Wrap Text
Unaudited condensed consolidated interim results for the six months ended 30 November 2017
Tower Property Fund Limited
Incorporated in the Republic of South Africa
Registration number 2012/066457/06
JSE share code: TWR
ISIN: ZAE000179040
(Approved as a REIT by the JSE)
("Tower" or the "group" or the "fund")
UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 NOVEMBER 2017
PROFILE
Tower is an internally managed real estate investment trust (REIT) which owns a diversified
portfolio of 47 commercial, industrial and retail properties valued at R5.1 billion, located in South
Africa (70% by value) and Croatia (30% by value). In South Africa, the properties are split by value as
to, Gauteng 29%, the Western Cape 31% and KwaZulu-Natal 10%. The company aims to add value
through active property asset management with a number of refurbishment projects under way.
Tower continues to focus its efforts on reducing the operating costs within its portfolio through
'greening' its key properties and has achieved success with a net operating cost ratio of 13%.
The investment strategy of the company is firstly to improve the quality of earnings from its
current portfolio through asset management initiatives and secondly, to expand its portfolio by
targeting well located properties with strong cash flows with upside potential and to ensure a
diversified sectoral and geographic spread of properties. The company will dispose of any property
which it believes has reached its full growth potential – provided that a fair price is received. The
company currently has a sectoral spread by value of 48% retail, 45% office and 7% industrial.
SUMMARY OF THE SIX MONTH PERIOD
The past six months have seen the fund focusing on (and mostly resolving or concluding) the
following issues:
- Clarity around the tenancy of Konzum/Agrokor (concluded successfully – see below);
- Ringfencing of Tower's Croatian properties in a new vehicle to be known as
Tower International (ongoing – expected to be completed in Q2 2018);
- Cape Quarter developments (ongoing – expected realisation of profits beginning
from Q3 2018);
- Letting of large vacancies (success achieved with Meadowbrook – now fully let – and others);
and
- Greening (ongoing – solar to be rolled out at the majority of the portfolio).
FINANCIAL PERFORMANCE
The Tower directors are pleased to declare a distribution of 40.70120 cents per share for the period
ended 30 November 2017 which translates into 6% growth on the corresponding period. This is
within the range of guidance provided for the financial year ending 31 May 2018. The number of
shares in issue remained unchanged during the period.
The South African core portfolio is performing well. Certain key properties in the portfolio have
performed above market norms. Examples of these are increases in property net income
growth at Cape Quarter Square (10%) and De Ville (6%) against the prior corresponding period.
The Johannesburg portfolio is certainly tougher to grow than the Cape Town portfolio – however,
there have been some successes achieved. This includes the letting of the 14 000 m2 Meadowbrook
logistics property to Globeflight, on a 10 year lease, from 1 February 2018.
The Croatian portfolio growth is restricted by the region's low inflation rate. It is for this reason,
amongst others, that Tower has embarked on ringfencing its Croatian properties through a
separate offshore company (proposed to be named "Tower International"). The key focus of this
company will be to leverage Tower's existing relationships in Croatia and surrounding countries to
grow its European exposure. Tower International will raise its own capital to fund new, quality, yield
enhancing acquisitions, which will benefit Tower's distributable earnings. Tower's shareholding in
Tower International will further continue to provide Tower with a hedge against exposure to one
market. Further updates on this process will be announced when appropriate.
The South African market remains a challenging operating environment. Despite these challenges,
Tower is pleased to report distributable earnings for the period totalled R135 million and the
distribution paid in the period totalled R138 million. The difference between the distributable
earnings and the distribution paid represents R3 million of sustainable rental income forgone
during the course of the Napier Street Development. This forgone rental is sustainable as it will
once again be earned from retail tenants on completion of the Napier Street Development. Revenue
decreased by 5% to R212 million as a result of the sale of properties and the income lost from
Napier Street while under development. Operating profit decreased by 48% to R150 million mainly
as a result of an unrealised foreign exchange loss during the period which relates to restating
Tower's euro-denominated loans at period-end (the ZAR/Euro exchange rate weakened from May
2017 to November 2017). This unrealised loss does not impact the fund's distributable earnings.
AGROKOR UPDATE
Shareholders are referred to the announcements released on SENS on 2 May 2017, 26 June 2017,
25 July 2017 and 22 January 2018 regarding Agrokor d.d. ("Agrokor"), the guarantor and parent
company of Konzum d.o.o. ("Konzum"), a major Croatian retailer and headlease tenant in respect
of four retail properties acquired by Tower in Croatia in June 2016 (the "Konzum portfolio") (the
"Agrokor SENS announcements"). Tower has held numerous meetings with the Commissioner of
Agrokor and his team in order to ensure Tower's rights under Lex Agrokor (the common term
referring to the extraordinary administration procedure instituted by the Croatian Government
to manage the rescue of Agrokor as detailed in the Agrokor SENS announcements) are protected.
Tower is pleased to advise shareholders that Agrokor has committed to the payment of contracted
rentals in the Tower portfolio and has further confirmed that it is satisfied with the level of rental
in each property, with the exception of the Vukovarska property, where Tower and Agrokor have
agreed to a rental reduction of 20% (representing a reduction in rental of EUR197 278 per year, or
3% of Tower's total rental from its Croatian portfolio) per year.
Tower is further pleased to advise shareholders that Tower has signed an agreement with Spar
Hrvatska d.o.o. ("Spar") whereby Spar has agreed and is obliged to move into the Konzum premises
should Konzum/Agrokor default on their rental and Tower successfully evict them as a tenant. The
rental terms are the same as those currently applying to Konzum and the period of the lease is to
be 10 years, commencing on the date of the termination of the Konzum lease agreement and their
successful eviction. The obligation under the agreement lasts until 2021 and can be extended at
the option of Spar. This agreement with Spar underlines the desirability of Tower's Croatian retail
properties and the sustainability of the current rental levels, and provides Tower with protection in
the event of any further default by Konzum.
Tower remains in discussions with Agrokor over its rental arrears for the period prior to 9 April
2017 of HRK5.2 million (R11.16 million). Shareholders are reminded that Tower did not and has not
included any of this amount in its recent distributions.
PROGRESS ON ANTICIPATED PROFITS
As announced in the November 2016 interim results, Tower anticipates generating capital profits
of circa R240 million from certain asset management initiatives in the portfolio in the next six to
36 months. Subject to their tax treatment, it is the intention that these proceeds will be reinvested
in the company to maximise returns. These capital profits arise from the refurbishment of
32 Napier Street and the Piazza at Cape Quarter, sales of non-core properties and other initiatives
as announced on SENS on 11 January 2017. The first phase of the Cape Quarter residential scheme
at 32 Napier Street is on schedule, with completion expected by July 2018. Half of the value of the
new residential units have been sold with the other half now on the market for sale. 140 additional
parking bays are being added to 32 Napier Street with 30 already in use, which will serve to
satisfy the high demand in the area. A further 54 residential apartments are to be developed at
Cape Quarter Piazza, with construction expected to commence in the second quarter of 2018.
All proceeds will be used to reduce Tower's debt facilities and may be used to acquire new assets
or to repurchase Tower shares in the future.
SALE OF NON-CORE PROPERTIES
Tower has had some success in selling certain 'non-core' properties. The following properties have
been sold or are in the sale process:
- Shoprite Brits – Sold for R91 million (book value of R90 million);
- 19 Section Street – Sold for R26.7 million (book value of R25.1 million);
- Pick n Pay Distribution Centre – In the sale process (purchaser must finalise its guarantees).
Selling price of R96 million (book value of R94 million);
- Nampak – In the sale process (final due diligence) – selling price of R27.5 million
(book value of R27.5 million).
The proceeds of the sales above will be used to reduce Tower's debt facilities and may be used to
acquire new assets or to repurchase Tower shares in the future. The combined sales proceeds are
similar to the book value which validates the book values of the portfolio.
CROATIAN PORTFOLIO AND FUTURE OFFSHORE PLANS
Tower's portfolio in Croatia is now valued at €96 million. Tower's office property, VMD,
continues to perform well. Tower's four retail properties are performing well, despite the
problems faced by the parent company (Agrokor) of the anchor tenant, Konzum. The recent
commitment by Spar to move into the premises at current rentals is extremely encouraging.
Tower is in discussions to acquire an additional property from its partners, VMD Group.
The property and any additional properties acquired in the region will be undertaken through Tower
International. It is the intention that Tower International, with its own management team, will give
the group the capacity to raise external equity capital into Tower International which will look to
continue to grow its profile in the Eastern European region, enhancing Tower's long-term returns.
OPERATING PERFORMANCE
There were certain unexpected vacancies in the period resulting in portfolio vacancies increasing to
9.13% at end November 2017. These vacancies are expected to reduce to 6.22% with the conclusion
of certain large leases in January 2018. South African vacancies amount to 10.6% at end November
2017, but are expected to reduce to 7.2% by the time of the release of this report. The South
African vacancies, at end November 2017, are broken down into 4.95% office, 1.32% retail and 2.86%
industrial. At the half year there were 6.8% vacancies in the Croatian portfolio line shops, which is
expected to drop to 0.6% by Q2 2018 due to leasing activity. However, as the line shop rentals are
guaranteed by the headleases on the properties, contractual vacancies on the Croatian portfolio
are counted as zero.
Above average positive rental reversions have been achieved in the period with retail recorded at
11.57% and offices at 9.68% – materially above inflation. Industrial is the laggard in this period at
-0.57%.
Tower does an excellent job in retaining its tenants, as 92.8% of our tenants by GLA, whose leases
expired in the period, opted to renew and continue their partnerships with Tower. We are very
pleased with this statistic as it proves that we are doing something right on the ground.
Tower closely monitors expenses and refuses to allow "bloat". Tower innovatively utilises greening
opportunities in conjunction with skilled partners to reduce expenses, with the result that expense
ratios are a relatively lean 13% (net) and 26% (gross) of total income.
The weighted average lease expiry of the fund is 3.7 years with the South African portfolio at
2.8 years.
BORROWINGS
Total debt ZAR debt Euro debt
Loan facilities (R'000) 1 982 815 664 316 1 318 499
Weighted cost of funding (%) 5.62 9.21 3.82
Debt expiry profile (years) 3.3 0.7* 4.6
Percentage hedged (%) 73 75 71
Hedging expiry profile (years) 3.2 2.8 3.4
*Renewal terms under negotiation.
Based on investment properties valued at R5.1 billion, the loan to value (LTV) ratio of the group was
39% at the end of the period. The LTV is calculated as other financial liabilities less cash, divided by
investment property.
CHANGES TO THE BOARD
Bruce Kerswill and Keith Craddock did not stand for re-election at the AGM which took place on
17 October 2017.
PROSPECTS
A number of short-term initiatives should positively impact Tower's returns and strengthen the
financial position of the company. These include:
- the successful resolution of the Agrokor/Konzum tenancy in Tower's Croatian properties;
- the conclusion of the Spar lease over the same properties detailed above;
- the ringfencing of Tower's Croatian properties into Tower International and raising additional
external equity capital to fund Tower International; and
- the completion of the Piazza and Napier Street Developments at Cape Quarter.
The successful conclusion of the last two of the four projects detailed above will result in material
cash flow injection into Tower which will strengthen the company's financial position. The Croatian
net property income is expected to remain flat for the year ahead. South African net property
income is anticipated to grow between 4% and 6%. This should translate to distribution growth
in the fund of 6% to 8% for the year ending 31 May 2018, which is in line with guidance previously
provided. This assumes that current trading conditions remain as is and that there are no major
tenant failures. This forecast has not been reviewed or reported on by the fund's auditors.
BASIS OF PREPARATION
The unaudited condensed consolidated interim financial results ("the results") for the six months
ended 30 November 2017 have been prepared in accordance with and containing the information
required by IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and the information required by the JSE Listings Requirements and
in the manner required by the South African Companies Act, 71 of 2008. The accounting policies and
methods of computation applied in the preparation of the results are consistent with International
Financial Reporting Standards ("IFRS") and are consistent with those applied in the audited annual
financial statements for the year ended 31 May 2017.
These results were prepared under the supervision of Mrs J Mabin CA(SA) in her capacity as Chief
Financial Officer.
The directors take full responsibility for the preparation of the results for the six months ended
30 November 2017. The directors are not aware of any matters or circumstances arising subsequent
to 30 November 2017 that require any additional disclosure or adjustment to the results, other than
as disclosed in this announcement. These results have not been reviewed or reported on by Tower's
auditors.
FAIR VALUE OF FINANCIAL INSTRUMENTS RECOGNISED IN THE STATEMENT OF FINANCIAL POSITION
The group measures fair values using the fair value hierarchy that reflects the significance of the
inputs used in making the measurements.
The valuation of interest rate swaps uses observable market data and requires management
judgement and estimation. The availability of observable market data and model inputs reduces
the need for management's judgement and estimation and also reduces the uncertainty
associated with the determination of fair values.
The fair value of the interest rate swap is determined by the bank using a valuation technique that
maximises the use of observable market inputs. Interest rate swaps are valued by discounting
future cash flows using the interest rate yield curve. Interest rate swaps are classified as
level 2 financial instruments.
The interest rate has been fixed on R500 million of borrowings at 7.53%, expiring on 30 September
2020 and the company has entered into the following Euro-denominated swaps:
Notional amount
(Euro '000)
Contract 1: 4.10% maturing 3 August 2020 7 000
Contract 2: 3.70% maturing 18 March 2021 2 540
Contract 3: 3.60% maturing 21 June 2021 30 514
Contract 4: 3.75% maturing 13 January 2022 13 199
ADJUSTMENTS TO THE STATEMENT OF CASH FLOWS
In the statement of cash flows, the investment property acquired on 31 May 2017 has been reduced
by R641 865 000 (30 November 2016: R521 267 514) and the Acquisition of Sub Dubrovnik has been
reduced by R227 917 000 to the extent that it has been financed through loans. "Local loans raised"
were reduced on 31 May 2017 by R51 949 000 (30 November 2016: R954 313) and "Foreign loans
raised" were reduced on 31 May 2017 by R817 833 000 (30 November 2016: R520 313 201).
Proceeds on sale of investment property have been reduced by R104 600 000 at 31 May 2017
(30 November 2016: R4 600 000) to the extent that the proceeds have been paid directly to the bank
for the repayment of loans. "Local loans raised" were reduced by the same amount.
These transactions have no cash flow effect and were removed from the statement of cash flows in
correction. This restatement does not impact the other statements presented.
DIVIDEND DISTRIBUTION
Notice is hereby given that a gross cash dividend of 40.70120 cents per share (dividend number 9)
has been declared from income reserves in respect of the six months ended 30 November 2017. In
accordance with Tower's status as a REIT, shareholders are advised that the distribution meets the
requirements of a qualifying distribution for the purposes of section 25BB of the Income Tax Act, No.
58 of 1962 (Income Tax Act). The distribution on the shares will be deemed to be a dividend for South
African tax purposes in terms of section 25BB of the Income Tax Act.
Accordingly, the dividend received by South African tax residents must be included in their gross
income and will not be exempt in terms of the ordinary dividend exemption in section 10(1)(k)(i) of
the Income Tax Act as a result of paragraph (aa) of the proviso thereto which provides that dividends
distributed by a REIT are not exempt from income tax.
The dividend is, however, exempt from dividend withholding tax in the hands of South African tax
resident shareholders, provided that the South African resident shareholders provide the following
forms to their Central Securities Depository Participant (CSDP) or broker, as the case may be, in
respect of uncertificated shares or the company, in respect of certificated shares:
a. a declaration that the dividends are exempt from dividend tax; and
b. a written undertaking to inform the CSDP or broker, 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.
Shareholders are advised to contact their CSDP or broker, as the case may be, to arrange for the
abovementioned documents to be submitted prior to the payment of the distribution if such
documents have not already been submitted.
Dividends received by non-resident shareholders will be exempt from income tax in terms of
section 10(1)(k)(i) of the Income Tax Act, but will be subject to dividend withholding tax. Dividend
withholding tax is levied at a rate of 20%, unless the rate is reduced in terms of any applicable
agreement for the avoidance of double taxation (DTA) between South Africa and the country of
residence of the shareholder.
Should dividend withholding tax be withheld at a rate of 20%, the net dividend amount due to
non-resident shareholders is 32.56096 cents per share. A reduced dividend withholding rate in
terms of the applicable DTA may only be relied on if the non-resident shareholder has provided the
following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares or
the company, in respect of certificated shares:
a. a declaration that the dividend is subject to a reduced rate as a result of the application of a
DTA; and
b. a written undertaking to inform the CSDP or broker, 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 or broker, as the case may be, to arrange
for the abovementioned documents to be submitted prior to the payment of the distribution if
such documents have not already been submitted.
The dividend is payable to Tower shareholders in accordance with the timetable set out below:
2018
Last day to trade cum dividend distribution: Tuesday, 27 February
Shares trade ex dividend distribution: Wednesday, 28 February
Record date: Friday, 2 March
Payment date: Monday, 5 March
Share certificates may not be dematerialised between Wednesday, 28 February 2018 and Friday,
2 March 2018, both days inclusive.
Payment of the dividend will be made to shareholders on Monday, 5 March 2018. In respect of
dematerialised shareholders, the dividend will be transferred to the CSDP/broker accounts on
Monday, 5 March 2018. Certificated shareholders' dividend payments will be deposited on or about
Monday, 5 March 2018.
Shares in issue at the date of declaration: 339 549 647.
Tower's income tax reference number: 9607/564/16/9.
By order of the Board
Tower Property Fund Limited
13 February 2018
Registered address 2nd Floor, Spire House, Tannery Park, 23 Belmont Road,
Rondebosch, 7700 (PO Box 155, Rondebosch, 7701)
Contact details +27 (0)21 685 4020/info@towerpropertyfund.co.za
Company secretary Ovland Management Services Proprietary Limited
Auditors Mazars
Sponsor Java Capital
Transfer secretaries Link Market Services South Africa Proprietary Limited
Directors A Dalling* (Chairman), M Edwards (Chief Executive Officer),
J Bester*, M Evans*, J Mabin (Chief Financial Officer),
A Magwentshu*, N Milne*, R Naidoo*
(*Non-executive)
CONSOLIDATED STATEMENT OF PROFIT AND LOSS AND COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 November 30 November 31 May
2017 2016 2017
R'000 R'000 R'000
REVENUE
Contractual rental income 209 824 216 508 437 041
Straight-line lease accrual 2 400 6 208 10 300
212 224 222 716 447 341
Net property operating expenses 3 (6 343) (16 631) (34 259)
NET PROPERTY INCOME 205 881 206 085 413 082
Administration expenses 5 (9 426) (9 110) (16 394)
Other income/(expenses) 6 (492) 809 533
Impairment of goodwill 7 (2 871) (3 006) (3 006)
Foreign exchange gain/(loss) 8 (43 415) 99 759 63 874
NET OPERATING PROFIT 149 677 294 537 458 089
Fair value adjustments on investment properties 89 709 84 072 123 993
Fair value adjustments on interest rate derivatives 7 420 (7 721) (12 449)
PROFIT FROM OPERATIONS 246 806 370 888 569 633
Finance income 2 707 1 538 3 340
Finance costs (62 336) (66 158) (127 899)
Indirect capital raising expenses – (557) (557)
PROFIT BEFORE TAXATION 187 177 305 711 444 517
Taxation – – –
PROFIT FOR THE PERIOD 187 177 305 711 444 517
OTHER COMPREHENSIVE INCOME – ITEMS
THAT MAY SUBSEQUENTLY BE RECLASSIFIED
TO PROFIT AND LOSS
Exchange difference on foreign operations 28 283 (115 629) (54 119)
TOTAL COMPREHENSIVE INCOME FOR THE
PERIOD 215 460 190 082 390 398
Profit for the period attributable to:
Equity shareholders of Tower Property Fund
Limited 186 919 305 142 437 103
Non-controlling interest 9 258 569 7 414
187 177 305 711 444 517
TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO:
Equity shareholders of Tower Property Fund
Limited 213 102 192 726 385 999
Non-controlling interest 9 2 358 (2 644) 4 399
215 460 190 082 390 398
Basic and diluted earnings per share (weighted
average shares in issue) (cents) 55.0 91.3 129.8
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Foreign
Currency
Stated Treasury Translation Retained Shareholders' Non-controlling
Capital Capital Reserve (FTCR) Income interest Interest Total
R'000 R'000 R'000 R'000 R'000 R'000 R'000
BALANCE AT 31 MAY 2016 2 239 098 (2 854) 41 949 89 390 2 367 583 20 228 2 387 811
Shares issued during the period 812 895 – – – 812 895 – 812 895
Share issue expenses (15 936) – – – (15 936) – (15 936)
Antecedent dividends 3 923 – – – 3 923 – 3 923
Acquisition of treasury shares – (1 782) – – (1 782) – (1 782)
Profit for the year – – – 305 142 305 142 569 305 711
Foreign currency translation differences – – (112 416) – (112 416) (3 213) (115 629)
Dividends paid – – – (159 068) (159 068) – (159 068)
BALANCE AT 30 NOVEMBER 2016 3 039 980 (4 636) (70 467) 235 464 3 200 341 17 584 3 217 925
Profit for the year – – 131 961 131 961 6 845 138 806
Foreign currency translation differences – – 61 312 – 61 312 198 61 510
Dividends paid – – – (130 394) (130 394) – (130 394)
BALANCE AT 31 MAY 2017 3 039 980 (4 636) (9 155) 237 031 3 263 220 24 627 3 287 847
Treasury shares cancelled (4 636) 4 636 – – – – –
Profit for the year – – – 186 919 186 919 258 187 177
Foreign currency translation differences – – 26 183 – 26 183 2 100 28 283
Dividends paid – – – (131 326) (131 326) – (131 326)
BALANCE AT 30 NOVEMBER 2017 3 035 344 – 17 028 292 624 3 344 996 26 985 3 371 981
SEGMENTAL ANALYSIS
South Africa
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2017 (R'000) Retail Office Industrial Total
Property assets* 1 337 211 1 849 942 381 740 3 568 893
Segment liabilities** 543 606 819 147 158 028 1 520 781
Additions to goodwill – – – –
Fair value adjustment to investment properties 65 320 39 577 (15 188) 89 709
Straight-line lease accrual 31 982 26 801 846 59 629
Revenue (excluding straight-line lease adjustments) 57 455 81 984 15 970 155 409
Net operating costs 568 (4 864) (1 550) (5 846)
SEGMENT PROFIT 58 023 77 120 14 420 149 563
Straight-line lease adjustment
Non-property related expenses
Other income
Impairment of goodwill (2 607) – (264) (2 871)
Foreign exchange gain/(loss)
Net operating profit
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2016 (R'000)
Property assets* 1 324 214 1 864 436 410 659 3 599 309
Segment liabilities** 640 383 792 158 174 823 1 607 364
Additions to goodwill 36 040 56 057 11 824 103 921
Fair value adjustment to investment properties 19 217 56 937 7 918 84 072
Straight-line lease accrual 27 909 28 067 2 914 58 890
Revenue (excluding straight-line lease adjustments) 56 318 90 754 19 272 166 344
Net operating costs (6 846) (7 975) (1 310) (16 131)
SEGMENT PROFIT 49 472 82 779 17 962 150 213
Straight-line lease adjustment
Non-property related expenses
Other income
Impairment of goodwill – (3 006) – (3 006)
Foreign exchange gain/(loss)
Net operating profit
FOR THE YEAR ENDED 31 MAY 2017 (R'000)
Property assets* 1 322 646 1 933 584 351 323 3 607 553
Segment liabilities** 591 857 830 627 155 823 1 578 307
Additions to goodwill 36 040 56 057 11 824 103 921
Fair value adjustment to investment properties 33 542 26 206 (40 798) 18 950
Straight-line lease accrual 26 564 26 305 1 636 54 505
Revenue (excluding straight-line lease adjustments) 113 256 183 932 39 657 336 845
Net operating costs (19 097) (12 363) (1 842) (33 302)
SEGMENT PROFIT 94 159 171 569 37 815 303 543
Straight-line lease adjustment
Non-property related expenses
Other income
Impairment of goodwill – (3 006) – (3 006)
Foreign exchange gain/(loss)
Net operating profit
Croatia
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2017 (R'000) Retail Office Industrial Total Grand Total
Property assets* 1 111 173 449 749 – 1 560 922 5 129 815
Segment liabilities** 456 120 176 473 – 632 593 2 153 374
Additions to goodwill – – – – –
Fair value adjustment to investment properties – – – – 89 709
Straight-line lease accrual – – – – 59 629
Revenue (excluding straight-line lease adjustments) 38 707 15 708 – 54 415 209 824
Net operating costs – (497) – (497) (6 343)
SEGMENT PROFIT 38 707 15 211 – 53 918 203 481
Straight-line lease adjustment 2 400
Non-property related expenses (9 426)
Other income (492)
Impairment of goodwill – – – – (2 871)
Foreignv exchange gain/(loss) (43 415)
Net operating profit 149 677
FOR THE SIX MONTHS ENDED 30 NOVEMBER 2016 (R'000)
Property assets* 916 829 381 508 – 1 298 337 4 897 646
Segment liabilities** 369 458 170 293 – 539 751 2 147 115
Additions to goodwill 130 397 9 782 – 140 179 244 100
Fair value adjustment to investment properties – – – – 84 072
Straight-line lease accrual – – – – 58 890
Revenue (excluding straight-line lease adjustments) 34 315 15 849 – 50 164 216 508
Net operating costs (500) – (500) (16 631)
SEGMENT PROFIT 34 315 15 349 – 49 664 199 877
Straight-line lease adjustment 6 208
Non-property related expenses (9 110)
Other income 809
Impairment of goodwill – – – – (3 006)
Foreign exchange gain/(loss) 99 759
Net operating profit 294 537
FOR THE YEAR ENDED 31 MAY 2017 (R'000)
Property assets* 975 928 397 537 – 1 373 465 4 981 018
Segment liabilities** 343 829 163 390 – 507 219 2 085 526
Additions to goodwill 130 397 9 782 – 140 179 244 100
Fair value adjustment to investment properties 81 847 23 196 – 105 043 123 993
Straight-line lease accrual – – – – 54 505
Revenue (excluding straight-line lease adjustments) 69 882 30 314 – 100 196 437 041
Net operating costs – (957) – (957) (34 259)
SEGMENT PROFIT 69 882 29 357 – 99 239 402 782
Straight-line lease adjustment 10 300
Non-property related expenses (16 394)
Other income 533
Impairment of goodwill – – – – (3 006)
Foreign exchange gain/(loss) 63 874
Net operating profit 458 089
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 November 30 November 31 May
2017 2016 2017
R'000 R'000 R'000
Cash generated from operations 176 173 168 577 348 421
Finance income 2 707 1 538 3 340
Finance costs (61 136) (64 830) (127 035)
NET CASH FROM OPERATING ACTIVITIES 117 744 105 285 224 726
Cost capitalised to investment property (18 094) – (56 522)
Property, plant and equipment acquired (65) (149) (255)
Acquisition of management company – (72 500) (67 859)
Proceeds on sale of investment property 140 200 11 200
NET CASH FROM INVESTING ACTIVITIES (18 019) (72 449) (113 436)
Proceeds from issue of shares – 740 395 812 895
Capital raising expenses – (15 936) (15 936)
Acquisition of treasury shares – (1 782) (1 782)
Local loans raised 138 150 140 885 153 930
Local loans repaid 12 (77 744) (765 336) (745 572)
Foreign loans repaid (17 052) – (25 436)
Non-controlling interest loan repayment (166) – (6 551)
Dividends paid (131 326) (159 068) (285 539)
NET CASH FROM FINANCING ACTIVITIES (88 138) (60 842) (113 991)
Net movement in cash and cash equivalents 11 587 (28 006) (2 701)
Cash and cash equivalents at beginning of period 58 945 63 620 63 620
Foreign exchange differences on cash balances 2 374 – (1 974)
CASH AND CASH EQUIVALENTS AT END OF
PERIOD 72 906 35 614 58 945
*Prior period amounts have been restated. Refer to the basis of preparation.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 November 30 November 31 May
2017 2016 2017
ASSETS
NON-CURRENT ASSETS
Investment property 4 703 649 4 838 756 4 395 194
Straight-line lease accrual 59 629 58 890 54 505
Property, plant and equipment 220 – 198
Goodwill 7 238 223 241 094 241 094
5 001 721 5 138 740 4 690 991
CURRENT ASSETS
Inventories 10 21 783 – 12 495
Trade and other receivables 111 646 104 951 117 194
Cash and cash equivalents 72 906 35 614 58 945
Amounts receivable for the sale of investment
property – 111 000 –
206 335 251 565 188 634
Investment property held for sale 344 534 – 518 626
550 869 251 565 707 260
TOTAL ASSETS 5 552 590 5 390 305 5 398 251
EQUITY AND LIABILITIES
EQUITY
Stated capital 3 035 344 3 039 980 3 039 980
Treasury capital – (4 636) (4 636)
Foreign currency translation reserve 17 028 (70 467) (9 155)
Retained income 292 624 235 464 237 031
Shareholders' interest 3 344 996 3 200 341 3 263 220
Non-controlling interest 9 26 985 17 584 24 627
TOTAL EQUITY 3 371 981 3 217 925 3 287 847
LIABILITIES
NON-CURRENT LIABILITIES
Other financial liabilities 1 794 628 1 674 181 1 731 466
Loan payable to shareholder 26 709 24 872 24 369
1 821 337 1 699 053 1 755 835
CURRENT LIABILITIES
Other financial liabilities 295 961 403 771 279 441
Trade and other payables 63 311 69 556 75 128
359 272 473 327 354 569
TOTAL EQUITY AND LIABILITIES 5 552 590 5 390 305 5 398 251
CALCULATION OF HEADLINE EARNINGS AND DISTRIBUTABLE EARNINGS RECONCILIATION
Unaudited
Six months Unaudited Audited
ended Six months 12 months
30 November ended ended
2017 30 November 31 May
Gross Net 2016 2017
PROFIT ATTRIBUTABLE TO ORDINARY EQUITY
HOLDERS 186 919 305 142 437 103
Adjusted for:
Change in fair value of investment properties
net of non-controlling interests (89 709) (89 709) (84 072) (119 354)
Impairment of goodwill 2 871 3 006 3 006
Profit on sale of investment property 492 (809) (533)
HEADLINE EARNINGS 100 573 223 267 320 222
Weighted average number of shares in issue 339 549 647 334 059 215 336 764 696
Headline and diluted headline earnings per share
(weighted average shares in issue) (cents) 29.6 66.8 95.1
NOTES:
1. Segmental analysis
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 November 30 November 31 May
2017 2016 2017
R'000 R'000 R'000
Investment property 4 703 649 4 838 756 4 395 194
Straight-line lease accrual 59 629 58 890 54 505
Property, plant and equipment 220 – 198
Inventories 21 783 – 12 495
Investment property held for sale 344 534 – 518 626
* Property assets 5 129 815 4 897 646 4 981 018
** Segment liabilities 2 153 374 2 147 115 2 085 526
NON-SEGMENT LIABILITIES
– Trade and other payables 526 393 509
– Loan to non-controlling interests 26 709 24 872 24 369
TOTAL LIABILITIES 2 180 609 2 172 380 2 110 404
Tower has restated its segment information to provide sectoral information by region. Prior period
information has been restated.
RECONCILIATION OF HEADLINE EARNINGS TO DISTRIBUTABLE EARNINGS
Unaudited
Six months Unaudited Audited
ended Six months 12 months
30 November ended ended
2017 30 November 31 May
R'000 2016 2017
Gross Net R'000 R'000
HEADLINE EARNINGS 100 573 223 267 320 222
Adjusted for:
Straight-line lease accrual (2 400) (6 208) (10 300)
Antecedent dividends – 2 557 3 923
Change in fair value of interest rate derivatives (7 420) 7 721 12 449
(Profit)/loss on sale of investment property – – –
DISTRIBUTABLE PROFIT 90 753 227 337 326 294
Adjusted for:
Indirect capital raising expenses – 557 557
Foreign exchange (gain)/loss 43 415 42 949 (100 648) (61 812)
Contracted adjustment – 1 822 3 798
Agrokor arrears – – (10 286)
Amortisation of debt raising fees 1 175 1 328 3 171
DISTRIBUTABLE EARNINGS 134 877 130 396 261 722
Development income lost 11 3 324 – –
DISTRIBUTION PAID 138 201 130 396 261 722
Distribution paid 138 201 130 396 261 722
Taxable dividend (declared on
31 January 2017) – 130 396 130 396
Taxable dividend (declared on
31 July 2017) – – 131 326
Taxable dividend (declared on
13 February 2018) 138 201 – –
Number of shares in issue at year-end (including
treasury shares) 339 549 647 340 100 686 340 100 686
Number of shares in issue at year-end (excluding
treasury shares) 339 549 647 339 549 647 339 549 647
Distribution per share 40.7 38.4 77.1
Six months ended 31 May – – 38.7
Six months ended 30 November 40.7 38.4 38.4
Distributable earnings per share (weighted
average shares in issue) (cents) 39.7 39.0 77.7
Net asset value per share (shares in issue at
period end) (cents) 985 941 961
Unaudited Unaudited Audited
Six months Six months 12 months
ended ended ended
30 November 30 November 31 May
2017 2016 2017
R'000 R'000 R'000
2. Related party transactions included:
Asset management fees paid to Tower Asset
Managers Proprietary Limited ("TAM") – 1 512 1 508
Property management fees paid to Spire Property
Management Proprietary Limited 8 894 9 766 18 667
Relationship: Key management personnel
services entities
3. Net property operating expenses
Insurance 763 776 1 631
Letting commission 3 378 2 505 5 403
Municipal expenses 44 423 51 710 99 936
Other operating expenses 4 384 5 190 15 315
Property management fees 6 180 6 462 16 226
Repairs and maintenance 3 309 4 224 6 482
Security and cleaning 9 769 8 565 17 453
Gross property expenses 72 206 79 432 162 446
Operating expense recoveries (65 863) (62 801) (128 187)
Net property operating expenses 6 343 16 631 34 259
4. Property ratios
Net property expense ratio 13% 13% 14%
Gross property expense ratio 26% 28% 29%
Rental reversions: retail 12% 11% 7%
Rental reversions: office 10% 12% 8%
Rental reversions: industrial (1%) 32% –
Tenant retension ratio 93% 94% 90%
Occupancy ratio 88% 94% 94%
Trading density growth 10% 9% 3%
5. Administration and corporate costs
Asset management fees – 1 508 1 508
Salaries 4 803 3 979 8 502
Professional service fees 1 756 1 920 1 771
Other 2 867 1 703 4 613
TOTAL 9 426 9 110 16 394
6. Other income/(expenses) in the current year includes the losses on the sale of Shoprite Brits (R359 284) and
Arrowfield (R133 017) and in the prior year the profit on the sale of 7 Stirrup Lane.
7. Goodwill of R2.9 million has been impaired during the period. R145 million of goodwill was raised on the
acquisition of TAM. The goodwill was allocated on a pro rata basis to the properties which were held by the
fund when TAM was internalised. As two of these properties, namely Shoprite Brits and Arrowfield, were
disposed of, the goodwill allocated to them amounting to R2.9 million was derecognised.
Correction of error – Goodwill
Goodwill to the amount of R99.2 million was erroneously impaired at the interim period 30 November
2016. The recoverable amount of the cash-generating units continously exceeds the carrying amount and
no impairment should have been recognised at the time. The error was corrected in the annual financial
statements for the year ended 31 May 2017. This adjustment affected earnings per share, but did not affect
headline or distributable earnings reported at 30 November 2016.
8. The foreign exchange gain/(loss) relates to the foreign denominated loan that was granted by Standard Bank
to the the fund for the acquisition of VMD KVART and the Agrokor portfolio.
9. Non-controlling interests relates to the VMD Grupa d.o.o. 20% holding in Tower Europe d.o.o.
10. Inventory relates to the costs incurred to date on the development of the Napier Street residential units.
11. Development income lost relates to the untenanted properties under development during the period.
12. Local loans repaid are significantly less than those repaid in the comparative period. In the corresponding
period Tower raised R740 million equity and used these funds to repay its local debt. Tower then increased
its euro debt and used the funds to buy Croatian retail properties.
www.towerpropertyfund.co.za
Date: 13/02/2018 08:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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