Wrap Text
Audited preliminary condensed consolidated results for the year ended 31 August 2016
INGENUITY PROPERTY INVESTMENTS LIMITED
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
REGISTRATION NUMBER: 2000/018084/06
JSE SHARE CODE: ING
ISIN: ZAE000127411
("THE COMPANY" OR "THE GROUP" OR "INGENUITY")
AUDITED PRELIMINARY CONDENSED CONSOLIDATED RESULTS
FOR THE YEAR ENDED 31 AUGUST 2016
KEY FINANCIAL INDICATORS FOR THE YEAR ENDED 31 AUGUST 2016
2016 2015
Total contractual rental income (R'000) 358 319 271 864
Investment property portfolio fair value (R'000) 4 006 730 3 046 218
Development property (R'000) 231 643 247 086
Investment properties held for sale (R'000) 147 000 -
Growth of asset base (%) 33 20
Borrowings (R'000) 2 767 313 1 991 266
Loan to value ratio* (%) 62 60
Vacancy (%) 2.4 3.3
Market capitalisation at year-end (R'000) 1 017 357 1 090 323
Number of shares in issue (net of treasury shares) 1 166 835 524 1 122 309 208
Earnings per share (cents) 13.8 18.4
Headline earnings per share (cents) 3.6 4.7
Dividend per share (cents) - 3.5
Net asset value per share (cents) 119 110
Growth in net asset value per share (%) 8 17
*Loan to value ratio is defined as interest-bearing debt divided by total assets (asset value
of all properties and investments).
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 AUGUST 2016
2016 2015
R'000 R'000
ASSETS
Non-current assets 4 236 950 3 303 156
Investment properties 3 880 831 2 939 032
Straight-line lease accrual 107 117 102 616
Investment properties under development 231 643 247 086
Other financial assets 2 434 -
Property and equipment 14 925 14 422
Current assets 244 071 134 162
Trade and other receivables 20 533 13 137
Investment properties held for sale 147 000 -
Straight-line lease accrual 18 782 4 570
Prepayments - 87 646
Cash and cash equivalents 57 756 28 809
Total assets 4 481 021 3 437 318
EQUITY AND LIABILITIES
Shareholders' interest 1 391 174 1 236 359
Share and stated capital 747 610 12 115
Share premium - 693 540
Treasury shares (52 296) (52 296)
Non-distributable reserve 522 414 412 603
Retained earnings 156 224 156 147
Total equity attributable to equity holders of the parent 1 373 952 1 222 109
Non-controlling interest 17 222 14 250
Non-current liabilities 2 693 716 2 121 054
Borrowings 2 447 409 1 959 949
Finance lease 3 840 4 069
Deferred tax 228 064 157 036
Other financial liabilities 14 403 -
Current liabilities 396 131 79 905
Trade and other payables 50 418 26 463
Current portion of borrowings 319 904 31 317
Prepaid rent received 17 801 12 882
Taxation 203 308
Share-based payment 7 805 8 935
Total equity and liabilities 4 481 021 3 437 318
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 AUGUST 2016
2016 2015
R'000 R'000
Revenue 379 181 297 964
Contractual 358 319 271 864
Straight-lining 20 862 26 100
Net operating expenses (117 270) (85 358)
Profit before fair value adjustments 261 911 212 606
Fair value gains on investment and development properties 209 116 222 127
Fair value losses on investment and development properties (28 241) (29 237)
Total fair value adjustment 180 875 192 890
Profit before interest and taxation 442 786 405 496
Interest received 4 611 2 254
Interest paid (209 472) (140 544)
Profit before taxation 237 925 267 206
Taxation (75 014) (57 395)
Profit for the year 162 911 209 811
Attributable to:
Equity holders of the parent 159 939 208 028
Non-controlling interest 2 972 1 783
162 911 209 811
Basic and diluted earnings per share (cents) 13.8 18.4
Profit for the year 162 911 209 811
Other comprehensive income
To be reclassified subsequently to profit or loss:
Cash flow hedges (11 968) -
Income tax relating to components of other comprehensive income 3 351 -
Other comprehensive income for the year, net of tax (8 617) -
Total comprehensive income for the year 154 294 209 811
Total comprehensive income attributable to:
Equity holders of the parent 151 322 208 028
Non-controlling interest 2 972 1 783
154 294 209 811
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF PROFIT
OR LOSS AND OTHER COMPREHENSIVE INCOME
1. Headline and diluted headline earnings per share (cents) 3.6 4.7
2. The calculation of earnings per share is based on earnings
attributable to equity holders of the parent of R159.9 million
(2015: R208.02 million) and a weighted average number of
1 156 304 319 (2015: 1 130 183 741) shares (net of treasury
shares) in issue during the year.
Headline earnings are calculated as follows:
Earnings attributable to equity holders 159 939 208 028
Fair value adjustment to investment properties (180 875) (192 890)
Total tax effects of adjustments 42 492 37 604
Change in CGT rate - tax effects 19 955 -
Headline earnings 41 511 52 742
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2016
Non-
Share and distrib- Non-
stated Share Treasury utable Retained controlling Total
capital premium shares reserve earnings interest equity
R'000 R'000 R'000 R'000 R'000 R'000 R'000
Balance at
1 September
2014 12 115 693 540 (34 928) 257 317 132 393 12 467 1 072 904
Total
comprehensive
income for the
year - - - - 208 028 1 783 209 811
Profit for the year - - - - 208 028 1 783 209 811
Purchase of
20 227 108
treasury shares - - (17 368) - - - (17 368)
Transfer to non-
distributable
reserve - fair
value adjustments
to properties - - - 155 286 (155 286) - -
Dividend paid -
2.5 cents per
share - - - - (28 988) - (28 988)
Balance at
31 August 2015 12 115 693 540 (52 296) 412 603 156 147 14 250 1 236 359
Conversion to
no par value
shares 693 540 (693 540) - - - - -
Total
comprehensive
income for
the year - - - (8 617) 159 939 2 972 154 294
Profit for
the year - - - - 159 939 2 972 162 911
Other
comprehensive
income - Cash
flow hedges - - - (8 617) - - (8 617)
Issue of
44 526 316
shares 41 955 - - - - - 41 955
Transfer to/
from non-
distributable
reserve:
Deferred tax -
Change in Capital
Gains Tax rate - - - (19 955) 19 955 - -
Fair value
adjustments
to properties - - - 138 383 (138 383) - -
Dividend paid -
3.5 cents per
share - - - - (41 434) - (41 434)
Balance at
31 August
2016 747 610 - (52 296) 522 414 156 224 17 222 1 391 174
Comprising:
Fair value
reserve - - - 531 031 - - -
Cash flow hedge - - - (8 617) - - -
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 AUGUST 2016
2016 2015
R'000 R'000
Cash flows from operating activities
Cash generated from operations 265 112 199 234
Interest received 4 611 2 254
Interest paid (204 657) (135 967)
Taxation (paid)/received (740) 1 265
Dividends paid (41 434) (28 988)
Net cash inflow from operating activities 22 892 37 798
Cash flows from investing activities
Additions to property and equipment (997) (8 133)
Acquisitions/additions to investment properties (743 937) (216 321)
Acquisitions/additions to investment properties under development (56 985) (116 543)
Interest capitalised to investment properties and investment
properties under development (7 428) (6 710)
Prepayments for investment property acquired after year-end - (87 646)
Net cash outflow from investing activities (809 347) (435 353)
Cash flows from financing activities
Treasury shares acquired - (17 367)
Proceeds from the issue of shares 41 955 -
Financial liabilities raised 836 640 473 114
Financial liabilities repaid (62 934) (63 765)
Repayments of finance lease (259) (254)
Net cash inflow from financing activities 815 402 391 728
Net increase/(decrease)in cash and cash equivalents 28 947 (5 827)
Cash and cash equivalents at the beginning of the year 28 809 34 636
Cash and cash equivalents at the end of the year 57 756 28 809
CONDENSED CONSOLIDATED SEGMENTAL INFORMATION
AT 31 AUGUST 2016
Develop-
ment Park- Light
proper- ing indus- Straight-
Office Retail ties trial Other lining- Total
2016 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Additions to non-
current assets
(includes transfers
between
segments) 795 107 8 623 (18 346) 107 811 12 366 (27 971) - 877 590
Total assets 2 682 684 819 905 231 643 526 433 83 272 137 084 - 4 481 021
Revenue 223 095 79 187 493 42 238 7 955 5 351 20 862 379 181
Profit/(Loss)
before fair
value
adjustment 156 531 58 051 (1 964) 32 043 6 376 (9 988) 20 862 261 911
Fair value
adjustment 124 899 9 160 17 665 22 948 4 832 1 371 - 180 875
Profit/(Loss)
before interest
and taxation 281 430 67 211 15 701 54 991 11 208 (8 617) 20 862 442 786
Interest received - - - - - 4 611 - 4 611
Interest paid - - - - - (209 472) - (209 472)
Profit/(Loss)
before
taxation 281 430 67 211 15 701 54 991 11 208 (213 478) 20 862 237 925
Develop-
ment Light
proper- Park- indus- Straight-
Office Retail ties ing trial Other lining- Total
2015 R'000 R'000 R'000 R'000 R'000 R'000 R'000 R'000
Additions to non-
current assets
(Includes transfers
between
segments) 100 636 59 587 136 627 66 478 58 291 (59 529) - 362 090
Total assets 1 762 678 802 122 247 086 395 674 66 074 163 684 - 3 437 318
Revenue 161 624 72 413 - 30 718 5 521 1 588 26 100 297 964
Profit/(Loss)
before fair
value
adjustment 118 124 53 201 (2 134) 23 466 4 607 (10 758) 26 100 212 606
Fair value
adjustment 107 719 20 356 - 54 252 7 783 2 780 - 192 890
Profit/(Loss)
before interest
and taxation 225 843 73 557 (2 134) 77 718 12 390 (7 978) 26 100 405 496
Interest received - - - - - 2 254 - 2 254
Interest paid - - - - - (140 544) - (140 544)
Profit/(Loss)
before
taxation 225 843 73 557 (2 134) 77 718 12 390 (146 268) 26 100 267 206
In order to present more meaningful information, development properties, which were
previously reported under "Other" and "Unsegmental", are now reported as a separate
segment. Special (Gym) is no longer reported as a separate segment and is now included
in the Retail segment.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2016
PRESENTATION OF PRELIMINARY CONDENSED CONSOLIDATED FINANCIAL RESULTS
The condensed consolidated audited financial results ("the financial statements")
for the year ended 31 August 2016 have been prepared in accordance with the framework
concepts, the measurement and recognition requirements of International Financial
Reporting Standards ("IFRS") and the information required by IAS 34: Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee, the JSE Listings Requirements and in the manner required by the Companies
Act of South Africa. The accounting policies and methods of computation applied in the
preparation of the financial statements are in accordance with IFRS and are consistent
with those applied in the audited annual financial statements for the year ended
31 August 2015.
The independent auditor, Mazars, have audited the condensed consolidated annual
financial statements of Ingenuity Property Investments Limited for the year ended
31 August 2016 and have expressed an unqualified audit opinion. Their audit was conducted
in accordance with International Standards on Auditing and the applicable requirements of
the South African Companies Act, 71 of 2008, as amended. The auditor's report does not
necessarily report on all the information contained in this report and is available for
inspection at the Company's registered office. Shareholders are therefore advised that in
order to obtain a full understanding of the nature of the auditor's engagement they should
obtain a copy of the auditor's report together with the accompanying financial information.
These financial statements were prepared under the supervision of Mr M Wagenheim CA(SA) in
his capacity as Financial Director. The directors are not aware of any matters or
circumstances arising subsequent to 31 August 2016 that require additional disclosure
or adjustment to the financial statements, other than as disclosed in this announcement.
COMMENTARY
JOINT CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S REPORT
Ingenuity is pleased to announce its results for the year ended 31 August 2016.
The year has been challenging because of poor economic conditions and all-time
low business confidence. Despite this we have been successful in maintaining and
enhancing the quality of our assets and growing the sustainable income from the
group's Investment portfolio.
Excellent strides have also been made in realising value from our Development portfolio.
A constraining factor for the year has been the lack of capital raised and higher
borrowing costs incurred as a result of debt utilisation and higher cost of funding.
We did not believe it appropriate to issue shares to raise new capital whilst our
share price traded at such a substantial discount to NAV as this would dilute interest
and return to the existing shareholder base.
Despite the negative backdrop the core investment portfolio has grown from
R3.046 billion to R4.153 billion whilst investment property under development and
land holdings is R231.6 million (2015: R247.1 million). This represents a total
increase in our asset base of R1.092 billion or 33% which is meaningful considering
this was funded almost entirely by limited new capital of R42.3 million, debt and
internally generated funds. Prudent management has also led to us fixing 54% of our
borrowings for five-year periods resulting in a weighted average all-in rate on
borrowings of 9.02%.
The focus remains geographically centralised to the Western Cape region with an
emphasis to grow through quality property deals and value-add propositions. Value
creation through development or redevelopment is a core focus of the group and is
our unique offering, differentiating Ingenuity from many of its REIT peers in the sector.
Many milestones were achieved during the year relating to development projects and
acquisitions concluded which are dealt with in more detail below. The resultant
effect of the above has been growth in net asset value per share by 8% from 110 cents
to 119 cents. The strategic use of leverage will lead to accelerated returns going forward.
The increase in size of the asset base has also increased our earnings capacity
with contractual income from investment property growing to R358.3 million
(2015: R271.8 million) or by 32%.
The portfolio is extremely well managed with all rentals collected timeously.
We have always prided ourselves on the fact that our cash flows are strong with
only R15 000 being written off as bad debts during the past year. Our vacancies
post year-end are 1.9% and we have a very strong WALE (weighted average lease
expiry) of 4.6 years.
Milestones achieved during the year under review are as follows:
Property transactions concluded
*Great Westerford, situated Dean Street, Newlands for R650 million.
This iconic building recently underwent a major refurbishment and boasts
30 288 m2 of premium grade office space.
*Laurel Lane, situated Main Road, Claremont for R1.6 million.
This property is situated between the 14 Dreyer Street and 72 On
Main properties already owned by us. This last piece of the puzzle completes
a significant grouping of properties in the heart of Claremont adjacent to
Cavendish Square shopping centre. The total area of all the combined erven is
6 168 m2. This prime opportunity will provide a substantial development opportunity
and plans are already underway for the scheme.
Subsequent to year-end two properties have been sold:
*Loerie Centre, situated Meade Street, George for R47 million; and
*Estuaries 1, situated Century City for R100 million.
These properties were realised as they were considered mature investments
and the proceeds realised from them would be better applied to the higher growth
development projects we have embarked on.
Development initiatives
*We completed the construction of the Aurecon West building in Century
City on 11 February 2016. The building was awarded a Five Star rating by the
Green Building Council of South Africa. The building has been fully let to Aurecon
South Africa for seven years. Total development cost was R97.5 million and the yield
on cost 8.76%. At year-end the value of the property was R 110.3 million.
*Planning application has been made for the redevelopment of the Food Lovers
building in Claremont to be known as 20 Vineyard Road. This scheme will comprise
2 300 m2 of premium grade offices and retail, directly opposite Cavendish Square.
Construction is to commence in the second quarter of 2017 and will be completed
during 2018. Anticipated total capital expenditure is R 79.5 million.
*Subsequent to year-end, construction of our 117 on Strand building has commenced.
This exciting state-of-the-art mixed-use scheme comprising 5 200 m2 retail, 5 500 m2
premium grade offices and 117 luxury apartments will be completed during 2019. The
total capital expenditure is budgeted at R632.5 million. Sales of the residential units
have gone extremely well with commitments for 96 of the available 103 units.
One residential floor comprising 14 units has been identified to be retained by us.
This development will produce trading profit as well as generate good quality
investment stock.
Dividend
The group announces that no dividend is to be paid to shareholders this financial
year. We believe it prudent to maintain cash in the business to assist with the
funding requirements of our substantial development pipeline which is set to commence
in the 2017 financial year as well as to apply excess funds to reduce the higher gearing
utilised to fund growth of over R1 billion during the year.
The construction of 117 on Strand as well as the upgrade of the Santam head office which
commenced subsequent to year-end, have a combined capital expenditure of approximately
R658 million and will add value to our portfolio. The Santam lease has been renewed
for 12 years commencing 1 January 2018.
The decision to retain earnings to reinvest in growth opportunities will allow
shareholders to reap enhanced benefit on completion of the various schemes.
General
Ingenuity remains focused on its strategy. Our commitment is to create enduring
increased wealth for shareholders focusing on underlying quality assets. Our asset
base is well positioned to do this.
Our thanks go to the directors and staff of Ingenuity for their dedication and
commitment to the success of the group, and to the shareholders for their continued
support and encouragement.
GENERAL REVIEW
During the year under review the total asset base, including development assets
completed, increased in value by R1.092 billion or 33% (due to acquisitions of new
properties, the completion of a property development and fair value adjustments),
whilst borrowings were increased to fund acquisitions and developments. The increase
in investment properties resulted in a substantial increase in contractual revenues,
and, together with the fair value adjustments to investment properties, resulted in
a significant increase in the deferred tax liability at year-end. The Capital
Gains Tax inclusion rate increased from 66.6% to 80%, resulting in a further increase
in the deferred tax liability at year-end. The adjustment was accounted for
prospectively.
The vacancy percentage of gross lettable area ('GLA') as at year-end was 2.4%
but has subsequently reduced to 1.9%. This is considered to be below the industry
norm and is attributable to proactive asset management.
The group achieved a weighted average borrowing cost of 9.02% (2015: 8.20%),
which increased due to the increases in the prime lending rate as well as
interest rate swap contracts entered into during the year. Total borrowings
at year-end amounted to R2.767 billion (2015: R1.991 billion) of which R1.5 billion
or 54% is fixed and the balance floating at rates linked to prime. The increase in
borrowings for the current year is due to the acquisition of multiple properties
during the year and borrowings on the completion of the development of Aurecon West.
Total cash on hand at year-end amounted to R57.8 million (2015: R28.8 million).
Excess cash is applied to reduce borrowings or to grow the asset base where
appropriate.
The group's loan to value ratio is 62% (2015: 60%) at year-end. This is considered
acceptable considering the development nature of the group and the fact that we seek
to maximise growth of the business through leverage of the group's own core asset base.
Management are reviewing strategies to reduce debt.
Current portion of borrowings comprise loans maturing within the next 12 months.
It is Ingenuity's intention to renew most of these loans.
FAIR VALUE OF FINANCIAL INSTRUMENTS RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION
Interest rate swap agreements
The fair value of interest rate swap agreements is determined by using a valuation
technique that discounts future cash flows using risk-free rates and yield curves
derived from quoted rates. Interest rate swaps are classified as level 2 financial
instruments.
During the year the group entered into interest rate swaps with notional amounts
amounting to R1.5 billion and the fair value at year-end amounted to R2.43 million
(asset) and R14.40 million (liability).
RELATED PARTY TRANSACTIONS
During the year the group paid professional architects' fees of R603 000
(2015: R1.331 million) to Fabian Architects.
During the year the group paid executive directors' remuneration of R7.597 million
(2015: R5.306 million) and non-executive directors' remuneration of R768 000
(2015: R705 000). Relationships Fabian Architects - DB Fabian (director of
Ingenuity) is a partner in Fabian Architects.
CAPITAL COMMITMENTS AUTHORISED
Authorised and contracted for commitments amount to R145.6 million (2015: R51.5 million)
at year-end. The commitments comprise costs for the demolition, bulk earthworks and
lateral support of the 117 on Strand development (R20.3 million) and the Santam
1 upgrade (R125.3 million), both of which will be financed from existing cash
resources and finance facilities.
SHARE AND STATED CAPITAL
During the year 44 526 316 shares (2015: Nil) were issued in terms of vendor
placements at R0.95 per share to fund part of the purchase price of an
investment property.
During the year the Company's shares were converted from shares with a par value of
R0.01 each into shares of no par value.
EVENTS AFTER THE REPORTING PERIOD
A Deed of Sale was signed by the Company on 31 August 2016 to dispose of the property
known as "Loerie Centre" situated in George, for R47 million (capitalised cost R39.5 million).
All the suspensive conditions have been fulfilled and transfer is expected to be
registered by the end of November 2016.
An Agreement of Sale was signed by the Company on 22 September 2016 to dispose of the
property known as "Estuaries No 1" situated in Century City, for R100 million
(capitalised cost R92.6 million). All the suspensive conditions have been fulfilled
and registration of transfer will take place before 1 February 2017.
Other than as mentioned above, there are no other material reportable events after
the reporting period which have occurred since the end of the financial year being
reported on and the date of this report.
For and on behalf of the Board
Arnold Aaron Maresky Mark Wagenheim
Chief Executive Officer Chief Financial Officer
Cape Town
8 November 2016
PREPARER OF THE PRELIMINARY CONDENSED CONSOLIDATED RESULTS
In compliance with the disclosure requirements of the Companies Act, 71 of 2008,
these preliminary condensed consolidated results have been prepared by Ms L Combrink,
B.Compt (Hons), CTA, CA(SA) under the supervision of Mr M Wagenheim, B.Com (Hons),
CTA, CA(SA).
INGENUITY PROPERTY INVESTMENTS LIMITED
("the Company" or "the group" or "Ingenuity")
(Incorporated in the Republic of South Africa)
Registration number: 2000/018084/06
JSE share code: ING
ISIN: ZAE000127411
DIRECTORS
RC Squire-Howe (Chairman)*#, AJ Branch *# (British), J Bielich, LH Cohen*, DB Fabian*#,
AA Maresky (CEO), RS Schur*#, M Wagenheim, J Solms
*Non-executive #Independent
COMPANY SECRETARY
M Wagenheim
REGISTERED OFFICE
Suite 102, 1st Floor INTABA, 25 Protea Road,
Claremont, Cape Town, 7708
POSTAL ADDRESS
Suite 102, 1st Floor INTABA, 25 Protea Road,
Claremont, Cape Town, 7708
CONTACT DETAILS
Tel: 021 674 5170
Fax: 021 674 5135
E-mail: info@ingenuityproperty.com
www.ingenuityproperty.com
TRANSFER SECRETARIES
Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
COMMERCIAL BANK
ABSA Bank Ltd, Tygerberg Office Park,
163 Uys Krige Drive, Plattekloof, 7500
(PO Box 4110, Tygervalley, 7536)
INVESTMENT BANK AND SPONSOR
Nedbank Corporate and Investment Banking
3rd Floor, Corporate Place, Nedbank Sandton,
135 Rivonia Road, Sandton, 2196
(PO Box 1144, Johannesburg, 2000)
AUDITORS
Mazars, Mazars House, Rialto Road, Grand Moorings Precinct, Century City,
Cape Town, 7441
(PO Box 2785, Cape Town, 8000)
Date: 08/11/2016 07:10:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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