Wrap Text
Preliminary summarised audited consolidated financial results for the year ended 31 December 2017
SA Corporate Real Estate Limited
("SA Corporate" or "the Group")
Incorporated in the Republic of South Africa
Share Code: SAC; ISIN Code: ZAE000203238
(Registration number 2015/015578/06)
PRELIMINARY SUMMARISED AUDITED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017
Distribution growth
- Full year 4.4% higher than 2016
- 1st and 2nd half both 4.4% higher than 2016
Capital structure
- 70.1% of debt fixed
- R0.6bn of equity raised from the issue of 113m shares
Portfolio activity
- Completed and committed developments of R2,1bn
- Acquisitions and contracted acquisitions R3,1bn
Property performance
- NPI growth of 13.7%
- Traditional portfolio tenant retention is 81.6%
- Retail positive rental reversions of 5.5%
- Traditional portfolio vacancy of 2.3% of GLA
INTRODUCTION
SA Corporate Real Estate Limited is a JSE-listed Real Estate Investment Trust (“REIT”) which owns a diversified portfolio of industrial, retail, commercial, storage and residential buildings located primarily in the major metropolitan areas of South Africa with a secondary node in Zambia.
REVIEW OF FINANCIAL RESULTS AND PORTFOLIO PERFORMANCE
Distribution Growth
SA Corporate delivered growth in distributions per share for the year ended December 2017 of 4.4%. This amounts to a full year distribution of 44.92 cents per share (“cps”) (2016: 43.02 cps) and a second half distribution of 22.54 cps (2016: 21.58 cps).
Portfolio Performance
Total net property income (“NPI”) increased by 13.7%, with the like-for-like increasing by 5.7%.
Retail NPI growth of 14.2% was underpinned by strong tenant retentions of 79.9%, weighted average lease escalations of 7.6%, positive reversions of 5.5%, reduction in vacancies by gross letting area (“GLA”) and rental income of 1.4% and 0.3% respectively and acquisitions contributing 5.6%. The retail like-for-like (excluding developments) portfolio grew by 6.8% and if the growth generated from solar installations and green initiatives is included, this increases to 8.7%. The overall retail performance was further enhanced by proactive unlocking of value in the retail portfolio through redevelopments and improvements to tenant mix.
Industrial like-for-like portfolio NPI growth of 5.9% was better than inflation, supported by 8.0% rental escalations and tenant retentions of 83.9%.
Afhco NPI grew by 52.1% due to net positive investment activities. Afhco like-for-like NPI grew marginally by 0.9%, mainly due to increased vacancies and security costs especially in the fashion district. Increased vacancies arose as a result of competition further impacted like-for-like performance, necessitating mitigating measures to rebase the inner-city portfolio. These initially impacted returns in the short-term, through the introduction of lifestyle improvements, loyalty programs, transportation and increased security. Afhco residential vacancies were 7.3% in December 2017 (2016: 10.4%). This includes the transfer of the first newly developed building still to be tenanted to the Calgro M3 joint venture late in December 2017, excluding which the vacancy would have been 5.7%. Afhco incurred losses as a consequence of vacating the Nukerk building to comply with the sale agreement with the purchaser which the purchaser did not implement. The Group is negotiating to recover these losses.
The income from the investment in the Zambian joint venture reduced by 13.6%, due primarily to the appreciation of the Rand and the expiry of the yield guarantee.
Net Finance Costs
Net funding cost increased by 36.1%, this is aligned to the increase in investment activity resulting in increased debt levels. This is also attributable to increased marginal cost of funding in respect of refinancing of expiring debt and a reduction in borrowing costs capitalised in respect of the completion of major retail developments.
Antecedent Distribution
The Group successfully raised R600m of equity by issuing 113,207,547 shares via a combination of an issuance for cash at a discounted price of 530 cps cum dividend. This resulted in an antecedent distribution of R26,0m.
DISTRIBUTION STATEMENT
Year ended Year ended
DISTRIBUTABLE EARNINGS (R000) 31.12.2017 31.12.2016
Rent (excluding straight line rental
adjustment and NCI 1) 1,509,425 1,328,181
Net property expenses (138,909) (123,171)
Property expenses (711,433) (614,981)
Recovery of property expenses 572,524 491,810
Net property income 1,370,516 1,205,010
Investment in joint venture 58,960 68,221
Taxation on distributable earnings (260) (1,008)
Dividends from investments in listed shares 23,783 -
Net finance cost (308,443) (226,569)
Interest income 78,263 48,349
Interest expense (386,706) (274,918)
Distribution related expenses (45,506) (47,569)
Distribution related income 11,631 -
Antecedent distribution 26,029 17,624
Distributable earnings 1,136,710 1,015,709
Interim 566,355 493,925
Final 570,355 521,784
Shares in issue (000) 2,530,689 2,417,482
Weighted number of shares in issue (000) 2,473,310 2,320,805
Distribution (cents per share) 44.92 43.02
Interim 22.38 21.44
Final 22.54 21.58
1 NCI = Rent attributable to non-controlling interest
PROPERTY VALUATIONS
The Group's independently valued property portfolio increased by R1,8bn (12.0%) to R16,8bn as at December 2017 (December 2016: R15,0bn). This excludes the Zambian portfolio of R0,8bn that has been equity accounted but includes the net investment of R1,8bn in respect of acquisitions, developments, capex and disposals. The like-for-like portfolio held for the full 12 months to December 2017 increased by R424,8m (4.3%) from December 2016.
The capitalisation and discount rates in the Group's like-for-like portfolio at 31 December 2017 were calculated on a weighted average basis:
Sector Capitalisation Discount rate (%) Growth in like-for
rate (%) -like portfolio (%)
31.12.2017 31.12.2016 31.12.2017 31.12.2016 31.12.2017
Industrial 9.3 9.1 15.3 15.1 2.9
Retail 8.7 8.7 14.7 14.7 6.7
Commercial 9.0 8.9 15.0 14.9 3.4
Afhco 10.3 10.3 * * 4.1
Weighted average 9.4 9.2 15.1 14.9 4.3
* Afhco properties are not valued on a discounted rate basis, but on the basis of capitalisation of the net income earnings in perpetuity, due to the short term nature of residential leases.
The NAV per share (514 cps) increased by 3.0% (December 2016: 499 cps) of which an increase of 3.5% is attributable to property valuations, and 0.4% is attributable to foreign exchange adjustments, reduced by swap, investment in properties and investment in listed shares valuations representing 0.4%, 0.3% and 0.2% respectively.
PROPERTY PORTFOLIO
The portfolio comprised 196 properties (December 2016: 179) which excludes the 3 Zambian properties held as a 50% investment in a JV. The sectoral and geographic spread by value as at 31 December 2017 are set out below:
Sectoral Spread
Retail
R7,1bn
360,528 m2
27 properties
43%
Industrial
R4,8bn
738,576 m2
86 properties
29%
Afhco
R3,4bn
351,254 m2
56 properties
21%
Commercial
R1,0bn
63,237 m2
13 properties
6%
Storage
R0,1bn
23,468 m2
14 properties
1%
Geographic Spread
Gauteng
R10,2bn
970,067 m2
131 properties
62%
KwaZulu-Natal
R5,0bn
409,405 m2
48 properties
30%
Western Cape
R0,7bn
73,661 m2
11 properties
5%
Other
R0,4bn
71,260 m2
5 properties
2%
Limpopo
R0,1bn
12,670 m2
1 property
1%
The above excludes:
1. Development bulk across the Traditional, Afhco and Storage portfolios measuring 162,147m2 comprising 16 properties and valued at R0,4bn
2. Listed investments of R0,2bn
3. Joint venture investment in Zambia valued at R0,8bn
4. Non-controlling interest
Redevelopments completed:
Properties Total Completion Yield Sector Region
development date forecast
cost(Rm) 1st 12
months
(%)
East Point, Boksburg 499,0 05/2017 9.0 Retail Gauteng
Hayfields Mall,
Pietermaritzburg 37,3 08/2017 9.1 Retail KwaZulu- Natal
Umlazi Mega City, Umlazi 1 278,0 12/2017 9.5 Retail KwaZulu- Natal
Midway Mews, Halfway
Gardens 32,7 12/2017 8.8 2 Retail Gauteng
Cambridge Crossing, Sandton 61,8 12/2017 9.0 2 Retail Gauteng
Total 908,8 9.1
1 75% Undivided share of development cost
2 The yield ex defensive capital is 11.8% and 11.5% respectively
Committed Redevelopments:
Properties Total Forecast Yield Sector Region
development completion forecast
cost(Rm) date 1st 12
months
(%)
Cullinan Jewel Shopping
Centre, Pretoria 14,5 01/2018 9.0 Retail Gauteng
57 Sarel Baard Crescent,
Centurion 391,0 08/2018 7.9 1 Industrial Gauteng
Cnr Old Pretoria and
Alexandra Roads,
Midrand 140,0 12/2019 10.0 2 Commercial/ Gauteng Residential
252 Montrose Ave, Randburg 92,0 04/2019 10.5 Commercial/ Gauteng
Residential
North Park Mall
Residential, Pretoria 141,7 03/2019 10.0 Retail/ Gauteng
Residential
Afhco pipeline 3 425,7 10/2018 10.8 Retail/ Gauteng
-08/2019 Residential
Total 1 204,9 9.6
1 Yield of 7.9% based on the pre-development valuation using a market rental, which is a negative 40% reversion on the closing rental of an initial 5 year lease renewed for a further 7 year period.
2 Development cost net of proceeds from sale of units.
3 Includes bulk acquired for development of R28,2m. In addition to the above, Afhco owns and has contracted development bulk which represents a pipeline of R1,1bn in the next 4 years.
Acquisitions:
Properties/Listed Property Cost Acquisi- Yield Sector Region
Investment
(Rm) tion forecast
date 1st 12
months
(%)
Steelport Residential,
Steelport 79,8 01/2017 10.3 Residential Limpopo
Friendship Town, Midrand 72,0 02/2017 11.0 Residential Gauteng
Long Street Precinct Bulk,
Jeppestown 29,7 02/2017 # Residential Gauteng
-04/2017
Reef Acres, Springs 43,5 02/2017 10.0 Residential Gauteng
Andrea Close & Dennehof and
Bloekomhof, Vereeniging 40,6 03/2017 11.0 Residential Gauteng
51 Pritchard Street,
Johannesburg CBD 178,0 03/2017 10.3 Retail Gauteng
Erf 286 Erand (storage
land) 12,2 04/2017 # Storage Gauteng
Indirect Investment in
Phase 3A, Zambia 23,2 04/2017 9.0^ Retail Zambia
Cnr of Rockey and Davies
Streets, Doornfontein 5,5 05/2017 # Retail Gauteng
Erf 8383 Milnerton (retail
& storage development land) 22,5 06/2017 # Storage Western
Cape
African City Mall Phase 1,
Johannesburg CBD 41,1 07/2017 10.3 Retail Gauteng
Storage Genie Leasehold
properties 65,6 07/2017 18.3 Storage Gauteng
Reef Acres (Real right
of extension), Springs 1,3 07/2017 # Residential Gauteng
Safari Investments RSA Ltd
- 20 000 000 shares 152,0 07/2017 *
Northgate Heights Phase
1A, Northgate 18,0 07/2017 10.0 Residential Gauteng
M&T Development - Burgundy,
Centurion 75,8 08/2017 8.7 1 Residential Gauteng
M&T Development - Minuet
Phases 1 & 2, Midrand 48,7 08/2017 10.0 Residential Gauteng
Golf Park, Phillip Nel Park,
Pretoria 98,0 08/2017 10.3 Residential Gauteng
Panama House Phases 1 & 2,
Johannesburg CBD 99,8 09/2017 10.0 Residential Gauteng
Northgate Heights Phase 1B,
Northgate 16,4 09/2017 10.0 Residential Gauteng
African City Mall Phase 2A,
Johannesburg CBD 14,3 10/2017 11.0 Retail Gauteng
Northgate Heights Phases
1C & 1D, Northgate 19,8 12/2017 10.0 Residential Gauteng
Calderwood, Boksburg 164,3 12/2017 10.0 Residential Gauteng
Indirect investment in
Phase 3B, Zambia 38,5 12/2017 9.0^ Retail Zambia
Calgro M3 Developments -
South Hills Phases 1A-1C,
South Hills 74,1 12/2017 10.7 Residential Gauteng
Calgro M3 Developments -
Scottsdene Phase 1,
Scottsdene 15,3 12/2017 10.7 Residential Western
Cape
Total 1 450,1 10.6
# Land/Bulk acquired for development
* Listed property investment; not included in investment property
^ Yield in USD
1 Units are in the process of being sold with an anticipated annualised return of at least 20%
Contracted and Unconditional Acquisitions:
Properties Cost Acquisi- Yield Sector Region
(Rm) tion forecast
date^ 1st 12
months
(%)
Northgate Heights Phase 1E,
Northgate 3,5 01/2018 1 10.0 Residential Gauteng
Calgro M3 Developments
Phases 1-5 759,4 02/2018 10.7 Residential Gauteng/
-11/2018 Western
Cape
Northgate Heights Phase
2&3, Northgate 58,6 02/2018 11.0 Residential Gauteng
-05/2018
M&T Development - Etude
Phases 1-6, Midrand 252,3 03/2018 10.0 Residential Gauteng
-09/2018
Long Street Precinct bulk
(Parcels 5-7), Jeppestown 12,2 04/2018 # Residential Gauteng
African City Mall Phase 2B,
Johannesburg CBD 21,0 07/2018 11.0 Retail Gauteng
M&T Development - Founders
Hill Phases 1-6, Founders
Hill 2 289,8 08/2018 10.0 Residential Gauteng
-03/2020
Total 1 396,8 10.5
^ Acquisition date represents the expected effective date of the transaction
# Land/Bulk acquired for development
1 Transferred
2 Represents 60% ownership
Contracted and Conditional Acquisitions:
Properties Cost Acquisi- Yield Sector Region
(Rm) tion forecast
date^ 1st 12
months
(%)
The Oaks, Ermelo 105,0 03/2018 10.7 Retail Mpumalanga
Storage Genie Freehold
properties 148,3 07/2018 11.1 Storage Gauteng
-01/2019
Total 253,3 10.9
^ Acquisition date represents the expected effective date of the transaction
Disposals:
Properties Transfer Gross Exit Sector Region
date selling yield
price on sale
(Rm) price
(%)
35 Circuit Road, Westmead 01/2017 15,0 7.6 Industrial KwaZulu-
Natal
Pine Crest Shopping Centre,
Pinetown 1 03/2017 407,0 8.2 Retail KwaZulu-
Natal
36 Wankel Street, Jet Park 05/2017 37,0 7.1 Industrial Gauteng
African Diamond,
Johannesburg CBD 10/2017 25,0 6.8 Residential Gauteng
Textile House, Johannesburg
CBD 10/2017 55,0 9.5 Residential Gauteng
Total 539,0 8.2
1 Sale of 50% undivided share; exit yield of 8.2% was calculated on the selling price plus defensive capex and is 8.6% excluding defensive capex
Contracted Disposals:
Properties Expected Gross Exit Sector Region
transfer selling yield
date price on sale
(Rm) price
(%)
Atterbury Décor, Pretoria# 01/2018 1 86,8 8.6 Retail Gauteng
Lebombo Road, Garsfontein
(Portion)# 03/2018 12,0 6.2 Commercial Gauteng
Rhodesdene Shopping
Centre, Kimberley # 03/2018 52,0 8.8 Retail Eastern
Cape
Hotel at Cullinan Jewel
Shopping Centre, Pretoria 03/2018 2,7 9.0 Retail Gauteng
22 Voortrekker Road,
Vredenburg # 04/2018 78,5 8.8 2 Commercial Western
Cape
28 Durham Street,
Mthatha # 04/2018 86,5 8.8 2 Commercial Eastern
Cape
6 Cedarfield Close,
Springfield Park # 04/2018 57,0 12.1 3 Industrial KwaZulu-
Natal
9/15 Lanner Road, New
Germany 04/2018 36,0 7.9 Industrial KwaZulu-
Natal
21 Pomona Road, Pomona # 04/2018 18,3 8.0 Industrial Gauteng
1/5 Stockville Road,
Westmead 04/2018 53,6 7.7 Industrial KwaZulu-
Natal
11 Coconut Grove,
Shakashead # 04/2018 2,4 7.6 Industrial KwaZulu-
Natal
Beryl Street, Jet Park
Ext 3, Boksburg 06/2018 479,0 8.8 Industrial Gauteng
The Mall, Vanderbijl
Park # 12/2018 13,6 10.0 Afhco Retail Gauteng
Total 978,4 8.9
# Contracted and unconditional
1 Transferred
2 Blended yield
3 Exit yield in year 2 is 6.8% due to a negative reversion
VACANCIES AND LEASE EXPIRIES
Vacancies in terms of rentable area and rental income were as follows:
Sector Vacancy as % of GLA* Vacancy as % of rental income
31.12.2017 31.12.2016 31.12.2017 31.12.2016
Traditional Portfolio:
Industrial 1.5 1.1 1.0 0.9
Retail 3.1 4.5 3.0 3.3
Commercial 6.4 8.8 6.0 5.4
Traditional Portfolio
total 2.3 2.7 2.4 2.5
Storage Portfolio:
Storage 1 16.5 - 22.9 -
Storage Portfolio total 16.5 - 22.9 -
Afhco Portfolio:
Residential 2 7.3 10.4 9.2 11.1
Retail / Commercial 2.1 3.4 1.7 3.3
Afhco Portfolio total 7.0 8.7 7.4 8.7
Rest of Africa Portfolio:
Retail 2.7 8.8 1.7 4.0
Commercial 10.7 4.7 8.0 4.4
Rest of Africa
Portfolio total 4.3 7.9 3.0 4.1
* GLA = Gross lettable area
1 Vacancy calculated on number of units, influenced by tenanting up phases on properties in Fourways and Sandton.
2 Vacancy calculated on number of units and includes a fully vacant acquisition into Calgro M3 joint venture in December 2017 without which the residential vacancy would be 5.7%.
The traditional portfolio vacancies by GLA reduced to 2.3% (2016: 2.7%) and a decrease in vacancy by rental income to 2.4% (2016: 2.5%). The reduction in vacancies by GLA stem from further improvements in retail and commercial vacancies with a marginal increase in industrial vacancies which remains well below the sector average.
Afhco retail vacancies continued on a downward trajectory. Residential vacancies were lower than 2016, due to diversification into suburban residential and mitigating measures taken to stem vacancies in the inner-city portfolio.
There has been an improvement in the Zambian retail vacancies due to the take up of the vacant space at Jacaranda Mall in the last quarter of the year. The increase in commercial vacancies is due to a tenant occupying 1,338m2, vacating in the second half of the year. The Group is in discussions with two corporate tenants in respect of potential re-tenanting.
The lease expiry profile and vacancies (by GLA) are set out below:
Sector Vacancy (%) Expiries (%)
Monthly 2018 2019 2020 2021 Thereafter
Traditional Portfolio:
Industrial 1.5 0.9 26.9 17.4 11.0 17.8 24.5
Retail 3.1 6.9 16.1 13.6 17.5 11.1 31.7
Commercial 6.4 5.7 17.9 16.6 22.2 24.9 6.3
Traditional Portfolio
total 2.3 3.0 23.1 16.2 13.7 16.3 25.4
Afhco Portfolio:
Residential 7.3 45.9 46.7 0.1 - - -
Retail / Commercial 2.1 11.1 17.8 11.4 25.1 10.6 21.9
Afhco Portfolio total 7.0 35.8 39.8 2.9 6.3 2.6 5.6
Rest of Africa
Portfolio:
Retail 2.7 - 4.2 33.0 13.1 16.7 30.3
Commercial 10.7 - 4.0 52.6 17.7 8.7 6.3
Rest of Africa
Portfolio total 4.3 - 4.2 36.9 14.1 15.1 25.4
The expiry profile of the storage sector is not disclosed due to the short term nature of the leases.
TENANT RETENTION, RENTAL REVERSIONS AND ESCALATIONS
The table below reflects the Group's retention ratio, rental reversions and escalations per sector for the year ended December 2017:
Sector Expiries Retention Retention Rental Escalation
(m2) (m2) (%) reversions (%)
(%)
Traditional Portfolio:
Industrial 159,113 133,510 83.9 (2.4) 8.0
Retail 62,891 50,281 79.9 5.5 7.6
Commercial 10,997 6,425 58.4 (12.3) 7.9
Traditional Portfolio
total 233,001 190,216 81.6 0.8 7.8
Afhco Portfolio:
Retail / Commercial 5,875 4,124 70.2 0.2 9.0
With 20% of the traditional portfolio expiring in 2017, the Group successfully retained 81.6% of its tenants at a total reversion of 0.8%. Amid trying economic conditions, the retail portfolio achieved positive reversions of 5.5%. Commercial reversions were negative, with continued poor performance of this sector. SA Corporate remains underweight in this sector and considers conversion to residential use where the location, demand and viability makes sense.
Afhco retail/commercial portfolio expiries were 6.9% of which, 70.2% were retained with a positive reversion of 0.2%. The reversions were negatively impacted by a tenant occupying 698m2, downsizing and renewing at a lower rental. If this reversion is excluded, the rental reversion would have been 3.5%.
BORROWINGS
The debt profile as at 31 December 2017 is detailed below:
Facility Maturity date Value (Rm) Interest Rate (%)
Term revolver 1 26.06.2018 675 8.66
Fixed 13.08.2018 200 8.95
Fixed 13.08.2018 270 8.90
Fixed 13.08.2018 30 8.90
Term revolver 2 24.03.2019 - 8.81
Term revolver 3 01.11.2019 - 8.93
Fixed 15.12.2019 848 9.14
Fixed 03.01.2020 500 9.06
Fixed 13.06.2020 950 9.12
Fixed 4 01.11.2020 334 3.59
Fixed 11.12.2020 500 9.16
Fixed 11.12.2021 500 9.29
Fixed 13.12.2021 550 9.19
Fixed 11.12.2022 300 9.35
Amortising 15.04.2024 111 6.88
Sub-total 5,768 8.72
Cross Currency Swap 19.09.2022 (132) 9.35
Cross Currency Swap 4 19.09.2022 124 3.98
Total/weighted average 5,760 8.61
1 R750m revolving credit facility undrawn
2 R200m revolving credit facility undrawn
3 R300m revolving credit facility undrawn
4 US Dollar denominated loan
The loan to value (“LTV”) has increased from 29.0% at 31 December 2016 to 32.4% as at 31 December 2017.
The weighted average cost of debt was 8.4% excluding swaps and 8.6% including swaps with a weighted average swap margin of 0.205% and a weighted average debt margin of 1.67%.
The weighted average tenor of loans is 2.7 years, which includes facilities maturing in June and August 2018, excluding which the weighted average tenor of loans would be 3.1 years.
The R1,2bn loan which expired in December 2017 was successfully refinanced and an additional R800m of debt was raised to fund the acquisitions and developments.
The Group entered into a cross currency swap, swapping R132m of debt at a variable rate of 9.35% for a $10m debt at a fixed rate of 3.98%.
70.1% of total debt drawn was fixed through a combination of fixed rate debt and interest rate swaps in respect of its variable debt for a period of 3.3 years.
STRATEGY AND PROSPECTS
SA Corporate's objective in 2018 is to consolidate the Group's asset base and position its portfolio for sustainable future growth. This is to be achieved by:
- Divesting from industrial and commercial properties that are at risk of extended periods of vacancies or substantial negative rental reversions. Capital proceeds from the aforementioned disposals are to be redeployed in the redevelopment of existing warehousing to state of the art logistics facilities and by improving the quality of the portfolio to meet tenants' operational requirements.
- Continuing to enhance the quality of the Group's retail property portfolio through the redevelopment of its existing portfolio, an investment strategy focussed on food services and convenience, implementing yield enhancing energy efficiency projects and increasing non-GLA income.
- Ensuring the Afhco residential portfolio contributes to sustainable distribution growth for the group by active asset management in recycling capital from poorer quality properties to well located, newly developed assets. Recent interventions in respect of marketing, building improvements, amenities, property management and leasing that have been successful in reducing vacancies will be deployed further to generate robust net property income growth from the portfolio.
The like-for-like (“LFL”) retail portfolio is anticipated to show strong growth above inflation which is to be partially offset by the additional cost of capital on 2017 defensive capex. The LFL industrial portfolio is expected to generate growth of circa 2% impacted by negative renewal reversions from long leases. The strategic redevelopment of a blue chip tenanted distribution centre in Centurion, whilst creating a flagship industrial asset generating predictable growing cash flows for the next decade, will initially negatively affect the industrial portfolio’s contribution to distribution. Improvements to the Afhco portfolio are expected to result in it achieving inflationary growth in 2018. The Zambian investment's positive US$ growth is to be partially offset by the effect of the appreciation of the ZAR against the US$. Non-recurring base effects of reversals and recoveries, once off transactional fees, the acquisition of Safari shares cum dividend in 2017 and increased refinancing costs in 2018 are to further negate growth in 2018.
Based on the aforementioned the Board's view is that distribution growth will be flat for the 2018 year with a weaker first half followed by a stronger second half. The 2019 distribution is anticipated to grow by at least inflation.
As at As at
SUMMARISED CONSOLIDATED STATEMENT 31.12.2017 31.12.2016
OF FINANCIAL POSITION (R000) Audited Audited
Assets
Non-current assets 17,340,262 15,571,401
Investment property 15,712,340 14,357,675
Letting commissions and tenant installations 48,187 54,410
Investment in joint ventures 847,033 799,389
Property, plant and equipment 16,703 8,369
Intangible assets 81,904 81,904
Swap derivatives 138,849 37,444
Rental receivable - straight line adjustment 191,348 175,695
Listed shares 170,260 52,800
Other financial assets 2,611 1,806
Loans to developers 131,027 -
Deferred taxation - 1,909
Current assets 1,160,363 972,116
Trade and other receivables 351,093 350,432
Other financial assets 215,795 112,090
Swap derivatives 12,609 10,009
Rental receivable - straight line adjustment 40,509 43,741
Inventory 157 71
Loans to developers 263,894 263,956
Taxation receivable 852 437
Cash and cash equivalents 275,454 191,380
Non-current assets held for sale 890,271 445,694
Properties classified as held for disposal 888,736 444,700
Letting commissions and tenant installations 1,535 994
Total assets 19,390,896 16,989,211
Share capital, reserves and liabilities
Share capital and reserves 13,008,861 12,070,009
Non-current liabilities 4,821,772 3,439,813
Interest bearing borrowings - Local 4,481,806 3,318,983
Interest bearing borrowings - Foreign 93,605 112,475
Swap derivatives 154,554 8,355
Loan from non-controlling shareholder 90,191 -
Deferred tax 1,616 -
Current liabilities 1,560,263 1,479,389
Trade and other payables 349,073 302,082
Interest bearing borrowings - Local 1,175,357 1,152,000
Interest bearing borrowings - Foreign 17,019 17,019
Swap derivatives 18,474 8,288
Taxation payable 340 -
Total share capital, reserves and liabilities 19,390,896 16,989,211
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT 31.12.2017 31.12.2016
OF COMPREHENSIVE INCOME (R000) Audited Audited
Revenue 2,113,844 1,833,085
Income 2,225,341 1,881,434
Rent 1,509,933 1,328,181
Straight line rental adjustment 31,387 13,094
Recovery of property expenses 572,524 491,810
Interest income 78,263 48,349
Dividends from investments in listed shares 16,138 -
Other group income 17,096 -
Expenses (1,166,172) (953,663)
Audit fees (3,276) (2,950)
Administrative fees (60,631) (58,440)
Depreciation (4,126) (2,422)
Interest expense (386,706) (274,918)
Property expenses (628,377) (547,398)
Property administration fees (83,056) (67,583)
Straight line rental adjustment - 48
Operating income 1,059,169 927,771
Capital (loss)/gain on disposal of investment
properties and property, plant and equipment (8,430) 299
Foreign exchange adjustments 37,176 49,520
Gain on acquisition of subsidiaries - 232
Profit from joint ventures 121,333 85,288
Revaluation of investment properties and listed
investments 372,925 1,508,063
- Revaluations 404,312 1,521,157
- Straight line rental adjustment (31,387) (13,094)
Revaluation of swap derivatives (52,380) (90,162)
Profit before taxation 1,529,793 2,481,011
Taxation charged (3,656) (1,008)
Profit after taxation 1,526,137 2,480,003
Other comprehensive income, net of taxation
Items that may be reclassified to profit or loss
Foreign exchange adjustments on investment in
joint ventures (88,018) (117,773)
Total comprehensive income 1,438,119 2,362,230
Profit attributable to:
Owners of the company 1,525,629 2,480,003
Non-controlling interest 508 -
Profit after taxation 1,526,137 2,480,003
Earnings and diluted earnings cents per share 61.68 106.86
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT OF 31.12.2017 31.12.2016
CHANGES IN EQUITY (R000) Audited Audited
Share capital and reserves at the beginning
of the year 12,070,009 9,980,915
Total comprehensive income for the year 1,438,119 2,362,230
Shares issued 568,569 658,103
Treasury shares repurchased (10,071) (7,098)
Antecedent distribution 26,029 17,624
Share-based payment reserve 4,340 7,565
Distribution attributable to shareholders (1,088,134) (949,330)
Share capital and reserves at the end of the year 13,008,861 12,070,009
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT 31.12.2017 31.12.2016
OF CASH FLOWS (R000) Audited Audited
Operating profit before working capital changes 1,374,678 1,180,390
Working capital changes 17,230 (18,702)
Cash generated from operations 1,391,908 1,161,688
Operating activities changes (1,450,793) (1,253,239)
Interest received 78,415 48,240
Interest paid (440,868) (351,254)
Taxation paid (206) (895)
Distributions paid (1,088,134) (949,330)
Net cash outflows from operating activities (58,885) (91,551)
Net cash outflows from investing activities (1,736,245) (1,335,723)
Net cash inflows from financing activities 1,879,204 1,308,313
Increase in borrowings 1,204,486 728,404
Issue of new shares 594,598 600,027
Treasury shares repurchased (10,071) (7,098)
Loan to developer - (13,020)
Loan from non-controlling shareholder 90,191 -
Net increase / (decrease) in cash and cash
equivalents 84,074 (118,961)
Cash and cash equivalents at the beginning of year 191,380 310,341
Cash and cash equivalents at the end of year 275,454 191,380
NOTES
Basis for preparation
The summarised consolidated financial statements have been prepared in accordance with the requirements of the JSE Limited Listings Requirements and the Companies Act, No. 71 of 2008. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (“IFRS”), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting 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 summarised consolidated financial statements were derived, are in terms of IFRS and are consistent with the accounting policies applied in the preparation of the prior year consolidated financial statements. This report and the consolidated financial statements were compiled under the supervision of AM Basson CA(SA), the financial director. The auditors, Deloitte & Touche, have issued their unmodified opinion on the consolidated financial statements for the year ended 31 December 2017. A copy of their audit report and the financial statements are available for inspection on the website and at the Group's registered address. The audit was conducted in accordance with International Standards on Auditing. These preliminary summarised consolidated financial statements have been derived from the consolidated financial statements and are consistent, in all material respects, with the consolidated financial statements. The summarised financial statements report has been audited by Deloitte & Touche and an unmodified audit opinion has been issued. The auditor's report does not necessarily report on all of the information contained in this announcement. 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 that report together with the accompanying financial information from SA Corporate's registered address or on the Company website. Any reference to future financial performance or prospects included in this announcement has not been reviewed or reported on by the Group's auditors.
1. Reconciliation of profit after tax to headline earnings and distributable earnings attributable to shareholders
Year ended Year ended
31.12.2017 31.12.2016
Audited Audited
R000 CPS R000 CPS
Profit after taxation attributable
to shareholders 1,525,629 61.68* 2,480,003 106.86*
Adjustments for:
Capital (loss)/profit on disposal of
investment properties and property,
plant and equipment 8,430 (299)
Revaluation of investment properties
and joint ventures (475 794) (1,525,695)
Gain on acquisition of subsidiaries - (232)
Headline earnings 1,058,265 42.79* 953,777 41.10*
Antecedent distribution 26,029 17,624
Taxation on distributable income 3,396 -
Depreciation 4,126 2,422
Foreign exchange adjustments (37,176) (49,520)
Dividend from investment in listed
shares not yet declared 7,645 -
Revaluation of listed shares 34,540 (8,250)
Non-distributable expenses 18,401 21,644
Revaluation of interest rate swap
derivatives 52,380 90,162
Straight line rental adjustment (31,387) (13,094)
Non-distributable expenses on investment
in joint ventures 491 944
Distributable earnings attributable
to shareholders 1,136,710 44.92 1,015,709 43.02
Interim 566,355 22.38 493,925 21.44
Final 570,355 22.54 521,784 21.58
* calculated on weighted number of shares in issue
2. Audited primary operational segments (R000)
Business Industrial Retail Commer- Afhco Storage Group
segment cial
Revenue 605,400 932,048 128,889 437,652 9,855 2,113,844
Rental income
(excluding
straight line
rental
adjustment) 516,069 555,598 96,945 331,541 9,780 1,509,933
Net property
expenditure (46,328) (1,770) (19,062) (67,487) (4,262) (138,909)
Property
expenses (145,263) (341,165) (49,682) (170,986) (4,337) (711,433)
Recovery of
property
expenses 98,935 339,395 30,620 103,499 75 572,524
Net property
income 469,741 553,828 77,883 264,054 5,518 1,371,024
Straight line
rental adjustment (9,604) 37,055 1,324 2,612 - 31,387
Net interest
expense - - - - - (308,443)
Dividend from fixed
property
companies - - - - - 16,138
Other income - - - - - 17,096
Foreign exchange
adjustments - - - - - 37,176
Group expenses - - - - - (68,033)
Profit from
investment in joint
ventures - - - - - 121,333
Revaluation of
investment
properties 106,454 293,587 (18,130) 11,789 13,765 407,465
Investment
properties 96,850 330,642 (16,806) 14,401 13,765 438,852
Straight line
rental adjustment 9,604 (37,055) (1,324) (2,612) - (31,387)
Revaluation of swap
derivatives - - - - - (52,380)
Revaluation of
investment in
listed shares - - - - - (34,540)
Capital loss on
disposal of investment
properties and
property, plant and
equipment - - - - - (8,430)
Taxation - - - - - (3,656)
Profit after
taxation 566,591 884,470 61,077 278,455 19,283 1,526,137
Other
comprehensive
income, net of
taxation - - - - - (88,018)
Total
comprehensive
income 566,591 884,470 61,077 278,455 19,283 1,438,119
Total
comprehensive
income attributable
to:
Owners of the
company 566,591 884,470 61,077 277,947 19,283 1,525,629
Non-controlling
interest - - - 508 - 508
Total profit after
taxation 566,591 884,470 61,077 278,455 19,283 1,526,137
Other Industrial Retail Commer- Afhco Storage Group
information cial
Properties
(excluding
straight line
rental
adjustment): 4,766,350 7,158,886 1,078,100 3,713,529 116,068 16,832,933
Non-current
investment
property 4,146,377 6,886,103 882,786 3,681,006 116,068 15,712,340
At valuation 3,906,700 4,441,900 846,000 3,473,279 116,068 12,783,947
Straight line
rental
adjustment (63,323) (131,297) (18,314) (18,923) - (231,857)
Under
development 303,000 2,575,500 55,100 226,650 - 3,160,250
Non-current
investment
property held
for sale 539,182 139,399 173,332 13,178 - 865,091
Classified
as held for
disposal 556,650 141,486 177,000 13,600 - 888,736
Straight line
rental
adjustment (17,468) (2,087) (3,668) (422) - (23,645)
Other assets 153,587 333,860 54,110 210,153 12,067 2,813,465
Total assets 4,839,146 7,359,362 1,110,228 3,904,337 128,135 19,390,896
Total
liabilities 69,765 110,906 19,426 316,816 5,040 6,382,035
Acquisitions and
improvements 70 000 461,017 51,206 1,218,741 102,303 1,903,267
Acquisitions and
improvements 70,000 461,017 51,206 1,106,114 36,723 1,725,060
Acquisitions
through business
combination - - - 112,627 65,580 178,207
Segmental Industrial Retail Commer- Afhco Storage Group
growth rates cial
(%)
Rental income
(excluding straight
line rental
adjustment) 4.5 12.5 (6.5) 39.9 - 13.6
Property expenses 8.3 11.7 6.7 32.6 - 15.7
Recovery of property
expenses (3.5) 14.4 11.7 0.6 - 16.4
Net property income 1.6 14.2 (7.9) 52.1 - 13.7
3. Significant transactions
During the year, the Group acquired the following subsidiaries and joint ventures:
Subsidiaries Principal Date of Portion of Consideration
(South Africa) activity acquisition ownership transferred
interest R000
and voting
% rights
Shanike Investments
No 85 (RF) Proprietary
Limited Investment
property 01/02/2017 100% 692
Electprops 91 Proprietary
Limited Investment
property 01/03/2017 100% 29,930
Autumn Star Trading 6
Proprietary Limited Investment
property 01/03/2017 100% 4,652
Vaxirox Investment
Proprietary Limited Investment
property 01/07/2017 100% 67,790
103,064
Joint ventures Principal Date of Portion of Consideration
(Zambia) activity acquisition ownership transferred
interest R000
and voting
% rights
Graduare Mauritius Limited
Phase 3A development Investment
property 01/05/2017 50% 22,401
Graduare Mauritius Limited
Phase 3B development Investment
property 01/12/2017 50% 38,511
60,912
Assets acquired and liabilities Investment in Investment in
recognised at date of acquisition: subsidiaries joint ventures Total
2017 2017 2017
R000 R000 R000
Non-current assets
Investment property 178,207 88,176 266,383
Property, plant and equipment 57 - 57
Current assets
Trade and other receivables 5,320 - 5,320
Taxation receivable 456 - 456
Cash and cash equivalents 186 - 186
Non-current liabilities
Loans from shareholder 60,823 - 60,823
Interest-bearing borrowings - foreign - 27,264 27,264
Current liabilities
Trade and other payables 4,302 - 4,302
Taxation payable 411 - 411
Current loan 15,626 - 15,626
Fair value of identifiable assets and
liabilities acquired 103,064 60,912 163,976
Gain on acquisition of subsidiary:
Consideration 103,064 60,912 163,976
Less fair value of identifiable assets
acquired and liabilities assumed (103,064) (60,912) (163,976)
- - -
The consolidated profit and revenue for the year attributable to the acquisition of subsidiaries and joint ventures had these business combinations been in effect at the beginning of the year is set out below:
Investment in Investment in
subsidiaries joint ventures Total
2017 2017 2017
R000 R000 R000
From date of acquisition
Profit / (loss) 116,992 1,841 118,833
Revenue 114,743 2,385 117,128
Full year
Profit / (loss) for the year 190,511 1,841 192,352
Revenue 137,720 2,385 140,105
The AFHCO Group was acquired on 1 July 2014 to enter the residential Johannesburg inner-city sector and thus to further diversify the Group's property portfolio. The additional acquisitions in Afhco in 2016 and 2017 provided further support to this strategy. During the prior year, the Group entered into the Zambian market in order to diversify internationally. Additional investments were made during the current year in Zambia. During the current year, the Group entered into the storage sector with the acquisition of Vaxirox Investment Proprietary Limited due to its defensive characteristics. Control over the subsidiaries was obtained at acquisition when the Company attained power, rights over the variable returns of the investment, and the ability to use power over the investee.
4. Fair value measurement
The swap derivatives are valued based on the discounted cash flow method. Future cash flows are estimated based on forward exchange and interest rates (from observable yield curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk. The investment in listed shares is valued at the quoted market price. The investment in joint ventures is valued at the ownership of the underlying joint ventures' net asset value. The fair value of the investment property is determined by an independent registered valuer. The fair value of the industrial, retail, commercial and storage portfolio of investment properties, excluding properties subject to unconditional contracted sales, is based on the discounted cash flow method. The fair value of the inner-city retail, residential and commercial investment properties is based on the capitalisation of the net income earnings in perpetuity. The discounted cash flow method is not appropriate due to the short term nature of the portfolio's leases. The financial instruments are grouped into levels 1 to 3 based on the degree to which the fair value is observable.
The table below analyses assets that are measured at fair value.
Investments in listed shares Level 1
Swap derivatives Level 2
Investment in joint ventures Level 3
Investment property Level 3
There were no transfers between the levels.
This announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34. This can be found in the financial statements which are available for inspection on the website.
5. Capital commitments
The Group had capital commitments of R2 619,6m as at 31 December 2017 (2016: R407,7m)
6. Dividends and events after the reporting period
The Company has declared distribution of 22.54 cents on 27 February 2018. The directors are not aware of other significant events between the end of the financial year under review and the date of signature of the financial statements.
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice to shareholders resident in South Africa
Notice is hereby given of the declaration of distribution no.6 in respect of the income distribution period 1 July to 31 December 2017. The distribution amounts to 22.54 cps. The source of the distribution comprises net income from property rentals and interest earned on cash investments. Please refer to the statement of comprehensive income for further details. As SA Corporate has REIT status, shareholders are advised that the distribution meets the requirements of a "qualifying distribution" for the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 ("Income Tax Act"). The distributions on SA Corporate shares will be deemed to be dividends, for South African tax purposes, in terms of section 25BB of the Income Tax Act. The distributions received by or accrued to South African tax residents must be included in the gross income of such shareholders and are not exempt from income tax (in terms of the exclusion to the general dividend exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the Income Tax Act) because they are dividends distributed by a REIT, with the effect that the distribution is taxable in the hands of the shareholder. These distributions are, however, exempt from dividend withholding tax in the hands of South African tax resident shareholders, provided that the South African resident shareholders have provided the following forms to their CSDP or broker, as the case may be, in respect of uncertificated shares, or the transfer secretaries, in respect of certificated shares: a) a declaration that the distribution is exempt from dividends tax; and b) a written undertaking to inform the CSDP, broker or the transfer secretaries, as the case may be, should the circumstances affecting the exemption change or the beneficial owner ceases to be the beneficial owner, both in the form prescribed by the Commissioner for the South African Revenue Service. SA Corporate shareholders are advised to contact the CSDP, broker or transfer secretaries, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution, if such documents have not already been submitted.
Notice to non-resident shareholders
Distributions received by non-resident shareholders will not be taxable as income and instead will be treated as ordinary dividends which are exempt from income tax in terms of the general dividend exemption in section 10(1)(k)(i) of the Income Tax Act. It should be noted that until 31 December 2013 distributions received by non-residents from a REIT were not subject to dividend withholding tax. From 22 February 2017, any distribution received by a non-resident from a REIT is subject to dividend withholding tax at 20%, unless the rate is reduced in terms of any applicable agreement for the avoidance of double taxation ("DTA") between South Africa and the country of residence of the shareholder.
Assuming dividend withholding tax will be withheld at a rate of 20%, the net dividend amount due to non-resident shareholders is 18.0320 cents per SA Corporate share. A reduced dividend withholding rate, in terms of the applicable DTA, may only be relied on if the non-resident shareholders has provided the following forms to the CSDP or broker, as the case may be, in respect of uncertificated shares, or the transfer secretaries, in respect of certificated shares:
a) a declaration that the dividend is subject to a reduced rate as a result of the application of a DTA; and b) a written undertaking to inform the CSDP, broker or the transfer secretaries, as the case may be, should the circumstances affecting the reduced rate change or the beneficial owner ceases to be the beneficial owner, both in the form prescribed by the Commissioner for the South African Revenue Service. Non-resident shareholders are advised to contact the CSDP, broker or the transfer secretaries, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution if such documents have not already been submitted, if applicable. 2,530,689,337 SA Corporate shares are in issue at the date of this distribution declaration and SA Corporate's income tax reference number is 9179743191.
Last date to trade cum distribution Monday, 26 March 2018
Shares will trade ex-distribution Tuesday, 27 March 2018
Record date to participate in the distribution Thursday, 29 March 2018
Payment of distribution Tuesday, 3 April 2018
Share certificates may not be dematerialised or re-materialised between Tuesday, 27 March and Thursday, 29 March 2018 both days inclusive.
By order of the Board
DIRECTORATE AND STATUTORY INFORMATION
Registered office
South Wing, First Floor
Block A
The Forum
North Bank Lane
Century City
7441
Tel 021 529 8410
Registered auditors
Deloitte & Touche
1st Floor
The Square
Cape Quarter
27 Somerset Road
Green Point
8005
Transfer secretaries
Computershare Investor Services (Pty) Ltd
Rosebank Towers
15 Biermann Avenue
Rosebank
2196
Sponsor
Nedbank Corporate and Investment Banking
A division of Nedbank Limited
135 Rivonia Road
Sandton
2196
Directors: J Molobela (Chairman), TR Mackey (Managing)*, AM Basson (Finance)*, RJ Biesman-Simons, A Chowan, GP Dingaan, KJ Forbes, EM Hendricks, MA Moloto, ES Seedat
* Executive
B Swanepoel
Company Secretary
27 February 2018
Date: 27/02/2018 05:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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