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Preliminary summarised audited consolidated financial statements for the year ended 31 December 2014
CAPITAL PROPERTY FUND LIMITED
(“CAPITAL” OR “THE COMPANY”)
SHARE CODE CPF ISIN ZAE000186821
(REGISTRATION NO. 2013/226575/06)
INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA
(PREVIOUSLY FRIEDSHELF 1497 PROPRIETARY LIMITED)
(APPROVED AS A REIT BY THE JSE)
PRELIMINARY SUMMARISED AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED 31 DECEMBER 2014
DIRECTORS’ COMMENTARY
NATURE OF THE BUSINESS
Capital Property Fund (“Capital Trust”) was listed in 1984 as a property
unit trust, originally under the Unit Trust Control Act, 1981, and later
as a collective investment scheme in property (“CISIP”). Capital Trust was
approved as a REIT with effect from 1 January 2014. Capital Trust did not
benefit from all the advantages of REIT legislation as its assets were
effectively still owned by a CISIP rather than a company. In terms of
CISIP legislation, Capital Trust also required an external asset
management company, Property Fund Managers Limited (“PFM”), which is not
considered global best practice. On 5 April 2013, the boards of Resilient
Property Income Fund Limited (“Resilient”) and PFM recommended the
internalisation of PFM and Capital Trust’s conversion to a corporate REIT.
Following a lengthy process involving approvals by the FSB as regulator,
the JSE Limited, First National Bank as trustee and the Capital Trust
unitholders, Capital Trust became a corporate REIT, Capital Property Fund
Limited (“Capital”), on 30 June 2014. Resilient disposed of all of the
shares it held in PFM to Capital in exchange for 70 754 717 Capital shares
enabling Capital to internalise its asset management. The group’s
consolidated results reflect the combined position of Capital Trust (1
January 2014 to 30 June 2014) and Capital (1 July 2014 to 31 December
2014).
The management fee for PFM was calculated at 0,4% of market capitalisation
plus debt. With the strong performance in Capital’s share price, the
internalisation of PFM has already resulted in significant savings for
Capital.
The company owns the largest A-grade logistics portfolio in South Africa.
Its investment portfolio also includes A and B-grade offices, a small
portfolio of retail properties and a portfolio of listed securities.
DISTRIBUTABLE EARNINGS
Capital’s distribution increased by 10,34% to 83,44 cents per share for
the year ended 31 December 2014. The dividend for the final six months of
the financial year is 44,22 cents per share, an increase of 10,44% over
the previous comparable period.
STRATEGY
Capital’s strategy is to invest in and develop A-grade logistics
facilities and premium grade offices in the major metropolitan areas in
South Africa and to invest up to 30% of the gross asset value in offshore
equities. These include New Europe Property Investments plc and Rockcastle
Global Real Estate Company Limited (“Rockcastle”).
The company continues to increase its exposure to developments in
logistics parks by securing suitable land for this purpose. The
development pipeline will be funded through a combination of debt and the
sale of non-core properties.
REVIEW
Capital has been successful in letting all of its 100%-owned new
developments and redevelopments during the year. Furthermore, it has also
pre-let all logistics facilities to be completed in the next six months,
which bodes well for the proposed pipeline. Management expects to begin
the development of Clairwood Logistics Park in Durban during the course of
2015. All matters raised by the local municipality, as well as other
stakeholders, have been addressed.
The core property portfolio produced robust net income growth of 6,1%
compared with the net income for the 2013 financial year. Demand for A-
grade logistics facilities remains firm, however, this portfolio’s growth
was limited to growth of 5,6% as a result of a significant number of large
leases expiring and being renegotiated. The office portfolio now
constitutes 16,0% of gross assets. Although income growth of 7,7% was
achieved, this sector remains challenging. Office vacancies increased to
11,6% as a result of two large tenants downscaling in November and
December 2014. Income from the retail portfolio (7,1% of gross assets)
grew by 7,3%.
Capital benefitted from the strong performance of its local and offshore
listed holdings. These investments have become a significant component of
Capital’s gross assets, and now account for 34,1% of the overall portfolio
based on market value.
BROAD BASED BLACK ECONOMIC EMPOWERMENT
On 6 October 2014 and as approved in the general meeting, 83 333 333
shares were issued to The Siyakha Education Trust at R12,00 per share. The
sole purpose of The Siyakha Education Trust is the promotion of black
education.
ACQUISITIONS AND DEVELOPMENTS
The following developments were completed during the financial year:
100%
Description % owned GLA Yield Completion
Raceway Industrial Park 100% 40 796m2 9,4% Jul 2014
Montague Business Park 25% 19 840m2 8,5% Aug 2014
N1 Business Park 20% 12 584m2 10,0% Mar 2014
N1 Business Park 20% 10 593m2 10,0% Jun 2014
Noursepack Epping 2 100% 11 200m2 8,0% Jul 2014
14 Fitzmaurice Ave Epping 2 100% 16 200m2 8,0% Jul 2014
The following new developments have commenced:
100% Estimated Estimated
Description % owned GLA yield completion
Linbro Park 100% 31 155m2 9,0% Jul 2015
Linbro Park 100% 27 025m2 9,0% May 2015
Rivergate Cape Town 100% 18 214m2 8,0% Oct 2015
Pomona 100% 21 051m2 9,0% Sep 2015
Montague Business Park 25% 14 000m2 8,0% Apr 2015
N1 Business Park 20% 8 031m2 9,5% Mar 2015
Land held for future developments:
Estimated
100% Intended commence-
Description % owned GLA use ment
Clairwood Logistics Park 100% 358 000m2 Logistics *
Montague Business Park 25% 124 151m2 Logistics **
Sandton Offices 80% 60 000m2 Offices **
Tradeport City Deep 100% 55 000m2 Logistics **
Westlake 100% 35 000m2 Logistics Apr 2015
Louwlardia 100% 8 600m2 Logistics Apr 2015
N1 Business Park 20% 12 700m2 Logistics Jan 2015
*Timing subject to zoning.
**Subject to being tenanted.
REDEVELOPMENTS
Capital is extensively redeveloping 17 680m2 of the existing 27 312m2 at
60 Electron Avenue Isando. The property has been let to a national tenant
for 7 years and is anticipated to yield 8,0% with completion scheduled for
June 2015.
DISPOSALS
The following properties were sold during the 2014 financial year:
Sales Valuation at
proceeds Dec 2013 Exit Effective
Property name R’000 R’000 yield date
13 Trafford Road Pinetown 42 000 43 500 9,4% 22 Sep 2014
4th Street Wynberg^ 53 500 49 200 9,5% Transfer date
^Held for sale at 31 December 2014.
Apart from a small sub-division of Surprise Park, all properties held for
sale at 31 December 2013 were transferred.
VACANCIES AND ARREARS
Total vacancies increased to 4,5% compared to 4,2% at 30 June 2014.
Logistics vacancies increased from 3,2% at 30 June 2014 to 3,3% at 31
December 2014, industrial vacancies decreased from 9,3% at 30 June 2014 to
4,8% at 31 December 2014. Office vacancies increased to 11,6% from 8,2% at
30 June 2014 and retail vacancies decreased from 4,3% at 30 June 2014 to
4,1% at 31 December 2014.
There was no material change in arrears and bad debts are well provided
for.
EQUITY INVESTMENTS
Dec 2014 Dec 2013
Number Market value Number Market value
of shares R’000 of shares R’000
Rockcastle Global
Real Estate
Company Limited* 164 665 305 3 984 900 121 705 087 1 703 871
New Europe Property
Investments plc 24 190 000 2 757 660 16 024 304 1 297 969
Resilient Property
Income Fund Limited 17 350 000** 1 457 227 16 200 000 899 100
Fortress Income Fund
Limited B 107 070 000** 1 875 866 96 000 000 878 400
Fortress Income
Fund Limited A - - 23 200 000 341 040
Ascension Properties
Limited A - - 42 750 000 190 238
Ascension Properties
Limited B - - 45 600 000 114 000
Delta Property
Fund Limited - - 8 204 677 70 971
Tower Property
Fund Limited - - 4 021 474 32 976
10 075 653 5 528 565
* Rockcastle was treated as an associate (equity accounted) and was thus
not fair valued in the financial statements at 31 December 2014.
** Capital followed its rights in terms of rights issues.
FUNDING
Capital restructured its RMB facilities resulting in an extension of the
debt maturity profile together with a small reduction in margin. Capital
increased debt from commercial banks as it became more difficult to raise
debt from debt capital markets. An additional R400 million was raised from
RMB whilst an additional R300 million was raised from Standard Bank.
At 31 December 2014 the all-in weighted average cost of funding was 8,36%,
the average hedge term was 5,5 years and 82,8% of net borrowings,
excluding future commitments, was hedged.
Capital hedged 33,1% of its foreign currency capital exposure by utilising
cross currency swaps.
OUTLOOK
The quality of Capital’s portfolio places it in a position to achieve
solid growth even in the challenging South African economic environment.
Capital should continue to benefit from strong growth in its listed
securities.
Based on forecast exchange rates of R11,20 to the US Dollar and R12,80 to
the Euro, the board anticipates that Capital will achieve growth in
dividends of approximately 9% for the 2015 financial year. This forecast
has not been reviewed or reported on by Capital’s auditors.
The forecast is based on the assumption that a stable macro-economic
environment will prevail, no major corporate failures will occur and that
tenants will be able to absorb the recovery of rising utility costs and
rates and taxes. Budgeted rental income was based on contractual
escalations and anticipated market related renewals and re-lets.
By order of the board
Barry Stuhler Rual Bornman
Managing director Financial director
28 January 2015
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
Dec 2014 Dec 2013
R'000 R’000
ASSETS
Non-current assets 27 494 955 22 118 799
Investment property 15 943 483 15 241 095
Straight-lining of rental revenue adjustment 367 317 399 104
Investment property under development 1 450 386 1 045 365
Investments 6 090 753 3 824 693
Investment in associate company 2 416 717 1 608 542
Capital incentive scheme loans 199 244 -
Loans to BEE vehicle 1 027 055 -
Current assets 461 909 473 173
Investment property held for sale 63 361 183 286
Straight-lining of rental revenue adjustment 639 1 306
Capital incentive scheme loans 5 946 -
Trade and other receivables 383 881 261 056
Cash and cash equivalents 8 082 27 525
Total assets 27 956 864 22 591 972
EQUITY AND LIABILITIES
Total equity attributable to equity holders 20 364 487 16 575 133
Stated capital 11 022 684 9 273 620
Non-distributable reserves - 7 301 513
Reserves/retained earnings 9 341 803 -
Total liabilities 7 592 377 6 016 839
Non-current liabilities 5 830 222 3 707 238
Interest-bearing borrowings 5 621 636 3 693 171
Deferred tax 208 586 14 067
Current liabilities 1 762 155 2 309 601
Trade and other payables 440 235 653 929
Unitholders for distribution - 643 437
Taxation payable - 2 488
Interest-bearing borrowings 1 321 920 1 009 747
Total equity and liabilities 27 956 864 22 591 972
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
for the year for the year
ended ended
Dec 2014 Dec 2013
R'000 R’000
Net rental and related revenue 1 320 088 1 592 019
Recoveries and contractual rental revenue 2 070 701 2 057 585
Straight-lining of rental revenue adjustment (32 454) 245 887
Rental revenue 2 038 247 2 303 472
Property operating expenses (718 159) (711 453)
Income from investments 197 413 193 901
Fair value gain on investment property,
investments and currency derivatives 2 220 658 1 405 741
Fair value gain on investment property 250 172 813 418
Adjustment resulting from
straight-lining of rental revenue 32 454 (245 887)
Fair value gain on investments 2 049 197 990 673
Fair value loss on currency derivatives (111 165) (152 463)
Gain on disposal of portion of associate - 39 353
Loss on surety (90 000) -
Amortisation of management contract* (749 000) -
REIT conversion costs (7 714) -
Administrative expenses (68 512) (92 975)
Income from associate 212 968 102 248
- non-distributable 94 701 44 302
- distributable 118 267 57 946
Profit before net finance costs 3 035 901 3 240 287
Net finance costs (146 234) (56 331)
Finance income 276 572 276 886
Interest received 127 700 43 416
Fair value adjustment on interest rate
derivatives 121 122 233 470
Interest on shares issued to Resilient
- internalisation of PFM 27 750 -
Finance costs (422 806) (333 217)
Interest paid on borrowings (472 660) (415 352)
Capitalised interest 112 933 82 135
Fair value adjustment on interest rate
derivatives (63 079) -
Profit before income tax 2 889 667 3 183 956
Income tax (191 367) 642 545
Profit for the year
attributable to equity holders 2 698 300 3 826 501
Total comprehensive income for the year 2 698 300 3 826 501
Basic earnings per share (cents) 158,95 238,12
* Capital effectively acquired the contract that entitled PFM to manage
Capital Trust. As this was a re-acquired intangible asset in terms of IFRS
3 and had no contractual period, it was amortised in full.
RECONCILIATION BETWEEN STATEMENT OF COMPREHENSIVE INCOME AND DIVIDEND
DECLARED
Dec 2014
R’000
Recoveries and contractual rental revenue 2 070 701
Property operating expenses (718 159)
Income from investments 197 413
Dividends accrued 21 684
Administrative expenses (68 512)
Distributable income from associate 118 267
Interest received 127 700
Interest on shares issued to Resilient
- internalisation of PFM 27 750
Interest on shares issued cum distribution 19 640
Interest paid on borrowings (472 660)
Capitalised interest 112 933
Distributable income 1 436 757
Less: distribution declared 30 June 2014 (658 010)
Dividend declared 778 747
RECONCILIATION OF PROFIT FOR THE YEAR TO HEADLINE EARNING
Audited Audited
for the year for the year
ended ended
Dec 2014 Dec 2013
R'000 R’000
Basic earnings - profit for the
year attributable to equity holders 2 698 300 3 826 501
Adjusted for: (282 925) (1 201 684)
- Fair value gain on investment property (250 172) (813 418)
- Adjustment resulting from straight-lining
of rental revenue (32 454) 245 887
- Income tax effect (299) (634 153)
Headline earnings 2 415 375 2 624 817
Headline earnings per share (cents) 142,28 163,34
Basic earnings per share and headline earnings per share are based on the
weighted average of 1 697 604 010 (Dec 2013: 1 606 986 279) shares in
issue during the period. Capital has no dilutionary instruments in issue.
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited
for the year for the year
ended ended
Dec 2014 Dec 2013
R'000 R’000
Cash (outflow)/inflow from operating activities (354 078) 93 731
Cash outflow from investing activities (2 905 067) (365 120)
Cash inflow from financing activities 3 239 702 284 861
(Decrease)/increase in cash and cash equivalents (19 443) 13 472
Cash and cash equivalents at beginning of year 27 525 14 053
Cash and cash equivalents at end of year 8 082 27 525
Cash and cash equivalents consist of:
Current accounts 8 082 27 525
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non– Reserves/
Stated distributable retained
capital reserves earnings Total
Audited R'000 R'000 R'000 R'000
Balance at
31 December 2012 9 273 620 4 690 215 - 13 963 835
Total comprehensive
income for the year 3 826 501 3 826 501
Transfer to
non-distributable reserves 2 611 298 (2 611 298) -
Distribution (1 215 203) (1 215 203)
Balance at
31 December 2013 9 273 620 7 301 513 - 16 575 133
Total comprehensive
income for the year 2 698 300 2 698 300
Issue of shares
- 70 754 717 on
30 June 2014 749 333 749 333
Issue of shares
- 83 333 333 on
6 October 2014 999 731 999 731
Transfer from
non-distributable
reserves (7 301 513) 7 301 513 -
Distribution (658 010) (658 010)
Balance at
31 December 2014 11 022 684 - 9 341 803 20 364 487
PREPARATION, ACCOUNTING POLICIES AND AUDIT OPINION
The summarised audited consolidated financial statements have been
prepared in accordance with the requirements of the JSE Limited Listings
Requirements for preliminary reports and the requirements of the Companies
Act of South Africa applicable to summary financial statements. The
Listings Requirements require preliminary reports to be prepared in
accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (“IFRS”), the
SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by the Financial
Reporting Standards Council, and to also, as a minimum, contain the
information required by IAS 34, Interim Financial Reporting. The
accounting policies applied in the preparation of the consolidated
financial statements, from which the summarised consolidated financial
statements were derived, are in terms of IFRS and are consistent with the
accounting policies applied in the preparation of the previous
consolidated financial statements.
In order to improve disclosure, the December 2013 results were
reclassified to disclose the fair value loss on currency derivatives
separately. Consequently, fair value gain on investments increased by
R82,226m, fair value adjustment on derivatives increased by R70,237m and a
fair value loss on currency derivatives of R152,463m was recognised and
consequently R34,357m was reclassified from interest paid to interest
received.
This report and the consolidated financial statements were compiled under
the supervision of Rual Bornman CA(SA), the financial director.
The directors are not aware of any matters or circumstances arising
subsequent to 31 December 2014 that require any additional disclosure or
adjustment to the financial statements.
The auditors, Deloitte & Touche, have issued their opinion on the group’s
financial statements for the year ended 31 December 2014. The audit was
conducted in accordance with International Standards on Auditing. They
have issued an unmodified audit opinion. These preliminary summarised
consolidated financial statements have been derived from the group
financial statements and are consistent, in all material respects, with
the group financial statements. A copy of their audit report is available
for inspection at Capital’s registered address. This preliminary report
has been audited by Deloitte & Touche and an unmodified audit opinion has
been issued. The auditor’s report does not necessarily report on all of
the information contained in this announcement. Shareholders are therefore
advised that in order to obtain a full understanding of the nature of the
auditor’s engagement, they should obtain a copy of that report together
with the accompanying financial information from Capital’s registered
address.
SUMMARY OF FINANCIAL PERFORMANCE
Dec 2014 Jun 2014 Dec 2013 Jun 2013
Dividend/distribution
per share/unit(cents) 44,22 39,22 40,04 35,58
Shares/units
in issue 1 761 074 329 1 677 740 996 1 606 986 279 1 606 986 279
Net asset value R11,56 R10,49* R10,71* R9,65*
Interest-bearing
debt to
asset ratio** 24,8% 23,6% 20,8% 21,3%
*In order for NAV to be comparable with the Dec 2014 NAV, the comparatives
were adjusted to include the distribution previously accounted for as a
current liability at period end in equity.
**The interest-bearing debt to asset ratio is calculated by dividing
interest-bearing borrowings by total assets.
FACILITIES
Average
Facility Margin
Expiry R' million over Jibar
2015 1 312 1,22%
2016 - -
2017 2 712 1,48%
2018 1 270 1,62%
2019 1 550 1,52%
2020 750 1,71%
7 594 1,49%
The overall cost of borrowings at 31 December 2014 was 8.36%.
INTEREST RATE DERIVATIVES
Average swap
Interest rate swap expiry R' million rate
2016 200 7,50%
2017 700 7,22%
2018 500 7,12%
2019 600 6,40%
2020 600 7,43%
2021 600 8,02%
2022 400 7,98%
2023 200 7,47%
2024 100 7,78%
Total 3 900 7,36%
Average CAP
Interest rate CAP expiry R' million rate
2019 200 7,39%
2021 200 7,33%
2022 200 7,46%
2023 400 7,98%
Total 1 000 7,63%
SECTORAL SPLIT
Based on: GLA Book value
Logistics 75% 60%
Industrial 5% 2%
Offices 13% 25%
Retail 6% 12%
Other 1% 1%
100% 100%
LEASE EXPIRY PROFILE
Rental
Based on: GLA revenue
Vacant 4,5%
Dec 2015 22,7% 22,6%
Dec 2016 21,1% 19,2%
Dec 2017 21,8% 23,1%
Dec 2018 13,4% 14,7%
Dec 2019 7,9% 9,5%
> Dec 2019 8,6% 10,9%
100,0% 100,0%
SEGMENTAL ANALYSIS
Audited Audited
Dec 2014 Dec 2013
R'000 R’000
Segmental revenue – recoveries and contractual
rental revenue
Logistics 1 160 714 1 080 005
Industrial 74 944 90 532
Offices 559 219 589 648
Retail 250 736 270 256
Other 25 088 27 144
Total 2 070 701 2 057 585
Property operating expenses
Logistics (381 244) (359 781)
Industrial (42 862) (48 702)
Offices (189 171) (193 067)
Retail (101 488) (103 288)
Other (3 394) (6 615)
Total (718 159) (711 453)
Segmental revenue - rental revenue
Logistics 1 175 665 1 120 286
Industrial 72 429 86 936
Offices 544 597 612 285
Retail 243 862 327 942
Other 1 694 156 023
Total 2 038 247 2 303 472
Profit for the year
Logistics 1 076 794 1 236 736
Industrial (92 627) 27 468
Offices 337 900 575 681
Retail 239 559 271 889
Other 41 088 47 776
Corporate 1 095 586 1 666 951
Total 2 698 300 3 826 501
CAPITAL COMMITMENTS
Audited Audited
Dec 2014 Dec 2013
R'000 R’000
Authorised and contracted 426 259 606 695
Authorised and not yet contracted 25 275 40 542
451 534 647 237
DIVIDEND
The board has approved and notice is hereby given of a final dividend of
44,22 cents per share for the six months ended 31 December 2014 and is
payable to shareholders recorded in the books of Capital at the close of
business on the record date, Friday 20 February 2015. Shareholders are
advised that the last day to trade cum dividend will be Friday 13 February
2015. The shares will trade ex dividend from Monday 16 February 2015.
Payment will be made on Monday 23 February 2015. Share certificates may
not be dematerialised or rematerialised during the period 16 February 2015
to 20 February 2015, both days inclusive. An announcement informing
shareholders of the tax treatment of the dividend will be released
separately on SENS.
REGISTERED OFFICE
4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191 (PO Box 2555,
Rivonia, 2128)
TRANSFER SECRETARIES
Link Market Services South Africa Proprietary Limited, 13th Floor, Rennie
House, 19 Ameshoff Street, Braamfontein, 2001 (PO Box 4844, Johannesburg,
2000)
SPONSOR
Java Capital
COMPANY SECRETARY
Jonathan Bigham CA(SA)
DIRECTORS
Iraj Abedian (chairman)*, Barry Stuhler (managing director), Rual Bornman,
David Lewis, Protas Phili*, Jan Potgieter*, Andrew Teixeira, Banus van der
Walt*, Tshiamo Vilakazi*, Fareed Wania, Trurman Zuma*
*Independent non-executive director
Date: 28/01/2015 02:15:00 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
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