Wrap Text
Audited condensed consolidated results for the year ended 30 June 2014
FAIRVEST PROPERTY HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/005011/06)
("Fairvest" or "the company" or "the group")
Linked unit code: FVT ISIN: ZAE000034658
Granted REIT status with the JSE
HIGHLIGHTS
- Full year distribution of 13.72 cents per linked unit exceeded the 13.70 cents
per linked unit forecast
- 18.9% annualised return to shareholders since December 2012 recapitalisation
- Net asset value increased to 159.0 cents per linked unit
- R235 million of new equity raised during the period.
- 13.3% increase in historic property values
- Distribution growth of 9%-10% expected for the 2015 financial year
AUDITED CONDENSED CONSOLIDATED RESULTS FOR THE YEAR ENDED 30 JUNE 2014
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Audited Audited
2014 2013
R '000 R '000
ASSETS
NON-CURRENT ASSETS 1 103 918 774 810
Investment property 1 089 481 770 307
Office equipment 342 354
Operating lease asset 14 095 4 149
CURRENT ASSETS 19 013 10 269
Trade and other receivables 15 347 7 506
Taxation - 59
Cash and cash equivalents 3 666 2 704
Non-current assets held for sale 4 500 -
TOTAL ASSETS 1 127 431 785 079
EQUITY AND LIABILITIES
EQUITY AND RESERVES
Ordinary share capital 5 254 3 598
NON-CURRENT LIABILITIES 1 055 647 743 363
Linked unit debentures 830 024 543 309
Interest bearing borrowings 222 000 200 047
Deferred taxation 3 623 7
CURRENT LIABILITIES 66 530 38 118
Trade and other payables 66 530 38 118
TOTAL EQUITY AND LIABILITIES 1 127 431 785 079
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Audited Audited
2014 2013
R '000 R '000
GROSS REVENUE 148 961 54 184
Rental income - contractual 138 371 50 376
- straight-line accrual 10 590 3 808
Property expenses (49 158) (16 447)
Net profit from property operations 99 803 37 737
Corporate administrative expenses (10 099) (6 217)
OPERATING PROFIT 89 704 31 520
Foreign exchange gains - 42
Fair value adjustment to listed investments - 284
Fair value adjustment to investment properties 56 423 67 745
Fair value adjustment to debentures (56 153) (57 407)
Finance cost (21 015) (7 048)
Investment revenue 629 4 998
PROFIT BEFORE DEBENTURE INTEREST 69 588 40 134
Debenture interest (59 600) (27 255)
PROFIT AFTER DEBENTURE INTEREST 9 988 12 879
Capital raising expenses (6 372) (16 126)
PROFIT/(LOSS) BEFORE TAXATION 3 616 (3 247)
Taxation (3 616) 3 247
COMPREHENSIVE INCOME ATTRIBUTABLE TO
SHAREHOLDERS - -
Profit and total comprehensive income attributable to:
- Owners of the parent - -
- Non controlling interest - -
Reconciliation between profit attributable to shareholders and headline earnings per linked unit
Shares are traded as part of linked units
Profit attributable to linked shareholders* - -
Fair value adjustment to investment properties (56 423) (67 745)
Headline and diluted headline loss attributable
to shareholders (56 423) (67 745)
Fair value adjustment to debentures 56 153 57 407
Debenture interest 59 600 27 255
Headline and diluted headline profit
attributable to linked unitholders 59 330 16 917
DISTRIBUTION (DEBENTURE INTEREST)*
Special distribution per linked unit (cents) - 3.71
Interim interest distribution per linked unit (cents) 6.75 0.86
Final interest distribution per linked unit (cents) 6.97 6.00
Total interest distribution per linked unit (cents) 13.72 10.57
EARNINGS PER SHARE
Basic and diluted earnings per share (cents) ** - -
Headline and diluted headline loss per
share (cents) ** (13.1) (32.2)
Headline and diluted headline earnings per
linked unit (cents) ** 13.7 8.0
Net asset value per linked unit and net
tangible asset value per linked unit (cents)*** 159.0 151.9
Linked unit statistics (excluding treasury linked units)
Linked units in issue 527 636 276 359 762 307
Less: Treasury linked units (2 211 860) -
Effective linked units in issue 525 424 416 359 762 307
Weighted average number of linked units 432 337 771 210 840 698
* Debenture interest is calculated on the capital at a variable rate equal to 99.9% of the net profit
of the company before taxation, but after adjusting for extraordinary income and expenditure, capital
gains and losses, and capital expenditure.
** Headline earnings have been presented in accordance with IAS 33. The linked unit structure of
the group whereby every shareholder is a debenture holder, coupled with the terms of the
Debenture Trust Deed which states that 99.9% of profits are attributable to debenture holders,
results in the benefits of improved trading which would be ordinarily attributable to shareholders
being expensed in the income statement as a fair value adjustment to debentures and debenture
interest. This results in no profit being attributable to ordinary shareholders.
*** Linked unit debentures are included in the net asset value and net tangible asset value
calculation.
Audited Audited
2014 2013
R '000 R '000
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash inflow / (outflow) from operating activities 15 055 (1 859)
Cash outflow to investing activities (32 298) (567 995)
Cash inflow from financing activities 18 205 547 823
Net increase / (decrease) in cash and cash equivalents 962 (22 031)
Cash and cash equivalents at beginning of period 2 704 24 735
Cash and cash equivalents at end of period 3 666 2 704
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Share Retained
capital income Total
R'000 R'000 R'000
Balance at 1 July 2012 857 - 857
Linked units issued 2 740 - 2 740
Disposal of treasury units 1 - 1
Total comprehensive income for the period - - -
Balance at 30 June 2013 3 598 - 3 598
Linked units issued 1 678 - 1 678
Acquisition of treasury linked units (22) - (22)
Total comprehensive income for the period - - -
Balance at 30 June 2014 5 254 - 5 254
STATEMENTS OF CHANGES IN LINKED UNIT DEBENTURES
Linked Linked unit
unit debenture
debenture fair value
capital adjustment Total
R'000 R'000 R'000
Balance at 1 July 2012 857 142 474 143 331
Linked units issued 2 740 339 830 342 570
Disposal of treasury units 1 - 1
Net fair value adjustment - 57 407 57 407
Balance at 30 June 2013 3 598 539 711 543 309
Linked units issued 1 678 231 666 233 344
Acquisition of treasury linked units (22) (2 760) (2 782)
Net fair value adjustment - 56 153 56 153
Balance at 30 June 2014 5 254 824 770 830 024
CONDENSED CONSOLIDATED SEGMENT REPORT
Reconc-
iling
items /
Eastern Western Free KwaZulu Northern (Elimin-
Cape Cape State Gauteng Natal Cape Limpopo ations) Total
FOR THE YEAR ENDED 30 JUNE 2014
Revenue - external customers 8 789 41 533 1 398 34 406 39 531 5 578 7 136 - 138 371
Operating profit 7 158 29 371 993 20 870 33 220 2 809 5 382 (10 099) 89 704
Total assets 43 919 276 171 6 970 215 674 406 960 53 140 111 113 13 484 1 127 431
FOR THE YEAR ENDED 30 JUNE 2013
Revenue - external
customers 8 345 14 024 1 283 9 228 17 496 - - - 50 376
Intersegmental revenue - 191 - - - - - (191) -
Operating profit 6 334 10 324 815 5 946 14 262 - - (6 161) 31 520
Total assets 38 872 243 820 8 452 195 849 290 114 - - 7 972 785 079
OTHER SEGMENTAL INFORMATION
2014 2013
Regional profile based on leasable area
KwaZulu-Natal 29.5% 32.0%
Western Cape 24.2% 30.9%
Gauteng 23.3% 28.8%
Limpopo 9.3% -
Northern Cape 7.2% -
Eastern Cape 5.0% 6.4%
Free State 1.5% 1.9%
Sector profile based on leasable area
Retail 88.0% 85.1%
Office 12.0% 14.9%
Vacancy profile based on gross lease area
Gross lease area in metres squared as at end of period* 125 520 100 578
Properties held 32 28
Vacancy area in metres squared 8 772 9 023
Vacancy area as % of gross lease area 7.0% 9.0%
Regional vacancy profile
(regions where vacancies are located)
KwaZulu-Natal 42.4% 46.4%
Gauteng 36.2% 37.2%
Western Cape 9.7% 16.4%
Northern Cape 7.7% -
Limpopo 4.0% -
Basis of preparation and accounting policies
The preparation of these condensed consolidated financial statements was supervised by the Chief
Financial Officer, BJ Kriel CA (SA).
The accounting policies applied in the preparation of these audited condensed consolidated results
for the year ended 30 June 2014, which are based on reasonable judgements and estimates, are in
accordance with International Financial Reporting Standards ("IFRS") and are consistent with those
applied in the annual financial statements for the year ended 30 June 2013. Any other new and
amendments to IFRS and IFRIC interpretations did not impact on the financial position or
performance of the company but has resulted in additional disclosures. These audited condensed
consolidated results as set out in this report have been prepared in accordance and containing the
information required by IAS 34 – Interim Financial Reporting, the SAICA Financial Reporting
Guidelines as issued by the Accounting Practices Committee and Financial Reporting
Pronouncements as issued by the Financial Reporting Council, the Companies Act of South Africa 71
of 2008, and the Listings Requirements of JSE Limited.
These audited condensed consolidated results for the year ended 30 June 2014 have been prepared
in accordance with the historic cost basis, except for the measurement of investment properties,
debentures and certain financial assets and financial liabilities which are stated at fair value.
The financial results are presented in Rands, which is Fairvest's functional and presentation currency
and have been prepared on a going concern basis.
Audit report
The audited condensed consolidated results for the year ended 30 June 2014 set out above, have
been extracted from the group's annual financial statements which have been audited by BDO South
Africa Inc. A copy of their unmodified audit opinion is available for inspection at the company's
registered office. Any reference to future financial performance included in this announcement has
not been reviewed or reported on by the company's auditors.
The directors take full responsibility for the preparation of the condensed consolidated audited
results presented and that the financial information has been correctly extracted from the underlying
financial statements.
Estimates and critical judgements
Except for the measurement of investment properties, debentures and certain financial assets and
financial liabilities the financial statements do not include any material estimates.
COMMENTARY
Introduction
Fairvest is a property investment holding company and Real Estate Investment Trust (REIT), with a
unique focus on retail assets weighted toward non-metropolitan and rural shopping centres, as well
as convenience and community shopping centres servicing the lower LSM market, in high-growth
nodes, close to commuter networks. The Fairvest property portfolio consists of 32 properties, with
125 520m2 of lettable area and valued at R1 109.1 million.
Fairvest's application to the JSE Limited for Real Estate Investment Trust ("REIT") status was
approved on 3 July 2013. The conversion to a REIT is effective from 1 July 2013.
Acquisitions and associated capital raising activities
Linked unitholders are referred to the company's SENS announcement dated 31 January 2014,
regarding the acquisition by the company from Vukile Property Fund Limited of a portfolio of 4 retail
properties. This transaction was implemented in January 2014 and all properties transferred to the
company. 167 873 969 ordinary linked units were issued to Vukile in terms of an acquisition issue at
an issue price of R1.40 per linked unit, raising R235.0 million of new equity.
This transaction created a strategic relationship between Fairvest and Vukile and after some further
share purchases in the open market Vukile now holds 32.2% of the issued linked units in Fairvest.
Review of results
The Fairvest board of directors is pleased to announce a distribution of 6.97 cents per linked
unit for the 6 months ended 30 June 2014, bringing the total distribution for the year to
13.72 cents per linked unit, exceeding the guidance issued to the market of 13.70 cents per
linked unit.
Distribution history
Interim Final Total
cents per cents per cents per
linked unit linked unit linked unit
Jun-11 5.00 5.90 10.90
Jun-12 5.20 6.30 11.50
Jun-13 4.57 6.00 10.57
Jun-14 6.75 6.97 13.72
Revenue for the year ended 30 June 2014 increased by 175% to R149.0 million as a result of
income growth in the historic portfolio and the acquisitions. Net profit from property
operations increased by 164% to R99.8 million, while administration expenses were
contained to a growth of 62% to R10.1 million, resulting in debenture interest increasing by
119% to R59.6 million. Recurring expenses as a ratio of revenue has continued to increase
year-on-year from 32.6% in the prior year to 35.5%, with rates and taxes and other
government services representing the largest contributor to expense escalations.
Gross rentals across the portfolio trended upwards during the year, with a 6.2% increase in
the weighted average rental of R86.4/m2 at 30 June 2014 compared to the previous year. At
30 June 2014 the weighted average contractual escalation for the portfolio was 7.2%. This is
mainly as a result of the high national tenant percentage component of 78.6% of the
portfolio, which provides unit holders with a relatively low risk investment profile.
Tenant grade as a percentage of GLA
A-grade tenants 78.6%
B-grade tenants 9.2%
C-grade tenants 12.2%
A – Anchor and national tenants
B – Franchise, professional and large tenants
C – other
Vacancies reduced from 9.0% to 7.0% during the period under review. Despite a 24.8%
increase in the GLA of the portfolio actual vacant space decreased from 9 023m2 at the end
of 2013 to 8 772m2 at 30 June 2014.The improvement is as a result of various leasing
initiatives that were implemented during the year. An agreement of sale is being negotiated
on the vacant Gingindlovu property and should it be concluded, the vacancy percentage will
reduce further to 4.6% which is in line with industry norms. As at 30 June 2014 the weighted
average lease length was 41 months.
Based on Based on
rentable gross
Lease expiry profile area rental
Vacant 7.0% 0.0%
Expired 14.4% 15.7%
30-Jun-15 10.8% 13.5%
30-Jun-16 14.9% 16.1%
30-Jun-17 9.2% 10.1%
30-Jun-18 13.9% 11.8%
After 30-Jun-19 29.8% 32.8%
During the period under review 59 new leases were concluded which equated to a GLA of
13 626m2. Renewal activity was also positive with a 7.8% escalation achieved on the
14 313m2 of leases that were renewed during the year. Tenant retention for the year was 81.7%.
Redevelopments and upgrades
Clubview Corner
The upgrade to Clubview Corner was completed in January 2014. The letting of the centre is
currently underway with new leases concluded with Spar and Simply Asia. Fairvest also
successfully negotiated the sale of the independent liquor store at the centre to the Spar
Franchisee as a rebranded Tops Liquor store. Interest is ongoing on the remaining vacancy
with the objective being to fill the vacancy by the end of the next financial year.
SASSA House (previously Deals House)
The Deals House property was rebranded during the year as SASSA House. The upgrade of
the external façade was completed which involved the replacement of existing windows,
new air-conditioning units and repainting of the building, including signage and new
architectural elements. Phase 2 of the upgrade involved the creation of a new foyer area
and the installation of two new lifts to better serve the office tenant SASSA.
The first lift was completed and operational in April 2014 with the second lift due to
be commissioned by August 2014. Phase 3, being the upgrade and re-tenanting of the ground
floor retail, is scheduled to be completed by 30 June 2015.
As a result of the upgrades undertaken, SASSA have renewed their lease agreement for a
further two years. Discussions are underway with SASSA in terms of a further renewal for
five years, the renewal of which will be accompanied by an obligation to provide a tenant
installation for the office space being occupied.
Nyanga Junction
A significant upgrade of Nyanga Junction was undertaken during the current financial year. A
new 10-year lease was concluded with Shoprite during the year, which allowed us to attend
to a number of upgrade items during the period. By the end of the financial year we have
repainted a significant portion of the building, upgraded the lighting, improved the signage
and installed a new security camera system, all of which has significantly improved the
overall aesthetics at the centre.
As a consequence of the upgrade, existing tenants have renewed their lease agreements and
there is renewed interest in the centre from national tenants. The additional upgrades to be
completed during the 2015 financial year should further contribute to the shopping
experience by way of an improvement in the safety and security, as well the creation of a
new food court.
Property portfolio
The total property portfolio increased from R774.8 million in June 2013 to R1 109.1 million.
The increase is mainly as a result of the acquisition of the Vukile properties, with the
historic portfolio increasing by 13.3% relative to the previous year.
Portfolio valuation history
R'million
Jun-10 88.8
Jun-11 99.5
Jun-12 103.5
Jun-13 774.8
Jun-14 1 109.1
In line with the accounting policy of the group, a third of the portfolio was valued by independent
external valuers. Of the 32 properties, 11 was valued by DDP Valuers and the remainder by
management. All properties need to be valued by external valuers at least every 3 years. The
properties are valued using a 5 year discounted cashflows. Assumptions are made on the discount
rates used to determine the present value of the cashflows. Assumptions are also made on the
capitalisation rate on an assumed sale after 5 years. The weighted average discount rate used was
15.0% and weighted average capitalisation rate used was 10.4%.
Borrowings
The interest bearing debt to asset ratio remains low at 20.1%. The targeted gearing levels are
between 35% and 40%. As at 30 June 2014, 46.2% of the debt was fixed, with the intention of
increasing this percentage to 70%. Future acquisitions will be utilised to increase the fixed
component of our debt and de-risk the portfolio further by minimising the impact of interest rates
movements on our performance.
The weighted average all-in cost of funding is 8.66% with a weighted average maturity of 34 months.
Prospects
The economic environment remains challenging with slower economic growth and rising interest
rates. Despite the economic outlook, Fairvest is in a strong and healthy position for delivery of
future prospects, further strengthened by the improvement in the portfolio and tenant mix, and the
acquisition of quality assets during the year. The distribution growth for the listed property
sector is forecast at between 7% and 8%. Management is cognisant of Fairvest's need to outperform
the sector given its size, and is confident that distribution growth of between 9% and 10% will be
achievable for the 2015 financial year.
This view assumes that interest rates will rise by no more than 100 basis points over the course of
our financial year and there being no material deterioration in the macro-economic environment
relative to current levels, no major corporate failures will occur and tenants will be able to absorb
increases in municipal and utility costs. Forecast rental income is based on contractual lease terms
and anticipated market related renewals. This forecast is the responsibility of the board of Fairvest
and has not been reviewed or reported on by the auditors.
Distribution
The board has approved and declared a final gross distribution of 6.97 cents per linked unit for the
6 month period ended 30 June 2014, payable to linked unitholders registered as such at the close of
business on Friday, 10 October 2014.
Last date to trade linked units cum distribution Friday, 3 October 2014
Linked units commence trading ex distribution Monday, 6 October 2014
Record date Friday, 10 October 2014
Payment date Monday, 13 October 2014
Linked units may not be dematerialised or rematerialised between Monday, 6 October 2014 and Friday,
10 October 2014, both days inclusive.
In accordance with Fairvest's status as a REIT, linked unitholders are advised that the distribution
meets the requirements of a "qualifying distribution" for the purposes of section 25BB of the Income
Tax Act, 58 of 1962 ("Income Tax Act"). Accordingly, qualifying distributions received by local tax
residents must be included in the gross income of such linked unitholders (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 linked unitholder. These qualifying
distributions are, however, exempt from dividend withholding tax in the hands of South African tax
resident linked unitholders, provided that the South African resident linked unitholders have provided
the following forms to their Central Securities Depository Participant ("CSDP") or broker, as the
case may be, in respect of uncertificated linked units, or the transfer secretaries, in respect of
certificated linked units:
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. Linked
unitholders 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 linked unitholders will not be taxable as income
and instead will be treated as ordinary dividends but which are exempt in terms of the usual
dividend exemptions per section 10(1)(k) of the Income Tax Act. It should be noted that until 31
December 2013 qualifying distributions received by non-residents from a REIT 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 linked unitholder. Assuming dividend withholding tax will
be withheld at a rate of 15%, the net amount due to non-resident linked unitholders will be 5.9245
cents per linked unit. A reduced dividend withholding tax rate in terms of the applicable DTA, may
only be relied on if the non-resident linked unitholder has provided the following forms to their
CSDP or broker, as the case may be, in respect of the uncertificated linked units, or the transfer
secretaries, in respect of certificated linked units:
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 linked unitholders 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 linked unitholders as well as non-resident linked unitholders are encouraged to
consult their professional advisors should they be in any doubt as to the appropriate action to take.
Linked units in issue at the date of declaration of the final distribution: 527 636 276
Income tax reference number 9205/066/06/1.
Directorate
Ndabe Mkhize and Jacob Wiese were appointed to the board of directors as independent non-
executive directors on 2 June 2014.
Martin Epstein and Pieter van der Merwe resigned as directors of the board on 14 January 2014 and
2 June 2014 respectively, both having served on the board since January 2010. Martin and Pieter
were valued board members and the board wishes them well in their future endeavours.
Subsequent events
Linked unitholders are referred to the company's SENS announcements dated 15 May 2014 and
21 July 2014 regarding the acquisition of the Richmond Shopping Centre for R61.4 million.
The transaction is still subject to suspensive conditions that have not been fulfilled by
the time of this report.
Linked unitholders are referred to the company's SENS announcements dated 26 June 2014 and
3 September 2014 regarding the acquisition of the Nondwengu Shopping Centre and Ezulwini Royal
Shopping Centre for R72.5 million. The transaction is still subject to suspensive conditions
that have not been fulfilled by the time of this report.
The directors of Fairvest are not aware of any further material matters or circumstances arising
between 30 June 2014 and this report which may materially affect the financial position of
the group or the results of its operation.
Appreciation
We extend our appreciation to our directors, management and staff for their valued efforts as well
as our advisers and linked unitholders for their continuing belief in and support of Fairvest.
For and on behalf of the board
Fairvest Property Holdings Limited
8 September 2014
Cape Town
Executive Non-executive
DM Wilder (Chief Executive Officer) J F du Toit (Chairman)
BJ Kriel (Chief Financial Officer) LW Andrag (Lead Independent non-executive)#
AJ Marcus (Chief Operating Officer)* KR Moloko #
* alternate to DM Wilder N Mkhize #
JD Wiese #
# independent
Company secretary
SecCorp Secretarial Services Proprietary Limited
Registered office
Office 18003, 18th Floor, Triangle House, 22 Riebeek Street, Cape Town, 8001
Postnet Suite 30, Private Bag X3, Roggebaai, 8012
Transfer secretaries
Computershare Investor Services Proprietary Limited
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Auditor
BDO South Africa Incorporated
Registered Auditors
Sponsor
PSG Capital Proprietary Limited
Date: 08/09/2014 11:35:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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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,
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