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Summary of audited group results for the year ended 31 August 2017
Redefine Properties Limited
(Incorporated in the Republic of South Africa)
Registration number: 1999/018591/06
JSE share code: RDF ISIN: ZAE000190252
(Redefine or the Company or the Group)
(Approved as a REIT by the JSE)
SUMMARY OF AUDITED GROUP RESULTS FOR THE YEAR ENDED 31 AUGUST 2017
Highlights
Operating margin
improved to
82.7%
Property asset platform
expanded by R11.4 billion to
R84.1 billion
International
funding restructured
Certified as a
Top Employer
2018
Integrated stakeholder
engagement strategy
formulated
Commentary
Profile
Redefine is a leading South African-based Real Estate Investment Trust (REIT), with a diverse,
internally managed, R84.1 billion (FY16: R72.7 billion) property asset platform. Redefine's property
asset platform is anchored domestically, in directly held retail, office and industrial properties, and
complemented by substantial property investments in the United Kingdom, Poland and Australia.
Redefine's primary mission is to grow and improve cash flows which will deliver quality earnings,
sustain growth in distributions, and support long-term growth in total returns to shareholders.
Redefine is listed on the Johannesburg Stock Exchange (JSE), has a market capitalisation of R61.8 billion
(FY16: R58.1 billion) and is included in the JSE Top 40 index. Redefine's shares, by volume, are among the
most actively traded on the JSE, making it a highly liquid single entry point for investors to gain exposure
to domestic and multiple international real estate markets.
At 31 August 2017, Redefine's diversified local property asset platform was valued at R68.1 billion (FY16:
R54.7 billion). The Group's international real estate investments, valued at R16.0 billion (FY16: R18.0 billion)
represented 19.0% (FY16: 24.8%) of the total property asset platform, providing geographic diversification
into the UK, Polish, Australian and African markets.
Financial results
Redefine's Board has declared a distribution of 47.18 cents per share (FY16: 44.30) for the six months
ended 31 August 2017, an increase of 6.5% (FY16: 8.0%) on the comparable period. This brings the
full year distribution to 92.00 cents per share (FY16: 86.00) resulting in year-on-year growth of 7.0%
(FY16: 7.5%), which is in line with market guidance. Total revenue showed significant growth of 17.3%
(FY16: 0.0%) benefiting from a number of substantial quality acquisitions made in recent years. Gross
distributable income for the year increased by 22.2% (FY16: 21.8%).
Redefine's property portfolio contributed virtually its total revenue (FY16: 98.5%), with minimal income
from listed securities (FY16: 1.5%), following the disposal of the remaining South African listed securities.
Operating costs were stable at 34.2% (FY16: 34.4%) of contractual rental income. Net of electricity and
utility recoveries, operating costs were 15.9% (FY16: 17.9%) of contractual rental income, benefiting
from improved recoveries and metering of consumption. The cost-to-income ratios are calculated in
accordance with the SA REIT Association's Best Practice Recommendations.
Redefine's international property investments contributed 27.3% (FY16: 25.9%) of distributable income.
Changes in fair values
The Group's property portfolio was independently valued at 31 August 2017 resulting in a net increase
in value of R151.4 million (FY16: decrease of R307.4 million). In terms of IAS 40 and IFRS 13, Redefine's
investment properties are measured at fair value through profit or loss using valuation inputs which
are categorised as level 3 in the fair value hierarchy. There were no transfers between levels 1, 2
and 3 during the year.
Redefine issued exchangeable bonds during September 2016 raising EUR150.0 million. These
exchangeable bonds are measured at fair value through profit or loss. The fair value is determined
with reference to the Bloomberg Valuation Service (BVAL) price, and has been classified as
level 1. The exchangeable bonds were fair valued at 31 August 2017 which resulted in a R142.7 million
decrease in the liability. The fair value of the investment in listed securities increased by R81.5 million
(FY16: decrease of R275.4 million) during the year. The Group's derivatives, which protect the Group
against adverse movements in interest and foreign exchange rates, were valued using the swap curve
and forward pricing methods respectively, resulting in an increase(FY16: decrease) of R621.5 million
(FY16: R124.9 million) in the Group's liabilities. In terms of IAS 39 and IFRS 13, Redefine's listed
securities and derivatives are measured at fair value through profit or loss and are categorised
as level 1 and level 2 respectively. The balance of the fair value movements include a loss of
R415.3 million on the deemed disposal of Delta Property Fund Limited (Delta) in which Redefine held
a 22.8% interest. This investment was sold to an empowerment consortium (refer to listed securities).
Property portfolio
The active portfolio vacancy rate decreased marginally during the year by 0.3% (FY16: 0.5%) to 4.6%
(FY16: 4.9%). Leases covering 536 310m² (FY16: 492 126m²) were renewed during the year at an average
rental increase of 2.9% (FY16: 3.3%) with the tenant retention rate a pleasing 92.6% (FY16: 91.8%).
A further 406 406m² (FY16: 401 128m²) was let across the portfolio. Net arrears increased to
R67.9 million (FY16: 39.8 million), representing 7.5% (FY16: 6.3%) of the gross monthly rental.
The increase is largely attributable to The Pivotal Fund Limited (Pivotal) acquisition.
SECTORAL SPREAD BY GLA
Office 28.3%
Retail 30.1%
Industrial 41.0%
Specialised 0.6%
GEOGRAPHIC SPREAD BY GLA
Gauteng 69.9%
Western Cape 16.3%
KwaZulu-Natal 6.2%
Other 7.6%
LEASE EXPIRY PROFILE BY GLA
Office Retail Industrial Specialised Total
Monthly 100 396 66 850 30 405 - 197 651
2018 170 381 170 410 161 506 - 502 297
2019 199 729 197 288 208 849 - 605 866
2020 245 099 229 637 226 803 - 701 539
2021 122 157 198 199 99 870 26 970 447 196
2022 131 711 204 736 242 823 - 579 270
Beyond 2022 215 451 283 513 863 782 2 888 1 365 634
Vacancy 165 734 84 046 120 396 - 370 176
1 350 658 1 434 679 1 954 434 29 858 4 769 629
SECTORAL VACANCY BY GLA
31 August 2017
Vacancy before Strategic 31 August 31 August
strategic vacancy vacancy(*) 2017 2016
(%) (%) (%) (%)
Office 12.3 4.2 8.1 8.7
Retail 5.9 2.6 3.3 3.6
Industrial 6.2 2.9 3.3 3.4
Specialised 4.5 4.5 - -
7.8 3.2 4.6 4.9
(*) Strategic vacancy comprises properties held-for-sale and properties under development.
Portfolio strategy
Redefine continues to advance its strategy of diversifying, growing and improving the quality of its property
portfolio. During the year, management's primary domestic portfolio focus was on protecting, expanding
and improving existing well-located properties, through acquisition and development activities.
Pivotal: On 9 January 2017, Redefine acquired 100% of the Pivotal shares in issue. Redefine issued
459 999 805 new shares to the Pivotal shareholders in settlement of the purchase consideration.
The Pivotal acquisition was in line with Redefine's strategy of diversifying, growing and improving the
quality of the portfolio.
Redefine acquired 32 Pivotal properties valued at R10.4 billion (including developments in progress and
land holdings for future development). The portfolio consists of 17 office, 10 retail and five industrial
properties with a total GLA of 436 912m(2), which includes the recently completed Alice Lane Phase 3 office
building. Developments in progress and recently completed include the Loftus mixed-use development
(Interest: 50.0%) and the Kyalami Corner Shopping Centre which opened for trading in April 2017
(Interest: 80.0%) with a total project cost of R1.2 billion, which will add a further 89 123m(2) of GLA. The
major land holdings acquired are two industrial sites, Atlantic Hills (Interest: 55%) and S&J Industrial
(Interest: 45%).
Acquisitions: Redefine acquired and transferred two properties with a GLA of 13 254m(2) during the year
for an aggregate consideration of R145.0 million, at an initial yield of 10.7%. In addition, Redefine acquired
development sites for an aggregate consideration of R372.7 million with a developable area of 540 876m(2)
(Redefine's share: 311 826m(2)).
Student accommodation: During the year Redefine acquired a 90% equity investment in Journal
Student Accommodation Fund and Operations, which is based in Melbourne, Australia. Development
commenced at the Leicester Street site during June 2017, which has development approval for 804
beds. Another development site, strategically located in Swanston Street, was acquired with capacity for
at least 650 beds. Redefine's share of the Leicester Street project cost is estimated at AUD125 million
(R1.3 billion). The first site is envisaged to be operational in June 2019. The total investment to date
amounts to R487.4 million.
Developments: A number of development projects were completed with a total value of R3.0 billion at an
average projected initial yield of 8.4%. The approved value of projects in progress in the existing portfolio
totals R5.2 billion at an average yield of 9.3%. Future committed projects total R3.0 billion at an initial
yield of 9.4%.
Disposals: 25 properties with a GLA of 259 203m(2), which did not meet Redefine's investment strategy,
were disposed of during the year to various buyers for an aggregate consideration of R1.9 billion, at
an average yield of 8.4%. In addition, agreements, subject to the usual conditions precedent, were
concluded for the disposal of properties for an aggregate consideration of R2.4 billion with a GLA of
227 699m(2) at an average yield of 8.2%.
Sustainability: As part of Redefine's focus on sustainability and cost efficiency, various energy-efficient
and sustainable building technologies are being implemented in new developments, as well as in
existing buildings, including the installation of solar PV (photo voltaic) and continuing the roll-out of
smart metering of electricity and water.
Listed securities
During June 2017, Redefine sold its 22.8% interest in Delta to an empowerment consortium, for a
consideration of R1.5 billion. The consortium funded this transaction with a vendor loan from Redefine,
at an interest rate of Prime plus 2.0%, for an initial period of five years, with an extension option of three
years. The shares are ceded to Redefine as security for the loan. In terms of IFRS, Redefine has assessed
that this constituted a deemed sale as it retained substantially all risks and rewards of the ownership
of the shares. As Redefine does not have significant influence nor continued involvement in the Delta
shares held as security for its vendor loan, this investment is classified with other listed securities and
measured at fair value through profit or loss.
Redefine disposed of its total interest in Arrowhead Properties Limited and Emira Property Fund
Limited, for a combined value of R1.0 billion.
Redefine acquired 13 187 535 GRIT Real Estate Income Group Limited shares (previously known
as MaraDelta Property Holdings Limited) as part of the Pivotal group acquisition. The fair value at
31 August 2017 was R238.7 million.
Investment in associates and joint ventures
31 August 2017 31 August 2016
Carrying Carrying
Stock value Held value Held
exchange R'000 (%) R'000 (%)
Cromwell Property Group ASX 4 889 868 25.3 5 511 449 25.5
Echo Polska Properties N.V. LuxSE and JSE 4 784 916 39.6 3 918 640 44.9
Redefine International PLC LSE and JSE 3 857 858 29.5 4 972 179 30.1
International Hotel Properties Limited LuxSE and JSE 245 993 27.5 332 767 27.5
Oando Wings Development Limited Not listed 587 199 37.2 - -
Delta Property Fund Limited JSE - - 1 597 967 22.8
Cromwell Partners Trust ASX 887 892 50.0 822 646 50.0
Leopard Holdings Not listed - - 798 737 50.0
15 253 726 17 954 385
Echo Polska Properties N.V. (EPP): During April 2017, Redefine participated in the EPP capital raise and
as a result acquired 46 994 595 additional shares for a total consideration of R860.1 million. Redefine's
shareholding in EPP remains unchanged at 39.6% post the capital raise.
Leopard Holdings: Redefine disposed of its share in Leopard Holdings to Redefine International PLC
(RI PLC) for an aggregate selling price of EUR49.4 million (R698.1 million).
Oando Wings Development Limited (Oando): As part of the Pivotal group acquisition, Redefine acquired
a 37.1% investment in Oando. Oando owns the Wings Office Complex in Lagos, Nigeria, consisting of
two towers with a total GLA of 26 942m(2).
Given the prolonged decline in the share price of Cromwell and RI PLC and the existence of other
impairment indicators, the carrying value of the investment in these associates were subjected to
impairment testing. Impairment testing was performed in accordance with IAS 36 Impairment of
Assets by comparing the carrying amount to the recoverable amount, being value-in-use. A discounted
cash flow was performed taking into account the forecasted future expected cash flow which was
discounted at relevant market rates in order to calculate the value-in-use. The carrying value of
these investments was accordingly impaired by approximately R1.2 billion (RI PLC R688.2 million and
Cromwell R515.9 million).
In addition, the Rand strengthened compared to the prior year and as a result Redefine's proportionate
share of the underlying foreign currency denominated associates' net assets similarly declined by
R1.6 billion. The closing exchange rates were as follows:
Foreign currency 31 Aug 2017 31 Aug 2016
AUD 10.2867 10.8915
USD 13.0203 N/A
EUR 15.4646 16.1537
GBP 16.8243 18.9729
Funding and equity raises
Redefine's interest-bearing borrowings (net of cash and cash equivalents) represented 41.1%
(FY16: 38.5%) of the value of its property asset platform at 31 August 2017. The Group's property
asset platform is made up of property, listed securities, loans receivable and investment in associates
and joint ventures. The average cost of Rand-denominated funding is 9.1% (FY16: 8.8%), interest
rates are hedged on 93.0% (FY16: 82.1%) of local borrowings for an average period of 2.4 years
(FY16: 2.2 years). Including foreign currency debt and derivatives, the average cost of debt is 7.3%
(FY16: 7.7%). Interest rates are hedged on 88.7% (FY16: 79.7%) of total borrowings for an average
period of 2.7 years (FY16: 2.2 years). The interest cover ratio (which includes equity-accounted profits
and listed security income) is 3.6x (FY16: 4.3x).
During the year, Redefine successfully placed secured bonds with a principal amount of EUR150.0
million (R2.4 billion) bearing a coupon rate of 1.5%, exchangeable in five years into ordinary shares of
RI PLC currently owned by Redefine. The proceeds of the bond issue were used to partially refinance
the JP Morgan bridge facility raised for the EPP transaction during FY16. The balance of the bridge
facility has been refinanced through a combination of secured offshore bank funding and local bonds
with cross currency swaps.
Redefine successfully refinanced a portion of its investment in RI PLC through cross currency swaps
valued at GBP100 million (R1.68 billion).
Redefine had unutilised committed bank facilities of R3.7 billion (FY16: R3.7 billion) at 31 August 2017
which provides assurance that the Group will be able to meet its short-term commitments. The
majority of the short-term portion of interest-bearing borrowings is refinanced.
Redefine conserved R527.1 million in cash through the issue of 50.2 million shares under the November 2016
dividend reinvestment alternative, which was accepted by shareholders holding 24.1% of the share capital.
The June 2017 dividend reinvestment alternative, saw 35.2% of shareholders accepting the reinvestment
alternative, which delivered R811.7 million of cash and Redefine issued 77.7 million of shares.
During January 2017, Redefine issued 460 million shares pursuant to the Pivotal acquisition.
Moody's credit rating:
The rating was last refreshed during June 2017 and remains unchanged, except for national scale
rating, which improved as follows:
Global long-term Baa3 Global short-term P-3
National long-term Aa1.za National short-term P-1.za
During November 2016, Moody's assigned a Baa3 long-term global scale rating to the EUR150.0 million
senior secured exchangeable bonds issued by Redefine.
Commitments
Capital development commitments outstanding amount to R3.0 billion (FY16: R2.4 billion) with no
committed property acquisitions (FY16: R250.5 million). Future commitments will be funded by undrawn
banking facilities.
Broad-based black economic empowerment
Redefine has maintained a Level 3 BBBEE contributor rating.
Prospects
Political instability, policy uncertainty, an ever increasing fiscal deficit and a volatile Rand weigh heavily
on the domestic outlook. Against this backdrop we have adapted our strategic approach to cope with
a prolonged slow-growth and subdued confidence environment. Redefine's diversified asset platform
has been positioned to produce sustained value for all its stakeholders. Relentlessly focusing on what
matters most will get us through this time in our lives, for the better. We anticipate the growth in
distributable income per share for 2018 to range between 5.0% to 6.0%.
This forecast is predicated on the assumption that current trading conditions will prevail. Forecast
rental income is based on contractual terms and anticipated market-related renewals. The forecast
has not been reviewed or reported on by the Group's independent external auditors.
Redefine's use of distribution per share as a relevant measure of financial performance remains unchanged
from prior years.
Declaration of a cash dividend with the election to reinvest the cash dividend in return for Redefine shares
The directors of Redefine have declared a final cash dividend of 47.18000 cents per share, for the six months
ended 31 August 2017, from the Company's distributable income (the cash dividend).
Shareholders have been provided with the election to reinvest the cash dividend in return for
Redefine shares (share reinvestment alternative), failing which they will receive the cash dividend of
47.18000 cents per share.
SALIENT DATES AND TIMES REGARDING THE CASH DIVIDEND
2017
Last day of trade in order to receive the cash dividend Tuesday, 28 November
Shares trade ex dividend Wednesday, 29 November
Record date to receive the cash dividend Friday, 1 December
Cash dividend paid to certificated shareholders Monday, 4 December
Accounts credited by CSDP or broker to dematerialised shareholders
with cash dividend payment Monday, 4 December
Notes:
1. Shares may not be dematerialised or rematerialised between Wednesday, 29 November 2017 and Friday,
1 December 2017, both days inclusive.
2. The above dates and times are subject to change. Any changes will be announced on SENS.
Certificated shareholders receiving the cash dividend will receive the dividend payment on Monday,
4 December 2017. Central Securities Depository Participants or broker custody accounts of dematerialised
shareholders will be credited with the dividend on Monday, 4 December 2017. Any changes to these dates
will be released on SENS.
Tax implications
Redefine was granted REIT status by the JSE with effect from 1 September 2013 in line with the REIT
structure as provided for in the Income Tax Act, No 58 of 1962, as amended (the Income Tax Act), and
section 13 of the JSE Listings Requirements. The REIT structure is a tax regime that allows a REIT to
deduct qualifying distributions paid to investors, in determining its taxable income. The cash dividend
of 47.18000 cents per share meets the requirements of a qualifying distribution for the purposes of
section 25BB of the Income Tax Act (a qualifying distribution) with the result that:
- Qualifying distributions received by resident Redefine shareholders must be included in the gross
income of such shareholders (as a non-exempt dividend in terms of section 10(1)(k)(aa) of the
Income Tax Act), with the effect that the qualifying distribution is taxable as income in the hands
of the Redefine shareholder. These qualifying distributions are, however, exempt from dividends
withholding tax, provided that the South African resident shareholders provided the following forms
to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the Company,
in respect of certificated shares:
- A declaration that the dividends are exempt from dividends tax; and
- A written undertaking to inform the CSDP, broker or the Company, as the case may be, should
the circumstances affecting the exemption change or the beneficial owner cease to be the
beneficial owner,
- Both in the form prescribed by the Commissioner for the South African Revenue Service.
Shareholders are advised to contact their CSDP, broker or the Company, 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; and
- Qualifying distributions received by non-resident Redefine shareholders will not be taxable as
income and instead will be treated as ordinary dividends but which are exempt in terms of the
usual dividend exemptions per section 10(1)(k) of the Income Tax Act. It should be noted that until
31 December 2013, qualifying distributions received by non-residents were not subject to dividends
withholding tax. On 22 February 2017, the dividends withholding tax rate was increased from 15.0%
to 20.0% and accordingly, any qualifying distribution will be subject to dividends withholding tax at
20.0%, 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
dividends withholding tax will be withheld at a rate of 20.0%, the net dividend amount due to non-
resident shareholders is 37.74400 cents per share. A reduced dividend withholding rate in terms
of the applicable DTA may only be relied upon if the non-resident shareholder has provided the
following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or
the Company, in respect of certificated shares:
- A declaration that the dividend is subject to a reduced rate as a result of the application of a DTA; and
- A written undertaking to inform their CSDP, broker or the Company, as the case may be, should
the circumstances affecting the reduced rate change or the beneficial owner cease to be the
beneficial owner
- Both in the form prescribed by the Commissioner for the South African Revenue Service.
Non-resident shareholders are advised to contact their CSDP, broker or the Company, as the case may
be, to arrange for the abovementioned documents to be submitted prior to payment of the dividend if
such documents have not already been submitted, if applicable.
Other information
- The ordinary issued share capital of Redefine is 5 650 052 260 ordinary shares of no par value before
any election to reinvest the cash dividend
- Income tax reference number of Redefine: 917/852/484/0
This cash dividend may have tax implications for resident, as well as non-resident shareholders.
Shareholders are therefore encouraged to consult their professional advisors should they be in any doubt
as to the appropriate action to take.
Foreign shareholders
The release, publication or distribution of this announcement and/or accompanying documents and
the right to elect shares pursuant to the share reinvestment alternative in jurisdictions other than the
Republic of South Africa may be restricted or affected by the laws of such jurisdictions, and a failure
to comply with any of those restrictions may constitute a violation of the securities laws of any such
jurisdictions. The shares issued pursuant to the share reinvestment plan have not been and will not
be registered for the purposes of the election under the securities laws of the United States, Australia,
Canada, countries in the European Economic Area, Japan and Hong Kong and accordingly are not being
offered, sold taken up, re-sold or delivered directly or indirectly to recipients with registered addresses in
such jurisdictions unless certain exemptions from the requirements of those jurisdictions are applicable.
United States of America
The shares issued pursuant to the share reinvestment alternative have not been and will not be
registered under the U.S. Securities Act of 1993, as amended (U.S. Securities Act), or under any
securities laws of any state or other jurisdiction of the United States and may not be offered, sold,
taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the
United States except pursuant to an applicable exemption from, or in a transaction not subject to, the
registration requirements of the U.S. Securities Act and applicable state and other securities laws of
the United Sates. There will be no public offer of the shares issued pursuant to the share reinvestment
plan in the United States.
Dividend declaration after reporting date
In line with IAS 10 Events after the Reporting Period, the declaration of the dividend occurred after the end of
the reporting period, resulting in a non-adjusting event which is not recognised in the financial statements.
Change in directorate
Board changes effective on 9 February 2017:
- B Mathews was appointed as an independent non-executive director
- Independent non-executive director, GZ Steffens, and non-executive director, MJ Watters, did not stand
for re-election at the annual general meeting
- Executive directors DH Rice and MJ Ruttell have stepped down from the Board but remain members
of the Company´s senior executive management team and standing invitees to meetings of the Board
Board changes effective on 3 August 2017:
- B Mathews was appointed as deputy chairperson and as lead independent director; and
- B Nackan consequently relinquished that position
Basis of preparation
The summary consolidated financial statements are prepared in accordance with the JSE Listings
Requirements for provisional reports and the requirements of the Companies Act applicable to
summary financial statements. The JSE Listings Requirements require provisional reports to
be prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting
Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued
by the Financial Reporting Standards Council, and to also, as a minimum, contain the information
required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of
the consolidated financial statements from which the summary financial statements are derived, are in
terms of IFRS and are consistent with those applied in the previous consolidated financial statements.
This summarised report is extracted from the audited information, but is not itself audited. The
consolidated financial statements are audited by KPMG Inc., who expressed an unmodified opinion
thereon. The auditor's report does not necessarily report on all the information contained in these
summary consolidated financial statements. Shareholders are therefore advised that in order to obtain
a full understanding of the nature of the auditor's engagement, they should obtain a copy of the auditor's
report together with the accompanying audited consolidated financial statements, both of which are
available for inspection at the Company's registered office. The directors of Redefine Properties Limited
take full responsibility for the preparation of this report and that the selected financial information has
been correctly extracted from the underlying consolidated financial statements.
Mr LC Kok (CA (SA)), Redefine's financial director, was responsible for supervising the preparation of
this summarised report.
By order of the Board
Redefine Properties Limited
6 November 2017
Statement of profit or loss and other comprehensive income
for the year ended 31 August 2017
Figures in R'000s 2017 2016
Continuing operations
Revenue
Property portfolio revenue 7 770 111 6 548 293
- Contractual rental income 7 300 821 6 510 127
- Straight-line rental income accrual 469 290 38 166
Investment income 23 728 98 355
Total revenue 7 793 839 6 646 648
Costs
Operating costs (2 497 688) (2 241 032)
Administration costs (259 641) (210 241)
Net operating profit 5 036 510 4 195 375
Other gains 93 195 80 036
- Trading (loss)/income (2 595) 294
- Fee income 92 503 62 927
- Sundry income 3 287 16 815
Changes in fair values of properties, listed securities and financial instruments (541 947) 168 471
Amortisation of intangible asset (62 856) (62 856)
Impairments (1 215 209) (13 886)
Equity-accounted profit (net of taxation) 1 593 387 1 405 932
Profit before finance costs and taxation 4 903 080 5 773 072
Net interest costs (1 727 776) (1 389 672)
- Interest income 650 282 596 418
- Interest expense (2 378 058) (1 986 090)
Foreign exchange gains 478 670 309 941
Profit before taxation 3 653 974 4 693 341
Taxation (239 842) (88 298)
Profit from continuing operations 3 414 132 4 605 043
Discontinued operations
(Loss)/profit from discontinued operations (net of taxation) (13 877) 5 923
Profit for the year 3 400 255 4 610 966
Attributable to:
- Redefine Properties Limited shareholders 3 328 995 4 565 617
- Non-controlling interests 71 260 45 349
Other comprehensive income (1 458 975) 74 829
Items that may not be reclassified subsequently to profit or loss
Share of revaluation of property, plant and equipment of an associate 3 167 1 177
Items that are or may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations:
- Subsidiaries (6 938) (12 687)
- Associates (1 455 204) 86 339
Total comprehensive income for the year 1 941 280 4 685 795
Attributable to:
- Redefine Properties Limited shareholders 1 876 965 4 640 446
- Non-controlling interests 64 315 45 349
Earnings per share from continuing operations
- Basic 66.15 101.32
- Diluted 65.98 101.32
Statement of financial position
As at 31 August 2017
Figures in R'000s 2017 2016
ASSETS
Non-current assets 87 611 269 77 029 317
Investment properties 63 192 093 51 728 681
- Fair value of investment properties 57 299 006 48 223 712
- Straight-line rental income accrual 1 944 218 1 474 928
- Properties under development 3 948 869 2 030 041
Listed securities 1 453 994 974 620
Goodwill and intangible assets 5 809 059 5 304 191
Investment in associates and joint ventures 15 253 726 17 954 385
Derivative assets 1 868 172 296
Loans receivable 1 789 395 838 692
Other financial assets 29 519 36 391
Property, plant and equipment 81 615 20 061
Current assets 1 477 586 1 612 719
Trade and other receivables 912 752 577 560
Loans receivable 55 260 20 799
Other financial assets 253 038 675 078
Derivative assets 75 875 73 286
Listed security income receivable - 57 630
Cash and cash equivalents 180 661 208 366
Non-current assets held-for-sale 2 403 756 1 170 172
Total assets 91 492 611 79 812 208
EQUITY AND LIABILITIES
Equity 53 786 185 49 641 362
Shareholders' interest 53 435 737 49 360 062
Stated capital 43 070 822 36 526 352
Reserves 10 364 915 12 833 710
Non-controlling interests 350 448 281 300
Non-current liabilities 29 052 772 21 453 096
Interest-bearing borrowings 25 664 659 21 148 712
Interest-bearing borrowings at fair value 2 253 598 -
Derivative liabilities 487 564 35 066
Other financial liabilities 4 690 -
Deferred taxation 642 261 269 318
Current liabilities 8 653 654 8 532 556
Trade and other payables 1 180 736 922 864
Interest-bearing borrowings 6 794 929 7 041 390
Interest accrual on interest-bearing borrowings 406 849 307 881
Derivative liabilities 11 799 2 978
Other financial liabilities 253 038 253 016
Taxation payable 6 303 4 427
Non-current liabilities held-for-sale - 185 194
Total equity and liabilities 91 492 611 79 812 208
Number of shares in issue(^) ('000) 5 288 655 4 700 911
Net asset value per share (excluding deferred tax and NCI) (cents) 1 022.53 1 055.74
Net tangible asset value per share (excluding deferred tax, NCI and goodwill and
intangible assets) (cents) 912.69 942.91
(^) Net of 361 396 896 (2016: 361 396 896) treasury shares
Statement of changes in equity
for the year ended 31 August 2017
Foreign
currency Share-based Share of Non-
Accumulated translation payment associates' Shareholders' controlling
Figures in R'000s Stated capital profit reserve reserve reserves interest interests Total equity
Balance as at 31 August 2015 33 209 605 11 338 789 567 168 21 710 - 45 137 272 - 45 137 272
Total comprehensive income for the year - 4 565 617 73 652 - 1 177 4 640 446 45 349 4 685 795
Profit for the year - 4 565 617 - - - 4 565 617 45 349 4 610 966
Other comprehensive income for the year - - 73 652 - 1 177 74 829 - 74 829
Transactions with owners
(contributions and distributions) 3 316 747 (3 673 124) - 18 115 (79 394) (417 656) (12 814) (430 470)
Issue of ordinary shares 3 318 016 - - - - 3 318 016 - 3 318 016
Dividends - (3 673 124) - - - (3 673 124) (12 814) (3 685 938)
Recognition of share-based payments (1 269) - - 18 115 - 16 846 - 16 846
Share of post-acquisition change in
net assets of associate - - - - (79 394) (79 394) - (79 394)
Changes in ownership interests - - - - - - 248 765 248 765
Transactions with non-controlling interests - - - - - - 248 765 248 765
Balance as at 31 August 2016 36 526 352 12 231 282 640 820 39 825 (78 217) 49 360 062 281 300 49 641 362
Total comprehensive income for the year - 3 328 995 (1 455 197) - 3 167 1 876 965 64 315 1 941 280
Profit for the year - 3 328 995 - - - 3 328 995 71 260 3 400 255
Other comprehensive income for the year - - (1 455 197) - 3 167 (1 452 030) (6 945) (1 458 975)
Transactions with owners
(contributions and distributions) 6 544 470 (4 422 684) - 13 050 63 874 2 198 710 (23 998) 2 174 712
Issue of ordinary shares 6 544 470 - - - - 6 544 470 - 6 544 470
Dividends - (4 418 066) - - - (4 418 066) (23 998) (4 442 064)
Recognition of share-based payments - (4 618) - 13 050 - 8 432 - 8 432
Share of post-acquisition change in net
assets of associate - - - - 63 874 63 874 - 63 874
Transactions with owners
(changes in ownership interests) - - - - - - 28 831 28 831
Disposal of subsidiary with non-controlling
interest - - - - - - (25 269) (25 269)
Acquisition of subsidiary with
non-controlling interest - - - - - - 54 100 54 100
Balance as at 31 August 2017 43 070 822 11 137 593 (814 377) 52 875 (11 176) 53 435 737 350 448 53 786 185
2017 2016
Dividend per share (cents) 92.00 86.00
Interim 44.82 41.70
Final(^) 47.18 44.30
(^) The final dividend is declared post the financial year end and is therefore a non-adjusting subsequent event
Statement of cash flows
for the year ended 31 August 2017
Figures in R'000s 2017 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations 4 671 340 4 494 762
Interest received 621 524 596 418
Interest paid (2 643 655) (2 125 060)
Taxation paid (66 825) (111 864)
Net cash inflow from operating activities 2 582 384 2 854 256
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition and development of investment properties (3 615 750) (3 479 654)
Acquisition of property, plant and equipment (80 368) (9 075)
Acquisition of subsidiaries with the exclusive view to resell - (210 433)
Acquisition of other financial assets (3 100) (508 081)
Cash balances acquired on acquisition of subsidiaries 103 740 -
Investments in associates and joint ventures (1 031 243) (5 429 648)
Proceeds on disposal of investment properties 1 688 413 1 207 521
Proceeds on disposal of listed securities 1 047 639 -
Proceeds on the disposal of property, plant and equipment - 2 833
Proceeds disposal of subsidiaries with exclusive view to resell 190 697 -
Proceeds on disposal of joint venture 698 134 -
Proceeds on disposal of other financial assets 399 999 -
Loan to joint venture repaid 8 741 38 299
Loans receivable repaid 901 387 348 602
Loans receivable advanced (309 992) -
Dividends and interest received from associates and joint ventures 1 075 056 680 745
Net cash inflow/(outflow) from investing activities 1 073 353 (7 358 891)
CASH FLOWS FROM FINANCING ACTIVITIES
Shares issued 1 337 272 3 318 016
Dividends paid (4 418 066) (3 673 124)
Shares issued to non-controlling interests 54 100 248 765
Disposal of non-controlling interest (25 269) -
Dividends paid to non-controlling interests (23 998) (12 814)
Interest-bearing borrowings at fair value 2 396 220 -
Interest-bearing borrowings raised 8 088 968 7 020 456
Interest-bearing borrowings repaid (11 191 223) (2 163 873)
Net cash (outflow)/inflow from financing activities (3 781 996) 4 737 426
Net (decrease)/increase in cash and cash equivalents (126 259) 232 791
Cash and cash equivalents at beginning of year 208 366 129 924
Effect of foreign currency exchange fluctuations 98 554 (154 349)
Cash and cash equivalents at end of year 180 661 208 366
Earnings and headline earnings
for the year ended 31 August 2017
Figures in R'000s 2017 2016
Reconciliation of basic earnings to headline earnings
Profit for the year attributable to Redefine shareholders 3 328 995 4 565 617
Change in fair value of properties (99 497) (27 850)
- Other fair value adjustments (151 361) (307 351)
- Non-controlling interest effect on other fair value adjustments 51 864 28 848
Bargain purchase on acquisition of associate - (288 548)
Profit on dilution of ownership investment in associates 273 793 (11 610)
Adjustment of remeasurements, included in equity-accounted earnings of
associates (net of tax) (507 669) (520 338)
- Adjustment of remeasurements, included in equity-accounted earnings of associates (653 371) (656 164)
- Tax adjustment 145 702 135 826
Impairment of investment in associates 1 215 209 4 639
Headline earnings attributable to Redefine shareholders 4 210 831 3 471 257
Actual number of shares in issue ('000)* 5 288 655 4 700 911
Weighted average number of shares in issue ('000)* 5 053 451 4 500 281
Diluted weighted average number of shares in issue ('000)* 5 066 217 4 500 281
Basic earnings per share (cents) 65.88 101.45
- Continuing operations 66.15 101.32
- Discontinued operations (0.27) 0.13
Diluted earnings per share (cents) 65.71 101.45
- Continuing operations 65.98 101.32
- Discontinued operations (0.27) 0.13
Headline earnings per share (cents) 83.33 77.13
- Continuing operations 83.60 77.00
- Discontinued operations (0.27) 0.13
Diluted headline earnings per share (cents) 83.12 77.13
- Continuing operations 83.39 77.00
- Discontinued operations (0.27) 0.13
* Excludes 361 396 896 (2016: 361 396 896) treasury shares
Segmental analysis
for the year ended 31 August 2017
Figures in R'000s Office Retail Industrial Specialised International Total
2017
Contractual rental income(^) 2 678 250 3 180 999 1 240 932 200 640 - 7 300 821
Operating costs (859 001) (1 223 835) (345 826) (69 026) - (2 497 688)
Net property income 1 819 249 1 957 164 895 106 131 614 - 4 803 133
Investment properties(*) 23 293 932 25 642 913 11 217 139 1 405 085 87 911 61 646 980
2016
Contractual rental income(^) 2 449 801 2 751 315 1 170 058 138 953 - 6 510 127
Operating costs (783 123) (1 075 576) (341 362) (40 971) - (2 241 032)
Net property income 1 666 678 1 675 739 828 696 97 982 - 4 269 095
Investment properties(*) 18 033 797 21 344 930 10 163 302 1 202 538 124 245 50 868 812
(^) Excluding straight-line rental income accrual
(*) Excluding properties under development and including non-current assets (properties) held-for-sale
RECONCILIATION OF PROFIT FOR THE YEAR TO DISTRIBUTABLE EARNINGS
Figures in R'000s 2017 2016
Profit for the year attributable to Redefine shareholders 3 328 995 4 565 617
Change in fair value (net of non-controlling interest) 593 811 (139 623)
Change in fair value 541 947 (168 471)
Non-controlling interest 51 864 28 848
Straight-line rental income accrual (469 290) (38 166)
Amortisation of intangible assets 62 856 62 856
Impairments 1 215 209 13 886
Bargain purchase on acquisition of associate - (288 548)
Deferred taxation 176 439 (5 601)
Unrealised foreign exchange gain and realised foreign currency
translations reserve (99 042) (243 326)
Non-distributable items of associates (332 701) (98 874)
Transactions costs relating to business acquisitions 19 892 4 187
Antecedent distribution 30 677 83 088
Accrual for listed security income (REIT distribution declared post year end) 42 884 3 250
Adjustment to distributable profit from discontinued operations 24 557 -
Other distributable income 47 426 35 709
Pivotal pre-acquisition distribution 189 037 -
Distributable income for the year 4 830 750 3 954 455
Interim 2 335 563 1 871 951
Final 2 495 187 2 082 504
Actual number of shares in issue ('000)(*) 5 288 655 4 700 911
Distribution per share (cents) 92.00 86.00
Interim 44.82 41.70
Final 47.18 44.30
(*) Excludes 361 396 896 (2016: 361 396 896) treasury shares
DISTRIBUTABLE INCOME ANALYSIS
Figures in R'000s South Africa International Total
Contractual rental income (excluding straight-line accrual) 7 300 821 - 7 300 821
Investment income 5 076 18 652 23 728
Total revenue 7 305 897 18 652 7 324 549
Operating costs (2 497 688) - (2 497 688)
Administration costs (251 444) (8 197) (259 641)
Net operating profit 4 556 765 10 455 4 567 220
Other gains 14 874 78 321 93 195
Distributable equity income 135 429 1 219 669 1 355 098
Net distributable profit before finance costs and taxation 4 707 068 1 308 445 6 015 513
Net interest costs (1 502 081) (225 695) (1 727 776)
- Interest income 581 377 68 905 650 282
- Interest expense (2 083 458) (294 600) (2 378 058)
Distributable foreign exchange gain - 285 216 285 216
Net distributable profit before taxation 3 204 987 1 367 966 4 572 953
Current taxation and withholding taxation 1 648 (65 051) (63 403)
Net income from continuing operations 3 206 635 1 302 915 4 509 550
Distributable profit from discontinued operations - 10 680 10 680
Net income from operations before non-controlling interest share 3 206 635 1 313 595 4 520 230
Non-controlling interest share of distributable income (19 396) - (19 396)
Net income before distributable adjustments 3 187 239 1 313 595 4 500 834
Below the line distributable income adjustments:
- Antecedent distribution 30 677 - 30 677
- Pivotal pre-acquisition distribution 189 037 - 189 037
- Accrual for listed security income 40 065 2 819 42 884
- Transaction costs relating to business acquisitions 19 892 - 19 892
- Other distributable income 47 426 - 47 426
Distributable income 3 514 336 1 316 414 4 830 750
Business combinations
The Pivotal Fund Limited
On 9 January 2017, the Group acquired 100% of the shares and voting rights in Pivotal and obtained
control of Pivotal. The shares were acquired for a consideration of R5.2 billion, settled in Redefine shares.
Pivotal was a JSE-listed property developer and capital growth fund.
The business combination is in line with Redefine's strategy to diversify, grow and improve the quality
of its portfolio and recycle its capital through disposing of non-core assets and replacing them with
prime assets. The acquisition of Pivotal positions Redefine even more competitively in the commercial
property sector in line with its strategic intent to become the landlord of choice in A-grade office space
in sought-after areas in South Africa. This has given rise to the goodwill recognised below.
For the eight months since acquisition, Pivotal contributed total revenue of R870.1 million and a net loss after
taxation of R151.6 million to the Group's results.
If the businesses had been acquired on 1 September 2016, management estimates that consolidated
revenue and net profit after taxation for the Redefine Group would have been R8.2 billion and
R2.1 billion respectively. In determining these amounts, management has assumed that the fair value
adjustments, that arose on the date of acquisition would have been the same if the acquisition had
occurred on 1 September 2016.
The Group incurred acquisition-related costs of R19.9 million to August 2017. This is disclosed as part of
administration costs in the statement of profit or loss and other comprehensive income.
The table below summarises the recognised amounts of assets acquired and liabilities assumed at the
date of acquisition. The condensed unaudited Group results for the six months ended 28 February 2017
reflected provisional goodwill of R379.6 million. A measurement period adjustment relating to the
listed securities, investment in associate, trade and other payables and other financial liabilities
resulted in a final goodwill amount of R567.7 million as at 31 August 2017.
Key estimates and assumptions
Information on key estimates and assumptions which had the most significant effect on the purchase
price allocation, were around fair valuation of investment properties acquired.
The same valuation techniques were used as disclosed under financial instruments fair value disclosure,
in this document. Investment property was valued at 28 February 2017 adjusted to 1 January 2017 values.
The following unobservable inputs were used during the fair value determination:
Unobservable inputs (% unless otherwise stated) 2017
Expected market rental growth 6.00 - 8.00
Expected expense growth 7.00 - 10.00
Occupancy rate 96.00
Vacancy periods 0 - 12 months
Rent-free periods 0 - 3 months
Office sector
Discount rate 12.75 - 14.25
Exit capitalisation rate 7.00 - 8.50
Bulk rate R1 750 - R3 750 p/m(2)
Retail sector
Discount rate 12.50 - 13.50
Exit capitalisation rate 7.50 - 9.25
Bulk rate R2 000 - R3 000 p/m(2)
Industrial sector
Discount rate 13.50
Exit capitalisation rate 8.75
ASSETS AND LIABILITIES ARISING FROM THE ACQUISITION
31 December
Figures in R'000s 2016(*)
Assets
Investment properties 10 363 483
Listed securities 907 871
Investment in associate 537 804
Loans receivable 1 488 559
Derivative assets 12 703
Property, plant and equipment 928
Trade and other receivables 142 025
Other financial assets 1 546
Cash and cash equivalents 103 740
Liabilities
Interest-bearing borrowings (7 837 319)
Derivative liabilities (51 374)
Other financial liabilities (608 088)
Deferred taxation (196 504)
Trade and other payables (208 970)
Interest accrual on interest-bearing borrowings (11 632)
Taxation payable (5 298)
Fair value of net assets 4 639 474
Goodwill arising from the acquisition 567 724
Purchase consideration 5 207 198
Settled in 459 999 805 Redefine shares(#) 5 207 198
Cash and cash equivalents acquired 103 740
Net cash inflow on acquisition of Pivotal 103 740
(*) The effective date used for accounting for the business combination in terms of IFRS 3 was
1 January 2017
(#) The fair value of the Redefine shares issued was based on the listed closing price on 9 January 2017,
being the date that the Redefine shares were transferred to the previous shareholders of Pivotal
Loans receivable are carried at amortised cost, interest is market related, therefore the amortised
cost approximates the fair value. The gross contractual amount receivable for loans receivable is as
disclosed above.
Trade and other receivables are carried at amortised cost. Due to their short-term nature, amortised
cost approximates the fair value. Trade and other receivables comprise gross contractual amounts due
of R146.3 million, net of a provision for doubtful debts of R4.3 million, which is the best estimate at the
acquisition date of the contractual cash flows not expected to be collected.
Loans receivables, trade and other receivables and cash and cash equivalents are classified as loans
and receivables which is carried at amortised cost which approximates fair value.
Interest-bearing borrowings, other financial liabilities and trade and other payables are classified as
other financial liabilities which is carried at amortised cost which approximates fair value.
Financial instruments and investment property fair value disclosure
CATEGORIES OF FINANCIAL INSTRUMENTS
At fair value
Financial assets Loans and through
Figures in R'000s receivables profit or loss Total
2017
Listed securities - 1 453 994 1 453 994
Derivative assets(#) - 77 743 77 743
Loans receivable 1 844 655 - 1 844 655
Other financial assets 29 519 253 038 282 557
Trade and other receivables 711 498 - 711 498
Cash and cash equivalents 180 661 - 180 661
2 766 333 1 784 775 4 551 108
2016
Listed securities - 974 620 974 620
Derivative assets(#) - 245 582 245 582
Loans receivable 859 491 - 859 491
Other financial assets 455 895 255 574 711 469
Trade and other receivables 478 071 - 478 071
Listed security income receivable 57 630 - 57 630
Cash and cash equivalents 208 366 - 208 366
2 059 453 1 475 776 3 535 229
Other At fair value
Financial liabilities financial through profit
Figures in R'000s liabilities or loss Total
2017
Interest-bearing borrowings 32 459 588 - 32 459 588
Interest-bearing borrowings at fair value - 2 253 598 2 253 598
Interest accrual on interest-bearing borrowings 406 849 - 406 849
Derivative liabilities(#) - 499 363 499 363
Other financial liabilities(*) 257 728 - 257 728
Trade and other payables 996 644 - 996 644
34 120 809 2 752 961 36 873 770
2016
Interest-bearing borrowings 28 190 102 - 28 190 102
Interest accrual on interest-bearing borrowings 307 881 - 307 881
Derivative liabilities(#) - 38 044 38 044
Other financial liabilities(*) 253 016 - 253 016
Trade and other payables 750 341 - 750 341
29 501 340 38 044 29 539 384
(^) For all financial instruments carried at amortised cost, interest is market related and therefore, the amortised
cost approximates the fair value
(#) The derivatives are classified as held-for-trading in terms of IAS 39
(*) These amounts may be required to be repaid in terms of a guarantee and a written put option. There is no material
difference between the fair values of financial instruments and the amounts recognised in the statement of financial
position. The carrying amount of the right to the Dipula B shares and associated liability reasonably approximate
the fair value of the Group's continuing involvement in the guarantee and put option
Fair value hierarchy for financial instruments and investment property
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.
The fair value hierarchy reflects the significance of the inputs used in making fair value measurements.
The level in the fair value hierarchy within which the fair value measurement is categorised in its
entirety shall be determined on the basis of the lowest level input that is significant to the fair value
measurement in its entirety.
The table below analyses financial instruments and investment property carried at fair value.
The fair value hierarchy has the following levels:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - inputs other than quoted prices included within level 1 that are observable for the asset or
liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs).
LEVEL OF FINANCIAL INSTRUMENTS
Figures in R'000s Fair value Level 1 Level 2 Level 3
2017
Assets
Investment property 65 595 849 - - 65 595 849
Listed securities 1 453 994 1 453 994 - -
Derivative assets 77 743 - 77 743 -
67 127 586 1 453 994 77 743 65 595 849
Liabilities
Interest-bearing borrowings at fair value 2 253 598 2 253 598 - -
Derivative liabilities 499 363 - 499 363 -
2 752 961 2 253 598 499 363 -
2016
Assets
Investment property 52 898 853 - - 52 898 853
Listed securities 974 620 974 620 - -
Derivative assets 245 582 - 245 582 -
54 119 055 974 620 245 582 52 898 853
Liabilities
Derivative liabilities 38 044 - 38 044 -
38 044 - 38 044 -
There have been no transfers between level 1, level 2 and level 3 during the year under review.
LEVEL 3 RECONCILIATION
Gain/(loss)
Balance at in profit or Acquisition/
beginning loss for (disposal)/ Balance at
Figures in R'000s of year the year transfers end of year
2017
Investment property 49 698 640 1 258 324 8 286 260 59 243 224
Properties under development 2 030 041 (748 134) 2 666 962 3 948 869
Investment property held-for-sale 1 170 172 (7 973) 1 241 557 2 403 756
52 898 853 502 217 12 194 779 65 595 849
2016
Investment property 48 026 479 663 044 1 009 117 49 698 640
Properties under development 1 872 390 (374 773) 532 424 2 030 041
Investment property held-for-sale 1 289 612 (6 843) (112 597) 1 170 172
51 188 481 281 428 1 428 944 52 898 853
The fair value gains and losses are included in the fair value adjustment line in profit or loss.
Details of valuation techniques
The valuation techniques used in measuring fair values at 31 August 2017 for financial instruments
measured at fair value in the statement of financial position, as well as the significant unobservable
inputs used, are disclosed below. There have been no significant changes in valuation techniques and
inputs since 31 August 2016.
LISTED SECURITIES
Closing market price on the relevant exchange.
DERIVATIVE ASSETS AND LIABILITIES
Foreign exchange options
The fair value is determined using quoted forward exchange rates at the reporting date and present
value calculations based on high credit quality yield curves in the respective currencies.
Interest rate 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.
Cross-currency interest rate swaps
The fair value is calculated by discounting the future cash flows using the swap curve of the respective
currencies at the dates when the cash flows will take place.
INTEREST-BEARING BORROWINGS AT FAIR VALUE
The exchangeable bonds fair value is determined with reference to the quoted Bloomberg Valuation
Service (BVAL) price.
INVESTMENT PROPERTIES
The valuation policy adopted by management is to revalue investment property at each reporting
period, valued internally for the interim financial statements and externally for the annual financial
statements. The changes in fair value from the previous reporting period are analysed by management.
Current market-related assumptions were applied to the risks in rental streams of properties. Discount
rates in the respective sectors are disclosed below.
At the reporting date, the key assumptions used by the Group in determining fair value were in the
following ranges for the Group's portfolio of properties:
Unobservable inputs (% unless otherwise stated) 2017 2016
Expected market rental growth 4.00 - 6.00 4.00 - 8.00
Expected expense growth 7.00 - 9.00 7.00 - 10.00
Occupancy rate 94.10 93.40
Vacancy periods 0 - 12 months 0 - 12 months
Rent-free periods 0 - 3 months 0 - 3 months
Office sector
Discount rate 11.50 - 18.50 12.50 - 18.00
Exit capitalisation rate 7.50 - 13.00 7.75 - 13.00
Bulk rate R1 750 - R5 400 p/m(2) R1 600 - R3 100 p/m(2)
Retail sector
Discount rate 11.00 - 18.00 12.25 - 19.25
Exit capitalisation rate 7.25 - 12.50 7.00 - 12.50
Bulk rate R1 200 - R3 000 p/m(2) R1 180 - R2 500 p/m(2)
Industrial sector
Discount rate 13.50 - 17.00 13.00 - 18.50
Exit capitalisation rate 8.00 - 12.50 8.00 - 14.00
Bulk rate R643 - R2500 p/m(2) R423 - R2092 p/m(2)
Specialised sector
Discount rate 14.00 - 16.25 15.00
Exit capitalisation rate 8.00 - 10.25 9.00
Measurement of fair value
VALUATION TECHNIQUES
All valuations were completed using the discounted cash flow method of valuation.
INVESTMENT PROPERTIES - DISCOUNTED CASH FLOW METHOD
The valuation model generates a net present value for each property by discounting forecasted future
cash flows and a residual value at the end of the cash flow projection period by the discount rate of each
property. The residual value is calculated by capitalising the net income forecasted for the 12-month
period immediately following the final year of the cash flow at the exit capitalisation rate. The discount
rate applied by each valuator is determined by adding a growth rate per property, based on forecasted
market-related rental increases, to the determined capitalisation rate per property. The discount rate
is then tested for reasonableness by benchmarking the rate against recent comparable sales and
surveys prepared by the Investment Property Databank/South African Property Owners Association
(IPD/SAPOA). The capitalisation rate is dependent on a number of factors, such as location, the
condition of the improvements, current market conditions, the lease covenants and the risk inherent
in the property, which is also tested for reasonableness by benchmarking against recent comparable
sales and surveys prepared by the IPD/SAPOA.
PROPERTIES UNDER DEVELOPMENT - COMPARABLE SALES METHOD
Properties under development comprise of the cost of land and development, and are measured at
fair value. Fair value is based on the costs incurred up to the date of the valuation. Undeveloped land
is valued in terms of the internationally accepted and preferred method of comparison. This involves
the use of recent comparable transactions as a basis for the valuation. Bulk rates are determined for
the land that has been zoned.
INTER-RELATIONSHIP BETWEEN KEY UNOBSERVABLE INPUTS AND FAIR VALUE MEASUREMENTS
The estimated fair value would increase/(decrease) if:
- Expected market rental growth was higher/(lower);
- Expected expense growth was lower/(higher);
- Vacant periods were shorter/(longer);
- Occupancy rate was higher/(lower);
- Rent-free periods were shorter/(higher);
- Discount rate was lower/(higher);
- Exit capitalisation rate was lower/(higher);
- Capitalisation rate was lower/(higher); or
- Bulk rate was higher/(lower).
Executive directors:
M Wainer (Executive chairman)
AJ König (Chief executive officer)
LC Kok (Financial director)
Non-executive directors:
B Mathews (Lead independent)(*)
B Nackan(*)
DA Nathan(*)
HK Mehta
M Barkhuysen(*)
NB Langa-Royds(*)
P Langeni(*)
(*) Independent
Registered office:
Rosebank Towers, Office Level 5, 19 Biermann Avenue, Rosebank 2196
(PO Box 1731, Parklands 2121)
Transfer secretaries:
Computershare Investor Services Proprietary Limited
Sponsor:
Java Capital
Company secretary:
B Baker
DELIVERING SUSTAINED VALUE
www.redefine.co.za
Date: 06/11/2017 07:30:00 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
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