Wrap Text
Unaudited condensed consolidated interim results for the six months ended 30 September 2016
Vukile Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2002/027194/06)
JSE share code: VKE
ISIN: ZAE000056370
NSX share code: VKN
(Granted REIT status with the JSE)
(Vukile or the group or the company)
Unaudited condensed consolidated interim results for the six months ended 30 September 2016
HIGHLIGHTS
- Excellent progress in achieving strategic objective of becoming a retail-focused fund in South Africa
- Vukile, Synergy and Arrowhead transaction approved by shareholders
- Gearing ratio of 23.9% with debt fully hedged
- Sale of Sovereign portfolio R1.18 billion
- Successful refinance of R1.1 billion debt and R400 million equity raise during the reporting period
- Dividend of 67.65 cents per share – 7.0% increase for the six months ended 30 September 2016
1. Nature of operations
Vukile is a property holding and investment company through the direct and indirect ownership of immovable property.
The group holds a portfolio of predominantly direct retail property assets, as well as strategic shareholdings in
listed REITs. The company is listed on the JSE Limited and the NSX in Namibia under the Retail REITs sector.
2. Significant events and transactions
During this reporting period, the following significant transactions were effected:
2.1 Vukile announced on 29 August 2016 that it had entered into agreements with inter alia, Arrowhead Properties
Limited (Arrowhead) and Synergy Income Fund Limited (Synergy) to effect the repositioning of Vukile, Synergy
and Arrowhead (the transaction).
Through a series of inter-related transactions, the asset management function of Synergy will be internalised
through the sale of Vukile Asset Management (Pty) Ltd (VAM) to Synergy for the issue of new Synergy B shares to
Vukile with a value of c.R155 million. Further, Vukile will acquire the retail assets of Synergy for R2.47 billion
and will settle the transaction through the transfer of a portfolio of office and industrial assets and R18 million
in cash to Synergy.
The transaction has been approved by shareholders and the only outstanding condition precedent is Competition
Commission approval.
Post implementation of the transaction, Vukile will have achieved its goal of becoming a specialist retail fund in
South Africa while Synergy will be positioned as a specialist high-yielding, high-growth diversified fund under the
leadership of the Arrowhead stable who have significant experience in managing funds of this nature. In due course
Synergy will be renamed as GemGrow Properties Ltd.
2.2 Vukile announced previously that it had disposed of the property letting enterprises in respect of the five properties
known as Pretoria De Bruyn Park, Pretoria Navarre, Bloemfontein Fedsure House and Pretoria Koedoe Arcade (the
Sovereign portfolio) and Pretoria Arcadia Suncardia for a sale consideration of R1.18 billion, which amount was paid
to Vukile in cash on 31 August 2016, the date of transfer.
2.3 The refinancing/repayment of bank debt, DMTN corporate bonds and commercial paper amounting to R1.1 billion.
2.4 The raising of R400 million equity in April 2016 through an accelerated bookbuild whereby 23 668 639 shares were
issued at R16.90 per share, which equated to a 2% premium to the 30-day VWAP of R16.54.
3. Summary of Financial Performance
The directors of Vukile are pleased to report that the distribution for the six months ended 30 September 2016 has
increased by 7.0% to 67.64754 cents per share (prior period: 63.22200 cents per share).
The group's net profit available for distribution amounted to R526 million for the six months to 30 September 2016
(September 2015: R457 million), which represents an increase of 15% over the comparable period.
Summary of financial performance:
September September March
2016 2015 2016
Net asset value per share (cents) 1 851 1 774 1 842
Dividend per share (cents) 67.65 63.22 146.35
Loan to value ratio %(I) 28.0 32.0 31.9
Loan to value ratio net of available cash (%) 19.0 28.0 26.9
Gearing ratio (%)(II) 23.9 27.8 29.5
(I) Based on directors' valuation of the group's property portfolio at 30 September 2016.
(II) The gearing ratio is calculated by dividing total interest-bearing borrowings by total assets.
A reconciliation of profits available for distribution is set out below:
September September
2016 2015 Paragraph Variance
R000 R000 reference %
Property revenue 1 087 344 1 005 368 8.2
Property expenses (382 111) (368 353) (3.7)
Net profit from property operations 705 233 637 015 (a) 10.7
Asset management business-income - 11 886 (b) (>100)
Corporate and asset management expenses (51 653) (44 803) (c) (15.3)
Dividends received from investments 16 763 - (f) >100
Operating profit before finance costs 670 343 604 098 11.0
Net finance costs (166 693) (145 961) (d) (14.2)
Profit before taxation 503 650 458 137 9.9
Taxation (2 510) (6 868) (e) 63.5
Profit for the period 501 140 451 269 11.1
September September
2016 2015
R000 R000
Profit for the period 501 140 451 269
Movement in fair value of hedges (635) -
Attributable to non-controlling interests (19 932) (24 996)
Attributable to Vukile Group 480 573 426 273
Less: Distribution on shares issued post
31 March 2016/2015 (19 675) (48 188)
Add: Non-IFRS adjustments
Shares issued cum dividend 27 366 61 530
Dividends accrued on investments 33 848 13 302 (f)
Asset management income(I) 4 000 4 000
Available for distribution 526 112 456 917
Proposed distribution 467 203 405 351
(I) Arising from the sale of the asset management business to Sanlam where the amounts receivable, over a two-year
period to October 2016, of R16 million were present valued and offset against the loss on sale in terms of IFRS
requirements.
The above information has been extracted from the Unaudited condensed consolidated statements of profit or loss and
the Unaudited reconciliation of earnings to profit available for distribution.
(a) Net profit from property operations
The group's net profit from property operations, exclusive of straight-line rental accruals, has increased by
R68 million (10.7%) over the comparable period, from R637 million to R705 million.
The contributions to this increase are made up as follows:
Rm
Stable portfolio 26.5
Properties acquired in prior year 27.0
Synergy portfolio 3.7
Sold properties 6.2
Net interest reclassified 4.8
68.2
Further details of the property portfolio performance are set out in paragraph 9.
Doubtful debt allowance for tenant receivables
The allowance for the impairment of tenant receivables has increased marginally from R28.0 million at 31 March 2016
to R28.5 million at 30 September 2016, which is considered adequate at this stage. The doubtful debt allowance is
expected to increase to approximately 1.79% of gross rental income for the year ending 31 March 2017
(March 2016: 1.34%). A summary of the movement in the impairment allowance for trade receivables is set out below:
R000
Doubtful debt allowance 1 April 2016 28 010
Allowance for receivables impairment for the six-month period 6 151
Receivables written off as uncollectible (5 623)
Impairment allowance 30 September 2016 28 538
Bad debt write-off per the statement of profit or loss 5 950
(b) Asset management business income
As the asset management agreement of an external portfolio was terminated in a prior period no income is reflected
under this item.
Ongoing project management fees of R4 million were received in April 2016 and the final R4 million fee will be
received in October 2016, under the sale of the asset management business. In terms of IFRS these discounted fees
were offset against the loss on the sale of the asset management business and are not reflected in this period's
results, but are available for distribution as these fees are represented by cash.
(c) Corporate administrative and asset management expenditure
Group corporate administrative expenditure of R52 million is R7 million higher than the previous year's
expenditure of R45 million.
The increase is partly due to:
- aborted transactional costs being R2.6 million higher than the prior period; and
- consulting fees also exceeded the prior period by R1 million.
Excluding these items corporate administration and asset management expenditure reflects a 7.6% increase over the
prior period.
(d) Finance costs net of investment income
Group finance costs net of interest income have increased by R21 million from R146 million in comparable period
to R167 million.
A more detailed breakdown is set out below.
Group finance costs have increased by R31 million, from R180 million to R211 million. The increase in finance
costs is primarily due to interest arising on additional debt of R1.15 billion raised to part finance the
acquisitions of Soshanguve Batho Plaza, Silverton Industrial Warehouses, Tzaneen Maake Plaza (40%), Vereeniging
Bedworth Centre and the 26% stake in Atlantic Leaf for a full six-month period, which equated to an additional
R21 million.
Furthermore, the impact of interest rate increases on variable rate debt amounting to R7 million on R150 million
development debt which was previously capitalised and now expensed post the completion of Phase I of East Rand
Mall has also contributed to the increase in finance costs.
This increase was offset, to some extent, by interest saved on debt repaid during the period, primarily in
September 2016.
The average cost of finance for the six months to 30 September 2016 equates to approximately 8.7%, with all of
interest-bearing term debt hedged.
(e) Taxation
The first half tax accrual of R2.5 million is lower than the comparable period of R6.9 million as a result of a
positive timing difference of R3.0 million arising in a subsidiary. This tax comprises normal tax and deferred
tax on temporary timing differences. At year end, it is anticipated that taxes of approximately R9 million will
be payable. The bulk of the normal tax payable arises in respect of the Namibian subsidiaries.
(f) Dividends receivable from investments
Fairvest Atlantic Leaf Total
R000 R000 R000
Dividends received during interim period 16 763 27 860(I)
Less: Attributable to prior year (16 763) (20 510)
Dividends accrued for six months to 30 September 2016 17 948 25 313
Non-IFRS adjustments 17 948 32 663 50 611
Reflected as follows:
Dividends received from investments 16 763
Non-IFRS adjustments - dividends accrued(II) 33 848
50 611
(I) In terms of IFRS dividends received from an associate reduce the carrying value of the
investment in the associate.
(II) Dividends accrued have been reflected in the Unaudited condensed consolidated interim
results(a), and in the unaudited reconciliation of earnings to profit available for
distribution(b), as follows:
(a) Share of income from associate 28 228
(b) Dividends accrued from listed investment and associate 5 620
33 848
Fairvest Property Holdings Limited (Fairvest)
Fairvest is fair valued at 30 September 2016 at R375.4 million or R1.83 per share, representing a capital
appreciation of 25% over the cost of the investment.
Dividends received and accrued for the six months ended 30 September 2016 amount to R17.9 million.
The dividends paid by Fairvest for the year ended 30 June 2016 were 10.3% higher than the prior year. Furthermore,
26.2 million shares in Fairvest were acquired on 24 April 2015, and are accounted for in respect of a full
six-month period ended 30 September 2016 as compared to five months in the prior comparable period.
Atlantic Leaf Properties Limited (Atlantic Leaf)
Vukile holds a 26% shareholding in Atlantic Leaf. In terms of IFRS, Atlantic Leaf is regarded as an associate of
Vukile. As such all dividends received reduce the carrying value of the investment in Atlantic Leaf.
However, as dividends received are represented by cash these dividends are regarded as distributable.
95% of the dividends receivable in November 2016 in respect of Vukile's holding in Atlantic Leaf on the Mauritian
Stock Exchange of GBP675 000 have been sold forward at a rate of R21.30:£. Likewise, 100% of dividends receivable
in respect of the six months ending 28 February 2017 and payable around May 2017, are also the subject of a forward
exchange contract at R21.30:£.
Synergy
Vukile holds 9.95% and 89.55% of Synergy A and B shares respectively.
Synergy has declared a dividend of 49.68891 cents per A share, which represents a 5% increase over the prior period
and 29.67129 cents per B share, which represents an 8.6% decrease over the prior period dividend.
The reduction in the B dividend is mainly attributable to the additional interest costs incurred in increasing the
percentage of hedged debt from c.48% at 31 March 2016 to 66% at 30 September 2016, together with the impact of rising
interest rates in respect of the unhedged debt.
4. Capital Management
The group's finance strategy is to minimise funding costs and refinance risk.
The business objectives that are necessary to implement this strategy are summarised as follows:
September March September
Strategy 2016 2016 2015
Diversify funders to at least three providers Five funders Five funders Five funders
Diversify funding structures to incorporate, where appropriate: % of total % of total % of total
Bank debt(I) 68% 69% 57%
Secured bonds 19% 19% 26%
Commercial paper/unsecured bonds 13% 12% 17%
100% 100% 100%
Spread expiry terms of all interest-bearing debt to c.25% per annum Achieved Achieved Achieved
Hedge or fix more than 75% of interest-bearing debt 100%(II) 83.5%(II) 88.0%(II)
Maximise interest income and limit negative carry Achieved through increase in access facilities repayable
without break costs
(I) The increase in the use of bank debt from September 2015 has arisen due to the volatility experienced in the capital markets
and the consequent higher margins becoming less competitive.
(II) Vukile and its subsidiaries - excludes development debt and commercial paper.
Total interest-bearing debt is currently fully hedged. The all-in cost of finance is increasing as existing debt is re-financed
and new bank debt drawn down to finance new acquisitions. The average forecast borrowing cost for the March 2017 financial year is
estimated at 8.6% - 8.7% per annum. The cost of debt on new acquisitions in South Africa is estimated at 9.25% - 9.70% per annum.
The Global Credit Rating Company (Pty) Ltd (GCR) has recently re-affirmed an A corporate rating for Vukile and an AA+ (RSA)
rating on Vukile's senior secured bonds.
5. Interest rate hedging
At 30 September 2016, net debt, excluding development loans and commercial paper, amounted to R4.1 billion. Swaps totalling
R4.17 billion have been concluded.
A number of swaps have been extended during the six-month period ended 30 September 2016 totalling R1.6 billion at an annual
cost of R4.8 million, based on the difference between the existing swap rates and the new extended swap rates.
New swaps with a nominal value of R320 million were also concluded during this period at an annual cost of R1.6 million,
based on the difference between the current three-month JIBAR and the swap rates.
The current swaps in place represent 3.4 years' cover as compared to 3.0 years at 31 March 2016.
Swap expiry profile per calendar year (excluding Synergy) 2017 2018 2019 2020 2021 2022 Total
Nominal value (Rm) 681 256 504 645 940 501 3 527
19.3% 7.3% 14.3% 18.3% 26.6% 14.2% 100%
Synergy has R647 million swaps and fixed debt in place to cover debt of R937 million expiring between June 2016 and September 2020.
The existing facilities and swaps will remain in Synergy post the conclusion of the transaction.
Debt refinancing during the six months ended 30 September 2016
> Bond refinancing
– R200 million of corporate bonds were repaid on 8 May 2016.
– R255 million of commercial paper was repaid during the period under review, partly by way of a R170 million two-year unlisted
unsecured note maturing 1 April 2018, at a margin of 1.65% plus a swap cost of 7.93%, totalling 9.58% and the balance by way
of cash.
– R140 million of six-month commercial paper was refinanced at a fixed rate of 8.358%, maturing 29 March 2017.
> Bank refinancing
– R163.3 million bank debt was extended from April 2016 to September 2016 and repaid in September 2016; and
– a further R375 million bank term and access facility was repaid in September 2016, utilising part of the R1.1 billion proceeds
from the sale of the Sovereign portfolio.
Debt repayment profile
The graphs below set out the various tranches of debt payable by the group over the next eight years:
The company's borrowing capacity is unlimited in terms of its Memorandum of Incorporation (MOI). The group's loan to value ratio
at 30 September 2016, based on the directors' valuations of the property portfolio, was 27.0% (September 2015: 32%) compared to the
bank's covenants of 50%, the DMTN covenants of 40% in respect of those properties mortgaged as security under the DMTN programme and
45% in respect of total group debt as a percentage of the value of total group investment properties. The group has unutilised bank
facilities of R625 million at 30 September 2016.
6. Developments, acquisitions and sales
Upgrades/redevelopments – R654 million
As part of the ongoing strategy to improve the quality of the existing portfolio, the following projects have been completed or
are in progress.
East Rand Mall
East Rand Mall (in which the company owns a 50% undivided share with Redefine Properties Limited) has been upgraded and extended
at a total cost of R460 million, of which Vukile's share is R230 million. The projected yield on the total capex is 5.3%.
East Rand Mall, regarded as one of the top regional malls in South Africa, had a GLA of 63 460m², which has been increased to about
70 000m². The main entrances, malls and toilets have been upgraded, while some areas have been reconfigured to allow better utilisation
of the available space. New generators have been installed to provide full backup power to the centre during power outages, while a
new PV cell solar installation on the roof of the parking deck will decrease the centre's reliance on municipal power.
The extension of 6 540m² incorporates a relocated entrance four and a youth-oriented mall anchored by a Mr Price emporium (consisting
of its apparel, sport and home outlets and comprising about 3 700m²), Cotton-On and Toy Kingdom.
The major portion of the extensions and upgrades was completed in April 2016 while new tenant H&M is expected to open its doors by
the first week in December 2016.
Together with the adjacent East Point (previously East Rand Galleria), which is also being upgraded, shoppers will experience a
dominant super-regional shopping centre with a GLA of about 120 000m².
Durban: The Workshop
Durban Workshop is now fully let after having completed the R75 million upgrade of the centre in June this year.
A variety of new brands were added to the tenant mix which include the Pepkor Group, Edgars Connect, Spec Savers, Ginger International,
FNB, Le Coq Sportif and Bidvest.
The centre is reporting a footcount of over 1.1 million per month and the annual trading density increased to R32 400/m2. Dwell times
improved with the upgrade of the food court and adding brands such as KFC, McDonalds, Pie City and Maharaj Kitchen.
Demand for premises remain strong which should have a positive impact on rental growth.
The Bellville Barons VW building
The Bellville Barons VW building is situated at the Durban Road intersection with the N1 highway.
A 10-year lease has been concluded with Barloworld Auto for the development of a Ford dealership and workshop in the currently
vacant area and the area to be vacated by Toys-R-Us. The first phase, which comprises the workshop and services area, was completed
by June 2016. The second phase, comprising the new and second-hand car show rooms and offices, will commence in January 2017 for
completion by September 2017.
The total capex is R35.4 million and a yield of 15.1%, net of costs, is anticipated.
Bellville: Tijger Park 4 and 5 upgrade
The Tijger Park 4 office building has been let to the IT Department of the Pepkor Group. The lease period is five years with a
gross rental of R103/m² per month escalating at 7% per year.
In terms of the lease agreement, the building’s façade, entrance foyer and toilet blocks have been upgraded in line with the
recently completed upgrades to the Tijger Park buildings 1, 2 and 3. In addition, the roof at first-floor level over the atrium
was replaced by a new roof at the fourth-floor level. This created additional lease area of about 225m² on the second and
third floor.
Sections of the external façades, the entrance foyer, lift lobbies and toilet blocks of Tijger Park 5, have been upgraded at
the same time.
The total capex is R20.0 million and the project was completed by August 2016.
Durban: Phoenix Plaza Upgrade
Phoenix Plaza, with a GLA of 24 363m², is being upgraded at a cost of R24.5 million. The scope of the project includes upgrades
to the external façades of the centre and the parking garage, new advertising pylons, upgrades to the four entrances, new mall
tiles, selective upgrades to the ceilings and bulkheads, one new toilet block and the upgrade of the two existing toilet blocks
and repairs to the external paving and the existing roof lights. The projected completion date is August 2017.
Dobsonville Shopping Centre: Extension and upgrade
Dobsonville Shopping Centre, with a GLA of 23 177m², is situated in northern Soweto. This mall, last upgraded in 2008, trades
well with regular requests received from prospective tenants seeking to lease premises.
An amount of R114.0 million was approved in May 2016 to invest in the extension and improvements of this destination mall.
Besides important internal improvements and enhanced retail mix, the upgrade of the exterior aesthetics together with a new
food court area will pull shoppers to the redeveloped mall. The northern side of the mall anchored by a 2 500m² Pick n Pay
supermarket will be extended by an additional 5 791m² GLA. Further extensions include a new food court area adding another
1 100m². The projected net yield is 9.9%.
Construction of the improvements and extension are under way with completion scheduled for 30 June 2017.
Randburg Square Tower: Residential Conversion Project
The redevelopment of Randburg Square 12-storey office component into 180 income producing residential apartments was completed
at the end of October 2016. This striking well-located residential tower situated above the mall is within easy access to
public transport, employment opportunities and amenities. It has set a new standard of affordable spacious rental housing with
state-of-the-art security access and monitoring systems, backbone fibre TV connections and smart metering systems providing tenants
with daily consumption data and billing information among other features.
Leading residential agency Trafalgar has been appointed as the leasing and property managers. The lease-up rates for the
recently completed apartments has been very good with 68% of the units already occupied. Demand for this prominent and
well-positioned residential building continues to attract strong interest.
The capital expenditure for this conversion project amounted to R80 million with an expected initial yield of 9.4%.
Current Vukile projects
A summary of major capex projects approved and incurred to 30 September 2016 is set out below:
Approved projects Paid to Budget
Anticipated/actual 30 September October 2016
completion dates Approved 2016 to March 2017
Durban: The Workshop 28 February 2017 75 000 000 70 071 963 4 928 037
Boksburg: East Rand Mall(II) 31 March 2017 222 000 000 173 835 286 48 164 714
Durban: Phoenix Plaza 31 August 2017 24 500 000 - 8 844 509
Bellville: Barons Ford(II) 30 June 2017 30 900 000 16 512 675 3 090 000
Bellville: Louis Leipoldt 28 February 2017 22 000 000 - 2 200 000
Dobsonville Centre Extension(II) 30 October 2017 114 000 000 11 880 072 51 308 506
Thohoyandou: Thavhani Mall(I) 31 August 2017 350 076 000 - -
Springs Mall(I)(II) 31 March 2017 259 625 000 96 838 189 56 470 000
Randburg Residential (figures includes VAT)(II) 30 October 2016 81 000 000 68 174 515 11 013 103
Bellville: Tijger Park 4 and 5 31 August 2016 20 500 000 17 147 935 3 352 065
1 199 601 000 454 460 635 189 370 934
(I) The financing for Springs Mall and Thavhani Mall has already been raised and is invested in a two-year deposit earning
8.4% per annum, pending completion of these two malls.
The other projects will be financed out of the proceeds from property sales and existing bank facilities.
(II) Further payments will be made after 31 March 2017.
Developments - R610 million
Thavhani Mall
Vukile secured a 33% stake in the 50 000m² Thavhani Mall at Thavhani City in Thohoyandou, Limpopo, for R350.1 million after
concluding a deal with the developers, Thavhani Property Investments (Pty) Ltd, which is owned by Flanagan & Gerard Property
Investment & Development together with some local partners.
Leasing at Thavhani Mall is going well and it is now more than 86% let with confirmed anchor tenants including Pick n Pay,
Super Spar, Woolworths and Edgars, while a broad range of other national retailers will be part of the tenant mix. Nedbank,
Standard Bank and FNB have already committed to lease in the centre while negotiations with Absa Bank and Old Mutual are being
finalised.
Construction work on Thavhani Mall is progressing well and it is still on course for the official opening on 24 August 2017.
Springs Mall
Vukile has acquired a 25% stake in the 44 662m² Springs Mall for R259.6 million. The centre is being developed and managed by
Blue Crane Eco Mall (Pty) Ltd, in which Flanagan & Gerard is a shareholder, together with local partners Murinda Investments and
the D'Arrigo family.
Springs Mall is currently 95% let with confirmed anchor tenants including Pick n Pay, Checkers, Woolworths and Edgars, while
negotiations are continuing with Game to also lease premises in the centre.
Construction work is progressing well and the centre is scheduled for completion in March 2017.
Property disposals concluded during the period - R1.181 billion
In line with the group's strategy to focus on retail assets, the following properties were disposed of during the year:
Sales
price Yield
Property R000 % Date of sale
Bloemfontein Fedsure House 89 700 8.6 31 August 2016
Pretoria Arcadia Suncardia 265 600 10.0 31 August 2016
Pretoria De Bruyn Park 305 100 9.3 31 August 2016
Pretoria Koedoe Arcade 129 700 12.2 31 August 2016
Pretoria Navarre Building 391 200 16.1 31 August 2016
1 181 300 12.0
In support of the retail strategy, further sale agreements to the value of R443.9 million have been concluded with reputable
purchasers for the sale of the following properties. The due diligence investigations have been concluded and the transactions
have progressed to the levels as indicated below:
Sales
price Yield
Property R000 % Progress
Cape Town Parow De Tijger Day Clinic 31 860 8.0 Securities for purchase price in place
Cape Town Parow De Tijger Office Park 38 940 11.8 Securities for purchase price in place
Cape Town Bellville Louis Leipoldt 373 100 8.0 Subject only to Competition Commission approval
443 900 8.3
The proceeds from property sales will be used to repay debt, as well as fund potential accretive acquisitions, both locally and
internationally.
7. Valuation of portfolio
The accounting policies of the group require that the directors value the entire portfolio every six months at fair
market value. Approximately one half of the portfolio is valued every six months, on a rotational basis, by
registered independent third-party valuers. The directors have valued the group's property portfolio at
R14.8(1) billion as at 30 September 2016. This is R0.8 billion or 4.9% less than the valuation as at 31 March 2016
due to sales during the period. The calculated recurring forward yield for the portfolio is a conservative 9.1%.
The external valuations by Quadrant Properties (Pty) Ltd and Knight Frank (Pty) Ltd at 30 September 2016 of 44.1%
of the total portfolio are in line with the directors' valuations of the same properties.
(1) The group's property portfolio overview takes into account Moruleng Mall at 80%, whereas in the financial
statements the group property value reflects 100% of Clidet, which owns Moruleng Mall.
Fair value measurement of non-financial assets (investment properties)
The fair value of commercial buildings are estimated using an income approach which capitalises the estimated
rental income stream, net of projected operating costs, using a discount rate derived from market yields. The
estimated rental stream takes into account current occupancy levels, estimates of future vacancy levels, the terms
of in-place leases and expectations of rentals from future leases over the remaining economic life of the buildings.
The most significant inputs, all of which are unobservable, are the estimated rental value, assumptions regarding
vacancy levels, the discount rate and the reversionary capitalisation rate. The estimated fair value increases if
the estimated rental increases, vacancy levels decline or if discount rates (market yields) and reversionary
capitalisation rates decline. The overall valuations are sensitive to all four assumptions. Management considers the
range of reasonable possible alternative assumptions is greatest for reversionary capitalisation rate, rental values
and vacancy levels and that there is also an interrelationship between these inputs. The inputs used in the
valuations at 30 September 2016 were:
- The range of the reversionary capitalisation rates applied to the portfolio are between 8.0% and 16.8% (March 2016:
between 7.8% and 16.5%) with the weighted average being 9.6% (March 2016: 9.7%).
- The discount rates applied range between 12.8% and 19.6% (March 2016: between 12.8% and 19.6%) with the weighted
average being 14.2%. (March 2016: 14.2%).
In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated
demand.
Sensitivity analysis
The effect on the fair value of the portfolio of a 0.25% increase in the discount rate would result in a decrease
in the fair value of R389 million (2.6%) (March 2016: R420 million (2.7%)). The average discount rate on the
portfolio would increase from 14.2% to 14.5% (March 2016: 14.5%) and the average exit capitalisation rate would
increase from 9.6% to 9.9% (March 2016: 9.9%) due to the interlinked nature of the rates. The analysis has been
prepared on the assumption that all other variables remain constant.
8. Group Property Portfolio Overview
The group property portfolio at 30 September 2016 consisted of 98 properties with a total market value of
R14.8 billion, excluding capitalised lease commissions, and gross lettable area of 1 270 734m², with an average
value of R151 million per property.
The geographical and sectoral distribution of the group's portfolio is indicated in the tables below. The portfolio is
well represented in most of the South African provinces and Namibia. Some 81% of the gross income is derived from Gauteng,
KwaZulu-Natal, Western Cape and Namibia.
Geographic profile
Vukile Synergy Total
portfolio portfolio portfolio
% of gross income % % %
Gauteng 54 11 47
KwaZulu-Natal 16 23 17
Western Cape 6 33 11
Namibia 7 0 6
North West 4 12 5
Free State 4 4 4
Limpopo 3 8 4
Mpumalanga 2 9 3
Eastern Cape 4 0 3
Based on market value 73% of the group portfolio is in the retail sector followed by 14% in the office, 9% in the
industrial, 3% in the hospital and 1% in the motor-related sectors. Post the finalisation of the transaction, the retail
component will equate to 86% of the total portfolio.
The tenant profile for the Vukile and Synergy portfolios are listed in the table below:
Tenant profile
Vukile Synergy Total
portfolio portfolio portfolio
% of GLA % % %
Large national and listed tenants and major franchises 50 75 54
Government 3 - 3
National and listed tenants, franchised and medium to large professional firms 11 5 10
Other 36 20 33
The retail portfolio's exposure to national, listed and franchised tenants is 80% in total.
Vukile's tenant concentration risk is considered to be low as the top 10 tenants account for 36% of total GLA. If the
Synergy portfolio is excluded, the top 10 tenants account for 34% of total GLA. Shoprite is the single largest tenant,
occupying 6.2% of total GLA with Steinhoff the second largest at 4.8% of total GLA. If the Synergy portfolio is excluded,
the exposure to Shoprite and Steinhoff is 6.4% and 4.3%, respectively. The Synergy portfolio's exposure to the top 10
tenants is 48%, with Spar the largest at 18.6% and Steinhoff at 7.6%.
Top 10 properties by value
Directors'
valuation at
Rentable 30 Sept
area 2016 % Valuation
Property Location Sector m² Rm of total R/m²
Boksburg East Rand Mall* Boksburg Retail 34 541 1 258 8.5 36 420
Durban Phoenix Plaza Durban Retail 24 363 761 5.1 31 236
Gugulethu Square Gugulethu Retail 25 322 437 3.0 17 258
Soweto Dobsonville Shopping Centre Soweto Retail 23 177 413 2.8 17 819
Queenstown Nonesi Mall Queenstown Retail 28 147 397 2.7 14 105
Pinetown Pine Crest* Pinetown Retail 20 056 389 2.6 19 396
Moruleng Mall (80%) Moruleng Retail 25 137 378 2.6 15 038
Randburg Square Randburg Retail 40 767 378 2.6 9 272
Cape Town Bellville Louis Leipoldt Cape Town Hospital 22 311 375 2.5 16 808
Oshakati Shopping Centre Oshakati Retail 24 632 358 2.4 14 534
Total top 10 268 453 5 144 34.8 19 162
* Represents an undivided 50% share in this property.
Directors'
valuation at
Rentable 30 Sept
area 2016 % Valuation
Sector m² Rm of total R/m²
Retail 246 142 4 769 32.3 19 375
Hospital 22 311 375 2.5 16 808
Total top 10 268 453 5 144 34.8 19 162
The 10 largest retail centres (representing 47% of the total retail portfolio value) reflects 87% exposure to
national, listed and franchised tenants.
Top 10 retail centres (based on value)
Directors'
valuation at % of total National,
30 Sept retail listed and
2016 portfolio franchised
Rm value tenants %
Boksburg East Rand Mall* 1 258 11.6 87.5
Durban Phoenix Plaza 761 7.0 80.0
Gugulethu Square 437 4.0 89.6
Soweto Dobsonville Shopping Centre 413 3.8 84.5
Queenstown Nonesi Mall 397 3.7 95.9
Pinetown Pine Crest* 389 3.6 92.7
Moruleng Mall (80%) 378 3.5 82.2
Randburg Square 378 3.5 83.3
Oshakati Shopping Centre 358 3.3 94.3
Durban Workshop 350 3.2 73.1
5 119 47.4 86.6
* Represents an undivided 50% share in this property.
9. Property portfolio performance
New leases and renewals of 156 639m² with a contract value of R693 million were concluded during the year to date.
Some 72% of leases to be renewed during the six months ended 30 September 2016 were renewed or are in the process
to be renewed.
Details of large contracts concluded
Contract Lease
value duration
Tenant Property Sector Rm Years
Spar Hartbeespoort Sediba Shopping Centre Retail 42.2 10
Game Stores Pinetown Pine Crest (50%) Retail 30.5 9
Barloworld South Africa Cape Town Bellville Barons Motor-related 24.8 10
Spar Makhado Nzhelele Valley Shopping Centre Retail 22.3 10
Jet Stores Durban Phoenix Plaza Retail 16.4 6
Productivity SA Midrand IBG Offices 14.5 6
The Ministry of Information Windhoek 269 Independence Avenue Retail 12.0 5
Mr Price Durban Phoenix Plaza Retail 11.6 5
EMID Pretoria Lynnwood Sanlynn Offices 11.5 4
Absa Bank Cape Town Bellville Suntyger Offices 11.2 5
The group lease expiry profile table reflects that 14% of the leases are due for renewal in the second half of the
year. Approximately 43% of leases are due to expire in 2020 and beyond (up from 33%).
Group lease expiry
Beyond
March March March March March March
Vacant 2017 2018 2019 2020 2021 2021
% of GLA % % % % % % %
GLA 5.0 14 18 20 15 8 20
Cumulative as at September 2016 5.0 19 37 57 72 80 100
Cumulative as at March 2016 3.9 32 47 67 78 85 100
Vacancies
At 30 September 2016, the portfolio's vacancy (measured as a percentage of gross rental) was unchanged at 5.0%. When
measured as a percentage of gross lettable area vacancies were at 5.0%, compared to 3.9% at 31 March 2016.
If the current development vacancy of 3 545m² at East Rand Mall and Ermelo Game Centre is included, the vacancy on
lettable area increases from 4.1% (March 2016) to 5.3% and from 5.3% (March 2016) to 5.5% based on gross rental.
The vacancy per sector (measured as a percentage of gross lettable area) is indicated in the table below.
30 September
30 September 2016
2016 including
31 March 30 September development development
2016 2016 vacancy vacancy
Vacancies % % % %
Retail 3.5 3.9 0.5 4.4
Offices 5.0 10.4 - 10.4
Industrial 4.3 4.8 - 4.8
Sovereign 4.2 Sold - -
Hospital 0.0 0.0 - 0.0
Motor-related 0.0 0.0 - 0.0
Total 3.9 5.0 0.3 5.3
The office vacancies increased mainly as a result of a tenant vacating ± 9 000m² at Sunninghill Park. This was known at
the time that budgets were prepared and the financial impact has already been taken into consideration. This space is
actively marketed and we have received keen interest from potential tenants.
Vukile is engaged in various initiatives to reduce portfolio vacancies including broker focus groups, the publishing of
vacancy information directly to brokers and also utilising the Vukile vacancy website, leasing incentives on selected
properties, incentives to property management companies and leasing brokers, etc.
GLA summary GLA m²
Balance at 1 April 2016 1 427 591
GLA adjustments (10 822)
Disposals (146 831)
Acquisitions and extensions 796
Balance at 30 September 2016 1 270 734
Vacancy summary Area m² %
Balance at 31 March 2016 55 139 3.9
Less: Properties sold since 31 March 2016 (6 298) (4.4)
Remaining portfolio balance at 31 March 2016 48 841 3.8
Leases expired or terminated early 143 274
Renewal of expired leases (110 748)
Contracts to be renewed (24 635)
New letting of vacant space (38 262)
Tenants vacated 45 498
Balance at 30 September 2016 63 968 5.0
Base rentals (excluding recoveries)
The weighted average monthly base rental rates per sector, between 31 March 2016 and 30 September 2016, are set out
in the table below:
Weighted average base rentals (R/m²) excluding recoveries September March Escalation
2016 2016 %
Retail 117.70 114.61 2.7
Offices 96.04 94.56 1.6
Industrial 45.33 44.65 1.5
Sovereign Sold 101.50 -
Hospital 113.90 106.55 6.9
Motor-related 121.83 121.91 (0.1)
Total 98.74 96.71 2.1
Average contractual rental escalations of 7.5% are slightly lower than the previous year (7.6%).
Positive reversions were achieved at 6.4% in the retail sector, but the industrial and office sectors are under
pressure with reversions at 0.4% and negative 0.5%, respectively. The average escalation on expiry rentals on the
total portfolio of 4.1% is still positive against the backdrop of a difficult trading environment.
New leases were concluded at 3.2% above budget in the retail sector, but lower than budget in the office, industrial
and motor-related sectors.
The financial performance of the stable portfolio is set out below:
September September
2016 2015
Financial performance Rm Rm % change
Property revenue 672.1 639.3 5.1
Net property expenses 113.7 110.5 2.9
Net property income 558.4 528.8 5.6
Property expense ratios (%)* 16.9 17.3 (2.1)
* Net cost to property revenue ratios (including rates and taxes and electricity costs; excluding asset management
fee).
Expense categories and ratios
The top four expense categories contribute 80% of the total expenses. These are: government services (45%), rates and
taxes (17%), cleaning and security (11%) and property management fees (7%).
The group continuously evaluates methods of containing costs in the portfolio. The stable portfolio's recurring net
costs to property revenue ratios (excluding electricity and rates and taxes) of 15.7% in September 2016 is still in
line with the ratio of 15.0% in March 2010 and hence have been well contained.
If all recurring net expenses are taken into consideration, the ratio of recurring net cost to property revenue of 16.9%
is positive compared to the March 2016 ratio of 18.3%.
Rent collection and arrears
An important part of protecting the group against the likelihood of tenants defaulting on their lease agreements is
our credit vetting process prior to the acceptance of a tenant. We have developed a comprehensive screening process for
each applicant, which assesses the tenant according to type (national, government, SMMEs and other), nature of business,
main shareholders and other relevant characteristics, and in the case of renewals, payment history.
As such, it is important to closely monitor our arrears book and any changes to tenant payment processes. We measure the
effectiveness of our collections process based on the percentage collected by the fifth business day of each month. The
collection percentages across current tenants are under pressure and we have seen an increase in the number of legal
cases mainly among smaller line shops across a number of retail centres as well as isolated industrial tenants. Our
current provisions are considered adequate at this stage.
10. Operating segment reporting
The revenues and profits generated by the group's operating segments and segment assets are summarised in the table below.
During the six-month period to 30 September 2016, there has been no change from prior periods in the measurement methods
used to determine operating segments and reported segment profits.
Operating segment analysis for the six months ended 30 September 2016
Retail - Retail -
Vukile Synergy Offices Industrial Residential
GROUP R000 R000 R000 R000 R000
September 2016
Group income for the six months ended 30 September 2016
Property revenue(i) 403 391 128 337 131 045 67 721 1 377
Straight-line rental income accrual (27 556) (8 203) (9 522) (4 388) (39)
375 835 120 134 121 523 63 333 1 338
Property expenses (net of recoveries)(i) (68 080) (21 477) (15 183) (14 330) (906)
Profit from property and other operations 307 755 98 657 106 340 49 003 432
(i) The property revenue and property expense have been reflected
net of recoveries. The unaudited condensed consolidated statement
of profit and loss reflects the gross property revenue and
gross property expenses.
Group statement of financial position at 30 September 2016
Assets
Investment properties 8 392 166 2 451 436 461 293 456 404 68 431
Add: Lease commissions
Goodwill 48 218 3 889
Investment properties held for sale 61 887 1 592 000 880 016
8 502 271 2 451 436 2 053 293 1 340 309 68 431
Add: Excluded items
Investment property under development
Equity investments
Investment in associate
Intangible asset
Furniture, fittings and computer equipment
Available-for-sale financial asset
Derivative financial instruments
Loans receivable
Deferred taxation assets
Trade and other receivables
Taxation refundable
Cash and cash equivalents
Total assets
Equity and liabilities
Stated capital 4 406 283 1 277 696 1 070 184 696 549 35 666
Interest-bearing borrowings 2 445 169 709 029 593 876 386 533 19 792
6 851 452 1 986 725 1 664 060 1 083 082 55 458
Add: Excluded items
Other components of equity and retained earnings
Non-controlling interest
Derivative financial instruments
Trade and other payables
Current taxation liabilities
Total equity and liabilities
Motor- Total
Sovereign Hospital related group
GROUP R000 R000 R000 R000
September 2016
Group income for the six months ended 30 September 2016
Property revenue(i) 56 705 15 671 6 234 810 481
Straight-line rental income accrual (5 892) (1 285) (494) (57 379)
50 813 14 386 5 740 753 102
Property expenses (net of recoveries)(i) 14 985 (40) (217) (105 248)
Profit from property and other operations 65 798 14 346 5 523 647 854
(i) The property revenue and property expense have been reflected
net of recoveries. The unaudited condensed consolidated statement
of profit and loss reflects the gross property revenue and
gross property expenses.
Group statement of financial position at 30 September 2016
Assets
Investment properties 156 680 11 986 410
Add: Lease commissions 39 939
12 026 349
Goodwill 52 107
Investment properties held for sale 402 177 2 936 080
402 177 156 680 15 014 536
Add: Excluded items
Investment property under development 188 239
Equity investments 375 433
Investment in associate 636 959
Intangible asset 106 265
Furniture, fittings and computer equipment 2 720
Available-for-sale financial asset 32 364
Derivative financial instruments 1 015
Loans receivable 38 110
Deferred taxation assets 10 020
Trade and other receivables 215 702
Taxation refundable 123
Cash and cash equivalents 1 470 500
Total assets 18 091 986
Equity and liabilities
Stated capital 209 616 81 662 7 777 656
Interest-bearing borrowings 116 322 45 317 4 316 038
325 938 126 979 12 093 694
Add: Excluded items
Other components of equity and retained earnings 5 008 896
Non-controlling interest 565 616
Derivative financial instruments 25 575
Trade and other payables 396 781
Current taxation liabilities 1 424
Total equity and liabilities 18 091 986
Operating segment analysis for the six months ended 30 September 2015
Retail - Retail -
Vukile Synergy Offices Industrial Sovereign
GROUP R000 R000 R000 R000 R000
September 2015
Group income for the six months ended 30 September 2015
Property revenue 466 363 167 487 185 862 82 757 81 357
Straight-line rental income accrual 24 084 8 094 9 086 4 444 4 749
490 447 175 581 194 948 87 201 86 106
Property expenses (net of recoveries) (171 313) (68 318) (74 546) (28 307) (23 170)
Profit from property and other operations 319 134 107 263 120 402 58 894 62 936
Group statement of financial position at 30 September 2015
Assets
Investment properties 7 178 712 2 531 973 2 162 485 1 250 937 939 728
Add: Lease commissions
Goodwill 51 073 4 951 3 889
Investment properties held for sale 133 000 12 350
7 362 785 2 536 924 2 174 835 1 254 826 939 728
Add: Excluded items
Investment property under development
Equity investments
Intangible asset
Furniture, fittings and computer equipment
Available-for-sale financial asset
Derivative financial instruments
Loans receivable
Deferred taxation assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity and liabilities
Stated capital 3 441 229 1 152 193 1 023 575 588 751 442 280
Interest-bearing borrowings 2 355 635 788 712 700 668 403 015 302 754
5 796 864 1 940 905 1 724 243 991 766 745 034
Add: Excluded items
Other components of equity and retained earnings
Non-controlling interest
Derivative financial instruments
Deferred taxation liabilities
Trade and other payables
Current taxation liabilities
Total equity and liabilities
Asset
Motor- management Total
Hospital related Total business group
GROUP R000 R000 R000 R000 R000
September 2015
Group income for the six months ended 30 September 2015
Property revenue 15 496 6 046 1 005 368 11 886 1 017 254
Straight-line rental income accrual 1 111 427 51 995 - 51 995
16 607 6 473 1 057 363 11 886 1 069 249
Property expenses (net of recoveries) (1 886) (813) (368 353) (2 915) (371 268)
Profit from property and other operations 14 721 5 660 689 010 8 971 697 981
Group statement of financial position at 30 September 2015
Assets
Investment properties 383 555 138 478 14 585 868 14 585 868
Add: Lease commissions 39 408 39 408
14 625 276 14 625 276
Goodwill 59 913 59 913
Investment properties held for sale 145 350 145 350
383 555 138 478 14 830 539 14 830 539
Add: Excluded items
Investment property under development 93 892
Equity investments 359 020
Intangible asset 117 934
Furniture, fittings and computer equipment 2 693
Available-for-sale financial asset 31 110
Derivative financial instruments 16 326
Loans receivable 658 546
Deferred taxation assets 4 129
Trade and other receivables 188 626
Cash and cash equivalents 672 953
Total assets 16 975 768
Equity and liabilities
Stated capital 180 519 65 174 6 893 721 6 893 721
Interest-bearing borrowings 123 571 44 613 4 718 968 4 718 968
304 090 109 787 11 612 689 11 612 689
Add: Excluded items
Other components of equity and retained earnings 4 429 395
Non-controlling interest 562 135
Derivative financial instruments 1 571
Deferred taxation liabilities 8 872
Trade and other payables 358 721
Current taxation liabilities 2 385
Total equity and liabilities 16 975 768
11. Declaration of a cash dividend with the election to reinvest the cash dividend in return for Vukile shares
Notice is hereby given of a gross dividend amounting to 67.64754 cents per share, out of distributable income,
for the six-month period to 30 September 2016.
Shareholders will be entitled to elect (in respect of all or part of their holding) to reinvest the cash dividend
of 67.64754 cents per share, in return for shares (the share reinvestment alternative), failing which they will
receive the cash dividend in respect of (all or part of) their holdings.
A circular providing further information in respect of the cash dividend and the share reinvestment alternative will
be posted to shareholders on 25 November 2016.
The distribution of the circular and/or accompanying documents and the right to elect shares in jurisdictions other
than the Republic of South Africa (SA) may be restricted by law, and failure to comply with any of these restrictions
may constitute a violation of the securities laws of any such jurisdictions. The right to elect shares is not being
offered to shareholders, directly or indirectly, in the United Kingdom, European Economic Area (EEA), Canada,
United States of America, Japan and Australia unless certain exemptions from the requirements of those jurisdictions
are applicable.
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.
Tax implications
Vukile was granted REIT status by the JSE Limited with effect from 1 April 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 dividends paid to investors, in determining
its taxable income.
The cash dividend of 67.64754 cents per share meets the requirements of a "qualifying distribution" for the purposes
of section 25BB of the Income Tax Act (a qualifying distribution) with the result that:
- qualifying distributions received by resident Vukile shareholders must be included in the gross income of such
shareholders (as a non-exempt dividend in terms of section 10(1)(k)(i)(aa) of the Income Tax Act), with the effect
that the qualifying distribution is taxable as income in the hands of the Vukile shareholder. These qualifying
distributions are, however, exempt from dividends withholding tax, provided that the South African resident shareholders
provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the
company, in respect of certificated shares:
- a declaration that the distribution is exempt from dividends tax; and
- a written undertaking to inform the CSDP, broker or the company, as the case may be, should the circumstances affecting
the exemption change or the beneficial owner cease to be the beneficial owner;
both in the form prescribed by the Commissioner for the South African Revenue Service. Shareholders are advised to
contact their CSDP, broker or the company, 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.
- qualifying distributions received by non-resident Vukile 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 dividends withholding tax. From 1 January 2014, any qualifying distributions are subject to dividends
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 dividends withholding tax
will be withheld at a rate of 15%, the net distribution amount due to non-resident shareholders is 57.50041 cents.
A reduced dividend withholding rate in terms of the applicable DTA, may only be relied upon if the non-resident holder has
provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the
company, in respect of certificated shares:
- a declaration that the distribution 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 company, as the case may be, should the circumstances
affecting the reduced rate change or the beneficial owner cease to be the beneficial owner;
both in the form prescribed by the Commissioner for the South African Revenue Service. Non-resident holders are advised to
contact their CSDP, broker or the company, 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.
Shareholders who are South African residents are advised that in electing to participate in the share reinvestment
alternative, pre-taxation funds are utilised for the reinvestment purposes and that taxation will be due on the total cash
dividend amount of 67.64754 cents per share.
Shareholders are further advised that:
- the issued capital of Vukile is 690 643 418 shares of one cent each at 30 September 2016; and
- Vukile's tax reference number is 9331/617/14/3.
This cash dividend or share reinvestment alternative may have tax implications for resident as well as non-resident
shareholders. Shareholders are therefore encouraged to consult their tax and/or professional advisers should they be in any
doubt as to the appropriate action to take.
The salient dates relating to the cash dividend and share reinvestment alternative are as follows:
2016
Circular and form of election posted to shareholders Friday, 25 November
Finalisation information including the ratio and price per share released on SENS Monday, 5 December
Last day to trade in order to participate in the election to receive the share
reinvestment alternative or to receive a cash dividend (LDT) Monday, 12 December
Share trade ex-dividend Tuesday, 13 December
Listing of maximum possible number of shares under the share
reinvestment alternative Thursday, 15 December
Last day to elect to receive the share reinvestment alternative or to receive
a cash dividend (no late forms of election will be accepted) at 12:00 (SA time) Thursday, 15 December
Record date for the election to receive the share reinvestment alternative or to
receive a cash dividend (record date) Thursday, 15 December
Results of cash dividend and share reinvestment alternative released on SENS Monday, 19 December
Cash dividend cheques posted to certificated shareholders on or about Monday, 19 December
Accounts credited by CSDP or broker to dematerialised holders with the
cash dividend payment Monday, 19 December
Share certificates posted to certificated shareholders on or about Wednesday, 21 December
Accounts updated with new shares (if applicable) by CSDP or broker to
dematerialised shareholders Wednesday, 21 December
Adjustment to shares listed on or about Friday, 23 December
Notes
1. Shareholders electing the share reinvestment alternative are alerted to the fact that the new shares will be
listed on LDT +3 and that these new shares can only be traded on LDT +3, 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.
2. Shares may not be dematerialised or rematerialised between Monday, 12 December 2016 and Thursday, 15 December 2016,
both days inclusive.
3. The above dates and times are subject to change. Any changes will be released on SENS.
12. Basis of preparation
The condensed consolidated interim financial statements have been prepared in accordance with and containing the
information required by International Financial Reporting Standards, IAS 34 - Interim Financial Reporting, the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Announcements
as issued by the Financial Reporting Standards Council, the JSE Listings Requirements and the relevant sections of the
South Africa Companies Act.
All amendments to standards applicable for Vukile's financial period beginning on 1 April 2016 have been considered.
All accounting policies applied in the preparation of these interim financial statements are consistent with those
applied by Vukile in its consolidated financial statements for the year ended 31 March 2016, other than the adoption of
those amendments to standards that become effective in the current period, which had no impact on the financial results.
Preparation of the condensed consolidated interim financial statements was supervised by Michael Potts CA(SA) in his
capacity as financial director but have not been reviewed or reported on by Vukile's independent external auditors.
13. Post period events
Distribution
Declaration of dividend
In line with IAS10 - Events after the Reporting Period, the declaration of the dividend of 67.64754 cents per share in
respect of the six-month period to 30 September 2016 amounting to R467.2 million occurred after the reporting period,
resulting in a non-adjusting event that is not recognised in the financial statements.
14. Prospects
Despite a continually challenging and volatile economic and political environment, the business remains on a very stable
and solid operational footing. We still anticipate that Vukile will be able to deliver earnings growth in line with previous
guidance of a 7% increase in dividend on the prior year.
The forecast growth in dividend is based on the assumptions that the macro-economic environment does not deteriorate further
and no major corporate failures will occur. Forecast rental income is based on contractual escalations and market-related
renewals. This forecast has not been reviewed or reported on by the company's auditors.
The major restructuring undertaken through the sale of the Sovereign portfolio and the imminent finalisation of the transaction
whereby Vukile will emerge as a focused retail fund in South Africa has undoubtedly left the business in a significantly
enhanced position by eliminating direct exposure to higher risk sectors of the market.
The proceeds from the sale of the Sovereign portfolio for R1.18 billion, have been earmarked for offshore expansion.
There are a number of discussions currently underway in this regard. Management is, however, focused on making sure that
these funds are used to further the strategic, long-term goals of the group and will not consider a transaction based
solely on short-term objectives.
This forecast has not been reviewed or reported on by the company's auditors.
On behalf of the board
AD Botha LG Rapp
Chairman Chief executive officer
Melrose Estate
24 November 2016
Unaudited condensed consolidated statement of financial position at 30 September 2016
Unaudited Unaudited Audited
30 September 30 September 31 March
2016 2015 2016
Group R000 R000 R000
ASSETS
Non-current assets 13 469 354 15 968 839 15 525 681
Investment properties 11 502 598 14 290 681 13 302 386
Investment properties 12 026 349 14 625 276 13 737 892
Straight-line rental income adjustment (523 751) (334 595) (435 506)
Other non-current assets 1 966 756 1 678 158 2 223 295
Straight-line rental income asset 523 751 334 595 435 506
Investment in associate 636 959 - 760 049
Equity investments 375 433 359 020 328 247
Investment properties under development 188 239 93 892 87 033
Furniture, fittings, computer equipment and other 2 720 2 693 2 127
Available-for-sale financial asset 32 364 31 110 19 842
Goodwill and intangible asset 158 372 177 847 158 372
Derivative financial instruments 788 16 326 41 230
Deferred taxation assets 10 020 4 129 2 779
Long-term cash deposit - - 350 000
Long-term loans granted 38 110 658 546 38 110
Current assets 1 686 552 861 579 831 794
Trade and other receivables 215 702 188 626 246 873
Derivative financial instruments 227 - 1 245
Current taxation asset 123 - 1 217
Cash and cash equivalents 1 470 500 672 953 582 459
Investment properties held for sale 2 936 080 145 350 1 997 744
Total assets 18 091 986 16 975 768 18 355 219
EQUITY AND RESERVES
Equity attributable to owners of the parent 12 786 552 11 323 116 11 932 574
Non-controlling interest 565 616 562 135 556 681
Non-current liabilities 2 774 438 3 676 551 4 114 331
Other interest-bearing borrowings 2 750 209 3 666 108 4 098 319
Derivative financial instruments 24 229 1 571 5 269
Deferred taxation liabilities - 8 872 10 743
Current liabilities 1 965 380 1 413 966 1 751 633
Trade and other payables 396 781 358 721 439 937
Borrowings 1 565 829 1 052 860 1 309 687
Derivative financial instruments 1 346 - -
Current taxation liabilities 1 424 2 385 2 009
Total equity and liabilities 18 091 986 16 975 768 18 355 219
Net asset value per share (cents)(1) 1 851 1 774 1 842
(1) Excluding non-controlling interest.
Unaudited condensed consolidated statement OF profit or loss for the six months ended 30 September 2016
Unaudited Unaudited Audited
30 September 30 September 31 March
2016 2015 2016
Group R000 R000 R000
Property revenue 1 087 344 1 005 368 2 096 400
Straight-line rental income accrual (57 379) 51 995 243 221
Gross property revenue 1 029 965 1 057 363 2 339 621
Property expenses (382 111) (368 353) (780 584)
Net profit from property operations 647 854 689 010 1 559 037
Net income from asset management business - 8 971 2 074
Corporate and administrative expenses (51 653) (41 888) (84 288)
Investment and other income 61 038 34 530 99 337
Operating profit before finance costs 657 239 690 623 1 576 160
Finance costs (210 968) (180 491) (394 301)
Profit before capital items 446 271 510 132 1 181 859
Loss on sale of investment properties (65 316) (22 276) (31 883)
Fair value gain/(loss) on listed property securities 47 186 (75 779) (98 425)
Fair value movement of derivative financial instruments (6 337) (215) (1 342)
Foreign exchange profit 60 768 - 26 825
Profit on sale of listed property securities - - 547
Gain on bargain purchase - 11 669 1 053
Goodwill written-off on sale of properties by a subsidiary - - (4 951)
Realised loss on interest rate hedge (635) - -
Cost of acquisition of business combination - (283) (1 230)
Loss on sale of intangible asset - (30) -
Profit before fair value adjustments 481 937 423 218 1 072 453
Fair value adjustments 388 062 356 216 560 049
Gross change in fair value of investment properties 330 683 408 211 803 270
Straight-line rental income adjustment 57 379 (51 995) (243 221)
Profit before equity-accounted investment 869 999 779 434 1 632 502
Share of income from associate 28 228 - 19 423
Profit before taxation 898 227 779 434 1 651 925
Taxation (2 510) (6 868) (9 076)
Profit for the period 895 717 772 566 1 642 849
Attributable to owners of parent 863 021 747 570 1 586 079
Attributable to non-controlling interests 32 696 24 996 56 770
Other comprehensive (loss)/income
Items that will be reclassified subsequently to profit or loss
Currency loss on translation of investment in associate (118 047) - (7 377)
Cash flow hedges (60 839) 26 594 40 673
Available for sale financial assets - current period loss (6 697) (10 160) (21 498)
Other comprehensive (loss)/income for the period (185 583) 16 434 11 798
Total comprehensive income for the period 710 134 789 000 1 654 647
Total comprehensive income attributable to: 677 438 764 004 1 597 664
Owners of parent
Non-controlling interest 32 696 24 996 56 983
Basic and diluted earnings per share (cents)(I) 130.07 124.81 249.55
Weighted average number of shares 663 514 893 598 960 127 635 569 998
Number of shares 690 643 418 638 155 312 647 667 287
(I) Vukile has no dilutionary shares in issue.
Unaudited reconciliation of earnings to headline earnings and to profit available for distribution
for the six months ended 30 September 2016
Unaudited Unaudited Audited
30 September 2016 30 September 2015 31 March 2016
Group Cents Group Cents Group Cents
R000 per share R000 per share R000 per share
Attributable profit to owners of the parent 863 021 130.07 747 570 124.81 1 586 079 249.55
Earnings per share 863 021 130.07 747 570 124.81 1 586 079 249.55
Change in fair value of investment properties (net of allocation to
non-controlling interest) (375 298) (56.56) (356 216) (59.47) (546 188) (85.94)
Gain on bargain purchase - - (11 669) (1.95) (1 053) (0.17)
Write-off of goodwill on sale of properties sold by a subsidiary - - - - 4 951 0.78
Loss on sale of investment properties 65 316 9.84 22 276 3.72 31 883 5.02
Profit on sale of listed securities - - - - (547) (0.08)
Fair value earnings of associate-adjusted headline earnings - - - - (7 353) (1.16)
Loss on sale/impairment of intangible asset - - 30 - - -
Headline earnings of shares 553 039 83.35 401 991 67.11 1 067 772 168.00
Straight-line rental accrual 57 379 8.65 (51 995) (8.68) (243 221) (38.27)
Revaluation (surplus)/loss on listed investments (47 186) (7.11) 75 779 12.65 98 425 15.49
Cost of acquisition of business combination - - 283 0.05 1 230 0.19
Fair value movement of derivative financial instruments 6 337 0.96 215 0.04 1 342 0.21
Foreign exchange profit (60 768) (9.16) - - (26 825) (4.22)
Add: Non-IFRS adjustments
Project management fees received from sale of the Sanlam Asset
Management business(II) 4 000 0.60 4 000 0.67 8 000 1.26
Shares issued cum dividend 27 366 4.12 61 530 10.27 63 024 9.92
Fair value earnings of associate - headline earnings adjustment - - - - 7 353 1.16
Dividends receivable from listed securities 5 620 0.85 13 302 2.22 19 212 3.02
Additional dividends distributed on shares issued post
31 March 2016(I) (19 675) (2.97) (48 188) (8.04) - -
Available for distribution 526 112 79.29 456 917 76.29 996 312 156.76
Weighted average number of shares in issue 663 514 893 598 960 127 635 569 998
Headline and diluted headline earnings per share 83.35 67.11 168.00
(I) The R400 million equity issuance in April 2016 gave rise to a higher distribution as the shareholders who participated were entitled to receive the
second distribution for the six months ended 31 March 2016.
(II) Arising from the sale of the asset management business to Sanlam, where the amounts receivable in 2016 totalling R16 million were present valued
and offset against the loss on sale of the business, in terms of IFRS requirements.
Unaudited condensed consolidated statement of cash flow for the six months ended 30 September 2016
Unaudited Unaudited Audited
30 September 30 September 31 March
2016 2015 2016
R000 R000 R000
Cash flow from operating activities 650 543 614 991 1 282 448
Cash flow from investing activities 1 005 786 (910 086) (2 124 333)
Cash flow from financing activities (1 118 288) 494 159 1 300 455
Net increase in cash and cash equivalents 538 041 199 064 458 570
Cash and cash equivalents at the beginning of the period 932 459 473 889 473 889
Cash and cash equivalents at the end of the period 1 470 500 672 953 932 459
Major items included in the above:
Cash flow from operating activities
Profit before tax 898 227 779 434 1 651 925
Adjustments (233 220) (165 856) (402 521)
Cash flow from investing activities
Acquisition of and improvements to investment properties (263 836) (958 039) (1 578 544)
Acquisition of associate - - (758 570)
Net proceeds on sale of investment properties 1 201 206 185 699 327 356
Cash flow from financing activities
Issue of shares 709 093 1 221 380 1 347 944
Dividends paid (581 816) (493 144) (937 494)
Finance costs (210 968) (180 491) (389 522)
Interest-bearing borrowings (repaid)/advanced (1 033 252) 567 930 1 280 901
Unaudited condensed consolidated statement of changes in equity for the six months ended 30 September 2016
Share Non- Non-
capital distribu- Share- controlling
and share table Retained holders' interest
R000 premium reserves earnings interest (NCI) Total
GROUP
Balance at 30 September 2015 6 893 721 4 021 688 407 707 11 323 116 562 135 11 885 251
Issue of shares 174 842 - - 174 842 - 174 842
Dividend - - (408 499) (408 499) (26 184) (434 683)
7 068 563 4 021 688 (792) 11 089 459 535 951 11 625 410
Profit for the period - - 838 509 838 509 31 774 870 283
Change in fair value of investment
properties - 401 431 (395 059) 6 372 (6 372) -
Change in fair value of investments
attributable to non-controlling interest - (13 860) 13 860 - - -
Share-based remuneration - 8 459 - 8 459 - 8 459
Deferred taxation on change in fair
value of derivative - (10 417) - (10 417) - (10 417)
Transfer to non-distributable reserves - 2 384 (2 384) - - -
Gains from change in shareholding in
subsidiary - 5 041 - 5 041 (5 863) (822)
Non-controlling interest arising on
business combination - - - - 978 978
Revaluation of investments - (22 646) 22 646 - - -
Other comprehensive loss - (4 849) - (4 849) 213 (4 636)
Balance at 1 March 2016 7 068 563 4 387 231 476 780 11 932 574 556 681 12 489 255
Issue of shares 709 093 - - 709 093 - 709 093
Dividend - - (558 055) (558 055) (23 761) (581 816)
7 777 656 4 387 231 (81 275) 12 083 612 532 920 12 616 532
Profit for the period - - 863 021 863 021 32 696 895 717
Change in fair value of investment
properties - 330 683 (330 683) - - -
Change in fair value of investments
attributable to non-controlling interest - (12 764) 12 764 - - -
Share-based remuneration - 8 706 - 8 706 - 8 706
Deferred taxation on change in fair
value of derivative - 16 161 - 16 161 - 16 161
Transfer from non-distributable reserves - (85 186) 85 821 635 - 635
Revaluation of investments - 47 186 (47 186) - - -
Other comprehensive loss - (185 583) - (185 583) - (185 583)
Balance at 30 September 2016 7 777 656 4 506 434 502 462 12 768 552 565 616 13 352 168
Notes to the condensed financial statements
for the six months ended 30 September 2016
1. Measurements of fair value
1.1 Financial instruments
The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair
value hierarchy as follows:
September 2016 September 2015
Level 1 Level 2 Total Level 1 Level 2 Total
GROUP R000 R000 R000 R000 R000 R000
ASSETS
Investments 375 433 - 375 433 359 020 - 359 020
Available-for-sale financial assets 55 294 - 55 294 60 423 - 60 423
Derivative financial instruments - 1 015 1 015 - 16 326 16 326
Total 430 727 1 015 431 742 419 443 16 326 435 769
LIABILITIES
Available-for-sale financial liabilities - (22 930) (22 930) - (29 313) (29 313)
Derivative financial instruments - (25 575) (25 575) - (1 571) (1 571)
Total - (48 505) (48 505) - (30 884) (30 884)
Net fair value 430 727 (47 490) 383 237 419 443 (14 558) 404 885
March 2016
Level 1 Level 2 Total
GROUP R000 R000 R000
ASSETS
Investments 328 247 - 328 247
Available-for-sale financial assets 57 324 - 57 324
Derivative financial instruments - 42 475 42 475
Total 385 571 42 475 428 046
Available-for-sale financial liabilities - (37 482) (37 482)
Derivative financial instruments - (5 269) (5 269)
Total - (42 751) (42 751)
Net fair value 385 571 (276) 385 295
Measurement of fair value
The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the previous
reporting period.
Investments
This comprises shares held in listed property companies at fair value which is determined by reference to quoted closing
prices at the reporting date.
Available-for-sale financial assets
This comprises equity-settled share-based long-term incentive reimbursement rights stated at fair value. Fair value has
been determined by reference to Vukile's quoted closing price at the reporting date after deduction of executive and
management rights.
Derivative financial instruments
The fair values of these swap contracts are determined by Absa Capital, Rand Merchant Bank, Standard Bank and Investec
Bank Limited using a valuation technique that maximises the use of observable market inputs. Derivatives entered into by
the group are included in level 2 and consist of interest rate swap contracts.
1.2 Non-financial assets
The following table reflects the levels within the hierarchy of non-financial assets measured at fair value at:
September September March
2016 2015 2016
Level 3 Level 3 Level 3
GROUP R000 R000 R000
ASSETS
Investment properties 12 026 349 14 625 276 13 737 892
Investment properties held for sale 2 936 080 145 350 1 997 744
Fair value measurement of non-financial assets (investment properties)
The fair value of commercial buildings are estimated using an income approach which capitalises the estimated rental
income stream, net of projected operating costs, using a discount rate derived from market yields. The estimated rental
stream takes into account current occupancy levels, estimates of future vacancy levels, the terms of in-place leases
and expectations of rentals from future leases over the remaining economic life of the buildings.
The most significant inputs, all of which are unobservable, are the estimated rental value, assumptions regarding vacancy
levels, the discount rate and the reversionary capitalisation rate. The estimated fair value increases if the estimated
rental increases, vacancy levels decline or if discount rates (market yields) and reversionary capitalisation rates
decline. The overall valuations are sensitive to all four assumptions. Management considers the range of reasonable
possible alternative assumptions is greatest for reversionary capitalisation rate, rental values and vacancy levels and
that there is also an interrelationship between these inputs. The inputs used in the valuations at 30 September 2016 were:
- The range of the reversionary capitalisation rates applied to the portfolio are between 8.0% and 16.8% (March 2016:
between 7.8% and 16.5%) with the weighted average being 9.6% (March 2016: 9.7%).
- The discount rates applied range between 12.8% and 19.6% (March 2016: between 12.8% and 19.6%) with the weighted
average being 14.2% (March 2016: 14.2%).
In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated
demand.
Sensitivity analysis
The effect on the fair value of the portfolio of a 0.25% increase in the discount rate would result in a decrease in
the fair value of R389 million (2.6%) (March 2016: R420 million (2.7%)). The average discount rate on the portfolio
would increase from 14.2% to 14.5% (March 2016: 14.5%) and the average exit capitalisation rate would increase from
9.6% to 9.9% (March 2016: 9.9%) due to the interlinked nature of the rates. The analysis has been prepared on the
assumption that all other variables remain constant.
JSE sponsor: Java Capital
NSX sponsor: IJG Group, Windhoek, Namibia
Executive directors: LG Rapp (chief executive), MJ Potts (financial director), HC Lopion (executive director: asset
management), GS Moseneke
Non-executive directors: AD Botha (chairman), PS Moyanga, SF Booysen, RD Mokate, H Ntene, NG Payne, HM Serebro
There have been no changes to the board of directors since the release of the previous results announcement.
Registered office: Ground floor, One-on-Ninth, Cnr Glenhove Road and Ninth Street, Melrose Estate, 2196
Company secretary: J Neethling
Transfer secretaries: Link Market Services South Africa (Pty) Ltd, Braamfontein, Johannesburg
Investor and media relations: Marketing Concepts, 10th Floor, Fredman Towers, 13 Fredman Drive, Sandton, Johannesburg,
South Africa, Telephone +27 11 783 0700, Fax +27 11 783 3702
www.vukile.co.za
Date: 24/11/2016 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
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