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Unaudited condensed consolidated interim results for the six months ended 28 February 2015
INGENUITY PROPERTY INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Company registration number 2000/018084/06)
Share code: ING ISIN: ZAE000127411
("INGENUITY" or "the Company")
UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS
for the six months ended 28 February 2015
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
as at 28 February 2015
Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
28 Feb 15 28 Feb 14 31 Aug 14
R'000 R'000 R'000
ASSETS
Non-current assets 3 051 677 2 417 314 2 741 516
Investment properties 2 707 431 2 252 275 2 475 239
Straight-line lease accrual 86 104 44 537 76 333
Investment properties under development 251 705 114 720 183 417
Property and equipment 6 437 5 782 6 527
Current assets 45 984 55 404 53 176
Trade and other receivables 8 113 6 028 12 682
Straight-line lease accrual 9 227 16 270 4 753
Tax receivable - 1 105 1 105
Cash and cash equivalents 28 644 32 001 34 636
Total assets 3 097 661 2 472 718 2 794 692
EQUITY AND LIABILITIES
Shareholders' interest 1 102 699 949 303 1 072 904
Share capital 12 115 12 004 12 115
Share premium 693 540 683 690 693 540
Treasury shares (52 296) (34 928) (34 928)
Non-distributable reserve 307 118 174 987 257 317
Retained earnings 127 394 106 561 132 393
Total equity attributable to equity holders
of the parent 1 087 871 942 314 1 060 437
Non-controlling interest 14 828 6 989 12 467
Non-current liabilities 1 962 825 1 491 217 1 679 808
Borrowings 1 834 875 1 411 763 1 576 279
Finance lease 3 900 3 584 3 740
Deferred tax 124 050 75 870 99 789
Current liabilities 32 137 32 198 41 980
Trade and other payables 17 364 15 016 19 101
Current portion of borrowings 2 968 - 2 970
Prepaid rent received 651 9 484 10 012
Share-based payment 11 154 7 698 9 897
Total equity and liabilities 3 097 661 2 472 718 2 794 692
Net asset value per share (based on shares in issue
at end of period/year net of treasury shares) 98 84 94
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
for the six months ended 28 February 2015
Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
28 Feb 15 28 Feb 14 31 Aug 14
R'000 R'000 R'000
Revenue 145 604 123 324 261 216
Contractual 131 359 104 340 221 952
Straight-lining 14 245 18 984 39 264
Net operating expenses (44 240) (34 867) (74 861)
Profit before fair value adjustments 101 364 88 457 186 355
Fair value adjustments to investment properties 64 798 3 452 105 407
Profit before interest and taxation 166 162 91 909 291 762
Interest received 930 553 1 303
Interest paid (66 840) (52 205) (111 239)
Profit before taxation 100 252 40 257 181 826
Taxation (24 101) (12 887) (44 777)
Profit for the period/year 76 151 27 370 137 049
Attributable to:
Equity holders of the parent 73 790 23 861 132 024
Non-controlling interest 2 361 3 509 5 025
76 151 27 370 137 049
Profit for the period/year 76 151 27 370 137 049
Other comprehensive income:
To be reclassified subsequently to profit or loss:
Cash flow hedges - 1 440 1 440
Income tax relating to components of other
comprehensive income - (403) (403)
Other comprehensive income for the period/year,
net of tax - 1 037 1 037
Total comprehensive income for the period/year 76 151 8 407 138 086
Total comprehensive income attributable to:
Equity holders of the parent 73 790 24 898 133 061
Non-controlling interest 2 361 3 509 5 025
76 151 28 407 138 086
Total shares in issue 1 211 469 543 1 200 358 432 1 211 469 543
Number of shares in issue, net of
treasury shares 1 122 309 208 1 131 425 205 1 142 536 316
Weighted average number of shares 1 030 109 660 1 065 896 544 1 101 828 192
Basic and diluted earnings per share (cents) 7.2 2.2 12.0
NOTES TO THE CONSOLIDATED STATEMENTS OF
PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
Headline earnings
Headline and diluted headline earnings per
share (cents) 2.2 2.0 4.2
Workings
Headline earnings are calculated as follows:
Earnings attributable to equity holders 73 790 23 861 132 024
Gain on bargain purchase - - (361)
Fair value adjustment of investment properties (64 798) (3 452) (105 407)
Deferred tax on fair value adjustment 13 735 967 20 544
Adjusted earnings for HEPS 22 727 21 376 46 800
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 28 February 2015
Share Non-
capital distribut-
Share and Treasury able
capital premium shares reserve
R'000 R'000 R'000 R'000
Balance at 1 September 2013 8 055 361 224 (34 928) 171 464
Decrease in non-controlling interest - - - -
Increase in non-controlling interest - - - -
Total comprehensive income for the period - - - 1 037
Profit for the period - - - -
Other comprehensive income - - - 1 037
Net change in fair value of cash flow hedge
recognised directly in other
comprehensive income - - - 1 037
Issue of 394 808 432 shares 3 949 322 466 - -
Transfer to non-distributable reserve
- fair value adjustments to investment
properties - - - 2 486
Dividend paid - 1.5 cents per share - - - -
Balance at 28 February 2014 12 004 683 690 (34 928) 174 987
Increase in non-controlling interest - - - -
Total comprehensive income for the period - - - -
Profit for the period - - - -
Issue of 11 111 111 shares 111 9 850 - -
Transfer to non-distributable reserve
- fair value adjustments to investment
properties - - - 82 330
Balance at 31 August 2014 12 115 693 540 (34 928) 257 317
Total comprehensive income for the period - - - -
Profit for the period - - - -
Treasury shares purchased - - (17 368) -
Transfer to non-distributable reserve
- fair value adjustments to investment
properties - - - 49 801
Dividend paid - 2.5 cents per share - - - -
Balance at 28 February 2015 12 115 693 540 (52 296) 307 118
Non-con-
Retained trolling
earnings interest Total
R'000 R'000 R'000
Balance at 1 September 2013 102 412 6 867 615 094
Decrease in non-controlling interest - (9 808) (9 808)
Increase in non-controlling interest - 6 421 6 421
Total comprehensive income for the period 23 861 3 509 28 407
Profit for the period 23 861 3 509 27 370
Other comprehensive income - - 1 037
Net change in fair value of cash flow hedge recognised
directly in other comprehensive income - - 1 037
Issue of 394 808 432 shares - - 326 415
Transfer to non-distributable reserve
- fair value adjustments to investment properties (2 486) - -
Dividend paid - 1.5 cents per share (17 226) - (17 226)
Balance at 28 February 2014 106 561 6 989 949 303
Increase in non-controlling interest - 3 962 3 962
Total comprehensive income for the period 108 162 1 516 109 678
Profit for the period 108 162 1 516 109 678
Issue of 11 111 111 shares - - 9 961
Transfer to non-distributable reserve
- fair value adjustments to investment properties (82 330) - -
Balance at 31 August 2014 132 393 12 467 1 072 904
Total comprehensive income for the period 73 790 2 361 76 151
Profit for the period 73 790 2 361 76 151
Treasury shares purchased - - (17 368)
Transfer to non-distributable reserve
- fair value adjustments to investment properties (49 801) - -
Dividend paid - 2.5 cents per share (28 988) - (28 988)
Balance at 28 February 2015 127 394 14 828 1 102 699
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended 28 February 2015
Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
28 Feb 15 28 Feb 14 31 Aug 14
R'000 R'000 R'000
Cash flows from operating activities
Cash generated from operations 86 710 81 100 158 522
Interest received 930 362 1 303
Interest paid (66 959) (57 853) (112 529)
Taxation received 1 265 - -
Dividends paid (28 988) (17 226) (17 226)
Net cash (outflow)/inflow from operating activities (7 042) 6 383 30 070
Cash flows from investing activities
Additions to property and equipment (26) (5 767) (6 609)
Acquisitions/additions to investment properties (166 922) (915 373) (1 027 707)
Acquisitions/additions to investment properties
under development (68 288) (26 930) (110 417)
Interest capitalised to investment properties under
development (2 871) (259) (2 778)
Prepayments for investment property acquired after
year-end - (105) (104)
Business combination - (42 910) (42 922)
Net cash outflow from investing activities (238 107) (991 344) (1 190 537)
Cash flows from financing activities
Finance lease payments (125) (109) (225)
Proceeds from the issue of shares - 326 415 336 375
Financial liabilities raised 256 650 671 643 815 539
Settlement of interest rate swap - (1 440) -
Proceeds from loan - - 22 961
Treasury shares purchased (17 368) - -
Net cash inflow from financing activities 239 157 996 509 1 174 650
Net (decrease)/increase in cash and cash equivalents (5 992) 11 548 14 183
Cash and cash equivalents at the beginning of the
period/year 34 636 20 453 20 453
Cash and cash equivalents at the end of the period/year 28 644 32 001 34 636
SEGMENTAL RESULTS
for the six months ended 28 February 2015
Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
28 Feb 15 28 Feb 14 31 Aug 14
R'000 R'000 R'000
Offices
Segmental revenue 82 011 61 682 133 417
Segmental results 59 519 43 715 95 780
Property assets 1 763 459 1 410 149 1 554 324
Retail
Segmental revenue 26 653 25 662 51 129
Segmental results 19 096 18 351 36 241
Property assets 529 769 508 043 571 032
Special
Segmental revenue 6 912 6 301 12 578
Segmental results 5 955 5 633 11 255
Property assets 161 789 151 050 155 982
Parking
Segmental revenue 14 234 10 555 22 210
Segmental results 10 534 7 972 16 934
Property assets 337 360 237 507 274 944
Industrial
Segmental revenue 166 - -
Segmental results 142 - -
Property assets 4 418 - -
Other
Segmental revenue 229 140 -
Segmental results 185 (41) -
Property assets 7 926 6 333 -
Reconciliation to the profit before interest and taxation
in the statements of profit or loss
Segmental revenue 130 205 104 340 219 334
Allocated operating expenses (34 774) (28 710) (59 124)
Segmental results 95 431 75 630 160 210
Unallocated revenue 1 154 - 2 618
Unallocated operating expenses (9 466) (6 157) (15 737)
Fair value adjustment 64 798 3 452 105 407
Straight-lining adjustment 14 245 18 984 39 264
Profit before interest and taxation 166 162 91 909 291 762
Reconciliation to the statement of financial position
Property assets 2 804 721 2 313 082 2 556 282
Unsegmental assets 292 940 159 636 238 410
Total assets 3 097 661 2 472 718 2 794 692
NOTES TO THE FINANCIAL STATEMENTS
BASIS OF PREPARATION
The unaudited condensed consolidated interim results have been prepared in accordance
with and contain the information required by IAS 34: Interim Financial Reporting, the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee or
its successor, the requirements of the Companies Act of South Africa (as amended) and
the JSE Listings Requirements. The accounting policies adopted and methods of
computation are in accordance with International Financial Reporting Standards ("IFRS"),
and are consistent with those applied in the financial statements for the year ended
31 August 2014.
The following new and amended standards and interpretations of IFRS were effective for
the first time from 1 January 2014 and applicable to Ingenuity's results for the period
ended 28 February 2015:
- Amendments to IFRS 10, IFRS 11, IFRS 12 and IAS 27: Investment Entities
- Amendments to IAS 32: Off-setting Financial Assets and Financial Liabilities
- Amendments to IAS 36: Recoverable Amount Disclosures for Non-financial Assets
- Amendment to IAS 40: Clarification of Scope: When Exercising Judgement to Determine
Whether an Acquisition of a Property is the Acquisition of an Investment Property
or a Business Combination
There was no material impact on the financial statements due to the adoption of the
above new and amended standards and interpretations of IFRS.
These consolidated interim results were prepared under the supervision of Mr M Wagenheim
CA (SA), in his capacity as group financial director. These consolidated interim results
have not been audited or reviewed by the group's independent external auditors.
DIRECTORS' COMMENTARY
GENERAL REVIEW
Ingenuity's property portfolio continued to perform well during the period under review.
The total portfolio value now exceeds R3 billion and comprises 26 investment properties
with a value of R2.81 billion and four land/development properties with a combined
value of R252 million.
Despite continued prevailing depressed economic fundamentals, the Company has managed
to grow its investment base and realise opportunity under tight market circumstances.
Although increased risks are associated with development of new assets, we see
development continuing to enhance asset growth at rates exceeding a traditional
investment approach. Prudence in management and strict application of evaluation of
the right opportunity has borne fruit.
Income growth of the sector is stabilising around 7% and total returns are trending
below 15%. The listed sector is also trading at substantial premiums to underlying
net asset values with many counters exceeding 30%. We believe Ingenuity represents
solid value with development and long-term growth upside.
NET PROPERTY INCOME
Gross revenue increased by 18.1% for the half-year 2015 compared to the half-year 2014
as a result of rental escalations, the letting of vacant areas and rentals earned on
newly acquired investment properties.
The ratio of property expenses to gross revenue increased to 24.8% for the half-year
2015 from 23.3% for the half-year 2014 due to an increase in scheduled maintenance
that occurred on certain properties.
FAIR VALUE ADJUSTMENTS
The revaluation of investment properties resulted in an upward adjustment of
R64.8 million, mainly as a result of increases in future contractual revenues and due
to growth in previously completed development assets. This adjustment, net of the tax
effects thereon, was transferred to the non-distributable reserve.
FINANCE CHARGES
Finance charges increased by 28% to R66.8 million from R52.2 million in the comparative
half-year 2014, mainly due to the funding of investment properties acquired and the use
of borrowings to fund development. The weighted average rate of interest on borrowings
was 7.9% compared to 7.7% for the comparative half-year 2014 due to an increase in the
prime lending rates. This, however, was partially off-set by a reduction in the rates
charged by the Company's bankers.
ACQUISITIONS AND COMMITMENTS
During the period under review the Company took transfer of Pinewood Park (an investment
property consisting of office space with a GLA of 1 997 square metres) at a cost of
R35 million; the remaining undivided half share in The Modern (land for future
development) at a cost of R38 million; and an investment property known as 64 White Road
(a mixed-use office and industrial property with a GLA of 18 222 square metres) at a
cost of R124.5 million.
The Company also signed an agreement to acquire an investment property (comprising office
space and retail with a GLA of 1 500 square metres) situated in Rivonia Road, Sandton in
Gauteng, at a cost of R40.5 million. Transfer is expected around 1 May 2015.
ARREARS
Rentals continue to be collected timeously with all debtors' balances being shorter
than 30 days. There are no material concerns regarding the recoverability of debtors.
VACANCY LEVELS
At the reporting date the core portfolio vacancy ratio was 1.9% on a portfolio of
155 010 square metres. For the 2014 comparative figures the vacancy ratio was 2.5% on
a portfolio of 137 555 square metres. This ratio is better than the industry norms.
TREASURY SHARES
During the period under review the Company purchased 20.227 million treasury shares
for a total cost of R17.4 million at an average cost of 86 cents per share. No treasury
shares were purchased in the comparative period. Management will continue to pursue
share buy-backs where they represent substantial discount to underlying value.
BORROWINGS
At the reporting date total borrowings amounted to R1.84 billion (2014: R1.4 billion)
with a loan to value ratio of 59% (2014: 57%), which is the measure of dividing
interest-bearing debt net of cash holdings by the fair value of all property assets.
Unutilised borrowing facilities and cash held in access facilities amounted to
R152.1 million (2014: R115.3 million). All borrowings are at floating rates and we
continue to explore ways to reduce risk to any extraneous interest rate moves. When
appropriate, borrowing quantums will be reduced through either realising trading
profits or raising additional equity.
OPERATIONS
Net property income, which comprises gross rental income less direct property expenses,
has increased by 26% to R95.3 million (2014: R75.6 million) due mainly to the properties
acquired during the period, a reduction in vacancy levels and rental escalations from
existing leases. Property expenses and non-property overhead expenses were within budget
and are well controlled.
Interest paid during the period is in respect of funding for the investment properties
and land held for future development. Interest is capitalised on land and development
properties when development activities commence and expenditures and borrowing costs
are incurred.
Earnings per share ("EPS") is 7.2 cents (2014: 2.2 cents) and the headline earnings
per share is 2.2 cents (2014: 2.0 cents). The material change in EPS is due to fair
value adjustments to investment properties in the period under review; no such
adjustments were made in the prior comparative period.
At the reporting date the total value of investment properties increased to
R2.81 billion (2014: R2.3 billion), whilst properties under development and land held
for future development increased to R251.7 million (2014: R114.7 million) due to the
acquisition and development of the Strand Street (R89.4 million) and Louis Gradner
(R47.6 million) properties currently under development.
The total cash on hand amounted to R28.6 million compared to R32 million on hand at
the end of the comparative half-year period. Any surplus cash is used to reduce
borrowings on an access facility basis.
The net asset value per share (based on shares in issue net of total treasury shares)
increased by 17.1% to 98 cents from 84 cents in the comparative period.
PROSPECTS
The Company remains focused on its strategic drive to build a quality property portfolio
underpinned by solid long-term cash flows. Property fundamentals remain a core investment
driver at all times. Management continues to seek value-creating investment opportunities
and are in various stages of process to extract value from a substantial development
pipeline. The developments will significantly enhance the portfolio in years to come.
SUBSEQUENT EVENTS
During the period under review the Company concluded an agreement with the Rabie Property
Group to acquire land at a cost of R11.985 million for the development of an office block
leased to Aurecon South Africa Proprietary Limited (Aurecon provides global engineering,
management and specialist technical services), for an initial period of seven years,
situated adjacent to their existing premises currently let to them by Ingenuity. Transfer
of this erf was registered on 25 March 2015 and excavations and piling on the site has
commenced. The capital cost of the development is expected to be R91 million and
Standard Bank has provided all the funding for the entire project. Construction is
expected to be completed during February 2016.
Other than as reported above, there are no other material subsequent events which have
occurred between the end of this interim period being reported on and the date of
this report.
DIRECTORATE
There have been no changes to the directorate during the period under review.
On behalf of the board
AA Maresky R Squire-Howe M Wagenheim
Chief Executive Officer Chairman Financial Director and Company Secretary
Cape Town
24 April 2015
DIRECTORS
R Squire-Howe*^ (Chairman), AA Maresky (CEO), M Wagenheim (Financial), J Bielich,
AJ Branch*^ (British), LH Cohen*, DB Fabian*^, RS Schur*^
* non-executive ^ independent
REGISTERED OFFICE AND POSTAL ADDRESS
Suite 102, Intaba, 25 Protea Road, Claremont, Cape Town, 7708
COMPANY SECRETARY
M Wagenheim
CONTACT DETAILS
Tel: 021 674 5170; Fax: 021 674 5135
E-mail: info@ingenuityproperty.com
www.ingenuityproperty.com
TRANSFER SECRETARIES
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Tel: 011 370 5000
SPONSOR
Nedbank Capital, a division of Nedbank Limited
AUDITORS
Mazars
BANKERS
Absa Bank Limited, Nedbank Limited and Standard Bank of South Africa Limited
Date: 24/04/2015 05:08:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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