Wrap Text
Preliminary audited consolidated financial results for the year ended 31 December 2016
SA Corporate Real Estate Limited
("SA Corporate" or "the Group")
Incorporated in the Republic of South Africa
Share Code: SAC; ISIN Code: ZAE000203238
(Registration number 2015/015578/06)
PRELIMINARY SUMMARISED AUDITED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2016
Distribution growth
- Full year 8.7% higher than 2015
- 1st half 9.1% higher than 2015
- 2nd half 8.4% higher than 2015
Capital structure
- 89.3% of debt fixed
- R0,7bn of equity raised from the issue of 130.2m shares
Portfolio activity
- Acquisitions of R0.8bn
- Like-for-like portfolio value up 11.1%
Property performance
- NPI growth of 13.7%
- Traditional portfolio tenant retention is 77.9%
- Retail positive reversions of 6%
INTRODUCTION
SA Corporate Real Estate Limited is a JSE-listed Real Estate Investment Trust (“REIT”) which owns a diversified portfolio of industrial, retail, commercial and residential buildings located primarily in the major metropolitan areas of South Africa with a secondary node in Zambia.
REVIEW OF FINANCIAL RESULTS AND PORTFOLIO PERFORMANCE
Distribution Growth
SA Corporate delivered growth in distributions per share for the year ended December 2016 of 8.7%. This amounts to a full year distribution of 43.02 cents per share (“cps”) (2015: 39.57 cps) and a second half distribution of 21.58 cps (2015: 19.91 cps). Investment activity over the year at attractive yields contributed positively to these results. This was further supported by standing portfolio (excluding properties under development) net property income (NPI) growth of 5.9%.
Portfolio Performance
The total NPI increased 13.7% over the previous year. This is made up of 8.9% from the standing portfolio, 6.4% from acquisitions (yielding 10.1%) less 1.6% from disposals. The industrial standing portfolio NPI growth of 4.3% was supported by strong retentions (75.7%) and escalations of 8.0%. The contributors to the retail NPI growth of 22.2% were the standing portfolio 7.2%, developments 11.0% and net investments 4.0%. The retail portfolio performance was underpinned by strong retentions (79.6%), positive reversions (6.0%), escalations of 7.7% and improved recoveries as green initiatives start to bear fruit.
AFHCO's total NPI increased by 38.4% over the prior year. The standing portfolio contributed 4.5%, developments 6.8% and acquisitions 27.1%. The acquisitions of R423.3m (excluding bulk) were executed at a weighted average yield of 10.5%. The standing portfolio NPI increased by 6.3% supported by average rental increases of 9% but negatively impacted by average annual residential vacancies increasing to 5.1% from 4.3% in 2015, non renewal of a parking contract and a 5% reduction in the municipal recovery ratio. The expense ratio (excluding municipal expenses) reduced from 13.7% to 12.3% due to bad debt recoveries, reduced maintenance costs especially with re-developments in the retail portfolio and reductions in letting costs.
Finance Costs
Interest expense increased by 7.8%, due to an increase in debt in respect of acquisitions and developments. The increase
in interest income of 102.3% arises mainly from favorable interest rate swaps, loans to developers and joint venture (“JV”) partners.
Group and Other Expenses
The distribution related expenses increased by 26.6% mainly due to increased staffing requirements as the group expands and investments into the Afhco business.
Antecedent Distribution
The Group successfully raised R680.8m of equity by issuing 130,178,267 shares via a combination of an issuance for cash and vendor placement at a weighted average discounted price of 523 cps cum dividend. This resulted in an antecedent distribution of R17.6m.
The breakdown of distributable earnings is set out below:
Year ended Year ended
DISTRIBUTABLE EARNINGS (R000) 31.12.2016 31.12.2015
Rent (excluding straight line rental
adjustment) 1,328,181 1,202,536
Net property expenses (123,171) (142,463)
Property expenses (614,981) (558,143)
Recovery of property expenses 491,810 415,680
Net property income 1,205,010 1,060,073
Investment in joint venture 60,350 9,207
Yield guarantee on joint venture 7,871 -
Taxation on distributable earnings (1,008) 489
Net funding cost (226,569) (231,146)
Interest income 48,349 23,897
Interest expense (274,918) (255,043)
Distribution related expenses (47,569) (37,562)
Antecedent distribution 17,624 52,392
Distributable earnings 1,015,709 853,453
Interim 493,925 398,049
Final 521,784 455,404
Shares in issue (000) 2,417,482 2,287,304
Weighted average number of shares in
issue (000) 2,320,805 2,033,656
Distribution (cents per share) 43.02 39.57
Interim 21.44 19.66
Final 21.58 19.91
PROPERTY VALUATIONS
The value of the Group’s independently valued property portfolio increased by R2,6bn to R15,0bn as at December 2016 (2015: R12,4bn). This excludes the Zambian portfolio of R799,4m that has been equity accounted but includes a net investment of R1,3bn in respect of acquisitions, developments, capex and disposals. The like-for-like valuation for the total portfolio increased by 11.1% with the increases for each of the sectors tabulated below.
In line with good governance the company embarked on a request for proposal to change its independent valuer who had performed the valuations for the past 7 years. While the valuation method has remained unchanged, there were material valuation movements in respect of the traditional portfolio. This arose from use of different assumptions between the two valuers of which the main differences are: building specific rental growth rates versus a blanket growth assumption, recovery rate assumptions based on actual recoveries capped at market versus blanket assumptions and less conservative assumptions aligned to market and actual in respect of capex spend and letting expenses. We have reviewed the methodology and assumptions and are satisfied that the valuations are representative of the current and projected portfolio performance.
The capitalisation and discount rates in the Group's like-for-like portfolio at 31 December 2016 were calculated on a weighted average basis:
Sector Capitalisation Discount rate (%) Growth in like-for-
rate (%) like portfolio (%)
31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016
Industrial 9.1 8.9 15.1 14.4 5.7
Retail 8.6 8.6 14.6 14.1 19.6
Commercial 8.9 8.7 14.9 14.2 3.0
AFHCO 9.7 9.5 * * 6.1
Weighted average 8.9 8.7 14.8 14.2 11.1
* AFHCO properties are not valued on a discounted cashflow basis, due to the short term nature of residential leases.
PROPERTY PORTFOLIO
The portfolio comprised 179 properties (2015: 178), which excludes the 3 Zambian properties held through a 50% investment in a JV. The sectoral and geographic weightings by value as at 31 December 2016 are set out below:
Sectoral Spread
Retail
R6,8bn
375,374m2
26 properties
45%
Industrial
R4,6bn
745,058m2
88 properties
31%
AFHCO 1
R2,6bn
223,121m2
50 properties
17%
Commercial
R1,0bn
66,065m2
15 properties
7%
Geographic Spread
Gauteng 1
R8,8bn
840,221m2
114 properties
59%
KwaZulu-Natal
R5,1bn
426,342m2
50 properties
34%
Western Cape
R0,7bn
71,795m2
10 properties
5%
Other
R0,4bn
71,260m2
5 properties
2%
1 AFHCO also owns residential bulk of 79,925m2 to be redeveloped.
Committed Developments:
Properties Cost Forecast Yield Sector Region
(Rm)4 completion forecast
date 1st 12
months
(%)
East Point, Boksburg 479,5 01/2017 9.0 Retail Gauteng
Hayfields Mall,
Pietermaritzburg 34,6 04/2017 9.0 Retail KwaZulu-
Natal
Umlazi Mega City,
Umlazi 1 262,9 06/2017 9.3 Retail KwaZulu-
Natal
Midway Mews, Halfway
Gardens 30,2 12/2017 8.7 Retail Gauteng
Cambridge Crossing,
Sandton 46,1 12/2017 9.1 Retail Gauteng
252 Montrose Ave, Randburg 92,0 02/2018 10.5 Residential Gauteng
57 Sarel Baard Crescent,
Centurion 370,0 09/2018 8.0 2 Industrial Gauteng
Kempton Park Shoprite,
Johannesburg 70,9 11/2017 10.0 Retail/ Gauteng
Residential
AFHCO pipeline 3 371,5 04/2017 10.9 Retail/ Gauteng
to 03/2018 Residential
Total 1 757,7 9.3
1 75% Undivided share of development cost
2 Based on pre-development valuation using market rental
3 Includes bulk acquired for development amounting to R133,4m. In addition to approved projects above, AFHCO owns and has contracted development bulk which represents a pipeline of R1,3bn in the next 4 years
4 Excludes capitalised interest
Acquisitions:
Properties Cost Acquisi- Yield Sector Region
(Rm) tion forecast
date 1st 12
months
(%)
Normandie Court,
Johannesburg CBD 23,0 01/2016 11.0 Retail and Gauteng
Residential
Cambridge House,
Johannesburg CBD 20,2 02/2016 10.0 Retail Gauteng
Morning Glen Shopping
Centre, Sandton 293,5 03/2016 9.6 Retail Gauteng
81 Rissik, Johannesburg
CBD 2 75,7 07/2016 10.7 Retail and Gauteng
Residential
Platinum Place, New
Doornfontein 2 90,6 07/2016 9.9 Retail and Gauteng
Residential
Hartmann and Keppler,
Doornfontein 6,2 08/2016 * Retail and Gauteng
Residential
Jabulani Mews, Soweto 70,2 10/2016 10.9 Residential Gauteng
Greatermans, Johannesburg
CBD 2 114,3 11/2016 10.4 Retail and Gauteng
Residential
Jeppe Street Post Office,
Johannesburg CBD 88,2 12/2016 * Retail and Gauteng
Residential
Rosewood and Beechwood,
Randfontein 1 29,3 12/2016 11.0 Residential Gauteng
Total 811,2 10.1
1 Includes R4,2m in respect of land for development
2 Acquired through the acquisition of shares in subsidiaries as detailed in note 3
* Property acquired for redevelopment
Contracted and Unconditional Acquisitions:
Properties Cost Acquisi- Yield Sector Region
(Rm) tion forecast
date 1st 12
months
(%)
Steelport Residential,
Steelport 79,8 01/2017 1 10.3 Residential Limpopo
Reef Acres, Springs 2 44,7 02/2017 10.0 Residential Gauteng
Friendship Town, Midrand 72,2 02/2017 1 11.0 Residential Gauteng
Long Street Precinct,
Jeppestown 37,5 02/2017 * Residential Gauteng
to 09/2017
M&T Developments -
Burgundy, Centurion 75,8 03/2017 10.0 Residential Gauteng
Monis, Johannesburg CBD 62,7 06/2017 10.1 Retail and Gauteng
Residential
M&T Developments - Minuet
Phase 1 - 2, Midrand 48,7 03/2017 10.0 Residential Gauteng
to 04/2017
Calgro Developments - Phase
1 - 5 811,7 07/2017 10.8 Residential Gauteng/
to 09/2018 Western
Cape
M&T Developments - Etude
Phase 1 - 6, Midrand 252,3 08/2017 10.0 Residential Gauteng
to 08/2018
Panama House, Johannesburg
CBD 98,0 09/2017 10.5 Residential Gauteng
Northgate Heights, Phase 1,
Northgate 57,5 09/2017 11.0 Residential Gauteng
Milnerton, Cape Town 22,5 04/2017 * Retail Western
Cape
Erand, Midrand 12,1 05/2017 * Residential Gauteng
Total 1 675,5 10.5
1 Transferred
2 Includes delayed transfer of real right of extention amounting to R1,3m
* Land/Bulk to be acquired for development
Contracted and Conditional Acquisitions:
Properties Cost Acquisi- Yield Sector Region
(Rm) tion forecast
date 1st 12
months
(%)
51 Pritchard, Johannesburg
CBD 175,0 04/2017 11.0 Retail Gauteng
African City Retail
Phase 1, Johannesburg CBD 40,3 04/2017 10.0 Retail Gauteng
Northgate Heights, Phase
2 and 3, Northgate 58,6 06/2018 11.0 Residential Gauteng
to 08/2018
Total 273,9 10.9
Disposals:
Properties Transfer Gross Exit Sector Region
date selling yield
price on sale
(Rm) price
(%)
8 Paul Smit Street,
Anderbolt 02/2016 50,0 8.8 Industrial Gauteng
Checkers, Somerset West 02/2016 75,0 7.1 Retail Western
Cape
4 School Road, Pinetown 03/2016 25,5 5.3 Commercial KwaZulu-
Natal
11 Columbine Place, Red
Hill 05/2016 55,0 7.8 Industrial KwaZulu-
Natal
50 Mangosuthu Highway,
Umlazi 1 05/2016 12,2 8.9 Retail KwaZulu-
Natal
83 Heidelburg Road, City
Deep 06/2016 36,0 7.5 Industrial Gauteng
199 North Ridge Road,
Morningside 08/2016 38,4 6.2 Commercial KwaZulu-
Natal
Total 292,1 7.4
1 25% Undivided share
Contracted and Unconditional Disposals:
Properties Expected Gross Exit Sector Region
transfer selling yield
date price on sale
(Rm) price
(%)
35 Circuit Road,
Westmead 01/2017 1 15,0 7.6 Industrial KwaZulu-
Natal
Lebombo Road, Garsfontein
(portion) 03/2017 12,0 6.2 Commercial Gauteng
Pine Crest Shopping
Centre, Pinetown 2 03/2017 406,5 8.2 Retail KwaZulu-
Natal
Total 433,5 8.1
1 Transferred
2 Sale of 50% undivided share, exit yield calculated on sales price plus anticipated defensive capex
VACANCIES AND LEASE EXPIRIES
Vacancies in terms of rentable area and rental income were as follows:
Sector Vacancy as % of GLA* Vacancy as % of rental income
31.12.2016 31.12.2015 31.12.2016 31.12.2015
Traditional Portfolio:
Industrial 1.1 0.3 0.9 0.3
Retail 4.5 4.5 3.3 2.8
Commercial 8.8 11.1 5.4 8.0
Traditional Portfolio
total: 2.7 2.3 2.5 2.4
AFHCO Portfolio:
Retail / Commercial 3.4 4.8 3.3 3.7
Residential #10.4 5.6 #11.1 6.6
AFHCO Portfolio total: 8.7 5.3 8.7 5.5
Rest of Africa
Portfolio:
Retail 8.8 2.2 4.0 1.4
Commercial 4.7 4.6 4.4 2.6
Rest of Africa
Portfolio total: 7.9 2.7 4.1 1.7
* GLA=Gross Lettable Area
# Includes vacant new stock in the process of tenanting. Standing portfolio vacancy 9.6% by GLA and 9.8% by rental income
During the current year, the traditional portfolio vacancies by rental income remained relatively flat with a 0.4% increase in vacancies by GLA. Good progress has been made in closing office vacancies, with industrial vacancies by GLA increasing by 0.8%, still well below the sector average of 3.4%*. We believe that industrial vacancies will remain around the 1% level. Retail vacancies by rental income increased, while vacancies by GLA remained flat in spite of increased GLA in respect of completed developments. The AFHCO portfolio vacancies increased to 8.7% (2015: 5.3%) and 8.7% (2015: 5.5%) by GLA and rental respectively. The retail/commercial vacancies reduced by 1.4% and 0.4% by GLA and rental respectively. Standing portfolio residential vacancies increased to 9.6% due to seasonal increases in residential notices. Since year end this standing portfolio residential vacancies have decreased to 5.5%.
The Zambian JV retail vacancies increased by 2.6% and 6.6% by rental and GLA respectively. The vacancy by GLA at East Park Mall, Lusaka remains low at 0.3%. In respect of Jacaranda Mall, Ndola, the higher vacancies were as a result of a strategic initiative whilst a potential redevelopment opportunity was pursued. A change in strategy for this building saw 2,215m2 let in January 2017, reducing the Zambian portfolio retail vacancy to 3.7%. Negotiations are well advanced with a prospective tenant for the remaining space.
* = per June 2016 MSCI sector average
The lease expiry profile and vacancies (by GLA) are set out below:
Sector Vacancy (%) Expiries (%)
Monthly 2017 2018 2019 2020 Thereafter
Traditional Portfolio:
Industrial 1.1 3.6 21.4 23.7 11.7 7.9 30.6
Retail 4.5 11.1 18.0 15.0 12.8 12.1 26.5
Commercial 8.8 9.2 25.6 11.0 11.4 13.0 21.0
Traditional Portfolio
total: 2.7 6.3 20.7 20.2 12.0 9.5 28.6
AFHCO Portfolio:
Retail / Commercial 3.4 7.5 24.4 11.5 10.7 17.3 25.2
Residential 1 10.4 52.3 37.3 - - - -
Rest of Africa
Portfolio:
Retail 8.8 - 2.8 3.0 29.9 14.1 41.4
Commercial 4.7 - 11.5 14.8 46.5 7.5 15.0
Total 7.9 - 4.7 5.6 33.6 12.6 35.6
1 Calculated on number of units
TENANT RETENTION AND RENTAL REVERSION
The table below reflects the Group's tenant retention ratio and rental reversion per sector for the 12 month period ended 31 December 2016:
Sector Expiries Retention Retention Rental
(m2) (m2) (%) reversion (%)
Traditional Portfolio:
Industrial 135,056 102,293 75.7 (1.9)
Retail 68,181 54,304 79.6 6.0
Commercial 17,714 15,622 88.2 (0.7)
Total 220,951 172,219 77.9 2.3
AFHCO Portfolio:
Retail / commercial 15,839 9,390 59.3 7.8
With 18.6% of the traditional portfolio expiring in 2016, the Group successfully retained 77.9% of its tenants at a weighted average reversion of 2.3% as economic conditions continue to weigh on our tenants and consumers.
Of the 7.1% expiring in 2016 relating to the AFHCO retail/commercial portfolio, 59.3% were retained at a positive reversion of 7.8%.
BORROWINGS
The debt profile is detailed below as at 31 December 2016:
Facility Maturity date Value (Rm) Interest Rate (%)
Term 15.12.2017 1,152 8.78
Term 13.08.2018 200 8.98
Term 30.09.2018 270 8.93
Term 30.09.2018 30 8.93
Term revolver 1 01.11.2018 - 8.63
Term 2 01.01.2019 - 8.88
Term revolver 3 24.03.2019 100 8.73
Term 15.12.2019 848 9.08
Term 15.06.2020 950 9.06
Term (USD) 01.11.2020 371 3.59
Term 15.12.2021 550 9.13
Term 15.04.2024 129 6.88
Total /weighted average 4,600 8.48
1 R300m revolving credit facility undrawn
2 R500m term credit facility undrawn
3 R100m of R200m revolving credit facility undrawn
The Group's effective loan to value (“LTV”) remained stable at 29.0% during the current year, in support of total net acquisitions of R519,1m. This was funded through a combination of equity amounting to R680,8m and debt amounting to R1bn raised during the current year. The weighted average cost of debt, in respect of the drawn debt excluding fixes, was 8.5% (2015: 7.4%) at a weighted average margin of 1.7% off Jibar and Libor (2015: 1.6%) and a weighted average tenor of 2.8 years (2015: 2.7 years).
At 31 December 2016, 89.0% of the debt drawn was fixed via interest rate hedges, at a weighted average rate and margin of 6.7% and 0.0002% respectively and a weighted average tenor of 3.4 years. Total debt fixed amounts to 89.3% inclusive of fixed rate debt. The weighted average cost of debt inclusive of fixes amounts to 8.5%. This is up 0.6% from December 2015, due to increases in funding margins and funding tenors and Jibar movements in respect of variable debt.
STRATEGY AND PROSPECTS
In 2016 through proactive asset management interventions and focussed operational management, SA Corporate has positioned its property portfolio to generate sustainable and defensive income whilst establishing a pipeline for growth. In particular:
- The company's rejuvenated retail portfolio is set on a growth trajectory which will be complemented by the repositioning and redevelopment of a number of newly acquired and currently owned shopping centres.
- AFHCO has entrenched itself as a dominant trusted residential rental brand of choice providing quality and affordable accommodation in the Johannesburg inner city. This established residential rental platform is now well poised to diversify its geographic spread into high demand nodes through strategic partnerships with the largest developers of residential property in the country.
- The sustained low vacancies in the industrial portfolio evidences the quality and resilience of these properties which will continue to generate strong annuity income through focussed tenant retention, tenant-driven improvements and recycling capital.
The Board's view of future prospects is that distribution growth of between 6% and 8% for the 2017 year can be anticipated.
As at As at
SUMMARISED CONSOLIDATED STATEMENT 31.12.2016 31.12.2015
OF FINANCIAL POSITION (R000) Audited Audited
Assets
Non-current assets 15,571,401 12,920,112
Investment property 14,357,675 11,631,267
Letting commissions and tenant installations 54,410 75,706
Investment in joint ventures 799,389 850,068
Property, plant and equipment 8,369 5,501
Intangible assets 81,904 76,897
Interest rate swap derivatives 37,444 117,668
Rental receivable - straight line adjustment 175,695 159,370
Other financial assets 54,606 1,619
Deferred taxation 1,909 2,016
Current assets 972,116 660,506
Trade and other receivables 350,432 246,492
Other financial assets 112,090 33,816
Rental receivable - straight line adjustment 43,741 47,233
Interest rate swap derivatives 10,009 9,048
Taxation receivable 437 443
Inventory 71 52
Loans to developers 263,956 13,073
Cash and cash equivalents 191,380 310,349
Non-current assets held for sale 445,694 556,036
Properties classified as held for disposal 444,700 553,700
Letting commissions and tenant installations 994 2,336
Total assets 16,989,211 14,136,654
Share capital, reserves and liabilities
Share capital and reserves 12,070,009 9,980,915
Non-current liabilities 3,439,813 3,486,022
Interest bearing borrowings - Local 3,318,983 3,420,503
Interest bearing borrowings - Foreign 112,475 65,519
Interest rate swap derivatives 8,355 -
Current liabilities 1,479,389 669,717
Trade and other payables 302,082 292,301
Loan from developer - 13,020
Interest bearing borrowings - Local 1,152,000 350,000
Interest bearing borrowings - Foreign 17,019 8,595
Rental payable - straight line adjustment - 49
Interest rate swap derivatives 8,288 5,744
Bank overdraft - 8
Total share capital, reserves and liabilities 16,989,211 14,136,654
NAV cps 499 436
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT 31.12.2016 31.12.2015
OF COMPREHENSIVE INCOME (R000) Notes Audited Audited
Revenue 1,833,085 1,614,549
Income 1,881,434 1,638,446
Rent 1,328,181 1,202,536
Straight line rental adjustment 13,094 (3,667)
Recovery of property expenses 491,810 415,680
Interest income 48,349 23,897
Expenses (953,663) (884,313)
Audit fees (2,950) (3,063)
Administrative fees (58,440) (55,010)
Interest rate swap derivatives restructure
costs - (11,838)
Depreciation (2,422) (1,186)
Interest expense (274,918) (255,043)
Property expenses (547,398) (530,575)
Property administration fees (67,583) (27,568)
Straight line rental adjustment 48 (30)
Operating income 927,771 754,133
Capital gain/(loss) on disposal of
investment properties 299 (16,178)
Foreign exchange adjustments 49,520 (44,275)
Gain on acquisition of subsidiary and joint
ventures 3 232 30,079
Profit from joint venture 85,288 47,564
Revaluation of investment properties and shares 1,508,063 538,479
- Revaluations 1,521,157 534,812
- Straight line rental adjustment (13,094) 3,667
Revaluation of interest rate swap derivatives 4 (90,162) 103,791
Profit before taxation 2,481,011 1,413,593
Taxation (charged) / credited (1,008) 46
Profit after taxation 2,480,003 1,413,639
Other comprehensive income, net of taxation
Items that may be reclassified to profit or loss
Foreign exchange adjustments on investment in
joint ventures (117,773) 87,861
Total comprehensive income 2,362,230 1,501,500
Earnings and diluted earnings cents per share 106.86 69.51
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT OF 31.12.2016 31.12.2015
CHANGES IN EQUITY (R000) Audited Audited
Share capital and reserves at the beginning of the
year 9,980,915 7,603,215
Total comprehensive income for the year 2,362,230 1,501,500
Units issued - 115,176
Shares issued 658,103 1,125,727
Shares repurchased (7,098) (19,046)
Antecedent distribution 17,624 52,392
Share-based payment reserve 7,565 -
Distribution attributable to shareholders (949,330) (398,049)
Share capital and reserves at the end of the year 12,070,009 9,980,915
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT 31.12.2016 31.12.2015
OF CASH FLOWS (R000) Audited Audited
Operating profit before working capital changes 1,180,390 989,752
Working capital changes (18,702) (66,222)
Cash generated from operations 1,161,688 923,530
Operating activities changes (1,253,239) (1,023,634)
Net cash flows from operating activities (91,551) (100,104)
Net cash flows from investing activities (1,335,723) (1,607,235)
Net cash flows from financing activities 1,308,313 1,716,465
Net (decrease)/increase in cash (118,961) 9,126
Cash and cash equivalents at beginning of year 310,341 301,215
Cash and cash equivalents at end of year 191,380 310,341
NOTES TO THE SUMMARISED CONSOLIDATED FINANCIAL STATEMENTS
Basis for preparation
The summarised consolidated financial statements have been prepared in accordance with the requirements of the JSE Limited Listings Requirements and the Companies Act, No. 71 of 2008. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (“IFRS”), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, and to also, as a minimum, contain the information required by IAS 34, Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements, from which the summarised consolidated financial statements were derived, are in terms of IFRS and are consistent with the accounting policies applied in the preparation of the previous consolidated financial statements. This report and the consolidated financial statements were compiled under the supervision of AM Basson CA(SA), the financial director. The auditors, Deloitte & Touche, have issued their unmodified opinion on the consolidated financial statements for the year ended 31 December 2016. A copy of their audit report and the financial statements are available for inspection at the Group’s registered address. The audit was conducted in accordance with International Standards on Auditing. These preliminary summarised consolidated financial statements have been derived from the consolidated financial statements and are consistent, in all material respects, with the consolidated financial statements. The summarised financial statements report has been audited by Deloitte & Touche and an unmodified audit opinion has been issued. The auditor's report does not necessarily report on all of the information contained in this announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement, they should obtain a copy of that report together with the accompanying financial information from SA Corporate's registered address.
Any reference to future financial performance or prospects included in this announcement, as well as related information which is not based on IFRS, has not been reviewed or reported on by the Group’s auditors.
1. Reconciliation of profit after tax to headline earnings and distributable earnings attributable to shareholders
Year ended Year ended
31.12.2016 31.12.2015
Audited Audited
R000 CPS R000 CPS
Profit after taxation attributable to
shareholders 2,480,003 106.86* 1,413,639 69.51*
Adjustments for:
Capital (gain)/loss on disposal of
investment properties (299) 16,178
Revaluation of investment properties
and joint venture (1,525,695) (576,913)
Gain on acquisition of subsidiary/
joint ventures (232) (30,079)
Headline earnings 953,777 41.10* 822,825 40.46*
Antecedent distribution 17,624 52,392
Interest rate swap derivatives
restructure costs - 11,838
Depreciation 2,422 1,186
Foreign exchange (gain)/loss on
capital loan (49,520) 44,269
Revaluation of listed shares (8,250) -
Non-distributable expenses 21,644 20,991
Revaluation of interest rate swap
derivatives 90,162 (103,791)
Straight line rental adjustment (13,094) 3,667
Non-distributable expenses on investment
in joint ventures 944 76
Distributable income attributable to
shareholders 1,015,709 43.02 853,453 39.57
Interim 493,925 21.44 398,049 19.66
Final 521,784 21.58 455,404 19.91
* Calculated on weighted average number of shares in issue
2. Audited primary operational segments (R000)
Business segment Industrial Retail Commercial AFHCO Group
Revenue 574,036 816,697 133,516 308,836 1,833,085
Rental income (excluding
straight line rental
adjustment) 493,970 493,928 103,369 236,914 1,328,181
Net property expenditure (31,521) (9,216) (18,831) (63,603) (123,171)
Property administration (5,880) (21,845) (2,650) (37,208) (67,583)
Property expenses (128,206) (283,927) (43,533) (91,732) (547,398)
Recovery of property
expenses 102,565 296,556 27,352 65,337 491,810
Net property income 462,449 484,712 84,538 173,311 1,205,010
Straight line rental
adjustment (22,499) 26,213 2,795 6,585 13,094
Interest income - - - - 48,349
Interest expense - - - - (274,918)
Gain on acquisition of
subsidiary - - - - 232
Profit from investment
in joint venture - - - - 85,288
Foreign exchange
adjustments - - - - 49,520
Group expenses - - - - (63,764)
Capital profit on disposal
of investment properties - - - - 299
Revaluation of investment
properties 225,004 1,151,157 19,027 104,625 1,499,813
Investment properties 202,505 1,177,370 21,822 111,210 1,512,907
Straight line rental
adjustment 22,499 (26,213) (2,795) (6,585) (13,094)
Revaluation of listed
shares - - - - 8,250
Revaluation of interest
rate swap derivatives - - - - (90,162)
Taxation - - - - (1,008)
Profit after taxation 664,954 1,662,082 106,360 284,521 2,480,003
Other comprehensive
income, net of taxation - - - - (117,773)
Total comprehensive
income 664,954 1,662,082 106,360 284,521 2,362,230
Other information
Properties (excluding
straight line rental
adjustment) 4,642,500 6,774,200 1,043,700 2,561,411 15,021,811
Non-current investment
property 4,537,104 6,271,371 1,015,440 2,533,760 14,357,675
At valuation 4,380,300 4,049,700 1,019,700 2,273,526 11,723,226
Straight line rental
adjustment (90,396) (96,329) (16,260) (16,451) (219,436)
Under development 247,200 2,318,000 12,000 276,685 2,853,885
Non-current investment
property held for sale 14,980 402,123 12,000 10,918 440,021
Classified as held for
disposal 15,000 406,500 12,000 11,200 444,700
Straight line rental
adjustment (20) (4,377) - (282) (4,679)
Other assets 215,914 261,610 48,484 34,305 2,191,515
Total assets 4,767,998 6,935,104 1,075,924 2,578,983 16,989,211
Total liabilities 51,694 117,853 22,744 191,538 4,919,202
Additions and
improvements 87,095 643,496 15,078 675,780 1,421,449
Segmental growth
rates (%) Industrial Retail Commercial AFHCO Group
Rental income (excluding
straight line rental
adjustment) 0.4 14.5 (9.7) 40.0 10.4
Property expenses 4.6 2.4 (7.0) 44.0 10.2
Recovery of property
expenses 27.0 11.6 (4.7) 43.1 18.3
Net property income 4.0 22.2 (9.4) 38.4 13.7
3. Significant transactions
During the year the Group acquired Sapphire Cove Investments 18 Proprietary Limited for R75m funded by equity (16 007 242 shares at an average price of 473 cents per share).
The Group issued equity of 114 171 030 shares at a price of 530 cent per share. The proceeds were used to settle bridging facilities and finance developments.
These share issuances resulted in an antecedent distribution of R17,6m.
During the year, the Group acquired the following subsidiaries:
Subsidiaries Principal Date of Portion of Consideration
Activities Acquisition ownership transferred
interest R000
and voting
% rights
Sapphire Cove Investments 11/06/2016 100 75,255
18 Proprietary Limited
Rainbow Place Properties 01/11/2016 100 164
80 Proprietary Limited Investment
Property
AFHCO Calgro M3 Consortium 15/08/2016 51 -
Proprietary Limited
AFHCO Holdings investment 01/07/2016 100 11,648
in Platinum Place
Assets acquired and liabilities Investment in
recognised at date of acquisition: subsidiaries
R000
Non-current assets
Investment property 271,809
Property, plant and equipment 2,033
Current assets
Trade and other receivables 1,447
Cash and cash equivalents 2,562
Non-current liabilities
Borrowings (191,272)
Current liabilities
Trade and other payables (4,287)
Fair value of identifiable assets and liabilities acquired 82,292
Consideration 87,067
4,775
Gain on acquisition of subsidiary (232)
Goodwill 5,007
4,775
The AFHCO Group was acquired on 1 July 2014 to enter the residential Johannesburg inner-city sector and thus to diversify the Group's property portfolio. The additional acquisitions in subsidiaries 2016 provided further support for this strategy. The gain on bargain purchase arose due to no consideration paid in respect of a subsidiary's property, plant and equipment. The goodwill relates to a consideration being paid in respect of a preferential debt rate inherited from the sellers.
4. Interest rate swap derivatives and investment in listed shares
The interest rate swap derivatives are valued based on the discounted cash flow method. Future cash flows are estimated based on forward interest rates (from observable yield curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk.
The investment in listed shares is valued at the quoted market price. The investment in listed shares and interest rate swap derivatives are classified as a level 1 and level 2 financial asset respectively in terms of the degree to which the fair value is observable.
This announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34. The consolidated financial statements are available on the Group's website, at the Group's registered offices or upon request.
5. Capital commitments
The Group had authorised and contracted capital commitments of R407,7m (2015: R250,5m) as at 31 December 2016.
6. Events after the reporting date
The directors are not aware of any significant events, other than the distributions disclosed below, between the end of the financial year under review and the date of signature of these summarised financial statements.
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice to shareholders resident in South Africa
Notice is hereby given of the declaration of distribution no.4 in respect of the income distribution period 1 July 2016 to 31 December 2016. The distribution amounts to 21.58 cps. The source of the distribution comprises net income from property rentals and interest earned on cash investments. Please refer to the statement of comprehensive income for further details. As SA Corporate has REIT status, shareholders are advised that the distribution meets the requirements of a "qualifying distribution" for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 ("Income Tax Act"). The distributions on SA Corporate shares will be deemed to be dividends, for South African tax purposes, in terms of section 25BB of the Income Tax Act. The distributions received by or accrued to South African tax residents must be included in the gross income of such shareholders and are not exempt from income tax (in terms of the exclusion to the general dividend exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the Income Tax Act) because they are dividends distributed by a REIT, with the effect that the distribution is taxable in the hands of the shareholder. These distributions are, however, exempt from dividend withholding tax in the hands of South African tax resident shareholders, provided that the South African resident shareholders have provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the transfer secretaries, in respect of certificated shares: a) a declaration that the distribution is exempt from dividends tax; and b) a written undertaking to inform the CSDP, broker or the transfer secretaries, as the case may be, should the circumstances affecting the exemption change or the beneficial owner ceases to be the beneficial owner, both in the form prescribed by the Commissioner for the South African Revenue Service. SA Corporate shareholders are advised to contact the CSDP, broker or transfer secretaries, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution, if such documents have not already been submitted.
Notice to non-resident shareholders
Distributions received by non-resident shareholders will not be taxable as income and instead will be treated as ordinary dividends which are exempt from income tax in terms of the general dividend exemption in section 10(1)(k)(i) of the Income Tax Act. It should be noted that until 31 December 2013 distributions received by non-residents from a REIT were not subject to dividend withholding tax. From 22 February 2017, any distribution received by a non-resident from a REIT will be subject to dividend withholding tax at 20%, unless the rate is reduced in terms of any applicable agreement for the avoidance of double taxation ("DTA") between South Africa and the country of residence of the shareholder.
Assuming dividend withholding tax will be withheld at a rate of 20%, the net dividend amount due to non-resident shareholders is 17.2640 cents per SA Corporate share. A reduced dividend withholding rate, in terms of the applicable DTA, may only be relied on if the non-resident shareholders has provided the following forms to the CSDP or broker, as the case may be, in respect of uncertificated shares, or the transfer secretaries, in respect of certificated shares: a) a declaration that the dividend is subject to a reduced rate as a result of the application of a DTA; and b) a written undertaking to inform the CSDP, broker or the transfer secretaries, as the case may be, should the circumstances affecting the reduced rate change or the beneficial owner ceases to be the beneficial owner, both in the form prescribed by the Commissioner for the South African Revenue Service. Non-resident shareholders are advised to contact the CSDP, broker or the transfer secretaries, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution if such documents have not already been submitted, if applicable. 2,417,481,790 SA Corporate shares are in issue at the date of this distribution declaration and SA Corporate's income tax reference number is 9179743191.
Last date to trade cum distribution Monday, 20 March 2017
Shares will trade ex-distribution Wednesday, 22 March 2017
Record date to participate in the distribution Friday, 24 March 2017
Payment of distribution Monday, 27 March 2017
Share certificates may not be dematerialised or re-materialised between Wednesday, 22 March and Friday, 24 March 2017 both days inclusive.
By order of the Board
28 February 2017
DIRECTORATE AND STATUTORY INFORMATION
Registered office
South Wing, First Floor
Block A
The Forum
North Bank Lane
Century City
7441
Tel 021 529 8410
Registered auditors
Deloitte & Touche
1st Floor
The Square
Cape Quarter
27 Somerset Road
Cape Town
8005
Transfer secretaries
Computershare Investor Services (Pty) Ltd
Rosebank Towers
15 Biermann Avenue
Rosebank
2196
Sponsor
Nedbank Corporate and Investment Banking
A division of Nedbank Limited
135 Rivonia Road
Sandton
2196
Directors: J Molobela (Chairman), TR Mackey (Managing)*, AM Basson (Finance)*, RJ Biesman-Simons, GP Dingaan, KJ Forbes, EM Hendricks, MA Moloto, ES Seedat
* Executive
B Swanepoel
Company Secretary
28 February 2017
Date: 28/02/2017 04:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
