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TOWER PROPERTY FUND LIMITED - Summarised audited consolidated annual results for the year ended 31 May 2017

Release Date: 31/07/2017 08:00
Code(s): TWR     PDF:  
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Summarised audited consolidated annual results for the year ended 31 May 2017

Tower Property Fund Limited 
Incorporated in the Republic of South Africa
Registration number 2012/066457/06
JSE share code: TWR
ISIN: ZAE000179040
(Approved as a REIT by the JSE)
("Tower" or the "group" or the "fund")

Summarised audited consolidated annual results
for the year ended 31 May 2017

19% UP
Revenue up to R447 million

18% UP
Distributable earnings up to R262 million

16% DOWN
Distributable earnings down to 77.1c per share due to resetting base earnings and Agrokor arrears*

28% Properties, by value, located in Croatia

52% UP
Operating profit up to R458 million

49 Properties at a value of R5 billion

Acquisition of EUR66.4 million Croatian retail property


PROFILE
Tower is an internally managed real estate investment trust (REIT) which owns a diversified
portfolio of 49 commercial, industrial and retail properties valued at R5 billion, located in
South Africa and Croatia. In South Africa, Gauteng has the greatest concentration of assets
by value at 33%, with the Western Cape accounting for 29% and KwaZulu-Natal 10%. Croatia
accounts for 28% of the fund's property value. The fund aims to add value through active
property asset management and has taken a leading role in the market in greening its portfolio.

The investment strategy of the fund is to expand its portfolio by targeting well located
properties with strong cash flows with upside potential and to ensure a diversified sectoral
and geographic spread of properties. The fund currently has a sectoral spread by value of
46% retail, 47% office and 7% industrial.

DISTRIBUTION BASE REVISED
Tower's distribution per share decreased by 16% to 77.1 cents per share compared to
31 May 2016. Tower's distribution for 31 May 2016 was 92 cents per share, of which 16.4 cents
per share comprised once off earnings. As announced on SENS on 11 January 2017, Tower's
board decided to no longer distribute once off earnings. The directors believe that the
distribution of once off earnings is detrimental to the sustainable growth in core property
earnings. The adjustment to the earnings base, which is in line with the best practice
recommendations released by the South African REIT Association was well received by
shareholders at the time of the announcement.

Tower accordingly revised its distribution guidance for the year to 31 May 2017 to a range
of 80 cents per share to 82 cents per share.

AGROKOR UPDATE AND IMPACT ON DISTRIBUTION*
Shareholders are referred to the announcements released on SENS on 2 May 2017 and
26 June 2017 regarding Agrokor d.d ("Agrokor"), the guarantor and parent company of
Konzum d.o.o ("Konzum"), a major Croatian retailer and head-lease tenant in respect
of four retail properties acquired by Tower in Croatia in June 2016 (the "Konzum portfolio")
(the "Agrokor SENS announcements"). As detailed in the Agrokor SENS announcements,
the Lex Agrokor law was adopted on 6 April 2017 for the purposes of renegotiating Agrokor
and its subsidiaries' position with creditors and restructuring the Agrokor business. As per
the SENS announcements, the restructuring is proceeding well with additional liquidity, in
the form of new loans, secured for the business. The trading of the majority of Konzum
stores is strong with non-core stores to be closed shortly. Konzum has a twelve year head
lease in respect of the Konzum portfolio in terms of which Agrokor guarantees all rental
payments in respect of the Konzum portfolio. The line shop rentals are paid directly to Tower
by the tenants with any rental shortfalls being topped up by Konzum. Claims for rental
arrears prior to 9 April 2017 were required to be submitted to the appointed administrator by
9 June 2017. Tower submitted its arrears which amounted to HRK 5.2 million (R10.3 million)
(the "Agrokor arrears"). This amount is slightly lower than the amount disclosed in the
Agrokor SENS announcements due to a portion being subsequently settled. Ongoing
rentals are due and payable by Konzum and Tower is pleased to report that all rentals from
April 2017 onwards have been fully paid.

Konzum has confirmed to Tower that Tower's properties are of critical importance to Konzum.
Tower has engaged with other retailers in the event of Konzum defaulting on its ongoing
rental commitments and there is strong appetite for the Konzum sites from competing
retailers. Tower is confident that if it were to cancel the Konzum lease due to default on rental
payments, a strong international anchor tenant would replace Konzum.

Tower has met regularly with the Agrokor commissioner and representatives of Agrokor
(as recently as 18 July 2017), to ensure Konzum's ongoing rental obligations are settled.
After these meetings, Tower is confident about the current and future performance of the
Konzum stores in the Konzum portfolio.

Tower continues to utilise all methods at its disposal to recover the Agrokor arrears. Tower's
claim for the Agrokor arrears has been combined with a number of other creditor claims and
the settlement thereof is to be motivated by the Agrokor commissioner and decided upon
by the Agrokor credit committee.

Due to the timing of the release of its annual results and the uncertainty regarding the
quantum, method and timing of the settlement of the Agrokor arrears, Tower believes it would
not be prudent to distribute any of the Agrokor arrears at this time and has therefore deducted
this amount from its distributable income for the year ended 31 May 2017. Tower will include
the Agrokor arrears in its future distributions as and when they are settled by Agrokor.

FINANCIAL PERFORMANCE
Key features of the past year have been the internalisation of the asset management
company as well as the acquisition of EUR66.4 million of Croatian retail property comprising four
high quality shopping centres all under fully repairing twelve year (triple net) head leases.

In an extremely challenging operating environment, revenue increased by 19% to R447 million
and operating profit by 52% to R458 million. Distributable earnings for the period totalled
R262 million and the directors are pleased to declare a final distribution of 38.7 cents per
share for the year ended 31 May 2017 which translates into 77.1 cents per share for the full
year. The number of shares in issue has increased by 42%.

PROGRESS ON ANTICIPATED PROFITS
As announced in the November 2016 interim results, Tower anticipates generating once
off earnings from certain asset management initiatives in the portfolio in the next 6 to 36
months. These proceeds will be reinvested in the company to maximise returns. These
profits arise from the refurbishment of 32 Napier Street and the Piazza at Cape Quarter,
sales of non-core properties and other initiatives as announced on SENS on 11 January 2017.
The first phase of the Cape Quarter residential scheme at 32 Napier Street has progressed
well, with completion expected by mid-2018. 140 additional parking bays are being added to
32 Napier Street which will serve to satisfy the high demand in the area. A further 54 - 74
residential apartments are to be developed at Cape Quarter Piazza, with construction
commencing in the second quarter of 2018.

SALE OF NON-CORE PROPERTIES
Nine properties totalling R519 million are being sold subsequent to year-end. While these
are attractive, mainly B grade properties, management believes that the proceeds of these
sales can be more effectively utilised elsewhere in the company. R186 million of these
properties are expected to transfer in the next few months.

CROATIAN PORTFOLIO
Tower's portfolio in Croatia is now valued at EUR96 million. Tower's office property, VMD, is
performing well and is considered by many property experts as the highest quality office
property in Zagreb.

OPERATING PERFORMANCE
During the period the following properties, located in Croatia, were acquired for EUR66.4 million:

 Superkonzum, Vukovarska, Zagreb        GLA      3 223 m(2)      Big box retail with line shops
 Meridijan 16, Gracani, Zagreb          GLA      9 362 m(2)      Convenience shopping centre
 Superkonzum, Velika Gorica             GLA      5 510 m(2)      Big box retail with line shops
 Sub City Centre, Dubrovnik             GLA     12 259 m(2)      Convenience shopping centre

Portfolio vacancies have increased to 5.9% as at 31 July 2017 (6.8% in South Africa). South
African vacancies are further broken down to 2.1% office, 1.4% retail and 2.3% industrial. There
are currently 7% vacancies in the Croation portfolio line shops, however those are guaranteed
by the head leases on the properties.

The weighted average lease expiry of the fund is 4.4 years with the South African portfolio
at 2.8 years.

BORROWINGS
Tower has loan facilities totalling R2.0 billion at 31 May 2017 (35% ZAR debt, 65% Euro debt).
Interest rates are hedged on 72% of the total loan facility (ZAR debt 72%, Euro debt 72%)
and the weighted average rate of interest is 5.76% (ZAR debt 9.14%, Euro debt 3.91%) for
the portfolio. Based on investment properties valued at R5.0 billion, the loan to value (LTV)
ratio of the group was 39% at the end of the period. The LTV is calculated as other financial
liabilities less cash, divided by investment property. Should the sales of non-core properties
and the ring-fencing of the Croatian properties materialise, approximately R600 million will
be paid into Tower's loan facilities to reduce the LTV to 31%.

PROSPECTS
The "business rescue" of Agrokor in Croatia and the deteriorating political landscape
in South Africa have made recent months particularly difficult to navigate for Tower's
management. The slowing consumer economy has negatively affected the performance of
several large retailers which will affect the property market and sentiment in South Africa.

Tower's properties are however performing above the SA Property Owners Association
(SAPOA) benchmarks, are well managed and should continue to grow their net property
income. Shareholders should expect 6 to 8% growth in distribution per share for the next
twelve months. This forecast has not been reviewed or reported on by the fund's auditors.

The resolution of the Agrokor/Konzum tenancy is currently Tower's main priority. Shareholders
are assured that all steps are being taken to ensure that the fund's rights are protected.
Subject to required approvals, Tower plans to ring-fence its Croatian properties in a separate
vehicle in which Tower will hold interests, allowing shareholders direct investment into
offshore assets.

BASIS OF PREPARATION
The summarised results of the audited consolidated financial statements ("results") for the
year ended 31 May 2017 have been prepared in accordance with the framework concepts,
the measurement and recognition requirements of International Financial Reporting
Standards ("IFRS"), the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and contains the information required by IAS 34: Interim Financial
Reporting. They comply with the JSE Listings Requirements and the Companies Act, 71 of
2008, of South Africa. The accounting policies and methods of computation applied in the
preparation of the results are consistent with those applied in the audited annual financial
statements for the year ended 31 May 2016.

Mazars, the group's independent auditor, has audited the consolidated annual financial
statements of Tower for the year ended 31 May 2017 and has expressed an unqualified
audit opinion thereon. These summarised results have been extracted from the audited
consolidated annual financial statements for the year ended 31 May 2017, but are not
themselves audited. The audited consolidated annual financial statements and audit report
are available for inspection at the company's registered office. Their audit was conducted
in accordance with International Standards on Auditing and the applicable requirements
of the Companies Act of South Africa. The auditor's report does not necessarily report on
all information contained in this report. 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 underlying audited annual financial
statements from the registered office.

These results were prepared under the supervision of Mrs J Mabin CA(SA) in her capacity as
Chief Financial Officer.

The directors take full responsibility for the preparation of the summarised results for the
year ended 31 May 2017 and for ensuring that the financial and other information contained
in the summarised results has been correctly extracted from the underlying audited
consolidated annual financial statements for the year ended 31 May 2017. The directors are
not aware of any matters or circumstances arising subsequent to 31 May 2017 that require
any additional disclosure or adjustment to the financial statements, other than as disclosed
in this announcement.

Fair value of financial instruments recognised in the statement of financial position

The group measures fair values using the fair value hierarchy that reflects the significance
of the inputs used in making the measurements.

The valuation of interest rate swaps uses observable market data and requires management
judgement and estimation. The availability of observable market data and model inputs
reduces the need for management's judgement and estimation and also reduces uncertainty
associated with the determination of fair values.

The fair value of the interest rate swap is determined by the bank using a valuation
technique that maximises the use of observable market inputs. Interest rate swaps are
valued by discounting future cash flows using the interest rate yield curve. Interest rate
swaps are classified as level 2 financial instruments.

The interest rate has been fixed on R500 million of borrowings at 7.70%, expiring on 31 May
2019 and the company has entered into the following Euro denominated swaps:

                                                                        Notional amount
                                                                            (Euro '000)
Contract 1: 4.10% maturing 3 August 2020                                          7 000
Contract 2: 3.70% maturing 18 March 2021                                          2 540
Contract 3: 3.60% maturing 21 June 2021                                          30 514
Contract 4: 3.75% maturing 13 January 2022                                       13 199

DIVIDEND DISTRIBUTION
Notice is hereby given that a gross cash dividend of 38.67641 cents per share (dividend
number 8) has been declared from income reserves in respect of the year ended 31 May
2017. In accordance with Tower's status as a REIT, 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 distribution on the shares
will be deemed to be a dividend for South African tax purposes in terms of section 25BB of
the Income Tax Act.

Accordingly the dividend received by South African tax residents must be included in their
gross income and will not be exempt in terms of the ordinary dividend exemption in section
10(1)(k)(i) of the Income Tax Act as a result of paragraph (aa) of the proviso thereto which
provides that dividends distributed by a REIT are not exempt from income tax.

The dividend is however, exempt from dividend withholding tax in the hands of South African
tax resident shareholders, provided that the South African resident shareholders provide the
following forms to their Central Securities Depository Participant (CSDP) or broker, as the
case may be in respect of uncertificated shares or the company, in respect of certificated
shares:
a)  a declaration that the dividends are exempt from dividend tax; and
b)  a written undertaking to inform the CSDP or broker, 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.
Shareholders are advised to contact their CSDP or broker, as the case may be, to arrange for
the abovementioned documents to be submitted prior to the payment of the distribution if
such documents have not already been submitted.

Dividends received by non-resident shareholders will be exempt from income tax in terms
of section 10(1)(k)(i) of the Income Tax Act. On 22 February 2017, the dividends withholding
tax rate was increased from 15% to 20%, accordingly, any dividend will be subject to dividend
withholding tax levied at a rate of 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.

Should dividend withholding tax be withheld at a rate of 20%, the net dividend amount due
to non-resident shareholders is 30.94113 cents per share. A reduced dividend withholding
rate in terms of the applicable DTA may only be relied on if the non-resident shareholder
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)  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 or broker, 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 shareholders are advised to contact their CSDP or broker, as the case may be,
to arrange for the abovementioned documents to be submitted prior to the payment of the
distribution if such documents have not already been submitted.

The dividend is payable to Tower shareholders in accordance with the timetable set out
below:
                                                                                   2017
Last day to trade cum dividend distribution:                         Tuesday, 15 August
Shares trade ex dividend distribution:                             Wednesday, 16 August
Record date:                                                          Friday, 18 August
Payment date:                                                         Monday, 21 August

Share certificates may not be dematerialised or rematerialised between Wednesday,
16 August and Friday, 18 August 2017, both days inclusive.

The dividend will be transferred to dematerialised shareholders' CSDP accounts or broker
accounts on Monday, 21 August 2017.

Certificated shareholders' dividend payments will be paid to certificated
shareholders' bank accounts on or about Monday, 21 August 2017.

Shares in issue at date of declaration (excluding treasury shares): 339 549 647.

Tower's income tax reference number: 9607/564/16/9.

By order of the Board

Tower Property Fund Limited
31 July 2017

The Annual General Meeting will be held on Tuesday, 17 October 2017 at 10:00 at the
Belmont Conference Centre.

The last day to trade to participate in and vote at the annual general meeting is Tuesday,
10 October 2017.

The record date to participate in and vote at the annual general meeting is Friday,
6 October 2017.


Registered address         2nd Floor, Spire House, Tannery Park, 23 Belmont Road,
                           Rondebosch, 7700 (PO Box 155, Rondebosch, 7701)
Contact details            +27 (0)21 685 4020/info@towerpropertyfund.co.za
Company secretary          Ovland Management Services Proprietary Limited
Auditors                   Mazars
Sponsor                    Java Capital
Transfer secretaries       Link Market Services South Africa Proprietary Limited
Directors:                 A Dalling* (Chairman), M Edwards (Chief Executive Officer),
                           J Bester*, K Craddock*, M Evans*, J Mabin (Chief Financial Officer),
                           B Kerswill*, A Magwentshu*, N Milne*, R Naidoo*
                           (*non-executive)

CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND COMPREHENSIVE INCOME
                                                                         Audited          Audited
                                                                       12 months        12 months
                                                                           ended            ended
                                                                     31 May 2017      31 May 2016
                                                                           R'000            R'000
REVENUE            
Contractual rental income                                                437 041          355 686
Straight-line lease accrual                                               10 300           20 765
                                                                         447 341          376 451
Net property operating expenses                                4        (34 259)         (30 733)
NET PROPERTY INCOME                                                      413 082          345 718
Administration expenses                                        6        (16 394)         (23 946)
Other income                                                   7             533           10 377
Impairment of goodwill                                         8         (3 006)                -
Foreign exchange gain/(loss)                                   9          63 874         (30 519)
NET OPERATING PROFIT                                                     458 089          301 630
Fair value adjustments on investment properties                          123 993         (10 604)
Fair value adjustments on interest rate derivatives                     (12 449)          (7 533)
PROFIT FROM OPERATIONS                                                   569 633          283 493
Finance income                                                             3 340            2 635
Finance costs                                                          (127 899)        (117 675)
Indirect capital raising expenses                                          (557)            (894)
PROFIT BEFORE TAXATION                                                   444 517          167 559
Taxation                                                                       -                -
PROFIT FOR THE PERIOD                                                    444 517          167 559
OTHER COMPREHENSIVE INCOME - ITEMS THAT MAY            
SUBSEQUENTLY BE RECLASSIFIED TO PROFIT AND            
LOSS            
Exchange difference on foreign operations                               (54 119)          42 968
TOTAL COMPREHENSIVE PROFIT FOR THE PERIOD                                390 398         210 527
Profit for the period attributable to:            
Equity shareholders of Tower Property Fund Limited                       437 103         158 840
Non-controlling interest                                      10           7 414           8 719
                                                                         444 517         167 559
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:            
Equity shareholders of Tower Property Fund Limited                       385 999         200 789
Non-controlling interest                                      10           4 399           9 738
                                                                         390 398         210 527
Basic and diluted earnings per share (weighted average        
shares in issue) (cents)                                                   129.8            67.1
       
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                                                         Audited         Audited
                                                                       12 months       12 months
                                                                           ended           ended
                                                                     31 May 2017     31 May 2016
                                                                           R'000           R'000
ASSETS          
NON-CURRENT ASSETS          
Investment property                                                    4 395 194       3 889 664
Straight-line lease accrual                                               54 505          52 682
Property, plant and equipment                                                198               -
Other financial assets                                                         -           3 184
Goodwill                                                       8         241 094               -
                                                                       4 690 991       3 945 530
CURRENT ASSETS            
Inventories                                                               12 495               -
Trade and other receivables                                              117 194          77 053
Cash and cash equivalents                                                 58 945          63 620
Amounts receivable for the sale of investment property                         -         111 000
                                                                         188 634         251 673
Investment property held for sale                                        518 626               -
                                                                         707 260         251 673
TOTAL ASSETS                                                           5 398 251       4 197 203
EQUITY AND LIABILITIES            
EQUITY           
Stated capital                                                         3 039 980       2 239 098
Treasury capital                                                         (4 636)         (2 854)
Foreign currency translation reserve                                     (9 155)          41 949
Retained income                                                          237 031          89 390
Shareholders' interest                                                 3 263 220       2 367 583
Non-controlling interest                                      10          24 627          20 228
Total equity                                                           3 287 847       2 387 811
LIABILITIES           
NON-CURRENT LIABILITIES           
Other financial liabilities                                            1 731 466       1 023 828
Loan payable to shareholder                                               24 369          30 920
                                                                       1 755 835       1 054 748
CURRENT LIABILITIES            
Other financial liabilities                                              279 441         691 354
Trade and other payables                                                  75 128          63 290
                                                                         354 569         754 644
TOTAL EQUITY AND LIABILITIES                                           5 398 251       4 197 203
         
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
                                                                                Foreign
                                                                               Currency
                                                    Stated    Treasury      Translation     Retained   Shareholders'  Non-controlling
                                                   Capital     Capital   Reserve (FTCR)       Income        interest         Interest       Total
                                                     R'000       R'000            R'000        R'000           R'000            R'000       R'000
BALANCE AT 1 JUNE 2015                           1 519 601     (1 212)                -      146 650       1 665 039                -   1 665 039
Shares issued during the year                      715 450           -                -            -         715 450                -     715 450
Share issue expenses                               (7 500)           -                -            -         (7 500)                -     (7 500)
Antecedent dividends                                11 547           -                -            -          11 547                -      11 547
Acquisition of treasury shares                           -     (1 642)                -            -         (1 642)                -     (1 642)
Acquisition of foreign subsidiary                        -           -                -            -               -           10 490      10 490
Profit for the year                                      -           -                -      158 840         158 840            8 719     167 559
Foreign currency translation differences                 -           -           41 949            -          41 949            1 019      42 968
Dividends paid                                           -           -                -    (216 100)       (216 100)                -   (216 100)
BALANCE AT 31 MAY 2016                           2 239 098     (2 854)           41 949       89 390       2 367 583           20 228   2 387 811
Shares issued during the year                      812 895           -                -            -         812 895                -     812 895
Share issue expenses                              (15 936)           -                -            -        (15 936)                -    (15 936)
Antecedent dividends                                 3 923           -                -            -           3 923                -       3 923
Acquisition of treasury shares                           -     (1 782)                -            -         (1 782)                -     (1 782)
Profit for the year                                      -           -                -      437 103         437 103            7 414     444 517
Foreign currency translation differences                 -           -         (51 104)            -        (51 104)          (3 015)    (54 119)
Dividends paid                                           -           -                -    (289 462)       (289 462)                -   (289 462)
BALANCE AT 31 MAY 2017                           3 039 980     (4 636)          (9 155)      237 031       3 263 220           24 627   3 287 847


SEGMENTAL ANALYSIS
                                                                      South Africa                                     Croatia
For the year ended 31 May 2017 (R'000)                Retail      Office   Industrial      Total   Retail   Office  Industrial      Total  Grand Total
Property assets*                                   1 322 646   1 933 584      351 323  3 607 553  975 928  397 537           -  1 373 465    4 981 018
Segment liabilities**                                591 857     830 627      155 823  1 578 307  343 829  163 390           -    507 219    2 085 526
Additions to goodwill                                 36 040      56 057       11 824    103 921  130 397    9 782           -    140 179      244 100
Fair value adjustment to investment properties        33 542      26 206     (40 798)     18 950   81 847   23 196           -    105 043      123 993
Straight-line lease accrual                           26 564      26 305        1 636     54 505        -        -           -          -       54 505
Revenue (excluding straight-line lease adjustments)  113 256     183 932       39 657    336 845   69 882   30 314           -    100 196      437 041
Net operating costs                                 (19 097)    (12 363)      (1 842)   (33 302)        -    (957)           -      (957)     (34 259)
Segment profit                                        94 159     171 569       37 815    303 543   69 882   29 357           -     99 239      402 782
Straight-line lease adjustment                                                                                                                  10 300
Non-property-related expenses                                                                                                                 (16 394)
Other income                                                                                                                                       533
Impairment of goodwill                                     -     (3 006)            -    (3 006)        -         -          -          -      (3 006)
Foreign exchange gain/(loss)                                                                                                                    63 874
Net operating profit                                                                                                                           458 089

For the year ended 31 May 2016 (R'000)
Property assets*                                   1 295 970   1 785 162      409 053  3 490 185        -   452 161          -    452 161    3 942 346
Segment liabilities**                                555 202     944 049       74 804  1 574 055        -   204 024          -    204 024    1 778 079
Additions to goodwill                                      -           -            -          -        -         -          -          -            -
Fair value adjustment to investment properties        19 810    (66 837)        9 064   (37 963)        -    27 359          -     27 359     (10 604)
Straight-line lease accrual                           23 934      25 953        2 795     52 682        -         -          -          -       52 682
Revenue (excluding straight-line lease adjustments)  140 427     149 348       38 790    328 565        -    27 121          -     27 121      355 686
Net operating costs                                 (13 279)    (15 923)        (678)   (29 880)        -     (853)          -      (853)     (30 733)
Segment profit                                       127 148     133 425       38 112    298 685        -    26 268          -     26 268      324 953
Straight-line lease adjustment                                                                                                                  20 765
Non-property-related expenses                                                                                                                 (23 946)
Other income                                                                                                                                    10 377
Foreign exchange gain/(loss)                                                                                                                  (30 519)
Net operating profit                                                                                                                           301 630
Tower has restated its segment information to provide sectoral information by region. Prior period information has been restated.

CONSOLIDATED STATEMENT OF CASH FLOWS
                                                                           Audited           Audited
                                                                         12 months         12 months
                                                                             ended             ended
                                                                       31 May 2017        1 May 2016
                                                                             R'000             R'000
Cash generated from operations                                             348 421           303 019
Finance income                                                               3 340             2 626
Finance costs                                                            (127 035)         (115 447)
NET CASH FROM OPERATING ACTIVITIES                                         224 726           190 198
Investment property acquired*                                            (641 865)         (878 046)
Cost capitalised to investment property*                                  (56 522)          (43 548)
Property,plant and equipment acquired                                        (255)                 -
Acquisition of Sub Dubrovnik                                             (227 917)                 -
Acquisition of management company                                         (67 859)                 -
Proceeds on sale of investment property                                    115 800             5 000
NET CASH FROM INVESTING ACTIVITIES                                       (878 618)         (916 594)
Proceeds from issue of shares                                              812 895           500 000
Capital raising expenses                                                  (15 936)           (7 500)
Acquisition of treasury shares                                             (1 782)           (1 642)
Loans raised                                                               205 879         1 099 714
Loans repaid                                                             (850 172)         (640 315)
Foreign loan raised                                                        817 833            30 920
Foreign loans repaid                                                      (25 436)                 -
Acquisition of interest rate derivative                                          -           (2 066)
Non-controlling interest loan repayment                                    (6 551)                 -
Dividends paid                                                           (285 539)         (204 553)
NET CASH FROM FINANCING ACTIVITIES                                         651 191           774 558
Net movement in cash and cash equivalents                                  (2 701)            48 162
Cash and cash equivalents at beginning of period                            63 620            15 458
Foreign exchange differences on cash balances                              (1 974)                 -
Cash and cash equivalents at end of period                                  58 945            63 620

* Prior period amounts have been restated for clarification purposes. Cost capitalised to investment
 property was previously disclosed as part of investment property acquired.

RECONCILIATION OF EARNINGS AND HEADLINE EARNINGS
                                                                           Audited
                                                                         12 months           Audited
                                                                             ended         12 months
                                                                       31 May 2017             ended
                                                                             R'000       31 May 2016
                                                              Gross            Net             R'000
PROFIT ATTRIBUTABLE TO ORDINARY EQUITY              
HOLDERS                                                                    437 103           158 840
Adjusted for:              
Change in fair value of investment properties              
net of non-controlling interests                          (123 993)      (119 354)            15 908
Impairment of goodwill                                                       3 006                 -
Profit on sale of investment property                                        (533)          (10 377)
HEADLINE EARNINGS                                                          320 222           164 371
Weighted average number of shares in issue                             336 764 696       236 655 769
Headline and diluted headline earnings per share              
(weighted average shares in issue) (cents)                                    95.1              69.5


NOTES:
1)  Segmental analysis
                                                                           Audited          Audited
                                                                         12 months        12 months
                                                                             ended            ended
                                                                       31 May 2017      31 May 2016
                                                                             R'000            R'000
    Investment property                                                  4 395 194        3 889 664
    Straight-line lease accrual                                             54 505           52 682
    Property, plant and equipment                                              198                -
    Inventories                                                             12 495                -
    Investment property held for sale                                      518 626                -
    *Property assets                                                     4 981 018        3 942 346

    **Segment liabilities                                                2 085 526        1 778 079
    Non-segment liabilities            
    - Trade and other payables                                                 509              393
    - Loan to non-controlling interests                                     24 369           30 920
    Total liabilities                                                    2 110 404        1 809 392
        
 
    Reconciliation of headline earnings to distributable earnings
                                                                           Audited
                                                                         12 months         Audited
                                                                             ended       12 months
                                                                       31 May 2017           ended
                                                                             R'000     31 May 2016
                                                             Gross             Net           R'000
    HEADLINE EARNINGS                                                      320 222         164 371
    Adjusted for:
    Straight-line lease accrual                                           (10 300)        (20 765)
    Antecedent dividends                                                     3 923          15 396
    Change in fair value of interest rate derivatives                       12 449           7 533
    Profit on sale of investment property                                        -          10 377
    Distributable profit                                                   326 294         176 912
    Adjusted for:
    Indirect capital raising expenses                                          557             894
    Foreign exchange (gain)/loss                          (63 874)        (61 812)          30 820
    Contracted adjustment                             11                     3 798          10 575
    Agrokor arrears                                                       (10 286)               -
    Amortisation of debt raising fees                                        3 171           1 677
    DISTRIBUTABLE EARNINGS                                                 261 722         220 878
    Distributable income                                                   261 722         220 878
    Taxable dividend (declared on 31 July 2017)                            131 326               -
    Taxable dividend (declared on 31 January 2017)                         130 396               -
    Taxable dividend (declared on 4 August 2016)                                 -         112 368
    Taxable dividend (declared on 4 February 2016)                               -         108 510
    Number of shares in issue at year-end
    (including treasury shares)                                        340 100 686     240 351 709
    Number of shares in issue at year-end
    (excluding treasury shares)                                        339 549 647     240 023 530
    Distribution per share                                                    77.1            92.0
    Six months ended 31 May                                                   38.7            46.8
    Six months ended 30 November                                              38.4            45.2
    Distributable earnings per share (weighted
    average shares in issue)(cents)                                           77.7            93.3
    Net asset value per share
    (shares in issue at period end) (cents)                                    961             985
 
2)  Business combinations
     2.1) The fund acquired 100% of the share capital of Sub Dubrovnik d.o.o. in Dubrovnik, Croatia,
          for a total purchase consideration of R227.2 million, which was settled in cash. The
          acquisition is in accordance with the group's strategy of establishing an offshore European
          platform to seek out new markets that provide strong diversification opportunities
          through premium, high quality properties.
     2.2) The fund acquired 100% of the share capital of the asset management company, Tower
          Asset Managers Proprietary Limited ("TAM"), for R145 million. The acquisition was
          funded using R72.5 million debt and R72.5 million equity issued at a price of R10.07 per
          share, being the net asset value per share at 30 November 2015. The effective date of
          this acquisition was 30 June 2016. Going forward, the Manco internalisation will better
          align the interests of management with that of the Group's shareholders and is in line
          with global best practice.
                                                                                    Tower Asset
                                                              Sub Dubrovnik            Managers
                                                                       2016                2016
                                                                      R'000               R'000
          The assets and liabilities arising from the
          acquisition are as follows:
          Investment properties                                     385 393                   -
          Property, plant and equipment                                   -                  68
          Trade and other receivables**                               5 272                   -
          Cash and cash equivalents                                   8 621               5 591
          Deferred tax                                                    -                  28
          Assets                                                    399 286               5 687
          Borrowings                                              (260 481)                   -
          Trade and other payables                                 (10 785)               (685)
          Tax payable                                                     -             (4 940)
          Liabilities                                             (271 266)             (5 625)
          Fair value of assets and liabilities acquired            128 020                   62
          Total purchase consideration                             227 182              145 000
          Goodwill                                               99 162***             144 938*
          Purchase consideration:                                  227 182              145 000
          Add: acquisition related costs                             9 356                  950
          Less: settled in Tower shares                                  -             (72 500)
          Purchase consideration settled in cash                   236 538               73 450
          Cash and cash equivalents in subsidiary acquired         (8 621)              (5 591)
          Net cash outflow on acquisition                          227 917               67 859

          *   The goodwill arising from the TAM acquisition is attributable to the at-market component of the asset
              management contract between TAM and Tower Property Fund, the TAM management and employees that
              transferred to Tower Property Fund and the expected synergies from the acquisition.
          **  Gross contractual amounts receivable in Sub Dubrovnik are R4.7 million. The total amount of trade and other
              receivables has been received during the year.
          *** The goodwill in Sub Dubrovnik arose as a result of the expected synergies from the acquisition.
                                                                                    Tower Asset
                                                                Sub Dubrovnik          Managers
                                                                         2017              2017
                                                                        R'000             R'000
           Revenue of subsidiaries included in the consolidated
           statement of comprehensive income                           30 240            13 719
           Profit of subsidiaries included in the consolidated
           statement of comprehensive income                          107 488             5 128
                                                                         2017              2016
                                                                        R'000             R'000
           Group revenue if the subsidiaries were acquired at
           the beginning of the annual reporting period               450 322                 -
           Group profit if the subsidiaries were acquired at the
           beginning of the annual reporting period                   469 355                 -
           
                                                                      Audited           Audited
                                                                    12 months         12 months
                                                                        ended             ended
                                                                  31 May 2017       31 May 2016
                                                                        R'000             R'000
3)  Related party transactions included:
    Asset management fees paid to Tower Asset
    Managers Proprietary Limited                                        1 508            18 924
    Property management fees paid to Spire Property
    Management Proprietary Limited                                     18 667            20 047
    Relationship: Key management personnel services
    entities
4)  Net property operating expenses
    Insurance                                                           1 631             1 507
    Letting commission                                                  5 403             3 682
    Municipal expenses                                                 99 936            96 877
    Other operating expenses                                           15 315             9 450
    Property management fees                                           16 226            16 239
    Repairs and maintenance                                             6 482             7 257
    Security and cleaning                                              17 453            14 518
    Gross property expenses                                           162 446           149 530
    Operating expense recoveries                                    (128 187)         (118 797)
    Net property operating expenses                                    34 259            30 733
5)  Property ratios
    Net property expense ratio                                            14%               15%
    Gross property expense ratio                                          29%               32%
    Rental reversions: retail                                              7%                7%
    Rental reversions: office                                              8%                8%
    Rental reversions: industrial                                          0%                7%
    Tenant retention ratio                                                90%               94%
    Occupancy ratio (July 2017)                                           94%               96%
    Trading density growth                                                 3%               12%
6)  Administration and corporate costs
    Asset management fees                                               1 508            18 924
    Salaries                                                            8 502             1 097
    Professional service fees                                           1 771             1 805
    Other                                                               4 613             2 120
    Total                                                              16 394            23 946

7)  Other income in the current year relates to the sale of 7 Stirrup Lane and in the prior year to the
    profit on the sale of Tybalt Place and 73 Hertzog Boulevard.
8)  Goodwill of R3 million has been impaired during the year. R145 million goodwill was raised on
    the acquisition of TAM. The goodwill is allocated on a pro rata basis to the properties which were
    held by the fund when TAM was internalised. As two of these properties, namely 73 Hertzog
    Boulevard and 7 Stirrup Lane, were disposed of, the goodwill allocated to them amounting to
    R3 million was derecognised.
    Correction of error - Goodwill
    Goodwill to the amount of R99.2 million was erroneously impaired at the interim period
    30 November 2016. The recoverable amount of the cash generating units continuously exceeds
    the carrying amount and no impairment was recognised at the time. The error has been corrected
    in the annual financial statements. This adjustment affected earnings per share, but does not
    affect headline or distributable earnings.
9)  The foreign exchange gain/(loss) relates to the foreign denominated loan that was granted by
    Standard Bank to the fund for the acquisition of the VMD KVART building and the Agrokor portfolio.
10) Non-controlling interests relates to the VMD Grupa d.o.o. 20% holding in Tower Europe d.o.o.
11) Contracted adjustment relates to untenanted properties under development during the period.



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