Wrap Text
Consolidated interim results for the six months ended 30 November 2014
Tower Property Fund Limited
(formerly Reftin 1004 Proprietary Limited)
Incorporated in the Republic of South Africa
Registration number 2012/066457/06
JSE share code: TWR
ISIN: ZAE000179040
(Approved as a REIT by the JSE)
("Tower" or the "Fund")
CONSOLIDATED INTERIM RESULTS
for the six months ended 30 November 2014
- Interim distribution increased by 27% to
42 cents per share*
- Headline earnings up 73% to R61 million*
- Distributable earnings up 59% to R63 million*
- Total return of 19% for the 2014 calendar year
- Portfolio expanded to 32 properties
- Portfolio value now R2.2 billion
- Value enhancing solar installation
completed at Cape Quarter and greening
programme rolled out to larger properties
*corresponding 2013 period was for 5 months
PROFILE
Tower owns a diversified portfolio of 32 commercial, industrial
and retail properties valued at R2.2 billion, located primarily in
the Western Cape (49% by value) and in Gauteng (45%). The fund
aims to add value through active property asset management
and the cost-effective greening of properties in the portfolio.
The investment strategy is to expand the portfolio by targeting
well located, mainly medium-sized (R30 million to R200 million)
properties with strong cash flows and to ensure a diversified
sectoral and geographic portfolio. The longer term objective is
for the portfolio to comprise approximately 50% in retail space,
followed by office (30%) and industrial (20%).
Financial performance
Tower performed well in the six months
ended 30 November 2014 ("the period") in an
increasingly difficult trading environment.
Revenue increased by 38% to R118 million
and operating profit by 37% to R96 million.
Distributable earnings for the period totalled
R63 million and the directors are pleased to
declare a distribution of 42 cents per share,
an increase of 27% over the previous interim
distribution. This is in line with the trading
statement published on SENS on 12 January
2015. The distribution for the prior year was
for a five month period.
The Fund produced a total return,
comprising income plus capital, of 19% for
the 2014 calendar year. The net asset value
grew by 7% in the period to R9.71 per share.
Fred Jenkings was replaced as CFO by Joanne
Mabin with effect from 1 January 2015. The
board is grateful to Fred for his service and
wishes him well in his retirement.
Operating performance
During the period two properties totaling
R122 million were acquired. These are the
final phase of the Constantia View Office
Park in Quellerina (the Fund already owned
the other properties in this development)
and the Medscheme building in Florida
North, Gauteng, which is part of the
Medscheme head office.
Active asset management of the portfolio
has continued to reduce operating costs.
Greening initiatives undertaken include
lighting retrofits at Cape Quarter and
the De Ville Shopping Centre, and a large
solar installation at Cape Quarter which is
predicted to yield a 17% return.
Portfolio vacancies have increased to 10%
(January 2015) (July 2014: 8.2%) as two
large tenants in Clearview Motor Village
absconded from their lease obligations.
Legal action is currently being taken to
recover the debt. Positive letting activity has
been achieved throughout the portfolio with
particular successes being Cape Quarter, 31
Beacon Road and Constantia View Office
Park. Excluding the Clearview Motor Village,
vacancies in the portfolio reduced to below
8%. Vacancies are expected to drop below
8% (including Clearview Motor Village)
once the announced new acquisitions are
transferred.
The management team is focused on
reducing vacancies and encouraging
renewals as tenants face the impact of a
tightening economy. The Fund's greening
strategy will be crucial in this competitive
environment to reduce occupancy costs to
ensure the retention of tenants.
Selected properties held since listing will
be sold in due course as the Fund focuses
increasingly on well-located properties with
value add potential to ensure maximum
returns for shareholders.
Significant development opportunity
has been identified through the group's
development arm at Cape Quarter. A
feasibility study is being undertaken on
building new residential apartments at the
mixed use property which should preserve
and enhance growth for the medium-term.
Portfolio greening
The successful programme lighting retrofit
recently conducted at Cape Quarter was
extended to the De Ville Shopping Centre.
Similar initiatives will be undertaken at
other properties including the recently
refurbished 382 Jan Smuts Avenue in
Craighall Park.
An exciting solar project has been completed
at Cape Quarter. Most of the roof space is
being utilised to generate energy. This is a
strategically important programme given
the country's electricity supply constraints
and the expected tariff increases from
Eskom.
Savings at Cape Quarter have exceeded
predictions with R850 000 being saved per
annum as a result of lighting changes. The
electricity demand of the property has been
reduced by 13%. The solar initiative will save
over R350 000 per annum and accounts for
5% of the building's demand.
Acquisitions (post period end)
After the end of the reporting period
Tower concluded the acquisition of
three convenience shopping centres (as
announced on SENS on 19 December 2014)
with a combined value of R238 million. The
acquisitions were settled 50% in cash and
50% in shares which were issued at R9.10
per share. These shopping centres provide
Tower with exposure to the fast growing
lower LSM consumer market. The majority
of sections in the Sun Clare office block were
purchased for R193 million (as announced
on SENS on 16 January 2015). The deal
is subject to Competition Commission
approval. A smaller office property in
Gauteng is in the process of transfer at
a value of R51 million. All new properties
should transfer by 1 May 2015.
Borrowings
Tower has loan facilities totalling R811
million at 30 November 2014. Interest rates
are hedged on 74% of the total loan facility
and the weighted average rate of interest is
8.33% for the portfolio. Based on investment
properties valued at R2.2 billion, the loan to
value ("LTV") ratio of the fund was 34% at the
end of the period. The Fund has a targeted
LTV of 40%. The Fund has entered into an
agreement with Standard Bank to refinance
R475 million of debt with other institutions
which will reduce rates by 87 basis points
and result in a R4.15 million interest saving
per annum.
Prospects
Management continues to focus on the
acquisition of strategic properties to
ensure the sustainability of the fund and to
enhance returns for investors.
As detailed above, retail and office
properties worth R481 million have been
acquired since the end of the period
(transfer expected within three months).
The purchase of a further retail property of
R110 million is expected to be announced
shortly. This will bring total acquisitions
expected in the first quarter of the 2015
financial year to R591 million. Further
commercial property totaling R900 million is
under negotiation. Management expects the
value of the portfolio to reach R3.5 billion by
year end in May 2015.
The directors remain committed to meeting
the distribution forecast of 86.6 cents for
the 2015 financial year, as published in the
company's pre-listing statement in July 2013.
TOWER PROPERTY FUND LIMITED
Consolidated statement of comprehensive income
Unaudited 6 Unaudited 5 Audited 12
months ended months ended months
30 November 30 November ended 31
2014 2013 May 2014
R'000 R'000 R'000
Revenue
Contractual rental income 110 097 79 393 174 168
Straight line rental income accrual 7 799 5 839 17 102
117 896 85 232 191 270
Net property operating expenses (14 167) (10 221) (19 785)
Net property income 103 729 75 011 171 485
Administration expenses (7 236) (4 650) (10 273)
Other income - - 480
Net operating profit 96 493 70 361 161 692
Fair value adjustments on investment properties 40 609 (68 506) (11 740)
Fair value adjustments on interest rate swaps (4 032) - (1 442)
Profit from operations 133 070 1 855 148 510
Finance costs (34 823) (24 510) (53 456)
Finance income 771 1 105 3 066
Capital raising expenses (80) (9 571) (11 487)
Profit/(loss) before taxation 98 938 (31 121) 86 633
Taxation - (2 075) -
Total comprehensive profit/(loss) for the period 98 938 (33 196) 86 633
Basic and diluted earnings per share - weighted 69 (40) 82
average shares in issue (cents)
Consolidated statement of financial position
Assets
Non-current assets 2 216 781 1 642 357 2 060 847
Investment properties 2 191 880 1 636 518 2 043 745
Straight line rental accrual 24 901 5 839 17 102
Current assets 103 424 98 225 75 053
Trade and other receivables 46 056 35 455 36 882
Cash and cash equivalents 57 368 62 770 38 171
Total assets 2 320 205 1 740 582 2 135 900
Equity and liabilities
Equity 1 456 475 1 025 309 1 240 830
Stated capital 1 368 649 1 060 014 1 251 034
Treasury capital (744) - -
Retained income 88 570 (34 705) (10 204)
Liabilities
Non-current liabilities
Secured financial liabilities 811 314 660 519 769 518
Current liabilities 52 416 54 754 125 552
Secured financial liabilities - 752 -
Current taxation - 2 075 -
Trade and other payables 52 416 51 927 68 635
Shareholders for dividend - - 56 917
Total equity and liabilities 2 320 205 1 740 582 2 135 900
Shares in issue (000) 150 048 113 092 136 853
NAV per share (cents) 971 907 907
Consolidated statement of cash flows
Cash generated from operations 73 646 69 922 164 597
Investment income 771 1 105 3 066
Finance costs (34 823) (24 510) (53 456)
Net cash from operating activities 39 594 46 517 114 207
Acquisition of investment property (11 050) (1 705 024) (1 228 082)
Proceeds on sale of investment property 11 310 - -
Net cash from investing activities 260 (1 705 024) (1 228 082)
Proceeds from issue of linked units - 1 076 147 440 031
Capital raising expenses - (16 141) (16 142)
Loans raised 37 168 661 271 768 076
Acquisition of treasury shares (744) - -
Dividends paid (57 081) - (39 919)
Net cash from financing activities (20 657) 1 721 277 1 152 046
Net movement in cash and cash equivalents 19 197 62 770 38 171
Cash and cash equivalents at beginning of period 38 171 - -
Cash and cash equivalents at end of period 57 368 62 770 38 171
Consolidated statement of changes in equity
Stated Capital Treasury Capital Retained Income Total
R'000 R'000 R'000 R'000
Balance at 1 March 2012 - - - -
Shares issued 8 - - 8
Total comprehensive loss - - (1) (1)
Balance at 31 May 2013 8 - (1) 7
Shares issued 1 076 147 - - 1 076 147
Share issue expenses (16 141) - - (16 141)
Total comprehensive loss - - (33 196) (33 196)
Dividend paid - - (1 508) (1 508)
Balance at 30 November 2013 1 060 014 - (34 705 ) 1 025 309
Shares issued 191 021 - - 191 021
Share issue expenses (1) - - (1)
Total comprehensive profit - - 119 829 119 829
Dividends declared - - (95 328) (95 328)
Balance at 31 May 2014 1 251 034 - (10 204) 1 240 830
Issue of 361 678 shares effective 1 July 2014 2 938 - - 2 938
Issue of 12 941 543 shares effective 5 September 2014 110 615 - - 110 615
Antecedant interest 4 062 - - 4 062
Acquisition of treasury shares - (744) - (744)
Total comprehensive profit - - 98 938 98 938
Dividends declared - - (164) (164)
Balance at 30 November 2014 1 368 649 (744) 88 570 1 456 475
Calculation of headline earnings and distributable
earnings reconciliation
Total comprehensive profit/loss for the period 98 938 (33 196) 86 633
Adjusted for:
Change in fair value of investment properties (37 695) 68 506 11 740
Headline earnings 61 243 35 310 98 373
Adjusted for:
Straight line rental income accrual (7 799) (5 839) (17 102)
Antecedant interest 4 062 - -
Change in fair value of interest rate swaps 4 032 - 1 442
Distributable profit 61 538 29 471 82 713
Adjusted for:
Capital raising expenses 80 9 571 11 487
Amortisation of debt raising fees 1 389 662 2 636
Distributable earnings 63 007 39 704 96 836
Headline earnings per share - 42.7 42.5 93.1
weighted average shares in issue (cents)
Distributable earnings per share - shares in issue at 42.0 35.1 70.8
period end (cents)
Dividend per share (cents) 42.0 33.0 74.6
Weighted average number of shares in issue 143 296 617 82 994 339 105 709 677
Number of shares in issue at period end 150 048 279 113 092 004 136 852 996
There are no dilutive instruments in issue
Segmental analysis
For the 6 months ended 30 November 2014 Retail Office Industrial Total
R'000 R'000 R'000 R'000
Property assets 759 626 1 432 195 24 960 2 216 781
Segment liabilities 292 259 507 265 11 790 811 314
Revenue (excluding straight line lease adjustments) 36 337 72 554 1 206 110 097
Net operating costs (5 257) (8 769) (141) (14 167)
Segment profit 31 080 63 785 1 065 95 930
Straight line lease adjustment 7 799
Non property related expenses (7 236)
Net operating profit 96 493
For the 5 months ended 30 November 2013 Retail Office Total
R'000 R'000 R'000
Property assets 387 232 1 255 125 1 642 357
Segment liabilities 188 329 472 942 661 271
Revenue (excluding straight line lease adjustments) 22 300 57 093 79 393
Net operating costs (4 744) (5 477) (10 221)
Segment profit 17 556 51 616 69 172
Straight line lease adjustment 5 839
Non property related expenses (4 650)
Net operating profit 70 361
Note:
Related party transactions included:
Asset management fees paid to Tower Asset 5 207
Managers Proprietary Limited (R'000)
Property management fees paid to Spire Property 4 597
Management Proprietary Limited (R'000)
Basis of preparation
The unaudited condensed consolidated interim financial
statements ("the financial statements") for the six
months ended 30 November 2014 ("the period") have
been prepared in accordance with and containing
the information required by IAS 34: Interim Financial
Reporting, the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee, the JSE
Listings Requirements and in the manner required by
the Companies Act of South Africa (as amended). The
accounting policies and methods of computation applied in
the preparation of the financial statements are in terms of
International Financial Reporting Standards ("IFRS").
The financial statements are prepared on the historical
cost basis, except for investment properties and
derivative financial instruments which are measured at
fair value.The financial statements are prepared on the
going concern basis and all accounting policies applied
in the preparation of these financial statements are
consistent with the annual financial statements for
the year ended 31 May 2014, except for the new and
amended standards and interpretations of IFRS adopted
as set out below.
The following new and amended standards and
interpretations of IFRS were effective for the first time
from 1 January 2014:
> Amendments to IFRS 10, IFRS 11, 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 financial statements
on the adoption of the above new and amended
standards and interpretations of IFRS. The results have
not been reviewed or audited.
These financial statements were prepared under the
supervision of Mrs J Mabin CA (SA) in her capacity as Chief
Financial Officer, who replaced Mr F Jenkings CA (SA) with
effect from 1 January 2015.
Fair value of financial instruments recognised in the
statement of financial position.
The group measures fair values using the fair value
hierarchy that reflects the significance of the inputs used
in making the measurements.
- Level 1: Quoted prices (unadjusted) in an active market
for an identical instrument.
- Level 2: Valuation techniques based on observable
inputs, either directly (i.e. as prices) or indirectly
(i.e. derived from prices). This category includes
instruments valued using: quoted market prices in
active markets for similar instruments; quoted prices
for identical or similar instruments in markets that
are considered less than active; or other valuation
techniques where all significant inputs are directly or
indirectly observable from market data.
- Level 3: Valuation techniques using significant
unobservable inputs. This category includes all
instruments where the valuation technique includes
inputs not based on observable data and the
unobservable inputs have a significant effect on the
instrument's valuation. This category also includes
instruments that are valued based on quoted prices
for similar instruments where significant unobservable
adjustments or assumptions are required to reflect
differences between the instruments.
The valuation of interest rate swaps uses only observable
market data and requires little management judgement
and estimation. The availability of observable market
prices and model inputs reduces the need for management judgement and estimation and
also reduces the uncertainty associated with the determination of fair values. The interest
rate swaps are valued using the mark-to-market valuations, excluding transactions costs.
Interest rate swaps are classified as level 2 financial instruments and the fair value of
interest rate swap liabilities at 30 November 2014 is equal to R5, 474, 464.
Current swaps entered into:
End Effective rate Notional Amount
20 July 2015 6.04% R344 million
2 April 2017 7.41% R126 million
6 April 2017 7.20% R130 million
Dividend distribution
Notice is hereby given that dividend number 3 of 41.991 cents per share has been declared
in respect of the 6 months ended 30 November 2014. In accordance with Tower's status as a
REIT, shareholders are advised that the distribution meets the requirements of a "qualifying
distribution" for the purposes of section 25BB of the Income Tax Act No. 58 of 1962 ("Income
Tax Act").
Accordingly the dividend distribution received by South African tax residents must be
included in their gross income and will not be exempt in terms of the ordinary dividend
exemption in section 10(1)(k)(i) of the Income Tax Act as a result of paragraph (aa) of the
proviso thereto which provides that dividends distributed by a REIT are not exempt from
income tax.
The dividend distribution received by South African tax residents will, however, be exempt
from dividend withholding tax provided that the shareholder has provided the following
forms to their Central Securities Depository Participant ("CSDP") or broker, as the case may
be in respect of uncertificated shares or the company, in respect of certificated shares:
a) a declaration that the dividend distribution is subject to a reduced rate as a result of the
application of a DTA; and
b) a written undertaking to inform the CSDP or broker, 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 shareholders are advised to contact their CSDP or broker, as the case may be,
to arrange for the abovementioned documents to be submitted prior to the payment of the
distribution if such documents have not already been submitted.
The dividend distribution received by non-resident shareholders will be exempt from income
tax in terms of section 10(1)(k)(i) of the Act, but will be subject to dividend withholding tax.
Dividend withholding tax is levied at a rate of 15%, unless the rate is reduced in terms of any
applicable agreement for the avoidance of double taxation ("DTA") between South Africa and
the country of residence of the non-resident shareholder.
Assuming that dividend distribution withholding tax will be withheld at a rate of 15%, the net
dividend amount due to non-resident shareholders is 35.69235 cents per share. A reduced
dividend withholding rate in terms of the applicable DTA may only be relied on if the non-
resident shareholder has provided the following forms to their CSDP or broker, as the case
may be in respect of uncertificated shares or the company, in respect of certificated shares:
a) a declaration that the dividend is subject to a reduced rate as a result of the application
of a DTA; and
b) a written undertaking to inform the CSDP or broker, 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 shareholders are advised to contact their CSDP or broker, as the case may be,
to arrange for the abovementioned documents to be submitted prior to the payment of the
distribution if such documents have not already been submitted.
Both resident and non-resident shareholders are encouraged to consult their professional
advisors should they be in any doubt as to the appropriate action to take.
The dividend distribution is payable to Tower shareholders in accordance with the timetable
set out below:
2015
Last day to trade cum dividend distribution Friday, 20 February
Shares trade ex dividend distribution Monday, 23 February
Record date Friday, 27 February
Payment date Monday, 2 March
Share certificates may not be dematerialised or rematerialised between Monday,
23 February and Friday, 27 February 2015, both days inclusive.
Shares in issue at date of declaration: 150 048 279
Tower income tax reference number: 9607/564/16/9
By order of the Board
Tower Property Fund Limited
6 February 2015
Registered address 2nd Floor, Spire House, Tannery Park, 23 Belmont Road,
Rondebosch, 7700 (PO Box 155, Rondebosch, 7701)
Contact details +27 (0)21 685 4020 / info@towerpropertyfund.co.za
Company secretary Ovland Management Services Proprietary Limited
Auditors Mazars Inc.
Sponsor Java Capital
Transfer secretaries Link Market Services South Africa Proprietary Limited
Directors: A Dalling* (Chairman), M Edwards (Chief Executive Officer),
J Bester*, K Craddock, M Evans*, J Mabin** (Chief Financial Officer),
B Kerswill, A Magwentshu*, N Milne*, R Naidoo*
*non-executive directors; **Appointed 1 January 2015
Published: 6 February 2015
Date: 06/02/2015 08:30:00 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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