Wrap Text
Unaudited consolidated interim results for the six months ended 31 August 2017
Equites Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2013/080877/06)
JSE share code: EQU ISIN: ZAE000188843
(Approved as a REIT by the JSE)
("Equites" or "the Company")
Unaudited consolidated interim results for the 6 months ended 31 August 2017
Highlights
- 12.02% increase in distribution per share
- Developments totalling 68 916 m2 of GLA with a capital value of
R832 million completed during the period
- Fair value of investment property increased by 8.58% to R6.8 billion
- Net asset value per share increased by 7.4% to R15.22 during the period
- Inclusion in SAPY20 in June 2017
- Construction commenced on new R165 million Premier distribution centre
at Lords View contributing to a total pipeline of R1.3 billion at
period end
- Concluded agreement to acquire a distribution centre let to global
logistics leader Kuehne + Nagel Limited ("K+N") (in Coventry (UK)
for £41 million
- Raised R1.015 billion in heavily oversubscribed book build in
August 2017 reducing LTV to 19.8%
Commentary
1. Nature of the business
Equites was listed on the JSE in June 2014 as a Real Estate Investment
Trust ("REIT"). The Company has always been clear in its vision to be
a pure play logistics fund, with a focus on high quality assets with
strong property fundamentals.
Over the past three years, the Company has grown its portfolio of
investment property from R1 billion to R6.8 billion. The growth has been
fuelled by strategic portfolio acquisitions, property developments, and
single-asset acquisitions in the United Kingdom ("UK"). All asset
management and the majority of property management is performed
internally.
The Company presents an unique offering in that it provides investors
with pure exposure to high quality logistics properties. Following the
disposal of its three office buildings in Cape Town during the past six
months, more than 97% of total revenue is derived from industrial and
logistics assets. The Company expects to dispose of its last two
remaining office buildings in the near future.
The growth strategy in South Africa ("SA") is focused on the development
of high quality assets on the c.31 hectares of vacant industrial
land the Company controls in strategic nodes. The Company also pursues
acquisitions of logistics facilities which meet its strict investment
criteria either as individual assets or as portfolio acquisitions.
During the prior year, the board of directors (the "Board") approved
a low risk strategy of diversifying into the UK by focusing on premium
logistics distributions centres in key logistics nodes, let to
investment grade tenants on long-dated upward only leases, and built to
institutional specifications. In line with this strategy, the Company
has completed three acquisitions of high quality logistics assets to
date and has concluded an agreement to acquire a distribution centre in
Coventry for £41 million (refer 3.2).
2. Commentary on results
Equites' portfolio continued to perform very well during the period,
which translated into a 12.02% growth in distributions per share when
compared to the corresponding financial period, to 60.98 cents per
share. Vacancies reduced to 0% during the period and for the first time
the portfolio is fully let. This is testimony to the quality and
resilience of the Company's assets, given the context of the challenging
SA economic environment.
The healthy results were underpinned by:
- strong contractual escalations averaging 7.95% across the SA
portfolio;
- benefits of increased scale whilst containing administrative costs;
- a further reduction in already very low vacancies to 0%;
- no material reversions experienced on renewals; and
- savings in finance costs following the R1.015 billion accelerated
book build in August 2017.
The Company's continued strong financial results are a reflection of
its focus on sound property fundamentals, coupled with efficient capital
management and effective use of operational and financial gearing.
Rental growth is supported by continued demand for modern, well located,
logistics facilities as retailers aim to improve supply chain efficiency
and third party logistics services become increasingly important. The
Company has not suffered any material tenant defaults or downward rental
reversions, despite a weak economic environment.
3. Acquisitions
3.1 Completion of DSV acquisition
On 2 November 2016, the Company concluded a forward commitment to
acquire a 19 511 m2 distribution centre that was being developed by
Prologis in Stoke-on-Trent, England. The distribution centre was pre-let
to DSV UK for a 10 year lease term commencing on completion. The
development was completed on time and in line with the budget and
Equites took full ownership of the property on 29 June 2017 against
payment of the purchase price of £18.1 million.
3.2 Acquisition of distribution centre in Coventry
On 26 July 2017 Equites concluded an agreement with Travis Perkins
Properties Limited in terms of which Equites will acquire a recently
developed 19 909 m2 cross docking distribution centre situated in
Coventry, England for a purchase consideration of £41 million. The
transaction was subject to the seller entering into a 15 year lease
with K+N. Equites expects to complete the acquisition by the end of
November 2017.
The property, which meets modern logistics requirements, is located
immediately adjacent to Jaguar Land Rover's World Headquarters and
global engineering campus in Coventry in the industrial 'golden
triangle', which is the most important logistics hub in the UK. The
property is 19 909 m2 in extent on a 7.29 hectare site which translates
into a low coverage of 27% and provides the tenant with a cross docking
warehouse, a small high quality office area, dock level and level access
doors, extensive 82 metre yards and clear height to eaves of 12 metres.
Given the high quality building standards, the nature of the tenant
and the length of the lease, the property adds to the quality,
defensiveness and income predictability of the Equites portfolio.
4. Developments
4.1 New Meadowview speculative build let
Equites completed a 3 280 m2 speculative development in Meadowview,
Gauteng in July 2017. On completion, this property was let to Imperial
Managed Logistics on a three year lease.
4.2 Completion of Rohlig-Grindrod distribution centre
Equites completed the construction of a new 28 527 m2 distribution
centre and head office for Rohlig-Grindrod in Meadowview, Gauteng on
budget and in line with the scheduled timelines. The building was let to
the tenant on a 10 year lease, which commenced in June 2017.
4.3 Completion of Puma distribution centre
Equites completed the construction of a new 17 598 m2 distribution
centre and head office for Puma South Africa in Equites Park - Atlantic
Hills, Cape Town. The building was let to the tenant on a 10 year lease,
which commenced in April 2017.
Puma was an existing tenant and previously occupied two warehouses and a
small office owned by the Company. The two warehouses were let to
The Novus Group and Africa Floorcare (part of the Bounty Brands group)
respectively in anticipation of Puma vacating and they were never
vacant. An agreement to sell the small office at its carrying value was
concluded in August 2017 and it is held-for-sale at period end.
4.4 New Premier development
Equites concluded a development lease with Premier FMCG Proprietary
Limited ("Premier"), in terms of which Equites will be developing a
15 155 m2 modern logistics facility and offices for Premier. The
anticipated total capital value of the development, including land, will
be R165 million. The development will be situated on 3.9 hectares of
vacant land already owned by Equites in Lords View Industrial Park in
Gauteng, and will cater for Premier's continued growth by allowing for
an expansion of 2 484 m2.
Lords View Industrial Park was planned as an environmentally friendly,
eco-sensitive industrial logistics park and makes use of the latest
developments in green township development. Several sustainability and
energy efficiency measures will be included in the development of the
new Premier facility.
4.5 Speculative developments at Atlantic Hills
Equites embarked on three speculative developments at Atlantic Hills,
Durbanville. Development commenced in June 2017 and is expected to be
completed by June 2018. The three buildings will have a combined GLA of
14 956 m2 and capital value of R152 million on completion.
5. Disposals
In line with the Company's strategy of focusing solely on the logistics
sector and recycling capital from non-core investments, the Company
concluded transactions to sell its three multi-let office buildings
situated in Cape Town, as well the small office previously occupied
by Puma. The transfers of all three of the multi-let office buildings
were completed in the current 6 month period and the R234 million
realised will be applied towards the Company's development and
acquisition pipeline.
The Company has also commenced negotiations to dispose of its two
remaining commercial properties, which are situated in Gauteng.
6. Distributable earnings
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2017 2016 2017
Reconciliation between earnings,
headline earnings and distributable
earnings (dividend declared) R'000 R'000 R'000
Earnings (profit attributable
to owners of the parent) 466 889 311 773 784 746
Adjusted for:
Fair value adjustments to
investment properties (251 504) (70 747) (279 506)
Less: Fair value adjustments
to investment properties (NCI+) 902 - (14 816)
Headline earnings 216 287 241 027 490 424
Adjusted for:
Straight-lining of leases
adjustment (21 904) (45 849) (38 842)
Less: Straight-lining of
leases adjustment (NCI+) 2 474 - (2 690)
Fair value adjustments to financial
instruments 31 343 (44 569) (119 687)
Less: Fair value adjustments
to financial instruments (NCI+) (1 460) - -
Equity-settled share-based
payment reserve 2 884 1 243 6 515
Profit from sale of investment
property (457) - -
Development income of a capital
nature not distributable (11 725) - (8 993)
Less: Development income of a capital
nature not distributable (NCI+) 2 345 - -
Antecedent dividend 30 220 671 21 930
Distributable earnings 250 007 152 522 348 657
Number of shares in
issue ('000) 409 973 231 280 152 669 350 465 000
Weighted average number of
shares in issue 359 692 813 280 033 304 296 765 842
Diluted weighted average number
of shares in issue 360 720 790 281 032 040 298 044 931
Distribution per share (cents) 60.98 54.44 110.37
Headline earnings per share (cents) 59.9 86.1 165.3
Diluted headline earnings
per share (cents) 59.7 85.8 164.5
The Board declared an interim dividend of 60.98132 cents per share
for the 6 months ended 31 August 2017 on 11 October 2017. This
represents a growth of 12.02% over the comparative period.
Distributable earnings (cents per share) FY18 FY17
Interim dividend 60.98 54.44
Final dividend (2018: forecast*) 62.63 55.93
Total distributions for the period
(2018: forecast*) 123.61 110.37
* Revised guidance at 12% dps growth (upper end of original guidance
provided of 10%-12%). This forecast has not been reviewed or audited by
the Company's external auditors.
+ Non-controlling interest
7. Net asset value per share
The net asset value per share of the Company grew to 1 522 cents per
share by 31 August 2017. This equates to a growth of 7.4% in the
6 months from 28 February 2017.
On listing
18 Jun 14 Aug 14 Feb 15 Aug 15 Aug 16 Feb 17 Aug 17
Net asset
value (cps) 1 000 1 009 1 137 1 259 1 354 1 417 1 522
Growth since
listing 0.9% 13.7% 25.9% 35.4% 41.7% 52.2%
8. Updated property fundamentals
8.1 Lease expiry profile
Lease expiry Based on Based on
rentable contractual
area revenue
Vacant 0.0% 0.0%
Expiry in the year to 28 February 2018 3.1% 1.2%
Expiry in the year to 28 February 2019 6.8% 5.0%
Expiry in the year to 29 February 2020 6.8% 6.5%
Expiry in the year to 28 February 2021 2.7% 2.9%
Expiry in the year to 28 February 2022 and later 80.6% 84.4%
100.0% 100.0%
8.2 Weighted average lease expiry
Weighted average lease expiry Based on
contractual
revenue
Weighted average lease expiry (in years) 7.32
8.3 Tenant grade profile
Based on
contractual
Tenant profile revenue
A - Multi-nationals, large nationals, large
listeds and government 91.1%
B - Smaller international and national tenants 3.0%
C - Other local tenants and sole proprietors 5.9%
100.0%
8.5 Property geographic distribution
Based on Based on
rentable contractual
Geographic profile area revenue
Gauteng 49.0% 59.2%
Cape Town 35.4% 28.0%
United Kingdom 15.6% 12.8%
100.0% 100.0%
9. Funding
9.1 South African funding
The Group has term loan facilities of R2.5 billion with four
institutions: Nedbank, Standard Bank, Rand Merchant Bank and Sanlam.
R1.4 billion of these facilities are undrawn at the end of the period
and are available to fund acquisitions and developments. The maturities
of the various facilities range from September 2017 to July 2021. Prime
linked facilities accrue interest at an average margin of 1.47% below
prime and JIBAR linked loans accrue interest at an average margin of
2.2% above 3 month JIBAR.
Nominal value
Variable rate loans R'000
Expiry
2017 200 000
2018 -
2019 920 000
2020 450 000
2021 917 000
9.2 UK funding
The Group has GBP loan facilities of £32 million with RBS and HSBC
with an average margin above 3 month LIBOR of 2.08%.
Nominal value
Variable rate loans £'000
Expiry
2017 -
2018 -
2019 -
2020 -
2021 31 164
9.3 Interest rate hedging
Nominal
Base value
Interest rate swap agreements rate R'000
Expiry
September 2022 7.610% 550 000
September 2021 7.610% 210 000
September 2021 8.080% 100 000
November 2021* (GBP/LIBOR) 1.011% 222 515
June 2022* (GBP/LIBOR) 0.995% 300 840
1 383 355
* Translated at the closing rate of £1 = R16.79 at 31 August 2017
Nominal
Base value
Cross currency swap agreements rate £'000
Expiry
October 2021 3M JIBAR 32 905
32 905
Nominal
value
Variable rate instruments R'000
Total interest bearing borrowings 1 568 593
Total capital commitments 1 788 000
Cash and cash equivalents (1 004 730)
2 351 863
Interest rate derivatives 1 383 355
Embedded derivative 292 500
Currency derivative 600 000
2 275 855
Effective percentage of interest exposure hedged 97%
Based on the above derivative instruments in relation to the total
outstanding interest bearing borrowings, the Company is 97% hedged at
31 August 2017. The Company has a policy of hedging at least 80% of its
exposure to interest rate fluctuations.
9.4 Currency hedging
As a result of the expansion into the UK the Group is exposed to
currency risk, predominantly that relating the South African Rand
and the British Pound. The group is exposed to currency risk on its
initial capital exposure as well as the underlying earnings as a result
of operations in the United Kingdom. In FY17, the Group introduced
cross-currency interest rate swaps to its treasury management,
effectively matching the currency of debt with the currency of an
asset. The cross-currency swap with a notional value of £32.905 million
is structured to receive a fixed LIBOR-linked rate and pay a floating
JIBAR-linked rate, thereby also providing hedging against interest rate
movements in SA.
10. Vacancies
The industrial portfolio remains fully let, with the exception of the
Tower Road property situated in Airport Industria, Cape Town, which is
undergoing a major upgrade following the end of the lease in August
2017. This property is one of the oldest in the Company's portfolio and
this refurbishment will bring it in line with modern logistics
requirements. The refurbishment is expected to be completed by the end
of the financial year and negotiations with a potential blue chip tenant
are at an advanced stage.
The office portfolio is fully let as at 31 August 2017. The vacancy
rate across the portfolio is 0% which is testament to the high quality
assets, blue-chip tenants and desirable locations of the properties in
the portfolio.
11. Capital commitments
The Company has capital commitments of at least R1.3 billion over the
next 12 months:
Estimated Value of
Description of project completion date project
Acquisition of K+N distribution
centre in Coventry, United Kingdom
(£41 million plus costs) November 2017 R792 million
Construction of speculative developments
at Equites Park - Atlantic Hills,
Cape Town June 2018 R150 million
Construction of Premier FMCG
distribution centre at
Lords View, Gauteng May 2018 R165 million
Construction of speculative
development at Lords View, Gauteng August 2018 R120 million
Strategic land acquisitions Gauteng December 2017 R106 million
TOTAL CAPITAL COMMITMENTS R1.3 billion
In addition to the capital commitments above, the Company declared a
dividend of R250 million on 11 October 2017, which will be settled in
cash on 6 November 2017.
12. Prospects
The Company continues to pursue opportunities to acquire logistics
properties or portfolios that meet its investment criteria and that are
expected to contribute to long-term, predictable distribution growth in
South Africa. The growth strategy will be complemented by the
acquisition of high quality logistics assets in the UK as Equites
strives to be a globally relevant logistics property fund.
The Company had previously forecast full year distribution growth for
the year ended 28 February 2018 to be 10% - 12% higher than the previous
financial year. In the light of a strong first half of the financial
year, the Company now considers it likely that the full year results
will be at the top end of or slightly exceed this guidance. This
guidance is based on the assumptions that a stable macro-economic
environment will prevail, no major corporate failures will occur and
tenants will be able to absorb the recovery of rising utility costs and
municipal rates. This forecast has not been audited or reviewed by
Equites' auditors.
13. Subsequent events
Other than disclosed in this announcement, the Board is not aware of
any events that have a material impact on the results or disclosures
of the Company, which have occurred subsequent to the end of the
reporting period.
14. Basis of preparation
The condensed consolidated interim financial statements are prepared
in accordance with the International Financial Reporting Standard,
IAS34 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.
Bram Goossens (CA)SA, in his capacity as Financial Director, was
responsible for the preparation of these condensed consolidated interim
financial statements.
These condensed consolidated interim financial statements have not been
reviewed or audited by the Company's external auditors.
15. Interim dividend
Notice is hereby given of the declaration of interim dividend number 7
of 60.98132 cents per share.
As Equites is a REIT, the dividend meets the definition of a 'qualifying
distribution' for the purposes of section 25BB of the Income Tax Act,
No. 58 of 1962 ("Income Tax Act"). Qualifying distributions received
by South African tax residents will form part of their gross income
in terms of section 10(1)(k)(i)(aa) of the Income Tax Act).
Consequently, these dividends are treated as income in the hands of
the shareholders and are not subject to dividends withholding tax. The
exemption from dividends withholding tax is not applicable to
non-resident shareholders, but they may qualify for relief under a
tax treaty.
Holders of dematerialised shares have to ensure that they have verified
their residence status with their Central Securities Depository
Participant ("CSDP") or broker. Holders of certificated shares will be
asked to complete a declaration to the Company.
An announcement providing further details regarding the tax treatment of
the dividend will be released separately on SENS.
The dividend is payable to shareholders in accordance with the timetable
set out below:
2017
Declaration date Thursday, 12 October
Last day to trade cum dividend distribution Tuesday, 31 October
Shares trade ex dividend distribution Wednesday, 1 November
Record date Friday, 3 November
Payment date Monday, 6 November
Share certificates may not be dematerialised or rematerialised between
Wednesday, 1 November 2017 and Friday, 3 November 2017, both days
inclusive.
In respect of dematerialised shareholders, the dividend will be
transferred to the CSDP account / broker accounts on Monday,
6 November 2017. Certificated shareholders' dividend payments will be
paid to certificated shareholders' bank accounts on or about Monday,
6 November 2017.
By order of the Board
Equites Property Fund Limited
11 October 2017
Condensed consolidated statement of financial position
Equites Property Fund Limited and its subsidiaries for the
6 months ended 31 August 2017
Unaudited Unaudited Audited
Group Group Group
31 August 31 August 28 February
2017 2016 2017
R'000 R'000 R'000
ASSETS
Non-current assets
Investment properties 6 761 482 5 626 643 5 991 393
Fair value of investment property
(excluding straight-lining) 6 601 774 5 490 763 5 853 590
Straight-lining lease accrual 159 708 135 880 137 803
Property, plant and equipment 8 438 2 247 9 186
Derivative financial asset 113 583 51 797 134 632
6 883 503 5 680 688 6 135 211
Current assets
Investment property held-for-sale 18 000 232 746 234 381
Trade and other receivables 69 067 47 634 134 778
Financial assets held at fair value 3 976 3 447 3 353
Cash and cash equivalents 1 004 730 378 452 11 042
1 095 773 662 279 383 554
TOTAL ASSETS 7 979 276 6 342 966 6 518 765
EQUITY AND LIABILITIES
Equity and reserves
Stated capital 5 201 191 3 184 368 4 193 749
Accumulated profit 1 186 564 607 477 919 099
Foreign currency translation reserve (159 441) (2 552) (173 374)
Share-based payment reserve 10 765 2 609 7 881
Total attributable to owners 6 239 079 3 791 902 4 947 355
Non-controlling interest 93 204 73 403 93 535
TOTAL EQUITY 6 332 283 3 865 305 5 040 890
Liabilities
Non-current liabilities
Deferred tax liability - 1 424 -
Derivative financial liability 21 918 3 491 11 208
Financial liabilities 1 363 997 1 946 180 1 086 097
1 385 915 1 951 095 1 097 305
Current liabilities
Financial liabilities 195 133 201 990 285 983
Trade and other payables 65 945 324 576 94 587
261 078 526 565 380 570
TOTAL LIABILITIES 1 646 993 2 477 660 1 477 875
TOTAL EQUITY AND LIABILITIES 7 979 276 6 342 966 6 518 765
Condensed consolidated statement of comprehensive income
Equites Property Fund Limited and its subsidiaries for the
6 months ended 31 August 2017
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2017 2016 2017
R'000 R'000 R'000
Contractual revenue and tenant
recoveries 240 711 204 062 458 209
Straight-lining of leases adjustment 21 904 45 849 44 222
Revenue 262 615 249 911 502 431
Other gains 12 922 804 12 095
Property operating and management
expenses (38 390) (40 026) (77 408)
Net property income 237 147 210 689 437 118
Administrative expenses (11 534) (9 913) (27 243)
Depreciation (476) - (483)
Operating profit before financing
and fair value adjustments 225 137 200 776 409 392
Fair value adjustments
- investment property 251 504 70 747 309 138
Fair value adjustments
- financial instruments (31 343) 44 569 119 687
Foreign exchange gain 2 633 1 347 -
Operating profit before
financing activities 447 931 317 439 838 217
Finance costs (24 738) (17 606) (70 399)
Finance income 46 378 12 328 38 245
Net profit before tax 469 571 312 161 806 063
Income tax expense - - -
Profit for the period 469 571 312 161 806 063
OTHER COMPREHENSIVE INCOME
Translation of foreign operations 13 933 (2 552) (173 374)
TOTAL COMPREHENSIVE INCOME
FOR THE PERIOD 483 504 309 609 632 689
PROFIT ATTRIBUTABLE TO:
Owners of the parent 466 889 311 773 784 746
Non-controlling interest 2 682 387 21 317
469 571 312 161 806 063
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent 480 822 309 221 611 372
Non-controlling interest 2 682 387 21 317
483 504 309 609 632 689
Basic earnings per share (cents) 129.8 111.3 264.4
Diluted earnings per share (cents) 129.4 110.9 263.3
Condensed consolidated statement of changes in equity
Equites Property Fund Limited and its subsidiaries for the
6 months ended 31 August 2017
Foreign
currency
Stated Retained translation
capital earnings reserve
R'000 R'000 R'000
Balance at 1 March 2016 3 180 784 438 690 -
Acquisition of EA Waterfall
Logistics JV - - -
Profit after tax - 311 773 -
Other comprehensive income - - (2 552)
Shares issued for property and
subsidiary acquisitions 3 584 - -
Equity-settled share-based payment charge - - -
Dividends distributed to shareholders - (142 986) -
Balance at 31 August 2016 3 184 368 607 477 (2 552)
Balance at 1 September 2016 3 184 368 607 477 (2 552)
Profit after tax - 472 972 -
Other comprehensive income - - (170 822)
Shares issued for cash 1 000 000 - -
Shares issued for property and
subsidiary acquisitions 16 879 - -
Equity-settled share-based payment charge - - -
Dividends distributed to shareholders - (161 350) -
Share issue costs (7 498) - -
Balance at 28 February 2017 4 193 749 919 099 (173 374)
Balance at 1 March 2017 4 193 749 919 099 (173 374)
Profit after tax - 466 889 -
Other comprehensive income - - 13 933
Shares issued for cash 1 015 157 - -
Equity-settled share-based
payment charge - - -
Dividends distributed to shareholders - (199 424) -
Share issue costs (7 715)
Balance at 31 August 2017 5 201 191 1 186 564 (159 441)
Condensed consolidated statement of changes in equity (continued)
Total Non-
Equity attributable controlling
reserve to parent Interest Total
R'000 R'000 R'000 R'000
Balance at 1 March 2016 1 366 3 620 840 - 3 620 840
Acquisition of
EA Waterfall Logistics JV - - 73 016 73 016
Profit after tax - 311 773 387 312 161
Other comprehensive income - (2 552) - (2 552)
Shares issued for property
and subsidiary acquisitions - 3 584 - 3 584
Equity-settled share-based
payment charge 1 243 1 243 - 1 243
Dividends distributed
to shareholders - (142 986) - (142 986)
Balance at 31 August 2016 2 609 3 791 902 73 403 3 865 305
Balance at
1 September 2016 2 609 3 791 902 73 403 3 865 305
Profit after tax - 472 972 20 929 493 902
Other comprehensive income - (170 822) - (170 822)
Shares issued for cash - 1 000 000 - 1 000 000
Shares issued for property
and subsidiary acquisitions - 16 879 - 16 879
Equity-settled share-based
payment charge 5 272 5 272 - 5 272
Dividends distributed
to shareholders - (161 350) (798) (162 148)
Share issue costs - (7 498) - (7 498)
Balance at
28 February 2017 7 881 4 947 355 93 535 5 040 890
Balance at 1 March 2017 7 881 4 947 355 93 535 5 040 889
Profit after tax - 466 889 2 682 469 571
Other comprehensive income - 13 933 - 13 933
Shares issued for cash - 1 015 157 - 1 015 157
Equity-settled share-based
payment charge 2 884 2 884 - 2 884
Dividends distributed
to shareholders - (199 424) (3 013) (202 437)
Share issue costs (7 715) - (7 715)
Balance at
31 August 2017 10 765 6 239 079 93 204 6 332 283
Condensed consolidated statement of cash flows
Equites Property Fund Limited and its subsidiaries for the
6 months ended 31 August 2017
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2017 2016 2017
R'000 R'000 R'000
Cash flows from operating activities
Profit before tax 469 571 312 161 806 063
Adjusted for:
Finance costs 24 738 17 606 70 399
Finance income (46 378) (12 328) (38 245)
Profit on sale of investment property (457) - -
Straight-lining of leases adjustment (21 904) (45 849) (44 222)
Fair value adjustments (220 161) (115 316) (428 825)
Foreign exchange differences (2 633) - 28 974
Depreciation 476 - 483
Share based payment charge 2 884 1 243 6 515
Decrease/(increase) in trade
and other receivables 65 100 14 726 (70 242)
(Decrease)/increase in trade
and other payables (28 756) 246 796 15 993
Cash generated from operations 242 480 419 039 346 893
Finance costs paid (62 257) (26 460) (134 050)
Finance income received 46 378 12 328 38 245
Dividends paid (202 437) (142 986) (305 134)
Net cash flows from
operating activities 24 164 261 921 (54 046)
Cash flows utilised by
investing activities
Acquisition of investment properties (337 219) (996 744) (1 356 594)
Development of investment property (132 787) (553 018) (341 130)
Proceeds from disposal of
investment property 234 839 - 232 746
Purchase and development of
Property, Plant and Equipment (271) (461) (6 231)
Net cash flows utilised by investing
activities (235 438) (1 550 224) (1 471 209)
Cash flows from financing activities
Proceeds from share issue
(net of costs) 1 007 442 3 584 992 502
Proceeds from bank loans 397 559 2 020 375 2 288 722
Bank loans repaid (201 929) (399 055) (1 797 837)
Proceeds from financial instruments
held at fair value - 39 915 43 747
Disposal of financial instruments held
at fair value (207) - (3 737)
Increase in other borrowings 2 688 525 8 938
Net cash flows from financing
activities 1 205 553 1 665 344 1 532 335
Net increase in cash and cash
equivalents 994 279 377 041 7 080
Effect on exchange rate movements
in cash and cash equivalents (591) (2 552) -
Cash and cash equivalents at the
beginning of the period 11 042 3 962 3 962
Cash and cash equivalents at the
end of the year 1 004 730 378 452 11 042
Selected explanatory notes to the results
1. Segment information
Segments are reported in a manner that is consistent with the internal
reporting provided to the chief operating decision maker ("CODM"), which
comprises the three executive directors. With the expansion into the UK
market, the CODM reviews the operating segments based on location
as well as asset class and reviews an additional segment which includes
treasury, corporate and other administrative functions. The segments are
listed below, and have not changed since the last reported financial
year end.
- South African Industrial
- South African Office
- United Kingdom Industrial
- Non-Property
The Industrial and Office segments derive their revenue primarily from
rental income from leases. All treasury functions, corporate costs
and other expenses that are not specifically attributable to individual
properties, are included in the "Non-Property" segment. The measurement
of results reviewed by the CODM is consistent with those presented in
the condensed consolidated annual financial statements for the year
ended 28 February 2017.
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2017 2016 2017
R'000 R'000 R'000
Revenue
SA Industrial 197 868 173 947 383 293
SA Office 13 448 19 916 43 803
UK Industrial 29 395 10 199 31 113
Non-property - - -
240 711 204 062 458 209
Fair value adjustments
SA Industrial 140 455 142 217 275 818
SA Office 2 491 (2 581) 4 090
UK Industrial 108 558 (68 889) 29 230
Non-property (31 343) 44 569 119 687
220 161 115 316 428 825
Net finance costs
SA Industrial - - -
SA Office - - -
UK Industrial (1 559) - (911)
Non-property 23 199 (5 278) (31 243)
21 640 (5 278) (32 154)
Operating profit
SA Industrial 214 502 189 782 396 402
SA Office 3 496 11 847 23 304
UK Industrial 19 149 9 060 16 929
Non-property (12 010) (9 913) (27 243)
225 137 200 776 409 392
2. Fair value measurement
IFRS 13 requires that an entity discloses for each class of financial
instruments and investment property measured at fair value, the level
in the fair value hierarchy into which the fair value measurements are
categorised in their entirety.
All assets and liabilities measured at fair value are classified using
a three-tiered fair value hierarchy that reflects the significance of
the inputs used in determining the measurement as follows:
Level 1 - measurements in whole or in part are done by reference to
unadjusted, quoted prices in an active market for identical assets and
liabilities. Quoted prices are readily available from an exchange,
dealer, broker, industry group, pricing service or regulatory agency
and those prices represent actual and regularly occurring market
transactions on an arm's length basis.
Level 2 - measurements are done by reference to inputs other than quoted
prices that are included in level 1. These inputs are observable for the
financial instrument, either directly (i.e. as prices) or indirectly
(i.e. from derived prices).
Level 3 - measurements are done by reference to inputs that are not
based on observable market data.
31 August 2017
R'000 Fair value Level 1 Level 2 Level 3
Assets
Non-financial assets at
fair value
- investment
properties 6 761 482 - - 6 761 482
ABIL retention fund - - - -
Money market investment - - - -
Derivative assets 113 583 - 113 583 -
6 875 064 - 113 583 6 761 482
Liabilities
Derivative liabilities (21 918) - (21 918) -
(21 918) - (21 918) -
28 February 2017
R'000 Fair value Level 1 Level 2 Level 3
Assets
Non-financial assets at
fair value
- investment
properties 5 991 393 - - 5 991 393
ABIL retention fund 3 353 - 3 353 -
Money market investment 95 - 95 -
Derivative assets 134 778 - 134 778 -
6 129 619 - 138 226 5 991 393
Liabilities
Derivative liabilities (11 208) - (11 208) -
(11 208) - (11 208) -
31 August 2016
R'000 Fair value Level 1 Level 2 Level 3
Assets
Non-financial assets at
fair value
- investment
properties 5 626 643 - - 5 626 643
ABIL retention fund 3 353 - 3 353 -
Money market investment 95 - 95 -
Derivative assets 51 797 - 51 797 -
5 681 888 - 55 245 5 626 643
Liabilities
Derivative liabilities (3 491) - (3 491) -
(3 491) - (3 491) -
Details of valuation techniques
Investment property
The fair value of investment properties is updated at each reporting
period either by way of external valuations or directors' valuations.
External valuations are obtained as required, but at least once every
three years for each property. Directors' valuations were performed on
all properties at 31 August 2017. Capitalisation rates were adjusted as
deemed necessary given any significant changes in the building, tenant
or economic environment which directly affects the lease.
Derivative assets and liabilities
Interest rate and cross-currency swaps
The fair value is calculated as the present value of the estimated
future cash flows. Estimates of future floating-rate cash flows are
based on quoted swap rates, futures prices and interbank borrowing
rates. Estimated cash flows are discounted using a yield curve
constructed from similar sources which reflects the relevant benchmark
interbank rate used by market participants for this purpose when
pricing interest rate swaps. The fair value estimate is subject to a
credit risk adjustment that reflects the credit risk of the Group and of
the counterparty. This is calculated based on credit spreads derived
from current credit default swap or bond prices.
The key input to the valuation of investment property is the
capitalisation rate. The table below illustrates the sensitivity of the
fair value to changes in the capitalisation rate:
Group
Sensitivity analysis to capitalisation rates R'000
Increase in fair value if capitalisation rates are
decreased by 0.1% 97 731
Decrease in fair value if capitalisation rates are
increased by 0.1% (94 984)
There were no transfers between Level 1, 2 or 3 during the year.
3. Related parties
Related party relationships exist between the company, its subsidiaries,
directors (as well as their close family members), and key management of
the company.
In the ordinary course of business, the company entered into the
following other transactions with related parties:
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2017 2016 2017
R'000 R'000 R'000
Dividend paid to related
party shareholders 26 295 27 056 55 840
Fees paid to BTKM (Pty) Ltd
(of which Nazeem Khan is a Director) 625 2 521 4 587
The Company entered into an agreement with Gamlan Investments (Pty)
Ltd for the disposal of an office building for a consideration of
R50.8 million. Giancarlo Lanfranchi, a non-executive director of
Equites, has a 57% beneficial interest in Gamlan. The property was
Transferred in May 2017.
Administration
Directors
A Taverna-Turisan (CEO)^, G.R. Gous (COO), B Goossens (CFO),
P.L. Campher*+ (Chairman), G Lanfranchi* (Deputy Chairman), A.J. Gouws*,
K Dreyer*, N Khan*+, R.E. Benjamin-Swales*+, M.E. Brey *+, G. Mtetwa *+
There were no changes to the Board during this period.
*Non-executive
+Independent
^Italian
Registered office
14th Floor
Portside Towers
4 Bree Street
Cape Town
8000
Contact details
info@equites.co.za
Company secretary
Riaan Gous
Transfer secretary
Terbium Financial Services Proprietary Limited
Auditors
PricewaterhouseCoopers Inc.
Sponsor
Java Capital
Bankers
Nedbank Limited
Attorneys
Cliffe Dekker Hofmeyr Inc.
12 October 2017
Date: 12/10/2017 07:06:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
