Wrap Text
Reviewed financial results for the year ended 30 June 2016 and dividend distribution declaration
Emira Property Fund Limited
(Incorporated in the Republic of South Africa)
Registration number: 2014/130842/06
Share code: EMI ISIN: ZAE000203063
(“Emira” or “the Fund” or “the Company”)
(Approved as a REIT by the JSE)
Reviewed financial results for the year ended 30 June 2016
and dividend distribution declaration
Highlights
Growth in distributions +8,8%
Final dividend per share 75,76c
Total FY 2016 distributions per share 146,10c
Distributable income R745,9m
Fixed debt 93,1%
Commentary
The Emira Board of Directors is pleased to announce that a final
dividend of 75,76 cents per share has been declared for the six
months to 30 June 2016. This brings the full year distribution
per share to 146,10 cents which is a year-on-year increase of
8,8% and in line with the guidance provided after the six month
period to 31 December 2015.
Vacancies and tenant renewals
Vacancies have increased marginally from 4,0% at 30 June 2015 to 5,3% at
year-end. Emira’s vacancy levels at a sector level are either in-line
with or better than SAPOA’s national benchmarks. Specifically, Emira’s
office sector vacancies are in-line with SAPOA national levels of 10,5%,
retail sector vacancies at 2,8% are well below the national average
of 5,3% and industrial vacancies of 2,4% are also lower than the national
average of 4,0%. Emira continues to manage its vacancies through a
combination of tenant retention and letting strategies and in some
instances the potential sale of properties.
A total of 75% by GLA (or 77% by revenue) of expiring tenants were
renewed and retained during the 12 months to 30 June 2016.
Vacancy profile by sector (% of GLA)
June 2016 June 2015 June 2014
Office 10,5% 7,8% 8,8%
Retail 2,8% 2,8% 2,7%
Industrial 2,4% 1,4% 1,0%
Major leases concluded
The largest new leases concluded for the 12 months ending 30 June 2016
were at Gateway Landing in Pretoria (3 842m2), Universal Industrial Park
in Durban (3 089m2) and Technohub in Midrand (2 753m2). The largest
renewals were Defy at the Defy Appliances building in Denver (10 100m2),
Mitek in Midrand (6 604m2), Salga at Menlyn Corporate Park in Menlyn
(5 939m2), Spoor and Fisher at Highgrove Office Park in Centurion
(5 814m2 - short term until September 2016) and Evapco in Isando (5 715m2).
Acquisitions
During the year Emira completed four acquisitions at a total cost of
R244,4m and a blended yield of 7,9%. The acquisitions include:
(i) a 50% undivided share in Mitchells Plain Town Centre in the Western
Cape for a purchase price of R77,6m at an initial yield of 9,3%;
(ii) the remaining 40% of Ben Fleur Boulevard, a convenience centre
located in Emalahleni, for R59,2m plus R4,0m for extra bulk, at an
initial yield of 8,8% or blended yield of 8,2%;
(iii) 1 West Street, a greenfield site of 4,2 hectares with 24 577m2 of
bulk commercial rights located opposite the Gautrain Station in
the new Centurion CBD for R17,2m; and
(iv) a 50% undivided share in five buildings comprising Summit Place,
the P-grade Commercial development in Menlyn, Pretoria, for a total
amount of R403,5m upon final completion, at an average yield of
8,1%. Summit Place A and Summit Place C, the two completed office
buildings in the Summit Place development, transferred in
December 2015 at a cost of R86,4m. The balance of Summit Place,
which comprises office and retail space, is being developed by
Emira and its partners with an expected final completion date
in January 2017. By 30 June 2016, R195,7m had been paid for the
land and development costs for Summit Place D, Summit Place E
and Summit Place G1.
Disposals
The strategy to dispose of non-core buildings continued during the year
under review. The following three properties, totalling R284,5m, were
sold and transferred out of Emira during the 12 months to 30 June 2016:
Brandwag Shopping Centre and Kosmos Woonstelle; 1289 Heuwel Avenue;
and 284 Oak Avenue. These three properties were sold at a combined
forward yield of 6,5% and a combined 49,0% premium to book value.
At 30 June 2016, the Fund had committed to selling a further 18 properties
valued at R835,0m, which have been classified as held for sale.
Emira will continue to rebalance its portfolio, through strategic disposals,
to reduce its office exposure and additional initiatives are planned
to further rebalance the sectorial exposures into other, more defensive
sectors.
Refurbishments and extensions
Projects to modernise, extend and redevelop six buildings are currently
underway totalling approximately R759,9m, the most significant of which
are the redevelopment of Knightsbridge Manor Office Park (“Knightsbridge”)
in Bryanston and Kramerville Corner in Kramerville.
The redevelopment of the prime-located Knightsbridge commenced in November
2015 and the development will offer 29 419m2 of prime P-grade office space
on final completion. The R813,8m project is being undertaken in three phases,
with the first phase set to be complete in November 2017 at a cost of R339m
with 47% pre-let to WSP|Parsons Brinckerhoff. The new office park will
attain a minimum 4-Star Green Star SA rating from the Green Building
Council South Africa.
The major upgrade and refurbishment of Kramerville Corner is nearing completion.
As a result of letting demand, the scope of the project was extended and it
is expected to be completed by the end of September 2016 at a total cost of
R85,5m with a first year yield of 9,5%.
The number of projects underway reflects the Fund’s strategy to continually
upgrade and maintain the portfolio and extract value from existing bulk.
Gearing
Emira has diversified its sources of funding and now has banking facilities
in place with all of the major South African banks. In addition, Emira
continues to successfully access funding via the debt capital markets at
competitive rates despite fears of liquidity tightening.
Total debt as at 30 June 2016 was R4,9bn with a weighted average duration
to expiry of 1,7 years. The average duration of the debt has decreased
slightly as a result of the passage of time, however active steps are
underway to extend long dated term debt, which is expiring over the next
12 months. The debt expiry profile has been managed to ensure that the
amount of debt expiring in any one period is manageable. At 30 June 2016,
the Fund had R722,0m of undrawn, backup facilities which further reduces
debt refinance risk.
Funding activities during the first six months of the financial year under
review included:
All-in
Amount rate
Date (Rm) (%)
19-Aug-15 Repayment of 4-year domestic medium term notes 500 7,53
19-Aug-15 Issue of 3-year domestic medium term notes 430 8,09
19-Aug-15 Issue of 5-year domestic medium term notes 70 8,28
24-Aug-15 Repayment of 6-month commercial paper 175 7,15
24-Aug-15 Issue of 6-month commercial paper 42 7,38
24-Aug-15 Issue of 12-month commercial paper 158 7,78
01-Sep-15 Extension of RMB 7th term loan to 3 years 500 8,23
01-Sep-15 Extension of RMB 8th term loan to 4 years 385 8,33
11-Sep-15 Drawdown of 2-year ABSA facility 165 7,90
05-Nov-15 Repayment of 12-month commercial paper 250 7,25
05-Nov-15 Issue of 3-month commercial paper 10 7,03
05-Nov-15 Issue of 6-month commercial paper 70 7,48
05-Nov-15 Issue of 12-month commercial paper 170 7,76
Funding activities during the second six months of the financial year
under review included:
All-in
Amount rate
Date (Rm) (%)
04-Feb-16 Repayment of 3-month commercial paper 10 6,77
04-Feb-16 Issue of 6-month commercial paper 42 7,99
22-Feb-16 Issue of 6-month commercial paper 30 8,13
23-Feb-16 Repayment of 12-month commercial paper 137 7,68
23-Feb-16 Repayment of 6-month commercial paper 42 7,24
23-Feb-16 Issue of 12-month commercial paper 179 8,18
04-May-16 Repayment of 6-month commercial paper 70 7,83
04-May-16 Issue of 6-month commercial paper 70 8,17
24-Jun-16 Drawdown of 12-month Investec facility 15 8,25
During the six months to 30 June 2016 the Fund concluded a R155m two-year
secured facility with the Bank of China, a R200m two-year secured facility
with Nedbank and a 12-month unsecured facility of R200m with Investec.
These additional facilities together with a new R300m four-year secured
facility concluded with Standard Bank post 30 June 2016, remain largely
undrawn and provide the Fund with sufficient liquidity to take advantage
of opportunities as they arise.
Fixed interest rate hedges totalled R4,6bn at 30 June 2016, equating to
93,1% of the Fund’s total debt balance. The hedging percentage is expected
to be maintained at or around this level with further interest rate hedges
to be acquired as new debt is drawn down on the Knightsbridge and Summit
Place development projects.
In June 2016, Emira entered into a further AUD58,0m of cross-currency
interest-rate swaps at a weighted average fixed rate of 2,1% for an
average duration of 2,9 years, increasing its effective Australian
dollar (“AUD”) denominated debt to 97,7% of its investment in Growthpoint
Australia Limited (“GOZ”). The extent of the exposure to AUD debt will
be managed accordingly as the rand versus AUD exchange rate changes.
Growthpoint Australia Limited
As at 30 June 2016, GOZ’s unit price was AUD3,15 resulting in Emira’s
investment of 27 225 813 units, comprising 4,9% of the total units in
issue, being valued at R940,4m compared with the initial cost price
of R372,0m.
As outlined above, Emira has entered into cross-currency interest-rate
swaps pursuant to which it is liable for AUD interest at a weighted
average fixed rate of 2,1% and receives rand interest at the 3-month
JIBAR rate. Emira plans to maintain its holding in GOZ and continue
its active cross-currency interest-rate swap programme to provide
international exposure and diversification, while maximising income
from its holding.
Results
The recent acquisitions and the contractual escalations on the bulk of
the portfolio, together with the good leasing progress and stringent
cost control, resulted in the Fund achieving an increase in distributable
income during the year.
Excluding the straight-lining adjustments in respect of future rental
escalations, revenue rose year-on-year by 5,6%. This was positively
impacted by acquisitions and organic growth from the existing portfolio
as well as increased recoveries of municipal expenses, offset by disposals
and rent reversions.
Rental income includes an accrual of R18,1m in relation to Worley Parsons
with whom the Fund is in dispute regarding their premature vacation of
their leased premises at Emira’s Corobay Corner building in Menlyn,
Pretoria. This accrual represents the contractual rental due for the
12 months to 30 June 2016, less rentals achieved on subletting portions
of the area previously occupied by Worley Parsons.
Property expenses were well contained with the gross cost-to-income
ratio unchanged at 34,4% (June 2015: 34,4%).
Administration expenses, which include staff costs and property management
fees, increased by 7,4% to R88,5m (June 2015: R82,4m).
As previously disclosed, from 1 July 2015 lease commission costs are no
longer expensed in full in the year in which they are incurred for
distribution calculation purposes, but are rather spread over the life
of the lease. This resulted in the distribution for the year ended
30 June 2016 being R20,0m higher (3,92 cents per share) than it would
have been had this change not taken place.
Income from the Fund’s listed investment in GOZ increased by 22,5% due
to an increase in the distribution per unit received, the lower dividend
withholding tax and the depreciation of the rand against the AUD.
Finance costs increased by 1,4% as a result of higher interest rates
and the utilisation of additional debt facilities to fund new developments,
refurbishments and acquisitions, and was partially offset by lower funding
rates achieved on cross-currency interest-rate swaps.
Net asset value (“NAV”) decreased by 0,9% year-on-year, from 1 751 cents
per share to 1 735 cents per share mainly due to a reduction in the value
of the property portfolio as a result of increased capitalisation and
discount rates.
Distribution statement
Year ended Year ended
30 Jun 30 Jun %
R'000 2016 2015 Change
Operating lease rental income and
tenant recoveries excluding straight-
lining of leases 1 780 516 1 686 670 5,6
Net property expenses (613 027) (580 756) 5,6
Property expenses excluding amortised
upfront lease costs (633 052) (580 756) 9,0
Amortised lease commissions 20 025 - 100,0
Net property income 1 167 489 1 105 914 5,6
Income from listed property
investment 58 045 47 388 22,5
Administration expenses (88 472) (82 379) 7,4
Depreciation (233) (217) 7,4
Net finance costs (390 915) (385 190) 1,5
Finance income 10 474 10 833 (3,3)
Finance costs (401 389) (396 023) 1,4
Interest paid and amortised borrowing
costs (411 767) (401,133) 2,7
Interest capitalised to the cost of
developments 10 378 5 110 103,1
Dividend payable to shareholders 745 914 685 516 8,8
Number of shares in issue 510 550 084 510 550 084 -
Dividend per share (cents) 146,10 134,27 8,8
Disposals
Properties transferred out of Emira during the 12 months to
30 June 2016
Property Sector Location GLA (m2)
Brandwag Shopping Centre and Kosmos Retail Bloemfontein
Woonstelle CBD 12 328
1289 Heuwel Avenue Retail Centurion 2 049
284 Oak Avenue Office Randburg 3 787
18 164
Book Sale Exit
value price yield Effective
(Rm) (Rm) (%) date
Property
Brandwag Shopping Centre
and Kosmos Woonstelle 159,0 250,0 6,5 Sep 2015
1289 Heuwel Avenue 10,0 11,5 4,7 Mar 2016
284 Oak Avenue 22,0 23,0 7,7 Jun 2016
191,0 284,5 6,5
Vacancies
Number of GLA Vacancy
buildings Jun 2015 Jun 2015
Jun 2015 (m2) (m2) %
Office 62 395 492 30 968 7,8
Retail 37 408 275 11 237 2,8
Industrial 46 373 292 5 284 1,4
Total 145 1 177 059 47 489 4,0
Number of GLA Vacancy
buildings Jun 2016 Jun 2016
Jun 2016 (m2) (m2) %
Office 61 404 081 42 225 10,5
Retail 38 415 242 11 581 2,8
Industrial 45 366 666 8 910 2,4
Total 144 1 185 989 62 716 5,3
Valuations
Total portfolio movement
Jun 2015
Sector (R’000) R/m2
Office 5 660 604 14 313
Retail 5 139 666 12 589
Industrial 1 940 823 5 199
12 741 093
Jun 2016 R/m2
Sector (R’000)
Office 5 713 237 14 139
Retail 5 370 812 12 934
Industrial 1 880 830 5 130
12 964 879
Difference Difference
Sector (%) (R’000)
Office 0,9 52 633
Retail 4,5 231 146
Industrial (3,1) (59 993)
1,8 223 786
Debt
Emira has a moderate level of gearing with interest-bearing debt to total
property assets of 35,4% as at 30 June 2016. The Fund has fixed 93,1% of
its debt for periods of between 0,4 and 8,4 years, with a weighted average
duration of 3,0 years.
Weighted Weighted
average average Amount % of
rate % term (Rm) debt
Debt – Swap 7,9 3,0 years 4 637,1 93,1
Debt – Floating 8,8 344,8 6,9
Total 8,0 4 981,9 100,0
Less: Costs capitalised not yet
amortised (3,7)
Per statement of financial position 4 978,2
Worley Parsons update
As previously advised, Emira is currently in dispute with Worley Parsons,
a major tenant at Corobay Corner in Menlyn, Pretoria, regarding its lease
obligations contracted for until February 2022. Worley Parsons vacated the
premises on 31 May 2015. Settlement proposals were rejected by both
parties and the case moved to arbitration. The matter was due to be heard
in May 2016, however Worley Parsons submitted an amendment to its defence,
which necessitated a postponement. The case is now expected to be heard
at the end of November 2016. Emira remains confident of its legal position.
The contractual income due by Worley Parsons for the current period, less
sublease rental income received, has been accounted for in the 12 months
to 30 June 2016. All portfolio statistics mentioned in this commentary are
calculated as if Worley Parsons had remained in occupation at Corobay
Corner in accordance with the terms and conditions of its existing lease.
Company secretary
As previously announced, Martin Harris retired as company secretary of the
Company with effect from 1 July 2016 and Meredith Leyds was appointed as
his replacement.
Corporate action
As announced on SENS on 28 July 2016, the Board of Directors of Emira
unanimously rejected the non-binding expression of interest received
from Arrowhead Properties Limited (“Arrowhead”) to acquire all or the
majority of the issued share capital of Emira in a ratio of 1,67
Arrowhead shares for each Emira share. The Emira Board concluded that
the proposal was not in the best interests of shareholders.
Prospects
Macro-economic conditions remain challenging with South African GDP growth
expected to be stagnant for the remainder of 2016. The continued economic
pressure on tenants, together with the over-supply of commercial office
space, is expected to negatively impact rentals.
As announced on SENS on 20 June 2016 the Fund forecasts a negative
growth in its distributions per share of 2% for the year to 30 June 2017.
The forecast negative growth is primarily as a result of increased
vacancies in the Fund’s office portfolio together with expected negative
rental reversions.
The Emira Board has embarked on a strategy to improve the Fund’s
sectorial allocations, by reducing its office exposure, to ensure that
the portfolio is better positioned for future periods.
Emira’s Board is conscious of the Fund’s share price performance over
the last 12 months and the divergence between the Fund’s equity value
on the stock exchange compared to its book value. Immediately prior
to 30 June 2016 Emira commenced an on-market share buy-back strategy
reflecting its confidence in its prospects relative to the share price.
This and other strategies will continuously be evaluated in the
forthcoming period.
This forecast has not been reviewed and reported on by the Company’s
external auditors.
Dividend distribution declaration
The Board has approved and notice is hereby given that a gross final
dividend of 75,76 cents per share has been declared (2015: 69,62 cents),
payable to the registered shareholders of Emira Property Fund Limited on
12 September 2016. The issued share capital at the declaration date is
510 550 084 listed ordinary shares. The source of the dividend comprises
net income from property rentals, income earned from the Company’s listed
property investment and interest earned on cash on deposit. Please refer
to the condensed consolidated statement of comprehensive income for
further details.
Tax implications
In accordance with Emira’s status as a REIT, shareholders are advised
that the dividend meets the requirements of a “qualifying distribution”
for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962
(“Income Tax Act”). Accordingly, qualifying distributions received by
local tax residents must be included in the gross income of such
shareholders (as a non-exempt dividend in terms of section 10(1)(k)(aa)
of the Income Tax Act), with the effect that the qualifying distribution
is taxable as income in the hands of the shareholder. These qualifying
distributions are, however, exempt from dividend withholding tax in
the hands of South African tax resident shareholders, provided that
the South African resident shareholders have provided the following
forms to their Central Securities Depository Participant (“CSDP”) or
broker, as the case may be, in respect of uncertificated shares, or
the transfer secretaries, in respect of certificated shares:
a) a declaration that the dividend is exempt from dividends tax; and
b) a written undertaking to inform the CSDP, broker or the transfer
secretaries, 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 transfer secretaries, as the case may be, to
arrange for the abovementioned documents to be submitted prior to
payment of the dividend, if such documents have not already been
submitted.
Qualifying dividends received by non-resident 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 dividend withholding tax. From 1 January 2014, any qualifying
distribution received by a non-resident from a REIT will be subject
to dividend 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 dividend withholding tax will be withheld at a rate of 15%,
the net amount due to non-resident shareholders will be 64,3960 cents
per share. A reduced dividend withholding tax rate in terms of the
applicable DTA, may only be relied on if the non-resident shareholder
has provided the following forms to their CSDP or broker, as the case
may be, in respect of the uncertificated shares, or the transfer
secretaries, in respect of certificated shares:
a) a declaration that the dividend is subject to a reduced rate as a
result of the application of a DTA; and
b) a written undertaking to inform their CSDP, broker or the transfer
secretaries, 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 shareholders are
advised to contact their CSDP, broker or the transfer secretaries,
as the case may be, to arrange for the abovementioned documents to
be submitted prior to payment of the dividend if such documents have
not already been submitted, if applicable.
Local tax resident shareholders as well as non-resident shareholders are
encouraged to consult their professional advisors should they be in any
doubt as to the appropriate action to take.
Last day to trade cum dividend Tuesday, 6 September 2016
Shares trade ex dividend Wednesday, 7 September 2016
Record date Friday, 9 September 2016
Payment date Monday, 12 September 2016
Share certificates may not be dematerialised or rematerialised between
Wednesday, 7 September 2016 and Friday, 9 September 2016, both days
inclusive.
By order of the Emira Property Fund Limited Board
Meredith Leyds
Company Secretary
Ben van der Ross Geoff Jennett
Chairman Chief Executive Officer
Bryanston
17 August 2016
Reviewed condensed consolidated financial statements
Basis of preparation and accounting policies
These condensed consolidated preliminary financial statements have
been prepared in accordance with International Financial Reporting
Standards (“IFRS”) including IAS 34: Interim Financial Reporting,
the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee, Financial Pronouncements as issued by the
Financial Reporting Standards Council, the JSE Listings Requirements
and the requirements of the Companies Act of South Africa. The accounting
policies used in the preparation of these financial statements are
consistent with those used in the audited annual financial statements
for the year ended 30 June 2015.
This report was compiled under the supervision of Greg Booyens CA (SA),
the Chief Financial Officer of Emira.
These condensed consolidated preliminary financial statements for
the year ended 30 June 2016 have been reviewed by PricewaterhouseCoopers
Inc., who have expressed an unmodified review conclusion. A copy of the
auditor’s review report is available for inspection at Emira’s registered
office together with the financial statements identified in the auditor’s
report. The distribution statement was not reviewed.
Condensed consolidated statement of financial position
at 30 June 2016
Reviewed Audited
30 Jun 30 Jun
R'000 2016 2015
Assets
Non-current assets 13 085 752 13 274 255
Investment properties 11 752 399 12 035 656
Fixtures and fittings 67 302 55 288
Allowance for future rental escalations 292 077 286 762
Unamortised upfront lease costs 18 101 44 387
Fair value of investment properties 12 129 879 12 422 093
Listed property investment 940 364 796 930
Accounts receivable and prepayments - 39 177
Derivative financial instruments 15 509 16 055
Current assets 373 709 247 809
Accounts receivable and prepayments 301 312 181 726
Derivative financial instruments 16 848 12 872
Cash and cash equivalents 55 549 53 211
Investment properties held for sale 835 000 319 000
Total assets 14 294 461 13 841 064
Equity and liabilities
Share capital and reserves 8 857 648 8 940 015
Non-current liabilities 3 969 252 3 463 985
Interest-bearing debt 3 944 172 3 448 396
Derivative financial instruments 25 080 15 589
Current liabilities 1 467 561 1 437 064
Short-term portion of interest-bearing debt 1 034 000 1 061 965
Accounts payable 396 250 362 070
Derivative financial instruments 37 311 11 252
Taxation - 1 777
Total equity and liabilities 14 294 461 13 841 064
Net asset value per share (cents) 1 734,9 1 751,3
Condensed consolidated statement of comprehensive income
Reviewed Audited
year ended year ended
30 Jun 30 Jun
R'000 2016 2015
Revenue 1 796 951 1 811 968
Operating lease rental income and tenant recoveries 1 780 516 1 686 670
Allowance for future rental escalations 16 435 125 298
Income from listed property investment 58 045 47 388
Property expenses (637 805) (581 752)
Fee paid on cancellation of interest-rate swap
agreements - (36 641)
Administration expenses (84 612) (86 341)
Depreciation (14 840) (9 324)
Operating profit 1 117 739 1 145 298
Net fair value adjustments (83 347) 1 113 841
Net fair value (loss)/gain on revaluation of
investment properties (201 028) 983 226
Change in fair value as a result of straight-lining
lease rentals (16 435) (125 298)
Change in fair value as a result of amortising
upfront lease costs 24 778 996
Change in fair value as a result of property
(depreciation)/appreciation in value (209 371) 1 107 528
Revaluation of share appreciation rights scheme
derivative financial instrument (25 753) 6 350
Impairment charge - (6 673)
Unrealised gain on fair valuation of listed
property investment 143 434 130 938
Profit before finance costs 1 034 392 2 259 139
Net finance costs (394 306) (351 137)
Finance income 10 896 10 833
Interest received 10 896 10 833
Finance costs (405 202) (361 970)
Interest paid (401 389) (396 023)
Unrealised (deficit)/surplus on interest-rate swaps (3 813) 34 053
Profit before income tax charge 640 086 1 908 002
Income tax charge (6) (1 777)
SA normal taxation (6) (1 777)
Profit for the year 640 080 1 906 225
Attributable to Emira shareholders 640 080 1 910 187
Attributable to minority interests - (3 962)
640 080 1 906 225
Total comprehensive income
Attributable to Emira shareholders 640 080 1 910 187
Attributable to minority interests - (3 962)
640 080 1 906 225
Reconciliation between earnings and headline earnings and distribution
Reviewed Audited
year ended year ended
30 Jun 30 Jun
R'000 2016 2015
Profit for the year 640 080 1 906 225
Adjusted for:
Net fair value loss/(gain) on revaluation of
investment properties 201 028 (983 226)
Headline earnings 841 108 922 999
Adjusted for:
Allowance for future rental escalations (16 435) (125 298)
Amortised upfront lease costs 24 778 996
Unrealised surplus on revaluation of
interest-rate swaps 3 813 (34 053)
Revaluation of share appreciation rights
scheme derivative financial instrument 25 753 (6 350)
Unrealised gain on listed property investment (143 434) (130 938)
(Credit)/charge in respect of leave pay
provision and share appreciation rights
scheme (4 238) 3 962
Depreciation 14 563 9 107
Impairment charge - 6 673
Fee paid on cancellation of interest-rate
swap agreements - 36 641
SA normal taxation 6 1 777
Distribution payable to shareholders 745 914 685 516
Dividend per share
Interim (cents) 70,34 64,65
Final (cents) 75,76 69,62
Total (cents) 146,10 134,27
Number of shares in issue at the end
of the year 510 550 084 510 550 084
Weighted average number of shares in issue 510 550 084 508 199 272
Earnings per share (cents) 125,37 375,09
The calculation of earnings per share is
based on net profit for the year of
R640,1 million (2015: R1 907,2 million),
divided by the weighted average number of
shares in issue during the year of 510 550 084
(2015: 508 199 272).
Headline earnings per share (cents) 164,75 181,62
The calculation of headline earnings per share
is based on net profit for the year, adjusted
for headline items, of R841,1 million (2015:
R923,0 million), divided by the weighted average
number of shares in issue during the year of
510 550 084 (2015: 508 199 272).
Diluted headline earnings per share (cents) 164,75 181,62
Condensed consolidated statement of changes in equity
Revaluation
and other
R'000 Shares reserves
Balance at 30 June 2014 (as restated) 3 435 434 3 573 200
Participatory interests issued 360 075 -
Total comprehensive income/(loss) for the year - -
Distribution to participatory interest holders -
September 2014 - -
Distribution to participatory interest holders -
March 2015 - -
Transfer to fair value reserve - 1 235 555
Balance at 30 June 2015 3 795 509 4 808 755
REIT restructure costs (7 881) -
Acquisition of non-controlling interest in STREM - -
Total comprehensive income/(loss) for the year - -
Transfer to fair value reserve - (95 503)
Dividend paid - September 2015 - -
Dividend paid - March 2016 - -
Balance at 30 June 2016 3 787 628 4 713 252
Non-
Retained controlling
R'000 earnings interest Total
Balance at 30 June 2014 (as
restated) 305 506 (1 300) 7 312 840
Participatory interests issued - - 360 075
Total comprehensive income/(loss)
for the year 1 910 187 (3 962) 1 906 225
Distribution to participatory
interest holders - September 2014 (309 055) - (309 055)
Distribution to participatory
interest holders - March 2015 (330 070) - (330 070)
Transfer to fair value reserve (1 235 555) - -
Balance at 30 June 2015 341 013 (5 262) 8 940 015
REIT restructure costs - - (7 881)
Acquisition of non-controlling
interest in STREM (5 262) 5 262 -
Total comprehensive income/(loss)
for the year 640 080 - 640 080
Transfer to fair value reserve 95 503 - -
Dividend paid - September 2015 (355 445) - (355 445)
Dividend paid - March 2016 (359 121) - (359 121)
Balance at 30 June 2016 356 768 - 8 857 648
Condensed consolidated statement of cash flows
Reviewed Audited
year ended year ended
30 Jun 30 Jun
R'000 2016 2015
Cash generated from operations 1 095 408 1 037 433
Finance income 10 896 10 833
Interest paid (411 767) (401 133)
Derivative acquired in respect of share
appreciation rights scheme - (3 636)
Fee paid on cancellation of interest-rate swaps - (36 641)
Dividends paid to shareholders (714 566) (639 126)
Cash flows from operating activities (20 029) (32 270)
Acquisition of, and additions to, investment
properties (695 282) (350 926)
Acquisition of, and additions to, fixtures and
fittings (26 781) (17 681)
Proceeds on sale of investment properties and
fixtures and fittings 284 500 326 732
Acquisition of subsidiaries, net of cash acquired - (448 279)
Cash flows from investing activities (437 563) (490 154)
REIT restructure costs (7 881) 360 075
Interest-bearing debt raised 2 620 327 2 512 808
Interest-bearing debt repaid (2 152 516) (2 342 551)
Cash flows from financing activities 459 930 530 332
Net increase in cash and cash equivalents 2 338 7 908
Cash and cash equivalents at the beginning
of the year 53 211 45 303
Cash and cash equivalents at the end of the year 55 549 53 211
Segmental information
Office Retail Industrial
Sectoral segments R'000 R'000 R'000
Revenue 746 978 781 292 268 681
Revenue 770 255 742 686 267 575
Allowance for future rental
escalations (23 277) 38 606 1 106
Segmental information
Operating profit 443 441 483 808 173 784
Investment properties 5 713 237 5 370 812 1 880 830
Geographical segments
Revenue
- Gauteng 539 883 526 333 181 568
- Western and Eastern Cape 114 938 87 319 48 500
- KwaZulu-Natal 59 277 123 985 38 613
- Free State 32 880 43 655 -
746 978 781 292 268 681
Investment properties
- Gauteng 4 223 137 3 875 762 1 263 250
- Western and Eastern Cape 921 600 590 450 369 150
- KwaZulu-Natal 402 800 691 600 248 430
- Free State 165 700 213 000 -
5 713 237 5 370 812 1 880 830
Administrative
and Corporate Total
Sectoral segments R'000 R'000
Revenue - 1 796 951
Revenue - 1 780 516
Allowance for future rental escalations - 16 435
Segmental information
Operating profit 16 706* 1 117 739
Investment properties - 12 964 879
Geographical segments
Revenue
- Gauteng - 1 247 784
- Western and Eastern Cape - 250 757
- KwaZulu-Natal - 221 875
- Free State - 76 535
- 1 796 951
Investment properties
- Gauteng - 9 362 149
- Western and Eastern Cape - 1 881 200
- KwaZulu-Natal - 1 342 830
- Free State - 378 700
- 12 964 879
* Includes income from listed property investment of R58,0 million less
general Fund expenses of R41,3 million.
Measurements of fair value
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:
Level 1 Level 2 Level 3 Total
R'000 2016 2016 2016 2016
Group
Assets
Investments 940 364 - - 940 364
Derivative financial instruments - 28 049 4 308 32 357
Total 940 364 28 049 4 308 972 721
Liabilities
Derivative financial instruments - 62 391 - 62 391
Total - 62 391 - 62 391
Net fair value 940 364 (34 342) 4 308 910 330
Level 1 Level 2 Level 3 Total
R'000 2015 2015 2015 2015
Group
Assets
Investments 796 930 - - 796 930
Derivative financial instruments - 14 401 14 526 28 927
Total 796 930 14 401 14 526 825 857
Liabilities
Derivative financial instruments - 26 841 - 26 841
Total - 26 841 - 26 841
Net fair value 796 930 (12 440) 14 526 799 016
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 a listed property company at fair value
which is determined by reference to quoted closing prices at the
reporting date.
Derivative financial instruments
The fair values of the interest-rate swap contracts are determined
using discounted cash flow projections based on estimates of future
cash flows, supported by the terms of the relevant swap agreements and
external evidence such as the ZAR 0-coupon perfect-fit swap curve.
The fair values of the cross-currency interest-rate swap contracts are
valued by discounting the future cash flows using the basis swap curve
of the respective currencies at the dates when the cash flows will
take place.
The AUD forward exchange contracts are valued by discounting the forward
rates applied at year-end to the open hedged positions.
The call option contracts relating to the employee share scheme are
valued using a Black Scholes option pricing model. The expected
volatility of the unit price of the call options was 35,8% and the
risk-free discount rate used ranged between 7,2% and 7,7%. Management
considers the key input in the valuation to be the spot price. A 10%
increase in the spot price results in an increase to the call options
of R1,8m. A 10% decrease in the spot price results in a decrease to
the call options of R1,4m. The call option contracts have been
classified as Level 3. During the year R2,5m of the option premiums
relating to these contracts were amortised and a fair value loss of
R7,7m was recognised at year-end.
The forward contracts relating to the employee share scheme are
valued using a Black Scholes option pricing model. The risk-free
discount rate used ranged between 7,6% and 7,8%. Management considers
the key input in the valuation to be the spot price. A 10% increase
in the spot price results in a decrease to the forward contracts of
R5,5m. A 10% decrease in the spot price results in an increase to the
forward contracts of R5,5m.
2. Non-financial assets
The following table reflects the levels within the hierarchy of non-
financial assets measured at fair value at 30 June 2016:
2016 2015
R'000 Level 3 Level 3
Assets
Investment properties 12 129 879 12 422 093
Investment properties held for sale 835 000 319 000
Fair value measurement of investment properties
The fair value of commercial buildings is estimated using an income
approach which discounts the estimated rental income stream, net of
projected operating costs, as well as an exit value, 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 rentals increase, 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 to be greatest for reversionary capitalisation rates, rental
values and vacancy levels and that there is also an interrelationship
between these inputs. The inputs used in the valuations at 30 June 2016
were the following:
- The range of the reversionary capitalisation rates applied to the
portfolio are between 8,15% and 16,0% with the weighted average being
10,43% (2015: 9,52%).
- The discount rates applied range between 13,0% and 18,0% with the
weighted average being 15,28% (2015: 14,41%).
- Changes in discount rates and reversionary 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 will decrease the value of investment property by
R206,8m (1,6%) and a 25 basis points decrease will increase the
value of investment property by R213,9m (1,7%). A 25 basis points
decrease in the reversionary capitalisation rate will increase the
value of investment property by R216m (1,7%) and a 25 basis points
increase will decrease the value of investment property
by R204,8m (1,6%).
Fair values are estimated twice a year by Emira’s internal registered
valuer, whereafter they are reviewed by the executive directors and
approved by the Board of Directors. One third of the portfolio is valued
externally each year on a rolling basis.
Fair value measurement of investment properties held for sale
The fair value of investment properties held for sale is based on the
expected sale price.
Conversion to a corporate REIT
Emira Property Fund Scheme was successfully converted to a corporate REIT
– Emira Property Fund Limited – with effect from 1 July 2015. REIT
conversion costs incurred during the year of R7,9m have been allocated
against share capital. The management company, Strategic Real Estate Managers
(Pty) Limited (“STREM”) has become a wholly owned subsidiary and the
non-controlling interest of R5,3m has been reallocated to retained earnings.
The necessary transfers from the old Emira Property Fund Scheme to the new
Emira Property Fund Limited are nearing completion.
Subsequent events
Prior to 30 June 2016 the Emira Board approved a programme to repurchase
Emira shares during Emira’s closed period. In terms of the approved programme,
Emira has to date, subsequent to year-end, repurchased 2 165 632 shares at
an average price of 1 391 cents per share.
Directors
BJ van der Ross (Chairman)*, GM Jennett (CEO), MS Aitken**, G S Booyens (CFO),
BH Kent**, V Mahlangu**, NE Makiwane*, W McCurrie**, MSB Neser**, V Nkonyeni **,
U van Biljon (COO), G van Zyl**.
* Non-executive Director
** Independent Non-executive Director
Registered address: Optimum House, Epsom Downs Office Park, 13 Sloane
Street, Bryanston, 2191
Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited)
Transfer Secretaries: Computershare Investors Services (Pty) Ltd,
70 Marshall Street, Johannesburg, 2001
Date: 17/08/2016 10:58:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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