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NEWPARK REIT LIMITED - Provisional summarised audited consolidated financial statements for the 12 months ended 29 February 2016

Release Date: 31/05/2016 16:45
Code(s): NRL     PDF:  
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Provisional summarised audited consolidated financial statements for the 12 months ended 29 February 2016

NEWPARK REIT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2015/436550/06)
JSE share code: NRL  ISIN: ZAE000212783
(Approved as a REIT by JSE)
(“Newpark” or “the Company” or “the group”)



PROVISIONAL SUMMARISED AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE 12 MONTH PERIOD ENDED 29 FEBRUARY 2016

DIRECTORS REPORT

Nature of Business

Newpark is a property holding and investment company that is currently invested in A-grade commercial properties
situated in the heart of Sandton.

Newpark listed on the Alternative Exchange of the JSE on 3 February 2016. Following the successful private placing of
10 000 000 ordinary shares at R6.25 per share, the number of shares in issue after the R62.5 million capital raising
increased to 100 000 001.

Newpark’s property portfolio consists of two buildings located in the heart of Sandton, Gauteng, namely the JSE which
           2                                                                                                2
has 18,162m of gross lettable area (“GLA”) and an adjoining building known as 24 Central, which has 15,089m GLA. The
combined independent valuations of these properties as at 29 February 2016 was R1,065 million.

Change in Auditors

The group changed auditors from Grant Thornton to PricewaterhouseCoopers Inc. effective 3 March 2016.

PricewaterhouseCoopers Inc. will continue in office as auditors in accordance with section 90 of the Companies Act 71 of
2008, subject to approval of the shareholders at the upcoming annual general meeting.

Results

In accordance with the Pre-Listing Statement (“PLS”), the board of directors of Newpark (“the Board”) has not declared a
dividend for the 1 month period ended 29 February 2016.

Strategy

Newpark’s investment strategy is to seek well positioned prime commercial properties which provide quality cash flows
with the potential of upward rating on lease renewals and/or redevelopment opportunities within the medium to long-
term (5 to 20 years).

Acquisitions and Developments

Apart from the acquisition of the entire issued share capital of Newpark Towers Proprietary Limited (“Newpark Towers”),
Newpark made no further acquisitions and no developments took place during the period under review.

Vacancies and Arrears

There were no vacancies in the property portfolio as at 29 February 2016. No bad debts were incurred nor is it considered
necessary to provide for any potential bad debts.

Funding

During the period Newpark Towers accepted a facility from Rand Merchant Bank of R271 million of which R270 million
has been drawn down, and repaid both the Standard Bank loan of R198 million and shareholders loans of R47 million.

                                                            Amount                          Margin
Facility drawn down                                         R’millions                      over Jibar
Expiry August 2020                                          270                             1.65%

                                                            Amount
Interest rate applicable                                    R’millions                      Rate
Interest rate swap                                          135                             8.52%
Interest rate cap                                           135                             10.17%
Both the swap and cap expire in January 2019

The RMB facility is secured by a first mortgage bond over fixed property with a carrying value of R982 308 223 and
currently attracts a floating rate of three-month JIBAR plus 1.65%. The RMB facility is repayable in August 2020. Newpark
secured an interest rate swap and interest rate cap on this facility on 18 January 2016. The interest rate cap has the effect
that 50% of the interest on the RMB facility is capped at a rate of 10.17%. In addition, the interest rate swap secured with
RMB has the effect that in respect of the remaining 50% of the interest on the RMB facility, the floating portion of the
current rate is swapped for a fixed rate of 8.52%, before the RMB margin of 1.65%. The interest rate swap and cap expire
on 18 January 2019 and interest is payable quarterly.

Percentage of debt hedged

The all-in weighted average cost of funding is 9.42% and the average hedge-term is 2.9 years. It is the board’s policy to
hedge at least 70% of the exposure to interest rate risk.

Summary of financial performance
                                                                                  29 February 2016
Shares in issue                                                                   100,000,001
Net asset value per share                                                         R7.91
Loan-to-value ratio *                                                             22.3%
Gross property operating expense ratio                                            34.9%

*The loan-to-value ratio is calculated by dividing interest bearing borrowing net of cash on hand by the total of
investment property.

CAPITAL REORGANISATION – NEWPARK TOWERS ACQUISITION

On 3 February 2016 Newpark acquired 100% of the share capital of Newpark Towers. This did not result in a substantive
economic change and merely resulted in a change in the structure of the group.

Newpark Towers’ assets and liabilities are ultimately controlled by the same parties both before and after the transaction.
IFRS 3 specifically states that a combination of entities or businesses under common control is excluded from the scope of
IFRS 3. There is currently no guidance in IFRS on the accounting treatment for combinations among entities under
common control. In developing a policy for capital reorganisation transactions, Newpark considered the guidance issued
by other standard setting bodies which use a similar conceptual framework to develop accounting standards.

Newpark has elected to use the predecessor accounting method, which is based on equivalent US GAAP and UK GAAP
guidance for common control transactions. Predecessor accounting does not require the acquirer to restate assets and
liabilities to their fair values. The acquirer, i.e. Newpark incorporated the predecessor carrying values. No goodwill arises
in applying the predecessor accounting method.

In accordance with the predecessor method, any difference between the consideration given and the aggregate book
value of the assets and liabilities (as of the date of the transaction) is recognised in a separate reserve within equity called
the capital reorganisation reserve.

Outlook

The Board is confident that Newpark will deliver on its PLS forecasts of a distribution of 49.47 cents per share for the year
ended 28 February 2017. The forecast is based on the assumption that a stable macro-economic environment will prevail
and operating cost increases will not be above inflation. This forecast has not been audited or reviewed by the Company’s
auditors.
By order of the board.

Simon Fifield                                             Ron Hill
Managing Director                                         Financial Director

Johannesburg
31 May 2016

SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                                                 Audited           Audited
                                                             29 February       28 February
                                                                    2016              2015
                                                                                  Restated
                                                                  (R’000)           (R’000)

Assets
Non-current assets
Investment properties                                            982 308           739 591
Straight-line lease asset                                         44 823            23 726
Deferred tax                                                          55                 -
Derivative financial instruments                                     699                 -
Lease incentive                                                   22 496            17 124
                                                               1 050 381           780 441

Current Assets
Trade and other receivables                                        6 157             6 718
Straight-line lease asset                                         12 727            16 912
Current tax receivable                                                 -               865
Lease incentive                                                    2 647             2 647
Cash and cash equivalent                                          32 217             1 231
Total Current Assets                                              53 748            28 373
Total Assets                                                   1 104 129           808 814

Equity and Liabilities
Equity
Share capital                                                    620 006                 1
Reserves                                                         180 412                 -
Retained (loss)/income                                            (9 759)          452 918
                                                                 790 659           452 919
Liabilities
Non-Current Liabilities
Bank borrowings                                                  270 000           198 290
Deferred tax                                                      14 640           100 029
                                                                 284 640           298 319
Current liabilities
Loans from shareholders                                                -            47 400
Trade and other payables                                          28 830            10 175
                                                                  28 830            57 575
Total Liabilities                                                313 470           355 894
Total Equity and Liabilities                                   1 104 129           808 813

SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                                                            Audited                   Audited
                                                                    12 months ended           14 months ended
                                                                        29 February               28 February
                                                                               2016                      2015
                                                                                                     Restated
                                                                             (R’000)                  (R’000)

Revenue                                                                      95 185                    91 001
Property operating expenses                                                 (33 206)                 (29 822)
Other income                                                                    100                         -
Administrative expenses                                                      (6 000)                     (93)
Operating profit                                                             56 079                    61 086
Finance income                                                                1 161                       300
Fair value adjustments                                                      242 524                   (42 854)
Finance costs                                                               (22 191)                  (22 950)
Profit / (loss) before taxation                                             277 573                    (4 418)
Taxation                                                                     85 537                    (2 667)
Profit / (loss) for the period                                              363 110                    (7 085)
Other comprehensive income                                                       -                          -
Total comprehensive income / (loss) for the period                          363 110                    (7 085)

Earnings per share (cents)
Per share information
Basic earnings per share*                                                    400.17                     (7.87)
Diluted earnings per share*                                                  400.17                     (7.87)

* Subsequent to the publication of the trading statement on 25 May 2016, the Board, in consultation with the Company’s
auditors, have revised the calculation of the weighted average number of shares in issue to more appropriately reflect the
substance of the Newpark Towers acquisition, resulting in the consolidation of Newpark Towers for the full financial
period ended 29 February 2016. The trading statement utilised the weighted average number of shares in issue
calculated as the total number of shares in issue as at 29 February 2016, weighted for a period of one month (being the
date of listing to 29 February 2016), resulting in 7 397 260 shares being used in the EPS calculation. Whereas, the revised
weighted average number of shares contained herein has been calculated as 90 000 001 shares (being the underlying
shares attributable to the pre-existing Newpark Towers shareholders) weighted for the full financial year, plus the
additional 10 000 000 shares issued on listing, weighted to 29 February 2016, resulting in 90 739 727 shares being used in
the EPS calculation (2015: 90 000 001 shares).

RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS

                                                                    12 months ended          14 Months ended
                                                                        29 February              28 February
                                                                               2016                     2015
                                                                                                    Restated
                                                                            (R’000)                   (R’000)
Earnings                                                                    363,110                   (7,085)
Less:    Change in fair value of property net of tax                      (331,603)                   34,862

Headline Earnings                                                            31,507                   27,777

Less: Current year lease straight lining net of tax                        (12,177)                  (20,804)
      Derivative financial instrument fair value adjustment                   (503)                        -
      net of tax
Add: Lease incentive charge                                                   2,647                    2,715

Distributable Income (cents)                                                 21,474                    9,689
Headline earnings per ordinary share*                                         34.72                    30.86
Distributable income per share                                                21.47                    10.77

Newpark has no dilutionary instruments in issue.

SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                          Audited                Audited
                                                                  12 months ended        14 months ended
                                                                      29 February            28 February
                                                                             2016                   2015
                                                                                                Restated
                                                                           (R’000)                (R’000)

Net cash from operating activities                                         28 151                (7 180)
Net cash from investing activities                                         (1 162)                 (334)
Cash flows from financing activities
Proceeds on share issue                                                     62 500                     -
Repayment of shareholder loans                                             (47 400)                     -
Dividends paid                                                             (82 813)                     -
Bank borrowings advanced                                                   270 000                 5 887
Bank borrowings repaid                                                    (198 290)                     -
Net cash from financing activities                                           3 997                 5 887
Total cash and cash equivalent movement for the year                        30 986                (1 627)
Cash and cash equivalent at the beginning of the year                        1 231                 2 858
Total cash and cash equivalent at the end of the year                       32 217                 1 231

SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                       Share         Share       Total           Capital        Retained       Total
                                      capital   issue costs     share     reorganisation   (loss)/income      equity
                                                               capital          reserve
                                     (R’000)       (R’000)    (R’000)            (R’000)         (R’000)     (R’000)

Balance at 1 March 2015
restated                                   1              -         1                  -        452 918     452 919
Profit for the period                      -              -         -                  -        363 110     363 110
Other comprehensive income                 -              -         -                  -              -           -
Total comprehensive income
for the period                             -             -           -                 -         363 110     363 110
Issue of shares                     625 000        (4 994)    620 006                  -               -     620 006
Capital reorganisation                   (1)             -         (1)           180 412       (180 474)         (63)
Dividends                                  -             -           -                 -       (645 313)   (645 313)
Total contributions by and
distributions to owners of
company recognised directly
in equity                           624 999        (4 994)    620 005            180 412       (825 787)    (25 370)
Balance at 29 February 2016         625 000        (4 994)    620 005            180 412         (9 759)    790 659


 SECTORAL SPLIT                                                                GLA         Gross Rentals
 Based on:
 Retail                                                                     15.03%               15.76%
 Office                                                                     84.97%               84.24%

 LEASE EXPIRY PROFILE (unaudited)
 Based on:                                                                     GLA         Gross Rentals
 Vacant
 Feb 2016                                                                    0.00%                0.07%
 Feb 2017                                                                    8.44%                3.45%
 Feb 2018                                                                   13.98%               10.69%
 Feb 2019                                                                   13.00%               10.02%
 Feb 2020                                                                    6.99%                6.14%
 > Feb 2020                                                                 57.59%               69.63%
                                                                              100%                 100%
SEGMENTAL ANALYSIS

Segmental information
The appointed Chief Operating Decision Maker within the group is the Group Executive Committee (“EXCO”). This is
because it is EXCO's responsibility to meet on a frequent basis to review budgets and to assess the operating performance
of its operating segments. The information provided to EXCO summarises financial data and information by property. At
29 February 2016, the group is organised into two main operating segments:
      - 24 Central
      - JSE

                                                          24 Central                JSE               Total
                                                             (R’000)             (R’000)             (R’000)
2016
Revenue                                                      58 160              37 025              95 185
Property operating expenses                                 (21 896)            (11 320)            (33 206)
Fair value adjustments                                      123 481             119 043             242 524
                                                            159 745             144 758             302 503

2015
Revenue                                                      66 769              24 232             91 001
Property operating expenses                                 (29 822)                  -            (29 822)
Fair value adjustments                                       (3 724)            (39 130)            (42 854)
                                                              33 223            (14 898)             18 325

NOTES
PREPARATION, ACCOUNTING POLICIES AND AUDIT OPINION

The provisional summarised audited consolidated financial statements have been prepared in accordance with the
requirements of the JSE Listings Requirements and the requirements of the Companies Act of South Africa applicable to
summary financial statements. The JSE Listings Requirements require reports to be prepared in accordance with the
framework concepts and the measurement and recognition requirements of International Financial Reporting Standards
(“IFRS”), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council, and to also, as a minimum, contain the
information required by IAS 34, Interim Financial Reporting. The accounting policies applied in the preparation of the
audited consolidated financial statements, from which the provisional summarised audited consolidated financial
statements were derived, are in terms of IFRS.

The provisional summarised consolidated financial statements were compiled under the supervision of Ron Hill, the
financial director.

The directors are not aware of any matters or circumstances arising subsequent to the year-end that require any
additional disclosure or adjustment to the financial statements.

This provisional summarised report is extracted from audited information, but is not itself audited. The annual financial
statements were audited by PricewaterhouseCoopers Inc., who expressed an unmodified opinion thereon. The audited
annual financial statements and the auditor’s report thereon are available for inspection at the company’s registered
office.

The directors take full responsibility for the preparation of this provisional summarised report and for ensuring that the
financial information has been correctly extracted from the underlying audited annual financial statements.

SIGNIFICANT FINANCIAL STATEMENT NOTES

Investment properties

The valuation of investment properties was determined principally using discounted cash flow projections, based on
estimates of future cash flows, supported by the terms of any existing lease contracts and by external evidence such as
current market rentals for similar properties in the same location and condition, and using discount rates that reflects
current market assessments, of the uncertainty in the amount and timing of the cash flows. The future rental rates were
estimated depending on the actual location, type and quality of the properties and taking into account market data and
projections at the valuation date, as well as the expiry of existing lease agreement.
Related parties

Relationships
Subsidiary                                                   Newpark Towers Proprietary Limited

Former shareholders of subsidiary                            B Van Wyk
                                                             Ellerine Bros Proprietary Limited
                                                             Ellwain Investments Proprietary Limited
                                                             FHP Manager Proprietary Limited
                                                             Renlia Developments Proprietary Limited

                                                            GROUP              GROUP              COMPANY
                                                        29 February      28 February          29 February
                                                               2016             2015                 2016
                                                             (R’000)          (R’000)              (R’000)
Related party balances
Loan accounts owing to related parties
Barry Daniel Van Wyk                                              -            1 100                   -
Ellerine Bros Proprietary Limited                                 -           17 237                   -
Ellwain Investments Proprietary Limited                           -           17 237                   -
Renlia Developments Proprietary Limited                           -           11 826                   -
                                                                  -           47 400                   -

Interest paid to related parties
Barry Daniel Van Wyk                                             35               -                    -
Ellerine Bros Proprietary Limited                               548               -                    -
Ellwain Investments Proprietary Limited                         548               -                    -
Renlia Developments Proprietary Limited                         376               -                    -
Newpark Towers Proprietary Limited                                -               -                   41
                                                              1 057               -                   41

PRIOR PERIOD ERRORS

The up-front payment of the lease incentive was expensed in full upon payment in order to extinguish the related liability
at the due date being August 2015. No adjustment was processed in order to straight-line the up-front payment of the
lease incentive over the remaining term of the lease. The correction of the errors results in adjustments as follows:

                                                                         28 February                1 January
                                                                                2015                     2014
                                                                              (R’000)                  (R’000)
Statement of financial position
Current assets
Increase in lease                                                              19 771                   5 812

Equity
Increase in opening retained income                                            (5 812)
Increase in retained income                                                                            (5 812)

Non-current liabilities
Increase in deferred tax                                                       (3 804)

Statement of profit or loss and other comprehensive
income
Increase in revenue                                                          (13 959)
Increase in taxation                                                            3 804

The straight-line lease asset and the lease incentive receivable were not taken into account in determining the fair value
of investment property. The correction of the errors results in adjustments as follows:

                                                                            28 February                 1 January
                                                                                   2015                      2014
                                                                                 (R’000)                   (R’000)
Statement of financial position
Current assets
Decrease in investment properties                                               (61 077)                  (18 224)

Equity
Decrease in opening retained income                                               14 825
Decrease in retained income                                                                                14 825

Non-current liabilities
Decrease in deferred tax                                                          11 390                    3 398

Statement of profit or loss and other comprehensive
income
Decrease in fair value adjustment                                                 42 854
Decrease in taxation                                                              (7 991)


DIRECTORS
G D Harlow (Chairman) **, S P Fifield (Chief Executive Officer), R R Hill (Financial Director), B D van Wyk *, D T Ellerine*, K
M Ellerine*, H C Turner **, D I Sevel **

* Non-executive director
** Independent non-executive director

REGISTERED OFFICE
51 West Street, Houghton, Gauteng, 2198

P O Box 3178, Houghton, Gauteng, 2041

WEBSITE
www.newpark.co.za

COMPANY SECRETARY
CIS Company Secretaries Proprietary Limited

TRANSFER SECRETARY
Computershare Investor Services Proprietary Limited

SPONSOR
Java Capital

Date: 31/05/2016 04:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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