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Change statement and notice of annual general meeting
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")
ABRIDGED 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%
- Successful 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 Interim Period ending 30 Nov 2013
- Basis of preparation
The abridged 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 abridged 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 abridged financial results.
These financial results were prepared under the supervision of Mr F Jenkings CA (SA), in his capacity as
group Chief Financial Officer.
The abridged financial statements do not contain all the information and disclosures required
in the annual financial statements. The directors take full responsibility for the preparation
of the abridged report and that the financial information has been correctly extracted from the
underlying financial statements. The abridged financial statements have been extracted from the
audited financial statements upon which Mazars Inc. has issued an unqualified report, but is not
itself audited. In the basis of preparation paragraph, certain inconsequential changes to
disclosures as reported in the provisional results released on SENS on the 24th July 2014 are
reported. The audited financial statements and the unqualified report are available for inspection
at the registered office of the company.
The abridged financial statements contain certain changes to the statements of comprehensive income
and cash flows and the calculation of headline earnings and distributable earnings reconciliation
from the provisional results previously published. (All figures are in R'000, unless stated otherwise).
The line item of other income amounting to R480 was reclassified to be included in net operating profit
in the statement of comprehensive income and the segmental analysis, and consequently removed from interest
received in the statements of comprehensive income and cash flows. The statement of cash flows in these
abridged financial statements has additional disclosures including the line item of Dividends paid of
R39 919 now reflected as part of net cash utilised in financing activities. The change in fair value of
the interest rate swaps of R1 442 has been eliminated from the line item acquisition of investment property
and proceeds from secured financial liabilities in the statement of cash flows and also removed from the
calculation of headline earnings in the calculation of headline earnings and distributable earnings
reconciliation. This has resulted in a reduction from previously reported basic and diluted headline
earnings per share - weighted average shares in issue (cents) figure of 94.4 sents down by 1.3 cents to
93.1 cents. The distribution as detailed in the provisional results released on SENS on the
24th of July 2014 remained unchanged.
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
Notice to shareholders
Shareholders are advised that Tower's integrated report and the audited annual financial statements for
the financial year ended 31 May 2014 is available with immediate effect, on the company's website,
www.towerpropertyfund.co.za and incorporates the non-material changes detailed herein from the provisional
annual results for the year ended 31 May 2014, released on SENS on 24 July 2014.
The summarised audited financial information for the financial year ended 31 May 2014, together with the
notice of annual general meeting was dispatched to shareholders today, 29 August 2014.
The company's annual general meeting will be held at 10h00 on Thursday, 2 October 2014 at the Belmont
Conference Centre, Belmont Road, Rondebosch. The full notice of the meeting is available in the integrated
report on the company's website www.towerpropertyfund.co.za.
The last day to trade in order to be eligible to participate in and vote at the annual general meeting is
Thursday, 18 September 2014 and the record date for voting purposes is Friday, 26 September 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
R161.7 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 since listing has grown by 18% 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 R227 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.
TOWER PROPERTY FUND LIMITED
STATEMENT OF COMPREHENSIVE INCOME Group
Figures in R'000 2014
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 (10 273)
Other income 480
Net operating profit 161 692
Fair value adjustments on investment properties (11 740)
Fair value adjustment on interest rate swaps (1 442)
Profit from operations 148 510
Finance income 3 066
Finance costs (53 456)
Capital raising expenses (11 487)
Profit before taxation 86 633
Taxation -
Total comprehensive income for the year 86 633
Basic and fully diluted earnings per share - weighted average shares in issue (cents) 82.0
STATEMENT OF FINANCIAL POSITION Group
Figures in R'000 2014
Assets
Investment property 2 043 745
Straight-line lease accrual 17 102
2 060 847
Current assets
Trade and other receivables 36 882
Cash and cash equivalents 38 171
75 053
Total assets 2 135 900
Equity and liabilities
Equity
Issued capital 1 251 034
Retained earnings (10 204)
1 240 830
Non-current liabilities
Borrowings 769 518
769 518
Current liabilities
Trade and other payables 68 635
Shareholders for dividend 56 917
125 552
Total equity and liabilities 2 135 900
STATEMENT OF CASH FLOWS Group
Figures in R'000 2014
Profit for the year 86 633
Adjustments for:
Finance costs 53 188
Investment income (3 066)
Change in fair value of investment property 11 740
Change in fair value of interest rate derivative 1 442
Straight-line lease accrual (17 102)
Operating cash flow before working capital changes 132 835
Working capital changes
Increase in trade and other receivables (36 873)
Increase in trade and other payables 68 635
Cash generated by operating activities 164 597
Investment income 3 066
Finance costs (53 456)
Net cash from operating activities 114 207
Cash flows from investing activities
Investment property acquired (1 228 082)
Net cash generated by investing activities (1 228 082)
Cash flows from financing activities
Capital issued 440 031
Capital raising costs (16 142)
Loans raised 768 076
Dividends paid (39 919)
Net cash utilised in financing activities 1 152 046
Increase in cash and cash equivalents 38 171
Cash and cash equivalents at beginning of the year -
Cash and cash equivalents at end of the year 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
Reconciliation of earnings: R' 000
Total comprehensive income for the period 86 633
Adjusted for:
Change in fair value of investment properties 11 740
Headline earnings 98 373
Adjusted for:
Straight line rental income accrual (17 102)
Change in fair value of interest rate swaps 1 442
Distributable profit 82 713
Adjusted for:
Capital raising expenses 11 487
Amortisation of debt raising fees 2 636
Distributable earnings 96 836
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) 93,1
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 (10 273)
Other income 480
Net operating profit 161 692
Notes:
1) No comparative figures are disclosed as this is the
company's first period of operation. The company 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
29 August 2014
Java Capital
Date: 29/08/2014 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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