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Provisional summarised audited financial statements for the period ended 31 December 2016
Transcend Residential Property Fund Limited
(Incorporated in the Republic of South Africa)
Registration Number 2016/277183/06
JSE share code TPF ISIN:ZAE000227765
(Approved as a REIT by the JSE)
(“Transcend” or “the Company”)
Provisional summarised audited financial statements for the period ended 31 December 2016
1 Basis of preparation
The summary financial statements have been prepared in accordance with the requirements of
the JSE Listings Requirements for provisional reports, and the requirements of the Companies
Act of South Africa applicable to summary financial statements. The JSE Listings Requirements
require provisional 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
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 financial statements from which the summary financial statements
were derived are in terms of International Financial Reporting Standards and are consistent with
the Listing Prospectus issued on 16 November 2016 ("Listing Prospectus").
The provisional summarised report is extracted from the audited information, but is not itself audited.
The financial statements are audited by KPMG Inc., who expressed an unmodified opinion thereon.
The auditor’s report does not necessarily report on all the information contained in these summary
financial statements. Shareholders are therefore advised that in order to obtain a full understanding
of the nature of the auditor’s engagement, they should obtain a copy of the auditor’s report together
with the accompanying audited financial statements, both of which are available for inspection at the
company’s registered office. The directors of Transcend take full responsibility for the preparation
of this report and that the selected financial information has been correctly extracted from the
underlying financial statements. The audited financial statements are available for inspection at
Transcend’s registered office.
David Peter Lange CA(SA), Transcend’s chief financial officer, was responsible for supervising the
financial statements that this provisional report summarises, as well as the preparation of these
summary financial statements.
2 Directors’ report
Commentary
The primary business of Transcend is focused on acquiring income-generating residential properties, with
a focus on housing opportunities that are affordable, lifestyle-enhancing and well-located in high-growth
urban areas. The company’s strategy is to establish a track record of consistent performance and growth in
distributions. The company intends to maximise the performance of its initial portfolio and only acquire
additional properties that are stabilised.
59 046 443 shares were issued on 1 October 2016 at R10 per share as part of the purchase agreements of
each of the 13 properties. Transcend listed on the Alternative Exchange of the JSE Limited on 1 December 2016
and 7 259 219 ordinary shares were issued to the public at R6,75 per share. Following the acquisition of the
initial portfolio of 13 properties, settled through the issue of Transcend shares and successful private
placement on listing, the total number of shares in issue is 66 305 662.
In terms of the property acquisitions, each rental enterprise was acquired by Transcend with effect
from 1 October 2016. On this date, Transcend assumed certain assets and liabilities relating to each rental
enterprise. Transcend did not acquire the asset management and property management processes as part
of these property acquisitions. Although the reporting period under review covers 6 months, the results
presented in the financial statements represent operating activities for 3 months only, as Transcend
recognised income and expenditure from the effective date of 1 October 2016.
3 Results
On 29 March 2017, the board approved a dividend of 5.60803 cents per share for the period ended 31 December 2016,
which is greater than the forecast dividend per share of 2.10 cents per share published in the company’s Listing
Prospectus. The variance primarily relates to surplus working capital being available for distribution.
The company is of the view that the portion of the dividend in excess of the forecast dividend is once off in
nature and should therefore not be taken into account in establishing an expectation of the company’s future
dividends.
Profit and total comprehensive income for the period amounts to R16.52 million whilst the forecast as per the
Listing Prospectus issued on 16 November 2016, was a net loss for the period of R9.92 million. The profit for
the current period is largely due to a net gain on fair value adjustments to investment property of R11.39 million.
The headline earnings attributable to equity holders is R5.14 million and the forecast as per the Listing
Prospectus was R5.49 million. Total assets as at 31 December 2016 amount to R1.23 billion, which is higher
than the R1.17 billion in the pro forma statement of financial position as per the Listing Prospectus.
4 Property portfolio
There are 13 residential properties in Transcend’s portfolio, which consists of 2 472 units valued at
R1.189 billion.
Geographically, the properties are located in the following provinces:
Gauteng 80%
Western Cape 12%
Mpumalanga 8%
(The above allocation is based on GLA)
Please refer to details below of all 13 properties acquired by Transcend:
Purchase Effective
price transfer
Property name % owned GLA (m2) R’000 date
67 on 7th 100% 8 478 90 500 01-Oct-16
Acacia Place 100% 16 250 131 700 01-Oct-16
Alpine Mews 100% 4 005 31 300 01-Oct-16
Ekhaya Fleurhof 100% 6 642 63 600 01-Oct-16
Ekhaya Jabulani 100% 10 004 85 500 01-Oct-16
Jackalberry Close 100% 10 713 110 400 01-Oct-16
Kensington Place 100% 2 376 33 000 01-Oct-16
Molware 100% 11 937 135 400 01-Oct-16
Parklands 100% 10 044 89 100 01-Oct-16
Village Seven, Stone
Arch Village 100% 6 039 52 800 01-Oct-16
Terenure Estate 100% 22 028 201 200 01-Oct-16
Theresa Park Estate 100% 12 388 96 200 01-Oct-16
Tradewinds 100% 3 730 44 300 01-Oct-16
Total 124 634 1 165 000
5 Vacancies
Based on existing leases, as at 31 December 2016, the total portfolio’s vacancy rate was 7%. However,
if Acacia Place which is still in lease-up is excluded, the vacancy rate of the stabilised portfolio
is 4%. Transcend expects the vacancies of the stabilised portfolio to remain within the 2% - 6% range.
6 Facilities
As at 31 December 2016, the following interest-bearing borrowings were in place:
Value of
borrowings
R’000
Nedbank Limited 227 634
Maturity dates range between March 2019 and March 2021.
The loans all attract interest at the prime rate.
The bonds are secured by properties to the value of
R435.6 million.
National Housing Finance Corporation SOC Ltd 128 425
Maturity dates range between September 2026 and May 2028.
The interest rates are at prime, or at prime plus 1%.
The bonds are secured by properties to the value of
R279.2 million.
The Standard Bank of South Africa Limited 191 417
Maturity dates range between January 2017 and October 2018.
The interest rates are at prime, or at prime plus 1%.
The bonds are secured by properties to the value of
R474.6 million.
Total interest-bearing borrowings 547 476
Less: Short-term portion of interest-bearing borrowings 216 911
Long-term interest-bearing borrowings 330 565
As at 31 December 2016, none of the company’s borrowings are hedged.
The Standard Bank of South Africa Limited ("Standard Bank") and Transcend agreed to enter into a
common terms agreement which was signed on 7 December 2016 in terms of which Standard Bank will
make available R560 000 000 to Transcend. This will be used to refinance the existing debt.
As at 31 December 2016, Transcend has not drawn down on any of these new Standard Bank facilities.
The facility was, however, utilised by 3 February 2017.
7 Gearing
Transcend’s Loan to Value ("LTV") is 44%, which is above the company’s long term target range
of 30% to 40%, but in line with the pro forma statement of financial position as per the
Listing Prospectus.
8 Summary of financial performance
December 2016
Dividend per share (cents) 5.61
Shares in issue 66 305 662
Net asset value per share (cents) 9.78
Loan-to-value ratio(1) 44%
Net property expense ratio(2) 28%
Gross property expense ratio(2) 33%
Net total expense ratio(2) 40%
Gross total expense ratio(2) 44%
(1) The LTV ratio is calculated by dividing interest-bearing borrowings net of cash and cash
equivalents by the total investment property.
(2) For the calculation of net ratios, utility recoveries are excluded from rental revenue,
whilst gross ratios include utility recoveries in rental revenue.
Statement of financial position
Audited as at
31 December
2016
Assets R’000
Non-current assets 1 189 400
Investment property 1 189 400
Current assets 37 305
Trade and other receivables 13 805
Cash and cash equivalents 23 500
Total assets 1 226 705
Equity and liabilities
Shareholders’ interest 648 800
Stated capital 632 276
Retained earnings 16 524
Non-current liabilities 330 565
Interest-bearing borrowings 330 565
Current liabilities 247 340
Short-term portion of interest-bearing borrowings 216 911
Trade and other payables 30 429
Total equity and liabilities 1 226 705
Statement of profit or loss and other comprehensive income
Audited for the
period ended
31 December
2016
R’000
Rental income from investment properties 33 990
Recoveries of operating costs from tenants 2 271
Revenue 36 261
Property operating expenses (11 940)
Net operating income 24 321
Other operating expenses (3 916)
Operating profit 20 405
Gain on fair value of adjustment of investment property 11 387
Net finance charges (15 268)
Finance charges (15 439)
Finance income 171
Profit before taxation 16 524
Taxation -
Profit and total comprehensive income for the period 16 524
Basic earnings per share (cents) 51.70
Headline earnings per share (cents) 16.07
Reconciliation of profit for the period to headline earnings
Audited for the
period ended
31 December
2016
R’000
Reconciliation of earnings and headline earnings
Profit for the year attributable to equity holders
(profit after tax) 16 524
Less: Change in fair value of investment properties (11 387)
Headline earnings attributable to equity holders 5 137
Number of shares in issue at year-end 66 305 662
Weighted average number of shares in issue used for the
calculation of earnings and headline earnings per share 31 962 195
Basic and diluted earnings per share (cents) 51.70
Headline and diluted headline earnings per share (cents) 16.07
Statement of cash flows
Audited for the
period ended
31 December
2016
R’000
Net cash generated from operating activities 23 939
Cash generated from operations 37 030
Finance charges paid (13 262)
Finance income received 171
Net cash utilised in investing activities (13 013)
Capitalisation of transfer and bond costs (13 013)
Net cash generated from financing activities 12 575
Repayment of interest-bearing borrowings (24 425)
Proceeds from share issue 36 999
Net movement in cash and cash equivalents 23 500
Cash and cash equivalents at the beginning of the period -
Cash and cash equivalents at the end of the period 23 500
-
Cash and cash equivalents consist of:
Bank and cash balances 9 972
Tenant deposits 13 528
23 500
Statement of changes in equity
Stated Retained Total
capital earnings equity
R’000 R’000 R’000
Balance at 1 July 2016 - - -
Transactions with owners
Issue of ordinary shares 639 464 - 639 464
Capitalised listing fees (7 188) - (7 188)
Total profit and comprehensive income for
the period - 16 524 16 524
Balance at 31 December 2016 632 276 16 524 648 800
Notes
1 Sectoral split
Based on: GLA Book value
Residential 100% 100%
2 Lease expiry profile
Rental
Based on: GLA (%) revenue
Vacancy 7,0% 6,5%
Monthly 46,3% 45,7%
30 June 2017 28,6% 29,5%
31 December 2017 17,0% 17,3%
31 December 2018 1,1% 1,0%
100,0% 100,0%
3 Summarised segmental analysis
For the period ended 31 December 2016
R’000
Acacia Alpine
67 on 7th place Mews
Revenue 2 540 3 401 1 050
Property operating expenses (679) (1 409) (386)
Profit and total comprehensive income
for the period 780 (215) 354
Total assets 91 800 133 800 32 100
Total interest-bearing borrowings 50 895 99 876 14 273
Ekhaya Ekhaya Jackalberry
Fleurhof Jabulani Close
Revenue 2 039 3 020 3 016
Property operating expenses (479) (1 188) (814)
Profit and total comprehensive income
for the period 1 979 3 555 1 513
Total assets 65 000 88 600 112 400
Total interest-bearing borrowings 31 403 45 471 23 156
Kent Road Kosmosdal Parklands
Revenue 1 079 4 169 3 019
Property operating expenses (348) (1 166) (985)
Profit and total comprehensive income
for the period 716 165 5 242
Total assets 33 800 135 900 93 500
Total interest-bearing borrowings 14 194 57 354 37 278
Village Seven, Terenure Theresa Park
Stone Arch Estate Estate Estates
Revenue 1 866 6 786 2 791
Property operating expenses (770) (2 083) (1 097)
Profit and total comprehensive
income for the period 1 719 8 623 (4 420)
Total assets 54 900 210 000 92 850
Total interest-bearing borrowings 26 837 76 862 49 609
Tradewinds Entity level Total
Revenue 1 485 - 36 261
Property operating expenses (536) - (11 940)
Profit and total comprehensive
income for the period 258 (3 745) 16 524
Total assets 44 750 - 1 189 400
Total interest-bearing borrowings 20 268 - 547 476
Reconciliation of profit for the period to dividend declared
For the period ended
31 December 2016
R’000
Reconciliation of earnings and distributable earnings
Headline earnings attributable to equity holders 5 137
Add: Surplus working capital available for distribution 1 290
Add: Listing fees expensed 1 752
Less: Clean-out dividend(1) (4 461)
Amount available for distribution to shareholders 3 718
Dividend per share (cents) 5.61
(1) The clean-out dividend is a distribution to Transcend shareholders prior to the
Transcend listing on the JSE. This dividend is equivalent to the distributable earnings
for the period 1 October 2016 to 30 November 2016.
3 Related parties and related party transactions
Transcend is externally managed by IHS Asset Management (Pty) Ltd (IHS AM), a private
company registered and incorporated in accordance with the laws of South Africa and a
wholly-owned subsidiary of IHS (RF) Pty Ltd. An asset management agreement was entered
into by Transcend and IHS AM and became effective 1 October 2016. IHS AM charged
Transcend asset management fees of R1 116 298 during the period in accordance with the
asset management agreement. The property management function of the company is outsourced
on market related terms to IHS Property Management (Pty) Ltd (IHS PM), a private company
registered and incorporated in accordance with the laws of South Africa. A property
management agreement was entered into by Transcend and IHS PM on 16 October 2016. IHS PM
charged Transcend property management fees of R2 515 001 during the period in accordance
with the asset management agreement.
4 Prospects
With the significant global and local political events of 2016 behind us, it remains to
be seen whether the South African economy will begin to recover from the weak levels of
growth experienced in the past 12 months. Despite the challenging current economic environment,
Transcend believes that the residential rental market will remain relatively resilient given
its strong fundamentals. Transcend therefore expects the current portfolio to perform in
line with the expectations set out in the Listing Prospectus, being a forecast dividend of
62.8 cents per share for 2017.
The forecast statement of comprehensive income and the independent reporting accountant's
report thereon are set out in the Listing Prospectus.
5 Subsequent events
In line with IAS10 Events after the reporting date, the declaration of the final dividend as
disclosed in Note 6 Payment of final dividend, occurred after the end of the reporting period,
resulting in a non-adjusting event that is not recognised in the financial statements.
As at 3 February 2017, Transcend has drawn down on the new facility as disclosed as per Note 6
Facilities, of the provisional summarised audited financial statements above. The new facility
has been hedged against interest rate exposure in accordance with the company’s hedging policy
which was approved by the board on 18 October 2016.
The directors are not aware of any events or circumstances arising since the end of the financial
year that would significantly affect the operations of the company or the results of those
operations.
6 Payment of final dividend
The board has approved and notice is hereby given of a final dividend of 5.60803 cents per share
for the period ended 31 December 2016.
The dividend is payable to Transcend shareholders in accordance with the timetable set out below:
Last date to trade cum dividend Tuesday, 18 April 2017
Shares trade ex dividend Wednesday, 19 April 2017
Record date Friday, 21 April 2017
Payment date Monday, 24 April 2017
Share certificates may not be dematerialised or rematerialised between Wednesday, 19 April 2017 and
Friday, 21 April 2017, both days inclusive.
In respect of dematerialised shareholders, the dividend will be transferred to CSDP accounts/broker
accounts on Monday, 24 April 2017. Certificated shareholders’ dividend payments will be deposited on
or about Monday, 24 April 2017.
An announcement informing shareholders of the tax treatment of the dividend will be released
separately on SENS.
By order of the board
Robert Nicolaas Wesselo David Peter Lange
Chief Executive Officer Chief Financial Officer
Johannesburg
30 March 2017
Directors: Robert Reinhardt Emslie(1) (Chairperson); Robert Nicolaas Wesselo (Chief executive officer);
David Peter Lange (Chief financial officer); Solly Mboweni (Chief operating officer);
Cathal Padraig Conaty; Faith Nondumiso Khanyile(1); Michael Simpson Aitken(1); Michael Louis Falcone
((1)Independent non-executive director)
Registered office: 54 Peter Place, Block G, Peter Place Office Park, Bryanston, 2191
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: Karen Waldeck-Kruger
Date: 30/03/2017 12:03:00 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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