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SA CORPORATE REAL ESTATE LIMITED - Condensed unaudited consolidated interim financial results for the six months ended 30 June 2017

Release Date: 29/08/2017 17:15
Code(s): SAC     PDF:  
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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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