Wrap Text
Summarised unaudited consolidated financial results for the six months ended 31 August 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 unaudited consolidated financial results
for the six months ended 31 August 2016
Summarised consolidated statement of financial position
At 31 August 2016
Unaudited Unaudited Audited
Aug 2016 Aug 2015 Feb 2016
R'000 R'000 R'000
Assets
Non-current assets 13 381 486 11 420 623 11 989 983
Investment property 7 792 251 8 197 831 8 771 992
Straight-line rental income accrual 358 799 350 497 397 305
Lease costs and incentives 58 541 49 074 54 501
Fair value of investment property 8 209 591 8 597 402 9 223 798
Investment property under
construction 2 567 424 1 596 027 2 048 336
Interest in associate 899 197 679 612 1 368
Intangibles and goodwill 529 470 544 270 536 870
Plant and equipment 44 156 3 312 2 987
Investments 1 123 242 - 57 288
Interest rate swaps 8 406 - 119 336
Current assets 1 835 288 384 818 1 767 952
Trade and other receivables 81 010 86 542 113 388
Loans receivable 152 352 101 770 97 226
Cash and cash equivalents 109 025 196 506 382 480
342 387 384 818 593 094
Non-current assets held for sale 1 492 901 - 1 174 858
Total assets 15 216 774 11 805 441 13 757 935
Equity and liabilities
Capital and reserves 6 473 501 5 177 707 6 490 933
Stated capital 4 559 813 4 004 089 4 548 753
Share-based payment reserve 7 986 2 027 5 037
Foreign currency translation reserve 146 925 65 800 234 351
Reserves 1 758 777 1 105 791 1 702 792
Non-current liabilities 7 087 696 5 801 349 6 190 853
Interest-bearing liabilities 6 013 436 5 105 260 5 230 268
Interest rate swaps - 2 181 -
Deferred taxation 1 074 260 693 908 960 585
Current liabilities 1 655 577 826 385 1 076 149
Trade and other payables 210 743 98 310 192 548
Loans from shareholders - - -
Interest-bearing liabilities 1 374 820 728 075 883 601
1 585 563 826 385 1 076 149
Disposal group liabilities 70 014 - -
Total equity and liabilities 15 216 774 11 805 441 13 757 935
Net asset value per share (R) 19.69 17.27 19.78
Net asset value per ordinary share,
excluding deferred taxation (R) 23.00 19.60 22.80
Summarised consolidated statement of comprehensive income
for the six months ended 31 August 2016
Unaudited Unaudited Audited
Aug 2016 Aug 2015 Feb 2016
R'000 R'000 R'000
Contractual rental income 416 175 374 630 777 804
Straight-line rental income accrual (12 428) 38 935 85 743
Revenue 403 747 413 565 863 547
Property expenses (67 437) (59 995) (124 347)
Net property income 336 310 353 570 739 200
Other operating expenses (42 530) (23 913) (63 484)
Operating profit 293 780 329 657 675 716
Other income** 279 730 - 21 259
Amortisation of intangibles (7 400) (7 400) (14 800)
Changes in fair value - other
financial liabilities (19 476) - (49 784)
Income from associates (147 625) (2 882) 216 296
Changes in fair values 38 631 164 959 680 027
- Investment properties 149 561 91 038 481 041
- Financial instruments (110 930) 73 921 198 986
Income from operations 437 640 484 334 1 528 714
Finance charges (304 184) (208 350) (437 004)
Finance and other investment income 39 535 6 069 54 021
Profit before taxation 172 991 282 053 1 145 731
Taxation (117 005) (45 917) (312 594)
- Current (3 330) - -
- Deferred (113 675) (45 917) (312 594)
Profit after taxation 55 986 236 136 833 137
Other comprehensive income
Items that are or may be reclassified
to profit and loss:
Translation of foreign operations (87 426) 65 800 234 351
Total comprehensive (loss)/income (31 440) 301 936 1 067 488
Earnings per share
Basic profit is reconciled to
headline earnings as follows:
Profit after taxation 55 986 236 136 833 137
- Fair value adjustment on
investment property (149 561) (91 038) (481 041)
- Deferred tax thereon 27 918 16 994 107 753
- Deferred tax as a result of rate
adjustment - - 89 105
- Fair value adjustment on 147 625 - (243 924)
associate held properties
- Deferred tax thereon (10%) (14 762) - 24 392
Headline earnings 67 206 162 092 329 422
Number of shares in issue (adjusted
for treasury shares) 328 297 321 298 850 823 327 679 771
Weighted average number of shares
in issue 327 862 120 298 500 048 311 573 209
Basic earning per share (cents)* 17 79 267
Headline earnings per share
(cents)* 20 54 106
* There are no dilutionary instruments in issue.
** Includes revaluations and forex adjustments on investments and loans.
Summarised consolidated statement of changes in equity
for the six months ended 31 August 2016
Unaudited Unaudited Audited
Aug 2016 Aug 2015 Feb 2016
R'000 R'000 R'000
Opening balance 6 490 933 4 849 504 4 849 504
Total comprehensive (loss)/income
for the period (31 440) 301 936 1 067 488
Share-based payment expenses 2 949 1 737 4 747
Issue of ordinary shares 11 059 19 935 573 502
Share issue costs - - (3 263)
Issue of preference shares - 4 595 4 595
Cancellation of preference shares - - (5 640)
Closing balance 6 473 501 5 177 707 6 490 933
Summarised consolidated statement of cash flows
for the six months ended 31 August 2016
Unaudited Unaudited Audited
Aug 2016 Aug 2015 Feb 2016
R'000 R'000 R'000
Cash flows from operating activities
Cash generated from operations 338 704 301 792 603 796
Finance and other investment income 9 765 4 266 19 675
Finance charges (287 684) (227 048) (493 139)
Taxation paid 1 638 - -
Net cash generated from operating
activities 62 423 79 010 130 332
Net cash utilised in investing
activities (1 755 156) (1 448 149) (2 129 605)
Net cash generated from financing
activities 1 419 278 1 322 405 2 138 513
Net (decrease)/increase in cash and
cash equivalents (273 455) (46 734) 139 240
Cash and cash equivalents at the
beginning of the period 382 480 243 240 243 240
Cash and cash equivalents at the end
of the period 109 025 196 506 382 480
Condensed segmental analysis
R'000 Retail Office Other
Six months ended 31 August 2016 -
unaudited
Revenue, excluding straight-line lease
income adjustment 183 532 227 026 5 617
Direct property operating expenses (36 265) (30 246) (926)
Segment results 147 267 196 780 4 691
Fair value adjustment - investment
property 79 467 67 313 2 781
Investment properties 4 100 703 6 047 507 628 805
Six months ended 31 August 2015 -
unaudited
Revenue, excluding straight-line lease
income adjustment 171 161 197 857 5 612
Direct property operating expenses (39 051) (19 754) (1 190)
Segment results 132 110 178 103 4 422
Fair value adjustment - investment
property 40 306 41 829 8 903
Investment properties 4 106 302 5 609 308 477 819
Year ended 29 February 2016
Revenue, excluding straight-line lease
income adjustment 357 229 409 672 10 903
Direct property operating expenses (76 643) (46 810) (894)
Segment results 280 586 362 862 10 009
Fair value adjustment - investment
property 131 538 297 134 52 369
Investment properties 4 371 557 6 297 028 603 549
Held
R'000 for sale Total
Six months ended 31 August 2016 - unaudited
Revenue, excluding straight-line lease income
adjustment - 416 175
Direct property operating expenses - (67 437)
Segment results - 348 738
Fair value adjustment - investment property - 149 561
Investment properties 1 490 838 12 267 853
Six months ended 31 August 2015 - unaudited
Revenue, excluding straight-line lease income
adjustment - 374 630
Direct property operating expenses - (59 995)
Segment results - 314 635
Fair value adjustment - investment property - 91 038
Investment properties - 10 193 429
Year ended 29 February 2016
Revenue, excluding straight-line lease income
adjustment - 777 804
Direct property operating expenses - (124 347)
Segment results - 653 457
Fair value adjustment - investment property - 481 041
Investment properties - 11 272 134
Commentary
1. Profile
Pivotal is a development-focused investment company 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 31 August 2016, Pivotal's directly owned portfolio and indirect
property portfolio was valued at R12.3 billion and R0.9 billion
respectively.
2. Performance
Pivotal's net asset value per share excluding deferred tax (NAVPS) increased
year-on-year by 17.35% to R23.00 at 31 August 2016 (31 August 2015: R19.60).
The key drivers of growth over the 12 months were positive revaluations
attributable to the completed portfolio, positive revaluations relating
to offshore investments and an increase in net working capital generated
from operating activities. The growth was negatively impacted by losses
on foreign currency translation and negative fair value adjustments on
interest rate swaps.
The growth in NAVPS for the 6 month period ended 31 August was 0.88%.
This is mainly due to the negative fair value adjustments on interest
rate swaps and foreign currency losses and tougher trading conditions
in Nigeria impacting on the valuation of our investment in the Wings
development in Lagos.
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 - 38
Current development 2 5 - 1 8
Land available for development 2 12 2 - 16
Independent property portfolio value at 31 August 2016
R billion Retail Office Industrial Africa Total
Income producing 4.2 5.2 0.2 0.9 10.5
Current development 0.2 1.5 - - 1.7
Land available for development 0.3 0.2 0.5 - 1
Total 4.7 6.9 0.7 0.9 13.2
4. Vacancies
% of GRA vacant
Sector Aug 2016 Aug 2015
Retail 2.3 1.8
Office 2.4 2.8
Total 2.3 2.2
5. South African property transaction
The following transaction was concluded during the period:
Acquisition of a 20% undivided share in Galleria, Rosebank, for R100 million.
The prime property, situated opposite the Rosebank Mall, currently has Times Media
Group as a tenant. The intention however is to redevelop the site with premium
grade offices and luxury residential apartments.
6. Current and future developments
6.1. Alice Lane Building 3, currently under construction, is on track to be
completed in early Q2 2017. Building 3 has a gross rentable area of 35 000m2 of which
22 000m2 has been let to Bowmans on a 12-year lease. Bowmans is one of South Africa's
'big five' legal firms.
6.2. The second building of Westend Office Park in Centurion, measuring 5 079m2,
was completed in Q1 2016. 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.
6.3. Strong tenant demand is being experienced at Hertford Office Park. The
development is ideally located on the corner of Allandale and Bekker Roads,
opposite the completed Mall of Africa. Buildings F (5 253m2) and G (5 944m2)
have commenced construction with completion dates of Q4 2016 and Q1 2017
respectively. Hertford Office Park will ultimately comprise 72 298m2 of
gross rentable area, of which five buildings totalling 14 619m2 have been
completed and fully let. Pivotal holds a 33.3% undivided share in Hertford
Office Park.
6.4. Construction commenced on the second building, measuring 4 435m2,
at Monte Circle Office Park and is due to be completed in Q4 2016. Monte
Circle, located in Fourways, is a 56 946m2 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 holds a 17.56% undivided share in the Monte
Circle Office Park and a 19.50% undivided share in the Monte Place
development.
6.5. Construction commenced at Kyalami Corner shopping centre, in which Pivotal
owns an 80% undivided share. The 27 823m2 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.
6.6. During the period phase 1 construction commenced at the Loftus Park
development in Pretoria. Loftus Park neighbours the iconic Loftus stadium.
Phase 1 is mixed use comprising Offices (13 086m2), Retail (8 133m2), a
Virgin Active Gym (3 475m2) and a 150 key hotel, all leading onto a
landscaped and secure piazza. Phase 1 will be completed in Q1 2018. Phase
2 of the development will be subject to tenant demand and comprises
offices of 20 047m2. Pivotal holds a 50% undivided share in the
development.
6.7. Building A (14 835m2), of the Hill on Empire development in
Parktown, is currently under construction and due for completion in Q2
2017. Hill on Empire is a 34 536m2 development in which Pivotal holds a
50% undivided share. Times Media Group has signed a 10-year lease for
9 565m2 of building A.
6.8. The refurbishment of Wonderboom Junction commenced during the period
with a completion date in Q4 2016. The refurbishment provides for the
upgrade of the existing mall including new entrances, PV installation,
gym relocation, new efficient parking layout and a refreshed restaurant
and family area.
7. Interest in associate
During the previous period, Pivotal classified its 37.1% investment in
Oando Wings Development Limited, which it holds through a 100% held subsidiary,
SB Wings Limited, as held for sale due to a sale agreement between Pivotal
and Mara Delta Property Holdings Limited (Mara Delta). During the current
period ended 31 August 2016 the directors of Pivotal and Mara Delta, by
mutual agreement between the parties, decided not to pursue the sale of
Wings. The classification as held for sale was reversed and the investment
in Oando Wings Development Limited was equity accounted in accordance with
Pivotal's accounting policies. During the current period, there was a
downward valuation of R234 million due to foreign exchange movements as
well as deteriorating trading conditions in Nigeria that put pressure on
leasing activity.
8. Mara Delta
Pivotal now holds 13 187 535 shares in Mara Delta, which represents an
approximate 13.1% holding in Mara Delta. As at 31 August 2016 Pivotal's
investment in Mara Delta, which is listed on the Stock Exchange of
Mauritius, was valued at USD22.9 million.
9. Echo Polska Property B.V. (EPP)
Pivotal acquired approximately 6% of EPP for a consideration of
EUR31.15million. EPP listed on the JSE main board on 13 September 2016.
EPP has a high-quality portfolio of Polish commercial properties with
attractive and secure yields, tenanted by a diverse range of primarily
blue-chip global clients.
10. Interest-bearing liabilities and interest rate swaps
Pivotal currently has borrowings of R7.4 billion which represents gearing
of 51.29% of the current property portfolio value. At 31 August 2016,
the average cost of funding was 9.04% (31 August 2015: 9.34%) and
interest rates have been fixed in respect of 81% of borrowings for an
average period of 3.5 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:
Aug 2016 Aug 2015 Feb 2016
Group
Net asset value
Total equity 6 473 499 381 5 177 706 486 6 490 338 886
Adjusted for:
- Equity of preference
share holders (9 523 017) (15 163 287) (9 523 017)
Total equity (net asset
value) attributable to
ordinary share holders 6 463 976 364 5 162 543 199 6 480 815 869
Total number of ordinary
shares in issue (adjusted
for treasury shares) 328 297 321 298 850 823 327 679 771
Net asset value per ordinary
share R19.69 R17.27 R19.78
Reconciliation of net asset
value, excluding deferred
tax, per ordinary share to
total equity
Total equity (net asset
value) attributable to
ordinary share holders 6 463 976 364 5 162 543 199 6 480 815 869
Adjusted for:
- Total deferred tax
liability per note 6 1 074 260 469 693 907 529 960 585 014
- Total deferred tax
liability equity accounted
and not included above 13 918 893 - 28 080 476
Net asset value attributable
to ordinary share holders 7 552 155 726 5 856 450 728 7 469 481 359
Total number of ordinary
shares in issue (adjusted
for treasury shares) 328 297 321 327 679 771 298 850 823
Net asset value per ordinary
share (excluding deferred
tax) R23.00 R22.80 R19.60
12. Changes in fair value
The portfolio, including investment properties and properties under
development, was independently valued at 31 August 2016 which resulted
in an increase in the portfolio value of R149.6 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.
Key unobservable inputs used in determining property valuations are set
out below:
12-month
forward Capitalisation
Sector Rate/m2 yield (%) rate (%)
Retail 17 204 7.99 7.70
Retail convenience 18 412 8.13 8.18
Small regional/regional 17 349 7.94 7.50
Office and industrial 24 591 8.09 7.79
Offices - PTA/JHB 25 011 8.08 7.83
Offices - CPT 26 151 7.92 7.09
Industrial 9 105 8.74 8.75
Total portfolio - Aug 2016 19 640 8.05 7.75
Total portfolio - Feb 2016 20 439 8.00 7.80
Weighted
average
reversionary Discount
rate (%) rate (%)
Sector
Retail 8.40 13.44
Retail convenience 8.95 13.46
Small regional/regional 8.15 13.43
Office and industrial 8.48 13.45
Offices - PTA/JHB 8.50 13.44
Offices - CPT 7.75 13.50
Industrial 9.78 13.50
Total portfolio 8.45 13.44
Total portfolio - Feb 2016 8.50 13.40
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. Post balance sheet transactions
Shareholders are referred to the joint announcement published on SENS on
30 August 2016 in terms of which it was advised that the boards of Pivotal
and Redefine Properties Limited (Redefine) have signed an implementation
agreement setting out the terms and conditions upon which Redefine offered
to acquire all of the Pivotal shares from Pivotal shareholders by way of a
scheme of arrangement in terms of section 114 of the Companies Act, No. 71
of 2008 to be proposed by the board of Pivotal between Pivotal and its
shareholders (scheme). Shareholders are advised to consult the Pivotal
scheme circular to be posted to shareholders on or about 31 October 2016
for full details regarding the scheme as well as action required to be
taken by shareholders in this regard.
14. Prospects
Notwithstanding the delivery to date of above average growth in net asset
value, Pivotal's development focused business faces a number of
challenges in the current economic environment of stagnant growth
and rising interest rates. Whilst Pivotal's income producing portfolio
is expected to continue to perform satisfactorily, development activity
and returns flowing there from will be under pressure in the short to
medium-term. Consequently, net asset value growth will be negatively
impacted whilst the current economic conditions remain difficult.
As an alternative to the current development orientated structure of
Pivotal, the Redefine transaction announced on 30 August 2016, offers
Pivotal shareholders the opportunity to convert to a REIT structure and
receive Redefine consideration shares and EPP settlement shares from which
Pivotal shareholders will benefit due to bi-annual income distributions,
exposure to hard currency earnings, enhanced liquidity as well as continued
exposure to Pivotal's existing portfolio of A-grade properties.
These prospects have not been reviewed nor reported on by Pivotal's
independent external auditors.
15. Basis of preparation and accounting policies
The summarised unaudited consolidated financial results for the period
ended 31 August 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 periods, and are consistent with
those applied in the previous annual financial statements for the year
ended 29 February 2016.
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.
16. Financial statements
These summarised unaudited financial results have not been reviewed nor
reported on by the group's auditors. The results were approved by the
Board of directors on 25 October 2016.
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
31 October 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: https://protect-za.mimecast.com/s/61YOB3imNmhb
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: 31/10/2016 11:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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