Wrap Text
Summarised audited consolidated financial results for the year ended 29 February 2016
The Pivotal Fund Limited
(“Pivotal” or “the group”)
(Incorporated in the Republic of South Africa)
JSE share code: PIV ISIN: ZAE000196440
Registration number: 2005/030215/06
Summarised audited consolidated financial results
for the year ended 29 February 2016
Highlights
NAVPS excluding deferred tax up 23.91% to R22.80
Development pipeline of 674 000m2
Construction commenced at Loftus Park phase 1, Kyalami Corner
Shopping Centre, Hill on Empire Office Park and Wonderboom Junction
Total assets up 33% to R13.8bn
Investments in international assets R1.2bn
Net rental income up 56.7% to R739.2m
Summarised consolidated statement of financial position
at 29 February 2016
Audited Audited
As at As at
Feb 2016 Feb 2015
R’000 R’000
Assets
Non-current assets 11 989 983 9 812 489
Investment property 8 771 992 7 992 125
Straight-line rental income accrual 397 305 318 287
Lease costs and incentives 54 501 39 285
Fair value of investment property 9 223 798 8 349 697
Investment property under construction 2 048 336 907 964
Interest in associate 1 368 1 472
Intangibles and goodwill 536 870 551 670
Plant and equipment 2 987 1 686
Investments 57 288 —
Interest rate swaps 119 336 —
Current assets 1 767 952 497 665
Trade and other receivables 113 388 197 540
Loans receivable 97 226 56 885
Cash and cash equivalents 382 480 243 240
593 094 497 665
Non-current assets held for sale 1 174 858 —
Total assets 13 757 935 10 310 154
Equity and liabilities
Capital and reserves 6 490 933 4 849 504
Stated capital 4 548 753 3 979 559
Share-based payment reserve 5 037 290
Foreign currency translation reserve 234 351 —
Reserves 1 702 792 869 655
Non-current liabilities 6 190 853 5 031 038
Interest-bearing liabilities 5 230 268 4 306 947
Interest rate swaps — 76 101
Deferred taxation 960 585 647 990
Current liabilities 1 076 149 429 612
Trade and other payables 192 548 236 930
Loans from shareholders — 1 306
Interest-bearing liabilities 883 601 191 376
Total equity and liabilities 13 757 935 10 310 154
Net asset value per ordinary share (R) 19.78 16.23
Net asset value per ordinary share,
excluding deferred taxation (R) 22.80 18.40
Summarised consolidated statement of comprehensive income
for the year ended 29 February 2016
Audited Audited
Year ended Year ended
Feb 2016 Feb 2015
R’000 R’000
Contractual rental income 777 804 460 357
Straight-line rental income accrual 85 743 88 308
Sundry income — 506
Revenue 863 547 549 171
Property expenses (124 347) (77 098)
Net property income 739 200 472 073
Other operating expenses (63 484) (29 788)
Operating profit 675 716 442 285
Other income 21 259 5 642
Amortisation of intangibles (14 800) (7 400)
Changes in fair value — other financial
libilities (49 784) —
Income from associates 216 296 9 229
Changes in fair values 680 027 434 683
— Investment properties 481 041 504 316
— Financial instruments 198 986 (69 633)
Income from operations 1 528 714 884 439
Finance charges (437 004) (268 748)
Finance and other investment income 54 021 5 136
Profit before taxation 1 145 731 620 827
Taxation (312 594) (121 523)
— Current — (199)
— Deferred (312 514) (121 324)
Profit after taxation 833 137 499 304
Other comprehensive income
Items that are or may be reclassified
to profit and loss:
Translation of foreign operations 234 351 —
Total comprehensive income 1 067 488 499 304
Earnings per share
Basic profit is reconciled to headline
earnings as follows
Profit after taxation 833 137 499 304
— Profit on disposal of associate — (5 642)
— Fair value adjustment on investment
property (481 041) (504 316)
— Deferred tax thereon 107 753 94 139
— Deferred tax as a result of rate
adjustment 89 105 —
— Fair value adjustment on associate
held properties (243 924) —
— Deferred tax thereon (10%) 24 392 —
Headline earnings 329 422 83 485
Number of shares in issue (adjusted for
treasury shares) 327 679 771 298 233 827
Weighted average number of shares in
issue 311 573 209 177 411 886
Basic earning per share (cents)* 267 281
Headline earnings per share (cents)* 106 47
* No dilutionary instruments in issue.
Summarised consolidated statement of cash flows
for the year ended 29 February 2016
Audited Audited
Year ended Year ended
Feb 2016 Feb 2015
R’000 R’000
Cash flows from operating activities
Cash generated from operations 603 796 435 301
Finance and other investment income 19 675 5 136
Finance charges (493 139) (267 277)
Taxation paid — (199)
Net cash generated from operating
activities 130 332 172 961
Net cash utilised in investing
activities (2 129 605) (1 984 776)
Net cash generated from financing
activities 2 138 513 1 991 884
Net increase in cash and cash
equivalents 139 240 180 069
Cash and cash equivalents at the
beginning of the year 243 240 63 171
Cash and cash equivalents at the end of
the year 382 480 243 240
Summarised consolidated statement of changes in equity
for the year ended 29 February 2016
Audited Audited
Year ended Year ended
Feb 2016 Feb 2015
R’000 R’000
Opening balance 4 849 504 1 157 139
Total comprehensive income for the year 1 067 488 499 304
Share-based payment expenses 4 747 290
Issue of ordinary shares and share
buyback 573 502 3 213 747
Share issue costs (3 263) (21 950)
Issue of preference shares 4 595 976
Cancellation of preference shares (5 640) —
Closing balance 6 490 933 4 849 504
Condensed segmental analysis
R’000 Retail Commercial Other Total
Year ended
29 February 2016
Revenue, excluding
straight-line rental
income accrual 357 229 409 672 10 903 777 804
Property expenses (76 643) (46 810) (894) (124 347)
Segment results 280 586 362 862 10 009 653 457
Fair value adjustment —
investment property 131 538 297 134 52 369 481 041
Investment properties 4 371 557 6 297 028 603 549 11 272 134
Year ended
28 February 2015
Revenue, excluding
straight-line rental
income accrual 268 789 187 501 4 067 460 357
Property expenses (52 079) (22 417) (2 602) (77 098)
Segment results 216 710 165 084 1 465 383 259
Fair value adjustment —
investment property 128 817 354 202 21 297 504 316
Investment properties 3 916 740 5 194 221 146 700 9 257 661
Commentary
1. Profile
Pivotal is a development-focused investment fund listed on the JSE
main board, focusing on delivering sustainable capital returns
through A-grade property developments and investments in South
Africa and other selected countries. Pivotal’s portfolio consists of
geographically well diversified assets across South Africa and a
growing investment base internationally. The property portfolio is
divided into completed income producing properties and developments
(including property under development and land held for future
development). Completed income producing properties consist of
well-located retail centres in established and expanding nodes
and A-grade office precinct developments, which are enhanced by
lifestyle elements such as piazzas, coffee shops and gyms.
Pivotal focuses on creating sustainable value for its investors
by achieving above average portfolio growth through its extensive
development pipeline, international investments and active
management of its existing portfolio. To ensure long-term
sustainability and high tenant retention, the A-grade nature of
the properties is maintained by continuous re-investment through
preventative maintenance, as well as with regular upgrades
and refurbishments.
As at 29 February 2016, Pivotal’s directly owned portfolio and
indirect property portfolio were valued at R11.3 billion and
R1.2 billion respectively. During the year under review,
Pivotal acquired properties and strategic land for development
to the value of R494 million. Pivotal also concluded the
purchase of its first asset in the rest of Africa being
a 37.1% share in the Oando Wings Office development,
currently under construction in Nigeria.
2. Performance
Pivotal’s net asset value per share, excluding deferred tax
(“NAVPS”), increased year-on-year by 23.91% to R22.80 at
29 February 2016 (28 February 2015: R18.40). The growth in
NAVPS was attributable to the revaluation of the income
producing properties, fair value adjustments on current
developments, an increase in net working capital generated
from operating activities, as well as positive fair value
adjustments on financial instruments and a gain on foreign
currency translation. This pleasing performance is in keeping
with Pivotal’s strategic objective of generating above average
total returns from its portfolio of investments.
Given the nature of its business, Pivotal uses NAVPS as its
key performance measure as it is considered a more relevant
performance measure than earnings or headline earnings
per share.
3. Property portfolio
Number of properties
Retail Office Industrial Africa Total
Income producing 11 24 3 0 38
Current development 2 6 0 1 9
Land and available
development bulk 2 12 2 0 16
Independent property portfolio value at 29 February 2016
R billion Retail Office Industrial Africa Total
Income producing 4.01 5.04 0.17 — 9.22
Current development 0.21 1.10 — 1.20 2.51
Land and available
development bulk 0.15 0.15 0.44 — 0.74
Total 4.37 6.29 0.61 1.20 12.47
4. Lease expiry profile by GRA
FY17 FY18 FY19 FY20 >FY20
Retail 11% 9% 19% 7% 54%
Office 15% 12% 11% 13% 49%
Industrial 100%
5. Vacancies
% of GRA vacant
Sector Feb 2016 Feb 2015
Retail 2.0 3.0
Office 2.2 1.0
Total 2.1 1.8
6. South African property transactions
The following transactions were concluded during the year:
6.1. Acquisition of a 45% undivided share in prime industrial
development land, S&J Industrial Estate for R312 million. The
property which has a total net usable land area of 1 600 919m2
is ideally located on the N3 highway at the Geldenhuys interchange.
6.2. Acquisition of a 55% undivided share in Atlantic Hills for
R98 million. The development is industrial-focused, situated
15km north of Cape Town on the N7.
7. Current and future developments
7.1. Alice Lane Building 3, currently under construction, is on
track to be completed in Q2 2017. Building 3 has a gross rentable
area of 35 000m2 of which 22 000m2 has been let to Bowman Gilfillan
on a 12-year lease. Bowman Gilfillan is one of South Africa’s
‘big five’ legal firms.
7.2. The first building of Westend Office Park in Centurion
measuring 3 677m2 was completed in May 2015 and is fully let.
The second building of 5 079m2 was completed in Q1 2016 and is
90% let. Westend Office Park is a 27 000m2 A-grade development
which provides excellent security and access. The development
is accessible from both the N1 and N14 freeways and is within
walking distance of the Centurion Gautrain station and Centurion
Mall. Pivotal holds a 25% undivided share in this development.
7.3. Strong tenant demand is being experienced at Hertford
Office Park, ideally located on the corner of Allandale and
Bekker Roads opposite the completed Mall of Africa development.
Building E measuring 4 236m2 is nearing completion with
construction of Buildings F (5 496m2) and G (7 446m2) having
commenced with completion dates of Q4 2016 and Q1 2017
respectively. Hertford Office Park comprises approximately
54 000m2 of gross rentable area, of which four buildings
totaling 12 000m2 have been completed and fully let. Pivotal
holds a 33.3% undivided share of this office park.
7.4. Construction commenced on the second building, measuring
4 435m2, at Monte Circle Office Park and is due to be completed
in Q3 2016. Monte Circle, located in Fourways, is a 52 000m2 A-grade
office park development and forms part of the Monte Casino precinct.
Monte Circle provides excellent security and is easily accessible
from the N1 freeway and other major transport routes. Pivotal
concluded an agreement for the acquisition of a further 5.86%
undivided share in the Monte Circle Office Park and a further 7.50%
undivided share in the Monte Place development, effective
1 September 2015.
7.5. Construction commenced at Kyalami Corner shopping centre, in
which Pivotal owns an 80% undivided share. The 27 914m2 retail
development is ideally located at the Main Road/R55 arterial
intersection and will offer upscale convenience shopping and
dining. The centre will be anchored by Woolworths, Checkers
and Virgin Active. The lower level will focus on convenience
retail and select restaurants, while the upper level is for
home and lifestyle-oriented tenants, including Virgin Active.
The centre is due to commence trading in Q2 2017.
7.6. The phased redevelopment of Wonderboom Junction has
commenced with an expected completion date in Q1 2018. The
redevelopment provides for both the upgrade of the existing
mall and an additional 28 000m2, resulting in a total gross
rentable area on completion of 60 000m2. The additional
floor-area will provide for an enhanced retail offering,
including a wider variety in the apparel category. The upgrade
includes enclosing the open mall, and creating a newly
refurbished restaurant and family area.
7.7. Construction commenced at Loftus Park, adjacent to
the iconic Loftus Versfeld rugby stadium, of phase 1
measuring 24 694m2. The development will be phased,
with a total GRA on completion of 54 000m2. The development
is mixed use and will ultimately include offices of 33 100m2,
a retail component of 9 800m2, a 150-key hotel and a Virgin
Active gym. Phase 1 is due to be completed in Q4 2017. Pivotal
owns a 50% undivided share.
7.8. Building A of Hill on Empire development in Parktown, in which
Pivotal owns a 50% undivided share, is due to be completed in Q2
2017. Building A comprises 14 822m2 of which in excess of 50% has
been let. A further 19 701m2,is available for development.
8. Interest in associate
During the year, Pivotal incorporated a wholly-owned Mauritian
entity, SB Wings Development Limited, which, in turn, acquired
37.1% of the issued share capital of Oando Wings Development
Limited, incorporated in Nigeria. The agreement became
unconditional on 15 July 2015 and the cost of the investment to
Pivotal was R613 million (“effective date”). SB Wings Development
Limited serves as the vehicle through which Pivotal holds its
interest in the Oando Wings development in Lagos, Nigeria. The
investment in Oando Wings Development Limited is equity accounted
in the group financial statements.
The functional currency of both the aforementioned entities is
US Dollar. At 29 February 2016, translation to the reporting
currency resulted in a gain on translation of foreign operations
in the amount of R234.4 million. The total income from associate
amounted to R250 million during the year ended 29 February 2016.
This included interest income of R34 million and fair value
adjustments, net of deferred tax, of R219.5 million.
On 17 November 2015 Pivotal entered into a conditional agreement with
Mara Delta Property Holdings Limited (previously Delta Africa) (“Mara
Delta”) to dispose of 100% of our investment in SB Wings, on
completion of the Oando Wings development which is expected to
be in August 2016. The consideration to be received by Pivotal
should the agreement become unconditional is USD72 million.
Due to the pending disposal, the investment is classified as
held for sale. The directors of the Group expect the fair value
less cost to sell of the interest in associates to be higher or
equal to the aggregate carrying amount of the related interest in
associates. Therefore, no fair value gain or loss was recognised
in the statement of profit and loss in accordance with IFRS 5.
9. Rest of Africa investments
Pivotal has entered into an agreement with Mara Delta to incorporate
its rest of Africa investments into Mara Delta and to invest up to
R300 million in the company. The transaction gives Pivotal access
to an experienced management team and has the benefit of
diversification of risk by way of a spread of quality income
producing investments. During the year Pivotal completed its first
investment into Mara Delta by way of a subscription for approximately
two million shares in Mara Delta at a cost of USD3.41 million.
10. Interest-bearing liabilities and interest rate swaps
Pivotal currently has borrowings of R5.8 billion which represents
gearing of 45.80% of the current property portfolio value. At
29 February 2016, the average cost of funding was 9.56% (28 February
2015: 9.36%) and interest rates have been fixed in respect of 84% of
borrowings for an average period of four years. Pivotal has consistently
applied its policy on fair value measurement in respect of derivatives
and there has been no change in valuation techniques, nor have there
been any transfers between level 1, level 2 and level 3 during the
period under review.
11. Net asset value per share
The table below details the net asset value calculation per share:
R’000 Feb 2016 Feb 2015
Total equity 6 490 933 4 849 504
Adjusted for:
— Equity of preference shareholders (9 523) (10 568)
Total equity (net asset value)
attributable to ordinary shareholders 6 481 410 4 838 936
Total number of ordinary shares in
issue (adjusted for treasury shares) 327 679 771 298 233 827
Net asset value per ordinary share (R) 19.78 16.23
Reconciliation of net asset value,
excluding deferred tax, per ordinary
share to total equity
Total equity (net asset value)
attributable to ordinary shareholders 6 481 410 4 838 936
Adjusted for:
– Total deferred tax liability
(including deferred tax liability 988 665 647 991
accounted for in equity accounted
investments)
Net asset value (excluding deferred
tax) attributable to ordinary
shareholders 7 470 075 5 486 927
Total number of ordinary shares in
issue (adjusted for treasury shares) 327 679 771 298 233 827
Net asset value per ordinary share,
excluding deferred tax (R) 22.80 18.40
12. Changes in fair value
The portfolio, including investment properties and properties under
development, was independently valued at 29 February 2016 which
resulted in an increase in the portfolio value of R481 million. It
is Pivotal’s policy to value properties under development (including
land) at cost until the fair value can be reliably measured, at
which point the cost, plus the present value of the development
margin is recognised on a percentage completion basis. The
recognition of fair value adjustments is in line with the
development spend “S-curve”, with a greater portion of
development margin being recognised closer to completion
of the development.
The group measures its investment property at fair value. The
investment property is disclosed as level 3 in terms of the
fair value hierarchy with valuation inputs which are not based
on observable market data (unobservable inputs).
Key unobservable inputs used in determining property
valuations are set out below:
Weighted average
12-month
forward Capitalisation Reversionary Discount
Sector Rate/m2 yield (%) rate (%) rate (%) rate (%)
Retail 17 257 7.9 7.7 8.4 13.3
Retail
convenience 16 547 8.1 8.2 9.0 13.5
Small
regional/
regional 17 558 7.8 7.6 8.2 13.2
Office and
industrial 23 660 8.1 7.8 8.5 13.4
Offices —
PTA/JHB 25 216 8.1 7.8 8.5 13.4
Offices —
CPT 25 642 8.1 7.1 7.8 13.5
Industrial 8 876 8.8 8.8 9.8 13.5
Total
portfolio 20 439 8.0 7.8 8.5 13.4
The property portfolio has been independently valued by Jones Lang
LaSalle Proprietary Limited and Broll Valuation and Advisory
Services Proprietary Limited, the Network Affiliate of CBRE Global.
13. Changes to the board
During the period, a valued member of the board, Angus Mackay, passed
away on 3 June 2015. Angus served as a member on the board since
August 2013. Marc Wainer resigned from the board with effect from
10 December 2015. Dave Savage changed from being an executive director
to a non-executive director with effect from 20 May 2016. Sakumzi
“Saki” Macozoma was appointed to the board as Independent Non-
executive Chairman with effect from 20 May 2016. Tom Wixley changed
from being independent non-executive chairman to independent non-
executive director with effect from 20 May 2016.
14. Post balance sheet transactions
14.1. Mara Delta
Subsequent to 29 February 2016 Pivotal subscribed for an additional
8.8 million Mara Delta shares at a cost of USD15 million. In addition,
the disposal of Buffalo Mall Naivasha by Pivotal to Mara Delta was
approved by Mara Delta shareholders and Pivotal’s consideration of
1.7 million Mara Delta shares at a price of USD2.9 million have been
issued. Pivotal now holds approximately 12.5 million Mara Delta shares,
representing a 12.9% shareholding in Mara Delta.
14.2. Poland
On 19 May 2016 Pivotal entered into a share sale agreement and a co-
investors agreement with Redefine Properties Limited which will
result in Pivotal acquiring approximately 6.06% of Echo Prime
Properties B.V. (“Echo”) for a consideration of €31.15 million. Echo
owns a €1.18 billion portfolio of prime shopping centres and offices
across Poland. The effective date of the transaction will be
31 May 2016.
14.3. Galleria
On 16 March 2016 Pivotal acquired and took transfer of a 20% undivided
share in the development property known as “Galleria” for a purchase
consideration of R100 million. Set in the heart of Rosebank, Galleria
will be a mixed use development of about 80 000m2 incorporating offices,
retail, a hotel, serviced apartments and residential apartments.
The directors are not aware of any other significant events that
occurred in the period between 29 February 2016 and the date of
this report that will have a material effect on the group’s results
or financial position as presented in the financial statements.
15. Prospects
The sluggish economic growth both in South Africa and internationally
coupled with high volatility in financial markets is anticipated to
continue. Pivotal’s risk mitigation by way of conservative borrowing
and interest rate hedging policies, quality income-producing assets
and development pipeline as well as an increasing international
investment exposure places Pivotal in a strong position to weather
the storm in these uncertain times.
Notwithstanding the challenging and uncertain economic environment in
which we operate, Pivotal strives to maintain an above-average growth
in NAVPS as a development-focused investment fund.
Pivotal remains focused on creating long-term value for its stakeholders,
through the successful completion of its existing developments and
the ongoing rollout of its development pipeline of 674 000m2 in prime
locations throughout South Africa.
Pivotal will continue to re-invest in its portfolio of properties to
ensure delivery of sustainable growth with focused attention being
placed on the key fundamentals.
These prospects have not been reviewed or reported on by Pivotal’s
independent external auditors.
16. Basis of preparation and accounting policies
The summarised audited consolidated financial results for the year ended
29 February 2016 have been prepared in accordance with International
Financial Reporting Standards (“IFRS”), the information required by
IAS34: Interim Financial Reporting, the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee, financial
reporting pronouncements as issued by the Financial Reporting Standards
Council, the requirements of the Companies Act of South Africa and the
JSE Listings Requirements. The accounting policies are consistent, in
all material respects, with those applied in prior years, and are
consistent with those applied in the previous annual financial
statements for the year ended 28 February 2015. The new standards
adopted during the year had no material impact on the group’s results.
Segmentation is based on the group’s internal organisation and
reporting to the entity’s chief operating decision makers (“EXCO”).
The reportable operating segments were identified based on the
different sectors in which the entity operates, being retail and
commercial. Other segments, including industrial assets and corporate
costs, were aggregated in accordance with the guidelines set out
in IFRS 8.
Segment results that are reported to EXCO include items directly
attributable to a segment, as well as those that can be allocated
on a reasonable basis.
17. Financial statements
The financial statements have been summarised from the audited
financial statements on which Grant Thornton has issued an
unqualified audit opinion and which are available for inspection
at the company’s registered office.
The directors are not aware of any matters or circumstances arising
subsequent to the year ended 29 February 2016 that require additional
disclosure or adjustment to the financial statements.
The auditor’s report does not necessarily cover all of the information
included in this announcement. The directors take full responsibility
for the preparation of the summarised audited consolidated financial
results for the year ended 29 February 2016 and for ensuring that
the financial information has been correctly extracted from the
underlying audited annual financial statements. These results
have been prepared under the supervision of the financial director,
Aaron Suckerman (ACCA UK).
By order of the board
The Pivotal Fund Limited
25 May 2016
Directors: S Macozoma*#, A Dixon*#, C Ewing*#, MSB Neser*, DS Savage*,
S Shaw-Taylor*, TS Sishuba*#, A Suckerman, JR van Niekerk, T Wixley*#.
* Non-executive #Independent
Registered office: Abcon House, Fairway Office Park, 52 Grosvenor
Road, Bryanston, 2021
Postal address: PO Box 67663, Bryanston, 2021
Telephone: 011 510 9999
Website: www.pivotalfund.co.za
VAT registration number: 431 022 9432
Tax reference number: 9395 691 158
Country of incorporation: Republic of South Africa
E-mail: admin@pivotalfund.co.za
Auditors: Grant Thornton South Africa
Commercial bankers: The Standard Bank of South Africa Limited Company
secretary: Juba Statutory Services Proprietary Limited Sponsor:
Java Capital
Transfer secretaries: Computershare Investor Services Proprietary
Limited
Property managers: Abreal Proprietary Limited
Date: 25/05/2016 07:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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