Wrap Text
Unaudited interim financial results for the six months ended 31 December 2017 and dividend distribution declaration
Emira Property Fund Limited (Incorporated in the Republic of South Africa)
Registration number: 2014/130842/06
Share code: EMI
ISIN: ZAE000203063
(“Emira” or “the Fund” or “the Company”)
Tax number: 9995/739/15/9
(Approved as a REIT by the JSE)
Unaudited interim financial results for the six months ended 31 December
2017 and dividend distribution declaration
Highlights
Interim dividend per share 70,65c
Net asset value 1 761c
Vacancies (down from 7,0%) 4,5%
Properties sold (14,8% premium to book value) R236,5m
Commentary
The Emira Board of Directors announces that an interim dividend of 70,65
cents per share has been declared for the six months ended 31 December
2017 (Dec 2016: 68,93 cents per share), a year-on-year increase of 2,5%
which is in line with the positive guidance communicated in August 2017.
Distributable earnings
The Fund returned to positive distribution growth in the period due to
the significant leasing progress made, the better utilisation of capital
as well as stringent cost control. This was achieved in spite of the
continued tough trading conditions, where the ongoing over-supply of
offices has required Emira to be more competitive by reducing rentals
and increasing tenant incentivisation.
Revenue reduced period-on-period by 5,6% (excluding straight-lining
adjustments in respect of future rental escalations) to R840,7m (Dec 2016:
R890,8m). This reduction is primarily due to the disposal of 15 properties
since 31 December 2016 and the deconsolidation of Enyuka Property Fund
(“Enyuka”) with effect from 1 July 2017. The stable portfolio performed
well, with a pleasing like-for-like growth of 7,9% for the six months to
31 December 2017, driven by contractual escalations and the filling of
vacancies.
Property expenses decreased by 10,2%, again driven by disposals and the
deconsolidation of Enyuka. Expenses on the stable portfolio showed a like-
for-like growth of 7,9% for the period. The gross cost-to-income ratio
reduced to 36,1% (Dec 2016: 37,9%) demonstrating that income grew at a
faster rate during the period when compared to expenses.
Administration expenses, which include staff costs and property management
fees, increased marginally by 0,2% to R46,8m (June 2016: R46,7m).
Income from the Fund’s listed investment in Growthpoint Australia Limited
(“GOZ”) increased by 0,9%. While the underlying net Australian dollar
(“AUD”) distribution per unit increased by 2,9%, this was largely offset
by the reduction in the average hedged foreign exchange rate.
Distributable income of R38,7m from equity-accounted investments includes
income of R35,9m from Enyuka and R2,8m from the investment made into the
United States of America (“USA”).
In accordance with the SA REIT Association’s best practice recommendations,
transaction advisory fees of R7,0m have been excluded from the calculation
of distributable earnings. These costs are once-off in nature and relate
to the setup of the investment into the USA.
Net finance costs have decreased by 2,5% to R189,0m. While debt levels
during the period were on average higher, they were offset by higher
interest-bearing loans receivable. Loans receivable include both the
Vendor Loans provided under the BEE Transaction (as defined in the
circular to shareholders dated 29 May 2017) and loan finance provided
on the disposal of certain properties. Interest is charged on the BEE
Vendor Loans at a rate equal to Emira’s dividend yield. The loan finance
provided on disposals is charged at rates between 9,0% and 9,5%.
The net asset value (“NAV”) has increased to 1 761 cents per share (June
2017: 1 735). The increase in the NAV is due to an increase in both the
value of the property portfolio and the investment in GOZ together with
positive movement on the net value of the Fund’s derivative contracts.
The NAV per share at 31 December 2017 is calculated based on 510 296 737
Emira shares in issue. The increase in the number of shares from 30 June
2017 is due to the BEE Parties settling R9,8m of the outstanding capital
on their Vendor Loans, which resulted in 696 172 of the vendor loan funded
shares issued under the BEE Transaction, being recognised in the period.
Distribution statement
Half-year Half-year
ended ended %
R’000 31 Dec 2017 31 Dec 2016 change
Operating lease rental income and
tenant recoveries excluding straight-
lining of leases 840 678 890 839 (5,6)
Property expenses (303 743) (338 114) (10,2)
Net property income 536 935 552 725 (2,9)
Dividends received on treasury shares — 10 618 (100,0)
Income from listed property investment 29 491 29 216 0,9
Income from equity accounted
investments 38 725 — 100,0
Administration expenses (46 754) (46 681) 0,2
Depreciation (158) (146) 8,2
Net finance costs (188 975) (193 810) (2,5)
Finance income 15 487 6 263 147,3
Finance costs (204 462) (200 073) 2,2
Interest paid and amortised borrowing
costs (220 270) (214 306) 2,8
Interest capitalised to the cost of
developments 15 808 14 233 11,1
Dividend payable to shareholders 369 264 351 922 4,9
Number of shares in issue 522 667 247 510 550 084 2,4
Dividend per share (cents) 70,65 68,93 2,5
Vacancies
One of Emira’s key focus areas over the past 18 months has been to reduce
vacancies. This has led to the “Intelligent Relocation” initiative,
launched in July 2017, which has delivered pleasing results.
Vacancies are notably lower, having decreased from 7,0% at 31 December
2016 to 4,5% at 31 December 2017. Urban retail sector vacancies have
decreased to 2,2%, which is well below the national average of 4,2%. While
industrial vacancies have increased marginally to 2,1%, they remain below
the national average of 3,5%. Emira’s office sector vacancies have
significantly improved, decreasing to 9,4% from 16,1% reported at
31 December 2016, which are below the SAPOA national levels of 11,2%.
Emira continues to aggressively manage its vacancies through a combination
of tenant retention and letting strategies and, in some instances, the
sale of non-core properties.
Number of GLA Vacancy
buildings Jun 2017 Jun 2017
Jun 2017 (m2) (m2)
Office 52 356 406 44 614
Retail 38 414 222 13 411
Industrial 44 360 949 6 168
Total 134 1 131 577 64 193
Vacancy Number of GLA
Jun 2017 buildings Dec 2017
(%) Dec 2017 (m2)
Office 12,5 46 332 090
Retail 3,2 22 327 785
Industrial 1,7 43 358 075
Total 5,7 111 1 017 950
Vacancy Vacancy
Dec 2017 Dec 2017
(m2) (%)
Office 31 262 9,4
Retail 7 240 2,2
Industrial 7 440 2,1
Total 45 942 4,5
Major leases concluded and tenant renewals
During the six months ended 31 December 2017, the largest new leases
concluded, by lease value, were the South African Social Security
Agency at Iustitia in Bloemfontein (5 502m2 for a total value of R34,0m),
Outworx at 2 Frosterley Park in Durban (2 312m2 for a total value of
R27,2m) and Kawari at Technohub in Midrand (6 580m2 for a total value
of R25,5m).
In line with the Fund’s strategic priorities, a total of 77% by GLA
(75% by revenue) of expiring tenants were renewed and retained during
the six months to 31 December 2017. The largest renewals were Pick n
Pay at Market Square in Plettenberg Bay (2 427m2 for a total value
of R45,3m), Evapco at Evapco in Johannesburg (5 715m2 for a total
value of R21,2m) and RTT atRTT Continental (12 921m2 for a total value
of R20,1m).
Disposals
In accordance with the Fund’s strategy to rebalance the portfolio,
certain properties that have either been deemed non-core, are
underperforming or pose excessive risk, have been sold. Six properties,
totalling R236,5m in value, were sold and transferred out of Emira
during the six months to 31 December 2017, namely: Convention House,
4 Kikuyu Road, Harbour Place, Assegaai Place, 1 Kikuyu Road and
Riverworld Park.
These six properties were sold at a combined forward yield of 7,6%
and a combined 14,8% premium to book value. The Fund’s ability to
continuously transact at prices that are, on average, higher than
their book values, bears testimony to the fact that Emira’s properties
remain fairly valued.
Properties transferred out of Emira during the six months to 31 Dec 2017
GLA
Property Sector Location (m2)
Convention House Office Durban 6 249
4 Kikuyu Road Office Johannesburg 4 608
Harbour Place Office Cape Town 5 015
Assegaai Place Industrial Cape Town 2 877
1 Kikuyu Road Office Johannesburg 7 383
Riverworld Park Office Johannesburg 5 079
31 211
Book Sale Exit
value price yield Effective
Property (Rm) (Rm) (%) date
Convention House 45,0 44,0 11,7 Oct 2017
4 Kikuyu Road 27,2 28,0 6,9 Oct 2017
Harbour Place 52,0 90,0 6,9 Nov 2017
Assegaai Place 21,6 20,0 10,8 Dec 2017
1 Kikuyu Road 37,0 31,0 0,0* Dec 2017
Riverworld Park 23,2 23,5 10,8 Dec 2017
206,0 236,5 7,6
* Vacant at date of sale.
Further sales to the value of R163,2m have become unconditional and are
expected to be transferred within the next three months.
To ensure that the portfolio is more optimally balanced going forward,
Emira will continue with its strategy to reduce its local office exposure.
In accordance with this strategy, the Fund had, as at 31 December 2017,
earmarked 13 properties valued at R1,1bn (R917,8m are office properties)
for disposal, which have been classified as held for sale.
Developments and refurbishments
Emira continues to invest strategically and recycle capital to strengthen
its assets with tactical upgrades that unlock value. The quality and
attractiveness of its assets are key elements to retaining existing tenants
and attracting new tenants.
The phased redevelopment of Knightsbridge Manor Office Park in Bryanston
into the 31 584m2 P-graded Knightsbridge is well underway. Phase one,
measuring 12 324m2, was completed in October 2017 at a total cost of R339,0m
and is currently 69% occupied on long-term leases with strong interest for
the remaining available space. Phase two, which measures 3 564m2, is due for
completion in June 2018 at a cost of R108,0m, and will house the South African
head offices of KFC and Pizza Hut. The development of future phases will
only commence once suitable levels of pre-letting are achieved at acceptable
returns.
In August 2017, Emira commenced its strategy of investing into the
residential sector through the conversion of its B-grade offices in Rosebank,
12 Baker Street and 2 Sturdee Avenue, into The Bolton. The Bolton is being
converted in partnership with the Feenstra Group who, in addition to being the
developer, has acquired a 25% interest in the asset. The Feenstra Group has
extensive experience in developing, owning and managing residential units. The
conversion project is expected to be completed by January 2019 at an estimated
construction cost of R108,0m and will be targeting LSM brackets 7 – 8.
Debt
Emira has diversified sources of funding and banking facilities in place with
all the major South African banks. In addition, Emira continues to successfully
access funding via the debt capital markets at competitive rates.
Total debt as at 31 December 2017 was R5,5bn with a weighted average duration
to expiry of 1,4 years. Steps have been taken to extend debt facilities that
are expiring over the next 12 months. The debt expiry profile has been
maintained to ensure that the amount of debt expiring in any given period is
manageable. At 31 December 2017, the Fund had undrawn backup facilities of
R685,0m, which further reduces debt refinance risk and, once drawn, will extend
the debt expiry profile.
The following bank facilities were refinanced during the six months ended
31 December 2017:
* A R300,0m three-year revolving credit facility with RMB was renewed for a
period of two years at prime less 160 bps.
* A R300,0m unsecured three-year Nedbank term facility was refinanced on a
secured basis for a period of five years at three month JIBAR plus 200bps.
During the period, the Fund issued R612,0m of new commercial paper and corporate
bonds to refinance R562,0m of maturing notes. The new instruments were issued for
an average term of 1,4 years and at an average cost of 1,20% above three month
JIBAR versus the matured notes of 1,1 years and a cost of 0,95%.
As at 31 December 2017, Emira had a moderate level of gearing with interest-
bearing debt, net of cash, to total income producing assets of 37,2%. The Fund
has fixed 86,8% of its debt for periods of between 0,1 and 6,9 years, with a
weighted average duration of 3,2 years.
Weighted Weighted Amount % of
average rate % average term (Rm) debt
Debt — Fixed swap 8,0 3,2 years 4 757,7 86,8
Debt — Floating 8,7 722,2 13,2
Total 8,0 5 479,9 100,0
Less: Costs capitalised
not yet amortised (4,1)
Per statement of
financial position 5 475,8
As at 31 December 2017, Emira had effective AUD denominated debt of AUD87,5m
through its AUD cross-currency interest-rate swaps (“CCIRS”) against assets
valued at AUD97,3m. The AUD CCIRS relate to the Fund’s investment in GOZ. In
addition, the Fund has effective United States dollar (“USD”) denominated debt
of USD12,4m through its USD CCIRS. These USD CCIRS relate to assets based in
the USA valued at USD13,1m, which include indirect property investments of
USD8,4m and deposits for investments concluded post 31 December 2017 of
USD4,7m.
Valuations
Total portfolio movement
Jun 2017 Dec 2017
Sector (R’000) R/m2 (R’000)
Office 5 591 639 15 689 5 613 545
Retail 5 761 494* 13 909 5 193 331
Industrial 1 902 450 5 271 1 920 050
13 255 583 12 726 926
Difference Difference Sector R/m2 (%) (R’000)
Office 16 904 0,4 21 906
Retail 15 843 (9,9) (568 163)
Industrial 5 362 0,9 17 600
(4,0) (528 657)
* June 2017 retail value includes R696,3m relating to Enyuka which has been
deconsolidated from 1 July 2017.
For commentary on valuations please refer to the Measurements of Fair Value
section in the notes to the financial statements
Investments
Enyuka
Enyuka is the rural retail joint venture between Emira and One Property Holdings
(“One Prop”). The performance conditions Emira had in place with One Prop were
met in July 2017, which effectively removed Emira’s deemed control over Enyuka.
Enyuka has therefore been deconsolidated from Emira effective 1 July 2017.
Emira has equity accounted its interest in Enyuka for the six months ended
31 December 2017 and the R49,3m recognised includes Emira’s share of Enyuka’s
net profit of R12,7m and R36,6m of interest received on the shareholder loan
provided to Enyuka.
At 31 December 2017, Enyuka’s total property portfolio was valued at R900,8 million
and its loan to value ratio was 24,4%, excluding shareholder loans of R648,1m,
including interest.
During the period, Enyuka acquired four new properties at a total cost of R180,0
million. A further acquisition of R140,0m became unconditional at 31 December 2017
and is expected to be transferred by March 2018.
GOZ
As at 31 December 2017, GOZ’s unit price was AUD3,41. Emira’s investment of
28 558 566 units, comprising 4,5% of the total units in issue, is valued at
R940,6m compared to the initial cost price of R416,8m, a 125,7% increase in
this investment.
USA investments
On 31 October 2017, Emira announced that it had embarked on an investment strategy
into the USA together with its partners, The Rainier Group of Companies (“Rainier”).
Emira, through its USA subsidiary, CIL2 LLC (“CIL2”), will, together with Rainier,
acquire grocery-anchored convenience retail centers. CIL2 will hold a minority share
in the direct property-owning entities and as such these entities are equity accounted
by CIL2.
The first property, Belden Park Crossings Shopping Center in North Canton, Ohio, was
transferred in October 2017 at a total cost to Emira of R114,4m (USD8,4m) for its 44%
equity interest.
Subsequent to 31 December 2017, two further properties, Moore Plaza in Corpus Christi,
Texas and 32 East shopping center in Cincinnati, Ohio, were acquired at a total cost to
Emira of R217,8m (USD17,4m) for its 49% equity interest. These, together with the
initial investment, have been funded through disposals proceeds.
Foreign income hedging
To minimise the potential adverse foreign exchange fluctuations on Emira’s earnings,
a portion of the expected net foreign income, after offsetting foreign interest on
CCIRS, is hedged.
Foreign income in respect of GOZ is hedged in terms of the following policy:
* Hedge 100% of the expected net dividend to be received in the following 12 months;
* Hedge 67% of the expected net dividend to be received in months 13 to 24; and
* Hedge 33% of the expected net dividend to be received in months 25 to 36.
For the initial USA investments, at least 90% of the expected net income for the
first four years is hedged at the date the investment is made.
In line with these policies, the following hedges are in place:
GOZ USA
Forward rate against R AUD USD
Jun 18 R10,86 R13,06
Dec 18 R11,33 R13,36
Jun 19 R11,61 R13,70
Dec 19 R12,03 R14,06
Jun 20 R12,34 R14,43
Dec 20 — R14,83
Jun 21 — R15,25
Dec 21 — R15,59
Restatement
During the period under review, the Fund changed its presentation of foreign exchange
gains and losses arising on investments on the face of the statement of comprehensive
income. Foreign exchange gains and losses arising on investments, reported for the
six months ended 31 December 2016 and the year ended 30 June 2017, relate entirely
to the Company’s investment in GOZ. In these reporting periods, the foreign exchange
gains and losses on the revaluation of GOZ were disclosed as part of the line:
“Unrealised gain/(loss) on fair valuation of the listed property investment”. The
statement of comprehensive income has now been adjusted to separately show these
foreign exchange gains and losses on the line: “Foreign exchange loss”. The
restatement has no impact on the previously reported dividend per share, earnings
per share, headline earnings per share or diluted headline earnings per share.
Worley Parsons update
The arbitration hearing between Emira and Worley Parsons, regarding their lease
obligations at Corobay Corner, is still ongoing. The date of the hearing at which
the quantum arguments together with the amendment to Worley Parsons’ claim will be
tabled, has yet to be finalised between the parties. Emira’s view of its legal
position in the arbitration remains unchanged.
For the six-month period to 31 December 2017, no income has been accrued in respect
of rentals due by Worley Parsons.
Prospects
The groundwork for the responsible rebalancing of the Fund’s sectoral exposures has
been laid notwithstanding the tough economic and political backdrop of the last
six months. Emira is confident that shareholders will begin to experience enhanced
returns as a result of these efforts.
The Fund will continue to reduce its South African office exposure and
will strategically increase its offshore exposure, as evidenced by its two post-
balance sheet acquisitions made in the USA.
With a more stable outlook expected for South Africa, shareholders can expect a
similar growth rate in distributions for the next six-month period, and thereafter
a resumption to a minimum of real growth in distributions for future periods.
This guidance is provided on the assumption that current trading conditions will
prevail. Forecast rental income is based on contractual terms, anticipated vacancy
take-up and market-related renewals. This forecast has not been reviewed or
reported on by Emira’s external auditors.
Dividend distribution declaration
The Board has approved, and notice is hereby given that a gross interim dividend
of 70,65 cents per share has been declared (Dec 2016: 68,93 cents), payable to
the registered shareholders of Emira Property Fund Limited on 09 March 2018. The
issued share capital at the declaration date is 522 667 247 listed ordinary shares.
The source of the dividend comprises net income from property rentals, income earned
from the Company’s listed property investment, income earned from the Company’s
equity accounted investments, interest earned on loans receivable and interest
earned on cash on deposit. Please refer to the condensed consolidated statement
of comprehensive income for further information.
Last day to trade cum dividend Tuesday, 6 March 2018
Shares trade ex dividend Wednesday, 7 March 2018
Record date Friday, 9 March 2018
Payment date Monday, 12 March 2018
Share certificates may not be dematerialised or rematerialised between
Wednesday, 7 March 2018 and Friday, 9 March 2018, both days inclusive.
Tax implications
In accordance with Emira’s status as a REIT, shareholders are advised that the
dividend 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”).
Accordingly, qualifying distributions received by local tax residents 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 shareholder.
These qualifying distributions are, however, exempt from dividend withholding
tax in the hands of South African tax resident shareholders, provided that the
South African resident shareholders have provided the following forms to their
Central Securities Depository Participant (“CSDP”) or broker, as the case may be,
in respect of uncertificated shares, or the transfer secretaries, in respect
of certificated shares:
a) a declaration that the dividend is exempt from dividends tax; and
b) a written undertaking to inform the CSDP, broker or the transfer secretaries,
as the case may be, should the circumstances affecting the exemption change or
the beneficial owner 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 transfer secretaries, 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.
Qualifying dividends received by non-resident 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.
On 22 February 2017, the dividends withholding tax rate was increased from 15% to
20% and accordingly, any distribution received by a non-resident from a REIT will
be subject to dividend withholding tax at 20%, unless the rate is reduced in terms
of any applicable agreement for the avoidance of double taxation (“DTA”) between
South Africa and the country of residence of the shareholder. Assuming dividend
withholding tax will be withheld at a rate of 20%, the net amount due to
non-resident shareholders will be 56,52 cents per share. A reduced dividend
withholding tax 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 the uncertificated shares, or the transfer
secretaries, in respect of certificated shares:
a) a declaration that the dividend is subject to a reduced rate as a result of
the application of a DTA; and
b) a written undertaking to inform their CSDP, broker or the transfer secretaries,
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
transfer secretaries, 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.
Local tax resident shareholders as well as non-resident shareholders are encouraged
to consult their professional advisors should they be in any doubt as to the
appropriate action to take.
By order of the Emira Property Fund Limited Board
Acorim Proprietary Limited Gerhard van Zyl Geoff Jennett
Company Secretary Chairman Chief Executive Officer
Bryanston
14 February 2018
Directors: G van Zyl (Chairman)*, GM Jennett (CEO), MS Aitken*, GS Booyens (CFO),
BH Kent*, V Mahlangu*, NE Makiwane*, W McCurrie*, V Nkonyeni*, D Thomas**,
U van Biljon (COO)
* Independent Non-executive Director ** Non-executive Director
Registered address: 1st Floor, Block A, Knightsbridge, 33 Sloane Street,
Bryanston, 2191
Sponsor: Questco Corporate Advisory (Pty) Ltd
Transfer Secretaries: Computershare Investor Services (Pty) Ltd, Rosebank
Towers, 15 Biermann Avenue, Rosebank, 2196
www.emira.co.za
Unaudited condensed consolidated financial statements
Condensed consolidated statement of comprehensive income
Restated Restated
Unaudited unaudited audited
six months six months year
ended ended ended
R’000 31 Dec 2017 31 Dec 2016 30 Jun 2017
Revenue 855 356 878 314 1 721 360
Operating lease rental income and
tenant recoveries 840 678 890 839 1 794 908
Allowance for future rental
escalations 14 678 (12 525) (73 548)
Property expenses (306 738) (343 952) (677 049)
Income from listed property
investment 29 491 29 216 58 516
Administration expenses (47 098) (49 100) (92 410)
Transaction and advisory fees (6 993) (5 184) (14 303)
Depreciation (4 636) (6 055) (11 054)
Operating profit 519 382 503 239 985 060
Net fair value adjustments 194 886 202 689 185 827
Net fair value gain on investment
properties 89 759 124 170 208 177
Change in fair value as a result
of straight-lining lease rentals (14 678) 12 525 73 548
Change in fair value as a result 2 995 5 838 9 440
of amortising upfront lease costs
Change in fair value as a result
of property appreciation in value 101 442 105 807 125 189
Revaluation of share appreciation
rights scheme derivative
financial instruments 110 6 287 6
Unrealised gain on revaluation of
interest-rate swaps 43 707 72 763 11 386
Unrealised gain/(loss) on fair
valuation of listed property
investment 61 310 (531) (33 742)
IFRS2 charge — BEE transaction — — (14 771)
Foreign exchange loss (30 890) (60 454) (50 013)
Loss on deconsolidation of Enyuka (392) — —
Income from equity accounted
investments 45 352 — —
Distributable 38 957 — —
Non-distributable 6 395 — —
Profit before finance costs 728 338 645 474 1 106 103
Net finance costs (197 963) (193 810) (393 541)
Finance income 6 499 6 263 11 278
Finance costs (204 462) (200 073) (404 819)
Profit before income tax charge 530 375 451 664 712 562
Taxation (1 413) — (383)
Profit for the period 528 962 451 664 712 179
Other comprehensive income
Items that may be subsequently
reclassified to profit or loss
Exchange differences on
translation of foreign operations (6 028) — —
Total comprehensive income for
the period 522 934 451 664 712 179
Total profit for the period
attributable to:
Emira shareholders 529 204 451 664 712 179
Non-controlling interest (242) — —
528 962 451 664 712 179
Total comprehensive income for the
period attributable to:
Emira shareholders 523 151 451 664 712 179
Non-controlling interest (217) — —
522 934 451 664 712 179
Condensed consolidated statement of financial position at 31 December 2017
Unaudited Unaudited Audited
R’000 31 Dec 2017 31 Dec 2016 30 Jun 2017
Assets
Non-current assets 13 401 135 13 265 373 13 157 379
Investment properties 11 331 794 11 954 055 11 827 631
Fixtures and fittings 76 045 83 357 77 887
Allowance for future rental
escalations 218 569 281 941 219 571
Unamortised upfront lease costs 37 118 19 220 38 340
Fair value of investment
properties 11 663 526 12 338 573 12 163 429
Listed property investment 940 647 924 160 901 390
Investment and loans in equity
accounted investments 713 504 — —
Loans receivable 72 365 — 56 796
Derivative financial instruments 11 093 2 640 35 764
Current assets 1 511 332 1 298 707 1 575 518
Accounts receivable and
prepayments 255 796 299 606 247 317
Loans receivable — — 40 252
Derivative financial instruments 92 738 75 863 27 130
Cash and cash equivalents 99 348 6 153 168 659
Investment properties held for
sale 1 063 450 917 085 1 092 160
Total assets 14 912 467 14 564 080 14 732 897
Equity and liabilities
Share capital and reserves 8 984 035 8 932 583 8 839 852
Treasury shares — (200 207) —
8 984 035 8 732 376 8 839 852
Non-current liabilities 2 965 930 3 523 136 3 525 520
Interest-bearing debt 2 953 077 3 519 077 3 478 439
Derivative financial instruments 12 853 4 059 47 081
Current liabilities 2 962 502 2 308 568 2 367 525
Short-term portion of interest-
bearing debt 2 522 741 1 858 532 1 900 760
Accounts payable 370 328 423 500 430 532
Derivative financial instruments 68 165 26 536 36 233
Deferred taxation 1 268 — —
Total equity and liabilities 14 912 467 14 564 080 14 732 897
Net asset value per share (cents) 1 761,0 1 758,7 1 734,7
Condensed consolidated statement of changes in equity
Foreign
Revaluation currency
and other translation
R’000 Shares reserves reserve
Balance at 1 July 2016 3 787 628 4 713 252 —
REIT restructure costs (554) — —
Total comprehensive income for the
period — — —
Dividend received on treasury shares — — —
Transfer to fair value reserve — 123 873 —
Dividend paid — September 2016 — — —
Balance at 31 December 2016 3 787 074 4 837 125 —
Balance at 1 July 2017 3 766 132 4 776 034 —
Shares recognised on partial repayment
of BEE vendor loan 9 702 — —
REIT restructure costs (373) — —
Total comprehensive income for the
period — — —
Exchange differences on translation of
foreign operations — — (6 053)
Transfer to fair value reserve — 236 989 —
Transfer to currency translation
reserve — — (8 836)
Dividend paid — September 2017 — — —
Balance at 31 December 2017 3 775 461 4 982 133 (14 889)
Non-
Retained controlling
R’000 earnings interest Total
Balance at 1 July 2016 356 768 — 8 857 648
REIT restructure costs — — (554)
Total comprehensive income for the
period 451 664 — 451 664
Dividend received on treasury shares 10 618 — 10 618
Transfer to fair value reserve (123 873) — —
Dividend paid — September 2016 (386 793) — (386 793)
Balance at 31 December 2016 308 384 — 8 932 583
Balance at 1 July 2017 297 686 — 8 839 852
Shares recognised on partial repayment
of BEE vendor loan — — 9 702
REIT restructure costs — — (373)
Total comprehensive income for the
period 529 204 (242) 528 962
Exchange differences on translation of
foreign operations — 25 (6 028)
Transfer to fair value reserve (236 989) — —
Transfer to currency translation
reserve 8 836 — —
Dividend paid — September 2017 (388 080) — (388 080)
Balance at 31 December 2017 241 547 (217) 8 984 035
Condensed consolidated statement of cash flows
Unaudited Unaudited Audited
six months six months year
ended ended ended
R’000 31 Dec 2017 31 Dec 2016 30 Jun 2017
Cash generated from operations 491 799 569 245 1 092 157
Finance income 6 499 6 263 11 278
Interest paid (204 462) (214 306) (438 089)
Taxation paid — — (383)
Dividend received on treasury
shares — 10 618 —
Dividends paid to shareholders (388 080) (386 793) (718 435)
Net cash utilised in operating
activities (94 244) (14 973) (53 472)
Acquisition of, and additions to,
investment properties and fixtures
and fittings (284 866) (318 518) (630 360)
Proceeds on disposal of investment 235 500 130 200 463 660
properties and fixtures and fittings
Acquisition of investment in
listed property fund — (44 781) (44 781)
Investment in equity accounted
investments (101 973) — —
Net cash utilised in investing
activities (151 339) (233 099) (211 481)
REIT restructure costs (373) (554) (654)
Shares recognised on partial
repayment of BEE vendor loan 9 702 — —
Shares repurchased — (200 207) (200 207)
Net proceeds of issue of shares —
BEE transaction — — 179 365
Share transfer tax on share buy-
back — — (1 469)
Interest-bearing debt raised 1 837 000 1 497 000 2 989 510
Interest-bearing debt repaid (1 633 285) (1 097 563) (2 588 482)
Net cash generated from financing
activities 213 044 198 676 378 063
Net increase in cash and cash
equivalents (32 539) (49 396) 113 110
Cash and cash equivalents at the
beginning of the period 168 659 55 549 55 549
Enyuka deconsolidation (36 772) — —
Cash and cash equivalents at the
end of the period 99 348 6 153 168 659
Notes
Basis of preparation and accounting policies
These unaudited condensed consolidated interim financial statements have
been prepared in accordance with International Financial Reporting Standards
(“IFRS”) including IAS 34: Interim Financial Reporting, the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee, Financial
Pronouncements as issued by the Financial Reporting Standards Council, the JSE
Listings Requirements and the requirements of the Companies Act of South Africa.
The accounting policies used in the preparation of these financial statements are
consistent with those used in the audited annual financial statements for the
year ended 30 June 2017.
This report was compiled under the supervision of Greg Booyens CA (SA), the
Chief Financial Officer of Emira.
These condensed consolidated interim financial statements have not been reviewed
or audited by Emira’s independent auditor, Ernst & Young Inc.
Segmental information
R’000 Office Retail
Revenue 355 090 351 337
Operating lease rental income and tenant recoveries 348 599 340 166
Allowance for future rental escalations 6 491 11 171
Profit for the period 253 222 243 372
Total assets 5 569 601 5 145 082
R’000 Industrial Other
Revenue 148 929 —
Operating lease rental income and tenant recoveries 151 913 —
Allowance for future rental escalations (2 984) —
Profit for the period 117 649 49 658
Total assets 1 920 050 705 932
R’000 Offshore Corporate Total
Revenue — — 855 356
Operating lease rental income and
tenant recoveries — — 840 678
Allowance for future rental escalations — — 14 678
Profit for the period 85 082 (220 021) 528 962
Total assets 1 040 462 531 340 14 912 467
Reconciliation between earnings and headline earnings and distributable
earnings
Restated Restated
Unaudited unaudited audited
six months six months year
ended ended ended
R’000 31 Dec 2017 31 Dec 2016 30 Jun 2017
Profit for the period
attributable to shareholders 528 962 451 664 712 179
Adjusted for:
Net fair value gain on revaluation
of investment
properties (89 759) (124 170) (208 177)
Headline earnings 439 203 327 494 504 002
Adjusted for:
Allowance for future rental
escalations (14 678) 12 525 73 548
Amortised upfront lease costs 2 995 5 838 9 440
Unrealised surplus on revaluation
of interest-rate swaps (43 707) (72 763) (11 386)
Revaluation of share appreciation
rights scheme derivative
financial instruments (110) (6 287) (6)
Charge/(credit) in respect of
leave pay provision and share
appreciation rights scheme 344 2 419 (718)
Unrealised (gain)/loss on
revaluation of listed property
investment (61 310) 531 33 742
Unrealised foreign exchange loss 30 890 60 454 50 013
Non-distributable income from
equity accounted investments (6 395) — —
Depreciation 4 478 5 909 10 743
Transaction and advisory fees 6 993 5 184 14 303
IFRS2 charge — BEE transaction — — 14 771
Deferred taxation 1 268 — —
Distributable portion of non-
controlling interest (87) — —
Dividend received on treasury
shares — 10 618 20 280
Enyuka associate accounting
adjustment — — 1 860
Interest received on BEE
transaction Vendor Loans 8 988 — —
Antecedent interest — — 19 404
Distributable earnings 368 872 351 922 739 996
Distribution per share
Interim (cents) 70,65 68,93 68,93
Final (cents) — — 74,25
70,65 68,93 143,18
Number of shares in issue at
the end of the period (including
treasury shares) 522 667 247 510 550 084 522 667 247
Treasury shares — (14 016 201) —
Number of shares in issue at the
end of the period (excluding
treasury shares) 522 667 247 496 533 883 522 667 247
Weighted average number of shares
in issue 509 214 644 500 482 281 498 521 707
Earnings per share (cents) 103,88 90,25 142,90
The calculation of earnings per
share is based on net profit for
the period of R529,0 million
(2016: R451,7 million), divided
by the weighted average number
of shares in issue during the
period of 509 214 644 (2016:
500 482 281).
Headline earnings per share
(cents) 86,25 65,44 101,10
The calculation of headline
earnings per share is based on
net profit for the period, adjusted
for non-trading items, of R439,2
million (2016: R327,5), divided by
the weighted average number of
shares in issue during the period
of 509 214 644 (2016: 500 482 281).
Diluted headline earnings per
share (cents) 86,25 65,44 101,10
Measurements of fair value
1. Financial instruments
The financial assets and liabilities measured at fair value in the statement
of financial position are grouped into the fair value hierarchy as follows:
Level 1 Level 2 Level 3 Total
R’000 Dec 2017 Dec 2017 Dec 2017 Dec 2017
Group
Assets
Investments 940 647 — — 940 647
Derivative financial instruments — 103 721 110 103 831
Total 940 647 103 721 110 1 044 478
Liabilities
Derivative financial instruments — 81 018 — 81 018
Total — 81 018 — 81 018
Net fair value 940 647 22 703 110 963 460
Level 1 Level 2 Level 3 Total
R’000 Dec 2016 Dec 2016 Dec 2016 Dec 2016
Group
Assets
Investments 924 160 — — 924 160
Derivative financial instruments — 75 193 3 310 78 503
Total 924 160 75 193 3 310 1 002 663
Liabilities
Derivative financial instruments — 30 595 — 30 595
Total — 30 595 — 30 595
Net fair value 924 160 44 598 3 310 972 068
The methods and valuation techniques used for the purpose of measuring fair
value are unchanged compared to the previous reporting period.
Investments
This comprises shares held in a listed property company at fair value
which is determined by reference to quoted closing prices at the reporting date.
Derivative financial instruments
The fair values of the interest-rate swap contracts are determined using
discounted cash flow projections based on estimates of future cash flows,
supported by the terms of the relevant swap agreements and external evidence
such as the ZAR 0-coupon perfect-fit swap curve.
The fair values of the cross-currency interest-rate swap contracts are valued
by discounting the future cash flows using the basis swap curve of the respective
currencies at the dates when the cash flows will take place.
The AUD and USD forward exchange contracts are valued by discounting the forward
rates applied at the period end to the open hedged positions.
The call option contracts relating to the employee share scheme are valued using
a Black Scholes option pricing model. The expected volatility of the unit price
of the call options was 16,35% and the risk-free discount rate used ranged
between 6,93% and 6,94%. Management considers the key input in the valuation
to be the spot price. A 10% increase in the spot price results in an increase
to the call options of R0,8m. A 10% decrease in the spot price results in a
decrease to the call options of R0,4m. The call option contracts have been
classified as Level 3. During the period R0,6m of the option premiums relating
to these contracts were amortised and a fair value loss of R1,5m was recognised
at 31 December 2017.
The forward contracts relating to the employee share scheme are valued using a
financial model. Management considers the key input in the valuation to be the
spot price. A 10% increase in the spot price results in an increase to the
forward contracts of R11,9m. A 10% decrease in the spot price results in a
decrease to the forward contracts of R11,9m.
2. Non-financial assets
The following table reflects the levels within the hierarchy of non-financial
assets measured at fair value at 31 December 2017:
2017 2016
R’000 Level 3 Level 3
Assets
Investment properties 11 663 526 12 338 573
Investment properties held for sale 1 063 450 917 085
Fair value measurement of investment properties
The fair value of commercial buildings is estimated using an income approach
which discounts the estimated rental income stream, net of projected operating
costs, as well as an exit value, using a discount rate derived from market yields.
The estimated rental stream takes into account current occupancy levels, estimates
of future vacancy levels, the terms of in-place leases and expectations of rentals
from future leases over the remaining economic life of the buildings.
The most significant inputs, all of which are unobservable, are the estimated
rental value, assumptions regarding vacancy levels, the discount rate and the
reversionary capitalisation rate. The estimated fair value increases if the
estimated rentals increase, vacancy levels decline or if discount rates (market
yields) and reversionary capitalisation rates decline. The overall valuations are
sensitive to all four assumptions. Management considers the range of reasonable
possible alternative assumptions to be greatest for reversionary capitalisation
rates, rental values and vacancy levels and that there is also an interrelationship
between these inputs. The inputs used in the valuations at 31 December 2017 were
the following:
* The range of the reversionary capitalisation rates applied to the portfolio are
between 7,25% and 12,50% with the weighted average, by value, being 9,33%
(2016: 9,52%).
* The discount rates applied range between 12,50% and 17,00% with the weighted
average, by value, being 14,36% (2016: 14,50%).
* Changes in discount rates and reversionary capitalisation rates attributable to
changes in market conditions can have a significant impact on property
valuations. A 25 basis points increase in the discount rate will decrease the
value of investment property by R199,7m (1,57%) and a 25 basis points decrease
will increase the value of investment property by R206,9m (1,63%). A 25 basis
points decrease in the reversionary capitalisation rate will increase the value
of investment property by R209,1m (1,64%) and a 25 basis points increase will
decrease the value of investment property by R197,8m (1,55%).
Fair values are estimated twice a year by Emira’s internal registered valuer,
whereafter they are reviewed by the executive directors and approved by the Board
of Directors. One third of the portfolio is valued externally each year on a
rolling basis.
Fair value measurement of investment properties held for sale
The fair value of investment properties held for sale is based on the expected
sale price.
Date: 14/02/2018 11:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
