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').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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