Wrap Text
Interim financial results for the six months ended 30 September 2016
ACCELERATE PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration No 2005/015057/06)
JSE code: APF ISIN code: ZAE000185815
(REIT status approved) ("Accelerate" or "the company")
SENS ANNOUNCEMENT
NOVEMBER 2016
INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2016
HIGHLIGHTS
Year-on-year distribution per share growth of 8.1%
Property portfolio value of R9.1 billion (17% year-on-year growth)
Total portfolio GLA of 533 356 m2
Net asset value growth of 20% (year-on-year)
INTRODUCTION AND KEY INDICATORS
Accelerate remained focused on maximising rental income and tenant recoveries, reducing vacancies,
effectively managing costs and enhancing the quality of our property portfolio.
Due to the current economic climate rentals in B and C-grade office space as well as smaller outlying retail centres are under pressure. Accelerate
however, has limited exposure to these pressures as the bulk of our office portfolio is A or premium grade (Cape Town foreshore, KPMG offices) and due to a
retail concentration in Gauteng in the densely populated high LSM area of Fourways.
As evident through the key indicators below Accelerate's portfolio has remained resilient to the current lack of economic growth due to the implementation
of our nodal strategy, our retail concentration in the Fourways area as well as our focus on acquiring high quality assets underpinned by long term leases
with quality tenants.
Indicator 30 September 2016 31 March 2016
Yield* 9.1% 8.61%
Portfolio value R9.1 billion R8.4 billion
GLA 533 356 m2 520 226 m2
Number of properties 60 61
Net asset value R6.1 billion R5.7 billion
Weighted average lease expiry 5.5 years 5.1 years
Lease escalations 7.8% 8.04%
Vacancies (net of structural vacancies) 7.75% 7.13%
Listed/large national tenants 64.8% 62.2%
* This is based on an average share price of R6.30 for the period ended 30 September 2016 (2015: R6.23).
ACQUISITIONS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2016
Acquisition of the Portside Tower in Cape Town
The acquisition of approximately 50% (25 224 m2 of GLA) of the Portside Tower in Cape Town for a purchase price of R755 million was concluded on 14 June
2016. As part of the sale, the seller is to provide a rental guarantee of R110 million to be drawn by Accelerate over an estimated period of five years in
order to ensure a yield of between 7.5% and 10.0% on the building during the guarantee period.
The acquisition represents the implementation of one of our operational goals in developing and growing strategic nodes across South Africa. The Portside
Tower gives us the opportunity to expand in the Foreshore node in the Western Cape and capitalise on an opportunity within Cape Town's growing property
market.
The Portside Tower is an iconic building in Cape Town, South Africa. Standing at 139 metres, it is the tallest building in Cape Town. With its 5-star green
rating, it also stands as one of the most environmentally friendly high-rise buildings in Cape Town and follows best practice regarding sustainability,
visual impact, public space, green building principles, climate control, ease of access, security and social responsibility. It holds 1 444 parking bays,
70 of which are designated for hybrid or alternative fuel vehicles and 16 holding electric car chargers, 70 motorcycle bays and 227 bicycle spaces. The
building is designed to encourage employees to cycle to work, with clear cycle routes allocated, and change rooms with showers and lockers. Community
bicycle racks are also available to the public.
PROSPECTS AND INVESTMENT PIPELINE
Acquisition of Eden Meander in George
Eden Meander Lifestyle Centre in George was transferred to Accelerate at the beginning of October 2016. The centre was acquired for a purchase price of
R365 million at a yield of 9.1%. The centre is currently 97% let. The site also has bulk of 10 000 m2 which Accelerate will only pay for after three years
from the transfer of the property.
The Fourways development
The Fourways Mall redevelopment is now well underway having commenced in the third quarter of 2015. Approximately 90 000 m2 of retail space will be added
to the existing Fourways Mall with a projected completion date of 2018. The development is being done outside of Accelerate by a related party to
Accelerate. As a result Accelerate does not hold any development risk. Upon completion of the development Accelerate will own 50% of the approximately 170
000 m2 super-regional shopping centre. Phase 1 of the development including a new food court anchored by a flagship "Bounce store" will be completed within
the next month.
OFFSHORE ACQUISITIONS
Accelerate is in the process of acquiring nine single-tenant net lease retail properties in Austria and Slovakia through Accelerate Europe (set up in the
Netherlands) for EUR82 million. The properties are being acquired at an in-country yield of approximately 7%, backed by long-term leases (greater than 10
years) guaranteed by the holding company of the retailer.
The transaction will be funded as follows:
50% by in-country debt at a fixed rate of just under 2% per annum
50% through equity from South Africa through Accelerate Property Fund Limited
Further to the above, Accelerate will look to take out a cross-currency swap on approximately 50% of the equity being invested from South Africa which
should result in a net yield of approximately 11.5%.
FINANCIAL PERFORMANCE FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2016
Accelerate earned a gross rental income (excluding straight-line rental revenue adjustment) of R498 million for the period (2015: R417 million).
The group's major expenses were largely recovered in terms of leases and consisted of: utility charges of R99.4 million (2015: R89.9 million), security of
R13.6 million (2015: R12.3 million) and cleaning costs of R5.8 million (2015: R5.4 million).
The net property expenses of R27.7 million (2015: R40.6 million), in conjunction with R26.4 million in other operating costs (2015: R20.8 million),
resulted in Accelerate achieving a 13.96% cost-to-income ratio (2015: 17.93%).
Our distribution per share for the period of 28.766 cents (2015: 26.617 cents) shows a year-on-year distribution growth of 8.1%. Refer to the distribution
analysis for more detail as well as comparatives.
Distribution per share is used as a performance measure for trading statement purposes.
FINANCIAL POSITION
Accelerate continues to create value through selective acquisitions that compliment our nodal strategy, careful management of funding costs and a
conservative hedging policy.
As at 30 September 2016, Accelerate's investment property portfolio had a value of R9.1 billion (R8.4 billion at 31 March 2016), excluding the effects of
straight-lining. The increase in the portfolio is due to the acquisition of the Portside building in Cape Town for R755 million. Two properties with a
cumulative value at 31 March 2016 of R87 million were sold during the period.
Long-term debt allocation
30 September 2016 31 March 2016
R'000 % R'000 %
Debt capital markets 1 001 000 27.0% 1 001 000 33.5%
Bank funding 2 705 014 73.0% 1 991 264 64.5%
Total 3 706 014 100% 2 992 264 100%
Weighted average debt term (years) 2.6 2.7
Short-term portion of debt 862 900 23.3% 422 356 14.1%
Debt hedged 2 900 000 78.25% 2 600 000 86.9%
Weighted average swap term (years) 2.4 2.4
Blended interest rate 8.6% 8.24%
Interest cover ratio (x) 2.4x 2.8x
Loan-to-value 40.5% 35.6%
Consolidated statement of financial position 30 September 31 March
2016 2016
Note R'000 R'000
ASSETS
Non-current assets 9 312 814 8 496 381
Investment property 1 9 277 933 8 422 776
Derivative financial assets 3/6 33 941 73 086
Property, plant and equipment 940 519
Current assets 587 193 278 605
Trade and other receivables 3 278 299 207 177
Cash and cash equivalents 3 308 894 71 428
Investment property held for sale 43 657 130 726
Non-current assets held for sale 43 657 130 726
Total assets 9 943 664 8 905 712
EQUITY AND LIABILITIES
Equity 6 105 558 5 771 966
Ordinary share capital 4 433 155 4 105 211
Other reserves 20 805 20 045
Retained income 1 651 598 1 646 710
Total equity 6 105 558 5 771 966
Non-current liabilities 2 870 390 2 597 181
Borrowings 3 2 843 114 2 569 905
Contingent compensation to vendor 2 27 276 27 276
Current liabilities 967 716 536 565
Trade and other payables 3 104 816 114 209
Borrowings 3 862 900 422 356
Total equity and liabilities 9 943 664 8 905 712
Consolidated statement of comprehensive income For the six months For the six months
ended ended
30 September 2016 30 September 2015
Note R'000 R'000
Revenue, excluding straight-line rental revenue adjustment 498 042 417 496
Straight-line rental revenue adjustment 16 027 38 249
Revenue 514 069 455 745
Property expenses (138 407) (115 045)
Net property income 375 662 340 700
Operating expenses (26 441) (20 880)
Operating profit 349 221 319 820
Fair value adjustments 5 (39 145) (1 860)
Other income 620 833
Gain on non-current assets held for sale or disposal groups 5 931 -
Finance income 16 870 6 652
Profit before long-term debt interest and taxation 333 497 325 445
Finance costs (139 314) (113 801)
Profit before taxation 194 183 211 644
Taxation - -
Total comprehensive income attributable to equity holders 194 183 211 644
EARNINGS PER SHARE
Basic earnings per share (cents) 23.36 29.74
Diluted earnings per share (cents) 23.05 29.41
DISTRIBUTABLE EARNINGS
Profit after taxation attributable to equity holders 194 183 211 644
Less: straight-line rental revenue adjustment (16 027) (38 249)
Add: fair value adjustments 39 145 1 860
Add: distribution from reserves 15 298 17 105
Distributable earnings 232 599 192 360
Distribution per share (cents) 28.766 26.617
Consolidated statement of changes in equity Other Share Retained Total
Reserves Capital Income Equity
R'000 R'000 R'000 R'000
Balance at 1 April 2015 7 223 3 422 723 1 174 197 4 604 143
Total comprehensive income attributable to equity holders
211 644 211 644
Issue of shares 421 743 421 743
Distribution paid (161 465) (161 465)
Conditional share plan reserve 1 650 1 650
Antecedent distribution reserve* 8 685 8 685
Total contributions by and distributions to owners of company
recognised directly in equity 10 335 421 743 50 179 482 257
Balance at 30 September 2015 17 558 3 844 466 1 224 376 5 086 400
Balance at 1 April 2016 20 045 4 105 211 1 646 710 5 771 966
Total comprehensive income attributable to equity holders - - 194 183 194 183
Issue of shares - 327 944 - 327 944
Distribution paid (13 924) - (189 295) (203 219)
Conditional share plan reserve 2 294 - - 2 294
Antecedent distribution reserve* 12 390 - - 12 390
Total contributions by and distributions to owners of company
recognised directly in equity 760 327 944 (189 295) 139 409
Balance at 30 September 2016 20 805 4 433 155 1 651 598 6 105 558
* This reserve relates to the antecedent distribution portion of the capital raised.
Consolidated statement of cash flows For the six For the six
Months months
ended ended
30 September 30 September
2016 2015
R'000 R'000
Cash flows from operating activities
Cash generated from operations 258 165 234 329
Distribution paid* (203 219) (131 237)
Finance income 16 870 6 652
Tax paid (2 471) (3 023)
Net cash from operating activities 69 345 106 721
Cash flows from investing activities
Purchase of property, plant and equipment (525) -
Purchase of investment property/capitalised cost (839 130) (935 945)
Prepayment of properties being acquired - (78 206)
Proceeds from disposal of investment property 93 000 28 420
Net cash from investing activities (746 655) (985 731)
Cash flows from financing activities
Proceeds on share issue 241 976 395 206
New long-term borrowings 942 000 1 183 500
Settled long-term borrowings (228 245) (575 000)
Finance costs (139 314) (113 801)
Dividend reinvestments 98 359 36 024
Net cash from financing activities 914 776 925 929
Total cash movement for the period 237 466 46 919
Cash at the beginning of the period 71 428 58 817
Total cash at end of the period 308 894 105 736
For the 6 months For the 6 months
ended ended
30 September 2016 30 September 2015
Distribution analysis R'000 R'000
Distributable earnings 232 599 192 360
Shares qualifying for distribution
Number of shares at period end 859 652 330 758 455 048
Less: bulk ceded shares to Accelerate# (51 070 184) (51 070 184)
Add: shares issued after period end - 15 313 935
Shares qualifying for distribution 808 582 146 722 698 799
Interim distribution per share made (cents) 28.76627 26.61692
# The cession on these shares relates to bulk in the Fourways area acquired by Accelerate at listing, these shares will only be eligible for dividends at
the earlier of the development of the bulk or December 2021.
For the For the
6 months 6 months
ended ended
30 September 30 September
2016 2015
Earnings per share R'000 R'000
Basic earnings per share (EPS) amounts are calculated by dividing profit
for the period attributable to ordinary equity holders of Accelerate by the
weighted average number of ordinary shares outstanding during the period.
Reconciliation of basic/diluted earnings to headline earnings
Total profit after tax 194 183 211 644
Gain on sale of non-current assets held for sale (5 931) -
Headline profit attributable to shareholders# 188 252 211 644
Basic earnings per share (cents) 23.36 29.74
Diluted earnings per share (cents) 23.05 29.41
Headline earnings per share (cents) 22.65 29.74
Diluted headline earnings per share (cents) 22.35 29.41
Shares in issue at the end of the period 859 652 330 758 455 048
Weighted average number of shares in issue 831 127 185 711 635 168
shares in issue
Dilutionary instruments
Shares subject to the deferred acquisition costs 4 295 396 7 168 341
Shares subject to the conditional share plan 6 851 733 724 492
Weighted average number of dilutionary instruments 11 147 129 7 892 833
Total diluted weighted average number of shares in issue 842 274 314 719 528 001
# The mark to market movement relating to the interest rate swaps for the period ended 30 September 2015 was incorrectly added back in determining the
headline profit. This has been corrected in the 30 September 2016 interim results and has resulted in a 0.26 cents reduction in both the headline earnings
per share and diluted headline earnings per share for the period ended 30 September 2015 as reflected in the comparative figures in the note above.
SEGMENTAL ANALYSIS
The individual properties are aggregated into segments with similar economic characteristics such as nature of the property and the occupier market it
serves. Management considers that this is best achieved by aggregating properties into office, industrial and retail.
Consequently, the company is considered to have three reportable operating segments, as follows:
Office segment: acquires, develops and leases offices;
Industrial segment: acquires, develops and leases warehouses and factories;
Retail segment: acquires, develops and leases shopping malls, community centres as well as retail centres.
Group administrative costs, profit/loss on disposal of investment property, finance revenue, finance costs, income taxes and segment liabilities are not
reported to the members of executive management on a segmented basis.
There are no sales between segments.
Period ended 30 September 2015 (6 months)
R'000 Office Industrial Retail Total
Statement of comprehensive income
Revenue, excluding straight-line rental
revenue adjustment 115 334 20 691 281 471 417 496
Straight-line rental adjustment 21 737 468 16 044 38 249
Property expenses (18 354) (3 936) (92 755) (115 045)
Segment operating profit 118 717 17 223 204 760 340 700
Other operating expenses (20 880)
Other income 833
Fair value gain/(loss) on financial instrument (1 860)
Finance income 6 652
Long term debt interest (113 801)
Profit before tax 211 644
Period ended 30 September 2016 (6 months)
R'000 Office Industrial Retail Total
Statement of comprehensive income
Revenue, excluding straight-line rental
revenue adjustment 132 374 32 864 332 804 498 042
Straight-line rental adjustment 7 891 1 873 6 263 16 027
Property expenses (34 806) (5 118) (98 483) (138 407)
Segment operating profit 105 459 26 619 240 584 375 662
Other operating expenses (26 441)
Other income 6 551
Fair value gain/(loss) on financial instrument (39 145)
Finance income 16 870
Long-term debt interest (139 314)
Profit before tax 194 183
For the year ended 31 March 2016
R'000 Office Industrial Retail Total
Statement of financial position extracts at 31 March 2016
Assets
Investment property balance 1 April 2015 921 328 282 874 5 627 655 6 831 857
Acquisitions 850 000 295 221 - 1 145 221
Capitalised costs 92 559 12 093 50 321 154 973
Disposals/classified as held for sale (28 420) - (130 726) (159 146)
Investment property held for sale - - 130 726 130 726
Straight-line rental revenue adjustment 35 655 2 217 30 187 68 059
Fair value adjustments 71 155 45 591 265 066 381 812
Segment assets at 31 March 2016 1 942 277 637 996 5 973 229 8 553 502
Other assets not managed on a segmental basis
Derivative financial instruments 73 086
Equipment 519
Current assets 278 605
Total assets 8 905 712
Period ended 30 September 2016 (6 months)
R'000 Office Industrial Retail Total
Statement of financial position extracts at 30 September 2016
Assets
Investment property balance 1 April 2016 1 942 277 637 996 5 973 229 8 553 502
Acquisitions 775 000 - - 775 000
Capital expenditure 2 864 - 61 266 64 130
Disposals/classified as held for sale - - (130 726) (130 726)
Investment property held for sale - - 43 657 43 657
Straight-line rental revenue adjustment 7 891 1 873 6 263 16 027
Segment assets at 30 September 2016 2 728 061 639 839 5 953 690 9 321 590
Other assets not managed on a segmental basis
Derivative financial instruments 33 941
Equipment 940
Current assets 587 193
Total assets 9 943 664
NOTES TO THE FINANCIAL STATEMENTS
CORPORATE INFORMATION
The condensed financial statements of Accelerate for the period ended 30 September 2016 were authorised for issue in accordance with a resolution of the
directors passed on 3 of November 2016. Accelerate is a public company incorporated and domiciled in South Africa whose shares are publicly traded on the
JSE. The registered office is located at Cedar Square Shopping Centre, corner Cedar Road and Willow Avenue, Fourways, Johannesburg. The principal
activities of Accelerate are the acquisition, development and leasing of properties. The functional and presentation currency of Accelerate is South
African rand. All figures are rounded off to R'000 except where otherwise stated.
BASIS OF PREPARATION
These condensed financial statements for the period ended 30 September 2016 are prepared in accordance with the framework concepts and the measurement and
recognition requirements of International Financial Reporting Standards (IFRS), contains the minimum information required by IAS 34 Interim Financial
Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Reporting Pronouncements as issued by
Financial Reporting Standards Council, the requirements of the Companies Act, 71 of 2008, as amended and the JSE Listings Requirements.
The accounting policies applied in the preparation of these condensed financial statements are in terms of IFRS and are consistent with those applied in
the previous financial period, except for the new and amended IFRS that became effective during the 30 September 2016 reporting period, none of which had
any material impact on Accelerate's financial result.
These condensed financial statements have been prepared under the historical cost convention except for investment properties which are measured at fair
value.
The fair value of investment properties is determined by directors with reference to market-related information while other financial liabilities are
valued with reference to market-related information and valuations as appropriate. All investment properties are valued by independent external valuers on
a three-year rolling cycle.
These condensed financial statements were prepared under the supervision of Mr Dimitri Kyriakides (CA)SA in his capacity as Chief Financial Officer.
1. FAIR VALUE MEASUREMENT OF INVESTMENT PROPERTIES
Levels of fair value measurements
It is the policy of Accelerate to have every property valued by an external valuer on a three-year rotational basis as required by the JSE Listings
Requirements. Accelerate's properties are only revalued once a year at its 31 March year end. This means that each property Accelerate holds is
independently valued at least every three years. The remaining investment properties held at the end of each reporting period are valued by Accelerate's
directors.
Each year the directors appoint external valuers who are responsible for the external valuations of property for the annual financial statements. Selection
criteria include market knowledge, reputation, independence and whether professional standards are maintained. Valuers are normally rotated every three
years. In addition, the directors are responsible for Accelerate's internal property valuations. Valuations for properties not externally valued are
performed internally by the directors. Internal methods are aligned with those used by external valuers.
At each valuation date, the directors analyse the movements in each property's value. For this analysis, the directors verify the major inputs applied in
the latest valuation by agreeing the information in the valuation computation to contracts (e.g., rent amounts in rental contracts), market reports (e.g.,
market rent, cap rates in property market reports) and other relevant documents. Each property is considered a separate asset class based on the unique
nature, characteristics and risks of the property. The directors compare each property's change in fair value with relevant external sources (such as the
investment property database or other relevant benchmarks) to determine whether the change is reasonable.
The directors have presented the valuation results at 31 March 2016 to Accelerate's independent auditors. This includes the major assumptions used in the
valuations, with an emphasis on property with fair value changes outside of the relevant thresholds.
Valuation techniques
The fair values of investment properties are determined using either a discounted cash flow (DCF) method or income capitalisation method (cap rate).
Discounted cash flow method
Under the DCF method, a property's fair value is estimated using explicit assumptions regarding the benefits and liabilities of ownership over the asset's
life including an exit or terminal value. As an accepted method within the income approach to valuation, the DCF method involves the projection of a series
of cash flows on a real property interest. To this projected cash flow series, an appropriate, market-derived discount rate is applied to establish the
present value of the cash inflows associated with the real property. The duration of the cash flow and the specific timing of inflows and outflows are
determined by events such as rent reviews, lease renewal and related lease-up periods, reletting, redevelopment or refurbishment. The appropriate duration
is typically driven by market behaviour that is a characteristic of the class of real property. In the case of investment properties, periodic cash flow is
typically estimated as gross income less vacancy, non-recoverable expenses, collection losses, lease incentives, maintenance cost, agent and commission
costs and other operating and management expenses. The series of periodic net cash inflows, along with an estimate of the terminal value anticipated at the
end of the projection period, is then discounted.
Income capitalisation method
Under the cap rate method, a property's fair value is estimated based on the normalised net operating income generated by the property, which is divided by
the capitalisation (discount) rate. The difference between gross and net rental income includes the same expense categories as those for the DCF method,
with the exception that certain expenses are not measured over time, but included on the basis of a time weighted average, such as the average lease-up
costs. Under the cap rate method, over and under-rent situations are separately capitalised/(discounted).
The external valuations at 31 March 2016 were performed by Mills Fitchet & David Hoffman and Partners CC, both accredited independent valuers with a
recognised and relevant professional qualification and with recent experience in the locations and categories of the investment property being valued. The
internal valuations were performed by the directors. The valuation models applied are in accordance with those recommended by the International Valuation
Standards Committee and are consistent with the principles in IFRS 13.
The movement in Accelerate's investment property balance from 31 March 2016 to 30 September 2016 is only due to acquisitions and disposals during the
period. None of the properties held at 31 March 2016 have been revalued for the period ended 30 September 2016 and new properties acquired were recognised
in the books of Accelerate at their purchase price, which the directors deem to be the fair value of the property at the date of acquisition.
The directors have assessed the changes market conditions and inputs to the valuations performed at 31 March 2016 and have deemed the valuations
performed at 31 March 2016 to still be applicable at 30 September 2016.
For the most recent valuations performed, the portfolio had the following vacancy rates, calculated based on vacant area to total GLA along with the
following estimates of when actual vacancy will equal the long-term rate:
Class of property Fair value as Current vacancies Long-term Estimated period
30 September 2016 vacancies of convergence
(excluding straight-
lining reserve)
Office 2 620 935 0% - 46.9% 5% - 15% 2.5 years
Industrial 639 878 0% 2% - 5% n/a
Retail 5 886 117 0% - 53% 5% - 10% 2 years
Total 9 146 930
The R9 146 930 includes the held for sale assets and excludes the straight-lining and unamortised leasing commission.
Changes in valuation techniques
There were no changes in valuation techniques during the period.
Highest and best use
For all investment property that is measured at fair value, the current use of the property is considered the highest and best use.
Valuation techniques and inputs derive level 3 fair values
The table below presents the following for each class of the investment property:
- the fair value measurements at the end of the reporting period;
- a description of the valuation techniques applied;
- the inputs used in the fair value measurement, including the ranges of rent charged to different units within the same building; and
quantitative information about the significant unobservable inputs used in the fair value measurement.
Fair value as at 30 September 2016
Class of property (excluding straight-lining reserve) Valuation technique Key unobservable inputs Ranges
Office 2,620,935 Income capitalisation * ERV * R42.42 - R209.36
* Rental growth p.a. * 7.71%
* Long-term vacancy rate * 5% - 15%
Industrial 639,878 Income capitalisation * ERV * R31.16 - R127.82
* Rental growth p.a. * 8.75%
* Long-term vacancy rate * 2% - 5%
Retail 5,842,460 Income capitalisation * ERV * R44.74 - R203.11
* Rental growth p.a. * 8.05%
* Long-term vacancy rate * 5% - 10%
Retail (held for sale) 43,657 Income capitalisation * ERV * R54.06 - R83.07
* Rental growth p.a. * 8.05%
* Long-term vacancy rate * 5% - 10%
9,146,930
Descriptions and definitions
The above table includes the following descriptions and definitions relating or valuation techniques and key unobservable inputs made in determining the
fair values.
Estimated rental value (ERV)
The rent at which space could be let in the market conditions prevailing at the date of valuation.
Rental growth
The estimated average increase in rent based on both market estimations and contractual indexations.
Long-term vacancy rate
The equivalent yield is defined as the internal rate of return of the cash flow from the property, assuming a rise to ERV at the next review, but with no
further rental growth.
Sensitivity analysis to significant changes in unobservable inputs within level 3 of the hierarchy.
The significant unobservable inputs used in the fair value measurement categorised within level 3 of the fair value hierarchy of the entity's portfolios of
investment property are:
- ERV;
- rental growth;
- long-term vacancy rate; and
- discount rate/yield.
Significant increases/(decreases) in the ERV (per m2 per annum) and rental growth per annum in isolation would result in a significantly higher/(lower)
fair value measurement. Significant increases/(decreases) in the long-term vacancy rate and discount rate (and exit or yield) in isolation would result in
a significantly lower/(higher) fair value measurement. Generally, a change in the assumption made for the ERV (per m2 per annum) is accompanied by:
- a similar change in the rent growth per annum and discount rate (and exit yield); and
- an opposite change in the long-term vacancy rate.
Across the portfolio of properties held, it was determined that if the equivalent yield applied per property increases/(decreases) by 50 basis points, the
overall value of the portfolio will decrease by 6.2% if the equivalent yield is increased, and increase by 7.1% if the equivalent yield is decreased.
2. CONTINGENT COMPENSATION TO VENDOR
As part of the sale and purchase agreement for properties acquired by Accelerate at listing, an amount of contingent purchase consideration has been agreed
with the vendor in accordance with the conditional deferred payment agreement. In accordance with this agreement, Accelerate will provide the vendor with
additional purchase consideration for any lettable vacant space excluded from the purchase consideration which is let within the first three years. This
payment will be settled by Accelerate through the issue of additional shares in Accelerate in future when certain conditions have been met. As at the
acquisition date, the fair value of the contingent purchase consideration was estimated at R209 784 554.
Below is a summary of how the vacant lettable space has been let in compliance with the conditions laid down in the agreement.
Movement in
agterskot
Contingent purchase consideration R'000
Opening balance 209 785
Reduction due to vacancies filled - Year ended 31 March 2015 (163 549)
Balance at 30 September 2015 46 236
Reduction due to vacancies filled - Year ended 31 March 2016 (18 960)
Balance at 30 September 2016 27 276
The contingent purchase consideration is a mechanism used to shift the risk of vacant space from purchaser (Accelerate) to the vendor. The manner in which
additional shares are issued to the vendor is unlikely to have a dilutive effect on yield.
3. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
31 March 2016
Financial assets Carried at fair value Amortised cost# Total
R'000 R'000 R'000
Derivative financial assets* 73 086 - 73 086
Trade and other receivables - 207 177 207 177
Cash and cash equivalents - 71 428 71 428
Total financial assets 73 086 278 605 351 691
Financial liabilities
Long-term interest-bearing borrowings - (2 569 905) (2 569 905)
Trade and other payables - (114 209) (114 209)
Current portion of long-term debt - (422 356) (422 356)
Total liabilities - (3 106 470) (3 106 470)
30 September 2016
Financial assets Carried at fair value Amortised cost# Total
R'000 R'000 R'000
Derivative financial assets* 33 941 33 941
Trade and other receivables 278 299 278 299
Cash and cash equivalents 308 894 308 894
Total financial assets 33 941 587 193 621 134
Financial liabilities
Long-term interest-bearing borrowings (2 843 114)
(2 843 114)
Trade and other payables (104 815) (104 815)
Current portion of long-term debt (862 900) (862 900)
Total liabilities - (3 810 829) (3 810 829)
* The values of the derivative financial asset shown at fair value are based on inputs other than quoted prices that are observable in the market for the
assets and liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices) - level 2. The value of the swaps is determined as the
discounted value of the future cash flows to be received from the swap assets. For the valuation current JIBAR was used as an indication of future JIBAR.
# The carrying value of financial assets and liabilities carried at amortised cost is considered to approximate the fair value of those financial assets
and liabilities. There have been no significant changes in valuation techniques or transfers between fair value hierarchy levels.
4. RELATED-PARTY TRANSACTION AND BALANCES
Relationships
M Georgiou and A Costa are directors of both Accelerate Property Fund Ltd and Accelerate Property Management Company (Pty) Ltd. Both directors' full
remuneration is paid by Accelerate Property Fund. M Georgiou owns 100% of Fourways Precinct (Pty) Ltd through The Michael Family Trust, and owns 100% of
Accelerate Property Management Company.
At 30 September At 31 March
2016 2016
R'000 R'000
Related-party balances
The Michael Family Trust# 48 503 50 040
Accelerate Property management company (Pty) Ltd 25 297 -
Contingent purchase
Fourways Precinct (Pty) Ltd (27 276) (27 276)
Vacancy guarantee
Fourways Precinct (Pty) Ltd 13 875 8 616
Development guarantee
Fourways Precinct (Pty) Ltd 20 857 6 887
For the 6 month
6 months ended
ended 30 September 2015
Related-party transactions 30 September 2016 R'000
R'000
Vacancy guarantee
Fourways Precinct (Pty) Ltd 5 259 4 420
Development guarantee
Fourways Precinct (Pty) Ltd 13 970 6 887
Interest charged
Interest charged on outstanding amounts:
Fourways Precinct (Pty) Ltd 1 473
The Michael Family trust 6 335
Accelerate Property Management costs
Fourways Precinct (Pty) Ltd 2 475 2 970
Accelerate Property Management Company (Pty) Ltd 2 387 1 203
5. FAIR VALUE ADJUSTMENTS
6 month period 6 month period
ended ended
30 September 30 September
2016 2015
Fair value adjustments R'000 R'000
Mark-to-market movement on swap (39 145) (1 860)
(39 145) (1 860)
Investment property held by Accelerate is only revalued at year end, thus fair value adjustments on investment property will only occur at year end.
6. ECONOMIC HEDGES
Accelerate holds interest rate swap contracts with notional amounts of R2 900 000 000 (31 March 2016: R2 600 000 000), whereby it pays a fixed rate of
interest and receives a variable rate based on one month JIBAR on the notional amount. The swap is used to hedge exposure to the variable interest rate
payments on the variable rate secured loans.
The interest rate swaps have been used to match the critical terms of the underlying debt to achieve economic hedging (hedge accounting has not been
applied for accounting purposes). Cash flows are expected to occur until March 2019 and will be recognised through profit or loss as and when incurred.
The aggregate fair value of the interest rate swaps at the end of the reporting period is R33 941 000 (31 March 2016: R73 086 000).
The valuation techniques applied to fair value the derivatives which include the swap models, use present value calculations. The model incorporates
various inputs including the credit quality of counterparties and forward rates. All derivative contracts are fully cash-collateralised, thereby
eliminating both counterparty and Accelerate's own non-performance risk. The derivatives are classified as level 2 of the fair value hierarchy.
7. CAPITAL COMMITMENTS
In terms of Accelerate's budgeting process, R65 million was allocated to Accelerates planned capital expenditure for the year ended 31 March 2017. As such,
Accelerate views this amount as authorised and not contracted for.
8. SUBSEQUENT EVENTS
Non-adjusting events after 30 September 2016
During the first week of October 2016 Eden Meander Lifestyle Centre in George transferred to Accelerate at a cost of R365 million and a yield on
acquisition of 9.1%. This acquisition was funded by R82 million from cash reserves and the balance through bank debt.
DIRECTORS' RESPONSIBILITY STATEMENT
The directors of Accelerate assume full responsibility for the preparation of the condensed financial statements.
FINAL DISTRIBUTION WITH AN ELECTION TO REINVEST CASH DISTRIBUTION FOR SHARES
The board of Accelerate has declared a final cash distribution (number 6) (cash distribution) of 28.76627 cents per ordinary share (2015: 26.61692 cents
per ordinary share) for the period ended 30 September 2016.
Shareholders will be entitled to elect to reinvest the Cash Distribution of 28.76627 cents per share after the deduction of the applicable dividend tax, in
return for shares (share re-investment alternative"), failing which they will receive the net cash distribution in respect of all or part of their
shareholding.
Shareholders who have dematerialised their shares are required to notify their duly appointed Central Securities Depository Participant (CSDP) or broker of
their election in the manner and time stipulated in the custody agreement governing the relationship between the shareholder and their CSDP or broker.
The source of the distribution comprises net income from property rentals earned from the company's property investments as well as interest earned on
excess cash on deposit. Please refer to the condensed statement of comprehensive income for further details.
A dividend withholding tax of 15% will be applicable on the dividend portion to all shareholders who are not exempt.
The issued share capital at the declaration date is 859 652 330 ordinary shares. The company's income tax reference number is: 9868626145.
Tax implications for South African resident shareholders
Accelerate was granted REIT status by the JSE with effect from 12 December 2013 in line with the REIT structure as provided for in the Income Tax Act, 58
of 1962, as amended (the Income Tax Act) and section 13 of the JSE Listings Requirements.
The REIT structure is a tax regime that allows a REIT to deduct qualifying distributions paid to investors in determining its taxable income.
The cash distribution of 28.76627 cents per ordinary share meets the requirements of a "qualifying distribution" for the purposes of section 25BB of the
Income Tax Act (a qualifying distribution). Accordingly, qualifying distributions received by local tax resident shareholders 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 Accelerate 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 CSDP or broker, as the case may be, in respect of uncertificated ordinary shares, or the transfer secretaries, in respect of certificated ordinary
shares:
a declaration that the distribution is exempt from dividends tax; and
a written undertaking to inform the CSDP, broker or transfer secretaries, as the case may be, should the circumstances affecting the exemption change or
the beneficial owner ceases 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 above mentioned documents to be submitted
prior to payment of the distribution, if such documents have not already been submitted.
Tax implications for non-resident shareholders
Qualifying distributions 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 24.45133 cents per ordinary share. A reduced dividend withholding tax rate in terms of the
applicable DTA may only be relied upon if the non-resident shareholders have provided the following forms to their CSDP or broker, as the case may be, in
respect of the uncertificated ordinary shares, or the transfer secretaries, in respect of certificated ordinary shares:
a declaration that the dividend is subject to a reduced rate as a result of the application of a DTA; and
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 ceases 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 above mentioned
documents to be submitted prior to payment of the distribution if such documents have not already been submitted, if applicable.
Summary of the salient dates relating to the cash distribution and share re-investment alternative are as follows:
2016
Circular and form of election posted to shareholders Tuesday, 8 November
Announcement of Share re-investment Alternative issue price and finalisation
information Tuesday, 15 November
Last day to trade (LDT) cum dividend Tuesday, 22 November
Shares to trade ex-dividend Wednesday, 23 November
Listing of maximum possible number of Share Re-investment Alternative
shares commences on the JSE Friday, 25 November
Last day to elect to receive the share re-investment alternative
(no late forms of election will be accepted)
by 12:00 (South African time) Friday, 25 November
November
Record date Friday, 25 November
Announcement of results of cash distribution and share re-investment alternative on SENS Monday, 28 November
Cheques posted to certificated shareholders and accounts credited by CSDP or broker
to dematerialised shareholders electing the cash distribution on or about Monday, 28 November
Share certificates posted to certificated shareholders and accounts credited by
CSDP or broker to dematerialised shareholders electing the share re-investment
alternative on or about Wednesday, 30 November
Adjustment to shares listed on or about Friday, 2 December
Notes:
Shareholders electing the share re-investment alternative are alerted to the fact that the new shares will be listed on LDT plus three days and that these
new shares can only be traded on LDT plus three days, due to the fact that settlement of the shares will be three days after record date, which differs
from the conventional one day after record date settlement process.
Share certificates may not be dematerialised or rematerialised between Wednesday, 23 November 2016 and Friday, 25 November 2016, both days inclusive.
The above dates and times are subject to change. Any changes will be released on SENS and published in the press.
The cash dividend or share re-investment alternative may have tax implications for resident and non-resident shareholders. Shareholders are therefore
encouraged to consult their professional advisers should they be in any doubt as to the appropriate action to take.
On behalf of the board
Mr TT Mboweni
(Non-executive chairman)
Mr M Georgiou
(Chief executive officer)
Mr D Kyriakides
(Chief financial officer)
8 November 2016
Corporate information
DIRECTORS
Mr TT Mboweni (non-executive chairman)
Mr A Costa (chief operating officer)
Dr GC Cruywagen (lead independent, non-executive director)
Mr JRP Doidge (independent non-executive director)
Mr TJ Fearnhead (independent non-executive director)
Mr M Georgiou (chief executive officer)
Mr D Kyriakides (financial director)
Ms K Madikizela (independent non-executive director)
Mr JRJ Paterson (executive director)
Prof F Viruly (independent non-executive director)
Registered office and business address
Cedar Square Shopping Centre, Management Office, 1st Floor, Cnr Willow Ave and Cedar Rd,
Fourways, Johannesburg, 2055
Tel: 010 001 0790
Web: www.acceleratepf.co.za
Investor relations
Instinctif Partners: Lizelle du Toit/Morne Reinders
Tel: 011 447 3030
Email: lizelle.dutoit@instinctif.com/morne.reinders@instinctif.com
Company secretary
TMF Corporate Services (South Africa)
(Pty) Ltd
Represented by:
Ms Joanne Matisonn
3rd Floor, 200 on Main, Cnr Main and Bowwood Roads
Claremont
7708
Transfer secretaries
Computershare Investor Services(Pty) Ltd
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107, South Africa
Tel: 011 370 5000
Email: proxy@computershare.co.za
Fax: 011 688 2238
Sponsor
The Standard Bank of South Africa Ltd
(Registration number 1962/000738/06)
30 Baker Street, Rosebank, 2196
PO Box, 61344, Marshalltown, 2107
Auditors
Ernst & Young Inc102 Rivonia Road, Sandton, Johannesburg, 2149
Tel: 011 772 3000
Internal Auditors
LateganMashego Auditors (Pty) Ltd
Registration number 2001/107847/07
Registered address: 11 Boca Walk, Highveld, Centurion, 0157
Email: lindie@lateganmashego.co.za
Tel: 0828987644/0836091159
Attorneys
Glyn Marais Inc.
(Registration number 1990/000849/21)
2nd Floor, The Place
1 Sandton Drive
Sandton
2196
(PO Box 652361, Benmore, 2010)
Date: 08/11/2016 08:00:00 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
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
