EMIRA PROPERTY FUND LIMITED - Reviewed condensed financial results for the year ended 30 June 2018 and dividend distribution declaration

Release Date: 15/08/2018 10:52
Code(s): EMI
 
Wrap Text
Reviewed condensed financial results for the year ended 30 June 2018 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
Tax number: 9995/739/15/9
(“Emira” or “the Fund” or “the Company”) 
(Approved as a REIT by the JSE)

Reviewed condensed financial results
For the year ended 30 June 2018 and dividend distribution declaration

Highlights
Final dividend per share 76,15c (up by 2,5%)
Net asset value per share 1 758c 
Vacancies 3,4% (down from 5,7%)
Properties sold R530,6m (15,1% premium to book value) 
Offshore investments USD32,3m

Commentary
The Board of Directors of Emira (“Board”) is pleased to announce that 
a final dividend of 76,15 cents per share has been declared for the 
six months to 30 June 2018. This is a year-on-year increase of 2,53%, 
bringing the full year dividend per share to 146,80 cents. This is in 
line with the guidance provided after the six month period to 
31 December 2017.

Distributable earnings
There has been a meaningful reduction in vacancies over the past year 
which was the main contributor to the Company’s return to positive 
distribution growth. The growth in distribution was achieved by the 
concerted efforts of the Emira team in spite of the prevailing tough 
trading conditions. Notwithstanding the positive distribution growth, 
it has to be noted that the ongoing over-supply of offices has 
necessitated a further reduction in rentals and an increase in tenant 
incentivisation in order for Emira to remain competitive.

Revenue reduced year-on-year by 2,6% to R1,7bn (excluding straight-
lining adjustments in respect of future rental escalations) (June 2017: 
R1,8bn). This reduction is primarily due to the disposal of 13 properties 
during the year 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 7,5% for the year ended 30 June 2018, 
driven by contractual escalations and the filling of vacancies.

Property expenses decreased by 3,7%, again driven by disposals and 
the deconsolidation of Enyuka. Expenses on the stable portfolio showed 
a like-for-like growth of 8,2% for the year. The gross cost-to-income 
ratio reduced to 36,8% (June 2017: 37,2%) demonstrating that income 
grew at a faster rate during the year when compared to expenses.

Administration expenses, which include staff costs and property 
management fees, increased by 7,3% to R99,9m (June 2017: R93,1m). 
A portion of this increase is attributable to incremental 
administration costs related to the investments made into the United 
States of America (“USA”).

Income from the Fund’s listed investment in Growthpoint Australia 
Limited (“GOZ”) decreased by 5,9% to R55,0m (which includes R2,2m 
recognised for distribution purposes only in respect of the cum 
dividend element of 2 500 000 GOZ units sold during June 2018). While 
the underlying net Australian dollar (“AUD”) distribution per unit 
increased by 2,9%, this was more than offset by the large increase in 
the related dividend withholding tax.

Distributable income of R94,6m from equity-accounted investments 
includes income of R72,0m from Enyuka and R22,6m from the investments 
made into the USA.

In accordance with the SA REIT Association’s best practice 
recommendations, transaction advisory fees of R8,0m 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 reduced by 2,1% to R385,3m. While debt levels 
were on average higher during the year, 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. While the Vendor Loans issued 
under the BEE Transaction are not recognised for accounting purposes, 
interest is charged on the loans at a rate equal to Emira’s dividend 
yield and is recognised for distribution purposes. The BEE parties 
settle their interest owing on a six-monthly basis.

The net asset value (“NAV”) has increased to 1 758 cents per share 
(June 2017: 1 735 cents). The increase was mainly as a result of the 
improvement in the value of the investment in GOZ and the value of the 
investment in Enyuka. The NAV per Emira share at 30 June 2018 is 
calculated based on 510 296 737 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 year. The shares relating to the 
outstanding capital on the Vendor Loans are not deemed to be issued for 
accounting purposes hence the calculation of NAV disregards them.

Distribution statement

                                         Year ended   Year ended        %
R’000                                   30 Jun 2018  30 Jun 2017   change
Operating lease rental income 
and tenant recoveries excluding 
straight-lining of leases                 1 748 876    1 794 908     (2,6)
Property expenses excluding amortised
upfront lease costs                        (643 081)    (667 610)    (3,7) 
Net property income                       1 105 795    1 127 298     (1,9) 
Dividends received on treasury shares             —       20 280  <(100,0) 
Income from listed property
investment                                   52 830       58 516     (9,7)
Income from equity-accounted
investments                                  94 566            —   >100,0
Administration expenses                    (100 288)     (93 438)     7,3
Realised foreign exchange losses               (165)           —   >100,0
Minority shareholders interests                (683)           —   >100,0
Antecedent interest on new Emira
shares issued                                     —       19 404  <(100,0)
GOZ shares sold cum dividend                  2 205            —   >100,0
Enyuka associate accounting
adjustment                                        —        1 860  <(100,0)
Taxation                                     (1 707)        (383)  >100,0
Interest received on vendor loans            18 160            —   >100,0
Net finance costs                          (403 437)    (393 541)     2,5 
Finance income                               15 007       11 278     33,1
Finance costs                              (418 444)    (404 819)     3,4
Interest paid and amortised borrowing
costs                                      (446 701)    (438 089)     2,0
Interest capitalised to the cost of
developments                                 28 257       33 270    (15,1) 
Dividend payable to shareholders            767 276      739 996      3,7
Number of shares in issue               522 667 247  522 667 247        — 
Dividend per share (cents)                   146,80       143,18      2,5

Vacancies
The reduction of vacancies has been one of Emira’s key strategic 
priorities over the past 24 months. The “Intelligent Relocation” 
initiative, which was launched in July 2017, has continued to deliver 
pleasing results. Emira continues to aggressively manage its vacancies 
through a combination of tenant retention and letting strategies and, 
where necessary, the disposal of non-core properties.

It is pleasing to report that vacancies are significantly lower, having 
decreased to 3,4% at year-end (June 2017: 5,7%). Urban retail sector 
vacancies have decreased to 2,0% (June 2017: 3,1%), which is well below 
the national average of 4,1%. Industrial vacancies have also decreased 
further to 1,3% (June 2017: 1,7%), and they remain below the national 
average of 3,3%. Emira’s office sector vacancies have shown marked 
improvement, decreasing to 7,1% from 12,5% reported at 30 June 2017. 
This too, is well below the SAPOA national levels of 11,1%, and is 
evidence of the hard work and programs that Emira has put in place.

                                Number of        GLA  Vacancy    Vacancy 
                                buildings   Jun 2017 Jun 2017   Jun 2017
                                 Jun 2017        (m2)     (m2)        (%) 
Office                                 52    356 406   44 614       12,5
Retail                                 38    414 222   13 411        3,2
Industrial                             44    360 949    6 168        1,7
Total                                 134  1 131 577   64 193        5,7

                                 Number of       GLA   Vacancy   Vacancy 
                                 buildings  Jun 2018  Jun 2018  Jun 2018
                                  Jun 2018       (m2)      (m2)       (%) 
Office                                  44   318 524    22 584       7,1
Retail                                  21   322 065     6 303       2,0
Industrial                              39   348 699     4 621       1,3
Total                                  104   989 288    33 508       3,4

Major leases concluded and tenant renewals
During the year under review, 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), Kawari 
at Technohub in Midrand (6 580m2 for a total value of R25,5m) and Devland 
Burgersfort at Epping Warehouse in Cape Town (13 662m2 for a total value 
of R24,9m).

Tenant retention and lease renewals saw a significant improvement 
year-on-year. A total of 84% by GLA (June 2017: 77%) and 85% by revenue 
(June 2017: 72%) of expiring tenants were renewed and retained. The largest 
renewals were RTT Group at RTT ACSA Park in Johannesburg (46 673m2 for a 
total value of R73,5m), Pick n Pay at Epsom Downs Shopping Centre in 
Johannesburg (2 939m2 for a total value of R64,4m), Pick n Pay at Market 
Square in Plettenberg Bay (2 427m2 for a total value of R45,3m) and Intercare 
Sub-Acute Hospital Tyger Valley in Cape Town (1 464m2 for a total value 
of R44,3m).

Disposals
Emira continued with its strategy to rebalance its portfolio. This resulted 
in 13 properties totalling R530,6m in value that were either deemed non-core, 
were underperforming or posed excessive risk, being sold, as indicated in the 
table below. The properties were sold at a combined forward yield of 8,3% 
and a combined 14,8% premium to book value (0,5% if The Pinnacle and Harbour 
Place are excluded).

The Fund’s ability to continuously transact at prices that are, on average, 
higher than book values, bears testimony to the fact that Emira’s properties 
remain fairly valued.

Emira will continue to reduce its local office exposure. In accordance with 
this rebalancing strategy, the Fund had, as at 30 June 2018, earmarked 26 
properties for disposal to the value of R1,9bn, R1,8bn of which are office 
properties and have been classified as held for sale.

Properties transferred out of Emira during the 12 months ended 30 June 2018

                                                                    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 — Kraaifontein        Industrial  Cape Town        2 877
1 Kikuyu Road                        Office      Johannesburg     7 383
Riverworld Park                      Office      Johannesburg     5 079
Brooklyn Office Park                 Office      Pretoria         5 186
The Pinnacle                         Office      Cape Town       11 867
Linksfield Terraces                  Retail      Johannesburg     4 634
Fosa Park                            Industrial  Durban           4 200
The Wolds A — 82 Intersite TNT       Industrial  Durban           1 770
The Wolds B — 56/58 Intersite Ave    Industrial  Durban             830
Umgeni Road A — 98/102 Intersite
Ubunye                               Industrial  Durban           1 886
                                                                 61 584

                                             Book  Sale  Exit
                                            value price yield Effective
Property                                      (Rm)  (Rm)   (%)     date
Convention House                             45,0  44,0  11,7    Oct 17
4 Kikuyu Road                                27,2  28,0   6,9    Oct 17
Harbour Place                                52,0  90,0   6,9    Nov 17
Assegaai Place — Kraaifontein                21,6  20,0  10,8    Dec 17
1 Kikuyu Road                                37,0  30,0   0,0*   Dec 17
Riverworld Park                              23,2  23,5  10,8    Dec 17
Brooklyn Office Park                         46,8  46,8   8,5    Mar 18
The Pinnacle                                132,4 161,6   8,4    Apr 18
Linksfield Terraces                          39,0  40,0  11,4    Apr 18
Fosa Park                                    19,7  27,5   8,0    Jun 18
The Wolds A — 82 Intersite TNT                6,8   8,5   7,5    Jun 18
The Wolds B — 56/58 Intersite Ave             3,3   2,4   9,6    Jun 18
Umgeni Road A — 98/102 Intersite Ubunye       8,0   8,3   7,8    Jun 18
                                            462,0 530,6   8,3

* Vacant at date of sale. Developments and refurbishments

Emira has maintained its approach of recycling its capital and 
strategically investing in tactical upgrades that unlock value and 
strengthen its assets. The quality and attractiveness of its assets 
are key elements to retain existing 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 331m2, was completed in October 2017 and is currently 
95,6% occupied on long-term leases. Phase two, which measures 3 150m2, 
was completed in June 2018, and is fully occupied by Yum! Brand’s 
South African head office. The development of future phases will 
only commence once suitable levels of pre-letting are achieved 
at acceptable returns.

During August 2017, Emira began the conversion of its B-grade offices 
in Rosebank, 12 Baker Street and 2 Sturdee Avenue, into The Bolton, a 
residential development, thus commencing its strategy of investing 
into this sector. 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. This project has an 
estimated completion value of R201,7m and will be targeting LSM brackets 
7 to 8. The first phase of the conversion is expected to be completed 
by August 2018 with the final completion expected by January 2019.

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 year-end was R5,7bn with a weighted average duration to 
expiry of 1,8 years. Steps have been taken to extend debt facilities that 
are expiring over the next 12 months. The debt expiry profile has been 
managed to ensure that the amount of debt expiring in any one period is 
manageable. At 30 June 2018, the Fund had undrawn, backup facilities of 
R618,0m which further reduces debt refinance risk and, when drawn, will 
extend the debt expiry profile.

The following banking facilities were either put in place or refinanced 
during the year ended 30 June 2018:
* 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 through an unlisted note with Nedbank for a period of 
  five years at three month JIBAR plus 200 bps.
* A maturing Bank of China facility was refinanced through a new R150,0m 
  secured two-year ABSA term facility at three month JIBAR plus 155 bps.
* A new R200,0m, secured three-year ABSA term facility at three month
  JIBAR plus 167,5 bps.
* A R200,0m secured three-year Nedbank term facility was refinanced 
  through an unlisted note with Nedbank for a period of five years at 
  three month JIBAR plus 185 bps.
* A R200,0m secured four-year Standard Bank term facility was early 
  refinanced through an unlisted note with Standard Bank for a period 
  of five years at three month JIBAR plus 185 bps.

During the period, Emira issued R1,3bn of new listed commercial paper 
and corporate bonds to refinance R1,4bn of maturing notes. The new 
instruments were issued for an average term of 2,1 years and at an 
average cost of 1,50% above three month JIBAR versus the matured notes 
of 1,9 years and a cost of 1,14%.

As at 30 June 2018, Emira had a moderate level of gearing with interest- 
bearing debt, net of cash, to total income producing assets of 37,9%. 
The Fund has fixed 93,3% of its debt for periods of between 0,1 and 6,4 
years, with a weighted average duration of 2,7 years.

                                 Weighted      Weighted    Amount   % of 
                           average rate %  average term       (Rm)  debt
Debt — Fixed swap                     8,0     2,7 years   5 241,9   93,3
Debt — Floating                       8,7                   400,7    6,7
Total                                 8,0                 5 642,6  100,0
Less: Costs capitalised
not yet amortised                                            (6,0) 
Add: Accrued interest                                        33,0
Per statement of
financial position                                        5 669,6


As at 30 June 2018, Emira had effective AUD denominated debt of AUD87,5m 
through its AUD cross-currency interest-rate swaps (“CCIRS”) against 
assets valued at AUD94,1m. The AUD CCIRS relate to the Fund’s investment 
in GOZ. In addition, Emira has effective United States dollar (“USD”)
denominated debt of USD32,3m through its USD CCIRS. These USD CCIRS 
relate to assets based in the USA valued at USD34,6m, including cash 
on hand.

Valuations
Total portfolio movement

                               Jun 2017             Jun 2018
Sector                            (R’000)    R/m2     (R’000)    R/m2
Office                         5 591 639   15 689  5 232 144   16 426
Retail                         5 761 494*  13 909  5 244 250   16 283
Industrial                     1 902 450    5 271  1 905 350    5 464
Residential                            —        —    154 064        —
                              13 255 583          12 535 808


                                              Difference  Difference 
Sector                                                (%)     (R’000) 
Office                                              (6,4)   (359 495) 
Retail                                              (9,0)   (517 244) 
Industrial                                           0,2       2 900
Residential                                        100,0     154 064 
                                                    (5,4)   (719 775)

* 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 venture between Emira and One Property Holdings 
(“One Prop”). The performance conditions Emira had in place with One Prop 
lapsed in July 2017. Enyuka has therefore been deconsolidated from Emira 
effective 1 July 2017. Emira has equity accounted its interest in Enyuka 
for the year ended 30 June 2018 and the R107,9m recognised includes
Emira’s share of Enyuka’s net profit of R34,8m and R73,1m of interest 
received on the shareholder loan provided to Enyuka.

At 30 June 2018, Enyuka’s total property portfolio was valued at R1,1bn 
and its loan to value ratio was 33,5%, excluding shareholder loans of 
R646,2m, including interest.

During the year, Enyuka acquired five new properties at a total cost of
R320,0m.

GOZ
In June 2018, the Company disposed of 2 500 000 GOZ units at an average 
price of AUD3,59 per unit. The rationale for the disposal was the 
opportunity to sell at a price that was significantly higher than the 
initial cost and to deploy those proceeds into a higher yielding 
investment.

As at 30 June 2018, GOZ’s unit price was AUD3,61. Emira’s remaining 
investment of 26 058 566 units, comprising 4,5% of the total units in 
issue, is valued at R956,2m compared to the initial cost price of 
R380,3m, a 151,4% 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”), has, together with Rainier, acquired 
four grocery-anchored convenience retail centers. CIL2 holds a 
minority share in the direct property-owning entities and as such 
these entities have been equity accounted by CIL2, with R23,6m 
recognised for the year.

The acquisitions made during the year are as follows:
* Belden Park Crossings shopping center in North Canton, Ohio, was 
  transferred in October 2017 at a total cost to Emira of USD8,4m 
  for a 46,7% equity interest at an expected acquisition yield 
  of 12,0. 
* Moore Plaza shopping center in Corpus Christi, Texas was 
  transferred in January 2018 at a total cost to Emira of USD13,1m 
  for a 49,5% equity interest at an expected acquisition yield 
  of 12,1.
* 32 East shopping center in Cincinnati, Ohio was transferred in 
  January 2018 at a total cost to Emira of USD4,3m for a 48,9% 
  equity interest at an expected acquisition yield of 12,0.
* Stoney Creek shopping center in Noblesville, Indiana was 
  transferred in March 2018 at a total cost to Emira of USD6,5m 
  for a 49,4% equity interest at an expected acquisition yield 
  of 11,7.

Foreign income hedging
To minimise 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:
* To hedge 100% of the expected net dividend to be received in the 
  following 12 months;
* To hedge 67% of the expected net dividend to be received in months 
  13 to 24; and
* To 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 was hedged at the date the investments were made. 
This policy will be maintained for future investments.

In line with these policies, the following hedges are in place:

                                                              GOZ      USA 
Forward rate against R                                        AUD      USD 
Dec 18                                                     R10,83   R13,12
Jun 19                                                     R11,09   R13,46
Dec 19                                                     R11,31   R13,83
Jun 20                                                     R11,60   R14,28
Dec 20                                                     R11,07   R14,64
Jun 21                                                     R11,56   R14,95
Dec 21                                                          —   R14,99
Jun 22                                                          —   R14,26

Restatement
During the year 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 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 its lease 
obligations at Corobay Corner, is still ongoing. The hearing for the quantum 
arguments together with the amendment to Worley Parsons’ claim has been set 
for 3 to 14 September 2018. Emira’s positive view of its legal position in 
the arbitration remains unchanged.

For the year ended 30 June 2018, no further income has been accrued in respect 
of rentals or damages due by Worley Parsons.

Subsequent events
There have been no significant events subsequent to the reporting date.

Prospects
South Africa’s persistently challenging economic conditions and political 
uncertainties continue to impede local growth and has driven the Fund’s 
rebalancing and diversification strategies. With these strategies firmly 
underway, Emira will seek out the most attractive opportunities to reinvest 
the proceeds of its strategic, non-core asset disposals. Further investment 
in the offshore and residential elements of the portfolio will be prioritised 
to accelerate the key drivers for growth.

The Fund expects to improve on its current distribution growth in the coming 
period. Factoring in the current and expected market conditions for the year 
ahead, vacancy profiles and expected rental reversions, as well as anticipated
opportunities, our target is to further improve on the dividend growth achieved
for the current year. 

This forecast is the responsibility of the directors of Emira, and 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 final gross dividend 
of 76,15 cents per share has been declared (June 2017: 74,25 cents), payable to 
the registered shareholders of Emira on 10 September 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, 4 September 2018
Shares trade ex dividend                     Wednesday, 5 September 2018
Record date                                  Friday, 7 September 2018
Payment date                                 Monday, 10 September 2018

Share certificates may not be dematerialised or rematerialised between 
Wednesday, 5 September 2018 and Friday, 7 September 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 60,92 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.

The Company’s tax reference number is 9995/739/15/9. 

By order of the Emira Property Fund Limited Board

Acorim Proprietary Limited
Company Secretary

Gerhard van Zyl                     Geoff Jennett
Chairman                            Chief Executive Officer

Bryanston
15 August 2018

Reviewed condensed consolidated financial statements

Condensed consolidated statement of financial position at 30 June 2018

                                                      Reviewed     Audited
R’000                                              30 Jun 2018 30 Jun 2017
Assets
Non-current assets                                  12 856 899  13 157 379
Investment properties                               10 313 515  11 827 631
Fixtures and fittings                                   71 725      77 887
Allowance for future rental escalations                208 420     219 571
Unamortised upfront lease costs                         32 915      38 340
Fair value of investment properties                 10 626 575  12 163 429
Listed property investment                             956 209     901 390
Investment and loans in equity-accounted
investments                                          1 105 944           — 
Loans receivable                                       116 431      56 796
Derivative financial instruments                        51 740      35 764
Current assets                                       2 313 779   1 575 518
Accounts receivable and prepayments                    219 562     247 317
Loans receivable                                             —      40 252
Derivative financial instruments                        75 529      27 130
Cash and cash equivalents                              109 455     168 659
Investment properties held for sale                  1 909 233   1 092 160
Total assets                                        15 170 678  14 732 897
Equity and liabilities
Share capital and reserves                           8 968 682   8 839 852
Non-current liabilities                              4 036 789   3 525 520
Interest-bearing debt                                3 947 625   3 478 439
Derivative financial instruments                        82 571      47 081
Deferred taxation                                        6 593           — 
Current liabilities                                  2 165 207   2 367 525
Short-term portion of interest-bearing debt          1 721 925   1 900 760
Accounts payable                                       335 705     430 532
Derivative financial instruments                       106 636      36 233
Taxation                                                   941           — 
Total equity and liabilities                        15 170 678  14 732 897
Net asset value per share (cents)                      1 757,5     1 734,7


Condensed consolidated statement of comprehensive income

                                                                  Restated
                                                     Reviewed      audited 
                                                   year ended   year ended
R’000                                             30 Jun 2018  30 Jun 2017
Revenue                                             1 771 585    1 721 360
Operating lease rental income and tenant
recoveries                                          1 748 876    1 794 908
Allowance for future rental escalations                22 709      (73 548) 
Property expenses                                    (647 537)    (677 049) 
Income from listed property investment                 52 831       58 516
Administration expenses                              (103 360)     (92 410) 
Transaction and advisory fees                          (8 030)     (14 303) 
Depreciation                                           (9 611)     (11 054) 
Operating profit                                    1 055 878      985 060
Net fair value adjustments                             49 212      185 827
Net fair value (loss)/gain on investment
properties                                            (49 437)     208 177
Change in fair value as a result of straight-
lining lease rentals                                  (22 709)      73 548
Change in fair value as a result of amortising
upfront lease costs                                     4 455        9 440
Change in fair value as a result of property
(depreciation)/appreciation in value                  (31 183)     125 189
Revaluation of share appreciation rights scheme
derivative financial instruments                        4 755            6
Unrealised (deficit)/surplus on interest-rate
swaps                                                 (45 250)      11 386
Unrealised gain/(loss) on fair valuation of
listed property investment                            139 144      (33 742) 
IFRS2 charge — BEE transaction                              —      (14 771) 
Foreign exchange profit/(loss)                         23 572      (50 013) 
Loss on deconsolidation of Enyuka                        (392)           — 
Income from equity-accounted investments              131 564            — 
Distributable                                          94 566            — 
Non-distributable                                      36 998            — 
Profit before finance costs                         1 259 834    1 106 103
Net finance costs                                    (403 437)    (393 541) 
Finance income                                         15 007       11 278
Finance costs                                        (418 444)    (404 819) 
Profit before income tax charge                       856 397      712 562
Taxation                                               (7 751)        (383) 
Profit for the year                                   848 646      712 179
Other comprehensive income
Items that may be subsequently reclassified 
to profit or loss
Exchange differences on translation of foreign         17 952            —
operations
Total comprehensive income for the year               866 598      712 179
Total profit for the year attributable to:
Emira shareholders                                    848 486      712 179
Non-controlling interest                                  160            —
                                                      848 646      712 179
Total comprehensive income for the year 
attributable to:
Emira shareholders                                    866 404      712 179
Non-controlling interest                                  194            —
                                                      866 598      712 179

Condensed consolidated statement of changes in equity

                                                                  Foreign
                                                 Revaluation     currency 
                                                   and other  translation
R’000                                     Shares    reserves      reserve
Balance at 30 June 2016                3 787 628   4 713 252
REIT restructure costs                      (654) 
Shares issued                            182 113
Shares repurchased                      (202 955)
IFRS2 option — BEE transaction                         14 771
Share transfer tax on share buy-back                   (1 469) 
Total comprehensive income for 
the year
Transfer to fair value reserve                         49 480
Dividend paid — September 2016
Dividend declared — March 2017
Balance at 30 June 2017                3 766 132   4 776 034            — 
Shares recognised on partial
repayment of BEE vendor loan               9 702 
REIT restructure costs                      (376) 
Total comprehensive income for 
the year
Exchange differences on translation
of foreign operations                                               17 918
Equity settled share scheme                             1 348
Transfer to fair value reserve                        206 445
Transfer to currency translation
reserve                                                             17 741
Dividend paid — September 2017
Dividend paid — subsidiary
Dividend paid — March 2018
Balance at 30 June 2018                3 775 458   4 983 827       35 659


                                                          Non- 
                                          Retained controlling
R’000                                     earnings    interest      Total
Balance at 30 June 2016                    356 768           —  8 857 648
REIT restructure costs                                               (654) 
Shares issued                                                     182 113
Shares repurchased                                               (202 955)
IFRS2 option — BEE transaction                                     14 771
Share transfer tax on share buy-back                               (1 469) 
Total comprehensive income for the year    712 179                712 179
Transfer to fair value reserve             (52 826)                (3 346) 
Dividend paid — September 2016            (376 174)              (376 174) 
Dividend declared — March 2017            (342 261)              (342 261) 
Balance at 30 June 2017                    297 686           —  8 839 852
Shares recognised on partial repayment
of BEE vendor loan                                                  9 702
Premium on share options                     8 989                  8 989
REIT restructure costs                                               (376) 
Total comprehensive income for the year    848 486         160    848 646
Exchange differences on translation of
foreign operations                                          34     17 952
Equity settled share scheme                                         1 348
Transfer to fair value reserve           (206 445)                      — 
Transfer to currency translation
reserve                                   (17 741)                      —
Dividend paid — September 2017           (388 080)               (388 080) 
Dividend paid — subsidiary                                 (87)       (87) 
Dividend paid — March 2018               (369 264)               (369 264)
Balance at 30 June 2018                    173 631         107  8 968 682

Condensed statement of cash flows

                                                    Reviewed       Audited 
                                                  year ended    year ended
R’000                                            30 Jun 2018   30 Jun 2017
Cash generated from operations                     1 123 869     1 092 157
Finance income                                        23 996        11 278
Interest paid                                       (446 701)     (438 089) 
Taxation paid                                           (766)         (383) 
Dividends paid to shareholders                      (757 431)     (718 435) 
Cash flows from operating activities                 (57 033)      (53 472) 
Acquisition of, and additions to, investment
properties and fixtures and fittings                (507 185)     (630 360)
Proceeds on sale of investment properties and
fixtures and fittings                                530 575       463 660
Disposal/(acquisition) of investment in listed
property fund                                         90 156       (44 781) 
Investment in equity-accounted investments          (452 692)            — 
Enyuka deconsolidation                               (36 772)            — 
Cash flows from investing activities                (375 918)     (211 481) 
REIT restructure costs                                  (376)         (654) 
Shares recognised on partial repayment of BEE
vendor loan                                            9 702             —
Premium on share options                               8 989             —
Shares repurchased                                         —      (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                       4 208 666     2 989 510
Interest-bearing debt repaid                      (3 844 245)   (2 588 482) 
Cash flows from financing activities                 382 736       378 063
Net increase in cash and cash equivalents            (59 204)      113 110
Cash and cash equivalents at the beginning of        168 659        55 549
the year
Cash and cash equivalents at the end of 
the year                                             109 455       168 659

Basis of preparation and accounting policies
These condensed consolidated preliminary financial statements have been 
prepared in accordance with the framework concepts and the measurement and 
recognition requirements of the 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 in terms of IFRS and 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 preliminary financial statements for the year 
ended 30 June 2018, incorporating the debt, investments, restatement and 
subsequent events sections of the commentary, have been reviewed by Ernst 
& Young Inc., who have expressed an unmodified review conclusion. A copy of 
the auditor’s review conclusion is available for inspection at Emira’s 
registered office together with the financial statements identified in the 
auditor’s report. The distribution statement was not reviewed.

Reconciliation between earnings and headline earnings and distribution

                                                                  Restated 
                                                    Reviewed       audited 
                                                  year ended    year ended
R’000                                            30 Jun 2018   30 Jun 2017
Profit for the year attributable to Emira
shareholders                                         848 486       712 179
Adjusted for:
Net fair value loss/(gain) on revaluation of
investment properties                                 49 437      (208 177) 
Loss on deconsolidation of Enyuka                        392             – 
Headline earnings attributable to Emira
shareholders                                         898 315       504 002
Adjusted for:
Allowance for future rental escalations              (22 709)       73 548
Amortised upfront lease costs                          4 455         9 440
Unrealised surplus on revaluation of interest-
rate swaps                                            45 250       (11 386) 
Revaluation of share appreciation rights
scheme derivative financial instrument                (4 755)           (6)
Credit in respect of leave pay provision and
share appreciation rights scheme                       3 394          (718) 
Unrealised (gain)/loss on revaluation of
listed property investment                          (139 144)       33 742
Unrealised foreign exchange (profit)/loss            (23 736)       50 013
Non-distributable income from equity-accounted       (36 998)            —
investments
Depreciation                                           9 286        10 743
Transaction and advisory fees                          8 030        14 303
IFRS2 charge — BEE transaction                             —        14 771
Deferred taxation                                      6 044             — 
Non-distributable portion of non-controlling
interest                                                (521)            —
Dividend received on treasury shares                       —        20 280
Enyuka associate accounting adjustment                     —         1 860
Premium on share options                              18 160             — 
GOZ shares sold cum dividend                           2 205             — 
Antecedent interest on new Emira shares issued             —        19 404
Distribution payable to shareholders                 767 276       739 996
Dividend per share
Interim (cents)                                        70,65         68,93
Final (cents)                                          76,15         74,25
Total (cents)                                         146,80        143,18
Number of shares in issue at the end of the
year                                             522 667 247   522 667 247
Weighted average number of shares in issue       510 140 337   498 521 707
Earnings per share (cents)                            166,32        142,90

The calculation of earnings per share is 
based on net profit for the year of 
R848,5 million (2017: R712,2 million), 
divided by the weighted average 
number of shares in issue during the 
year of 510 140 337 (2017: 498 521 707).
Headline earnings per share (cents)                   176,09        101,10
The calculation of headline earnings per 
share is based on net profit for the year, 
adjusted for headline items, of 
R898,3 million (2017: R504,0 million), 
divided by the weighted average number of 
shares in issue during the year of 
510 140 337 (2017: 498 521 707).
Diluted headline earnings per share (cents)           175,96        101,10

The calculation of diluted headline earnings per share is based on net 
profit for the year, adjusted for headline items, of R898,3 million 
(2017: R504,0 million), divided by the diluted weighted average number 
of shares in issue during the year of 510 515 773 (2017: 498 521 707).

Segmental information
R’000                                       Office     Retail  Industrial
Revenue                                    744 857    729 916     296 812
Operating lease rental income and
tenant recoveries                          726 893    720 771     301 212
Allowance for future rental
escalations                                 17 964      9 145      (4 400)
Property expenses                         (257 859)  (266 846)   (122 832) 
Profit for the year                        241 099    556 393     226 001
Total assets                             5 232 144  5 244 250   1 905 350

R’000                              Other  Offshore Corporate       Total
Revenue                                —         —         —   1 771 585
Operating lease rental income
and tenant recoveries                  —         —         —   1 748 876
Allowance for future rental
escalations                            —         —         —      22 709
Property expenses                      —         —         —    (647 537) 
Profit for the year              107 941   231 419  (514 207)    848 646
Total assets                     802 251 1 413 966   572 717  15 170 678

Related party transactions 
Emira awarded executive directors 386 800 shares (R5 213 522) as part of 
the forfeitable share plan and 24 000 shares (R366 000) as part of the 
matching share scheme.

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                             Jun 2018  Jun 2018 Jun 2018   Jun 2018
Group
Assets
Investments                        956 209         —        —    956 209
Derivative financial instruments         —   126 407      862    127 269
Total                              956 209   126 407      862  1 083 478
Liabilities
Derivative financial instruments         —   189 207        —    189 207
Total                                    —   189 207        —    189 207
Net fair value                     956 209   (62 800)     862    894 271


                                   Level 1   Level 2  Level 3      Total
R’000                             Jun 2017  Jun 2017 Jun 2017   Jun 2017
Group
Assets
Investments                        901 390         —        —    901 390
Derivative financial instruments         —    61 881    1 012     62 893
Total                              901 390    61 881    1 012    964 283
Liabilities
Derivative financial instruments         —    83 314        —     83 314
Total                                    —    83 314        —     83 314
Net fair value                     901 390   (21 433)   1 012    880 969

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 21,8% and the risk-free discount rate 
used ranged between 6,7% and 7,2%. 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 R1,2m. A 10% decrease in 
the spot price results in a decrease to the call options of R0,6m. The 
call option contracts have been classified as Level 3. During the period 
R1,0m of the option premiums relating to these contracts were amortised 
and a fair value gain of R3,8m was recognised at 30 June 2018.

The forward contracts relating to the employee share scheme are valued 
using a cost of carry financial model. The risk-free discount rate used 
ranged between 6,7% and 7,4%. 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 R13,0m. A 10% decrease in the 
spot price results in a decrease to the forward contracts of R13,0m.

2. Non-financial assets
The following table reflects the levels within the hierarchy of non- 
financial assets measured at fair value at 30 June 2018:

                                                          2018        2017
R’000                                                  Level 3     Level 3
Assets
Investment properties                               10 626 575  12 163 429
Investment properties held for sale                  1 909 233   1 092 160

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 30 June 2018 were the following:

* The range of the reversionary capitalisation rates applied to the portfolio 
  are between 7,50% and 11,00% with the weighted average, by
  value, being 9,13% (2017: 9,34%).
* The discount rates applied range between 13,00% and 16,25% with the weighted 
  average, by value, being 14,28% (2017: 14,36%).
* 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 R180,9m (1,4%) and a 25 basis points decrease 
  will increase the value of investment property by R187,3m (1,5%). A 25 basis 
  points decrease in the reversionary capitalisation rate will increase the value 
  of investment property by R198,8m (1,6%) and a 25 basis points increase will 
  decrease the value of investment property by R187,9m (1,5%).

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. 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.

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
Date: 15/08/2018 10:52:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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