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Interim results and dividend finalisation announcement for the 6 months ended 30 September 2014
Acucap Properties Limited
(Reg No. 2001/021725/06)
(Incorporated on 12 September 2001)
(Approved as a REIT by the JSE)
"Acucap" or "the company"
Share code: ACP
ISIN: ZAE000188660
CONDENSED GROUP RESULTS AND DECLARATION AND FINALISATION OF THE INTERIM DISTRIBUTION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2014
Condensed consolidated statement of financial position at 30 September 2014
30 September 30 September
2014 31 March 2014 2013
Unaudited Audited Reviewed
R'000 R'000 R'000
Assets
Property Assets 18 079 784 9 447 433 8 423 853
Investment properties 16 487 310 8 670 762 7 777 850
Non-current receivable 286 605 94 157 83 885
Current receivable 59 114 27 319 31 367
Investment properties and related receivables 16 833 029 8 792 238 7 893 102
Investment properties held for sale and related
receivables 712 768 37 350 37 350
Investment properties under development 483 012 568 000 429 965
Owner-occupied property 10 608 8 531 8 683
Property development inventory 40 367 41 314 54 753
Other non-current assets 1 398 792 2 882 963 2 728 645
Loans in respect of unit purchase scheme 316 304 384 016 389 587
Equipment 1 545 1 640 1 644
Intangible assets and goodwill 166 930 244 292 245 109
Interest in associate - 1 863 174 1 792 451
Interest in joint ventures 248 034 226 763 260 637
Listed investment 407 674 - -
Loan receivable 185 186 86 303 -
Financial instruments 69 529 73 854 39 217
Deferred tax assets 3 590 2 921 -
Other current assets 602 960 242 360 247 690
Loans in respect of unit purchase scheme 56 021 - -
Trade and other receivables 219 978 219 964 232 662
Tax receivable 350 602 839
Cash and cash equivalents 326 611 21 794 14 189
Total assets 20 081 536 12 572 756 11 400 188
Equity and liabilities
Total equity 11 260 392 5 420 817 5 094 185
Share capital and share premium - 2 212 903 2 212 903
Stated capital 6 618 275 - -
Non-distributable reserve 3 347 537 3 393 245 3 193 461
Retained earnings/ (accumulated loss) 338 955 (185 331) (312 179)
Equity attributable to owners of the company 10 304 767 5 420 817 5 094 185
Non-controlling interests 955 625 - -
Non-current liabilities 7 763 152 5 980 135 5 295 629
Debentures - 1 749 150 1 749 150
Financial liabilities 7 761 225 4 230 985 3 339 380
Financial instruments 1 927 - -
BEE instrument - - 179 015
Deferred tax liabilities - - 28 084
Current liabilities 1 057 992 1 171 804 1 010 374
Trade and other payables 295 784 135 907 127 865
Financial liabilities 483 853 606 624 602 557
Financial instruments 50 327 - -
BEE Instrument 195 930 142 300 -
Sycom Property Fund distribution payable 32 098 - -
Debenture interest payable - 286 973 279 952
Total equity and liabilities 20 081 536 12 572 756 11 400 188
Condensed consolidated statement of profit or loss and other comprehensive income
for the 6 months ended 30 September 2014
6 months ended 6 months ended
30 September year ended 30 September
2014 31 March 2014 2013
Unaudited Audited Reviewed
R'000 R'000 R'000
Revenue 568 184 679 829 330 082
- Contractual 563 335 671 781 328 243
- Straight lining 4 849 8 048 1 839
Net operating expenses (64 695) (64 385) (26 013)
Loss on disposal of investment properties (880) (202) -
Amortisation of intangible assets (408) (12 642) (11 825)
Profit before fair value adjustments,
interest and taxation 502 201 602 600 292 244
Dividend from listed investment 10 145 - -
Fair value (loss)/ gain on investment properties (4 849) 382 090 234 133
Fair value loss on listed investment (3 544) - -
Fair value gain on cross currency swap 3 146 - -
Fair value (loss)/ gain on BEE instrument (53 630) 78 219 41 504
Loss on settlement of financial instruments - (47 528) -
Loss on deemed sale of associate (149 608) - -
Deemed settlement of pre-existing relationship 384 834 - -
Transaction costs on purchase of subsidiary (5 502) - -
Profit before interest and taxation 683 193 1 015 381 567 881
Interest income 36 093 85 863 55 128
Interest expense
- Debenture holders – interim - (279 952) (279 952)
- Debenture holders – final - (286 972) -
- Financial institutions and other (206 685) (215 623) (104 593)
Share of (loss)/ profit of equity accounted joint ventures
(net of income tax) (5 157) 2 803 (2 409)
Share of profit of equity accounted associate (net of income tax) 31 422 188 098 68 082
Profit before taxation 538 866 509 598 304 137
Taxation (expense)/ income (1 427) 14 152 (4 039)
Profit for the period 537 439 523 750 300 098
Other comprehensive income
Items that may be reclassified to profit or loss
Available -for-sale financial assets, net change in fair value - (77 898) (77 898)
Net change in fair value of cash flow hedge (39 550) 60 872 15 254
Cash flow hedge loss recognised in profit or loss - 47 528 -
Items that will never be reclassified to profit or loss
Other comprehensive (loss)/ income from associate (5 973) 9 834 -
Other comprehensive income for the period, net of
taxation (45 523) 40 336 (62 644)
Total comprehensive income for the period 491 916 564 086 237 454
Profit attributable to:
Owners of the company 517 855 523 750 300 098
Non-controlling interests 19 584 - -
Profit for the period 537 439 523 750 300 098
Other comprehensive income attributable to:
Owners of the company (44 704) 40 336 (62 644)
Non-controlling interests (819) - -
Other comprehensive income for the period (45 523) 40 336 (62 644)
Total comprehensive income attributable to:
Owners of the company 473 151 564 086 237 454
Non-controlling interests 18 765 - -
Total comprehensive income for the period 491 916 564 086 237 454
Reconciliation of profit for the period to headline earnings
Profit for the period 537 439 523 750 300 098
Fair value adjustment to investment properties 4 849 (382 090) (234 133)
Loss on disposal of investment properties 880 202 -
Tax effects - (37) -
Profit attributable to non-controlling interests (19 584) - -
Headline earnings - shares 523 584 141 825 65 965
Interest paid to debenture holders - 566 924 279 952
Headline earnings - shares/ linked units 523 584 708 749 345 917
Cents Cents Cents
Basic and diluted earnings per share/ linked unit 257.42 299.13 171.40
Basic and diluted headline earnings per share/ linked unit 260.27 404.79 197.57
Interest Distribution per share/ linked unit 168.01 323.79 159.89
- Interim 168.01 159.89 159.89
- Final - 163.90 -
Shares Linked units Linked units
Total shares/ linked units in issue at the end of the period 232 581 190 175 090 089 175 090 089
Weighted number of shares/ linked units in issue during the
period 201 169 640 175 090 089 175 090 089
Condensed consolidated statement of changes in equity
for the 6 months ended 30 September 2014 Attributable to owners of the company
Shares issued Share Share Premium Stated capital Non Retained Total Non- Total
capital Distributable earnings/ controlling equity
Reserve (accumulated interests
loss)
Number R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at 31 March 2013 175 090 089 175 2 212 728 - 3 020 133 (376 305) 4 856 731 - 4 856 731
Total comprehensive income for the period
Profit for the period - - - - - 300 098 300 098 - 300 098
Other comprehensive income
Net change in fair value of listed investments - - - - (77 898) - (77 898) - (77 898)
Net change in fair value of cash flow hedge recognised
directly in equity - - - - 15 254 - 15 254 - 15 254
Total comprehensive income for the period - - - - (62 644) 300 098 237 454 - 237 454
Transactions with owners, recorded directly in equity
Transfer to non-distributable reserve - - - - 235 972 (235 972) - - -
Total transactions with owners - - - - 235 972 (235 972) - - -
Balance at 30 September 2013 175 090 089 175 2 212 728 - 3 193 461 (312 179) 5 094 185 - 5 094 185
Total comprehensive income for the period
Profit for the period - - - - - 223 652 223 652 - 223 652
Other comprehensive income
Other comprehensive income from associate - - - - - 9 834 9 834 - 9 834
Net change in fair value of cash flow hedge recognised
directly in equity - - - - 93 146 - 93 146 - 93 146
Total comprehensive income for the period - - - - 93 146 233 486 326 632 - 326 632
Transactions with owners, recorded directly in equity
Transfer to non-distributable reserve - - - - 106 638 (106 638) - - -
Total transactions with owners - - - - 106 638 (106 638) - - -
Balance at 31 March 2014 175 090 089 175 2 212 728 - 3 393 245 (185 331) 5 420 817 - 5 420 817
Total comprehensive income for the period
Profit for the period - - - - - 517 855 517 855 19 584 537 439
Other comprehensive income
Other comprehensive income from associate - - - - - (5 973) (5 973) - (5 973)
Net change in fair value of cash flow hedge recognised
directly in equity - - - - (38 731) - (38 731) (819) (39 550)
Total comprehensive income for the period - - - - (38 731) 511 882 473 151 18 765 491 916
Transactions with owners, recorded directly in equity
Conversion of linked units to no par value shares - (175) (2 212 728) 3 962 053 - - 1 749 150 - 1 749 150
Issue of shares in respect of acquisition of subsidiary with
non-controlling interests 47 080 975 - - 2 134 378 - - 2 134 378 1 496 288 3 630 666
Issue of shares to acquire additional non-controlling
interests 10 410 126 - - 521 844 (521 903) - (59) (59)
Change in reserves on additional acquisition of non-
controlling interests - - - - 515 983 11 347 527 330 (527 330) -
Distribution paid to non-controlling interests - - - - - - - (32 098) (32 098)
Transfer to non-distributable reserve - - - - (1 057) 1 057 - - -
Total transactions with owners 57 491 101 (175) (2 212 728) 6 618 275 (6 977) 12 404 4 410 799 936 860 5 347 659
Balance at 30 September 2014 232 581 190 - - 6 618 275 3 347 537 338 955 10 304 767 955 625 11 260 392
Condensed consolidated statement of cash flows
for the 6 months ended 30 September 2014
6 months ended year ended 6 months ended
30 September 31 March 30 September
2014 2014 2013
Unaudited Audited Reviewed
R'000 R'000 R'000
Cash flows from operating activities
Cash generated by operations 607 756 653 426 304 483
Dividend received 160 - -
Income tax paid (1 846) (3 876) (2 280)
Interest income 36 093 85 863 55 128
Interest expense (493 658) (769 100) (378 119)
Net cash (outflows)/ inflows from operating activities 148 505 (33 687) (20 788)
Cash outflows from investing activities (3 103 866) (1 747 972) (872 804)
Cash inflows from financing activities 3 260 199 1 780 457 884 785
Net cash inflows/ (outflows) for the period 304 838 (1 202) (8 807)
Cash and cash equivalents at beginning of period 21 794 22 996 22 996
Effect of exchange rate fluctuations on cash held (21) - -
Cash and cash equivalents at end of period 326 611 21 794 14 189
1. BASIS OF PREPARATION
The condensed interim financial statements are prepared in accordance with International Financial
Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee, the JSE Listings Requirements and the Companies Act, 2008 and are presented in accordance
with the minimum content, including disclosures, prescribed by IAS 34, and South African Statements
and interpretations adopted by the International Accounting Standards Board (IASB).
These condensed consolidated interim financial statements are prepared on the historical cost basis,
except for investment properties, investment properties held for sale, derivative financial instruments,
financial assets and available-for-sale financial assets which are measured at fair value.
The condensed consolidated interim financial statements are prepared on the going concern basis and all
accounting policies applied in the preparation of these interim financial statements are consistent with those
applied in the previous annual financial statements.
The preparation of these condensed consolidated interim financial statements and this summarized report
was supervised by the Financial Director, Mr C Kotze, CA (SA).
2. Condensed segmental results
for the 6 months ended 30 September 2014
6 months ended 6 months ended
30 September 30 September
2014 2013
Unaudited Reviewed
R'000 R'000
Retail Segment revenue (external customers) 363 113 233 408
Dividend from listed investment 10 145 -
Net operating expenses (40 544) (37 332)
Fair value adjustment to investment properties (4 836) 192 334
Fair value loss on listed investment (3 544) -
Loss on disposal of investment properties (872) -
Segmental profit 323 462 388 410
Segmental property assets 10 816 971 5 843 608
Offices Segment revenue (external customers) 189 814 85 516
Net operating expenses (21 098) (10 319)
Fair value adjustment to investment properties (184) 41 029
Loss on disposal of investment properties (8) -
Segmental profit 168 524 116 226
Segmental property assets 6 720 301 1 973 059
Industrial Segment revenue (external customers) 12 678 9 991
Net operating expenses (1 086) (541)
Fair value adjustment to investment properties 171 907
Segmental profit 11 763 10 357
Segmental property assets 500 366 427 447
Property development Segment revenue (external customers) 2 579 1 167
Net operating expenses (980) (1 084)
Fair value adjustment to investment properties - (137)
Segmental loss 1 599 (54)
Segmental property assets 42 146 179 739
Reconciliation to profit before interest and taxation for the period in the income statement
Revenue 568 184 330 082
Allocated operating expenses (63 708) (49 276)
Unallocated operating expenses (987) 23 263
Loss on disposal of investment properties (880) -
Amortisation of intangible assets (408) (11 825)
Dividend from listed investment 10 145 -
Fair value adjustment to investment properties (4 849) 234 133
Fair value loss on listed investment (3 544) -
Fair value gain on cross currency swap 3 146 -
Fair value adjustment to BEE instrument (53 630) 41 504
Loss on deemed sale of associate (149 608) -
Cancellation of pre-existing relationship 384 834 -
Transaction costs on purchase of subsidiary (5 502) -
Profit before interest and taxation 683 193 567 881
Total property assets 18 079 784 8 423 853
3. Fair value of financial instruments recognised in the statement of financial position
The fair values of all financial instruments with the exception of the BEE instrument, interest rate swaps, cross currency swaps and
the investment in Stenham are substantially the same as the carrying amounts reflected on the statement of financial position. The
group measures fair values using the following 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 (ie: as prices) or indirectly (ie: 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.
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy,
then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that
is significant to the entire measurement.
As the group does not hold financial instruments that are traded in active markets, fair values are not based on quoted market prices or
dealer price quotations. As such, the group determines fair values using valuation techniques. Valuation techniques include net present
value and discounted cash flow models and comparison to similar instruments for which market observable prices exist. Assumptions
and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in
estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price
volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the
financial instrument at the reporting date, that would have been determined by market participants acting at arm's length.
The group uses widely recognised valuation models and techniques for determining the fair value of common and more simple
financial instruments, like the interest rate and currency swaps that use only observable market data and require little management
judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities,
exchange traded derivatives and simple over the counter derivatives like interest rate swaps. Availability of observable market prices
and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with
determination of fair values.
The table below analyses financial instruments carried at fair value, by valuation method:
Level 1 Level 2 Level 3 Total
30 September 2014
Financial assets
Listed investment - - 407 674 407 674
Interest rate swaps - 69 529 - 69 529
Financial liabilities
BEE instrument - (195 930) - (195 930)
Cross currency swap - (50 327) - (50 327)
Interest rate swaps - (1 927) - (1 927)
30 September 2013
Financial assets
Interest rate swaps - 39 217 - 39 217
Financial liabilities
BEE instrument - (179 015) - (179 015)
A reconciliation of the opening balances to the closing balances for the level 3 valuations is disclosed as follows:
Unaudited at
30 Sep 2014
(R'000)
Balance as at beginning of period -
Investment acquired as part of acquisition of Sycom Property Fund 411 218
Fair value loss on revaluation recognised in profit or loss (3 544)
Carrying value at end of period 407 674
Level 2 fair values - BEE instrument, interest rate swaps and cross currency swaps
The following table shows the valuation techniques used in measuring level 2 fair values:
Type Valuation technique Significant unobservable inputs
BEE instrument Fair valued bi-annually by Alt Re Not applicable - observable inputs are
Capital (Pty) Ltd (trading as used in the valuation
"Alternative Real Estate") using the
Black-Scoles call option valuation
method (to price a European option).
This involves using the option expiry
date, volatility estimate based on the
historical volatility of Acucap unit price
and a dividend assumption of 0%.
Interest rate swaps Fair valued monthly by Nedbank Capital Not applicable - observable inputs are
using mark to market mid market values. used in the valuation
This involves, inter alia, discounting the
future cash flows using the curves at the
reporting date and the credit risk
inherent in the contract
Cross currency swaps Fair valued bi-annually by Nedbank Not applicable - observable inputs are
Capital using mark to market valuation used in the valuation
methodology. This involves, inter alia,
calculating the present value of the
future cross currency swap cash flows
Level 3 fair value - Investment in Stenham European Shopping Centre Fund
The investment in Stenham European Shopping Centre Fund is an investment in a closed fund without an actively traded price. The
significant underlying asset per the statement of financial position of Stenham is the investment property balance, which is valued
using a discounted cash flow model (refer valuation technique below). Acucap's valuation in Stenham is based on the net asset value
per share of the investment translated at the period end ruling exchange rate.
The investment property has been valued at 30 September 2014 by Jones Lang LaSalle, who are independent and qualified in
accordance with the Appraisal and Valuation Manual published by the Royal Institute of Chartered Surveyors (RICS). The valuation
was prepared in accordance with the RICS Valuation - Professional Standards published by the Royal Institute of Chartered Surveyors
as well as the International Valuation Standards (IVS) on the basis of Market Value.
Significant Inter-relationship between key
unobservable unobservable inputs and fair
Valuation technique inputs value measurements
The Market Value of the property has been assessed using the a) Financial The fair value would increase/
Discounted Cash Flow (DCF) calculation method. The valuation information used to (decrease) based on (1)
takes into account the agreed rent for the signed leases, the market calculate rental increases/(decreases) in the stabilised net
rent for currently vacant space and estimated rents for re-letting of growth forecasts operating income,(2)
the space after lease term expiry. In all instances, the valuers (decreases)/increases in the yield used to
calculated the DCF for a 10-year period and assumed a capitalised b) Net initial yield calculate the Terminal Value Indication,
value based on a stabilised rental income of the properties thereafter. (6.39%) (3) (decreases)/increases in the discount
After the DCF-period of 10 years, the valuers calculate a stabilised rate used to calculate the Gross Capital
rental income. The capitalised value takes this stabilised rental c) Discount rate Value
income and subtracts the stabilised expenses, resulting in the (6.85%)
Stabilised Net Operating Income. This result is capitalised into
perpetuity applying an equivalent (growth implicit) yield and d) Terminal
produces the Terminal Value Indication. The resulting value is then capitalisation rate
discounted to the valuation date using the discount rate from term (6.5%)
years 1-10. Discounting the remaining Cash Flows for years 1 to 10
and the Terminal Value for year 11 to the valuation date (i.e. the Net e) Non recoverable
Present Value) produces the Gross Capital Value. After deductions expenses
for Purchaser's Costs, the Market Value is obtained.
f) Market lease
assumptions for
contract expiry/
vacant space
4. Declaration of dividend after reporting date
In line with IAS 10, Events after the Reporting Period, the declaration of the dividend occurred
after the end of the reporting period resulting in a non-adjusting event that is not recognised
in the financial statements. In prior periods the distribution consisted of debenture interest
that accrued on a daily basis.
5. Acquisition of Sycom Property Fund ("Sycom")
On 7 July 2014, Acucap acquired 40.56% of the units and voting interest in Sycom. As a result,
Acucap's interest in Sycom increased to 74.43%. Acucap has determined that it obtained control
of Sycom from 7 July 2014 as from this date it was exposed to or had rights to variable returns
from its involvement with Sycom and had the ability to affect those returns by virtue of its
ability to pass unitholders' resolutions through its majority holding together with its
100% shareholding in Sycom Property Fund Managers Limited, the manager of Sycom. As such, Sycom
has been consolidated into the Acucap results from this date. As at 30 September 2014, Acucap's
holding in Sycom had increased to 83.40%. Based on Acucap's strategy to ultimately obtain 100% of
the Sycom issued units, resulting in a merger of the two funds and an enlarged Acucap:
- The Acucap Board is of the view that the Sycom property portfolio is complementary to that
of Acucap. Therefore, the enlarged Acucap would benefit from greater sectorial
diversification and reduced asset concentration risk.
- The enlarged Acucap would offer a single entry-point for investors which would be expected
to result in the attraction of interest from a wider group including tracker funds and
international investors.
- Assuming that post the merger, the enlarged Acucap would represent approximately 5% of
the listed property index, mutual funds and tracker funds that track the listed property index,
or investors that include any form of index weighting in their investment strategy, would be
expected to adjust their portfolios in favour of the enlarged Acucap. This increased interest
would be expected to have a positive impact on the enlarged Acucap's rating and liquidity
thereby adding impetus to the JSE traded price and also enhancing Acucap's ability to raise
capital for meaningful acquisitions.
- The enlarged Acucap could be expected to achieve operational synergies post the
implementation of the acquisition that include, inter alia, cost efficiencies, streamlining of
operations, more efficient allocation of top-end management's time and the alignment of
strategic objectives. The acquisition would result in an increased critical mass of the asset
base of the enlarged Acucap. The significantly larger asset base would in turn reduce large-
tenant risk and concentration risk as well as allow for redevelopment given that the asset
being redeveloped will be a smaller percentage of the total asset base. Furthermore, a larger
asset base and balance sheet would provide reach into larger transactions, in line with the
strategy of owning a smaller number of individually significant assets. This would be
expected to add further impetus to the trading price of the enlarged Acucap securities.
The acquisition was implemented through an offer to Sycom unitholders, other than Acucap or Sycom
Property Fund Managers Limited (SPFM), to acquire all Sycom units held on the offer closing date of
16 May 2014. A follow on offer was implemented on the same terms as the original offer which
extended the offer closing date to 26 September 2014.
The acquisition was settled by means of Acucap scrip consideration which was issued to each Acucap
scrip consideration recipient with reference to an exchange ratio of 58 no par value Acucap shares, for
every 100 Sycom units held by the accepting Sycom unitholder on the respective offer closing dates.
In the three months to 30 September 2014, Sycom contributed revenue of R176.06m* and total profit
of R99.60m (R80.02m to Acucap parent equity holders and R19.58m to non-controlling interests) to
Acucap's results.
If the acquisition had occurred on 1 April 2014, management estimates that consolidated revenue
would have been R735.73m* and consolidated profit for the period would have been R598.3m.** In
determining these amounts, management has assumed that the fair value adjustments, determined
provisionally, that arose on the date of acquisition would have been the same if the acquisition had
occurred on 1 April 2014.
* When calculating the revenue of Sycom, Acucap has excluded ad hoc recoveries of Sycom from
revenue as it interprets these contracts to say that Sycom acts as agent of the lessee.
** The consolidated profit for the period includes the effect of the gains and losses relating to the
acquisition date accounting.
Acquisition date consideration
The acquisition date fair value of the total consideration transferred by Acucap for the additional
40.56% interest was R2 756 730 291.
The consideration took the form of Acucap scrip shares, issued on the terms described above, adjusted
by the amount used to settle the pre-existing relationship at acquisition.
The following table summarises the acquisition date fair value of consideration transferred:
R'000
Equity instrument (47 080 975 ordinary shares) 2 134 651
Settlement of pre-existing relationship 622 079
Total consideration transferred 2 756 730
Equity instruments issued
The fair value of the ordinary shares issued was based on the listed share price of Sycom on 3 July
2014 of R26.30 per unit.
Deemed settlement of pre-existing relationship
Acucap owns Sycom's asset management and property management agreements, and earns
management fees in terms of this pre-existing relationship. The acquisition of these agreements
resulted in an intangible asset being recognised by Acucap.
From the date on which Acucap acquired control of Sycom, Sycom's financial statements are
included in Acucap's consolidated financial statements. The pre-existing relationship is deemed to
have been disposed of immediately prior to this date, and fees charged in terms of the pre-existing
relationship after this date are eliminated in Acucap's consolidated financial statements.
The gain resulting from the deemed settlement of the pre-existing relationship amounted to R384.8
million and is disclosed in the statement of profit or loss and other comprehensive income as "deemed
settlement of pre-existing relationship". The gain is calculated as the difference between the fair value
of the agreements and their carrying value. The fair value of the agreements was calculated using the
discounted cash flow model.
Acquisition-related costs
Acucap incurred acquisition-related costs of R5.5m on professional fees. These costs have been
included in the line "transaction costs on purchase of subsidiary" in the statement of profit or loss and
other comprehensive income.
Identifiable assets acquired and liabilities assumed
The following fair value amounts were recognised at the acquisition date for each major class of
assets acquired and liabilities assumed:
R'000
Property assets 8 206 185
Other non-current assets 445 876
Receivables 79 501
Cash and cash equivalents 219 661
Total assets 8 951 223
Borrowings (2 903 795)
Other non-current liabilities (1 361)
Current liabilities (excluding trade payables) (53 473)
Trade payables (140 866)
Total liabilities (3 099 495)
Total identifiable net assets acquired 5 851 728
Acucap share of identifiable net assets acquired (74.43%) 4 355 441
Acquired receivables by major class R'000
Debtors Control 7 823
Impairment allowance (3 145)
Tenant procurement cost 36 461
Municipal recoveries 17 498
Local interest receivable from Nedbank 1 634
Other 19 230
Total 79 501
Other than the debtors control balance, for which the impairment allowance is disclosed above, the
fair values and contractual amounts do not differ materially for the acquired receivables. The
impairment allowance represents the best estimate at the acquisition date of the contractual cash flows
not expected to be collected.
Measurement of fair value
The valuation techniques used for measuring the fair values of material assets acquired and liabilities
assumed were as follows:
Asset Acquired / liabilities Valuation technique
Assumed
Property assets Fair valued by Quadrant Properties by capitalising the forecast
property net income into perpetuity and then making specific
adjustments to the valuations. The capitalisation of net income
valuation method assumes a rental stream into perpetuity and
uses the capitalisation rate to account for the risk of projected
market, business and financial volatility and to adjust for the
sustainability of the cash flow going forward in perpetuity.
Listed Investment in Stenham The investment is in a closed fund without an actively traded
European Shopping Centre Fund price. The significant underlying asset per the statement of
financial position of Stenham is the investment property
balance, which is valued using a discounted cash flow model.
The valuation of Stenham is based on the net asset value per
share of the investment translated at the ruling exchange rate.
Non-current liabilities Valued using the present value of the expected cash flows at a
market expected rate.
Interest rate Swap Fair valued by Nedbank Capital using mark to market mid
market values. This involves, inter alia, discounting the future
cash flows using the curves at the reporting date and the credit
risk inherent in the contract.
Cross currency Swap Fair valued by Nedbank Capital using mark to market
valuation methodology. This involves, inter alia, calculating
the present value of the future cross currency swap cash flows
Goodwill
Goodwill arising from the acquisition has been recognised as follows:
R'000
Consideration transferred 2 756 730
Fair value of pre-existing interest in Sycom 1 759 002
Fair value of identifiable net assets (Acucap's share) (4 355 441)
Goodwill 160 291
The remeasurement to fair value of Acucap's pre- existing 33.87% interest in Sycom resulted in a
loss of R149.6m (R1 759m less the R1 908.6m carrying amount of the equity-accounted investee at
the date of acquisition). This amount has been included in the line "loss on deemed sale of associate"
in the statement of profit or loss and other comprehensive income.
Non-Controlling Interest
The amount of the non-controlling interest in Sycom recognised at the acquisition date was
R1 496.3m. The non-controlling interest at acquisition was calculated using the proportionate interest
method. Under the proportionate interest method, the non-controlling interest is calculated as the non-
controlling interest holders' share of Sycom's identifiable net assets at the acquisition date.
Acucap continued to acquire additional interest of 8.97% in Sycom up to 30 September 2014 through
the follow on offer increasing its ownership from 74.43% to 83.40%.
As a result of acquiring the additional interest in Sycom, Acucap recognised (in aggregate) a
reallocation of R527.3m from non-controlling interest to parent equity at the dates on which
additional interest in Sycom was acquired from the non-controlling interests. This reallocation
included retained earnings of R11.3m and NDR of R516m.
The proportion of ownership interests and voting rights held by non-controlling interests amounted to
16.60% at 30 September 2014.
COMMENTARY
1. REVIEW OF RESULTS AND OPERATIONS
Acucap's board is pleased to report a dividend of 168.01 cents per share for the six months ended
30 September 2014, which represents an increase of 5.1% over the corresponding period in the
previous financial year.
Acucap obtained control of Sycom on 7 July 2014, and has accordingly included Sycom's financial statements
in the Acucap consolidated financial statements on a line-by-line basis from that date.
2. CORPORATE ACTIVITY
Conversion of Capital Structure
During the period under review Acucap successfully converted its linked unit capital structure to a
share-only structure consisting of no par value shares.
Merger with Sycom
Acucap made a general offer, and a subsequent follow-on offer, to Sycom unitholders in terms
of which Sycom unitholders were offered 0.58 Acucap shares in exchange for every Sycom unit.
The follow-on offer closed on 26 September 2014, and resulted in Acucap increasing its
holding in Sycom to 83.4%. Growthpoint Properties Limited holds 15.6% of Sycom's units in issue,
and minorities hold the residual 1%.
Acquisition by Growthpoint Properties Limited ("Growthpoint")
As previously announced, in early April 2014 Growthpoint acquired a significant stake in Acucap
from institutional investors. Growthpoint's shareholding as at the date of this announcement is
34.6%.
Shareholders are referred to the joint announcement dated 12 November 2014 setting out the
detailed terms regarding a potential offer by Growthpoint to acquire all the shares in Acucap that
it does not already own by way of a scheme of arrangement.
3. PORTFOLIO INVESTMENT ACTIVITY
Greenacres
Phase 1 of the Greenacres redevelopment is underway and is expected to be complete by April 2015.
This phase comprises the construction of 3,340m2 of additional retail space which will link the current
Woolworths entrance to that of the Shoprite Hyper. The estimated total cost of phase 1 is R86 million,
of which Acucap's contribution is R43 million. The anticipated first year return on phase 1 is 13.9%.
Phase 1 will reflect the modern and contemporary standard to which the rest of the mall will be
upgraded. The total capital commitment for the Greenacres project, including all non-income
producing refurbishment work and mall upgrades, is in the order of R296 million (Acucap's share being
R148 million) with an anticipated yield of 7,5%, and is expected to be complete by June 2016.
WaterCrest Mall
The development of the 43,500m2 regional mall is progressing well and is scheduled to open in
April 2015. There has been strong interest from national tenants, with leases concluded for 94% of
the mall's GLA.
Key West Shopping Centre
The final phase of the Key West redevelopment is nearing completion. The new Virgin Active gym is
scheduled to open during the second half of November 2014. The redevelopment of the space
previously occupied by the gym has commenced, with strong demand for the prime retail position
that the gym previously occupied in the mall.
Golf Park
The development of the new RCS head office at Golf Park is well advanced, and RCS has commenced
with its fit-out of the interior of the building. The exterior of the building will be completed by the end
of November 2014.
4. BORROWINGS
The group has total borrowings of R7.76 billion, which includes Sycom's borrowings of R2.9 billion.
The group's consolidated borrowing facility is R9.3 billion. As at September 2014, 44.3% of
borrowings were subject to interest rate hedges. Forward starting swaps already contracted and
detailed below will lift the hedging profile to approximately 65% of current borrowings by March
2016. The gearing ratio as at the end of September 2014 was 43.6%, up from 38.5% at the end of
March 2014.
Interest rate hedging
Notional Effective
Start Date Maturity Date Fixed Rate Amount Rm rate
Acucap - Swaps
30-Sep-13 30-Sep-16 5.880% 100 7.380%
30-Sep-13 28-Sep-18 6.450% 100 7.950%
31-Mar-14 31-Mar-17 6.190% 100 7.690%
31-Mar-14 31-Mar-19 6.740% 100 8.240%
30-Sep-14 30-Sep-17 6.505% 100 8.005%
30-Sep-14 30-Sep-19 7.015% 100 8.515%
30-Sep-14 30-Sep-16 7.180% 500 8.680%
31-Mar-15 31-Mar-18 6.340% 370 7.840%
31-Mar-15 29-Mar-19 6.600% 300 8.100%
30-Sep-15 28-Sep-18 7.650% 300 9.150%
31-Mar-16 29-Mar-19 7.940% 600 9.440%
31-Mar-16 31-Mar-20 8.150% 200 9.650%
31-Mar-16 31-Mar-21 8.340% 200 9.840%
Sycom - Swaps
31-Mar-14 31-Mar-17 5.790% 200 7.290%
17-Mar-14 17-Mar-17 5.785% 200 7.285%
9-Apr-14 9-Apr-18 6.095% 100 7.595%
30-Sep-14 29-Sep-17 6.045% 200 7.545%
30-Sep-14 30-Sep-16 7.180% 500 8.680%
31-Mar-15 29-Mar-18 6.305% 300 7.805%
30-Sep-15 28-Sep-18 7.650% 300 9.150%
31-Mar-16 31-Mar-20 8.150% 100 9.650%
31-Mar-16 31-Mar-21 8.340% 100 9.840%
Total - Swaps 5 070
Acucap - Fra's
26-Sep-14 29-Dec-14 6.77% 1 140 8.270%
29-Dec-14 26-Mar-15 7.03% 1 140 8.530%
26-Mar-15 26-Jun-15 7.34% 470 8.840%
26-Jun-15 28-Sep-15 7.61% 470 9.110%
5. LEASE EXPIRIES
Over the longer-term, the fund continues to show a good, long-dated lease expiry profile. The table
below shows the pattern of expiries for all leases in the Acucap portfolio, measured by rental
income. There are no individually significant expiries in the profile reflected below.
Lease expiry profile by revenue by sector
Total Retail Offices Industrial
Mar-15 16.4% 14.3% 2.0% 0.1%
Mar-16 22.2% 15.6% 6.5% 0.1%
Mar-17 18.2% 15.2% 2.8% 0.2%
Mar-18 13.8% 7.0% 6.6% 0.2%
Mar-19 11.9% 7.8% 2.0% 2.1%
thereafter 17.5% 12.5% 4.2% 0.8%
Total 100.0% 72.4% 24.1% 3.5%
New leases and renewals were entered into over 82,665m2 during the period under review, while leases over
78,276m2 either expired or were subject to early renewals.
6. VACANCIES AND BAD DEBTS
Total vacancies by GLA have decreased from 3.0% at 31 March 2014 to 1.8% at the end of
September 2014. Much of this reduction can be attributed to the successful refurbishment and
letting of the Albion Springs office building.
The table below shows the vacancy attributable to each segment of the Acucap portfolio by GLA:
Vacancy profile by sector by GLA
% of Total GLA
Retail vacancy 0.7%
Office vacancy 1.0%
Industrial vacancy 0.1%
GLA let 98.2%
The provision for bad debts increased from R2.2 million to R3.2 million during the six months under
review. This movement, together with actual write-offs of R0.54 million, resulted in a charge of R1.5
million to the income statement. The credit environment has remained generally stable.
7. EVENTS AFTER THE REPORTING DATE
Other than the Corporate Action detailed above there have been no significant events after the reporting
date.
8. PROSPECTS
The board expects Acucap's dividend growth for the full financial year to be in the order of 5% to 6%.
The growth in distribution is based on the following key assumptions:
- Forecast investment property income is based on contractual rental escalations and market related renewals;
- Appropriate allowances for vacancies have been incorporated into the forecast; and
- No major corporate failures will occur.
This guidance has not been reviewed or reported on by Acucap's auditors.
9. PAYMENT OF DIVIDEND
Notice is hereby given that a dividend of 168.01 cents per share has been approved in respect of
the six month period ended 30 September 2014. The last date to trade the shares cum dividend
is Friday, 28 November 2014 and the record date will be Friday, 5 December 2014. The shares
will start trading ex-dividend from Monday, 1 December 2014. Dividend payments will be made to
shareholders on Monday 8 December 2014.
Acucap's tax number is 9801081143 and it has no STC credits available.
Share certificates may not be dematerialised or rematerialised between Monday 1 December
2014 and Friday 5 December 2014 both days inclusive.
TAX TREATMENT OF DISTRIBUTION
The information in this announcement is provided as a general guide to the potential South African tax
consequences pertaining to the distribution for shareholders that are subject to South African tax. The
information provided in this announcement is not intended as comprehensive tax advice, nor does it
purport to take into account all of the considerations that may be relevant to shareholders in relation
to the dividend. Shareholders should consult their tax advisors for advice on the particular tax
consequences applicable to them.
In accordance with Acucap's status as a REIT, shareholders are hereby advised that the interim
dividend will meet the requirements of a "qualifying distribution" for the purposes of section 25BB of
the Income Tax Act, No.58 of 1962 ("Income Tax Act"). The dividend will therefore be deemed to be a
dividend for South African tax purposes, in terms of section 25BB of the Income Tax Act.
South African tax resident shareholders
The dividend received by or accrued to South African tax residents must be included in the gross
income of such unitholders and will not be exempt from income tax (in terms of the exclusion to the
general dividend exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the Income Tax Act)
as a result of it being a dividend distributed by a REIT. This dividend may, however, be exempt from
dividend withholding tax in the hands of South African tax resident shareholders in which case the net
dividend amount will be equal to the gross dividend amount disclosed above, provided that the South
African resident shareholders provided the following forms to their CSDP or broker, as the case may
be, in respect of uncertificated shares, or Computershare Investor Services (Pty) Ltd
("Computershare") (at the details contained below), in respect of certificated shares:
- a declaration that the dividend is exempt from dividends tax; and
- a written undertaking to inform the CSDP, broker or, in respect of certificated shareholders only,
Computershare, should the circumstances affecting the exemption change or the beneficial
owner cease to be the beneficial owner, in the form prescribed by the Commissioner for the
South African Revenue Service.
Non-resident shareholders
Dividends received by non-resident shareholders will not be taxable as income and instead will be
treated as an ordinary dividend which is exempt from income tax in terms of the general dividend
exemption in section 10(1)(k)(i) of the Income Tax Act. It should be noted that, up to 31 December
2013, dividends received by non-residents from a REIT were not subject to dividend withholding tax.
From 1 January 2014, any dividend received by a non-resident from a REIT is subject to dividend
withholding tax at 15% in which case the net dividend amount will be 142.8085 cents per share, unless
the rate is reduced in terms of any applicable Double Taxation Agreement ("DTA") between South
Africa and the country of residence of the shareholder.
A reduced dividend withholding rate in terms of the applicable DTA may only be relied upon if the
non-resident shareholder has provided the following forms to its CSDP or broker, as the case may be,
in respect of uncertificated shares, or, Computershare, in respect of certificated shares:
- a declaration that the dividend is subject to a reduced rate as a result of the application of a
DTA; and
- a written undertaking to inform its CSDP, broker or Computershare, as the case may be, should
the circumstances affecting the reduced rate change or the beneficial owner cease to be the
beneficial owner, in the form prescribed by the Commissioner for the South African Revenue Service.
On behalf of the Board
BS KANTOR PA THEODOSIOU
Chairman Managing Director
13 November 2014
Registered Office
Suite A11 Westlake Square
Westlake Drive
Westlake
CAPE TOWN
Transfer secretaries:
Computershare Investor Services Proprietary Limited
70 Marshall Street
JOHANNESBURG
Sponsor:
Questco Proprietary Limited
http://www.acucap.co.za
info@acucap.co.za
Directors: Prof BS Kantor (Chairman), PA Theodosiou*# (Managing Director), FM Berkeley, RC Frolich, C Kotze*,
N Mandindi, C B Marlow, M S Moloko, JH Rens*, B Stevens, NDC Whale
Company secretary: H H-O Steyn
* Executive # British
Date: 14/11/2014 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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