Wrap Text
Reviewed Interim Condensed Consolidated Financial Results for the six months ended 30 September 2014
Investec Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2008/011366/06)
Share code: IPF ISIN: ZAE000180915
(Income tax reference number 9332/719/16/1)
Highlights
Interim dividend of Total portfolio now
54.65 cps R8.1 billion(*)
8.3% growth on prior year 89% growth in the last 12 months
Remains conservatively geared Acquisitions concluded and announced
22.6% R1.7 billion
Provides significant Average through yield
headroom for growth of 8.2%
Bank and bond market accessed
at attractive rates Low vacancy
R950 million 3.0%
All in cost of funding 8.2%* Supported by WALE of 4.3 years
(*)Post announced acquisitions
Consolidated statement of comprehensive income
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
R'000 Notes 2014 2013 2014
Revenue, excluding straight-line rental adjustment 336 231 241 556 520 862
Straight-line rental adjustment 45 590 21 046 45 132
Revenue 381 821 262 602 565 994
Property expenses (60 192) (52 589) (90 586)
Net property income 321 629 210 013 475 408
Other operating expenses (21 541) (15 538) (32 105)
Operating profit 300 088 194 475 443 303
Fair value adjustments 4 (14 418) (35 473) 211 610
Profit on sale of investment property – 10 953 10 988
Income from investment 8 483 – 7 354
Finance costs (60 521) (18 500) (57 369)
Finance income 3 173 5 106 10 745
Profit before debenture interest and taxation 236 805 156 561 626 631
Debenture interest – (119 935) (119 935)
Profit before taxation 236 805 36 626 506 696
Taxation (193) 39 39
Profit after taxation 236 612 36 665 506 735
Items that may be reclassified to profit and loss:
Other comprehensive income: realised unrealised gain on
cash flow hedge (276) – 276
Total comprehensive income attributable to equity holders 236 336 36 665 507 011
Consolidated statement of financial position
Reviewed Audited Reviewed
Six months Year Six months
ended ended ended
30 September 31 March 30 September
R'000 Notes 2014 2014 2013
ASSETS
Non-current assets 6 911 154 6 117 243 4 440 946
Investment property 6 468 862 5 708 131 4 348 177
Straight-line rental adjustment 162 292 116 702 92 769
Derivative financial instruments – 3 714 –
Investment 280 000 288 696 –
Current assets 153 141 436 082 240 143
Trade and other receivables 70 467 77 766 44 162
Cash and cash equivalents 82 674 358 316 195 981
Total assets 7 064 295 6 553 325 4 681 089
EQUITY AND LIABILITIES
Shareholders' interest 5 370 350 5 112 629 4 128 947
Stated capital 4 874 558 4 645 756 4 092 282
Retained earnings 495 792 466 597 36 665
Cash flow hedge reserve – 276 –
Non-current liabilities 1 231 542 944 864 461 110
Long-term borrowings 1 229 757 944 864 450 000
Derivative financial instruments 3 1 785 – 11 110
Current liabilities 462 403 495 832 91 032
Current portion of non-current liabilities 334 000 80 017 –
Trade and other payables 128 403 415 815 91 032
Total equity and liabilities 7 064 295 6 553 325 4 681 089
Consolidated condensed statement of cash flows
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
R'000 2014 2013 2014
Cash generated from operations 283 232 197 460 390 903
Finance income received 3 173 4 480 10 745
Finance costs paid (47 080) (18 461) (48 494)
Income from investment 7 982 – –
Taxation paid 380 (41) (46)
Dividend paid to shareholders (206 927) (164 207) (344 975)
Net cash inflow from operating activities 40 760 19 231 8 133
Net cash outflow from investing activities1 (1 032 616) (221 486) (1 217 547)
Net cash inflow/(outflow) from financing activities2 716 214 (494) 1 169 000
Net decrease in cash and cash equivalents (275 642) (202 749) (40 414)
Cash and cash equivalents at the beginning of the year 358 316 398 730 398 730
Cash and cash equivalents at the end of the year 82 674 195 981 358 316
1 Investing activities include investment property acquired, capital expenditure, proceeds on sale of investment property and
other investments.
2 Financing activities include term loans raised and proceeds from issue of shares.
Consolidated statement of changes in equity
Reviewed Reviewed Audited
Six months Six months Year
ended ended ended
30 September 30 September 31 March
R'000 2014 2013 2014
Balance at the beginning of the period 5 112 629 3 172 3 172
Capital conversion – 4 089 110 4 088 881
Total comprehensive income attributable to equity holders 236 336 36 665 507 011
Shares issued and to be issued 228 801 – 694 344
Dividends declared (207 416) – (180 768)
Balance at the end of the period 5 370 350 4 128 947 5 112 629
Segmental analysis
Reviewed
For the six months ended 30 September 2014
R'000 Office Industrial Retail Total
Statement of comprehensive income extracts
Revenue, excluding straight-line rental adjustment 126 200 79 260 130 771 336 231
Straight-line rental adjustment 24 760 6 461 14 369 45 590
Revenue 150 960 85 721 145 140 381 821
Property expenses (23 174) (13 757) (23 261) (60 192)
Net property income1 127 786 71 964 121 879 321 629
Statement of financial position extracts
Investment property opening balance 2 394 397 1 343 734 2 086 702 5 824 833
Net acquisitions, disposals and additions 149 799 – 610 932 760 731
Straight-lining fair value adjustment 24 760 6 461 14 369 45 590
Fair value of investment property 2 568 956 1 350 195 2 712 003 6 631 154
Reviewed
For the six months ended 30 September 2013
R'000 Office Industrial Retail Total
Statement of comprehensive income extracts
Revenue, excluding straight line rental adjustment 80 194 62 465 98 897 241 556
Straight-line rental adjustment 15 259 5 000 788 21 047
Revenue 95 453 67 465 99 685 262 603
Property expenses (12 974) (13 979) (25 636) (52 589)
Net property income1 82 479 53 486 74 049 210 014
Statement of financial position extracts
Investment property opening balance 1 499 200 913 050 1 774 750 4 187 000
Net acquisitions, disposals and additions 139 448 82 135 11 315 232 899
Straight-lining fair value adjustment 15 259 5 000 788 21 047
Fair value of investment property 1 653 907 1 000 185 1 786 853 4 440 946
1 Items below the net property income line are not managed on a segmental basis.
Notes to the reviewed interim condensed consolidated
financial results
Reviewed Reviewed Audited
six months six months year
ended ended ended
30 September 30 September 31 March
R'000 2014 2013 2014
1.Dividend reconciliation
Profit after taxation 236 612 36 665 506 735
Add: Debenture interest – 119 935 119 935
Add/less: Fair value adjustments 14 418 35 473 (211 610)
Less: Profit on disposal of investment property – (10 953) (10 988)
Less: Straight-line rental adjustment (45 590) (21 046) (45 132)
Antecedent interest1 3 458 – 32 925
Dividend 208 898 160 074 391 865
Number of shares
Shares in issue and to be issued 382 234 219 317 220 000 365 576 663
Weighted average number of shares in issue 368 570 813 317 220 000 330 736 792
Cents
Dividend per share 54.65 50.46 108.20
Basic earnings per share 64.12 11.56 153.30
Headline earnings per share 64.20 58.72 142.03
2.Reconciliation of basic earnings to headline earnings
Total comprehensive income attributable to equity holders 236 336 36 665 507 011
Add/less: Other comprehensive income 276 – (276)
Less: Net fair value adjustment – investment property – – (186 858)
Add: Net fair value adjustment – debentures – 29 657 29 657
Add: Debenture interest paid – 119 935 119 935
Headline earnings attributable to shareholders 236 612 186 257 469 469
3.Financial instruments
Financial instruments held at fair value consist of derivative financial instruments and a portion of long term borrowings,
which are classified at level 2. These are valued using valuation models which use markets observable inputs such as
quoted interest rates. No other financial instruments are carried at fair value. Non-current long term borrowings held at fair
value amount to R1.2 billion and the current portion of long term borrowings held at fair value amount to R0.3 billion.
For the valuation techniques used to determine fair value as well as the inputs for these techniques please refer to note 27
and note 29 in the 2014 Annual Financial Statements.
4.Fair value adjustments of investment property
The Fund's policy is to value investment properties at year-end, with independent valuations performed on a rotational
basis to ensure each property is valued at least every three years by an independent external valuer. The directors'
valuation methods include using the discounted cash flow model and the capitalisation model. Revaluations were not
undertaken at the half year period end as the directors are not aware of any factors which would materially affect the
valuation of the properties.
5.Related parties
The Fund entered into the following significant related party transactions during the period with Investec Limited and its
subsidiaries:
Acquisitions from Investec Property (Pty) Ltd
Investec Property (Pty) Ltd held a 50% share in the following companies sold to the Fund:
R'million
Lekup Property Company No 6 Proprietary Limited (Foschini Building) 38.8
Bethlehem Property Development Proprietary Limited (Dihlabeng Mall) 178.8
The purchase of these companies does not meet the definition of IFRS 3, Business Combinations and was not treated
as such.
1 The antecedent interest is as a result of the RPP and Foschini transactions and the DRIP programme.
Commentary
Introduction
Investec Property Fund Limited ("The Fund") is a South African Real Estate Investment Trust having listed on the JSE Limited
("JSE") on 14 April 2011 and it obtained REIT status on 1 April 2013. At period end it comprises a portfolio of 74 properties in
South Africa with a total Gross Lettable Area ("GLA") of 742 716m² valued at R6.6 billion and a R280.0 million investment in
Investec Australia Property Fund ("IAPF") (prior to the rights offer in October 2014).
The objective of the Fund is to grow its asset base by investing in well priced income producing properties in the office,
industrial and retail sectors to optimise capital and income returns over time for shareholders. Effectively, all rental income,
less operating costs and interest on debt, is distributed to shareholders semi-annually. The Fund does not distribute capital
profits or fair value gains.
Financial results
The board of directors is pleased to announce an 8.3% increase in the interim dividend to 54.65 cents per share (cps) for the
six months ended 30 September 2014 (30 September 2013: 50.46 cps). The growth is underpinned by quality properties,
a secure tenant base and tight cost control, coupled with conservative balance sheet management and growth from the
investment in IAPF. The Fund's weighted average lease expiry ("WALE") of 4.3 years and vacancy of 3.0% reflects the
underlying quality of the portfolio.
Acquisitions and disposals
During the period the Fund completed acquisitions of R724 million and has entered into agreements for the acquisition of a
further R943 million of announced property acquisitions ("Pending Acquisitions"). The combined acquisitions of R1.7 billion are
underpinned by a high quality tenant mix, a WALE of 5.4 years and built in weighted average escalations of 7.8%.
On 6 November 2014, as part of the Pending Acquisitions, the Fund announced the acquisition of a portfolio of 5 assets
from Investec Property (Pty) Ltd for R871 million at a through yield of 8.25% ("IP Portfolio").
The effective date of the transaction is 1 February 2015 due to the timing of the Competition Commission and the required
shareholder vote which will take place in January 2015.
The inclusion of the Pending Acquisitions as well as the Fund electing to follow their rights in IAPF, will increase the total
property portfolio to R8.1 billion. The acquisitions bring into the portfolio a mix of high quality office, retail and industrial
properties, tenanted by a majority of national and A-grade tenants.
Cost GLA Yield Date of
Acquisitions Sector R'm m2 % transfer
1. Mafuri House Office 9.0 682 8.3 April 2014
2. Barinors Office 91.0 5 394 8.5 May 2014
3. McCarthy Menlyn Retail 115.4 7 346 7.8 May 2014
4. Foschini Building Retail 77.6 6 305 9.0 June 2014
5. Nicol Main D Office 49.8 2 095 8.0 July 2014
6. Dihlabeng Mall Retail 357.5 26 210 8.0 July 2014
7. Edcon Carletonville Retail 23.7 3 811 9.0 September 2014
Completed acquisitions 724.0 51 843 8.2
Announced acquisitions1 Various 943.3 82 703 8.25 Various
Total acquisitions 1 667.3 134 546 8.2
1 Announced acquisitions include the IP portfolio and Nicol Main E.
Capital expenditure and development
During the period the Fund committed to a R63 million upgrade, refurbishment and tenant mix improvement of the
Balfour Mall which will modernise and enhance its presence and dramatically improve the shopping experience. The Fund
also committed to a 6 000m2 extension to the Dihlabeng Mall at a cost of R88 million. This extension will be anchored by a
4 286m2 full-line Woolworths store and other nationals. Completion is due in July 2015 and will entrench the dominance of
this centre in the region.
Major tenants
The Fund reviews tenant risk on a continual basis and it is a key factor when assessing new acquisitions. The Funds top ten
tenants account for 38% of total gross income and are made up by 76% listed companies, 19% large corporates and 5%
large professional firms.
The Fund's tenants across the total portfolio can be categorised as follows:
Tenant type % of portfolio by revenue
Listed Companies 60
Large Corporates 20
Professional firms 7
Other smaller tenants 13
Ellerines exposure
The Fund has six stores tenanted by Ellerines brands and these account for 1.3% of annual gross revenue. The stores are in
prominent locations and within dominant centres in niche retail nodes. At reporting date, only one store has been identified
for closure.
Vacancy levels
The overall vacancy rate increased marginally to 3.0%. The increase was mainly seen in the office space acquired and the
industrial sector.
Letting activity
The Fund has renewed the majority of expired space during the period and despite the economic climate has managed to
achieve higher than market average escalations. The rental reversion seen in the industrial sector was as a result of a large
clothing manufacturer in the Western Cape in a space of 13 552m2 that was previously over-rented.
Renewals and new leases
Weighted
Weighted average Weighted
Renewals and average rental average
Expiries new lets expiry rental reversion escalation
GLA GLA R/m2 % %
Office 3 848 1 701 110.33 11.8 8.5
Industrial 18 947 15 701 39.93 (30.8) 8.4
Retail 5 888 6 060 172.50 2.5 8.0
Total 28 683 23 462 8.2
Lease expiry profile by sector
The Fund's lease expiry profile remains robust and defensive with a WALE of 4.3 years by revenue.
Investment in IAPF
Post period-end the Fund has followed its rights in its investment in the JSE-listed IAPF keeping its stake in IAPF at 18.6%
which equates to R502 million or 6.2% of the Fund's total portfolio.
Capital funding
The Fund's Balance Sheet remains well positioned for growth with gearing at 22.6%, a debt and swap maturity profile of
2.6 years and 3.7 years respectively and a current hedged position of 86%. At 30 September 2014, the Fund's all-in cost of
borrowing was 8.6% which will revert to 8.2% after the exercising of the Fund's rights in IAPF.
During the period the Fund entered into the following unsecured facilities:
At 30 September 2014 Expiry Rate R'm
Commercial Paper January 2015 JIBAR + 27 bp 200
DMTN 7 June 2017 JIBAR + 140 bp 150
DMTN 8 June 2018 JIBAR + 158 bp 50
DMTN 9 June 2019 JIBAR + 170 bp 250
Standard Bank term debt facility September 2017 JIBAR + 155 bp 200
Investec development loan facility August 2020 JIBAR + 190 bp 100
950
On 15 October 2014, the Fund issued R170 million corporate bonds at an average rate of JIBAR plus 154 bps to partially
fund the take up of rights in IAPF. The bonds have a weighted average tenor of 3 years.
On 6 November 2014 the Fund signed a new five-year R200 million unsecured facility with Nedbank at JIBAR plus 175 bps.
At announcement date, the Fund has available debt facilities of R2.7 billion.
Debtor arrears
Receivables have been tightly managed during the period and at period end gross arrears were R6 million, representing
0.8% of total collectables over the period (31 March 2014: 0.3%). The marginal uptick in arrears is largely due to Ellerines
and a small number of delinquent tenants in both the retail and industrial sectors.
Share capital
The Fund has authorised share capital of one billion no par value shares at 30 September 2014.
During the period the Fund issued 9 747 955 shares as part of the purchase consideration for the RPP transaction and
the Foschini building and 12 488 699 as a result of the successful maiden dividend re-investment programme ("DRIP")
completed in June 2014. Shares to be issued of 1 765 945 relate to the RPP transaction reported at year-end, for which
the risks and rewards have transferred but for which final legal transfer of properties is still outstanding. Post period end
the Linbro Property (part of the RPP portfolio), transferred to the Fund. The Fund therefore issued 444 279 of the shares
to be issued. There is one property still to transfer from the RPP Portfolio. Antecedent interest raised in the current period
relates to the RPP and Foschini transactions and the DRIP programme.
On 18 November 2014, the Fund issued 18 889 966 shares as a result of the accelerated book build undertaken on
7 November 2014. These shares will be entitled to participate in the declared dividend, but for which an antecedent interest
adjustment will be made.
Changes to the Board
In July 2014, shareholders were informed of the unfortunate and untimely passing of Michael Crawford, the Lead
Independent non-executive director of the Fund. Mr Crawford made an invaluable contribution to the Board and the Board
Committees since the listing of the Fund. Graham Rosenthal has assumed the role of Lead Independent non-executive
director and Moss Ngoasheng has been appointed as a member of the Audit Committee.
Dividend reinvestment plan
The Board has elected not to provide the Investec Property Fund shareholders with the election to re-invest their cash
dividend in return for shares. The Fund has already issued shares as a result of the accelerated book build relating to the
IP Portfolio and thus the Director's ability to issue shares has been fully utilised.
Prospects
The Board expects underlying property performance in the second half to remain consistent with historical growth and
maintains its guidance of historical growth levels in dividend distributions for the full year.
This forecast is based on the assumptions that the macro-economic environment will not deteriorate markedly, no major
corporate failures will occur, budgeted renewals will be concluded, that clients will be able to absorb the recovery of rising
rates and utility costs and that the ZAR/AUD exchange rate remains at similar levels to the last financial year. Budgeted rental
income was based on contractual escalations and market-related renewals.
The information and opinions contained above are recorded and expressed in good faith and are based upon sources
believed to be reliable. No representation, warranty, undertaking or guarantee of whatever nature is made or given with
regards to the accuracy and/or completeness of such information and/or the correctness of such opinions.
This forecast has not been reviewed or audited on by the Fund's independent external auditors.
On behalf of the Board of Investec Property Fund Limited
Sam Hackner Sam Leon
Non-executive Chairman Chief Executive Officer
20 November 2014
Basis of accounting
The reviewed interim condensed consolidated financial information for the six months ended 30 September 2014 has been
prepared in compliance with International Financial Reporting Standards (IFRS), the AC 500 Standards as issued by the
Accounting Practices Board, IAS 34: Interim Financial Reporting, the Companies Act (71 of 2008, as amended) of South
Africa and the JSE Listings Requirements.
The accounting policies applied in the preparation of the results for the period ended 30 September 2014 are consistent with
those adopted in the financial statements for the year ended 31 March 2014, other than the adoption of those standards that
became effective in the current period, which had no impact on the financial result. These reviewed preliminary condensed
financial statements have been prepared under the supervision of Dave Donald, CA(SA).
Review conclusion
Ernst & Young Inc., the Fund's independent auditors, have reviewed the interim condensed financial information and have
expressed an unmodified review conclusion. A copy of their review report is available for inspection at the company's
registered office.
Interim dividend
Notice is hereby given that a gross interim dividend number 7 of 54.65188 cents per share has been declared in respect of
the six months ended 30 September 2014.
Other information:
- The dividend portion has been declared from income reserves and no secondary tax on companies' credit has
been used.
- A dividend withholding tax of 15% will be applicable on the dividend portion to all shareholders who are not exempt.
- The issued share capital at the declaration date is 399 358 241 ordinary shares of no par value.
In accordance with Investec Property Fund's status as a REIT, shareholders are advised that the dividend meets the
requirements of a ‘qualifying dividend' for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 (Income Tax
Act). The dividends on the shares will be deemed to be dividends for South African tax purposes in terms of section 25BB of
the Income Tax Act.
Tax implications for South African resident shareholders:
Dividends received by or accrued to South African tax residents must be included in the gross income of such shareholders
and will not be exempt from the income tax in terms of the exclusion to the general dividend exemption contained in
section 10(1)(k)(i)(aa) of the Income Tax Act because they are dividends distributed by a REIT. These dividends are however
exempt from dividend withholding tax (Dividend Tax) in the hands of South African resident shareholders provided that the
South African resident shareholders have provided to their CSDP or broker, as the case may be, in respect of uncertificated
shares, or the Fund, in respect of certificated shares, a DTD(EX) (Dividend Tax: Declaration and undertaking to be made by
the beneficial owner of a share) form to prove their status as South African residents.
If resident shareholders have not submitted the abovementioned documentation to confirm their status as South African
residents, they are advised to contact their CSDP, or broker, as the case may be, to arrange for the documents to be
submitted prior to the payment of the dividend.
Tax implications for non-resident shareholders:
Dividends received by non-resident shareholders from a REIT will not be taxable as income and instead will be treated as
ordinary dividends which are exempt from income tax in terms of the general dividend exemption section 10(1)(k) 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 Tax. With effect from 1 January 2014, any dividend received by a non-resident from a REIT will be
subject to Dividend 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 non-resident shareholder. Assuming Dividend Tax
will be withheld at a rate of 15%, the net amount due to non-resident shareholders is 46.45410 cents per share. A reduced
dividend withholding rate in terms of the applicable DTA may only be relied on if the non-resident shareholder has provided
the following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the Fund, in respect
of certificated shares:
- A declaration that the dividend is subject to a reduced rate as a result of the application of the DTA; and
- A written undertaking to inform the CSDP, or broker or the company, 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 of the South African Revenue Services.
If applicable, non-resident shareholders are advised to contact the CSDP, broker or the Fund, as the case may be, to
arrange for the abovementioned documents to be submitted prior to payment of the dividend if such documents have
not already been submitted.
Summary of the salient dates relating to the dividend are as follows:
2014
Last day to participate in the dividend Friday, 5 December
Shares to trade ex dividend Monday, 8 December
Record date Friday, 12 December
Dividends posted/paid to certificated shareholders Monday, 15 December
Accounts credited by CSDP or broker for dematerialised shareholders Monday, 15 December
By order of the Board
Investec Bank Limited
Company Secretary
20 November 2014
Company information
Directors
S Hackner (Chairman)(#)
SR Leon (Chief Executive Officer)
DAJ Donald
LLM Giuricich(#)
S Mahomed(#)(*)
CN Mashaba(#)(*)
MM Ngoasheng(#)(*)
GR Rosenthal(#)(*)
(#)Non-executive
(*)Independent
Registered office
C/o Company Secretarial, Investec Limited
100 Grayston Drive, Sandown, Sandton, 2196
Transfer secretary
Computershare Investor Services (Pty) Limited
(Registration number 2004/003647/07)
Ground Floor, 70 Marshall Street, Johannesburg, 2001
Sponsor
Investec Bank Limited
100 Grayston Drive, Sandown, Sandton, 2196
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