Wrap Text
Unaudited condensed consolidated interim results for the six months ended 30 September 2015
Vukile Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
JSE share code: VKE
ISIN: ZAE000180865
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 2015
Highlights
- 7.0% increase in the first half distribution
- Vacancies contained at 4.7% of GLA
- Like-for-like net property revenue growth of 6.1%
- Positive reversions across all sectors - average 9.6%
- Acquisition of three retail shopping centres at a total cost of R846 million
- Acquisition of two regional mall developments at a cost of R600 million
- Successful equity raise of R1.1 billion in May 2015
- Successful refinance of R1.4 billion debt and DMTN bonds during the reporting period
- Gearing ratio of 27.8% with 83.5% of debt hedged
- Achieved level 3 BEE rating
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 2015, 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 2015. The group has adopted the
following new standards:
The following new IFRS and/or IFRICs were effective for the first time for the financial period
commencing 1 April 2015:
- Amendments to IFRS 2 - Share-based Payments.
- Amendments to IFRS 3 - Business Combinations.
- Amendments to IFRS 8 - Operating Segments.
- Amendments to IFRS 13 - Fair Value Measurement.
- Amendments to IAS 16 - Property, Plant, and Equipment.
- Amendments to IAS 19 - Employee Benefits.
- Amendments to IAS 24 - Related Party Disclosure.
- Amendments to IAS 38 - Intangible Assets.
- Amendments to IAS 40 - Investment Properties.
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
23 November 2015. The preparation of the financial results for the six months ended
30 September 2015 was supervised by Michael Potts, CA(SA), financial director. These interim
financial results have not been reviewed or audited by Vukile’s independent external auditors.
3. Significant eventS and transactions
During this reporting period, the following significant transactions were effected:
1. The raising of R1.1 billion equity by way of an equity tap of R250 million via Encha and
an equity issuance of R850 million to institutional holders
2. The refinancing of bank debt and DMTN corporate bonds amounting to R1.33 billion
3. The acquisitions of Moruleng Mall, Batho Plaza and the Nonesi Mall at a total cost of
R846.2 million and the acquisition of 33% of Thavhani Mall and 25% of Springs Mall, both under
development, at a total cost of R600 million.
4. Summary of Financial Performance
The directors of Vukile are pleased to report that the distribution for the six months ended
30 September 2015 has increased by 7.0% to 63.222 cents per share (prior period: 59.086 cents per
share).
The group’s net profit available for distribution, before non-IFRS income adjustments, amounted to
R426.3 million for the six months to 30 September 2015 (R333.8 million - September 2014), which
represents an increase of 27.7% over the comparable period.
Summary of financial performance:
September September March
2015 2014(1) 2015
Net asset value per share (cents) 1 774 1 538 1 716
Distribution per share (cents) 63.22 59.09 136.77
Loan to value ratio %(2) 32.0 33.1 29.0
Loan to value ratio net of available cash (%)(2) 28.0 25.3 26.0
Gearing ratio (%)(3) 27.8 23.6 26.6
(1) In the September 2014 results references should be made to linked units.
(2) Based on directors’ valuation of the group’s property portfolio at 30 September 2015.
(3) The gearing ratio is calculated by dividing total interest-bearing borrowings by total assets.
A simplified income statement (which is not IFRS compliant) is set out below:
September September
2015 2014 Paragraph %
R000 R000 reference variance
Property revenue 1 005 368 744 110 35.1
Property expenses (368 353) (275 105) (33.9)
Net profit from property operations 637 015 469 005 (a) 35.8
Asset management business - income 11 886 11 766 (b) 1.0
Corporate and asset management expenses (44 803) (34 452) (c) (30.0)
Operating profit before finance costs 604 098 446 319 35.4
Net finance costs (145 961) (104 618) (d) (39.5)
Profit before taxation 458 137 341 701 34.1
Taxation (6 868) (7 942) (e) 13.5
Profit for the period 451 269 333 759 35.2
September
2015
R000
Profit for the period 451 269
Attributable to non-controlling interests (24 996)
Attributable to Vukile group 426 273
Less: Distribution on shares issued post 31 March 2015(1) (48 188)
Add: Non-IFRS adjustments
Shares issued cum dividend 61 530
Dividends receivable from Fairvest - ex dividend date post 30 September 2015 13 302
Asset management income(2) 4 000
Available for distribution 456 917
Proposed distribution (approximately 42% of the full year distribution) 405 351
(1) The R1.1 billion equity issuance in May 2015 resulted in a higher distribution as the
shareholders who participated were entitled to receive the second distribution for the six
months ended 31 March 2015.
(2) Arising from the sale of the asset management business to Sanlam where the amounts receivable of
R16 million were present valued and offset against the loss on sale in terms of IFRS requirements.
The financial results of Synergy Income Fund Limited (Synergy) are included in the September 2015
simplified income statement but not in the September 2014 results.
(a) Net profit from property operations
We have continued with our focused asset management and actions aimed at improving the quality
of the portfolio. This strategy has resulted in a pleasing performance in a difficult economic
environment. However, the property results will be negatively impacted for the year by an accrual
of R12 million for electricity costs where we ascertained, after an extensive investigation, that
the municipality has incorrectly billed two properties through faulty meter readings. In the
absence of this accrual the results for the year would have been equal to or higher than the 8%
top end guidance given in the March 2015 results announcement.
The group’s net profit from property operations, exclusive of straight-line rental accruals, has
increased by R168 million (35.8%) over the comparable period, from R469 million to R637 million.
The contributions to this increase are made up as follows:
Rm
Stable portfolio 25.3
Properties acquired in prior year 9.5
Properties acquired in current year(1) 27.8
Sovereign portfolio 1.9
Synergy portfolio(2) 99.3
Sold properties 1.0
Net interest reclassified 3.2
168.0
(1) Properties developed/acquired during the period comprise:
- De Tijger Day Clinic
- Silverton Industrial Warehousing
- Moruleng Mall
- Nonesi Mall
- Batho Plaza.
(2) Vukile acquired control of Synergy on 2 February 2015 and as such Synergy’s property revenue
is now reflected in the September 2015 results for the first time.
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 reduced from R27.4 million at
31 March 2015 to R23.3 million at 30 September 2015, which is considered adequate at this stage.
The doubtful debt allowance is expected to approximate 1.5% of gross rental income for the year
ending 31 March 2016, 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 2015 27 379
Allowance for receivable impairment for the six-month period 826
Receivables written off as uncollectible (4 864)
Impairment allowance 30 September 2015 23 341
Bad debt write-off per the statement of comprehensive income 8 516
(b) Asset management business
As reported previously, the asset management business relating to the Sanlam portfolio was sold
in the prior year.
Ongoing fees of R8.0 million will be received for each of the years ending 31 March 2016 and 2017
in terms of the sale of the above mentioned asset management business.
The asset management company providing services to Synergy was acquired by Vukile in May 2015 for
R106.3 million, inclusive of costs and renamed Vukile Asset Management (Pty) Ltd (VAM).
Vukile earns a 0.5% asset management fee on the enterprise value of Synergy and a net 1.0% fee for
property management based on rentals and recoveries received.
Project and asset management income received for the six-month period amounted to R11.9 million,
less costs of R2.9 million.
(c) Corporate administrative and asset management expenditure
Group corporate administrative expenditure of R44.8 million is R10.3 million higher than the
previous year’s expenditure of R34.5 million. The main contributing factors to this variance
comprise the following:
- Additional salaries of R2.4 million which includes the costs of a financial director for Synergy
(recovered against the asset management fees received from Synergy), salary increases and certain
restructuring costs.
- Synergy corporate costs included for a full year.
- Includes R2.9 million property management and other costs incurred in VAM in respect of the
Synergy portfolio.
(d) Finance costs net of investment income
Net finance costs have increased by R41.3 million from R104.6 million in the comparable period to
R145.9 million.
Finance costs have increased by R39.8 million, from R140.7 million to R180.5 million. The increase
in finance costs takes into account Synergy finance costs of R40.8 million, included in these
results for the first time.
Investment and other income is in line with the prior period at R34.5 million. Additional interest
has been earned due to the part utilisation of the R1.1 billion equity raise to invest in a two-
year deposit to fund the acquisition of Thavhani Mall and Springs Mall, which earns interest at
8.4% over the period, offset by the fact that dividends from Fairvest and Atlantic Leaf can only
be accounted for on the ex dividend dates of such distributions, which are post-30 September 2015.
The average cost of finance for the six months to 30 September 2015, equates to 8.45%, with 83.5%
of interest-bearing term debt hedged.
(e) Taxation
The first half tax accrual of R6.9 million is in line with the comparable period of R7.9 million.
This tax comprises normal tax and deferred tax on temporary timing differences. 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
Total interest-bearing debt is currently hedged at 83.5%. The all-in cost of finance is increasing
as existing debt is refinanced and new bank debt drawn down to finance new acquisitions. The average
forecast borrowing cost for the March 2016 financial year is estimated at 8.45% per annum. This cost
of debt on new acquisitions is estimated at 8.54% per annum.
The R400 million Nedbank loans, which were repaid in September 2014 by way of an equity issuance,
were redrawn in April 2015 and June 2015 in terms of a new loan agreement which was finalised to
finance the Moruleng and Batho Plaza property acquisitions.
A new R750 million facility was concluded with ABSA comprising term loans of R250 million and a
revolving facility of R500 million. This facility expires in March 2017.
6. Interest rate swap expiry profile
A number of new swaps have been concluded to hedge new debt which was raised to finance acquisitions
and to maintain the hedging percentage above 75% as follows:
Swaps
Nominal value (Rm) 289.4 99.9 73.3 99.6 50.0
Swap period 2 years 1.5 years 3 years 1 year 1.5 years
Maturity date Nov 2017 May 2017 Oct 2018 Sept 2016 March 2017
Rate (NACQ) 8.95% 8.74% 7.30% 6.66% 6.93%
The swap profile at 30 September 2015 is as follows:
Swap expiry profile per calendar year
2016 2017 2018 2019 2020 Total
Rm 470 792 709 485 683 3 139
% 15.0 25.2 22.6 15.5 21.7 100.0
The current swaps in place at 30 September 2015 represent 2.9 years cover.
7. Developments, acquisitions and sales
Upgrades and redevelopments - R602 million
As part of the ongoing strategy to improve the quality of the existing portfolio, the following
projects as set out below have been completed, or are in progress.
Germiston: Meadowdale Mall
In pursuit of Vukile’s desire to cultivate mutually beneficial partnerships, it entered into a
sale and development agreement with the Moolman Group for the sale of a 33% interest in the
centre, and the refurbishing and expansion of the centre by 9 400m².
The new centre measures 45 000m² of which Checkers and House and Home occupy 23 100m². The
Checkers and House and Home lease expires at the end of May 2016 and has been renewed for a
further 10-year period with the refurbishment and expansion project.
The refurbishment project included the upgrading of the external façade, refurbishment of internal
ceilings and bulkheads and retiling of the mall area. Checkers and House and Home also modernised
their outlets. The capital expenditure and allowances paid on the refurbishment of the existing
centre amounted to R65 million for Vukile’s 67% share.
The extension of the centre by 9 400m² was completed and opened to the public at the end of October
2015. The new extension is anchored by Meat World (1 000m²), Apple Tree (1 840m²), Waltons (900m²),
Crazy Plastics (1 000m²) and three fast food outlets, KFC, McDonalds and Nandos. This expansion
will attract shoppers from the strip centres located on Edendale Road, which have deteriorated
significantly over the past few years. The capital expenditure for this extension amounted to
R70 million for Vukile’s 67% share with an expected initial yield of 10% when fully let.
Initial trading since the relaunch of this centre has been extremely positive.
Randburg Square Office Tower
In view of the expiry of major leases in the office tower and the oversupply of office space and
high demand for affordable residential accommodation in the area, it was decided to convert the
office block into 180 residential units at an estimated capital outlay of R83 million and an
initial yield of 9,4%. Completion of the project is expected end July 2016.
East Rand Mall
East Rand Mall (in which the company owns a 50% undivided share with Redefine Properties Limited)
is being upgraded and extended at a total cost of R440 million. Each co-owner will contribute
R220 million to the total cost. The projected yield on the total capex is 6.1%.
East Rand Mall, regarded as one of the top regional malls in South Africa, has a gross lettable
area of 63 460m², 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. The extension of 6 500m² incorporates a relocated Entrance Four and a youth-
oriented mall which will be anchored by a Mr Price emporium, which consists of their apparel,
sport and home outlets comprising about 3 700m². Cotton-On will trade in close proximity to
Mr Price on 1 250m².
Part of the extensions and upgrades are on track for completion by April 2016 with the
reconfiguration of premises for a high-profile overseas retailer scheduled for completion in March
2017.
Together with the adjacent East Point (previously East Rand Galleria), which is also being upgraded,
shoppers will experience a dominant super regional shopping centre with a GLA of about 120 000m².
Parow De Tijger: Cure Day Clinic
The existing De Tijger office park consists of four separate blocks with a total GLA of 4 118m².
The new Cure Day Clinic in the park has been completed. The clinic has a GLA of 1 130m² and the
total capex incurred amounted to R24.7 million.
The Cure Day Clinic Group is based in Pretoria and currently has six-day hospitals in Gauteng and
the Western Cape. A 10-year lease has been concluded with the group. The initial yield on the
transaction is 9.3% and the rental will escalate at 8.0% per year.
Durban: The Workshop
An amount of R75 million has been approved for the upgrade of The Workshop in Durban.
The following areas have already been completed:
- The upgrade of the various ablution facilities
- The reconfiguration and upgrade of the food court
- Replacement of the shop fronts and mall tiles
- Installation of new ceilings in selected areas
- Additional lighting in the mall areas and an increase of natural light
- The installation of a new glass enclosed passenger lift.
New tenants that have already commenced trading in the centre since the upgrade started include
Pep Stores, Dunns, Ackermans, McDonalds, KFC, Pie City, Fish Corner, Edgars Connect, Spec Savers,
Gingers International and FNB.
Additional work to be completed by April 2016 includes the upgrades to the air-conditioning system,
the parking garage and the exterior of the building.
Pretoria: Sanlynn Office Park
The Sanlynn Office Park consists of two office blocks with a total GLA of 8 624m², of which 6 162m²
(71%) is let to Sanlam. The Sanlam lease expires in December 2015, but has been renewed for another
five years. The external facades, toilet blocks and parking areas have been upgraded.
The total capex is R14 million and the project will be completed by the end of November 2015.
The current upgrade will bring the aesthetics of the buildings in line with the latest new office
developments on Lynnwood Road.
Pretoria: Arcadia Suncardia
The Arcadia Suncardia building is made up of a retail section on the first two floors, and an office
block on top. The total GLA of the building is 28 937m² with retail comprising 37% of the total area.
The retail portion is undergoing an upgrade for both the external façade and the interior to
modernise and freshen up the building. The total capex amounts to R15 million and the project will be
completed by the end of November 2015. The upgrade is aimed at creating an inviting and pleasant
environment for both tenants and visitors to Suncardia, thus improving its marketability.
Bellville Barons VW Building: Ford Dealership
The Bellville Barons VW building is situated at the Durban Road intersection with the N1 highway. The
current GLA of the building is 6 778m², leased to Barloworld Auto VW (3 118m²) and Toys-R-Us (2 302m²).
The remainder of the space (1 358m²) has been vacant since April 2013. Toys-R-Us will vacate their
premises at the end of November 2016.
The Barloworld Group, which leases the Barons VW premises, has confirmed that they will lease the
Toys-R-Us premises and the vacant premises for a new Ford dealership. An additional GLA of about 2 962m²
will be created in this conversion.
The first phase will be the installation of the workshop and services area in the current vacant areas
and should be completed by February 2016. The second phase should be completed by the end of September
2017.
The total capex is R35.4 million and a monthly rental of R450 000 will be payable in the first year with
an annual escalation of 7.0% per year over the 10-year lease period. A yield of 15.1%, net of costs, is
anticipated.
Current Vukile projects
A summary of major capex projects approved and incurred to 30 September 2015 is set out below:
Capex to date
Paid April to
Paid to September Outstanding
Approved March 2015 2015 balance
Property Rm Rm Rm Rm
Louis Leipoldt Med Centre 22 000 000 - - 22 000 000
Tijger Park 1, 2 and 3 upgrade 52 300 000 50 906 382 298 765 1 094 853
Durban Workshop 75 000 000 21 841 857 22 889 532 30 268 611
East Rand Mall (50%) 220 000 000 14 079 327 59 375 342 146 545 331
Parow Cure Day Clinic 24 700 000 6 681 951 14 860 053 3 157 996
Pretoria Sanlynn 14 000 000 - 7 835 545 6 164 455
Pretoria Suncardia 15 000 000 - 2 361 350 12 638 650
Tijger Park 4 and 5 upgrade 15 000 000 - - 15 000 000
Meadowdale 135 485 800 13 972 357 42 403 856 79 109 587
Randburg Square 83 419 489 - 5 471 081 77 948 408
Bellville Barons Ford 35 400 000 - 213 900 35 186 100
Springs Mall (25%) 259 625 000 - 15 040 190 244 584 810
951 930 289 107 481 874 170 749 614 673 698 801
The above projects will be financed out of the proceeds from property sales and bank facilities. The
financing for the Springs Mall transaction has already been raised and is invested in a two-year
deposit earning 8.4% per annum.
Acquisitions - R1.95 billion
Moruleng Mall and Batho Plaza
Vukile acquired two retail centres from New Africa Developments (Pty) Ltd. Moruleng Mall is a 31 421m²
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 R325.8 million
was paid to acquire 80% of Moruleng Mall at an initial yield of 8.68%. The remaining 20% is owned by
the Bakgatla-Ba-Kgafela. Moruleng Mall was transferred in April 2015.
Batho Plaza is a 13 338m² centre located in Soshanguve, Gauteng, with a national tenant mix of 80%.
Anchor tenants include Shoprite and Cashbuild. The property was purchased for R143.8 million at an
initial yield of 9.52%. Batho Plaza transferred in June 2015.
Nonesi Mall
Nonesi Mall is a 28 147m² 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. The
property was purchased for R376.6 million at an initial yield of 8.25% and transfer was effected in
June 2015.
Silverton industrial portfolio
Vukile purchased a distribution warehousing portfolio from the HL Group for R99.9 million at an initial
yield of 9.25%. The portfolio comprises six buildings located in close proximity to each other in the
Silverton Industrial area. Notable tenants include Massmart, Edcon and Topmed. Transfer took place in
July 2015.
Bedworth Centre
Bedworth Centre was transferred to Vukile during October 2015 for R335 million at an initial yield of
8.75%. The centre was jointly owned by Flanagan & Gerard Property Investment and Development and the
Moolman Group. The Bedworth Centre is a 33 948m² small regional shopping centre located in Bedworth
Park in Vereeniging Johannesburg. The centre is anchored by a Pick n Pay Hyper and Builders Warehouse
and has an exceptional lease expiry profile due to these two anchor tenants, which make up over 75% of
the centre, expiring beyond 2020. The national tenant component of the centre is just under 90% of the
total GLA.
Thavhani Mall
Vukile secured a 33% stake in the c.50 000m² Thavhani Mall at Thavhani City in Thohoyandou, Limpopo,
for R350 million after concluding a deal with the developers of the new regional shopping centre,
Thavhani Property Investments (Pty) Ltd.
Thavhani Property Investments is owned by the pre-eminent shopping centre developers, Flanagan &
Gerard Property Investment and Development, together with local partners.
Thavhani Mall is currently under construction and is scheduled for completion in 2017. It is being
developed on a prime site in Thohoyandou, at the intersection of the R524 road to Louis Trichardt
(Makhado) and the new Giyani Road to Sibasa. Thavhani Mall is now more than 80% let with confirmed anchor
tenants including Pick n Pay, Super Spar, Woolworths and Edgars, while a broad range of other national
retailers will be part of the tenant mix.
Springs Mall
Vukile has agreed to acquire a 25% stake in the 44 662m² Springs Mall for R259.6 million which is being
developed and managed by Blue Crane Eco Mall (Pty) Ltd, in which Flanagan & Gerard is a shareholder,
together with local partners Murinda Investments and the D’Arrigo family.
The mall is located just south of the Springs CBD, in a prime location at the R51 off-ramp off the N17.
It is currently 85% let with confirmed anchor tenants including Pick n Pay, Checkers, Woolworths and
Edgars. Springs Mall is currently under construction and is scheduled for completion in 2017.
The funding for both the above mall developments is in place by way of the R600 million two-year deposit
funded from the R1.1 billion equity raise in May 2015.
40% of Maake Plaza
A 30% undivided share in Maake Plaza, a 15 752m² community centre located in Tzaneen Limpopo, was acquired
during July 2014. The acquisition of a further 40% in the centre at a consideration of R61.6 million and an
initial yield of 9.7% is expected to be finalised later this year. Thereafter Vukile’s ownership in this centre
will equate to 70%.
Disposals
The following properties were disposed of in the six months ended 30 September 2015:
Property Sales
price Yield Date of sale
R000 % 2015
Johannesburg Rosettenville Village Main 24 395 9.9 6 July
Centurion 259 West Street 30 215 10.4 20 Aug
Johannesburg Parktown Oakhurst 71 000 9.5 26 Aug
125 610
8. Valuation of portfolio
The accounting policies of the group require that the directors value the entire portfolio every six months at
fair market value. Approximately one half of the portfolio is valued every six months, on a rotational basis, by
registered independent third-party valuers. The directors have valued the group’s property portfolio at R14.6 billion
as at 30 September 2015. This is R1.3 billion or 9.8% higher than the valuation as at 31 March 2015 mainly due to the
acquisitions during the period. The calculated recurring forward yield for the portfolio is a conservative 9.2%.
The external valuations by Quadrant Properties (Pty) Ltd and Knight Frank (Pty) Ltd at 30 September 2015 of 48.2% of the
total portfolio are in line with the directors’ valuations of the same properties.
Fair value measurement of non-financial assets (investment properties)
The fair value of commercial buildings is 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 2015 were:
- The range of the reversionary capitalisation rates applied to the portfolio are between 7.7% and 18.2% (March 2015: between
8.2% and 17.0%) with the weighted average being 9.7% (March 2015: 9.8%).
- The discount rates applied range between 12.7% and 19.5% (March 2015: between 12.7% and 19.5%) with the weighted average being
14.2% (March 2015: 14.3%).
In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated demand.
Sensitivity analysis
The effect on the fair value of the portfolio of a 0.25% increase in the discount rate would result in a decrease in the fair value
of R389 million (2.7%) (March 2015: R350 million (2.6%)). The average discount rate on the portfolio would increase from 14.2% to 14.5%
(March 2015: 14.6%) and the average exit capitalisation rate would increase from 9.7% to 10.0% (March 2015: 10.1%) due to the interlinked
nature of the rates. The analysis has been prepared on the assumption that all other variables remain constant.
9. Group Property Portfolio Overview
The group property portfolio at 30 September 2015 consisted of 105 properties with a total market value of R14.6 billion and gross
lettable area of 1 400 167m², with an average value of R139 million per property.
The geographical and sectoral distribution of the group’s portfolio is indicated in the tables below. The portfolio is well-represented
in most of the South African provinces and Namibia. Some 81% of the gross income is derived from Gauteng, KwaZulu-Natal, Western Cape
and Namibia.
Vukile Synergy Total
Geographic profile portfolio portfolio portfolio
% of gross income % % %
Gauteng 55 12 48
KwaZulu-Natal 16 21 17
Western Cape 6 32 10
Namibia 7 0 6
Limpopo 3 8 4
Free State 4 12 5
North West 5 5 5
Mpumalanga 2 10 3
Eastern Cape 2 12 2
Based on market value 67% of the group portfolio is in the retail sector, followed by 15% in the office, 8% in the industrial, 6% in
the sovereign, 3% in the hospital and 1% in the motor-related sectors.
The tenant profiles for the Vukile and Synergy portfolios are listed in the table below:
Tenant profile
Vukile Synergy Total
portfolio portfolio portfolio
% of GLA % % %
Large national and listed tenants and major franchises 46 75 50
Government 13 11
National and listed tenants, franchised and medium to
large professional firms 10 7 10
Other 31 18 29
The retail portfolio’s exposure to national, listed and franchised tenants is 81% in total.
Vukile’s tenant concentration risk is considered to be low as the top 10 tenants account for 38% of total GLA.
If the Synergy portfolio is excluded, the top 10 tenants account for 37% of total GLA. Local, provincial and national
government is the single largest tenant, occupying 10.7% of total GLA with Shoprite the second largest at 5.4% of
total GLA. If the Synergy portfolio is excluded, the exposure to government and Shoprite is 12.5% and 5.5% respectively.
The Synergy portfolio’s exposure to the top 10 tenants is 45%, with Spar the largest at 19.2% and Massmart at 6.3%.
Top 10 properties by value
Directors’
valuation at
Rentable 30 Sept
Property area 2015 Valuation
Location Sector m2 Rm % of total R/m2
Boksburg East Rand Mall* Boksburg Retail 31 730 1 071 7.3 33 763
Durban Phoenix Plaza Durban Retail 24 363 690 4.7 28 301
Gugulethu Square Gugulethu Retail 25 322 441 3.0 17 412
Pretoria Navarre Building Pretoria Sovereign 47 519 402 2.8 8 466
Soweto Dobsonville Shopping Centre Soweto Retail 23 177 397 2.7 17 146
Cape Town Bellville Louis Leipoldt Cape Town Hospital 22 311 365 2.5 16 342
Pinetown Pine Crest* Pinetown Retail 20 056 357 2.4 17 810
Randburg Square Randburg Retail 40 874 356 2.4 8 717
Queenstown Nonesi Mall Queenstown Retail 28 147 350 2.4 12 442
Pretoria De Bruyn Park Pretoria Sovereign 41 418 338 2.3 8 153
Total top 10 304 917 4 767 32.5 15 635
* Represents an undivided 50% share in this property.
Directors’
valuation at
Rentable 30 Sept
area 2015 Valuation
Sector m2 Rm % of total R/m2
Retail 193 669 3 662 25.0 18 913
Sovereign 88 937 740 5.0 8 320
Hospital 22 311 365 2.5 16 342
Total top 10 304 917 4 767 32.5 15 635
The 10 largest retail centres (representing 48% of the total retail portfolio value) reflect 87% exposure to national,
listed and franchised tenants.
National,
Directors’ listed and
valuation at % of total franchised
30 Sept retail tenants %
Top 10 retail centres (based on value) 2015 portfolio value Rm
Boksburg East Rand Mall* 1 071 11.0 90.0
Durban Phoenix Plaza 690 7.1 78.9
Gugulethu Square 441 4.5 90.1
Soweto Dobsonville Shopping Centre 397 4.1 82.8
Pinetown Pine Crest* 357 3.7 94.1
Randburg Square 356 3.7 84.5
Queenstown Nonesi Mall 350 3.6 96.1
Oshakati Shopping Centre 336 3.4 92.5
Moruleng Mall (80%) 336 3.4 80.4
Atlantis City Shopping Centre 317 3.2 79.9
4 651 47.7 87.0
* Represents an undivided 50% share in this property
Property portfolio performance
New leases and renewals of 176 441m² with a contract value of R983 million were concluded during the year to date.
Some 66% of leases to be renewed during the six months ended 30 September 2015 were renewed or are in the process
of being renewed.
Details of large contracts concluded
Contract Lease
value duration
Tenant Property Sector Rm Years
ADT Security Midrand Ulwazi Building Offices 179.4 11
Shoprite Checkers Germiston Meadowdale Mall Retail 107.3 11
Sanlam Pretoria Lynnwood Sanlynn Offices 57.3 6
Department of Rural Pretoria Arcadia Suncardia Offices 28.4 4
Development
Just Gym Germiston Meadowdale Mall Retail 23.1 12
The United Nations Population Sandton Sunninghill Place Offices 22.0 10
Spar KwaMashu Shopping Centre Retail 18.5 5
Truworths Mbombela Truworths Centre Retail 15.8 6
Pep Stores Bloemfontein Plaza Retail 13.9 5
Spur Boksburg East Rand Mall (50%) Retail 9.8 10
The group lease expiry profile table reflects that 15% of the leases are due for renewal in the second half of the year.
Approximately 44% of leases are due to expire in 2019 and beyond (up from 33% in the prior year).
Group lease expiry
Beyond
March March March March March March
Vacant 2016 2017 2018 2019 2020 2020
% of GLA % % % % % % %
GLA 4.7 15 21 15 17 10 17
Cumulative as at September 2015 4.7 20 41 56 73 83 100
Cumulative as at March 2015 4.6 32 54 67 82 90 100
Vacancies
At 30 September 2015, the portfolio’s vacancy (measured as a percentage of gross rental) was unchanged at 5.2%. When measured
as a percentage of gross lettable area vacancies were at 4.7% compared to 4.6% at 31 March 2015.
If the current development vacancy of 2 482m² at East Rand Mall and Cape Town Bellville Barons is included, the vacancy on
lettable area increases from 4.7% (March 2015) to 4.9% and from 5.6% (March 2015) to 5.8% based on gross rental.
The vacancy per sector (measured as a percentage of gross lettable area) is indicated in the table below. Office vacancies
decreased considerably compared to the previous period, but industrial vacancies are on the increase.
30 September
30 September 2015
2015 Including
31 March 30 September development development
2015 2015 vacancy vacancy
Vacancies % % % %
Retail 3.4 3.4 0.2 3.6
Offices 10.2 6.8 - 6.8
Industrial 1.9 5.9 - 5.9
Sovereign 5.9 7.2 - 7.2
Hospital 0.0 0.0 - 0.0
Motor related 0.0 0.0 14.1 14.1
Total 4.6 4.7 0.2 4.9
Vukile is engaged in various initiatives to reduce portfolio vacancies including broker focus groups, the publishing of vacancy
information directly to brokers and also utilising the Vukile vacancy website, leasing incentives on selected properties, incentives
to property management companies and leasing brokers, etc.
GLA summary GLA m2
Balance at 1 April 2015 1 339 090
GLA adjustments (382)
Disposals (22 482)
Acquisitions and extensions 83 941
Balance at 30 September 2015 1 400 167
Vacancy summary Area m2 %
Balance at 31 March 2015 61 354 4.6
Less: Properties sold since 31 March 2015 (3 391) (15.1)
Remaining portfolio balance at 31 March 2015 57 963 4.4
Leases expired or terminated early 135 898 -
Renewal of expired leases (66 197) -
Contracts to be renewed (46 679) -
Tenants vacated (57 423) -
Development vacancy (2 482)
New letting of vacant space 102 635 -
Balance at 30 September 2015 65 752 4.7
The financial performance of the stable portfolio is set out below:
Financial performance September September
2015 2014
Rm Rm % change
Gross property revenue 689.9 655.2 5.3
Recurring property expenses (243.7) (233.9) (4.2)
Recurring net property income 446.2 421.3 5.9
Non-recurring property expenses (9.8) (10.1) 3.0
Net property income 436.4 411.2 6.1
Property expense ratios (%)* 33.9 34.0 0.2
*Recurring cost to property revenue ratios (including rates and taxes and electricity costs, excluding asset management fee).
Base rentals
(excluding recoveries)
The weighted average monthly base rental rates per sector, between 31 March 2015 and 30 September 2015, are set out
in the table below.
Weighted average base rentals (R/m²) excluding recoveries
September March Escalation
2015 2015 %
Retail 112.02 108.14 3.6
Offices 92.45 91.63 0.9
Industrial 43.25 41.94 3.1
Sovereign 100.87 93.11 8.3
Hospital 106.55 95.77 11.3
Motor related 115.81 113.93 1.6
Total 94.99 90.90 4.5
Average contractual rental escalations of 7.7% are slightly lower than the previous year (7.8%).
Positive reversions were achieved across all sectors with retail at 13.6%, and offices and industrial both at 5.8%.
The average escalation on expiry rentals on the total portfolio of 9.6% is very positive against the backdrop of a difficult
trading environment.
New leases were concluded 12.2% above budget in the retail sector, on budget in the office sector and lower than budget in the
industrial sector.
Expense categories and ratios
Recurring gross property expenses have increased year-on-year mostly due to increases in electricity and water tariffs and
rates and taxes.
The top four expense categories contribute 85% of the total expenses. These are: government services (48%), rates and taxes (18%),
cleaning and security (12%) and property management fees (7%).
The group continuously evaluates methods of containing costs in the portfolio. The stable portfolio’s recurring gross costs to
property revenue ratios (excluding electricity and rates and taxes) have decreased from 17.7% in March 2010 to 16.0% in September 2015
and hence have been well contained.
If all recurring gross expenses are taken into consideration, the ratio of recurring gross cost to property revenue of 33.9% is still
in line with the March 2015 ratio of 34.0%.
Rent collection and arrears
An important part of protecting the group against the likelihood of tenants defaulting on their lease agreements is our credit vetting
process prior to the acceptance of a tenant. We have developed a comprehensive screening process for each applicant, which assesses the
tenant according to type (national, government, SMMEs, and other), nature of business, main shareholders and other relevant characteristics,
and in the case of renewals, payment history.
As such, it is important to closely monitor our arrears book and any changes to tenant payment processes. We measure the effectiveness of
our collections process based on the percentage collected by the fifth business day of each month. The collection percentages across
current tenants are under pressure and we have seen an increase in the number of legal cases mainly amongst smaller line shops across a number
of retail centres as well as isolated industrial tenants.
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 2015, there has been no change from prior periods in the measurement methods used to determine
operating segments and reported segment profits.
Operating segment analysis for the six months ended 30 September 2015
Asset
Sovereign Motor- management
Retail Offices Industrial offices Hospital related Total business Total
GROUP R000 R000 R000 R000 R000 R000 R000 R000 R000
September 2015
Group income for the six months ended 30 September 2015
Property revenue 633 850 185 862 82 757 81 357 15 496 6 046 1 005 368 11 886 1 017 254
Property expenses (239 631) (74 546) (28 307) (23 170) (1 886) (813) (368 353) (2 915) (371 268)
394 219 111 316 54 450 58 187 13 610 5 233 637 015 8 971 645 986
Straight-line rental income accrual 32 178 9 086 4 444 4 749 1 111 427 51 995 - 51 995
Profit from property and other operations 426 397 120 402 58 894 62 936 14 721 5 660 689 010 8 971 697 981
Group statement of financial position at 30 September 2015
Assets
Investment properties 9 710 685 2 162 485 1 250 937 939 728 383 555 138 478 14 585 868 - 14 585 868
Add: Lease commissions - - - - - - 39 408 - 39 408
9 710 685 2 162 485 1 250 937 939 728 383 555 138 478 14 625 276 14 625 276
Goodwill 56 024 - 3 889 - - - 59 913 - 59 913
Investment properties held for sale 133 000 12 350 - - - - 145 350 - 145 350
9 899 709 2 174 835 1 254 826 939 728 383 555 138 478 14 830 539 - 14 830 539
Add: Excluded items
Deferred capital expenditure 93 892
Investments 359 020
Furniture, fittings and computer equipment 2 693
Available-for-sale financial asset 31 110
Loans and receivables 658 546
Derivative financial instruments 16 326
Trade and other receivables 188 626
Deferred taxation assets 4 129
Intangible asset 117 934
Cash and cash equivalents 672 953
Total assets 16 975 768
Liabilities
Stated capital 4 593 422 1 023 575 588 751 442 280 180 519 65 174 6 893 721 - 6 893 721
Interest-bearing borrowings 3 144 347 700 668 403 015 302 754 123 571 44 613 4 718 968 - 4 718 968
7 737 769 1 724 243 991 766 745 034 304 090 109 787 11 612 689 - 11 612 689
Add: Excluded items
Equity
Other components of equity and retained earnings 4 429 395
Non-controlling interest 562 135
Derivative financial instruments 1 571
Deferred taxation liabilities 8 872
Trade and other payables 358 721
Current taxation liabilities 2 385
Total equity and liabilities 16 975 768
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
September 2014
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
5 715 642 2 171 278 1 087 313 1 033 840 134 298 338 063 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
11. Declaration of a cash dividend with the election to reinvest the cash dividend in return for Vukile shares
Notice is hereby given of a dividend amounting to 63.22200 cents per share, payable out of distributable income, for the
six-month period to 30 September 2015.
Shareholders will be entitled to elect (in respect of all or part of their holding) to reinvest the cash
dividend of 63.22200 cents per share, in return for shares (the share reinvestment alternative), failing which they will
receive the cash dividend in respect of (all or part of) their holdings.
A circular providing further information in respect of the cash dividend and the share reinvestment alternative will
be posted to shareholders on 25 November 2015.
Shareholders who have dematerialised their shares are required to notify their duly appointed Central Securities
Depository Participant (CSDP) or broker of their election in the manner and time stipulated in the custody agreement
governing the relationship between the shareholder and their CSDP or broker.
Tax implications
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 dividends paid to investors, in
determining its taxable income.
The cash dividend of 63.22200 cents per share 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 shareholders must be included in the gross income of such holders
(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 shareholder. These qualifying distributions are, however,
exempt from dividends withholding tax, provided that the South African resident shareholders 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 declaration that the distribution is exempt from dividends tax
– 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. Shareholders are advised
to contact their CSDP, broker or the company, as the case may be, to arrange for the above mentioned
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 shareholders 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 shareholder. Assuming dividends
withholding tax will be withheld at a rate of 15%, the net distribution amount due to non-resident shareholders is
53.73870 cents per share. A reduced dividend withholding rate in terms of the applicable DTA, may only be relied
upon if the non-resident holder 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 declaration that the distribution is subject to a reduced rate as a result of the application of a DTA
– 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 holders are
advised to contact their CSDP, broker or the company, as the case may be, to arrange for the above mentioned
documents to be submitted prior to payment of the distribution if such documents have not already been submitted,
if applicable.
Shareholders who are South African residents are advised that in electing to participate in the share reinvestment
alternative, pre-taxation funds are utilised for the reinvestment purposes and that taxation will be due on the total
cash distribution amount of 63.22200 cents per share.
Shareholders are further advised that:
- The issued capital of Vukile is 638 155 312 shares and 646 134 008 shares of no par value at 30 September 2015 and
23 November 2015 respectively.
- Vukile’s tax reference number is 9331/617/14/3.
This cash dividend or share reinvestment alternative may have tax implications for resident as well as non-resident
shareholders. Shareholders are therefore encouraged to consult their tax and/or professional advisers should they be
in any doubt as to the appropriate action to take.
Summary of the salient dates relating to the cash dividend and share reinvestment alternative are as follows:
2015
Circular and form of election posted to shareholders Wednesday, 25 November
Finalisation information including the ratio and price per share published on SENS Thursday, 3 December
Last day to trade in order to participate in the election to receive the share
reinvestment alternative or to receive a cash dividend (LDT) Thursday, 10 December
Shares trade ex dividend Friday, 11 December
Listing of maximum possible number of shares under the share reinvestment alternative Tuesday, 15 December
Last day to elect to receive the share reinvestment alternative or to receive a cash
dividend (no late forms of election will be accepted) at 12:00 (SA time) Friday, 18 December
Record date for the election to receive the share reinvestment alternative or to
receive a cash dividend (record date) Friday, 18 December
Results of cash dividend and share reinvestment alternative published on SENS Monday, 21 December
Cash dividend cheques posted to certificated shareholders on or about Monday, 21 December
Accounts credited by CSDP or broker to dematerialised holders with the cash dividend
payment Monday, 21 December
Certificates posted to certificated shareholders on or about Wednesday, 23 December
Accounts updated with new shares (if applicable) by CSDP or broker to dematerialised
shareholders Wednesday, 23 December
Adjustment to shares listed on or about Thursday, 24 December
Notes:
1. Shareholders electing the share reinvestment alternative are alerted to the fact that the new shares will be listed
on LDT +3 and that these new shares can only be traded on LDT +3, due to the fact that settlement of the shares
will be three days after record date, which differs from the conventional one day after record date settlement
process.
2. Shares may not be dematerialised or rematerialised between Thursday, 10 December 2015 and Friday, 18 December 2015,
both days inclusive.
3. The above dates and times are subject to change. Any changes will be released on SENS.
12. Post-period events
Investment in Atlantic Leaf Properties Limited (Atlantic Leaf)
In October 2015 Vukile acquired a c.21% stake in the AltX listed Atlantic Leaf for R350 million at the equivalent
of £1.08 per share. The investment was made as an initial entry strategy into the offshore property market which we
believe offers opportunities going forward. Vukile has a strong belief in the Atlantic Leaf management as well as the
strength of the underlying portfolio. The Atlantic Leaf portfolio is dominated by very stable and low-risk industrial assets
with long leases. The current portfolio has a WALE of over 14 years, an LTV of 49% and a fixed gearing component of 69%.
The average yield on the portfolio is c.8% with the average cost of debt at 3.4%. Vukile believes that there are strong
growth opportunities to be explored further off the Atlantic Leaf platform and will play an active role in driving that
growth alongside existing management.
Bedworth Park
Bedworth Park was acquired on 30 October 2015 at a cost of R335 million. Details of this property are contained in
the section under acquisitions and developments.
The purchase price was settled as follows:
- Issue of 4 978 696 Vukile shares at R18.84 per share amounting to R93.8 million
- Assumption of existing bank debt of R73.7 million
- Cash – R167.5 million.
Distribution
Declaration of dividend
In line with IAS 10 – Events after the Reporting Period, the declaration of the dividend of 63.22200 cents per share in
respect of the six-month period to 30 September 2015 amounting to R403.5 million occurred after the reporting period,
resulting in a non-adjusting event that is not recognised in the financial statements. In the prior period, the distribution
consisted mainly of debenture interest which accrued on a daily basis, as well as a dividend.
13. Changes to the board of directors
On 23 November 2015 the board accepted the resignation of Ms SEN de Bruyn Sebotsa as independent non-executive
director. Ms de Bruyn Sebotsa made the decision to step down from the board due to other conflicting work
commitments. The company thanks Ms de Bruyn Sebotsa for her dedication and wishes her well in her future
endeavours.
14. Prospects
The group is currently busy with a number of strategic initiatives which we hope will be finalised prior to the
financial year-end in March 2016. These include a definitive entry strategy into the residential market, growing exposure to
the international property market and the evaluation of alternative strategies for the Synergy A and B unit structure.
In the face of rising interest rates, we will maintain our conservative gearing and hedging policy and where possible
look to lower gearing through the sale of non-core assets in the office, industrial and sovereign sectors of our
portfolio.
Despite the poor state of the economy and resultant challenging operating environment, we would expect to deliver
full year growth in distributions largely in line with first half growth of 7%, held back in large part due to the
creation of a significant provision of R12 million to cater for incorrect electricity billing by council.
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.
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
23 November 2015
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 September 2015
Unaudited Unaudited Audited
30 September 30 September 31 March
2015 2014 2015
Group R000 R000 R000
ASSETS
Non-current assets 15 968 839 11 369 716 13 629 857
Investment properties 14 290 681 10 326 423 12 824 122
Investment properties 14 625 276 10 508 945 13 105 328
Straight-line rental income adjustment (334 595) (182 522) (281 206)
Other non-current assets 1 678 158 1 043 293 805 735
Straight-line rental income asset 334 595 182 522 281 206
Investments 359 020 617 771 384 800
Deferred capital expenditure 93 892 100 712 15 849
Intangible asset 117 934 - -
Goodwill 59 913 57 058 57 058
Furniture, fittings, computer equipment and other 2 693 4 037 3 248
Available-for-sale financial asset 31 110 39 945 21 576
Derivative financial instruments 16 326 6 498 -
Loans and receivables 658 546 34 750 38 110
Deferred taxation assets 4 129 - 3 888
Current assets 861 579 512 623 621 451
Intangible asset - 196 736 -
Trade and other receivables 188 626 101 675 147 429
Current taxation asset - - 133
Cash and cash equivalents 672 953 214 212 473 889
Investment properties held for sale 145 350 101 472 280 019
Total assets 16 975 768 11 983 811 14 531 327
EQUITY AND RESERVES 11 323 116 3 290 190 9 830 646
Non-controlling interest 562 135 - 516 317
Non-current liabilities 3 676 551 7 662 264 2 830 180
Linked debentures and premium - 5 228 773 -
Borrowings 3 666 108 2 426 560 2 816 088
Derivative financial instruments 1 571 - 12 919
Deferred taxation liabilities 8 872 6 931 1 173
Current liabilities 1 413 966 1 031 357 1 354 184
Trade and other payables 358 721 297 983 300 880
Borrowings 1 052 860 402 926 1 051 657
Current taxation liabilities 2 385 3 208 1 647
Linked unitholders for distribution - 327 240 -
Total equity and liabilities 16 975 768 11 983 811 14 531 327
Net asset value per share/linked unit (cents)(1) 1 774 1 538 1 716
(1)Excluding non-controlling interest.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 30 September 2015
Unaudited Unaudited Audited
30 September 30 September 31 March
2015 2014 2015
Group R000 R000 R000
Property revenue 1 005 368 744 110 1 579 099
Straight-line rental income accrual 51 995 (20 972) 97 315
Gross property revenue 1 057 363 723 138 1 676 414
Property expenses (368 353) (275 105) (585 372)
Net profit from property operations 689 010 448 033 1 091 042
Net income/(loss) from asset management business 8 971 (4 141) (9 694)
Corporate and asset management expenditure (41 888) (18 545) (36 992)
Investment and other income 34 530 36 128 76 269
Operating profit before finance costs 690 623 461 475 1 120 625
Finance costs (180 491) (140 746) (273 498)
Profit before debenture interest 510 132 320 729 847 127
Debenture interest - (326 574) -
Profit/(loss) before capital items 510 132 (5 845) 847 127
Loss on sale of investment properties (22 276) (2 959) (23 562)
Profit on sale of furniture and equipment - - 6
Fair value (loss)/gain on investments (75 779) 1 566 172 180
Amortisation of debenture premium - 7 535 19 227
Fair value movement of derivative financial instruments (215) - 1 237
Bargain purchase price 11 669 - 178 997
Loss on sale of intangible asset (30) - (61 595)
Cost of acquisition of business combination (283) - (2 778)
Impairment of intangible asset - (45 324) -
Other capital items - - (168)
Profit/(loss) before fair value adjustments 423 218 (45 027) 1 130 671
Fair value adjustments 356 216 223 711 379 017
Gross change in fair value of investment properties 408 211 202 739 476 332
Straight-line rental income adjustment (51 995) 20 972 (97 315)
Profit before taxation 779 434 178 684 1 509 688
Taxation (6 868) (7 942) (26)
Profit for the period 772 566 170 742 1 509 662
Attributable to owners of parent 747 570 170 742 1 499 995
Attributable to non-controlling interests 24 996 - 9 667
Other comprehensive income/(loss)
Items that will be reclassified subsequently to profit or loss
Cash flow hedges - current period gains/(losses) 26 594 (12 259) (30 667)
Available-for-sale financial assets - current period income/(loss) (10 160) 6 200 (12 169)
Other comprehensive income/(loss) for the period 16 434 (6 059) (42 836)
Total comprehensive income for the period 789 000 164 683 1 466 826
Total comprehensive income attributable to: 764 004 164 683 1 457 159
Owners of parent
Non-controlling interest 24 996 - 9 667
Earnings per share (cents)(1) 124.81 96.94 278.01
Number of shares/linked units in issue 638 155 312 553 837 346(2) 572 747 744
Weighted average number of shares/linked units in issue 598 960 127 512 996 395(2) 539 547 572
(1)Vukile has no dilutionary shares in issue
(2)linked units in issue
RECONCILIATION OF GROUP NET PROFIT TO HEADLINE EARNINGS AND TO PROFIT AVAILABLE FOR DISTRIBUTION
for the six months ended 30 September 2015
30 September 2015 30 September 2014 31 March 2015
Group Cents Group Cents Group Cents
R000 per share R000 per linked R000 per share
unit
Profit for the period 747 570 124.81 170 742 33.28 1 499 995 278.01
Adjusted for:
Debenture interest - - 326 574 63.66 - -
Earnings of shareholders 747 570 124.81 497 316 96.94 1 499 995 278.01
Change in fair value of investment properties (356 216) (59.47) (223 711) (43.61) (379 017) (70.25)
Bargain purchase price (11 669) (1.95) - - (178 997) (33.18)
Loss on sale of investment properties 22 276 3.72 2 959 0.58 23 562 4.37
Loss on sale of furniture, fittings and computer equipment - - - - (6) -
Loss on sale/impairment of intangible asset 30 - 45 324 8.84 61 595 11.42
Amortisation of debenture premium - - (7 535) (1.46) (19 227) (3.56)
Headline earnings per share 401 991 67.11 314 353 61.29 1 007 905 186.81
Revaluation of loss/(gain) on investments 75 779 12.65 (1 566) (0.31) (149 602) (27.73)
Cost of acquisition of business combination 283 0.05 - - 2 778 0.51
Fair value movement of derivative financial instruments 215 0.04 - - (1 527) (0.28)
Straight-line rental accrual (51 995) (8.68) 20 972 4.09 (97 315) (18.04)
Profit available for distribution before
IFRS income adjustments 426 273 71.17 333 759 65.07 762 239 141.27
Less: Additional dividends distributed on shares issued
post 31 March 2015(1) (48 188) (8.04) - - - -
Add: Non-IFRS adjustments
Pre-acquisition dividends arising on fair value calculation of
Synergy units at date of acquiring control - - - - 1 293 0.24
Gain on deemed disposal of Synergy previously accounted for
under IAS 39 - - - - (22 578) (4.19)
Shares issued cum dividend 61 530 10.27 - - 33 262 6.16
Dividends receivable from Fairvest - ex dividend date
post 30 September 2015 13 302 2.22 - - - -
Asset management income(2) 4 000 0.67 - - - -
Available for distribution 456 917 76.29 333 759 65.07 774 216 143.48
(1) The R1.1 billion equity issuance in May 2015 gave rise to a higher distribution as the shareholders who participated were entitled to
receive the second distribution for the six months ended 31 March 2015.
(2) Arising from the sale of the asset management business to Sanlam, where the amounts receivable in 2016 and 2017 totalling R16 million
were present valued and offset against the loss on sale of the business, in terms of IFRS requirements.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
for the six months ended 30 September 2015
Unaudited Unaudited Audited
30 September 30 September 31 March
2015 2014 2015
R000 R000 R000
Cash flow from operating activities 614 991 456 816 929 939
Cash flow from investing activities (910 086) (182 093) 17 302
Cash flow from financing activities 494 159 (358 686) (771 527)
Net decrease in cash and cash equivalents 199 064 (83 963) 175 714
Cash and cash equivalents at the beginning of the period 473 889 298 175 298 175
Cash and cash equivalents at the end of the period 672 953 214 212 473 889
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2015
Stated capital/ Other Non-
share capital components Retained Attributable to controlling
and premium of equity earnings shareholders interest (NCI) Total
GROUP R000 R000 R000 R000 R000 R000
Balance at 30 September 2014 96 343 3 132 305 61 542 3 290 190 - 3 290 190
Issue of capital 7 200 - - 7 200 - 7 200
Dividend distribution - - (328 594) (328 594) - (328 594)
103 543 3 132 305 (267 052) 2 968 796 - 2 968 796
Profit for the period - - 1 329 253 1 329 253 9 667 1 338 920
Change in fair value of investment properties - 265 496 (273 593) (8 097) 8 097 -
Share-based remuneration - 8 674 - 8 674 - 8 674
Transfer to non-distributable reserves - 143 074 (143 074) - - -
NCI recognised in respect of Synergy acquisition - - - - 498 553 498 553
Revaluation of investments - 170 614 (170 614) - - -
Conversion of debentures to ordinary capital 5 568 797 - - 5 568 797 - 5 568 797
Other comprehensive income/(loss)
Revaluation of available-for-sale financial asset - (18 369) - (18 369) - (18 369)
Revaluation of cash flow hedges - (18 408) - (18 408) - (18 408)
Balance at 31 March 2015 5 672 340 3 683 386 474 920 9 830 646 516 317 10 346 963
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY continued
for the six months ended 30 September 2015
Stated capital/ Other Non-
share capital components Retained Attributable to controlling
and premium of equity earnings shareholders interest (NCI) Total
GROUP R000 R000 R000 R000 R000 R000
Balance at 31 March 2015 5 672 340 3 683 386 474 920 9 830 646 516 317 10 346 963
Issue of capital 1 221 381 - - 1 221 381 - 1 221 381
Cost of converting linked units to share capital - (710) - (710) (389) (1 099)
Dividend distribution - - (493 144) (493 144) (9 667) (502 811)
6 893 721 3 682 676 (18 224) 10 558 173 506 261 11 064 434
Profit for the period - - 747 570 747 570 24 996 772 566
Change in fair value of investment properties - 401 839 (408 211) (6 372) 6 372 -
Share-based remuneration - 7 311 - 7 311 - 7 311
Transfer from non-distributable reserves - (10 793) 10 793 - - -
NCI recognised in respect of Clidet acquisition - - - - 24 506 24 506
Revaluation of investments - (75 779) 75 779 - - -
Other comprehensive income/(loss)
Revaluation of available-for-sale financial asset - (10 160) - (10 160) - (10 160)
Revaluation of cash flow hedges - 26 594 - 26 594 - 26 594
Balance at 30 September 2015 6 893 721 4 021 688 407 707 11 323 116 562 135 11 885 251
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
for the six months ended 30 September 2015
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 2015 September 2014
Level 1 Level 2 Total Level 1 Level 2 Total
GROUP R000 R000 R000 R000 R000 R000
ASSETS
Investments 359 020 - 359 020 617 771 - 617 771
Available-for-sale financial assets 60 423 - 60 423 55 008 - 55 008
Derivative financial instruments - 16 326 16 326 - 6 498 6 498
Total 419 443 16 326 435 769 672 779 6 498 679 277
LIABILITIES
Derivative financial instruments - (1 571) (1 571) - - -
Available-for-sale financial liabilities (29 313) (29 313) (15 063) (15 063)
Total - (30 884) (30 884) - (15 063) (15 063)
Net fair value 419 443 (14 558) 404 885 672 779 (8 565) 664 214
March 2015
Level 1 Level 2 Total
GROUP R000 R000 R000
ASSETS
Investments 384 800 - 384 800
Available-for-sale financial assets 51 539 - 51 539
Total 436 339 - 436 339
LIABILITIES
Derivative financial instruments - (12 919) (12 919)
Available-for-sale financial liabilities - (29 963) (29 963)
Total - (42 882) (42 882)
Net fair value 436 339 (42 882) 393 457
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
2015 2014 2015
Level 3 Level 3 Level 3
ASSETS R000 R000 R000
Investment properties 14 625 276 10 508 945 13 105 328
Investment properties held for sale 145 350 101 472 280 019
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 2015 were:
- The range of the reversionary capitalisation rates applied to the portfolio are between 7.7% and 18.2% (March 2015: between
8.2% and 17.0%) with the weighted average being 9.7% (March 2015: 9.8%).
- The discount rates applied range between 12.7% and 19.5% with the weighted average being approximately 14.3%
Changes in discount rates and hence the exit capitalisation rates attributable to changes in market conditions can have a
significant impact on property valuations:
- A 25 basis points increase in the discount rate, including the consequent impact on the exit capitalisation rate will decrease
the value of the investment property by R389 million (2.7%).
- A 25 basis points decrease in the discount rate, including the consequent impact on the exit capitalisation rate, will increase
the value of investment property by R411 million (2.8%).
In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated demand.
JSE Sponsor: Java Capital Trustees and Sponsors (Pty) Ltd, Sandton, Johannesburg
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, 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
25 November 2015
Date: 25/11/2015 07:55:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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