Wrap Text
Unaudited condensed consolidated interim results for the six months ended 29 February 2016
INGENUITY PROPERTY INVESTMENTS LIMITED
(Incorporated in the Republic of South Africa)
(Company registration number 2000/018084/06)
Share code: ING ISIN: ZAE000127411
("the company" or "the group" or "Ingenuity")
UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS
FOR THE SIX MONTHS ENDED 29 FEBRUARY 2016
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS AT 29 FEBRUARY 2016
Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
29 Feb 28 Feb 31 Aug
2016 2015 2015
R'000 R'000 R'000
ASSETS
Non-current assets 3 617 083 3 051 677 3 303 156
Investment properties 3 160 153 2 707 431 2 939 032
Straight-line lease accrual 110 978 86 104 102 616
Investment properties under development 318 127 251 705 247 086
Other financial assets 12 730 - -
Property and equipment 15 095 6 437 14 422
Current assets 149 658 45 984 134 162
Trade and other receivables 13 591 8 113 13 137
Straight-line lease accrual 6 858 9 227 4 570
Prepayments 1 056 - 87 646
Cash and cash equivalents 128 153 28 644 28 809
Total assets 3 766 741 3 097 661 3 437 318
EQUITY AND LIABILITIES
Shareholders' interest 1 308 968 1 102 699 1 236 359
Stated capital 747 610 705 655 705 655
Treasury shares (52 296) (52 296) (52 296)
Non-distributable reserve 458 920 307 118 412 603
Retained earnings 140 081 127 394 156 147
Total equity attributable to equity
holders of the parent 1 294 315 1 087 871 1 222 109
Non-controlling interest 14 653 14 828 14 250
Non-current liabilities 2 399 413 1 962 825 2 121 054
Borrowings 2 188 117 1 834 875 1 959 949
Finance lease 3 747 3 900 4 069
Deferred tax 207 549 124 050 157 036
Current liabilities 58 360 32 137 79 905
Trade and other payables 24 480 17 364 26 463
Current portion of borrowings 14 128 2 968 31 317
Prepaid rent received 11 386 651 12 882
Tax payable - - 308
Share-based payment 8 366 11 154 8 935
Total equity and liabilities 3 766 741 3 097 661 3 437 318
NOTES TO THE CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
Net asset value per share (based on shares
in issue at end of period/year net of
treasury shares) 112 98 110
CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 29 FEBRUARY 2016
Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
29 Feb 28 Feb 31 Aug
2016 2015 2015
R'000 R'000 R'000
Revenue 170 068 145 604 297 964
Contractual 159 418 131 359 271 864
Straight-lining 10 650 14 245 26 100
Net operating expenses (49 834) (44 240) (85 358)
Profit before fair value adjustments 120 234 101 364 212 606
Total fair value adjustment 74 935 64 798 192 890
Fair value gains on investment and
development properties 101 765 75 044 222 127
Fair value losses on investment and
development properties (26 830) (10 246) (29 237)
Profit before interest and taxation 195 169 166 162 405 496
Interest received 1 763 930 2 254
Interest paid (87 061) (66 840) (140 544)
Profit before taxation 109 871 100 252 267 206
Taxation (46 949) (24 101) (57 395)
Profit for the period/year 62 922 76 151 209 811
Attributable to:
Equity holders of the parent 62 519 73 790 208 028
Non-controlling interest 403 2 361 1 783
Profit for the period/year 62 922 76 151 209 811
Other comprehensive income:
To be reclassified subsequently
to profit or loss:
Cash flow hedges 12 730 - -
Income tax relating to components of other
comprehensive income (3 564) - -
Other comprehensive income for the
period/year net of tax 9 166 - -
Total comprehensive income for the
period/year 72 088 76 151 209 811
Total comprehensive income attributable to:
Equity holders of the parent 71 685 73 790 208 028
Non-controlling interest 403 2 361 1 783
72 088 76 151 209 811
Total shares in issue 1 255 995 859 1 211 469 543 1 211 469 543
Number of shares in issue net of
treasury shares 1 166 835 524 1 122 309 208 1 122 309 208
Weighted average number of shares 1 165 899 852 1 030 109 660 1 130 183 741
Basic and diluted earnings
per share (cents) 5.4 7.2 18.4
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 2.2 4.7
Workings
Headline earnings are calculated as follows:
Earnings attributable to equity holders 62 519 73 790 208 028
Fair value adjustment to investment
properties (74 935) (64 798) (192 890)
Deferred tax on fair value adjustment 17 829 13 735 37 604
Deferred tax on change in capital gains
tax rate 19 955 - -
Adjusted earnings for HEPS 25 368 22 727 52 742
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 29 FEBRUARY 2016
Non- Non-
distri- control-
Treasury butable Retained ling
Stated shares reserve earnings interest Total
capital R'000 R'000 R'000 R'000 R'000
Balance at
1 September 2014 705 655 (34 928) 257 317 132 393 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) - - - (17 368)
Transfer to non-
distributable reserve
fair value adjustments
to investment properties - - 49 801 (49 801) - -
Dividend paid –
2.5 cents per share - - - (28 988) - (28 988)
Balance at
28 February 2015 705 655 (52 296) 307 118 127 394 14 828 1 102 699
Total comprehensive
income for the period - - - 134 238 (578) 133 660
Profit for the period - - - 134 238 (578) 133 660
Transfer to non-
distributable reserve
fair value adjustments
to investment properties - - 105 485 (105 485) - -
Balance at
31 August 2015 705 655 (52 296) 412 603 156 147 14 250 1 236 359
Total comprehensive
income for the period - - 9 166 62 519 403 72 088
Profit for the period - - - 62 519 403 62 922
Other comprehensive
income - - 9 166 - - 9 166
Net change in fair value
of cash flow hedge
recognised directly in
other comprehensive income - - 9 166 - - 9 166
Issue of
44 526 316 shares 41 955 - - - - 41 955
Transfer from non-
distributable reserve
deferred tax on change
in capital gains tax rate - - (19 955) 19 955 - -
Transfer to non-
distributable reserve
fair value adjustments
to investment properties - - 57 106 (57 106) - -
Dividend paid –
3.5 cents per share - - - (41 434) - (41 434)
Balance at
29 February 2016 747 610 (52 296) 458 920 140 081 14 653 1 308 968
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED 29 FEBRUARY 2016
Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
29 Feb 28 Feb 31 Aug
2016 2015 2015
R'000 R'000 R'000
Cash flows from operating activities
Cash generated from operations 108 403 86 710 199 234
Interest received 1 763 930 2 254
Interest paid (86 406) (66 959) (135 967)
Taxation (paid)/received (308) 1 265 1 265
Dividends paid (41 434) (28 988) (28 988)
Net cash (outflow)/inflow from
operating activities (17 982) (7 042) 37 798
Cash flows from investing activities
Additions to property and equipment (918) (26) (8 133)
Acquisitions/additions to
investment properties (92 448) (166 922) (216 321)
Acquisitions/additions to
investment properties under development (35 530) (68 288) (116 543)
Interest capitalised to investment
properties and investment properties
under development (4 668) (2 871) (6 710)
Prepayments for investment property
acquired after year-end (1 056) - (87 646)
Net cash outflow from investing activities (134 620) (238 107) (435 353)
Cash flows from financing activities
Finance lease payments (129) (126) (254)
Proceeds from the issue of shares 41 955 - -
Financial liabilities raised 272 076 256 650 473 114
Financial liabilities repaid (61 956) - (63 765)
Treasury shares purchased - (17 367) (17 367)
Net cash inflow from financing activities 251 946 239 157 391 728
Net increase/(decrease) in cash and
cash equivalents 99 344 (5 992) (5 827)
Cash and cash equivalents at beginning
of the period/year 28 809 34 636 34 636
Cash and cash equivalents at end of
the period/year 128 153 28 644 28 809
SEGMENTAL REPORT
Unaudited 6 months ended
29 February 2016 Offices Retail Special Parking Light
Industrial
Additions to non-current
assets 123 903 33 456 374 1 376 4 705
Total assets 1 937 087 659 205 171 268 408 367 72 653
Revenue 94 704 32 442 7 446 18 511 3 493
Profit/loss before fair
value adjustment 68 850 22 963 6 393 14 362 2 794
Fair value adjustment 25 448 7 417 2 763 11 301 1 874
Profit/loss before interest
and taxation 94 298 30 380 9 156 25 663 4 668
Interest received - - - - -
Interest paid - - - - -
Profit/loss before taxation 94 298 30 380 9 156 25 663 4 668
Unaudited 6 months ended
28 February 2015
Offices Retail Special Parking Light
Industrial
Additions to non-current
assets 166 989 (31 390) 353 35 187 4 203
Total assets 1 763 459 529 769 161 789 337 360 4 418
Revenue 82 011 26 653 6 912 14 234 166
Profit/loss before fair
value adjustment 59 519 19 096 5 955 10 534 142
Fair value adjustment 42 146 (9 873) 5 454 27 229 215
Profit/loss before interest
and taxation 101 665 9 223 11 409 37 763 357
Interest received - - - - -
Interest paid - - - - -
Profit/loss before taxation 101 665 9 223 11 409 37 763 357
Audited year ended
31 August 2015 Offices Retail Special Parking Light
Industrial
Additions to non-current
assets 124 092 39 177 778 66 453 8 254
Total assets 1 787 736 618 332 168 131 395 690 66 074
Revenue 163 653 57 125 14 073 30 714 5 521
Profit/loss before fair
value adjustment 119 553 40 270 12 095 23 464 4 607
Fair value adjustment 109 320 8 123 11 371 54 293 7 783
Profit/loss before interest
and taxation 228 873 48 393 23 466 77 757 12 390
Interest received - - - - -
Interest paid - - - - -
Profit/loss before taxation 228 873 48 393 23 466 77 757 12 390
Unaudited 6 months ended
29 February 2016 Straight-
Other Unsegmental lining Total
Additions to non-current assets 18 915 71 759 - 254 488
Total assets 29 409 488 752 - 3 766 741
Revenue 1 386 1 436 10 650 170 068
Profit/loss before fair value adjustment 969 (6 747) 10 650 120 234
Fair value adjustment 240 25 892 - 74 935
Profit/loss before interest and taxation 1 209 19 145 10 650 195 169
Interest received - 1 763 - 1 763
Interest paid - (87 061) - (87 061)
Profit/loss before taxation 1 209 (66 153) 10 650 109 871
Unaudited 6 months ended
28 February 2015 Straight-
Other Unsegmental lining Total
Additions to non-current assets 8 299 54 530 - 238 171
Total assets 7 926 292 940 - 3 097 661
Revenue 229 1 154 14 245 145 604
Profit/loss before fair value adjustment 185 (8 312) 14 245 101 364
Fair value adjustment (373) - - 64 798
Profit/loss before interest and taxation (188) (8 312) 14 245 166 162
Interest received - 930 - 930
Interest paid - (66 840) - (66 840)
Profit/loss before taxation (188) (74 222) 14 245 100 252
Audited year ended
31 August 2015 Straight-
Other Unsegmental lining Total
Additions to non-current assets 58 291 65 045 - 362 090
Total assets 10 254 391 101 - 3 437 318
Revenue 778 - 26 100 297 964
Profit/loss before fair value adjustment 633 (14 116) 26 100 212 606
Fair value adjustment 2 000 - - 192 890
Profit/loss before interest and taxation 2 633 (14 116) 26 100 405 496
Interest received - 2 254 - 2 254
Interest paid - (140 544) - (140 544)
Profit/loss before taxation 2 633 (152 406) 26 100 267 206
NOTES TO THE FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 29 FEBRUARY 2016
BASIS OF PREPARATION
The unaudited condensed consolidated interim financial results ("the financial
statements") have been prepared in accordance with and containing the information
required by IAS 34: Interim Financial Reporting and have been prepared in
accordance with the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, the JSE Listings Requirements and in the manner required by
the Companies Act of South Africa (as amended).
The accounting policies and methods of computation applied in the preparation
of the financial statements are in accordance with IFRS and are consistent
with those applied in the audited annual financial statements for the year ended
31 August 2015.
There were no new and amended standards and interpretations of IFRS which were
effective for the first time and applicable to Ingenuity's results for the period
ended 29 February 2016.
The financial statements were prepared under the supervision of Mr M Wagenheim
CA (SA) in his capacity as group financial director and have not been audited
or reviewed by the group's independent external auditors.
The directors are not aware of any matters or circumstances arising subsequent
to 29 February 2016 that require any additional disclosure or adjustment to the
financial statements, other than as disclosed in the financial statements.
DIRECTORS' COMMENTARY
GENERAL REVIEW
Ingenuity continued to perform well during the period under review.
The total property portfolio value now amounts to R3.6 billion, comprising:
- 33 investment properties with a value of R3.3 billion
- Three land/development properties which comprise the Strand Street
precinct development, "The Modern" project and the Tyger Valley project
with a combined value of R212.9 million
- The Aurecon West development in Century City which reached practical
completion in February 2016, and was transferred to investment property
in March 2016 upon works completion, with a value of R105.2 million.
The building has been awarded a 5-star Green Building rating. The total
development cost was R98.7 million providing an initial yield of 8.4% with
a seven-year lease escalating at 8% per annum
Subsequent to the reporting date, the total value of the portfolio increases
to R4.2 billion with the acquisition of the "Great Westerford" property.
The company has managed to grow its asset base significantly through strategic
acquisitions and successful development initiatives. Despite tough market
conditions we have been able to acquire quality growth opportunities through
sound and prudent business principals. The asset base has significant value-add
opportunities that will deliver superior returns in the years to come.
NET PROPERTY INCOME
Gross revenue increased by 17% for the half-year 2016 compared to the half-year
2015 as a result of rental escalations, the letting of vacant areas, rentals
earned on recently acquired investments and completed development properties.
The ratio of property expenses to gross contractual revenue of 26.9% for the
half-year 2016 (2015: 27.5%) is due to maintenance and other expenses being well
controlled.
FAIR VALUE ADJUSTMENTS
Valuations of all the investment properties were performed by either the
directors (30 properties, out of which 11 were valued by an independent external
valuer at 31 August 2015) or an independent external valuer (7 properties), and
resulted in a net upward adjustment of R74.9 million. Conservative valuation
assumptions have been applied taking account of deteriorating market conditions.
The valuations are based on either the discounted cash flow method or the
capitalisation of net income method or a combination of these methods which is
consistent with the basis used in prior years.
FINANCE CHARGES
Finance charges increased by 30% to R87.1 million from R66.8 million in the
comparative half-year 2015, due to the growth of the portfolio through
development, investment properties acquired and increases in interest rates.
The weighted average rate of interest on borrowings was 9.1% compared to 7.9% for
the comparative half-year 2015 due to increases in the prime lending rates and
the fixing of interest rates on a portion of the borrowings.
ACQUISITIONS
During the period under review, the company took transfer of the following
investment properties:
- "Claremont Central", situated on the corner of Vineyard and Main Roads,
Claremont, purchased at a cost of R85 million; transfer was registered on
2 September 2015
- "Toffee Lane", situated at 18 Toffee Lane, Claremont, purchased at a cost of
R20 million, transfer was registered on 9 September 2015
- "State House", situated in Rose Street, Cape Town CBD, purchased at a cost of
R35 million, transfer was registered on 17 September 2015
- "Ramsay Media Building", situated in Howard Drive, Pinelands, purchased at
a cost of R25.5 million, transfer was registered on 6 October 2015
The directors have assessed the above acquisitions as constituting an acquisition
of an investment property in terms of IAS 40: Investment Property, and the
acquisitions have been accounted for in terms of that standard.
During December 2015, the company entered into an agreement to acquire an iconic
investment property known as "Great Westerford" comprising office space with a
GLA of 30 488 m2, situated in Main Road, Rondebosch in Cape Town, at a cost of
R650 million. The purchase price was settled through a combination of debt and
cash resources. Transfer of this property was registered on 25 April 2016.
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 2.8% on a portfolio of
174 564 m2. For the 2015 comparative figures, the vacancy ratio was 1.9% on a
portfolio of 155 010 m2. This ratio has increased due to certain properties being
earmarked to be redeveloped (0.5%) in the short term and due to vacancies not
being filled and leases not being renewed on expiry (2.3%). Excluding the
development-related vacancies, the operating vacancy of 2.3% is considered to be
well below market norms and is attributable to proactive management and the
quality of the core investment asset base. The lease expiry profile of the
portfolio at the reporting date comprised 63% rentals expiring beyond February
2019, representing 59% of the GLA.
OTHER FINANCIAL ASSETS
Other financial assets comprise interest-rate swaps which qualify for hedge
accounting, and the group has thus classified them as cash flow hedges stated at
fair value based on broker quotes. The group entered into two five-year interest
rate swaps with notional amounts totalling R500 million at an average all-in rate
of 9.84%. The interest rate swap contracts mature on 2 November 2020. These
contracts are classified as level 2 financial assets and measured using a
discounted cash flow valuation technique which utilises risk-free interest rate
inputs, observable for the assets either directly (as prices) or indirectly
(derived from prices).
SHARE CAPITAL
During the period 44 526 316 shares were issued at 95 cents per share in terms
of a vendor placement to fund the acquisition of an investment property.
BORROWINGS
At the reporting date, total borrowings amounted to R2.2 billion
(2015: R1.8 billion) with a loan to value ratio of 58% (2015: 59%), which is the
measure of dividing interest-bearing debt net of cash holdings by the fair value
of all property assets. 23% of borrowings are fixed at an average all-in rate of
9.84% with the balance at floating rates averaging 8.91%. 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.
At 29 February 2016 the current portion of borrowings comprises interest payable
and capital on loans due to be repaid within 12 months. At 31 August 2015 the
current portion of borrowings comprised interest payable and two loans which
matured and were renewed during the current period for a further two years.
These two loans are now classified as non-current.
OPERATIONS
Net property income, which comprises gross rental income less direct property
expenses, has increased by 22% to R116.5 million (2015: R95.3 million) due to
properties acquired or developments completed and rental escalations from
existing leases. Property expenses and non-property overhead expenses were within
budget and are well controlled.
Headline earnings per share ("HEPS") is 2.2 cents (2015: 2.2 cents) and earnings
per share ("EPS") is 5.4 cents (2015: 7.2 cents) – the decrease in EPS is due to
the increase in the capital gains tax inclusion rate which increased from 66.6%
to 80%, as announced by the Minister of Finance in his budget introduced in the
National Assembly in February 2016. HEPS remains flat due to the development
nature of the company, prudent use of higher debt and increases in the costs
of funding.
The total cash on hand amounted to R128.1 million compared to R28.6 million at
The end of the comparative half-year period. R100 million of this is earmarked
to fund a portion of the "Great Westerford" transaction. 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 14.3% to 112 cents from 98 cents in the comparative period.
PROSPECTS
Ingenuity remains a focused Western Cape property development company and value
creator. Our strategy remains to build a quality investment portfolio whilst
maximising the rate of return on our properties and allowing flexibility to
realise value when appropriate. Significant inroads have been made with our
development pipeline over the last 12 months and we are confident that we will
reap the benefits of our efforts over the next few years.
SUBSEQUENT EVENTS
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
29 April 2016
Cape Town
DIRECTORS
R Squire-Howe*+ (Chairman), AA Maresky (CEO), M Wagenheim (Financial),
J Bielich, AJ Branch*+ (British), LH Cohen*, DB Fabian*+, RS Schur*+, J Solms
*Non-executive + Independent
REGISTERED OFFICE AND POSTAL ADDRESS
Suite 102, Intaba, 25 Protea Road, Claremont
Cape Town, 7708
COMPANY SECRETARY
M Wagenheim
TRANSFER SECRETARY
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Tel: 011 370 5000
SPONSOR
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
AUDITORS
Mazars
BANKERS
Absa Bank Limited, Nedbank Limited and The Standard Bank of South Africa Limited
CONTACT DETAILS
Tel: 021 674 5170; Fax: 021 674 5135
Email: info@ingenuityproperty.com
www.ingenuityproperty.com
Date: 29/04/2016 03:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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