5 401)
Change in fair value as a result of
property appreciation in value 493 304 465 334
Revaluation of share appreciation rights
scheme derivative financial instrument (3 682) 6 340
Unrealised gain on fair valuation of
listed property investment 71 970 99 141
Profit before finance costs 1 409 181 1 343 292
Net finance costs (226 849) (108 104)
Finance income 13 546 8 160
Interest received 13 546 8 160
Finance costs (240 395) (116 264)
Interest paid and amortised borrowing
costs (276 019) (247 036)
Interest capitalised to the cost of
developments 15 945 2 036
Unrealised surplus on interest-rate
swaps 19 679 128 736
Profit before income tax credit 1 182 332 1 235 188
Income tax credit 15 223 200 750
SA normal taxation — —
Deferred taxation 15 223 200 750
– Revaluation of investment properties — 205 792
– Other timing differences including
allowance for future rental escalations 15 223 (5 042)
Profit for the year 1 197 555 1 435 938
Attributable to Emira equity holders 1 195 343 1 441 444
Attributable to minority interests 2 212 (5 506)
1 197 555 1 435 938
Total comprehensive income
Attributable to Emira equity holders 1 195 343 1 441 444
Attributable to minority interests 2 212 (5 506)
1 197 555 1 435 938
Reconciliation between earnings and headline earnings and
distribution
Reviewed Audited
year ended year ended
R’000 30 June 2014 30 June 2013
Profit for the year 1 197 555 1 435 938
Adjusted for:
Net fair value gain on revaluation of
investment properties (461 603) (471 542)
Deferred taxation on revaluation of
investment properties — (205 792)
Headline earnings 735 952 758 604
Adjusted for:
Allowance for future rental escalations (27 444) 11 609
Amortised upfront lease costs (4 257) (5 401)
Unrealised surplus on interest rate swaps (19 679) (128 736)
Revaluation of share appreciation rights
scheme derivative
financial instrument 3 682 (6 340)
Unrealised gain on listed property
investment (71 970) (99 141)
(Credit)/charge in respect of leave pay
provision and share appreciation rights
scheme (2 212) 5 506
Acquisition costs 2 262 —
Fee paid on cancellation of interest-rate
swap agreements — 28 713
Deferred taxation - other timing
differences (15 223) 5 042
Distribution payable to participatory
interest holders 601 111 569 856
Distribution per participatory interest
Interim (cents) 59,31 55,69
Final (cents) 63,87 58,90
Total (cents) 123,18 114,59
Number of participatory interests in
issue at the end of the year 483 881 040 497 299 883
Weighted average number of participatory
interests in issue 490 270 328 497 949 166
Earnings per participatory interest
(cents) 244,26 288,37
The calculation of earnings per participatory interest is based on
net profit for the year of R1 197,6m (2013: R1 435,9m), divided by
the weighted average number of participatory interests
in issue during the year of 490 270 328 (2013: 497 949 166).
Headline earnings per participatory
interest (cents) 150,11 152,35
The calculation of headline earnings per participatory interest is
based on net profit for the year, adjusted for non- trading items, of
R736,0m (2013: R758,6m), divided by the weighted average number of
participatory interests in issue during the year of 490 270 328
(2013: 497 949 166).
Acquisition of Menlyn Coroporate Park (Pty) Ltd (“MCP”)
With effect from 1 June 2014, the Fund acquired 100% of the share
capital of MCP, a company incorporated in South Africa, which owns a
P-grade office development in Menlyn, Pretoria for R284,2m.
The subsidiary contributed a profit of R2,5m to the Fund for the
period from the date of acquisition to 30 June 2014.
Details of the assets and liabilities acquired are as follows:
Rm
Development property 614,0
Cash and cash equivalents 2,9
Borrowings (328,3)
Net current liabilities (4,4)
Fair value of acquired interest in net assets 284,2
Total purchase consideration 284,2
Condensed statement of cash flows
Reviewed Audited
year ended year ended
R’000 30 June 2014 30 June 2013
Cash generated from operations 892 472 784 198
Finance income 13 546 8 160
Interest paid (276 019) (247 036)
Taxation paid — (162)
Acquisition costs (2 262) —
Fee paid on cancellation of interest-
rate swaps — (28 713)
Distribution to participatory interest
holders (584 966) (561 788)
Cash flows from operating activities 42 771 (45 341)
Acquisition of, and additions to,
investment properties and fixtures and
fittings (560 065) (252 069)
Proceeds on sale of investment
properties and fixtures and fittings 313 079 120 700
Acquisition of investment in listed
property fund (56 920) (19 502)
Acquisition of subsidiary, net of cash
acquired (281 232) —
Cash flows from investing activities (585 138) (150 871)
Participatory interests repurchased (182 821) (51 141)
Increase in interest-bearing debt 752 782 247 803
Derivative acquired in respect of share
appreciation rights scheme (4 929) —
Cash flows from financing activities 565 032 196 662
Net increase in cash and cash
equivalents 22 665 450
Cash and cash equivalents at the
beginning of the year 22 638 22 188
Cash and cash equivalents at the end of
the year 45 303 22 638
Segmental information
R’000 Office Retail
Sectoral segments
Revenue 674 886 571 943
Revenue 659 359 566 487
Allowance for future rental escalations 15 527 5 456
Segmental information
Operating profit 395 603 328 490
Investment properties 5 381 621 3 669 868
Geographical segments
Revenue
— Gauteng 512 618 358 518
— Western and Eastern Cape 79 097 56 953
— KwaZulu-Natal 53 571 91 350
— Free State 29 600 65 122
674 886 571 943
Investment properties
— Gauteng 4 274 171 2 359 654
— Western and Eastern Cape 597 200 381 600
— KwaZulu-Natal 347 050 578 950
— Free State 163 200 349 664
5 381 621 3 669 868
Segmental information Industrial Administrative
R’000 and corporate Total
Sectoral segments
Revenue 229 529 1 476 358
Revenue 223 068 1 448 914
Allowance for future rental
escalations 6 461 27 444
Segmental information
Operating profit 145 209 9 988* 879 290
Investment properties 1 707 515 10 759 004
Geographical segments
Revenue
— Gauteng 170 515 1 041 651
— Western and Eastern Cape 27 414 163 464
— KwaZulu-Natal 31 600 176 521
— Free State 94 722
229 529 1 476 358
Investment properties
— Gauteng 1 255 805 7 889 630
— Western and Eastern Cape 233 050 1 211 850
— KwaZulu-Natal 218 660 1 144 660
— Free State 512 864
1 707 515 10 759 004
* Includes income from listed property investment of R44,2m less
general Fund expenses of R31,9m and acquisition costs of R2,3m.
Measurements of fair value
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:
Level 1 Level 2 Level 3
R’000 2014 2014 2014
GROUP
Assets
Investments 665 992 665 992
Derivative financial instruments 20 654 20 654
Total 665 992 20 654 686 646
Liabilities
Derivative financial instruments 59 065 59 065
Total — 59 065 59 065
Net fair value 665 992 (38 411) 627 581
Level 1 Level 2 Level 3
R’000 2013 2013 2013
GROUP
Assets
Investments 537 102 537 102
Derivative financial instruments 23 418 23 418
Total 537 102 23 418 560 520
Liabilities
Derivative financial instruments 81 666 81 666
Total — 81 666 81 666
Net fair value 537 102 (58 248) 478 854
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 a listed property company at fair value
which is determined by reference to quoted closing prices at the
reporting date.
Derivative financial instruments
The fair values of the interest rate swap contracts are determined
using discounted cash flow projections, based on estimates of future
cash flows supported by the terms of the relevant swap agreements and
external evidence such as the ZAR 0-coupon perfect-fit swap curve.
The call option contracts to the value of R8,1m are valued using a
Black Scholes option pricing model.
2. Non-financial assets
The following table reflects the levels within the hierarchy of non-
financial assets measured at fair value at 30 June 2014:
Level 3 Level 3
R’000 2014 2013
Assets
Investment properties 10 578 676 8 810 501
Investment properties held for sale 180 328 589 905
Fair value measurement of investment properties
The fair value of commercial buildings is 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 interrelationship between these inputs. The inputs used in
the valuations at 30 June 2014 were:
The range of the reversionary capitalisation rates applied to the
portfolio are between 9,0% and 13,0% with the weighted average being
10,06% (2013: 10,18%).
The discount rates applied range between 13,75% and 16,5% with the
weighted average being 14,73% (2013: 14,78%).
Changes in discount rates and reversionary capitalisation rates
attributable to changes in market conditions can have significant
impact on property valuations. A 25 basis points increase in the
discount rate will decrease the value of investment property by
R157,7m (1,5%) and a 25 basis points decrease will increase value
of investment property by R163,3m (1,5%). A 25 basis points
decrease in the capitalisation rate will increase value of
investment property by R155,8m (1,5%) and a 25 basis points increase
will decrease value of investment property by R148,0m (1,4%).
Fair values are estimated twice a year whereafter they are reviewed
by the executive directors and approved by the board of directors. At
the year-end one third of the property portfolio is externally valued.
Fair value measurement of investment properties held for sale
The fair value of investment properties held for sale is based on the
expected sale price.
Fund Manager: Strategic Real Estate Managers (Pty) Ltd
Directors of the Fund Manager: BJ van der Ross (Chairman)*,
JWA Templeton (Chief Executive Officer), MS Aitken*, BH Kent**,
V Mahlangu**, NE Makiwane*, W McCurrie*, MSB Neser**, V Nkonyeni*,
PJ Thurling, U van Biljon, G van Zyl**
*Non-executive Director **Independent Non-executive Director
Registered address: Optimum House, Epsom Downs Office Park,
13 Sloane Street, Bryanston, 2191
Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited)
Transfer Secretaries: Computershare Investor Services (Pty) Ltd,
70 Marshall Street, Johannesburg, 2001
www.emira.co.za
Date: 13/08/2014 01:40:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.