Wrap Text
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').
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