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Reviewed financial results - year ended 30 June 2017, dividend declaration and appointment of non-executive director
Emira Property Fund Limited
(Incorporated in the Republic of South Africa)
Registration number: 2014/130842/06
Share code: EMI ISIN: ZAE000203063
(“Emira” or “the Fund” or “the Company”)
Tax number: 9995/739/15/9
(Approved as a REIT by the JSE)
Reviewed financial results for the year ended 30 June 2017,
dividend declaration and appointment of non-executive
director
Highlights
Final dividend per share 74,25c
Net asset value 1 735c
Properties sold (1,1% premium to book value) R519,7m
Commentary
The Emira Board of Directors announces that a final
dividend of 74,25 cents per share has been declared
for the six months to 30 June 2017. This brings the
full year dividend per share to 143,18 cents, a
year-on-year decrease of 2,0% which is in line
with the guidance provided after the six month
period to 31 December 2016.
Distributable earnings
Despite tough trading conditions, the Fund’s retail and
industrial portfolios continued to perform well, with
vacancies stable and well below national averages. The
Fund has been largely unaffected by the departure of
international brands and held no exposure to Stuttafords.
Continued weak local economic conditions impacted the Fund’s
performance in the office sector during the period. The
over-supply of office space has forced the market and Emira
to become competitive and innovative when trying to attract
or retain tenants through reduced rentals and increased
tenant incentives. Further increases in municipal expenses
have placed an added burden on the income statements of
businesses in South Africa, which resulted in the shrinking
of net rentals payable to landlords.
Revenue rose marginally year-on-year by 0,8% (excluding
straight-lining adjustments in respect of future rental
escalations). Contractual escalations on the core portfolio
were offset by vacancies, rent reversions and the effect of
disposing of 11 properties during the year. Despite the
challenging economic conditions, Emira has made progress with
the letting of vacant space, the benefit of which should be
seen in the 2018 financial year.
Dividend income of R20,3m was received during the period, arising
from the shares bought back in the first quarter of the financial
year, which were initially held as treasury shares and subsequently
cancelled in March 2017.
Property expenses increased by 8,9% with the gross cost-to-income
ratio up to 37,2% (June 2016: 35,3%). This was mainly due to income
growing at a lower rate during the period when compared to expenses.
Administration expenses, which include staff costs and property
management fees, increased by 5,3% to R93,1m (June 2016: R88,5m).
Income from the Fund’s listed investment in GOZ increased by 0,8%.
An increase in the number of units held and in the underlying AUD
distribution per unit received was largely offset by the effect of
a stronger rand against the AUD.
Antecedent interest of R19,4m included in the distribution statement
represents the cum dividend element of the 26 133 364 new Emira shares
issued on 30 June 2017 in terms of Emira’s black economic empowerment
(“BEE”) transaction, which is discussed further below.
In accordance with the SA REIT Association’s best practice
recommendations, transaction advisory fees of R14,3m have been
excluded from the calculation of distributable earnings. These
costs are once-off in nature and relate to the unsolicited approach
by Arrowhead as well as the Enyuka and the BEE transactions.
Net finance costs increased marginally. Debt levels for the period
were on average higher as a result of the funding of new developments,
refurbishments and the share buybacks, partially offset by disposal
proceeds. The increased interest was largely reduced by lower funding
rates achieved on cross-currency interest-rate swaps, the majority
of which were taken out in May 2016.
The net asset value (“NAV”) has remained unchanged at 1 735 cents per
share. The increase in the value of the property portfolio was offset
by a decrease in the value of the investment in GOZ. The 13 066 682
vendor loan funded shares issued during the year for the BEE transaction
are not deemed to be issued for accounting purposes hence the NAV per
share assumes there are 509 600 565 Emira shares in issue.
Distribution statement
Year ended Year ended %
R’000 30 Jun 2017 30 Jun 2016 change
Operating lease rental income and
tenant recoveries excluding
straight-lining of leases 1 794 908 1 780 516 0,8
Property expenses (667 610) (613 027) 8,9
Net property income 1 127 298 1 167 489 (3,4)
Dividends received on treasury shares 20 280 — 100,0
Income from listed property investment 58 516 58 045 0,8
Administration expenses (93 128) (88 472) 5,3
Antecedent interest 19 404 — 100,0
Enyuka adjustment 1 860 — 100,0
Depreciation (310) (233) 33,0
Taxation (383) — 100,0
Net finance costs (393 541) (390 915) 0,7
Finance income 11 278 10 474 7,7
Finance costs (404 819) (401 389) 0,9
Interest paid and amortised borrowing
costs (438 089) (411 767) 6,4
Interest capitalised to the cost of
developments 33 270 10 378 220,6
Dividend payable to shareholders 739 996 745 914 (0,8)
Number of shares in issue 522 667 247 510 550 084 2,4
Dividend per share (cents) 143,18 146,10 (2,0)
Vacancies
Although vacancies have marginally increased from 5,3% at 30 June 2016
to 5,7% at 30 June 2017, it is still notably lower than the vacancies
reported at 31 December 2016 of 7,0%. Urban retail and rural retail
sector vacancies have remained stable at 3,1% and 3,6% respectively.
These compare favourably to national retail averages of 3,6%. Industrial
sector vacancies have reduced to 1,7% (June 2016: 2,4%) and these are
well below the national average of 5,8%. As anticipated, Emira’s office
sector vacancies have increased to 12,5% (June 2016: 10,5%) and are
above SAPOA national levels of 11,8%. The office vacancies are
concentrated primarily at Corobay Corner (Worley Parsons vacated),
1 Kikuyu (Eskom vacated) and Iustitia (Society of Advocates vacated).
Emira continues to pro-actively manage its vacancies through a
combination of tenant retention and letting strategies and, in some
instances, the sale of properties.
Number of GLA Vacancy
buildings Jun 2016 Jun 2016
Jun 2016 (m2) (m2) %
Office 61 404 081 42 225 10,5
Retail 38 415 242 11 581 2,8
Industrial 45 366 666 8 910 2,4
Total 144 1 185 989 62 716 5,3
Number of GLA Vacancy
buildings Jun 2017 Jun 2017
Jun 2017 (m2) (m2) %
Office 52 356 406 44 614 12,5
Retail 38 414 222 13 411 3,2
Industrial 44 360 949 6 168 1,7
Total 134 1 131 577 64 193 5,7
Major leases concluded and tenant renewals
The largest new leases concluded, by lease value, for the 12 months
ended 30 June 2017 were WSP|Parsons Brinckerhoff (5 828m2 for a total
value of R99,7m) and KFC (3 150m2 for a total value of R98,2m), both at
Knightsbridge in Bryanston, and GIBB at Podium in Pretoria (1 380m2
for a total value of R15,2m).
A total of 77% by GLA (72% by revenue) of expiring tenants were renewed
and retained during the 12 months to 30 June 2017. The largest renewals
were Intercare at Parklands Health Centre in Cape Town (1 488m2 for a
total value of R21,5m), Auction Operation at Epping Warehouse in Cape
Town (13 662m2 for a total value of R17,6m) and Pick n Pay at Dundee
Boulevard in Dundee (2 039m2 for a total value of R15,4m).
Disposals
In accordance with the Fund’s strategy to rebalance the portfolio,
certain properties that are deemed non-core, are underperforming or
pose excessive risk, have been earmarked for disposal.
Eleven properties, totalling R519,7m, were sold and transferred out of
Emira during the 12 months to 30 June 2017. These 11 properties were
sold at a combined forward yield of 10,3% and a combined 1,1% premium
to book value. The ability of the Fund to transact at prices which are
on average higher than its book value, bears testimony to the fact that
Emira’s properties are fairly valued.
Properties transferred out of Emira during the 12 months to 30 June 2017
GLA
Property Sector Location (m2)
Southern Life Plaza Office Bloemfontein 10 697
Cochrane Avenue Industrial Cape Town 5 870
Sturdee House Office Johannesburg 1 620
Midrand Motor City Retail Pretoria 7 646
Brooklyn Gardens Office Pretoria 3 200
Brooklyn Forum Office Pretoria 7 382
Waterkloof House Office Pretoria 4 000
16 Jan Smuts Office Johannesburg 2 328
The Avenues North Office Johannesburg 3 511
500 Smuts Office Johannesburg 5 201
Tokai Retail Johannesburg 2 603
54 058
Book Sale Exit
value price yield Effective
Property (Rm) (Rm) (%) date
Southern Life Plaza 79,5 98,2 12,0 Oct 2016
Cochrane Avenue 23,2 32,0 7,2 Nov 2016
Sturdee House 29,8 31,5 10,9 Mar 2017
Midrand Motor City 27,7 32,0 15,0 Apr 2017
Brooklyn Gardens 87,5 78,8 13,2 Apr 2017
Brooklyn Forum 97,7 87,9 11,8 Apr 2017
Waterkloof House 72,8 65,5 2,3 Apr 2017
16 Jan Smuts 21,7 22,0 5,9 May 2017
The Avenues North 21,3 20,0 12,1 Jun 2017
500 Smuts 36,6 37,0 7,5 Jun 2017
Tokai 16,2 14,8 17,7 Jun 2017
514,0 519,7 10,3
Further disposals to the value of R185,0m have become unconditional
and are expected to be transferred within the next six months.
To ensure that the portfolio is more optimally balanced going forward,
Emira will continue with its strategy to reduce its office exposure.
As at 30 June 2017, the Fund had committed to selling 16 properties
valued at R1,1bn (R967,7m office properties), which have been
classified as held for sale.
Developments and refurbishments
Emira continues to invest strategically and recycle capital to
strengthen its assets with tactical upgrades that unlock value.
The quality and attractiveness of its assets is a key element to
retaining existing tenants and attracting new tenants.
Projects to modernise, extend and redevelop 17 buildings are
currently underway totalling approximately R1,0bn, of which
R375,8m is currently outstanding at 30 June 2017. The most
significant of these projects is the redevelopment of
Knightsbridge Manor Office Park in Bryanston into the
P-graded Knightsbridge.
The 31 584m2 green-rated Knightsbridge redevelopment is being
undertaken in phases. The first phase of 12 324m2 is on track
to be completed by September 2017 at a total cost of R339m with
68,4% pre-let, primarily to WSP|Parsons Brinckerhoff. The second
phase, which measures 3 564m2 commenced in February 2017 at a
cost of R108m, and upon completion in June 2018 will house the
South African head offices of KFC and Pizza Hut. The development
of future phases will only commence once a suitable level of
pre-letting is achieved at acceptable returns.
Debt
Emira has diversified sources of funding and banking facilities
in place with all the major South African banks. In addition,
Emira continues to successfully access funding via the debt
capital markets at competitive rates.
Total debt as at 30 June 2017 was R5,4bn with a weighted average
duration to expiry of 1,4 years. Active steps have already been
undertaken to extend debt facilities which are expiring over the
next 12 months. The debt expiry profile has been managed to
ensure that the amount of debt expiring in any one period is
manageable. At 30 June 2017, the Fund had undrawn, backup
facilities of R838,6m which further reduces debt refinance
risk and, when drawn, will extend the debt expiry profile.
Funding activities during the first six months of the financial
year under review included:
Amount All-in-rate
Date (Rm) (%)
22 Aug 16 Repayment of 12-month
commercial paper 158 8,45
22 Aug 16 Repayment of 6-month
commercial paper 42 8,17
22 Aug 16 Repayment of 6-month
commercial paper 30 8,27
22 Aug 16 Issue of 6-month
commercial paper 184 8,17
22 Aug 16 Issue of 12-month
commercial paper 48 8,56
12 Sep 16 Repayment of 2-year
domestic medium term notes 270 8,60
12 Sep 16 Issue of 3-year
domestic medium term notes 240 9,16
30 Sep 16 Issue of 18-month
domestic medium term notes 60 8,66
4 Nov 16 Repayment of 12-month
commercial paper 170 8,43
4 Nov 16 Repayment of 6-month
commercial paper 70 8,17
4 Nov 16 Issue of 6-month
commercial paper 70 8,11
4 Nov 16 Issue of 12-month
commercial paper 160 8,51
6 Nov 16 Repayment of 2-year
domestic medium term notes 100 8,65
7 Nov 16 Issue of 3-year
domestic medium term notes 100 9,14
Funding activities during the second six months of the financial
year under review included:
Amount All-in-rate
Date (Rm) (%)
22 Feb 17 Repayment of 12-month
commercial paper 179 8,56
22 Feb 17 Issue of 12-month
commercial paper 182 8,51
6 Mar 17 Repayment of 6-month
commercial paper 184 8,17
6 Mar 17 Issue of 6-month
commercial paper 184 8,36
13 Mar 17 Partial drawdown on
2-year Nedbank term facility 100 8,92
4 May 17 Repayment of 6-month
commercial paper 70 8,11
4 May 17 Issue of 6-month
commercial paper 70 8,09
11 May 17 Extension of 12-month
Investec facility 200 8,40
22 May 17 Partial drawdown on
4-year Standard Bank
term facility 60 8,83
12 Jun 17 Issue of 3-year
domestic medium term notes 200 9,29
30 Jun 17 Partial repayment of
4-year unsecured
Nedbank facility 314 8,99
30 Jun 17 Drawdown on new Sanlam
2-year facility 200 9,19
As at 30 June 2017, Emira had a moderate level of gearing with
interest-bearing debt, net of cash, to total income producing
assets of 36,6%. The Fund has fixed 97,4% of its debt for
periods of between 0,1 and 7,4 years, with a weighted average
duration of 2,9 years.
Weighted Weighted
average average Amount % of
rate % term (Rm) debt
Debt — Fixed swap 8,2 2,9 years 5 243,0 97,4
Debt — Floating 8,9 140,4 2,6
Total 8,2 5 383,4 100,0
Less: Costs capitalised
not yet amortised (4,2)
Per statement of
financial position 5 379,2
As at 30 June 2017, Emira had effective Australian dollar
(“AUD”) denominated debt of AUD87,5m through its cross-currency
interest-rate swaps. The cross-currency interest-rate swaps relate
to the Fund’s investment in Growthpoint Australia Limited.
Growthpoint Australia Limited (“GOZ”)
On 21 October 2016, Emira acquired a further 1 332 753 shares in
GOZ at a price of AUD3,15 per share.
As at 30 June 2017, GOZ’s unit price was AUD3,14. Emira’s
investment of 28 558 566 units, comprising 4,5% of the total
units in issue, is valued at R901,4m compared to the initial
cost price of R416,8m, a 116,3% increase in this investment.
Valuations
Total portfolio movement
Sector Jun 2016 Jun 2017
(R’000) R/m2 (R’000) R/m2
Office 5 713 237 14 139 5 591 639 15 689
Retail 5 370 812 12 934 5 761 500 13 909
Industrial 1 880 830 5 130 1 902 450 5 271
12 964 879 13 255 589
Difference Difference
Sector (%) (R’000)
Office (2,1) (121 598)
Retail 7,3 390 688
Industrial 1,1 21 620
2,2 290 710
Enyuka Property Fund (“Enyuka”)
On 2 September 2016, Emira entered into an agreement with
One Property Holdings (“One Prop”) to form Enyuka. Emira has
contributed its 15-asset rural retail portfolio to the new
venture. The transaction became effective on 16 January 2017
when the final suspensive condition was met. Emira has provided
a shareholder loan of R575m to Enyuka which is equal to the
value of the 15 properties it contributed. For the year ended
30 June 2017, Emira has charged interest at a rate equal to the
yield generated by the 15 properties. Emira’s loan runs for a
period of five years and interest escalates annually by 6%.
For accounting purposes, Emira is deemed to control Enyuka
through performance conditions it has in place with One Prop
and 100% of Enyuka is consolidated by Emira until these are
achieved. One Prop’s 50,1% interest in Enyuka is deemed to
be an in substance equity-settled option and has been accounted
for in terms of IFRS 2: Share based payments. The option has a
zero value at 30 June 2017 and accordingly no IFRS 2 charge
has been recognised for the year.
For purposes of calculating Emira’s distributable earnings,
an adjustment has been made to reflect the legal and economic
position, being 100% of the interest on the vendor loan plus
49,9% of Enyuka’s net distributable loss.
During the period, Enyuka acquired two new properties: Jock of
the Bushveld Shopping Centre in Barberton (R62,5m) and Hluhluwe
Boxer in Hhuhluwe (R22,6m). A further three acquisitions were
unconditional at 30 June 2017 and are expected to be transferred
by September 2017.
BEE transaction
In furtherance of Emira’s BEE strategy, shareholders approved the
issue of 26 133 364 new Emira shares for a total consideration
of R364,2m. The shares were issued in equal proportions on
30 June 2017 to Letsema Holdings Proprietary Limited (“Letsema”)
and Tamela Holdings Proprietary Limited (“Tamela”) (collectively
the “BEE Parties”). The BEE Parties are required to hold the
shares for a minimum period of five years.
The investment was funded by the BEE Parties as follows:
* R182,1m (50%) was funded by a vendor loan provided by Emira.
The vendor loan runs for a period of five years and bears interest
equal to the dividend payable on the vendor loan portion of the
underlying shares;
* R145,6m (40%) was funded by external third-party debt provided
to the BEE Parties; and
* R36,4m (10%) was funded by cash.
Emira’s exposure is limited to the vendor loan amount (R182,1m).
Emira has not provided any further funding or liquidity to the BEE
Parties and there is no intention to do so.
From an accounting perspective, the economic substance of the
vendor loan funded portion of the issuance is deemed to be the
granting of a call option on Emira shares. This deemed call option
has been accounted for as an equity-settled share-based payment
arrangement in terms of IFRS 2: Share based payments, and an IFRS 2
charge of R14,8m has been recognised for the year ended 30 June 2017.
Accordingly, the shares issued in terms of the vendor funded specific
issue have not been treated as issued for accounting purposes together
with the corresponding vendor loan and interest thereon.
Worley Parsons update
The arbitration hearing between Emira and Worley Parsons, regarding
their lease obligations at Corobay Corner, is still ongoing. Worley
Parsons submitted an amendment to their claim following the arbitrator’s
judgment on 3 February 2017 that the lease existed, had been unlawfully
repudiated by Worley Parsons and that Emira is entitled to damages. The
amendment to Worley Parsons’ claim will be heard by the arbitrator at the
same time as the quantum hearing. The date of the quantum hearing has yet
to be agreed to by the parties. Emira’s view of its position in the
arbitration remains unchanged.
For the 12-month period to 30 June 2017, no income has been accrued in
respect of rentals due by Worley Parsons.
Share buybacks
During the first quarter of the year, the Fund completed a buy-back
programme where 14 016 201 shares were purchased at an average price of
1 427 cents per share. The shares were initially held as treasury shares
and subsequently cancelled in March 2017. Dividends of R20,3m were
received during the year on the treasury shares.
Change in directorate
Derek Thomas was appointed to the Board as a non-executive director
effective 15 August 2017. Derek is the CEO and co-founder of Letsema
which participated in Emira’s BEE transaction that was concluded in
June 2017. Derek brings a wealth of experience in investment management,
financial structuring and business strategy to the Board.
As announced on 15 February 2017, Ben van der Ross, who served as Emira’s
Chairman since 2003, retired from the Board with effect from 14 February
2017. Gerhard van Zyl was appointed Chairman with effect from 15 February
2017. Thys Neser, an independent non-executive director, also retired
effective 14 February 2017.
Change in the Company Secretary
Mr Meredith Leyds resigned as Company Secretary, effective 28 April 2017
and Acorim Proprietary Limited was appointed as Company Secretary of the
Company, effective 28 April 2017.
Prospects
Domestic growth prospects have deteriorated further with South Africa
recording two successive quarters of negative GDP growth. With the
current political uncertainty and lack of clear policy, the operating
environment is expected to remain subdued. The continued pressure on
tenants, together with the over-supply of commercial office space, will
likely continue to have a negative impact on rental growth.
While the environment is challenging, Emira is committed to delivering
shareholder value as well as income and capital growth. The Fund has
clearly defined its strategy to responsibly rebalance the portfolio and
it is making good progress in this regard to ensure it is better equipped
for future growth. Furthermore, the Fund has decided to strategically
increase its offshore exposure and further announcements in this regard
will be made in the near future.
The filling of vacancies in the portfolio and retaining tenants remains
a top priority. With an increased focus on new letting, tenant retention
and the effective utilisation of proceeds from the disposal of non-core
assets together with a more stable local economic outlook, the growth in
distributable income per share for 2018 is anticipated to be positive.
This forecast has not been reviewed and reported on by Emira’s external
auditors.
Dividend distribution declaration
The Board has approved and notice is hereby given that a gross final
dividend of 74,25 cents per share has been declared (2016: 75,76 cents),
payable to the registered shareholders of Emira Property Fund Limited on
11 September 2017. The issued share capital at the declaration date is
522 667 247 listed ordinary shares. The source of the dividend comprises
net income from property rentals, income earned from the Company’s listed
property investment and interest earned on cash on deposit. Please refer
to the condensed consolidated statement of comprehensive income for
further details.
Tax implications
In accordance with Emira’s status as a REIT, shareholders are advised that
the dividend 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”). Accordingly, qualifying distributions received by local tax
residents must be included in the gross income of such shareholders (as a
non-exempt dividend in terms of section 10(1)(k)(aa) of the Income Tax Act),
with the effect that the qualifying distribution is taxable as income in the
hands of the shareholder. These qualifying 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 Central Securities Depository
Participant (“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 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 cease to be the beneficial
owner, both in the form prescribed by the Commissioner for the South
African Revenue Service. Shareholders are advised to contact their CSDP,
broker or the transfer secretaries, as the case may be, to arrange for
the abovementioned documents to be submitted prior to payment of the
dividend, if such documents have not already been submitted.
Qualifying dividends received by non-resident shareholders will not be
taxable as income and instead will be treated as ordinary dividends but
which are exempt in terms of the usual dividend exemptions per section
10(1)(k) of the Income Tax Act. It should be noted that until 31 December
2013 qualifying distributions received by non-residents were not subject
to dividend withholding tax. From 1 January 2014, any qualifying
distribution received by a non-resident from a REIT will be subject to
dividend withholding tax at 15%, unless the rate is reduced in terms of
any applicable agreement for the avoidance of double taxation (“DTA”)
between South Africa and the country of residence of the shareholder.
Assuming dividend withholding tax will be withheld at a rate of 20%, the
net amount due to non-resident shareholders will be 59,40 cents per share.
A reduced dividend withholding tax 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 the 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 their CSDP, broker or the transfer
secretaries, 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, broker or the transfer secretaries, as
the case may be, to arrange for the abovementioned documents to be
submitted prior to payment of the dividend if such documents have
not already been submitted, if applicable.
Local tax resident shareholders as well as non-resident shareholders are
encouraged to consult their professional advisors should they be in any
doubt as to the appropriate action to take.
Last day to trade cum dividend Tuesday, 5 September 2017
Shares trade ex dividend Wednesday, 6 September 2017
Record date Friday, 8 September 2017
Payment date Monday, 11 September 2017
Share certificates may not be dematerialised or rematerialised between
Wednesday, 6 September 2017 and Friday, 8 September 2017, both days
inclusive.
By order of the Emira Property Fund Limited Board
Acorim Proprietary Limited
Company Secretary
Gerhard van Zyl Geoff Jennett
Chairman Chief Executive Officer
Bryanston
15 August 2017
Basis of preparation and accounting policies
These condensed consolidated preliminary financial statements have been
prepared in accordance with International Financial Reporting Standards
(“IFRS”) including IAS 34: Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee, Financial
Pronouncements as issued by the Financial Reporting Standards Council, the
JSE Listings Requirements and the requirements of the Companies Act of
South Africa. The accounting policies used in the preparation of these
financial statements are consistent with those used in the audited annual
financial statements for the year ended 30 June 2016.
This report was compiled under the supervision of Greg Booyens CA (SA),
the Chief Financial Officer of Emira.
These condensed consolidated preliminary financial statements for the year
ended 30 June 2017 have been reviewed by PricewaterhouseCoopers Inc., who
have expressed an unmodified review conclusion. A copy of the auditor’s
review report is available for inspection at Emira’s registered office
together with the financial statements identified in the auditor’s report.
The distribution statement was not reviewed.
Condensed consolidated statement of financial position at 30 Jun 2017
Reviewed Audited
R’000 30 Jun 2017 30 Jun 2016
Assets
Non-current assets 13 157 379 13 085 752
Investment properties 11 823 645 11 752 399
Fixtures and fittings 84 058 67 302
Allowance for future rental escalations 219 745 292 077
Unamortised upfront lease costs 35 981 18 101
Fair value of investment properties 12 163 429 12 129 879
Listed property investment 901 390 940 364
Loans receivable 56 796 —
Derivative financial instruments 35 764 15 509
Current assets 483 358 373 709
Accounts receivable and prepayments 244 313 262 135
Loans receivable 43 256 39 177
Derivative financial instruments 27 130 16 848
Cash and cash equivalents 168 659 55 549
Investment properties held for sale 1 092 160 835 000
Total assets 14 732 897 14 294 461
Equity and liabilities
Share capital and reserves 8 839 852 8 857 648
Non-current liabilities 3 581 109 3 969 252
Interest-bearing debt 3 534 028 3 944 172
Derivative financial instruments 47 081 25 080
Current liabilities 2 311 936 1 467 561
Short-term portion of interest-bearing debt 1 845 172 1 034 000
Accounts payable 430 436 396 250
Derivative financial instruments 36 233 37 311
Taxation 95 —
Total equity and liabilities 14 732 897 14 294 461
Net asset value per share (cents) 1 734,7 1 734,9
Condensed consolidated statement of changes in equity
Revaluation
and other
R’000 Shares reserves
Balance at 30 June 2015 3 795 509 4 808 755
REIT restructure costs (7 881) —
Acquisition of non-controlling interest in STREM — —
Total comprehensive income for the year — —
Transfer to fair value reserve — (95 503)
Dividend paid — September 2015 — —
Dividend paid — March 2016 — —
Balance at 30 June 2016 3 787 628 4 713 252
REIT restructure costs (654) —
Shares issued 182 113 —
Shares repurchased (202 955) —
IFRS2 option — BEE transaction — 14 771
Share transfer tax on share buy-back — (1 469)
Total comprehensive income for the year — —
Transfer to fair value reserve — 49 481
Dividend paid — September 2016 — —
Dividend declared — March 2017 — —
Balance at 30 June 2017 3 766 132 4 776 035
Non-
Retained controlling
R’000 earnings interest Total
Balance at 30 June 2015 341 013 (5 262) 8 940 015
REIT restructure costs — — (7 881)
Acquisition of non-controlling interest
in STREM (5 262) 5 262 —
Total comprehensive income for the year 640 080 — 640 080
Transfer to fair value reserve 95 503 — —
Dividend paid — September 2015 (355 445) — (355 445)
Dividend paid — March 2016 (359 121) — (359 121)
Balance at 30 June 2016 356 768 — 8 857 648
REIT restructure costs — — (654)
Shares issued — — 182 113
Shares repurchased — — (202 955)
IFRS2 option — BEE transaction — — 14 771
Share transfer tax on share buy-back — — (1 469)
Total comprehensive income for the year 708 833 — 708 833
Transfer to fair value reserve (52 827) — (3 346)
Dividend paid — September 2016 (376 174) — (376 174)
Dividend declared — March 2017 (342 261) — (342 261)
Balance at 30 June 2017 297 685 — 8 839 852
Condensed consolidated statement of comprehensive income
Reviewed Audited
year ended year ended
R’000 30 Jun 2017 30 Jun 2016
Revenue 1 721 360 1 796 951
Operating lease rental income and tenant
recoveries 1 794 908 1 780 516
Allowance for future rental escalations (73 548) 16 435
Income from listed property investment 58 516 58 045
Property expenses (677 049) (637 805)
Administration expenses (92 410) (84 612)
Transaction and advisory fees (14 303) —
IFRS2 charge — BEE transaction (14 771) —
Depreciation (11 054) (14 840)
Operating profit 970 289 1 117 739
Net fair value adjustments 124 428 (83 347)
Net fair value gain/(loss) on investment
properties 208 177 (201 028)
Change in fair value as a result of straight-
lining lease rentals 73 548 (16 435)
Change in fair value as a result of amortising
upfront lease costs 9 440 24 778
Change in fair value as a result of property
(depreciation)/appreciation in value 125 189 (209 371)
Revaluation of share appreciation rights scheme
derivative financial instruments 6 (25 753)
Unrealised (loss)/gain on fair valuation of
listed property investment (83 755) 143 434
Profit before finance costs 1 094 717 1 034 392
Net finance costs (382 155) (394 306)
Finance income 11 278 10 896
Finance costs (393 433) (405 202)
Interest paid (404 819) (401 389)
Unrealised surplus/(deficit) on interest-rate
swaps 11 386 (3 813)
Profit before income tax charge 712 562 640 086
Income tax charge (383) (6)
SA normal taxation (383) (6)
Profit for the year 712 179 640 080
Attributable to Emira shareholders 712 179 640 080
Total comprehensive income
Attributable to Emira shareholders 712 179 640 080
Reconciliation between earnings and headline earnings and distribution
Reviewed Audited
year ended year ended
R’000 30 Jun 2017 30 Jun 2016
Profit for the year 712 179 640 080
Adjusted for:
Net fair value (gain)/loss on revaluation of
investment properties (208 177) 201 028
Headline earnings 504 002 841 108
Adjusted for:
Allowance for future rental escalations 73 548 (16 435)
Amortised upfront lease costs 9 440 24 778
Unrealised surplus on revaluation of interest-
rate swaps (11 386) 3 813
Revaluation of share appreciation rights scheme
derivative financial instrument (6) 25 753
Unrealised gain on listed property investment 83 755 (143 434)
Credit in respect of leave pay provision and
share appreciation rights scheme (718) (4 238)
Dividend received on treasury shares 20 280 —
Depreciation 10 743 14 563
Transaction and advisory fees 14 303 —
IFRS2 charge — BEE transaction 14 771 —
Enyuka adjustment 1 860 —
Antecedent interest 19 404 —
SA normal taxation — 6
Distribution payable to shareholders 739 996 745 914
Dividend per share
Interim (cents) 68,93 70,34
Final (cents) 74,25 75,76
Total (cents) 143,18 146,10
Number of shares in issue at the end of the year 522 667 247 510 550 084
Weighted average number of shares in issue 498 521 707 510 550 084
Earnings per share (cents) 142,90 125,37
The calculation of earnings per share is based
on net profit for the year of R712,2 million
(2016: R640,1 million), divided by the weighted
average number of shares in issue during the year
of 498 521 707 (2016: 510 550 084).
Headline earnings per share (cents) 101,10 181,82
The calculation of headline earnings per share
is based on net profit for the year, adjusted
for headline items, of R504,0 million (2016:
R841,1 million), divided by the weighted average
number of shares in issue during the year of
498 521 707 (2016: 510 550 084).
Diluted headline earnings per share (cents) 101,10 181,82
Condensed consolidated statement of cash flows
Reviewed Audited
year ended year ended
R’000 30 Jun 2017 30 Jun 2016
Cash generated from operations 1 092 157 1 097 191
Finance income 11 278 10 896
Interest paid (438 089) (411 767)
Taxation paid (383) (1 783)
Dividends received on treasury shares 20 280 —
Dividends paid to shareholders (718 435) (714 566)
Cash flows from operating activities (53 472) (20 029)
Acquisition of, and additions to, investment
properties (601 457) (695 282)
Acquisition of, and additions to, fixtures and
fittings (28 903) (26 781)
Proceeds on sale of investment properties and
fixtures and fittings 463 660 284 500
Acquisition of investment in listed property
fund (44 781) —
Cash flows from investing activities (211 481) (437 563)
REIT restructure costs (654) (7 881)
Shares re-purchased (200 207) —
Net proceeds of issue of shares - BEE
transaction 179 365 —
Share transfer tax on share buy-back (1 469) —
Interest-bearing debt raised 2 989 510 2 620 327
Interest-bearing debt repaid (2 588 482) (2 152 516)
Cash flows from financing activities 378 063 459 930
Net increase in cash and cash equivalents 113 110 2 338
Cash and cash equivalents at the beginning of
the year 55 549 53 211
Cash and cash equivalents at the end of the year 168 659 55 549
Segmental information
R’000 Office Retail Industrial
Sectoral segments
Revenue 641 344 798 739 281 277
Revenue 713 241 798 613 283 054
Allowance for future rental
escalations (71 897) 126 (1 777)
Segmental information
Operating profit 391 951 435 611 164 719
Investment properties 5 591 639 5 761 500 1 902 450
Geographical segments
Revenue
— Gauteng 507 204 547 376 188 954
— Western and Eastern Cape 128 804 85 368 51 452
— KwaZulu-Natal 61 116 128 578 42 648
— Free State 16 117 37 291 —
713 241 798 613 283 054
Investment properties
— Gauteng 4 126 738 4 068 784 1 293 900
— Western and Eastern Cape 1 006 901 578 666 365 450
— KwaZulu-Natal 399 400 778 900 243 100
— Free State 58 600 335 150 —
5 591 639 5 761 500 1 902 450
Administrative
R’000 and corporate Total
Sectoral segments
Revenue — 1 721 360
Revenue — 1 794 908
Allowance for future rental escalations — (73 548)
Segmental information
Operating profit (19 619)* 972 662
Investment properties — 13 255 589
Geographical segments
Revenue
— Gauteng — 1 243 534
— Western and Eastern Cape — 265 624
— KwaZulu-Natal — 232 342
— Free State — 53 408
— 1 794 908
Investment properties
— Gauteng — 9 489 422
— Western and Eastern Cape — 1 951 017
— KwaZulu-Natal — 1 421 400
— Free State — 393 750
— 13 255 589
* Includes income from listed property investment of R58,5 million less the
R14,7 million IFRS2 charge in respect of the BEE transaction, transaction
and advisory fees of R14,3 million and general Fund expenses of
R49,1 million.
Measurements of fair value
1. Financial instruments
The financial assets and liabilities measured at fair value in the statement
of financial position are grouped into the fair value hierarchy as follows:
Level 1 Level 2 Level 3
R’000 Jun 2017 Jun 2017 Jun 2017
Group
Assets
Investments 901 390 — —
Derivative financial instruments — 61 882 1 012
Total 901 390 61 882 1 012
Liabilities
Derivative financial instruments — 83 314 —
Total — 83 314 —
Net fair value 901 390 (21 432) 1 012
Total Level 1 Level 2
R’000 Jun 2017 Jun 2016 Jun 2016
Group
Assets
Investments 901 390 940 364 —
Derivative financial instruments 62 894 — 28 049
Total 964 284 940 364 28 049
Liabilities
Derivative financial instruments 83 314 — 62 391
Total 83 314 — 62 391
Net fair value 880 970 940 364 (34 342)
Level 3 Total
R’000 Jun 2016 Jun 2016
Group
Assets
Investments — 940 364
Derivative financial instruments 4 308 32 357
Total 4 308 972 721
Liabilities
Derivative financial instruments — 62 391
Total — 62 391
Net fair value 4 308 910 330
The methods and valuation techniques used for the purpose of measuring fair
value are unchanged compared to the previous reporting period.
Investments
This comprises shares held in a listed property company at fair value
which is determined by reference to quoted closing prices at the reporting
date.
Derivative financial instruments
The fair values of the interest-rate swap contracts are determined using
discounted cash flow projections based on estimates of future cash flows,
supported by the terms of the relevant swap agreements and external evidence
such as the ZAR 0-coupon perfect-fit swap curve.
The fair values of the cross-currency interest-rate swap contracts are valued
by discounting the future cash flows using the basis swap curve of the
respective currencies at the dates when the cash flows will take place.
The AUD forward exchange contracts are valued by discounting the forward rates
applied at the period end to the open hedged positions.
The call option contracts relating to the employee share scheme are valued
using a Black Scholes option pricing model. The expected volatility of the unit
price of the call options was 18,0% and the risk-free discount rate used ranged
between 7,1% and 7,2%. Management considers the key input in the valuation to
be the spot price. A 10% increase in the spot price results in an increase to
the call options of R1,4m (2016: R1,8m). A 10% decrease in the spot price
results in a decrease to the call options of R0,7m (2016: R1,4m). The call
option contracts have been classified as Level 3. During the period R1,8m of
the option premiums relating to these contracts were amortised and a fair value
loss of R1,5m was recognised at 30 June 2017.
The forward contracts relating to the employee share scheme are valued using a
financial model. Management considers the key input in the valuation to be the
spot price. A 10% increase in the spot price results in an increase to the
forward contracts of R11,7m (2016: R5,5m). A 10% decrease in the spot price
results in a decrease to the forward contracts of R11,7m (2016: R5,5m).
2. Non-financial assets
The following table reflects the levels within the hierarchy of non-financial
assets measured at fair value at 30 June 2017:
2017 2016
R’000 Level 3 Level 3
Assets
Investment properties 12 163 429 12 129 879
Investment properties held for sale 1 092 160 835 000
Fair value measurement of investment properties
The fair value of commercial buildings is estimated using an income approach
which discounts the estimated rental income stream, net of projected operating
costs, as well as an exit value, using a discount rate derived from market
yields. The estimated rental stream takes into account current occupancy
levels, estimates of future vacancy levels, the terms of in-place leases
and expectations of rentals from future leases over the remaining economic
life of the buildings.
The most significant inputs, all of which are unobservable, are the estimated
rental value, assumptions regarding vacancy levels, the discount rate and the
reversionary capitalisation rate. The estimated fair value increases if the
estimated rentals increase, vacancy levels decline or if discount rates
(market yields) and reversionary capitalisation rates decline. The overall
valuations are sensitive to all four assumptions. Management considers the
range of reasonable possible alternative assumptions to be greatest for
reversionary capitalisation rates, rental values and vacancy levels and that
there is also an interrelationship between these inputs. The inputs used in
the valuations at 30 June 2017 were the following:
* The range of the reversionary capitalisation rates applied to the portfolio
are between 7,25% and 18,0% with the weighted average being 10,18% (2016:
10,43%).
* The discount rates applied range between 12,50% and 17,50% with the weighted
average being 15,09% (2016: 15,28%).
* A portfolio sensitivity analysis concluded that changes in discount
rates and revisionary/exit capitalisation rates attributable to changes
in market conditions can have significant impact on property valuations.
A 25 basis points increase in the discount rate will decrease the value of
investment property by R195,4m (1,47%) and a 25 basis points decrease will
increase the value of investment property by R202,4m (1,53%). A 25 basis
points decrease in the reversionary capitalisation rate will increase the
value of investment property by R203,5m (1,54%) and a 25 basis points
increase will decrease the value of investment property by R192,6m (1,45%).
Fair values are estimated twice a year by Emira’s internal registered valuer,
whereafter they are reviewed by the executive directors and approved by the
Board of Directors. One third of the portfolio is valued externally each year
on a rolling basis.
Fair value measurement of investment properties held for sale
The fair value of investment properties held for sale is based on the income
approach as described above.
Directors: G van Zyl (Chairman)*, GM Jennett (CEO), MS Aitken*,
GS Booyens (CFO), BH Kent*, V Mahlangu*, NE Makiwane*, W McCurrie*,
V Nkonyeni*, D Thomas**, U van Biljon (COO)
* Independent Non-executive Director
** Non-executive Director
Registered address: Optimum House, Epsom Downs Office Park, 13 Sloane Street,
Bryanston, 2191
Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited)
Transfer Secretaries: Computershare Investor Services (Pty) Ltd, Rosebank
Towers, 15 Biermann Avenue, Rosebank, 2196
www.emira.co.za
Date: 16/08/2017 11:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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