Wrap Text
Condensed unaudited consolidated interim financial results for the six months ended 30 June 2017
SA Corporate Real Estate Limited
(“SA Corporate” or “the Group”)
Incorporated in the Republic of South Africa
Share Code: SAC; ISIN Code: ZAE000203238
(Registration number 2015/015578/06)
CONDENSED UNAUDITED CONSOLIDATED INTERIM FINANCIAL RESULTS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Interim distribution growth
- 4.4% higher than June 2016
- 3.7% higher than December 2016
Capital structure
- Premium to NAV of 7.6%
- Effective debt 81.1% fixed at 8.6%
Portfolio activity
- Committed developments of R2 147,2m
- Acquisitions and contracted acquisitions of R2 590,2m
Property performance
- NPI growth of 13.8%
- Like-for-like NPI growth of 4.1%
- Retail positive rental reversions of 6.6%
INTRODUCTION
SA Corporate Real Estate Limited is a JSE-listed Real Estate Investment Trust (“REIT”) which owns a diversified portfolio of industrial, retail, commercial and residential buildings located primarily in the major metropolitan areas of South Africa with a secondary node in Zambia.
REVIEW OF FINANCIAL RESULTS AND PORTFOLIO PERFORMANCE
Distribution Growth
SA Corporate delivered growth in distributions per share for the six months to June 2017 of 4.4%. This amounts to a distribution of 22.38 cps (June 2016: 21.44 cps). The H1 performance has been impacted by non-recurring income in H1 2016 resulting mainly from a recovery of bad debts previously written off and increased vacancies in the residential portfolio.
Portfolio Performance
Total net property income (“NPI”) increased by 13.8%, with the like-for-like increasing by 4.1%.
Retail NPI growth of 19.7% was underpinned by strong tenant retentions of 92.0%, weighted average lease escalations of 7.6%, positive reversions of 6.6% and acquisitions contributing 8.3%. The retail like-for-like (excluding developments) portfolio grew by 6.0%. The proactive unlocking of value in the retail portfolio through redevelopments and improvements to tenant mix contributed positively to the overall retail performance.
Industrial like-for-like portfolio growth of 4.0% was supported by 8.0% rental escalations, tenant retentions of 82.1%, flat reversions and a 1.0% reduction in vacancies from June 2016. This reflects the resilience of the portfolio amid trying economic conditions relative to the performance of the sector.
Afhco like-for-like growth amounted to 4.2%, negatively impacted by increased residential vacancies which grew by 3.7%. Despite rental escalations of 7.5%, the increased vacancies necessitated mitigation measures to rebase the inner-city portfolio generating lower returns in the short term, through the introduction of lifestyle improvements, loyalty programmes, transportation and increased security.
The Zambian JV contributed R30,7m for the 6 months to June 2017 a reduction of 3.3% in ZAR relative to June 2016 as the Rand strengthened from an average of R15.41 to R13.07 to the USD. The Zambian JV contribution increased by 5.6% over the same period in USD.
Net Finance Cost
Net funding cost increased by 39.7% in line with the R1,0bn increase in debt and a reduction in capitalised interest as the two major retail developments as well as Afhco developments came on stream. The new debt was concluded at a weighted average margin of 1.8% versus an overall margin of 1.6% in June 2016.
DISTRIBUTION STATEMENT
6 months 6 months Year
ended ended ended
30.06.2017 30.06.2016 31.12.2016
DISTRIBUTABLE EARNINGS (R000) Unaudited Unaudited Audited
Rent (excluding straight line rental
adjustment) 724,983 639,413 1,328,181
Net property expenses (51,028) (47,369) (123,171)
Property expenses (324,333) (290,177) (614,981)
Recovery of property expenses 273,305 242,808 491,810
Net property income 673,955 592,044 1,205,010
Investment in joint venture 28,442 31,767 60,350
Yield guarantee on joint venture 2,286 - 7,871
Taxation on distributable earnings (260) (1,352) (1,008)
Dividends from fixed property companies 370 - -
Net finance cost (153,246) (109,715) (226,569)
Interest income 35,604 22,696 48,349
Interest expense (188,850) (132,411) (274,918)
Distribution related expenses (21,197) (22,252) (47,569)
Distribution related income 10,669 - -
Antecedent distribution - - 17,624
Distributable earnings 541,019 490,492 1,015,709
Interim 541,019 490,492 493,925
Final - - 521,784
Shares in issue (000) 2,417,482 2,287,304 2,417,482
Weighted number of shares in
issue (000) 2,417,482 2,287,304 2,320,805
Distribution (cents per share) 22.38 21.44 43.02
Interim 22.38 21.44 21.44
Final - - 21.58
PROPERTY VALUATIONS
The Group's independently valued property portfolio increased by R602,7m (4.0%) to R15,6bn as at June 2017 (December 2016: R15,0bn). This excludes the Zambian portfolio of R830,4m that has been equity accounted but includes the net investment of R270,9m in respect of acquisitions, developments, capex and disposals. The like-for-like portfolio held for the full 6 months to June 2017 increased by R540,6m (3.8%) from December 2016.
The capitalisation and discount rates in the Group's like-for-like portfolio at 30 June 2017 were calculated on a weighted average basis:
Sector Capitalisation Discount rate (%) Growth in like-for
rate (%) -like portfolio (%)
30.06.2017 31.12.2016 30.06.2017 31.12.2016 30.06.2017
Industrial 9.1 9.1 15.1 15.1 2.4
Retail 8.8 8.8 14.8 14.8 3.3
Commercial 8.8 8.8 14.8 14.8 2.0
Afhco 9.8 9.7 * * 3.1
Weighted average 9.2 9.1 15.0 15.0 2.8
* Afhco properties are not valued on a discount rate basis, due to the short term nature of residential leases.
The NAV per share (511 cps) increased by 2.4% (December 2016: 499 cps) of which an increase of 2.8% is attributable to property valuations, reduced by swap and investment in Transcend Residential Property Fund valuations representing 0.4%.
PROPERTY PORTFOLIO
The portfolio comprised 188 properties (December 2016: 179 and June 2016: 177) which excludes the 3 Zambian properties held as a 50% investment in a JV. The sectoral and geographic spread by value as at 30 June 2017 are set out below:
Sectoral Spread
Retail
R6,9bn
365,513 m2
28 properties
44%
Industrial
R4,7bn
738,446 m2
86 properties
30%
Commercial
R1,0bn
63,237 m2
15 properties
7%
Afhco
R3,0bn
288,043 m2
59 properties
19%
Geographic Spread
Gauteng
R9,5bn
891,990 m2
123 properties
61%
KwaZulu-Natal
R4,9bn
407,352 m2
48 properties
31%
Western Cape
R0,8bn
71,967 m2
11 properties
5%
Limpopo
R0,1bn
12,670 m2
1 property
1%
Other
R0,3bn
71,260 m2
5 properties
2%
Developments:
Properties Total Forecast Yield Sector Region
development completion forecast
cost(Rm) date 1st 12
months
(%)
Hayfields Mall, 37,3 08/2017 9.1 Retail KwaZulu-
Pietermaritzburg Natal
Umlazi Mega City, Umlazi 1 278,0 09/2017 9.5 Retail KwaZulu-
Natal
Kempton Park Shoprite, 70,9 11/2017 10.0 Retail/ Gauteng
Kempton Park Residential
Midway Mews, Halfway 32,7 12/2017 8.8 2 Retail Gauteng
Gardens
Cambridge Crossing, Sandton 59,9 12/2017 9.1 2 Retail Gauteng
252 Montrose Ave, Randburg 92,0 12/2018 10.5 Residential Gauteng
East Point, Boksburg 499,0 05/2017 9.0 Retail Gauteng
57 Sarel Baard Crescent, 370,0 08/2018 8.0 3 Industrial Gauteng
Centurion
Cnr Old Pretoria and 140,0 11/2018 10.0 Residential Gauteng
Alexandra Road, Midrand
North Park Mall 141,7 03/2019 10.0 Retail/ Gauteng
Residential, Pretoria Residential
Afhco pipeline 4 425,7 06/2018 10.8 Retail/ Gauteng
-07/2019 Residential
Total 2 147,2 9.5
Spent to date (1 334,7)
Committed development 812,5
1 75% Undivided share of development cost
2 The yield excluding defensive capital is 11.8% and 11.5% respectively
3 Based on pre-development valuation using market rental
4 Includes bulk acquired for development to the amount of R28,2m. In addition to the above, Afhco owns and has contracted development bulk which represents a pipeline of R1bn in the next 4 years.
Acquisitions:
Properties Cost Acquisition Yield Sector Region
(Rm) date forecast 1st
12 months
(%)
Steelport Residential, 79,8 01/2017 10.3 Residential Limpopo
Steelport
Friendship Town, 72,0 02/2017 11.0 Residential Gauteng
Midrand
Long Street Precinct 29,7 02/2017 # Residential Gauteng
Bulk, Jeppestown -04/2017
Reef Acres, Springs 43,5 02/2017 10.0 Residential Gauteng
Andrea Close & 40,6 03/2017 11.0 Residential Gauteng
Dennehof and Bloekomhof,
Vereeniging
51 Pritchard Street, 178,0 03/2017 10.3 Retail Gauteng
Johannesburg CBD
Indirect Investment in 23,2 04/2017 9.0^ Retail Zambia
Phase 3A, Zambia
Erf 286 Erand (storage 12,2 04/2017 # Land Gauteng
land)
Cnr of Rockey and 5,5 05/2017 # Retail Gauteng
Davies Street,
Doornfontien
Erf 8383 Milnerton 22,5 06/2017 # Land Western
(retail & storage Cape
development land)
Total 507,0 10.4
# Land/Bulk acquired for development
^ Yield in USD
Contracted and Unconditional Acquisitions:
Properties/Listed Cost Acquisition Yield Sector Region
Property Investment (Rm) date^ forecast 1st
12 months
(%)
Storage Genie 65,6 07/2017 18.3 Storage Gauteng
Leasehold properties
African City Mall 41,1 07/2017 10.3 Retail Gauteng
Phase 1, Johannesburg
CBD
Reef Acres - Real Right 1,3 07/2017 * Residential Gauteng
Extention, Springs
Safari Investments 152,0 07/2017 #
RSA Ltd - 20 000 000
shares
Northgate Heights 57,5 07/2017 10.0 Residential Gauteng
Phase 1A & 1B, - 11/2017
Northgate
M&T Development - 75,8 08/2017 10.0 Residential Gauteng
Burgundy, Centurion
M&T Development - 48,7 08/2017 10.0 Residential Gauteng
Minuet Phases 1&2,
Midrand
Golf Park, Phillip Nel 98,0 08/2017 10.3 Residential Gauteng
Park, Pretoria
Panama House Phase 1, 70,2 08/2017 10.5 Residential Gauteng
Johannesburg CBD
Panama House Phase 2, 30,9 11/2017 10.5 Residential Gauteng
Johannesburg CBD
African City Mall 40,6 10/2017 11.0 Retail Gauteng
Phase 2, Johannesburg
CBD
Calgro Developments 811,7 09/2017 10.8 Residential Gauteng/
Phases 1-5 -10/2018 Western
Cape
M&T Development - 252,3 10/2017 10.0 Residential Gauteng
Etude Phases 1-6, -05/2018
Midrand
Long Street Precinct 12,2 12/2017 * Residential Gauteng
bulk (Parcels 5-7),
Jeppestown
Northgate Heights 58,6 02/2018 11.0 Residential Gauteng
Phase 2&3, Northgate -05/2018
Total 1 816,5 10.8
* Land/Bulk acquired for development
# Listed property investment
^ Acquisition date represents the expected effective date of the transaction
Contracted and Conditional Acquisition:
Properties Cost Acquisition Yield Sector Region
(Rm) date^ forecast 1st
12 months
(%)
Storage Genie freehold 266,7 12/2017 11.1 Storage Gauteng
properties -12/2018
Total 266,7 11.1
^ Acquisition date represents the expected effective date of the transaction
Acquisitions contracted after 30 June 2017:
Properties Cost Acquisition Yield Sector Region
(Rm) date^ forecast 1st
12 months
(%)
The Oaks, Ermelo 105,0 11/2017 10.6 Retail Gauteng
Calderwood, Boksburg 165,0 03/2018 10.0 Residential Gauteng
M&T Development, 289,8 05/2018 10.0 Residential Gauteng
Founders Hill 1 -12/2019
Joburg Rising, 68,4 01/2019 10.0 Residential Gauteng
Johannesburg CBD
Total 628,2 10.1
^ Acquisition date represents the expected effective date of the transaction
1 Represents 60% ownership
Disposals:
Properties Transfer Gross Exit Sector Region
date selling yield
price on sale
(Rm) price
(%)
35 Circuit Road, Westmead 01/2017 15,0 7.6 Industrial KwaZulu-
Natal
Pine Crest Shopping Centre, 03/2017 407,0 8.2 Retail KwaZulu-
Pinetown 1 Natal
36 Wankel Street, Jet Park 05/2017 37,0 7.1 Industrial Gauteng
Total 459,0 8.1
1 Sale of 50% undivided share; Exit yield calculated on sales price plus defensive capex
Contracted Disposals:
Properties Expected Gross Exit Sector Region
transfer selling yield
date price on sale
(Rm) price
(%)
Lebombo Road, Garsfontein 09/2017 12,0 6.2 Commercial Gauteng
(Portion)
Hotel at Cullinan Jewel 09/2017 2,7 9.0 Retail Gauteng
Shopping Centre, Pretoria
96 15th Road, Randjespark 10/2017 92,0 7.9 Industrial Gauteng
African Diamond, 10/2017 25,0 6.8 Residential Gauteng
Johannesburg CBD
Textile House, Johannesburg 11/2017 55,0 9.5 Residential Gauteng
CBD
The Mall, Vanderbijl Park 12/2018 13,6 10.0 Afhco Gauteng
Retail
Nukerk, Johannesburg CBD 12/2017 87,0 10.0 Residential Gauteng
Total 287,3 8.8
VACANCIES AND LEASE EXPIRIES
Vacancies in terms of rentable area and rental income were as follows:
Sector Vacancy as % of GLA* Vacancy as % of rental income
30.06.2017 30.06.2016 31.12.2016 30.06.2017 30.06.2016 31.12.2016
Traditional
Portfolio:
Industrial 1.6 2.6 1.1 1.1 1.6 0.9
Retail 3.9 4.5 4.5 3.2 2.8 3.3
Commercial 6.7 8.6 8.8 5.5 5.9 5.4
Traditional
Portfolio total 2.6 3.6 2.7 2.5 2.7 2.5
Afhco Portfolio:
Residential 1 8.9 5.2 10.4 8.3 5.4 11.1
Retail /
Commercial 1.4 3.3 3.4 2.8 3.4 3.3
Afhco Portfolio
total 5.8 4.6 8.7 6.7 4.7 8.7
Rest of Africa
Portfolio:
Retail 5.5 5.5 8.8 3.3 4.4 4.0
Commercial 4.7 4.7 4.7 3.4 2.3 4.4
Rest of Africa
Portfolio total 5.3 5.3 7.9 3.3 3.9 4.1
* GLA=Gross lettable area
1 Excluded from the vacancies and total GLA are three properties held for sale at period end, namely African Diamond, Textile House and Nukerk, with vacant occupation being a condition in terms of the sale agreements.
During the 12 month period to June 2017, the traditional portfolio vacancies by GLA reduced to 2.6% (June 2016: 3.6%) with a decrease in vacancy by rental of 0.2%. The low 1.6% industrial vacancies ensures that these remain significantly below the sector average, while retail vacancies by GLA continued their downward trend, with a marginal increase in vacancy by rental. Commercial vacancies have reduced from 8.6% to 6.7% and from 5.9% to 5.5% by GLA and rental income respectively, due to a combination of vacancy take-up and change in use from commercial to residential.
While Afhco vacancies by GLA has improved since December 2016, the trend has been higher than a year ago due to a combination of increased competition, consumer sensitivity to pricing driven by the current economic climate and crime, particularly in the fashion district. The retail/commercial vacancies reduced by 1.9% and 0.6% by GLA and rental respectively. Standing portfolio residential vacancies by GLA decreased by 0.3% since December 2016. A number of mitigation measures were introduced at the expense of short-term net property income growth to ensure Afhco remains competitive and differentiates itself to set the platform for sustainable long-term growth.
The Zambian JV vacancies have improved since December 2016 due to reductions in vacancies at Jacaranda Mall in Ndola.
The lease expiry profile and vacancies (by GLA) are set out below:
Sector Vacancy (%) Expiries (%)
Monthly 2017 2 2018 2019 2020 Thereafter
Traditional Portfolio:
Industrial 1.6 1.3 9.7 25.4 17.2 9.4 35.4
Retail 3.9 14.5 7.2 15.4 13.6 13.7 31.7
Commercial 6.7 5.0 10.4 14.5 14.8 19.5 29.1
Traditional Portfolio
total 2.6 5.5 9.0 21.6 16.0 11.4 33.9
Afhco Portfolio:
Residential 1 8.9 46.1 19.6 25.3 0.1 - -
Retail / Commercial 1.4 13.9 7.0 15.8 10.1 22.4 29.4
Afhco Portfolio total 5.8
Rest of Africa
Portfolio:
Retail 5.5 - 2.1 2.7 37.0 13.4 39.3
Commercial 4.7 - 5.2 14.8 52.9 13.7 8.7
Rest of Africa
Portfolio total 5.3 - 2.8 5.3 40.5 13.5 32.6
1 Calculated on number of units
2 Calculated on July to December 2017
TENANT RETENTION AND RENTAL REVERSIONS
The table below reflects the Group's retention ratio and rental reversions per sector for a rolling 6 month period ending June 2017:
Sector Expiries Retention Retention Rental
(m2) (m2) (%) reversion (%)
Traditional Portfolio:
Industrial 65,754 54,005 82.1 0.4
Retail 23,897 21,974 92.0 6.6
Commercial 5,477 4,344 79.3 (10.5)
Traditional Portfolio
total 95,128 80,323 84.4 2.7
Afhco Portfolio:
Retail / Commercial 2,622 2,131 81.3 (0.6)
With 8% of the traditional portfolio expiring in H1 2017, the Group successfully retained 84.4% of its tenants at a total reversion of 2.7%. Despite trying economic conditions, reversions were positive to flat, except for commercial reversions, which were negative, reflective of the poor performance of the sector. SA Corporate remains underweight in this sector and considers conversion to residential use where the location, demand and viability makes sense.
Of the 3% expiries in H1 2017, relating to the Afhco retail/commercial portfolio, 81.3% were retained with a negative reversion of 0.6%. The negative reversion is due to a tenant occupying 698m2 giving up some space and negotiating a lower rental. If this tenant is removed from the calculation, the rental reversion would have been 10%.
BORROWINGS
The debt profile as at 30 June 2017 is detailed below:
Facility Maturity date Value (Rm) Interest Rate (%)
Fixed 15.12.2017 1,152 8.80
Fixed 13.08.2018 200 9.02
Fixed 30.09.2018 270 8.97
Fixed 30.09.2018 30 8.97
Term revolver 1 01.11.2018 - 8.70
Fixed 01.01.2019 500 8.76
Term revolver 2 24.03.2019 159 8.77
Fixed 15.12.2019 848 9.10
Fixed 13.06.2020 950 9.08
Fixed 3 01.11.2020 353 3.59
Fixed 13.12.2021 550 9.15
Amortising 15.04.2024 121 6.88
Total/weighted average 5,133 8.55
1 R300m revolving credit facility undrawn
2 R200m revolving credit facility partly drawn
3 US Dollar denominated loan
The loan to value (“LTV”) has increased from 29.0% at 31 December 2016 to 31.1% as at 30 June 2017.
The weighted average cost of debt was 8.52% excluding swaps and 8.55% including swaps with a weighted average swap margin of 0.025% and a weighted average debt margin of 1.66%.
The weighted average tenor of loans is 2.2 years. This includes R1,152bn of the first syndicated loan which expires 15/12/2017. Without this loan, the weighted average tenor would be 2.8 years. 81.0% of the debt is hedged at a tenor of 3.3 years.
STRATEGY AND PROSPECTS
The challenges of lethargic South African economic conditions in the first half of 2017 has required the Company to take decisive actions to ensure that SA Corporate is able to rely on defensive rental revenue streams to continue to generate sustainable distribution growth. These actions have included:
- Particular focus in the tenanting of the retail portfolio on food services and convenience which has proven to be resilient during periods of low economic growth. This has been complemented by the continued implementation of a well-considered programme of redevelopment and rejuvenation of the portfolio of shopping centres.
- Proactive management of the industrial portfolio concentrating on holding quality assets and retaining tenants with strong covenants.
- Improving the reliability of growth in income from the Afhco residential portfolio by diversifying its geographic spread and realigning its Johannesburg inner-city business. The foundation for the former is in place with the strategic joint initiatives with Calgro M3 and M&T Development. The realignment of the Johannesburg inner-city business involves operational and asset management interventions. The former includes rebasing rentals to be competitive, the introduction of measures to secure tenant loyalty and undertaking improvements to buildings to provide quality accommodation, with all the amenities desired by inner-city residents. Asset management interventions are directed at concentrating investments in accessible, well maintained precincts where Afhco can ensure a safe and secure lifestyle in close proximity to transport infrastructure in newly built quality buildings.
- Diversification into the self-storage sector known for its defensive characteristics. This diversification is particularly appropriate for SA Corporate as there is a symbiotic relationship between the leasehold component of the self-storage business with the Company's retail portfolio and self-storage also leverages off the greater need for flexibility and mobility of Millennials complementary to a greater propensity for residential rental accommodation by this generation.
2017 full year distribution growth of approximately 6% is anticipated, which is at the lower end of guidance given at the beginning of the year.
As at As at As at
CONDENSED CONSOLIDATED STATEMENT 30.06.2017 30.06.2016 31.12.2016
OF FINANCIAL POSITION (R000) Unaudited Unaudited Audited
Assets
Non-current assets 16,324,376 13,989,025 15,571,401
Investment property 15,074,677 12,782,819 14,357,675
Letting commissions and tenant
installations 51,941 52,899 54,410
Investment in joint ventures 830,403 824,193 799,389
Property, plant and equipment 10,148 5,991 8,369
Intangible assets 81,904 76,897 81,904
Interest rate swap derivatives 14,017 50,457 37,444
Rental receivable - straight line
adjustment 219,862 192,430 175,695
Other financial assets 41,424 2,675 54,606
Deferred taxation - 664 1,909
Current assets 1,241,201 571,334 972,116
Trade and other receivables 428,587 278,748 350,432
Other financial assets 11,795 38,594 112,090
Rental receivable - straight line
adjustment 47,603 44,751 43,741
Interest rate swap derivatives 5,394 12,268 10,009
Taxation receivable 837 1,336 437
Inventory 175 52 71
Loans to developers 589,056 11,703 263,956
Cash and cash equivalents 157,754 183,882 191,380
Non-current assets held for sale 283,340 50,410 445,694
Properties classified as held for
disposal 282,400 50,400 444,700
Letting commissions and tenant
installations 940 10 994
Total assets 17,848,917 14,610,769 16,989,211
Share capital, reserves and liabilities
Share capital and reserves 12,350,973 10,206,276 12,070,009
Non-current liabilities 3,990,988 3,601,859 3,439,813
Interest bearing borrowings - Local 3,860,009 3,522,676 3,318,983
Interest bearing borrowings - Foreign 103,823 61,192 112,475
Interest rate swap derivatives 19,748 17,991 8,355
Deferred tax 7,408 - -
Current liabilities 1,506,956 802,634 1,479,389
Trade and other payables 327,799 277,292 302,082
Interest bearing borrowings - Local 1,152,000 500,000 1,152,000
Interest bearing borrowings - Foreign 17,019 8,595 17,019
Rental payable - straight line
adjustment - 22 -
Interest rate swap derivatives 10,138 16,725 8,288
Total share capital, reserves and
liabilities 17,848,917 14,610,769 16,989,211
NAV cps 511 446 499
6 months 6 months Year
ended ended ended
CONDENSED CONSOLIDATED STATEMENT 30.06.2017 30.06.2016 31.12.2016
OF COMPREHENSIVE INCOME (R000) Unaudited Unaudited Audited
Revenue 1,043,350 908,481 1,833,085
Income 1,089,993 931,177 1,881,434
Rent 724,983 639,413 1,328,181
Straight line rental adjustment 45,062 26,260 13,094
Recovery of property expenses 273,305 242,808 491,810
Interest income 35,604 22,696 48,349
Dividends from fixed property companies 370 - -
Other group income 10,669 - -
Expenses (545,787) (449,985) (953,663)
Audit fees (1,517) (1,800) (2,950)
Administrative fees (29,404) (24,793) (58,440)
Depreciation (1,683) (830) (2,422)
Interest expense (188,850) (132,411) (274,918)
Property expenses (287,595) (258,921) (547,398)
Property administration fees (36,738) (31,256) (67,583)
Straight line rental adjustment - 26 48
Operating income 544,206 481,192 927,771
Capital gain on disposal of investment
properties and property, plant and
equipment 2,058 681 299
Foreign exchange adjustments 17,974 22,885 49,520
Gain on acquisition of subsidiaries - - 232
Profit from joint ventures 58,234 22,250 85,288
Revaluation of investment properties
and shares 273,077 303,268 1,508,063
- Revaluations 318,139 329,528 1,521,157
- Straight line rental adjustment (45,062) (26,260) (13,094)
Revaluation of interest rate swap
derivatives (41,286) (92,963) (90,162)
Profit before taxation 854,263 737,313 2,481,011
Taxation charge (9,166) (1,352) (1,008)
Profit after taxation 845,097 735,961 2,480,003
Other comprehensive income, net of
taxation - - -
Items that may be reclassified to
profit or loss
Foreign exchange adjustments on
investment in joint ventures (43,141) (48,125) (117,773)
Total comprehensive income 801,956 687,836 2,362,230
Earnings and diluted earnings per share 34.96 32.18 106.86
6 months 6 months Year
ended ended ended
CONDENSED CONSOLIDATED STATEMENT OF 30.06.2017 30.06.2016 31.12.2016
CHANGES IN EQUITY (R000) Unaudited Unaudited Audited
Share capital and reserves at the
beginning of the period 12,070,009 9,980,915 9,980,915
Total comprehensive income for the
period 801,956 687,836 2,362,230
Shares issued - - 658,103
Treasury shares repurchased (10,072) (7,089) (7,098)
Vesting of treasury shares 8,207 - -
Antecedent distribution - - 17,624
Share-based payment reserve 2,654 - 7,565
Distribution attributable to
shareholders (521,781) (455,386) (949,330)
Share capital and reserves at the
end of the period 12,350,973 10,206,276 12,070,009
6 months 6 months Year
ended ended ended
CONDENSED CONSOLIDATED STATEMENT 30.06.2017 30.06.2016 31.12.2016
OF CASH FLOWS (R000) Unaudited Unaudited Audited
Operating profit before working
capital changes 661,670 600,040 1,180,390
Working capital changes (19,032) (54,402) (18,702)
Cash generated from operations 642,638 545,638 1,161,688
Operating activities changes (700,471) (594,302) (1,253,239)
Interest received 35,650 22,086 48,240
Interest paid (214,091) (160,109) (351,254)
Taxation paid (249) (893) (895)
Distributions paid (521,781) (455,386) (949,330)
Net cash outflows from operating
activities (57,833) (48,664) (91,551)
Net cash outflows from investing
activities (524,276) (305,522) (1,335,723)
Net cash inflows from financing
activities 548,483 227,727 1,308,313
Increase in borrowings 550,348 247,845 728,404
Issue of new shares - - 600,027
Treasury shares repurchased (10,072) (7,098) (7,098)
Loan to developer - (13,020) (13,020)
Vesting of treasury shares 8,207 - -
Net decrease in cash and cash
equivalents (33,626) (126,459) (118,961)
Cash and cash equivalents at the
beginning of period 191,380 310,341 310,341
Cash and cash equivalents at the end
of period 157,754 183,882 191,380
NOTES
The condensed consolidated interim financial statements are prepared in accordance with the JSE Limited Listings Requirements, IAS 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by Financial Reporting Standards Council and the requirements of the Companies Act of South Africa. The accounting policies applied in the preparation of these interim financial statements are in terms of International Financial Reporting Standards and are consistent with those applied in the previous annual financial statements. The results and prospects have been compiled under the supervision of AM Basson CA(SA), the financial director, but have not been audited or reviewed by the Group's auditors, Deloitte & Touche.
1. Reconciliation of profit after tax to headline earnings and distributable earnings attributable to shareholders
6 months 6 months Year
ended ended ended
30.06.2017 30.06.2016 31.12.2016
Unaudited Unaudited Audited
R 000 cps R 000 cps R 000 cps
Profit after taxation
attributable to
shareholders 845,097 34.96* 735,961 32.18* 2,480,003 106.86*
Adjustments for:
Capital profit on disposal
of investment properties
and property, plant and
equipment (2,058) (681) (299)
Revaluation of investment
properties and joint
ventures (317,111) (293,751) (1,525,695)
Gain on acquisition of
subsidiaries - - (232)
Headline earnings 525,928 21.76* 441,529 19.30* 953,777 41.10*
Antecedent distribution - - 17,624
Taxation on distributable
income 8,906 - -
Depreciation 1,683 830 2,422
Foreign exchange
adjustments (17,974) (22,885) (49,520)
Revaluation of listed
shares 13,860 - (8,250)
Non-distributable
expenses 12,010 4,341 21,644
Revaluation of interest
rate swap derivatives 41,286 92,963 90,162
Straight line rental
adjustment (45,062) (26,260) (13,094)
Straight line rental
expense adjustment - (26) -
Non-distributable
expenses on investment in
joint ventures 382 - 944
Distributable earnings
attributable to
shareholders 541,019 22.38 490,492 21.44 1,015,709 43.02
Interim 541,019 22.38 490,492 21.44 493,925 21.44
Final - - - - 521,784 21.58
* calculated on weighted number of shares in issue
2. Primary operational segments for the 6 months ended 30.06.2017(R000)
Business segment Industrial Retail Commercial Afhco Group
Extract from statement
of comprehensive income
Revenue 297,324 481,696 65,088 199,242 1,043,350
Rental income (excluding
straight line rental
adjustment) 254,298 271,527 47,885 151,273 724,983
Net property expenditure (21,493) 10,389 (9,049) (30,875) (51,028)
Property expenses (68,000) (155,274) (24,351) (76,708) (324,333)
Recovery of property
expenses 46,507 165,663 15,302 45,833 273,305
Net property income 232,805 281,916 38,836 120,398 673,955
Straight line rental
adjustment (3,481) 44,506 1,901 2,136 45,062
Net interest expense - - - - (153,246)
Group income - - - - 12,955
Dividend from fixed
property companies - - - - 370
Foreign exchange adjustments - - - - 17,974
Group expenses - - - - (34,890)
Profit from investment in
joint ventures - - - - 58,234
Revaluation of investment
properties 89,192 141,978 1,191 54,576 286,937
Investment properties 85,711 186,484 3,092 56,712 331,999
Straight line rental
adjustment 3,481 (44,506) (1,901) (2,136) (45,062)
Revaluation of interest
rate swap derivatives - - - - (41,286)
Revaluation of investment
in fixed property
companies - - - - (13,860)
Capital profit on disposal
of investment properties
and property, plant and
equipment - - - - 2,058
Taxation - - - - (9,166)
Profit after taxation 318,516 468,400 41,928 177,110 845,097
Other comprehensive
income, net of taxation - - - - (43,141)
Total comprehensive
income 318,516 468,400 41,928 177,110 801,956
Other information Industrial Retail Commercial Afhco Group
Properties (excluding
straight line rental
adjustment): 4,710,900 6,869,462 1,062,600 2,981,580 15,624,542
Non-current investment
property 4,536,079 6,727,626 1,028,042 2,782,930 15,074,677
At valuation 4,622,100 6,868,462 1,050,600 2,800,980 15,342,142
Straight line rental
adjustment (86,021) (140,836) (22,558) (18,050) (267,465)
Non-current investment
property held for sale 87,905 1,000 12,000 179,804 280,709
Classified as held for
disposal 88,800 1,000 12,000 180,600 282,400
Straight line rental
adjustment (895) - - (796) (1,691)
Other assets 162,702 348,330 57,879 344,611 2,493,531
Total assets 4,786,686 7,076,956 1,097,921 3,307,345 17,848,917
Total liabilities 74,359 122,726 24,561 204,378 5,497,944
Acquisitions and
improvements 25,689 315,750 15,808 363,458 720,705
Acquisitions and
improvements 25,689 315,750 15,808 250,831 608,078
Acquisitions through
business combination - - - 112,627 112,627
Segmental growth
rates (%) Industrial Retail Commercial Afhco Group
Rental income (excluding
straight line rental
adjustment) 3.9 16.3 (8.1) 38.5 13.4
Property expenses 4.1 7.7 9.4 31.3 11.8
Recovery of property
expenses (12.9) 13.2 9.6 53.7 12.2
Net property income 0.0 19.7 (11.4) 49.3 13.8
3. Fair value measurement
The interest rate swap derivatives are valued based on the discounted cash flow method. Future cash flows are estimated based on forward interest rates (from observable yield curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk. The investment in listed shares is valued at the quoted market price. The investment in joint ventures is valued at the ownership of the underlying joint ventures' net asset value. The fair value of the investment property is determined by an independent registered valuer. The fair value of the industrial, retail and commercial portfolio of investment properties, excluding properties subject to unconditional contracted sales, was based on the discounted cash flow method. The fair value of the inner-city retail, residential and commercial investment properties is based on the capitalisation of the net income earnings in perpetuity. The discounted cash flow method is not appropriate due to the short term nature of the portfolio's leases.
The table below analyses assets that are measured at fair value. The financial instruments are grouped into levels 1 to 3 based on the degree to which the fair value is observable.
Investments in listed shares Level 1
Interest rate swap derivatives Level 2
Investment in joint ventures Level 3
Investment property Level 3
There were no transfers between the levels.
4. Capital commitments
The Group had capital commitments of R2 895,7m (December 2016: R407,7m) as at 30 June 2017.
5. Events after the reporting period
On 5 July 2017, SA Corporate issued 113,207,547 shares for cash at a price per share of R5.30. This resulted in total capital raised of R600m.
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice to shareholders resident South Africa
Notice is hereby given of the declaration of distribution no.5 in respect of the income distribution period 1 January 2017 to 30 June 2017. The distribution amounts to 22.38 cps. The source of the distribution comprises net income from property rentals and interest earned on cash investments. Please refer to the statement of comprehensive income for further details. As SA Corporate has REIT status, shareholders are advised that the distribution meets the requirements of a "qualifying distribution" for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 ("Income Tax Act"). The distributions on SA Corporate shares will be deemed to be dividends, for South African tax purposes, in terms of section 25BB of the Income Tax Act. The distributions received by or accrued to South African tax residents must be included in the gross income of such shareholders and are not exempt from income tax (in terms of the exclusion to the general dividend exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the Income Tax Act) because they are dividends distributed by a REIT, with the effect that the distribution is taxable in the hands of the shareholder.
These distributions are, however, exempt from dividend withholding tax in the hands of South African tax resident shareholders, provided that the South African resident shareholders have provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the transfer secretaries, in respect of certificated shares: a) a declaration that the distribution is exempt from dividends tax; and b) a written undertaking to inform the CSDP, broker or the transfer secretaries, as the case may be, should the circumstances affecting the exemption change or the beneficial owner ceases to be the beneficial owner, both in the form prescribed by the Commissioner for the South African Revenue Service. SA Corporate shareholders are advised to contact the CSDP, broker or transfer secretaries, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution, if such documents have not already been submitted.
Notice to non-resident shareholders
Distributions received by non-resident shareholders will not be taxable as income and instead will be treated as ordinary dividends which are exempt from income tax in terms of the general dividend exemption in section 10(1)(k)(i) of the Income Tax Act. It should be noted that until 31 December 2013 distributions received by non-residents from a REIT were not subject to dividend withholding tax. From 22 February 2017, any distribution received by a non-resident from a REIT will be subject to dividend withholding tax at 20%, unless the rate is reduced in terms of any applicable agreement for the avoidance of double taxation ("DTA") between South Africa and the country of residence of the shareholder.
Assuming dividend withholding tax will be withheld at a rate of 20%, the net dividend amount due to non-resident shareholders is 17.9040 cents per SA Corporate share. A reduced dividend withholding rate, in terms of the applicable DTA, may only be relied on if the non-resident shareholders has provided the following forms to the CSDP or broker, as the case may be, in respect of uncertificated shares, or the transfer secretaries, in respect of certificated shares:
a) a declaration that the dividend is subject to a reduced rate as a result of the application of a DTA; and b) a written undertaking to inform the CSDP, broker or the transfer secretaries, as the case may be, should the circumstances affecting the reduced rate change or the beneficial owner ceases to be the beneficial owner, both in the form prescribed by the Commissioner for the South African Revenue Service. Non-resident shareholders are advised to contact the CSDP, broker or the transfer secretaries, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution if such documents have not already been submitted, if applicable. 2,530,689,337 SA Corporate shares are in issue at the date of this distribution declaration and SA Corporate's income tax reference number is 9179743191.
Last date to trade cum distribution Tuesday, 26 September 2017
Shares will trade ex-distribution Wednesday, 27 September 2017
Record date to participate in the
distribution Friday, 29 September 2017
Payment of distribution Monday, 2 October 2017
Share certificates may not be dematerialised or re-materialised between Wednesday, 27 September and Friday, 29 September 2017 both days inclusive.
By order of the Board
DIRECTORATE AND STATUTORY INFORMATION
Registered office
South Wing, First Floor
Block A
The Forum
North Bank Lane
Century City
7441
Tel 021 529 8410
Registered auditors
Deloitte & Touche
1st Floor
The Square
Cape Quarter
27 Somerset Road
Cape Town
8005
Transfer secretaries
Computershare Investor Services (Pty) Ltd
Rosebank Towers
15 Biermann Avenue
Rosebank
2196
Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
135 Rivonia Road
Sandton
2196
Directors: J Molobela (Chairman), TR Mackey (Managing)*, AM Basson (Finance)*, RJ Biesman-Simons, A Chowan, GP Dingaan, KJ Forbes, EM Hendricks, MA Moloto, ES Seedat
* Executive
B Swanepoel
Company Secretary
29 August 2017
Date: 29/08/2017 05:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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