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Condensed unaudited consolidated financial statements for the six months ended 30 September 2016
LODESTONE REIT LIMITED
Incorporated in the Republic of South Africa
Reg no 2010/017830/06
JSE share code LDO ISIN ZAE000197935
(“Lodestone” or “the Company”)
CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS
ENDED 30 SEPTEMBER 2016
DIRECTORS’ COMMENTARY
1. NATURE OF THE BUSINESS
Lodestone’s primary objective is to invest in real estate assets with
strong growth prospects across all sectors. Lodestone is looking to
diversify into global markets that demonstrate favourable returns on a
risk-weighted basis. Lodestone proactively takes advantage of buying and
selling prospects as they arise and maintains a disciplined approach to
the asset management of its portfolio.
2. PROPERTY PORTFOLIO
Lodestone’s property portfolio consists of 37 properties valued at R1,4
billion and comprises 55,4% retail, 41,0% industrial and 3,6% residential
based on value. Geographically, the properties are located in the
following provinces:
Gauteng 65,4%
North West 8,9%
KwaZulu-Natal 7,7%
Limpopo 6,3%
Northern Cape 6,0%
Western Cape 4,3%
Mpumalanga 1,4%
Lodestone continues to focus primarily on the retail and industrial
sectors where management has identified better yield and capital growth
opportunities.
Development of the 94 two-bedroom units and 62 one-bedroom units at The
Prism in Rivonia is on schedule and completion is scheduled for March
2017.
Construction of the bridge and infrastructure commenced at Union Park
subsequent to the granting of access in March 2015. Development of 13
500m2 of the total anticipated 30 000m2 of A-grade logistics warehouses
at Union Park has commenced. Completion of phase I is expected in
September 2017. The new access road will be operational by the end of
2016.
3. VACANCIES AND ARREARS
At September 2016 the overall vacancy was 3,1% up from the 2,5% reported
at March 2016. The industrial vacancy at September 2016 was 4,3% which has
increased from 3,2% at March 2016 and the retail vacancy was 1,0% compared
to 1,3% at March 2016. Given the current economic environment in South
Africa, management placed particular emphasis on tenant retention and
letting vacant space and this will continue to be a focus area.
No significant increase in vacancies is anticipated in the next financial
year.
There were no material changes in arrears and potential bad debts are well
provided for.
4. FORTRESS TRANSACTION
On 11 August 2016, Lodestone announced that it had received a firm
intention from Fortress Income Fund Limited (“Fortress”) to acquire all of
the Lodestone shares in issue at a swap ratio of 1 Fortress A share and 1
Fortress B share for every 6.66667 Lodestone shares held. The Fortress
offeror circular to Lodestone shareholders was posted on 17 September 2016
and the Lodestone offeree circular was posted on 17 October 2016.
Competition Commission approval was obtained on 10 November 2016. The
results of the general offer were published on 9 December 2016 and are
discussed in note 7 “Interim Dividend”.
5. EQUITY INVESTMENTS
Sep 2016 Mar 2016
Number of Fair value Number of Fair value
Counter shares R’000 shares R’000
Greenbay (GRP) 127 476 410 195 039 2 476 410 3 201
Lodestone acquired an additional R150,0 million worth of shares in
Greenbay Properties Limited in order to invest in Euro denominated
equities in high growth markets. Greenbay Properties Limited has its
primary listing on the Stock Exchange of Mauritius and its secondary
listing on the AltX of the Johannesburg Stock Exchange.
6. FACILITIES AND INTEREST RATE DERIVATIVES
Average
Amount Margin over
Facility expiry R' million Jibar
Mar 2018 514 1,77%
Mar 2020 70 2,00%
Total 584 1,80%
Interest Rate Derivatives
Amount Average
Interest rate swap expiry R' million swap rate
Mar 2018 100 6,10%
Mar 2019 50 7,23%
Mar 2020 50 7,32%
Mar 2021 50 7,61%
Total 250 6,87%
Variable rate instruments R’000
Loans to BEE vehicle (286 596)
Cash and cash equivalents (723)
Interest-bearing borrowings 377 075
Capital commitments 136 904
226 660
Total interest rate derivatives 250 000
Percentage hedged 110%
The all-in weighted average cost of funding of Lodestone was 8,90% at
September 2016 and the average hedge term was 2,08 years.
7. GEARING
Lodestone’s gearing at September 2016 was 19,6% which is below the board’s
target range of between 30% to 40%. Gearing is expected to increase as the
developments progress and the offshore strategy gains traction.
Lodestone’s strong balance sheet will allow it to effectively take
advantage of opportunities as they arise.
The information contained in notes 2, 3 and the “Fair value information”
section of note 8 of the Directors’ Commentary has been compiled using
proportionate consolidation. This results in Lodestone accounting for its
share of the property investment that is not held in undivided shares (The
Prism).
8. SUMMARY OF FINANCIAL PERFORMANCE
Sep 2016 Mar 2016 Sep 2015 Mar 2015
Shares in issue 235 149 196 235 149 196 143 461 366 143 461 366
Fair value information
Net asset value per share R6,50 R6,36 R5,49 R5,38
Loan-to-value ratio* 19,6% 10,2% 32,6% 29,9%
Net property expense ratio 21,7% 16,7% 16,8% 13,8%
Gross property expense ratio 44,5% 38,9% 39,4% 39,1%
Net total expense ratio 30,6% 25,5% 26,1% 20,7%
Gross total expense ratio 50,8% 45,3% 46,1% 43,7%
IFRS accounting
Net asset value per share R6,50 R6,36 R5,49 R5,38
*The loan-to-value ratio is calculated by dividing interest-bearing
borrowings net of cash on hand by the total of investment property,
investments and loans advanced.
Fair value information
Summarised statement of financial Sep 2016 Mar 2016 Sep 2015
position R’000 R’000 R’000
ASSETS
Investment property 1 267 062 1 266 887 1 064 394
Investment property under development 94 383 49 875 1 479
Investments 195 039 3 201 -
Share purchase scheme loans 80 977 81 032 -
Loans to employees - - 9 356
Loans to BEE vehicle 286 596 269 273 106 477
Other assets - - -
Current assets 24 952 16 697 12 300
Total assets 1 949 009 1 686 965 1 194 006
EQUITY AND LIABILITIES
Total equity attributable to
equity holders 1 527 407 1 494 700 786 968
Interest-bearing borrowings net
of cash on hand 376 352 169 567 385 496
Deferred tax 14 540 1 974 1 474
Current liabilities 30 710 20 724 20 068
Total equity and liabilities 1 949 009 1 686 965 1 194 006
9. OUTLOOK
While the domestic outlook remains a concern for 2017, the board is
confident that Lodestone remains well positioned to grow distributions
between 16% and 17% for the year ending 31 March 2017.
The growth is based on the assumptions that a stable macro-economic
environment will prevail, no major corporate failures will occur and that
tenants will be able to absorb the recovery of rising utility costs and
municipal rates. Budgeted rental income was based on contractual
escalations and market-related renewals.
This forecast has not been audited or reviewed by Lodestone’s auditors.
By order of the board
Jason Cooper Inge Pick
Managing director Financial director
Johannesburg
14 December 2016
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited Unaudited
Sep 2016 Mar 2016 Sep 2015
ASSETS R’000 R’000 R’000
Non-current assets 1 895 750 1 694 678 1 181 048
Investment property 1 156 645 1 234 252 1 038 242
Straight-lining of rental
revenue adjustment 35 438 32 635 26 152
Investment property under development 143 382 76 667 1 479
Investments 195 039 3 201 -
Loans to employees - - 8 698
Share purchase scheme loans 78 650 78 650
Loans to BEE vehicle 286 596 269 273 106 477
Current assets 103 113 30 283 13 628
Investment property held for sale 74 414 - -
Straight-lining of rental
revenue adjustment 565 - -
Loans to employees - - 658
Trade and other receivables 24 968 16 753 12 300
Share purchase scheme loans 2 327 2 382 -
Cash and cash equivalents 839 11 148 670
Total assets 1 998 863 1 724 961 1 194 676
EQUITY AND LIABILITIES
Total equity attributable to
equity holders 1 527 400 1 494 700 786 968
Stated capital 1 377 675 1 377 675 751 077
Reserves 149 725 117 025 35 891
Minority interest 31 872 31 872 -
Total liabilities 439 591 198 389 407 708
Non-current liabilities 401 517 177 442 387 640
Interest-bearing borrowings 386 977 175 468 386 166
Deferred tax 14 540 1 974 1 474
Current liabilities 38 074 20 947 20 068
Trade and other payables 38 074 20 947 15 835
Income tax payable - - 4 233
Total equity and liabilities 1 998 863 1 724 961 1 194 676
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited for Audited for Unaudited for
the 6 months the year the 6 months
ended ended ended
Sep 2016 Mar 2016 Sep 2015
R’000 R’000 R’000
Net rental and related revenue 56 582 104 935 45 730
Recoveries and contractual
rental revenue 95 814 158 468 72 845
Straight-lining of rental
revenue adjustment 3 368 8 061 1 578
Rental revenue 99 182 166 529 74 423
Property operating expenses (42 600) (61 594) (28 693)
Fair value gain on investment
property, investments and
currency derivatives 49 436 66 581 (1 578)
Fair value (loss)/gain on
investment property (3 530) 75 026 -
Adjustment resulting from
straight-lining
of rental revenue (3 368) (8 061) (1 578)
Fair value gain/(loss) on
investments 41 838 (384) -
Fair value gain on currency
derivatives 14 496 - -
Administrative expenses (6 046) (10 202) (5 029)
Profit before net finance costs 99 972 161 314 39 123
Net finance income/(costs) 6 565 3 058 (4 919)
Finance income 23 008 26 958 9 516
Interest received 23 008 21 684 6 265
Fair value adjustment on
interest rate derivatives - 5 274 3 251
Finance costs (16 443) (23 900) (14 435)
Interest on borrowings (15 144) (24 703) (14 495)
Capitalised interest 2 126 803 60
Fair value adjustment on interest
rate derivatives (3 425) -
Profit before income tax 106 537 164 372 34 204
Income tax (12 566) (1 432) (932)
Profit for the period 93 971 162 940 33 272
Total comprehensive income
for the period 93 971 162 940 33 272
Profit for the period
attributable to:
Equity holders of the company 93 940 162 777 33 272
Minority interest 31 163 -
93 971 162 940 33 272
Total comprehensive income
for the period attributable to:
Equity holders of the company 93 940 162 777 33 272
Minority interest 31 163 -
93 971 162 940 33 272
Basic earnings per share (cents) 39,96 92,60 23,91
Lodestone has no dilutionary instruments in issue.
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited for Audited for Unaudited for
the 6 months the year the 6 months
ended ended ended
Sep 2016 Mar 2016 Sep 2015
R’000 R’000 R’000
Cash inflow from operating
activities 13 866 12 272 9 530
Cash outflow from investing
activities (235 684) (467 418) (59 254)
Cash inflow from financing
activities 211 509 462 543 46 643
(Decrease)/increase in cash and
cash equivalents (10 309) 7 397 (3 081)
Cash and cash equivalents at
beginning of period 11 148 3 751 3 751
Cash and cash equivalents at end
of period 839 11 148 670
Cash and cash equivalents
consist of:
Current accounts 839 11 148 670
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Equity
Stated attributable to Minority Total
capital Reserves equity holders interest equity
Group R'000 R'000 R'000 R'000 R'000
Balance at
Mar 2015 751 077 21 255 772 332 772 332
Total comprehensive
income for the period 33 272 33 272 33 272
Dividends paid (18 636) (18 636) (18 636)
Balance at
Sep 2015 751 077 35 891 786 968 - 786 968
Issue of ordinary
shares –
59 259 259 on
19 Nov 2015 398 173 398 173 398 173
Issue of ordinary
shares –
21 428 571 on
26 Nov 2015 149 874 149 874 149 874
Issue of ordinary
shares –
11 000 000 on
11 Dec 2015 78 551 78 551 78 551
Total comprehensive
income for the period 129 505 129 505 163 129 668
Dividends paid (48 371) (48 371) (163) (48 534)
Equity contributed by
minorities – 31 872 31 872
Balance at
Mar 2016 1 377 675 117 025 1 494 700 31 872 1 526 572
Total comprehensive
income for the period 93 940 93 940 31 93 971
Dividends paid (61 240) (61 240) (31) (61 271)
Balance at
Sep 2016 1 377 675 149 725 1 527 400 31 872 1 559 272
NOTES
1. PREPARATION AND ACCOUNTING POLICIES
The condensed unaudited consolidated interim financial statements have
been prepared in accordance with International Financial Reporting
Standards (“IFRS”), IAS 34: Interim Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and
Financial Reporting Pronouncements as issued by the Financial
Reporting Standards Council, the JSE Listings Requirements and the
requirements of the Companies Act of South Africa. This report complies
with the SA REIT Association Best Practice Recommendations. This report
was compiled under the supervision of Inge Pick CA(SA), the financial
director.
The accounting policies applied in the preparation of the condensed
consolidated interim financial statements are in terms of IFRS and are
consistent with the accounting policies applied in the preparation of the
previous consolidated financial statements, with the exception of the
adoption of new and revised standards which became effective during
the period.
The group’s investment properties are valued internally by the directors
at interim reporting periods and externally by an independent valuer for
year-end reporting. In terms of IAS 40: Investment Property and IFRS 7:
Financial Instruments: Disclosure, the group’s investment properties are
measured at fair value and are categorised as level 3 investments. In
terms of IAS 39: Financial Instruments: Recognition and measurement and
IFRS 7, the group’s currency and interest rate derivatives are measured at
fair value through profit or loss and are categorised as level 2
investments. In terms of IAS 39, investments are measured at fair value
being the quoted closing price at the reporting date and are categorised
as level 1 investments.
There were no transfers between levels 1, 2 and 3 during the period. The
valuation methods applied are consistent with those applied in preparing
the previous consolidated financial statements.
The directors are not aware of any matters or circumstances arising
subsequent to September 2016 that require any additional disclosure or
adjustment to the financial statements.
The interim financial statements have not been audited or reviewed by
Lodestone’s auditors
2. SECTORAL SPLIT
Based on: GLA Book value
Retail 36,0% 53,4%
Industrial 64,0% 39,6%
Residential - 7,0%
100,0% 100,0%
3. LEASE EXPIRY PROFILE
Based on: GLA Rental revenue
Vacant 3,1%
Mar 2017 13,6% 11,6%
Mar 2018 12,2% 14,4%
Mar 2019 18,1% 16,8%
Mar 2020 17,1% 19,3%
Mar 2021 10,3% 9,3%
>Mar 2021 25,6% 28,6%
100,0% 100,0%
4. SEGMENTAL ANALYSIS
Unaudited for Audited for Unaudited for
the 6 months the year the 6 months
ended ended ended
Sep 2016 Mar 2016 Sep 2015
R’000 R’000 R’000
Segmental revenue – recoveries
and contractual rental revenue
Industrial 40 422 68 602 31 897
Retail 55 392 89 866 40 948
Total 95 814 158 468 72 845
Property operating expenses
Industrial (20 171) (26 608) (12 328)
Retail (22 429) (34 986) (16 365)
Total (42 600) (61 594) (28 693)
Segmental revenue – rental revenue
Industrial 43 252 75 452 32 815
Retail 55 930 91 077 41 608
Total 99 182 166 529 74 423
Profit for the period
Industrial 20 285 79 717 19 569
Retail 30 466 92 816 24 583
Residential (1 067) (633) -
Corporate 44 287 (8 960) (10 880)
Total 93 971 162 940 33 272
Total assets
Industrial 562 824 541 419 478 122
Retail 756 776 758 183 595 556
Residential 98 218 53 722 -
Corporate 581 045 371 637 120 998
Total 1 998 863 1 724 961 1 194 676
Reconciliation of profit for the period to dividend declared
Unaudited for Audited for Unaudited for
the 6 months the year the 6 months
ended ended ended
Sep 2016 Mar 2016 Sep 2015
R’000 R’000 R’000
Profit for the period 93 971 162 940 33 272
Fair value loss/(gain) on
investment property 3 530 (75 026) -
Fair value (gain)/loss on
investments (41 838) 384 -
Fair value adjustment on
interest rate derivatives 3 425 (5 274) (3 251)
Fair value adjustment on currency
derivatives (14 496) - -
Income tax 12 566 1 432 932
Antecedent dividend - 25 318 17 418
Minority interest (31) (163) -
Dividends accrued 2 010 - -
Amount available for distribution
under best practice 59 137 109 611 48 371
Dividend declared - interim (48 371) (48 371)
Dividend declared - final (61 240)
59 137 - -
5. RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS
Unaudited for Audited for Unaudited for
the 6 months the year the 6 months
ended ended ended
Sep 2016 Mar 2016 Sep 2015
R’000 R’000 R’000
Basic earnings – profit for the
period attributable to
equity holders 93 940 162 777 33 272
Adjusted for: 6 804 (67 006) 1 557
- Fair value (loss)/gain on
investment property 6 898 (66 965) 1 578
- Income tax effect (94) (41) (21)
Headline earnings 100 744 95 771 34 829
Headline earnings per
share (cents) 42,84 54,43 24,28
Basic earnings per share and headline earnings per share are based on the
weighted average of 235 149 196 (Mar 2016: 175 959 096; Sep 2015: 143 461
366) shares in issue during the period.
Lodestone has no dilutionary instruments in issue.
6. CAPITAL COMMITMENTS
Unaudited Audited Unaudited
Sep 2016 Mar 2016 Sep 2015
R’000 R’000 R’000
Authorised and contracted 136 904 12 004 -
Authorised and not yet contracted - 40 000 -
136 904 52 004 -
7. INTERIM DIVIDEND
At the close of the general offer on Friday, 9 December 2016, Fortress had
received acceptances in respect of 233 803 645 Lodestone shares,
representing 99.43% of all Lodestone shares in issue. Fortress has invoked
section 124(1)(a) of the Companies Act, 71 of 2008 to compulsorily acquire
all of the remaining Lodestone shares not already acquired by Fortress in
terms of the general offer as announced on SENS on 25 November 2016 (the
“compulsory acquisition”). It is thus certain that Lodestone’s listing
will be terminated and that the remaining Lodestone shareholders will
receive Fortress shares in consideration for the Lodestone shares
currently held by them. Fortress is acquiring Lodestone shares cum the
entitlement to receive the interim distribution for the period 1 April
2016 to 30 September 2016 in terms of the general offer and the compulsory
acquisition. No interim distribution will be declared and paid.
Subject to section 124 of the Companies Act, 71 of 2008, the Lodestone
shares of the remaining Lodestone shareholders who have not accepted the
general offer will be compulsorily acquired by Fortress on or about 20
January 2017. Further information on the compulsory acquisition is set out
in the circular issued to the remaining Lodestone shareholders on 25
November 2016.
Registered office 3rd Floor Rivonia Village, Rivonia Boulevard, Rivonia,
2191 | PO Box 6063, Rivonia, 2128
Transfer secretaries Link Market Services South Africa Proprietary Limited
13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2001 | PO Box
4844, Johannesburg, 2000 | Designated advisor Java Capital | Company
secretary Leonie Gindan | Directors Annalese Manickum* (chairperson);
Jason Cooper (managing director); Craig Hallowes*; Michael McNamara*; Inge
Pick; Ndhlabole Shongwe*; Gidon Trope; Jacques van Wyk*; Herman Zolty
(*independent non-executive director)
www.lodestoneproperties.co.za
Date: 14/12/2016 05:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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