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Reviewed consolidated interim results for the six months ended 31 August 2014
THE PIVOTAL FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2005/030215/06)
JSE share code: PVT ISIN: ZAE000196440
("Pivotal" or "the company" or "the fund")
REVIEWED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 AUGUST 2014
Highlights
Net asset value per share excluding deferred tax of R15.55
Listing on the Main Board of the JSE in early December 2014
Acquisitions concluded totalling R4 billion
Development pipeline of 445 000m2 of bulk secured with an estimated completion value of R5.7 billion
Statement of financial position as at 31 August 2014
31 August 28 February
2014 2014
R R
Assets
Non-current assets
Investment properties 3 432 869 112 1 875 226 043
Fair value of investment property for accounting purposes 3 304 288 437 1 821 860 219
Straight-line rental income accrual 110 470 232 40 041 914
Lease costs and incentives 18 110 443 13 323 910
Interest in associate 31 744 249 26 562 648
Investment property under construction or redevelopment 156 648 286 152 873 956
Property, plant and equipment 60 098 71 306
Interest rate swaps 12 571 071
3 621 321 745 2 067 305 024
Current assets
Trade and other receivables 32 737 945 86 280 282
Loans receivable 121 338 898 181 412 513
Cash and cash equivalents 21 390 078 63 170 731
175 466 921 330 863 526
Total assets 3 796 788 666 2 398 168 549
Equity and liabilities
Capital and reserves 1 624 486 532 1 157 139 248
Share capital 1 276 111 1 658 834
Share premium 1 146 343 842 785 127 701
Accumulated loss/surplus 120 991 322 106 392 924
Non-distributable reserves 355 875 257 263 959 789
Non-current liabilities
Interest bearing liabilities 1 830 899 734 1 034 966 755
Interest rate swaps 25 732 707 -
Deferred taxation 269 429 059 154 680 442
2 126 061 500 1 189 647 197
Current liabilities
Trade and other payables 16 486 275 27 780 085
Loans from shareholders 7 448 155 6 861 220
Interest-bearing liabilities 22 306 204 16 740 799
46 240 634 51 382 104
Total equity and liabilities 3 796 788 666 2 398 168 549
Number of ordinary shares in issue 118 411 003 80 939 612
Net asset value per share 13.28 12.77
Net asset value per ordinary share, excluding deferred taxation 15.55 14.69
Statement of comprehensive income for the 6 months ended 31 August 2014
6 months ended 12 months ended
31 August 2014 28 February 2014
R R
Revenue 164 655 222 138 601 420
Contractual rental income 151 065 103 129 662 047
Straight-line rental income accrual 13 673 443 8 880 184
Sundry income (83 324) 59 189
Direct property operating expenses (27 788 321) (34 866 500)
Net property income 136 866 901 103 734 920
Administration costs (3 872 228) (2 486 273)
Income from associates 5 181 601 26 562 548
Changes in fair values 83 717 376 266 228 754
- Investment properties 113 010 821 205 030 839
- Financial instruments (29 293 445) 61 197 915
Income from operations 221 893 651 394 039 949
Finance charges (91 156 596) (77 027 298)
Interest received 1 525 857 4 391 639
Profit before taxation 132 262 912 321 404 290
Taxation (25 749 046) (63 045 402)
- Current - (515 153)
- Deferred (25 749 046) (62 530 249)
Profit and total comprehensive income for the period ended 106 513 866 258 358 888
Basic earnings per share (cents) 90 411
Headline earnings and distributable income reconciliation
Profit for the period 106 513 866 258 358 888
Adjust for:
Fair value gain on revaluation of investment properties (113 010 821) (205 030 839)
Deferred taxation on revaluation of investment properties 21 095 353 38 272 423
Headline earnings 14 598 398 91 600 472
Headline earnings per share (cents) 12 146
Statement of cash flows for the 6 months ended 31 August 2014
6 months ended 12 months ended
31 August 2014 28 February 2014
R R
Cash flows from operating activities
Cash generated from operations 147 085 803 41 472 670
Investment revenue 1 525 857 4 391 639
Finance costs (91 156 596) (77 027 298)
Taxation paid - 218 924
Net cash generated/(utilised) from operating activities 57 455 064 (30 944 065)
Cash flows from investing activities
Additions to investment properties (89 980 561) (587 714 104)
Additions to investment properties under construction (52 367 580) (42 782 407)
Arising from business combination 19 754 996 2 258 710
Loans advanced (27 718 979) (56 998 731)
Net cash utilised in investing activities (150 312 124) (685 236 532)
Cash flows from financing activities
Proceeds on ordinary shares issued - 305 150 684
Interest-bearing liabilities advanced 50 489 471 467 226 530
Shareholders loans (repaid)/advanced 586 935 (6 140 906)
Dividends paid - (600 985
Net cash generated from financing activities 51 076 406 765 635 323
Net (decrease)/increase in cash and cash equivalents (41 780 653) 49 454 726
Cash and cash equivalents at the beginning of the year 63 170 731 13 716 005
Cash and cash equivalents at the end of the period 21 390 078 63 170 731
Statement of changes in equity for the 6 months 31 August 2014
Total Non
Share Share share distributable Retained Total
capital premium capital reserve income equity
R R R R R R
Group
Balance at 1 March
2013 as restated 1 298 606 366 163 435 367 462 041 97 201 373 20 805 187 485 468 601
Total comprehensive
income for the year - - - - 258 358 888 258 358 888
Issue of ordinary shares 332 532 380 425 308 380 757 840 - - 380 757 840
Issue of preference shares 27 696 38 538 958 38 566 654 - - 38 566 654
Fair value adjustment to
investment properties
transferred to non-
distributable reserves - - - 205 030 839 (205 030 839) -
Transfer of deferred tax
in respect of fair value
gain - - - (38 272 423) 38 272 423 -
Dividends paid - - - - (6 012 735) (6 012 735)
Total changes 360 228 418 964 266 419 324 494 166 758 416 85 587 737 671 670 647
Balance at 28 February 2014 1 658 834 785 127 701 786 786 535 263 959 789 106 392 924 1 157 139 248
Total comprehensive
income for the period - - - - 106 513 866 106 513 866
Issue of ordinary shares (382 723) 361 216 141 360 833 418 - 360 833 418
Fair value adjustment to
investment properties
transferred to non-
distributable reserves - - - 113 010 821 (113 010 821) -
Transfer of deferred tax in respect of
fair value gain - - - (21 095 353) 21 095 353
Total changes (382 723) 361 216 141 360 833 418 91 915 468 14 598 397 467 347 284
Balance at 31 August 2014 1 276 111 1 146 343 842 1 147 619 953 353 875 257 120 991 322 1 624 486 532
Commentary
1. Profile
Incorporated as a public company in 2005 by Abland and its strategic partners, Pivotal has since 2009, been an
unlisted property investment and development company. The company has an A-grade commercial and retail
property portfolio, divided into completed income producing properties and developments (including properties
under development and land held for future development). The portfolio consists of well-located retail centres in
established and expanding nodes and A-grade office developments (including office parks) which typically include
lifestyle elements such as piazzas, coffee shops and gyms.
Pivotal focuses on creating sustainable value for its investors by achieving above average growth in the capital value
of its portfolio through its extensive development pipeline and through management of its existing portfolio. This
includes continuous reinvestment though preventative maintenance with regular upgrades and refurbishments to
maintain the A-grade nature of the properties, ensuring the long-term sustainability of the portfolio and high tenant
retention.
As at 31 August 2014 Pivotal's portfolio was valued at R3.4 billion with a further R1.8 billion held through property
owning trusts where the preference shares had not yet converted to ordinary shares. Post the reporting period,
Pivotal has concluded acquisition agreements with a value of R3.5 billion which are conditional, inter alia, upon
Pivotal listing. In addition Pivotal has entered into a conditional memorandum of understanding for a proposed
US$48 million interest in a development in Lagos, Nigeria. Assuming implementation of all of the transactions,
Pivotal's total portfolio size will increase to approximately R9.2 billion at 31 August 2014 market values.
2. Financial results
Pivotal's net asset value per share excluding deferred tax ("NAVPS") at 31 August 2014 was R15.55, which is 5.9%
higher than the NAVPS at 28 February 2014.
The growth in NAVPS from 28 February 2014 is mainly as a result of fair value adjustments on current developments
which includes the impact of the margin between the development cost and the fair value of the completed property
("development margin") of R20 million, comprising Alice Lane Building 2 and Building 3, which were 75% and 5%
complete respectively as at 31 August 2014, and fair value adjustments of R93 million relating to the existing income
producing portfolio.
Given the nature of its business, Pivotal uses NAVPS as its key performance measure as it is considered a more relevant
performance measure than earnings or headline earnings per share.
3. Property portfolio
Further details of the property portfolio at listing are included in the Pivotal prospectus to be released on or about
25 November 2014 ("the prospectus").
4. Property acquisitions and share conversions:
Share conversions
During the period, preference shares in six property owning trusts were converted to ordinary shares resulting in
consolidation in terms of IFRS 3 (Business Combinations) with effect from 1 March 2014. The conversions resulted
in an additional 37, 6 million ordinary shares being issued and the consolidation of an aggregated property value of
R1.3 billion.
Property acquisitions post period-end
Pivotal has concluded agreements to acquire the balance of the undivided shares in co-owned properties and other
properties for a value of R3.5 billion which comprises income producing properties valued at R2.9 billion and current
and future development pipeline valued at R600 million. This includes the remaining 80% of the Alice Lane
development in Sandton, Goldfields Mall in Welkom and Lakeview Office Park in Constantia Kloof. The transactions
are conditional upon Pivotal listing and the usual conditions precedent.
In addition, Pivotal has entered into a memorandum of understanding conditional upon the fulfilment of certain
conditions, to acquire a 37.1% shareholding in a development in Lagos, Nigeria valued at US$48 million.
The acquisitions are being funded from a combination of (i) issue of new shares at a value equal to the NAVPS at
31 August 2014 of R15.55; (ii) additional borrowings; (iii) the R200 million rights offer undertaken in September 2014
and (iv) the proposed R1 billion placement which Pivotal will undertake on its listing on the JSE.
The acquisitions will take the number of properties in the portfolio to 33 with a total value of approximately R9.2 billion
at 31 August 2014 market values. Bulk available for development will increase to 445 000m2 with an estimated value
on completion of R5,7 billion.
5. Developments
Alice Lane Building 2 with a total GRA of 16 000m2 and a market value of R511 million was completed in November
2014 and is fully let to Sanlam and Santam on 12 year leases.
Current and future developments include:
5.1 Alice Lane Building 3, which is under construction with an estimated completion date of early 2017, will have
a total GRA of 35 000m2 of which 22 000m2 will be occupied by Bowman Gilfillan, one of SA's 'big five' legal firms.
5.2 Construction has commenced on the first building at West End Office Park in Centurion of 3 677m2, which is
due to be completed in May 2015. This is a 27 000m2 A-grade office park development which will provide
excellent security, is easily accessible from the freeways and major routes and is situated within walking
distance of the Centurion Gautrain station and Centurion Mall.
5.3 The board has approved a 33.3% investment in Hertford Office Park which is ideally located on the corner of
Allandale and Bekker roads opposite the Mall of Africa development. The park comprises approximately
54 000m2 of bulk which is made up of three completed buildings and a fourth building of 3 700m2 which is
under construction. The balance of the bulk will be developed on demand. The buildings provide space for
smaller or larger users and the park further offers sufficient parking and security.
5.4 Pivotal has acquired an 80% interest in the Kyalami on Main mall development. This proposed 25 000m2 retail
development enjoys a prime position at a busy arterial intersection and will offer upscale convenience shopping
and dining. The centre will be anchored by Woolworths, Checkers and a Planet Fitness gym. The lower level
will focus on convenience retail and selected award-winning restaurants, while the upper level is earmarked
for home and lifestyle orientated tenants. Construction is due to commence early 2015.
5.5 During the period, Pivotal acquired strategic land adjacent to Wonderboom Junction, which will be used to
expand the existing mall. The expansion provides for both an upgrade of the existing mall and an addition of
22 500m2 of GRA, which will bring the Mall to a total GRA of 62 000m2. The additional GRA will provide for a
more diversified tenant mix, wider variety in the apparel category and a newly refurbished restaurant and
family area. The expansion is targeted for completion in November 2016.
6. Interest-bearing liabilities
Pivotal currently has borrowings of R1.9 billion which represents 52% of the value of the current property portfolio.
At 31 August 2014, the average cost of funding was 9.85% (28 February 2014:10.2%) and interest rates are fixed on
92% of borrowings for an average period of 3.5 years. Pivotal is well advanced with the restructure of the debt
facilities which includes cross collateralising of security and is expected to result in a reduction in the weighted
average cost of funding to 9.5% with interest rates fixed at 80% (85% including forward starting swaps) of borrowings.
7. Net asset value per share
The table below details the net asset value calculation per share:
31 August 28 February
2014 2014
R R
Net asset value
Total equity 1 624 486 532 1 157 139 249
Adjusted for:
- Equity of preference share holders (52 199 774) (123 144 272)
Total equity (net asset value) attributable to ordinary shareholders 1 572 286 758 1 033 994 977
Total ordinary shares in issue 118 411 003 80 939 612
Net asset value per ordinary share 13.28 12.77
Reconciliation of net asset value, excluding deferred tax, per ordinary share
to total equity
Total equity (net asset value) attributable to ordinary shareholders 1 572 286 758 1 033 994 977
Adjusted for:
-Total deferred tax liability 269 429 059 154 680 442
Net asset value attributable to ordinary shareholders 1 841 715 817 1 188 675 419
Total ordinary shares in issue 118 411 003 80 939 612
Net asset value per ordinary share, excluding deferred tax 15.55 14.69
8. Listing on the JSE
It is anticipated that Pivotal will list on the Main Board of the JSE in early December 2014. Pivotal intends to raise approximately R1 billion by way of an offer of new shares for
subscription to invited investors at an issue price per share to be determined during the offer period, but which is anticipated to be R17.00 per share. The proceeds of the private placement, net
of preliminary and issue expenses, will be used to part finance the acquisition referred to in paragraph 4.
9. Changes in fair value
The portfolio (including investment properties and properties under construction) has been independently valued at 31 August 2014 resulting in an increase in value of R113 million.
It is Pivotal's policy to value properties under construction (including land) at cost until the fair value can be reliably measured, at which point the cost plus the present value
of the development margin is recognised on a percentage completion basis. The recognition of fair value adjustments is in line with the development spend "S-Curve", with a greater
portion of development margin recognised closer to completion of the development.
10. Changes to the board
The following changes have been made to the board. Thys Neser, co-founder of Pivotal, has stepped down as Chairman after 5 years of service, but continues to serve on the board as a
non-executive director. Tom Wixley has been appointed as independent non-executive chairman. Robert Hurwitz retires after 5 years of service and Warren Lawlor, who had agreed to
serve as a non-executive director until the listing of the company and has accordingly resigned. The departing directors have been replaced by Chris Ewing and Tony Dixon who are both independent
non- executive directors and serve on the Audit and Risk Committee, with Tony replacing Warren as chairman of the Audit and Risk Committee. The board of directors of Pivotal would
like to thank the departing directors for their valuable contributions during their tenure.
11. Prospectus
Pivotal has achieved a compound annual growth in NAVPS from 2009 to 28 February 2014 of 24.1%. Historically, the growth has largely been driven by the underlying property revaluation
and, since 2012, by fair value adjustments on developments which include the Alice Lane precinct and the Bowman Gilfillan offices in Bree Street, Cape Town.
Due to the stage of completion of current developments, growth in net asset value is forecast to be higher in the second half of the current financial year. Increased contributions
to fair value are anticipated from the completed projects comprising Alice Lane building 2 and the value enhancing upgrades and extensions at Cradlestone Mall, Wonderboom Junction
and Chilli Lane Shopping Centre.
In addition, fair value enhancements are expected from developments that have commenced or are due to commence at Alice Lane 3, Stoneridge Office Park Building D in Modderfontein,
West End Office Park Building 1 in Centurion and Monte Circle phase one in Fourways. Park Building 1 in Centurion and development is due to commence at Monte Circle phase one in Fourways.
Taking into account these developments, growth in NAVPS for the full year ending 28 February 2015 is forecast to be more than 20% when compared with the NAVPS at 28 February 2014.
The prospectus includes earnings forecasts for the financial years ended 28 February 2015 and 2016. Pivotal remains on track to achieve the earnings forecast for the year ended 28 February 2015,
however it should be noted that the forecast in the prospectus does not include the impact of any adjustment to the fair value of Pivotal's portfolio from the values as at 31 August
2014.
This earnings and NAVPS forecast is predicated on the assumption that current trading conditions will prevail and there will be no material change to capitalisation rates, economic conditions or major
tenant failure and that the R1 billion raised by Pivotal on listing will be raised at an issue price of R17 per share.
12. Basis of preparation and accounting policies
The reviewed consolidated interim results for the six months ended 31 August 2014 have been prepared in accordance with International Financial Reporting Standards ("IFRS"), the
information required by IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the requirements of the Companies
Act of South Africa and the JSE Listings Requirements. The accounting policies are consistent, in all material respects, with those applied in prior years, and except for the first-
time adoption of new standards, are consistent with those applied in the previous annual financial statements for the year ended 28 February 2014.
The following new standards were adopted during the period:
Amendments to IFRS 10, IFRS 12 and IAS 27 - Investment Entities
Amendment to IAS 32 - Offsetting Financial Assets and Financial Liabilities
Amendment to IAS 36 - Recoverable amount disclosures for non-financial assets
Amendment to IAS 39 - Novation of derivatives and continuation of hedge accounting
IFRIC 21 - Levies
None of these standards had a material impact on these interim results.
These results have been prepared under the supervision of the financial director, Aaron Suckerman (ACCA UK).
These reviewed consolidated interim results for the six months ended have been reviewed by Grant Thornton, who expressed an unmodified review conclusion thereon. A copy of the
auditor's review report is available for inspection at the company's registered office together with the financial statements identified in the auditor's report. The auditor's report
does not necessarily report on all the information contained in these interim results. The directors take full responsibility for the preparation of these results and confirm that
the financial information has been correctly extracted from the underlying financial statements.
By order of the board
The Pivotal Fund Limited
21 November 2014
Registration number: 2005/030215/06
Directors: A Dixon *# , C Ewing*#, JA Mackay*, MSB Neser*, DS Savage, S Shaw-Taylor*, TS Sishuba*#, A Suckerman,JR van Niekerk, M Wainer*#,T Wixley*#.
* Non-executive, # Independent
Registered office: Abcon House, Fairway Office Park, 52 Grosvenor Road, Bryanston, 2021
Postal address: PO Box 67663,Bryanston, 2021
Telephone:011 510 9999
Internet address: www.pivotalfund.co.za
VAT registration number: 431 022 9432
Tax reference number: 9395 691 158
Country of incorporation: Republic of South Africa
E-mail: jackie.vanniekerk@pivotalfund.co.za
Auditors: Grant Thornton South Africa
Commercial bankers: The Standard Bank of South Africa Limited
Company secretary: Watermans Business and Administration Services Proprietary Limited
Sponsor: Java Capital
Asset managers: Pivotman Proprietary Limited
Property managers: Abreal Proprietary Limited
Date: 21/11/2014 10:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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