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VUKILE PROPERTY FUND LIMITED - Unaudited condensed consolidated interim results for the six months ended 30 September 2014

Release Date: 26/11/2014 07:45
Code(s): VKE     PDF:  
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Unaudited condensed consolidated interim results for the six months ended 30 September 2014

Vukile Property Fund Limited 
(Incorporated in the Republic of South Africa) 
(Registration number 2002/027194/06) 
JSE share code: VKE 
ISIN: ZAE000056370 
NSX share code: VKN 
Granted REIT status with the JSE
("Vukile" or "the company" or “the group”) 

Unaudited condensed consolidated interim results for the six months ended 30 September 2014


Financial highlights

- 7.8% increase in the first half normalised distribution       
- Like-for-like net property revenue growth of 7.9%                    
- Vacancies decreased to 5.4% from 6.5%                         
- Gearing ratio of 23.60% down from 29.0% with 89.4% of debt hedged    
- Healthy acquisition pipeline of selected properties           
- Level 4 BEE rating achieved                                          


Commentary
1. Nature of operations

The group is a long-term investor in commercial properties with strong contractual cash flows for sustainability and
capital appreciation.

2. Basis of preparation

The unaudited condensed consolidated interim financial statements (“interim financial statements”) for the six months
ended 30 September 2014, and comparative information, have been prepared in accordance with and containing the
information required by IAS 34 (Interim Financial Reporting), International Financial Reporting Standards (“IFRS”), the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Announcements as issued
by the Financial Reporting Standards Council, the JSE Listings Requirements and relevant sections of the South African
Companies Act. Except for the new standards adopted as set out below, all accounting policies applied by the group in the
preparation of these interim financial statements are consistent with those applied by the group in its consolidated
financial statements as at and for the year ended 31 March 2014. The group has adopted the following new standards:

The following new IFRSs and/or IFRICs were effective for the first time from 1 January 2014:
- Amendments to IFRS 10 - IFRS 12 and IAS 27 - Investment entities;                        
- Amendments to IAS 32 - Offsetting Financial Assets and Financial Liabilities;            
- Amendments to IAS 36 - Recoverable amount disclosures for non-financial assets;           
- Amendment to IAS 39 - Novation of derivatives and continuation of hedge accounting; and   
- IFRIC 21 - Levies                                                                         

There was no material impact on the interim financial statements identified based on management’s assessment of these
standards.

The interim financial statements have been approved for issue by the board of directors on 24 November 2014.  The
preparation of the financial results for the six months ended 30 September 2014 was supervised by Michael Potts, CA(SA),
financial director. The interim financial statements have not been reviewed or audited by Vukile’s independent external
auditors.

3. Significant event and transactions

During this reporting period, the following significant transactions were effected:

1. The raising of R600 million equity by way of an equity tap of R250 million via Encha and an equity issuance of
   R350 million to institutional shareholders;
2. The refinancing of R75 million commercial paper - refer paragraph 5 for further details; and
3. The repayment of bank debt amounting to R563 million.

4. Summary of financial performance

The directors of Vukile are pleased to report that the normalised distribution for the six months ended 30 September 2014 
has increased by 7.8% to 59.086 cents per linked unit (normalised prior period: 54.81 cents per linked unit).
  
The group’s normalised net profit available for distribution amounted to R333.8 million for the six months to 
30 September 2014 (R276.8 million - September 2013, excluding non-recurring income of R67.0 million) which represents a
normalised increase of 20.6% over the comparable period.  


Summary of financial performance:                                                          
                                                    September    September       March     
                                                         2014         2013        2014      
Net asset value per linked unit (cents)                 1 538        1 535       1 498     
Normalised distribution per linked unit (cents)         59.09        54.81      126.49    
Special/non-recurring distribution (cents)                  -        13.83       13.83     
Total distribution (cents)                              59.09        68.64      140.32    
Loan to value ratio net of available cash (%)(I)         25.3         29.1        30.7      
Gearing ratio (%)                                        23.6         29.7        29.0      
(I)Based on directors’ valuation of the property portfolio.


 A simplified income statement (which is not IFRS compliant) is set out below:                                                                                
                                                                              GROUP                                                                
                                                                  September            September                                          
                                                                      2014                  2013       Paragraph                %                
                                                                      R000                  R000       reference         variance        
Gross rental income and recoveries                                 744 110               657 365                             13.2             
Property expenses                                                 (275 105)             (250 453)                            (9.8)            
Net profit from property operations                                469 005               406 912              a)             15.3             
Asset management business                                           (4 141)               58 870              b)           (107.0)          
Asset management fees                                               11 766                11 479                              2.5              
Sales commission                                                       (32)               66 993                            >(100)          
Expenditure                                                        (15 875)              (19 602)                            19.0             
Corporate administrative expenses                                  (18 545)              (17 522)             c)             (5.8)            
Finance costs net of investment income                            (104 618)              (98 382)             d)             (6.3)            
Loss on sale of furniture, fittings and computer equipment               -                    (5)                           >(100)          
Tax                                                                 (7 942)               (6 070)             e)            (30.8)           
Distributable income                                               333 759               343 803                             (2.9)            


a) Net profit from property operations
   - Our focussed asset management and our actions to improve the quality of the portfolio have resulted in an
     excellent portfolio performance in a difficult economic environment for the six months ended 30 September 2014.
   - The group’s net profit from property operations, exclusive of straight-line rental accruals, has increased by 15.3%
     over the comparable period, from R406.9 million to R469.0 million. This percentage increase is made up as follows: 
     - On a like-for-like (stable portfolio) basis     7.9%      
     - New property acquisitions contributed          11.5%     
     - Less: Sales of non-core properties             (4.1%) 
                                                      15.3%

     Further details of the property portfolio performance are set out in paragraph 9. 


Doubtful debt allowance for tenant receivables

The doubtful debt allowance for the impairment of receivables has prudently increased from R11.3 million at 31 March 2014
to R17.1 million at 30 September 2014, which is considered adequate at this stage. The doubtful debt allowance is
expected to approximate 1.1% of gross rental income for the year ending 31 March 2015, which is slightly higher than
previous impairment allowances. A summary of the movement in the impairment allowance of trade receivables is set out below.


                                                                    R000      
Doubtful debt allowance 1 April 2014                              11 344    
Allowance for receivable impairment for the six-month period       5 764     
Receivables written off as uncollectable                               -         
Doubtful debt allowance 30 September 2014                         17 108    
Bad debt write-off per the statement of comprehensive income       1 370     

b) Asset management business

   Asset management fee income is 2.5% higher than the comparable period following the disposal of the R2.2 billion
   East Rand Mall in April 2013, which has led to a lower base of c.R6.9 billion on which to calculate on-going recurring
   asset management fees. No property sales on the Sanlam portfolio have taken place during the period. Asset management
   expenditure has decreased by 19% or R3.7 million over the comparable period primarily as a result of:
   - a recoupment of the long-term share incentive amortisation of R2.8 million which arose following the sale of
     forfeited Vukile shares held in respect of employees who resigned or retired during the six months ended 30 September 2014; and
   - a reduction in the short-term bonus accrual of R2.2 million as compared to September 2013. The prior period carried an additional 
     accrual from the March 2013 financial year which did not recur in September 2014.

c) Corporate administrative expenditure

   Corporate administration expenses have increased by 5.8% over the comparable period mainly as a result of normal inflationary increases. 
   
d) Finance costs net of investment income

   Finance costs have increased by R13.5 million due to:
   - the Encha transaction where additional interest of R7.5 million was payable for the full six-month period to 30 September 2014 as 
     compared to two months in the prior comparable period; and  
   - interest on loans raised on 1 April 2014 to part finance the acquisition of the Letlhabile Mall amounted to R6.0 million for the 
     six months ended 30 September 2014.  
   
   These additional costs have been offset by a saving in interest of R1.4 million following the repayment of the R400 million bank loan 
   in mid September 2014.
             
   Interest income has been boosted by distributions of R27.4 million from investments in linked property securities, namely in Fairvest Property 
   Holdings Limited and Synergy Income Fund Limited. These acquisitions were concluded post 30 September 2013.  Interest income has reduced by 
   R4.6 million due to lower cash reserves.
             
   Antecedent divestiture income of R13.7 million was included in income for the six months ended 30 September 2013. Following an industry guidance 
   letter recently issued by the JSE, this accounting treatment is no longer acceptable and no antecedent income has been provided for in income for 
   the six month ended 30 September 2014.
   
e) Taxation

   The first-half tax accrual is R1.8 million higher than the comparable period due to varying distributions as a percentage of profits available for 
   distribution over the two periods. At year end, it is anticipated that c.100% of profits available for distribution will be distributed, thereby 
   minimising the actual normal tax payable by the company. The bulk of the normal tax payable arises in respect of the Namibian subsidiaries.

5. Borrowings

A R400 million bank loan which expired in mid September 2014 was repaid out of the proceeds of a R600 million equity issuance in September 2014.

During September 2014, R75.0 million six-month commercial paper was successfully refinanced with the issue of new four-month commercial paper at a margin 
of 30 bps above four-month adjusted JIBAR.

A new R500 million loan was concluded in April 2014 to repay existing bank loans of R290 million, as follows:

                                Rm     Margin    
 - Access facility             200      1.20%     
 - Three-year term facility    200      1.65%     
 - Four-year term facility     100      1.85%     
                               500              

89.4% of debt (excluding development loans) at 30 September 2014 has been hedged by way of interest rate swaps. The current all-in annualised cost 
of finance, including margins and amortised debt raising fees, against the average of the opening and closing debt for the six months to 
30 September 2014 equates to c. 8.2%.  

The LTV ratio net of available cash at 30 September 2014 equates to 25.3% (29.1% - September 2013). Swaps amounting to R674 million have been extended 
to mature in May 2016 (R261 million) and March/May 2019 (R413 million), at an additional swap cost equating to R4.9 million on an annualised basis and 
R3.9 million for the year ending 31 March 2015.

The weighted average expiry of swaps at 30 September 2014 is 3.0 years.

The gearing ratio has reduced from 29.7% (September 2013) to 23.6% at 30 September 2014.

6. Swap maturity profile 

The group’s swap expiry profile is set out below: 

Swap expiry profile (Rm)
Calendar year    Calendar year    Calendar year    Calendar year    Calendar year              Total            
         2015             2016             2017             2018             2019                              
            -              902              604              526              413              2 445    
           0%              37%              25%              21%              17%               100%             


7. Developments, acquisitions and sales

Mini factory/warehousing complex Linbro Park

The 15 000m² mini factory/warehousing development at Linbro Park was completed on 1 October 2014.  Linbro Park is one
of Johannesburg’s prime industrial areas. The development is incorporated into Linbro Business Park, firmly established
as a desirable business address, which enjoys excellent accessibility to the N3 and Sandton CBD via Marlboro Road while
offering the added benefit of being located approximately three kilometres from the Gautrain Marlboro Station. The
development comprises 22 units with a wide variety of unit sizes ranging from 350m² to 1 870m². The capital expenditure is
R124 million at an initial yield of 10% which is underpinned by a one year income guarantee.

30% interest Modjadji Plaza and Maake Plaza 

Transfer of Modjadji Plaza (15 200m²) was registered during February 2014 while Maake Plaza’s (9 800m²) transfer was
registered during July 2014. The purchase price for the shares in these centres amounts to R61.5 million at a blended
anticipated initial yield of 12.0%. The centres are located in the rural areas surrounding Tzaneen in the Limpopo Province.
Both centres are anchored by Shoprite and the national tenant composition is 88.0%. The acquisition of a further 40% of
Maake Plaza, subject to Competition Commission approval, at a consideration of R61.6 million and an initial yield of
9.7% is expected to be finalised during February/March 2015.

Upgrade and extension of East Rand Mall

As part of an ongoing strategy to improve the quality of its portfolio, East Rand Mall (in which the company owns a
50% undivided share with Redefine) is being upgraded and extended at a total cost of R336.5 million. Each co-owner will
contribute R168.25 million to the total cost.  

East Rand Mall, regarded as one of the top regional malls in South Africa, has a gross lettable area of 62 516m²,
which will be increased to about 70 000m². The main entrances, malls and toilets will be upgraded while some areas will be
reconfigured to allow better utilisation of the available space. 

Letlhabile Mall

The Letlhabile Mall, which was acquired for R194.2 million at a yield of 9.0%, started trading on 1 April 2014.  The
centre, with a GLA of 17 080m², is situated in Letlhabile about 30 kilometres north of Brits in the North West Province. 
 
Trading at the centre was initially lower than expected due to the strike action in the mining sector, but has since
picked up.

Acquisition pipeline 

Moruleng Mall and Batho Plaza

Vukile has entered into signed sale agreements to acquire two retail centres from New Africa Developments (Pty) Ltd.
Moruleng Mall is a 31 653m² regional shopping centre located in the North West Province with a national tenant mix of 88%. 
Anchor tenants include Shoprite, Pick n Pay, Edcon and the Truworths group. A purchase price of R320 million was agreed to 
acquire 80% of the centre which equates to an initial yield of 8.68%. The remaining 20% is owned by the Bakgatla-Ba-Kgafela. 
The acquisition is subject to Bakgatla-Ba-Kgafela waiving its pre-emptive right on the 80% shareholding. Batho Plaza is a 
14 000m² centre located in Soshanguve, Gauteng, with a national tenant mix of 80%. Anchor tenants include Shoprite and Cashbuild. 
A purchase price of R140 million was agreed which equates to an initial yield of 9.52%. Batho Plaza is contingent on the successful 
acquisition of Moruleng Mall. Both transactions are subject to the successful conclusion of a due diligence review and approval 
by the Competition Commission.

Nonesi Mall

Vukile has concluded an offer to purchase Nonesi Mall from Tintswalo Property Group. Nonesi Mall is a 27 700m²
regional shopping centre located in Queenstown, Eastern Cape with a national tenant mix of 96%. Anchor tenants include
Checkers, Pick n Pay, Woolworths, Edcon and Massmart. A yield of 8.25% has been agreed which gives an indicative purchase
price of c.R360 million. The transaction is subject to the successful conclusion of a due diligence review and approval by the 
Competition Commission. 

Silverton industrial portfolio

Vukile has concluded an offer to purchase an industrial warehousing portfolio from the HL Group. The portfolio
comprises eight buildings located in close proximity to each other in the Silverton Industrial area. Notable tenants include
Massmart, Edcon and Topmed. A purchase price of R127 million was agreed at an initial yield of 9.25%. The transaction is
subject to the successful conclusion of a due diligence review and approval by the Competition Commission. 

Disposals

The following properties were disposed of in the six months ended 30 September 2014:

                                         Sales                 Date of     
                                         price     Yield          sale        
Property                                  R000         %          2014        
Lichtenburg Shopping Centre             48 600       9.9      22 April    
Cape Town Kenilworth Motor Showrooms    34 750      12.2       1 April     
                                        83 350                         
                                                                        
8. Property portfolio

The combined property portfolio currently comprises 79 properties with a gross lettable area of 1 144 841m².

The sectoral spread by market value comprises 54% retail, 22% offices, 10% industrial, 10% sovereign, 3% hospital and
1% motor-related.  

During the six-month period under review, new leases and renewals with a total area of 147 724m² and a contract value
of R516.1 million were concluded.

72% of leases to be renewed during the period ended 30 September 2014 were renewed or are in the process of being
renewed.

The overall vacancy percentage (measured as a percentage of GLA) has decreased from 6.5% at 31 March 2014 to 5.4% at
30 September 2014.  

Bank guarantees have been received for the sale of JHB Bedfordview 1 Kramer Road and a signed sales agreement is in
place for the sale of Pretoria Midtown which is still subject to due diligence. If the 14 845m² vacancy at these
properties is excluded from the September 2014 numbers, the vacancy on GLA reduces from 5.4% to 4.2%.
The renewal escalations on expiry rentals are still positive when compared to expiry rentals:

- Retail         9.4%    
- Office         6.6%    
- Industrial     3.0%*   
- Sovereign      7.5%#   
- Average        7.3%    

* Excluding the renewal of Mahle Behr South Africa (29 980m²) at Durban Valley View Industrial Park which skews the
results due to previous higher rentals.

# Excluding the renewal of the supermarket of 275m² and the optometrist of 94m² at Pretoria Navarre Building which
were respectively renewed at escalations of 214% and 161% on expiry rentals as well as the renewal of two leases with a
cumulative GLA of 134m² at Pretoria Koedoe Arcade which were renewed at an escalation of 150% on expiry rentals. 
 
New leases concluded on retail space have exceeded budgeted rentals by 8.3%, whilst new leases concluded on offices
and industrial are down 6.4% and 12.5% respectively on budgeted rentals.
  
The contracted rental escalation profile reflects a positive average escalation across all sectors of 8.0%.

9. Valuations

The directors have valued the group’s property portfolio at R10.6 billion utilising the discounted cash flow
methodology for the group. In terms of the company’s accounting policies, approximately 50% of all properties are valued every
six months on a rotational basis by qualified independent external valuers. The external valuation by Quadrant Properties
(Pty) Ltd and Knight Frank (Pty) Ltd of 50.8% of the total portfolio is in line with the directors’ valuation. 

Valuation assumptions

The range of the reversionary capitalisation rates applied to the portfolio are between 8.4% and 13.7% with the
weighted average being approximately 10.1%.

The discount rates applied range between 13.2% and 17.7% with the weighted average being approximately 14.4%.

In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated
demand.

10. Operating segment reporting

The revenues and profits generated by the group’s operating segments and segment assets are summarised in the table below.

During the six-month period to 30 September 2014, there has been a change from prior periods in the measurement
methods used to determine operating segments and reported segment profits in that hospitals and auto dealerships are reported
as separate segments in line with the JSE Listings Requirements.


Operating segment analysis for the six months ended 30 September 2014                                                                                                                                             
                                                                                                                                                                 Asset                 
                                                                                                          Sovereign                 Motor-                  management                 
                                                                 Retail      Offices        Industrial      offices    Hospital    related         Total      business         Total   
GROUP                                                              R000         R000              R000         R000        R000       R000          R000          R000          R000   
Group income for the six months ended 30 September 2014                                                                                                                                
Property revenue                                                452 469      134 011            61 843       76 399       5 426     13 962       744 110        11 734       755 844   
Property expenses                                              (180 972)     (57 330)          (14 389)     (20 114)       (618)    (1 682)     (275 105)      (15 875)     (290 980)  
                                                                271 497       76 681            47 454       56 285       4 808     12 280       469 005        (4 141)      464 864   
Straight-line rental income accrual                             (12 140)      (3 429)           (2 122)      (2 517)       (215)      (549)      (20 972)            -       (20 972)  
Profit from property and other operations                       259 357       73 252            45 332       53 768       4 593     11 731       448 033        (4 141)      443 892   
Group statement of financial position at 30 September 2014                                                                                                                             
Assets                                                                                                                                                                                 
Investment properties                                         5 715 642    2 171 278         1 087 313    1 033 840     134 298    338 063    10 480 434                  10 480 434   
Add: Lease commissions                                                                                                                            28 511                      28 511   
                                                                                                                                              10 508 945                  10 508 945   
Goodwill                                                         53 169                          3 889                                            57 058                      57 058   
Intangible asset                                                                                                                                               196 736       196 736   
Investment properties held for sale                              25 000       53 615            22 857                                           101 472                     101 472   
                                                              5 793 811    2 224 893         1 114 059    1 033 840     134 298    338 063    10 667 475       196 736    10 864 211   
Add: Excluded items                                                                                                                                                                    
Deferred capital expenditure                                                                                                                                                 100 712   
Investments                                                                                                                                                                  617 771   
Furniture, fittings and computer equipment                                                                                                                                     4 037   
Available-for-sale financial asset                                                                                                                                            39 945   
Financial asset at amortised cost                                                                                                                                              6 498   
Loans to directors                                                                                                                                                            34 750   
Trade and other receivables                                                                                                                                                  101 675   
Cash and cash equivalents                                                                                                                                                    214 212   
Total assets                                                                                                                                                              11 983 811   
Liabilities                                                                                                                                                                            
Linked debenture and premium                                  2 836 588    1 099 373           548 562      510 845      66 360    167 045     5 228 773                   5 228 773   
Interest-bearing borrowings                                   1 534 985      594 912           296 847      276 438      35 910     90 394     2 829 486                   2 829 486   
                                                              4 371 573    1 694 285           845 409      787 283     102 270    257 439     8 058 259                   8 058 259   
Add: Excluded items                                                                                                                                                                    
Equity                                                                                                                                                                     3 290 190   
Deferred taxation liabilities                                                                                                                                                  6 931   
Trade and other payables                                                                                                                                                     297 983   
Current taxation liabilities                                                                                                                                                   3 208   
Linked unitholders for distribution                                                                                                                                          327 240   
Total equity and liabilities                                                                                                                                              11 983 811   
                                                                                                                                                                                       
                                                                                                                                                                 Asset                 
                                                                                                          Sovereign                 Motor-                  management                 
                                                                 Retail      Offices        Industrial      offices    Hospital    related         Total      business         Total   
GROUP                                                              R000         R000              R000         R000        R000       R000          R000          R000          R000   
Group income for the six months ended 30 September 2013                                                                                                                                
Property revenue                                                413 583      139 493            60 284       23 833      13 189      6 983       657 365        78 472       735 837   
Property expenses                                              (158 987)     (59 193)          (21 891)      (7 779)     (1 573)    (1 030)     (250 453)      (19 602)     (270 055)  
                                                                254 596       80 300            38 393       16 054      11 616      5 953       406 912        58 870       465 782   
Straight-line rental income accrual                              11 326        3 573             1 708          714         517        265        18 103             -        18 103   
Profit from property and other operations                       265 922       83 873            40 101       16 768      12 133      6 218       425 015        58 870       483 885   
Group statement of financial position at 30 September 2013                                                                                                                             
Assets                                                                                                                                                                                 
Investment properties                                         4 979 683    2 065 193         1 045 919    1 044 761     325 852    127 920     9 589 328                   9 589 328   
Add: Lease commissions                                                                                                                            22 181                      22 181   
                                                                                                                                               9 611 509                   9 611 509   
Goodwill                                                         59 713                          3 889                                            63 602                      63 602   
Intangible asset                                                                                                                                                95 731        95 731   
Investment properties held for sale                             383 813      334 267                                                34 750       752 830                     752 830   
                                                              5 423 209    2 399 460         1 049 808    1 044 761     325 852    162 670    10 427 941        95 731    10 523 672   
Add: Excluded items                                                                                                                                                                    
Development capital expenditure                                                                                                                                              261 687   
Furniture, fittings and computer equipment                                                                                                                                     5 487   
Available-for-sale financial asset                                                                                                                                            35 403   
Financial asset at amortised cost                                                                                                                                                197   
Loans to directors                                                                                                                                                            15 350   
Trade and other receivables                                                                                                                                                   91 357   
Cash and cash equivalents                                                                                                                                                    421 963   
Total assets                                                                                                                                                              11 355 116   
Liabilities                                                                                                                                                                            
Linked debenture and premium                                  1 921 939      859 815           374 791      374 377     116 765     58 291     3 705 978                   3 705 978   
Interest-bearing borrowings                                   1 751 442      783 540           341 543      341 165     106 406     53 120     3 377 216                   3 377 216   
                                                              3 673 381    1 643 355           716 334      715 542     223 171    111 411     7 083 194                   7 083 194   
Add: Excluded items                                                                                                                                                                    
Equity                                                                                                                                                                     3 288 321   
Derivative financial instruments                                                                                                                                              14 635   
Deferred taxation liabilities                                                                                                                                                  5 999   
Trade and other payables                                                                                                                                                     247 597   
Current taxation liabilities                                                                                                                                                   4 982   
Loans to vendors                                                                                                                                                             382 052   
Linked unitholders for distribution                                                                                                                                          328 336   
Total equity and liabilities                                                                                                                                              11 355 116   


11. Distribution announcement

Linked unitholders are advised that the board of directors of Vukile has declared a normalised interim cash
distribution of 59.08600 cents per linked unit out of distributable income for the six-month period ended 30 September 2014.
 
Vukile was granted REIT status by the JSE Limited with effect from 1 April 2013 in line with the REIT structure as
provided for in the Income Tax Act, No 58 of 1962, as amended (the “Income Tax Act”) and section 13 of the JSE Listings
Requirements. 
 
The REIT structure is a tax regime that allows a REIT to deduct qualifying distributions paid to investors, in
determining its taxable income.

The cash distribution of 59.08600 cents per linked unit meets the requirements of a “qualifying distribution” for the
purposes of section 25BB of the Income Tax Act (a “qualifying distribution”) with the result that:
- qualifying distributions received by resident Vukile linked unitholders must be included in the gross income of
  such linked unitholders (as a non-exempt dividend in terms of section 10(1)(k)(i)(aa) of the Income Tax Act), with the
  effect that the qualifying distribution is taxable as income in the hands of the Vukile linked unitholder. These qualifying
  distributions are however exempt from dividends withholding tax, provided that the South African resident linked
  unitholders provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated linked
  units, or the Company, in respect of certificated linked units: 
  - a declaration that the distribution is exempt from dividends tax; and 
  - a written undertaking to inform the CSDP, broker or the Company, as the case may be, should the circumstances
    affecting the exemption change or the beneficial owner cease to be the beneficial owner,
  both in the form prescribed by the Commissioner for the South African Revenue Service.  Linked unitholders are
  advised to contact their CSDP, broker or the Company, as the case may be, to arrange for the abovementioned documents to be
  submitted prior to payment of the distribution, if such documents have not already been submitted.
  
- qualifying distributions received by non-resident Vukile linked unitholders will not be taxable as income and
  instead will be treated as ordinary dividends but which are exempt in terms of the usual dividend exemptions per section
  10(1)(k) of the Income Tax Act. It should be noted that until 31 December 2013 qualifying distributions received by
  non-residents were not subject to dividends withholding tax.  From 1 January 2014, any qualifying distributions are subject to
  dividends withholding tax at 15%, unless the rate is reduced in terms of any applicable agreement for the avoidance of
  double taxation (“DTA”) between South Africa and the country of residence of the linked unitholder.  Assuming dividends
  withholding tax will be withheld at a rate of 15%, the net distribution amount due to non-resident linked unitholders is
  50.22310 cents per linked unit. A reduced dividend withholding rate in terms of the applicable DTA, may only be relied
  upon if the non-resident linked unitholder has provided the following forms to their CSDP or broker, as the case may be,
  in respect of uncertificated linked units, or the Company, in respect of certificated linked units: 
  - a declaration that the distribution is subject to a reduced rate as a result of the application of a DTA; and 
  - a written undertaking to inform their CSDP, 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 for the South African Revenue Service.  Non-resident linked
  unitholders are advised to contact their CSDP, broker or the Company, as the case may be, to arrange for the abovementioned
  documents to be submitted prior to payment of the distribution if such documents have not already been submitted, if
  applicable. 
  
Linked unitholders are further advised that:

- the issued share capital of Vukile is 553 834 346 linked units of one cent each at year end; 
- Vukile’s tax reference number is 9331/617/14/3.

This cash distribution may have tax implications for resident as well as non-resident linked unitholders. Linked
unitholders are therefore encouraged to consult their tax and/or professional advisors should they be in any doubt as to the
appropriate action to take.

Salient dates and times

The salient dates and times for the interim cash distribution are as set out below:

Last day to trade cum dividend and receive a cash distribution    Thursday, 11 December 2014                                                                                                 
Linked units to trade ex-distribution                               Friday, 12 December 2014                                                                                                  
Record date                                                         Friday, 19 December 2014                                                                                               
Payment date                                                        Monday, 22 December 2014   

Notes:
1. Linked units may not be dematerialised or rematerialised between Friday, 12 December 2014 and Friday, 19 December
2014 both days inclusive.
2. The above dates and times are subject to change. Any changes will be released on SENS and if required, published
in the press.

12. Post period events

Investment in Synergy Income Fund Limited (“Synergy”)

In pursuit of Vukile’s strategy to deepen its position in Synergy and with a view to Vukile ultimately acquiring
control of Synergy and/or its underlying property portfolio, Vukile acquired on 4 November 2014:

- 3 543 839 Synergy B linked units (“SGBs”) from Stanlib Asset Management Limited in exchange for 1 327 281 Vukile
  linked units (“VKEs”); and
- 5 584 586 SGBs from Liberty Group Limited in exchange for 2 091 605 VKEs.

The consideration payable by Vukile for the SGBs acquired in terms of the acquisition agreement equates to a swap
ratio of 1 VKE for every 2.67 SGBs acquired.

As a consequence thereof, Vukile announced on 5 November 2014 its firm intention to make a mandatory offer to the
linked unitholders of Synergy Income Fund Limited as follows:

- SGB offer consideration
  Vukile will extend an offer to all other unitholders to acquire all or a part of the SGBs at a swap ratio of 1 VKE
  for every 2.67 SGBs.
- Synergy A linked units (“SGA”)
  Vukile will extend a comparable offer to SGA linked unitholders to acquire all or part of the SGAs at a swap ratio
  of 1 VKE for every 1.65 SGAs held.
  
  The offers are conditional on receipt of unconditional approval from the Competition Authorities to the extent
  required in terms of the Competition Act 89 of 1989.

  Vukile has sufficient authorised and unissued VKE units under the control of its board of directors to settle any
  consideration payable in terms of the offers.
  
  The offer circular will be posted to Synergy linked unitholders on or before 4 December 2014.
  
13. Sale of asset management business to Sanlam Life Insurance Limited (“Sanlam”)

A contract to sell the asset management business relating to Sanlam’s property portfolio to Sanlam was concluded on 
7 November 2014.

The selling price of R167 million was agreed upon together with transfer service fee income for certain on-going
services, to be paid by Sanlam to Vukile as follows:

Years ending     Rm   
31 March 2015     7   
31 March 2016     8   
31 March 2017     8   
                        
On the assumption that the selling price of R167 million is invested in properties yielding at least 9.0% and taking
the above transfer service fee income into account, the effect on Vukile’s distributable income for the years ending 
31 March 2015 to 31 March 2017, based on budgeted asset management income for the same period, will not be significant. 
Following the implementation of the sale, Vukile will have a simpler structure and a more predictable income stream going
forward.

14. Prospects

Vukile remains on track to deliver full year growth in distributions of between 7.5% and 8%. The forecast growth in
distributions is based on the assumption that the macro-economic environment does not deteriorate further, no major
corporate failures will occur and that tenants will be able to absorb rising electricity and municipal costs. Forecast rental
income has been based on contracted escalations and market related renewals. Strategically, we will continue to look
selectively at acquisitions in the retail and industrial sectors that add value to the portfolio over the short and long
term whilst also under-weighting the office sector. With a deteriorating macroeconomic outlook, we have decided to
position the fund defensively and gearing should remain low with at least 75% of interest-bearing debt being hedged.
 
This forecast has not been reviewed or reported on by the Company’s auditors.

On behalf of the board
AD Botha                    LG Rapp
Chairman                    Chief Executive Officer
Melrose Estate
24 November 2014


Unaudited condensed consolidated statement of financial position
at 30 September 2014
                                                        Unaudited       Unaudited       Audited   
                                                     30 September    30 September      31 March   
                                                             2014            2013          2014   
GROUP                                                        R000            R000          R000   
ASSETS                                                                                            
Non-current assets                                     11 369 716      10 088 966    10 739 238   
Investment properties                                  10 326 423       9 454 898     9 787 413   
Investment properties                                  10 508 945       9 611 509     9 989 994   
Straight-line rental income adjustment                   (182 522)       (156 611)     (202 581)  
Other non-current assets                                1 043 293         634 068       951 825   
Straight-line rental income asset                         182 522         156 611       202 581   
Investments                                               617 771               -       592 300   
Deferred capital expenditure                              100 712         261 687        29 732   
Intangible asset                                                -          95 731             -   
Goodwill                                                   57 058          63 602        57 058   
Furniture, fittings, computer equipment and other           4 037           5 487         4 660   
Available-for-sale financial asset                         39 945          35 403        20 313   
Derivative financial instruments                            6 498               -        18 757   
Financial asset at amortised cost                               -             197             -   
Long-term loans granted                                    34 750          15 350        23 000   
Deferred taxation assets                                        -               -         3 424   
Current assets                                            512 623         513 320       626 399   
Intangible asset                                          196 736               -       242 059   
Trade and other receivables                               101 675          91 357        86 165   
Cash and cash equivalents                                 214 212         421 963       298 175   
Investment properties held-for-sale                       101 472         752 830       312 567   
Total assets                                           11 983 811      11 355 116    11 678 204   
EQUITY AND RESERVES                                     3 290 190       3 288 321     3 108 689   
Non-current liabilities                                 7 662 264       6 305 604     6 668 564   
Linked debentures and premium                           5 228 773       3 705 978     4 526 816   
Borrowings                                              2 426 560       2 578 992     2 133 878   
Derivative financial instruments                                -          14 635             -   
Deferred taxation liabilities                               6 931           5 999         7 870   
Current liabilities                                     1 031 357       1 761 191     1 900 951   
Trade and other payables                                  297 983         247 597       274 926   
Borrowings                                                402 926         798 224     1 256 527   
Current taxation liabilities                                3 208           4 982         4 262   
Loans to vendors                                                -         382 052             -   
Linked unitholders for distribution                       327 240         328 336       365 236                                                                                                    
Total equity and liabilities                           11 983 811      11 355 116    11 678 204   


Unaudited condensed consolidated statement of comprehensive income
for the six months ended 30 September 2014
                                                                            Unaudited       Unaudited        Audited   
                                                                         30 September    30 September       31 March   
                                                                                 2014            2013           2014   
GROUP                                                                            R000            R000           R000   
Property revenue                                                              744 110         657 365      1 389 625   
Straight-line rental income accrual                                           (20 972)         18 103         53 493   
Gross property revenue                                                        723 138         675 468      1 443 118   
Property expenses                                                            (275 105)       (250 453)      (516 517)  
Net profit from property operations                                           448 033         425 015        926 601   
Net (loss)/income from asset management business                               (4 141)         58 870         53 737   
Corporate administrative expenses                                             (18 545)        (17 522)       (34 964)  
Investment and other income                                                    36 128          26 587         64 279   
Operating profit before finance costs                                         461 475         492 950      1 009 653   
Finance costs                                                                (140 746)       (124 969)      (256 605)  
Profit before debenture interest                                              320 729         367 981        753 048   
Debenture interest                                                           (326 574)       (327 601)      (691 667)  
(Loss)/profit before capital items                                             (5 845)         40 380         61 381   
(Loss)/profit on sale of investment properties                                 (2 959)         26 560         41 201   
Loss on sale of furniture and equipment                                             -              (5)            (4)  
Fair value gain on investments                                                  1 566               -         17 228   
Amortisation of debenture premium                                               7 535           4 308          9 959   
Goodwill written-off on sale of subsidiary/properties by a subsidiary               -               -         (6 544)  
(Impairment)/reversal of impairment of intangible asset                       (45 324)        (57 234)        89 094   
(Loss)/profit before fair value adjustments                                   (45 027)         14 009        212 315   
Fair value adjustments                                                        223 711         592 299        174 784   
Gross change in fair value of investment properties                           202 739         610 402        228 277   
Straight-line rental income adjustment                                         20 972         (18 103)       (53 493)                                                                                                                     
Profit before taxation                                                        178 684         606 308        387 099   
Taxation                                                                       (7 942)         (6 070)        (5 678)  
Profit for the period                                                         170 742         600 238        381 421   
Other comprehensive income                                                                                             
Items that will be reclassified subsequently to profit or loss                                                         
Cash flow hedges                                                              (12 259)         44 695         78 087   
Available for sale financial assets - current period income/(loss)              6 200           4 465        (11 925)  
Other comprehensive (loss)/income for the period                               (6 059)         49 160         66 162   
Total comprehensive income for the period                                     164 683         649 398        447 583   
Earnings per linked unit (cents)*                                               96.94          205.25         229.71   
Number of linked units in issue                                           553 837 346     455 513 047    509 573 007   
Weighted average number of linked units in issue                          512 996 395     452 061 804    472 371 428   
*Vukile has no dilutionary instruments in issue.


Reconciliation of group net profit to headline earnings and to profit available for distribution
at 30 September 2014
                                                                                 30 September 2014       30 September 2013          31 March 2014              
                                                                                              Cents                    Cents                   Cents   
                                                                                                per                      per                     per   
                                                                                   Group     linked        Group      linked        Group     linked   
                                                                                    R000       unit         R000        unit         R000       unit   
Earnings per share                                                               170 742      33.28      600 238      132.78      381 421      81.65   
Adjusted for:                                                                                                                                          
Debenture interest                                                               326 574      63.66      327 601       72.47      691 667     148.06   
Earnings of linked units                                                         497 316      96.94      927 839      205.25    1 073 088     229.71   
Change in fair value of investment properties                                   (223 711)    (43.61)    (592 299)    (131.02)    (174 784)    (37.42)  
Write-off of goodwill on sale of subsidiary/properties sold by a subsidiary            -          -            -           -        6 544       1.40   
Loss/(profit) on sale of investment properties                                     2 959       0.58      (26 560)      (5.88)     (41 201)     (8.82)  
Loss on sale of furniture, fittings and computer equipment                             -          -            5           -            4          -   
Impairment/(reversal of impairment) of intangible asset                           45 324       8.84       57 234       12.66      (89 094)    (19.07)  
Amortisation of debenture premium                                                 (7 535)     (1.46)      (4 308)      (0.94)      (9 959)     (2.12)  
Headline earnings of linked units*                                               314 353      61.29      361 911       80.07      764 598     163.68   
Loss on sale of furniture, fittings and computer equipment                             -          -           (5)          -           (4)         -   
Revaluation of surplus on investments                                             (1 566)     (0.31)           -           -      (17 228)     (3.69)  
Straight-line rental accrual                                                      20 972       4.09      (18 103)      (4.01)     (53 493)    (11.45)  
Profit available for distribution                                                333 759      65.07      343 803       76.06      693 873     148.54   
*Vukile has no dilutionary instruments in issue.
      
         
Unaudited condensed consolidated statement of cash flow
for the six months ended 30 September 2014
                                                               Unaudited       Unaudited        Audited   
                                                            30 September    30 September       31 March   
                                                                    2014            2013           2014   
GROUP                                                               R000            R000           R000   
Cash flow from operating activities                              456 816         467 376        969 578   
Cash flow from investing activities                             (182 093)     (2 123 975)    (2 753 714)  
Cash flow from financing activities                             (358 686)        811 258        815 007   
Net decrease in cash and cash equivalents                        (83 963)       (845 341)      (969 129)  
Cash and cash equivalents at the beginning of the period         298 175       1 267 304      1 267 304   
Cash and cash equivalents at the end of the period               214 212         421 963        298 175   
                                                                                                            

Unaudited condensed consolidated statement of changes in equity
for the six months ended 30 September 2014
                                                         Share                                           
                                                       capital         Other                             
                                                     and share    components     Retained                
GROUP                                                  premium     of equity     earnings        Total   
Balance at 31 March 2013                                56 116     2 533 337       36 734    2 626 187   
Issue of share capital                                   8 880             -            -        8 880   
Dividend distribution                                        -             -         (669)        (669)  
                                                        64 996     2 533 337       36 065    2 634 398   
Profit for the year                                          -             -      600 238      600 238   
Change in fair value of investment properties                -       610 402     (610 402)           -   
Share-based remuneration                                     -         4 525            -        4 525   
Transfer from non-distributable reserves                     -       (30 674)      30 674            -   
Other comprehensive income                                                                               
Revaluation of available-for-sale financial asset            -         4 465            -        4 465   
Revaluation of cash flow hedges                              -        44 695            -       44 695   
Balance at 30 September 2013                            64 996     3 166 750       56 575    3 288 321   
Issue of share capital                                  16 867             -            -       16 867   
Dividend distribution                                        -             -         (743)        (743)  
                                                        81 863     3 166 750       55 832    3 304 445   
Loss for the period                                          -             -     (218 817)    (218 817)  
Change in fair value of investment properties                -      (382 125)     382 125            -   
Share-based remuneration                                     -         6 059            -        6 059   
Transfer to non-distributable reserves                       -       154 424     (154 424)           -   
Other comprehensive loss                                                                                 
Revaluation of investments                                   -        17 228      (17 228)           -   
Revaluation of available-for-sale financial asset            -       (16 390)           -      (16 390)  
Revaluation of cash flow hedges                              -        33 392            -       33 392   
Balance at 31 March 2014                                81 863     2 979 338       47 488    3 108 689   
Issue of share capital                                  14 480             -            -       14 480   
Dividend distribution                                        -             -         (666)        (666)  
                                                        96 343     2 979 338       46 822    3 122 503   
Profit for the year                                          -             -      170 742      170 742   
Change in fair value of investment properties                -       202 739     (202 739)           -   
Share-based remuneration                                     -         3 004            -        3 004   
Transfer from non-distributable reserve                      -       (48 283)      48 283            -   
Other comprehensive loss                                                                                 
Revaluation of investments                                   -         1 566       (1 566)           -   
Revaluation of available-for-sale financial asset            -         6 200            -        6 200   
Revaluation of cash flow hedges                              -       (12 259)           -      (12 259)  
Balance at 30 September 2014                            96 343     3 132 305       61 542    3 290 190   


Notes to the condensed  consolidated statements
for the six months ended 30 September 2014

1. MEASUREMENTS OF FAIR VALUE                                                                             
1.1 Financial Instruments                                                                                 
The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the 
fair value hierarchy as follows:                                                                       
                                               September 2014                   September 2013                           
                                       Level 1    Level 2      Total    Level 1     Level 2       Total   
GROUP                                     R000       R000       R000       R000        R000        R000   
Assets                                                                                                    
Investments                            617 771          -    617 771          -           -           -   
Available-for-sale financial assets     39 945          -     39 945     35 403           -      35 403   
Derivative financial                        
instruments                                  -      6 498      6 498          -           -           -                                                                 
Total                                  657 716      6 498    664 214     35 403           -      35 403   
Liabilities                                                                                               
Derivative financial                           
instruments                                  -          -          -          -     (14 635)    (14 635)                                                             
Total                                        -          -          -          -     (14 635)    (14 635)  
Net fair value                         657 716      6 498    664 214     35 403     (14 635)     20 768   
                                                                                                          
                                                                                   March 2014                           
                                                                        Level 1     Level 2       Total   
GROUP                                                                      R000        R000        R000   
Assets                                                                                                    
Investments                                                             592 300           -     592 300   
Available-for-sale financial assets                                      20 313           -      20 313   
Derivative financial                                                           
instruments                                                                   -      18 757      18 757                              
Total                                                                   612 613      18 757     631 370   
Liabilities                                                                                               
Derivative financial instruments                                              -           -           -   
Total                                                                         -           -           -   
Net fair value                                                          612 613      18 757     631 370   

Measurement of fair value                                                                                  
The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the 
previous reporting period.      
                                                                  
Investments                                                                                                
This comprises shares held in listed property companies at fair value which is determined by reference to quoted 
closing prices at the reporting date. 
                                                                       
Available-for-sale financial assets                                                                        
This comprises equity-settled share-based long-term incentive reimbursement rights stated at fair value. Fair value 
has been determined by reference to Vukile’s quoted closing price at the reporting date after deduction of executive 
and management rights.       
                                                                 
Derivative financial instruments                                                                           
The fair values of these swap contracts are determined by ABSA Capital, Rand Merchant Bank, Standard Bank and Investec Bank Limited 
using a valuation technique that maximises the use of observable market inputs. Derivatives entered into by the group are included 
in Level 2 and consist of interest rate swap contracts.                                                                        


1.2 Non-financial assets                                                      
The following table reflects the levels within the hierarchy of non-financial assets measured at fair value at:                                           
                                                                              
                                        September    September        March   
                                             2014         2013         2014   
                                          Level 3      Level 3      Level 3   
Assets                                                                        
Investment properties                  10 508 945    9 611 509    9 899 994   
Investment properties held-for-sale       101 472      752 830      312 567   

Fair value measurement of non-financial assets (investment properties)
The fair value of commercial buildings are estimated using an income approach which capitalises the estimated rental
income stream, net of projected operating costs, using a discount rate derived from market yields. The estimated rental
stream takes into account current occupancy levels, estimates of future vacancy levels, the terms of in-place leases and
expectations of rentals from future leases over the remaining economic life of the buildings.

The most significant inputs, all of which are unobservable, are the estimated rental value, assumptions regarding
vacancy levels, the discount rate and the reversionary capitalisation rate. The estimated fair value increases if the
estimated rental increases, vacancy levels decline or if discount rates (market yields) and reversionary capitalisation rates
decline. The overall valuations are sensitive to all four assumptions. Management considers the range of reasonable
possible alternative assumptions is greatest for reversionary capitalisation rate rental values and vacancy levels and that
there is also an interrelationship between these inputs. The inputs used in the valuations at 30 September 2014
were:
- The range of the reversionary capitalisation rates applied to the portfolio are between 8.4% and 13.7% with the
  weighted average being approximately 10.1%.
- The discount rates applied range between 13.2% and 17.7% with the weighted average being approximately 14.4%.
- Changes in discount rates attributable to changes in market conditions can have a significant impact on property
  valuations.
  A 25 basis points increase in the discount rate will decrease the value of the investment property by R41 million (2.4%).
  
  A 25 basis points decrease in the capitalisation rate will increase the value of investment property by R43 million (2.6%).

In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated demand.
         
             
JSE Sponsor: Java Capital

NSX Sponsor: IJG Group, Windhoek, Namibia  

Executive directors: LG Rapp (Chief Executive), MJ Potts (Financial Director), HC Lopion (Executive Director: Asset Management), GS Moseneke

Non-executive directors: AD Botha (Chairman), PS Moyanga, SF Booysen, RD Mokate, H Ntene, NG Payne, SEN Sebotsa, HM Serebro

Registered office: Ground floor One-on-Ninth, Cnr Glenhove Road and Ninth Street, Melrose Estate, 2196.
  
Company secretary: J Neethling  

Transfer secretaries: Link Market Services South Africa (Pty) Ltd, Braamfontein, Johannesburg 

Investor and Media Relations: Marketing Concepts, 10th Floor, Fredman Towers, 13 Fredman Drive, Sandton, Johannesburg.
Telephone +27 11 783 0700, Fax +27 11 783 3702

www.vukile.co.za


26 November 2014

Date: 26/11/2014 07:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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