Wrap Text
Provisional Condensed Financial Results for the Year Ended 30 June 2018
Texton Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/019302/06)
A Real Estate Investment Trust, listed on the JSE Limited
JSE share code: TEX ISIN: ZAE000190542
(formerly ISIN: ZAE000185872)
www.texton.co.za
Provisional condensed financial results for the year ended 30 June 2018
Key metrics
- Rebased dividend per share 89,31 cents (2017: 102,80 cents).
Down 13,1%
- Restated net tangible asset value** 659,57 cents per share
(2017: 781,93 cents per share).
Down 15,7%
- Gearing ratios 55,4% (2017: 50,9%).
Up 4,5%
- Net property income* R416,9 million (2017: R440,8 million).
Down 5,4%
- Number of properties* 49 (2017: 54).
Down 9,3%
- Portfolio value* R5 402,9 billion (2017: R5 508, billion).
Down 1,9%
- National/listed/blue chip tenants (by GLA)* 64,2% (2017: 61,9%).
Up 2,3%
- Investment property income R581,2 million (2017: R589,2 million).
Down 1,4%
* Including Texton's 50% interest in Broad Street Mall
** Net asset value less deferred tax
Commentary
Nature of the business
Texton Property Fund Limited ("Texton" or "the Company" or "the Fund") is an
internally asset managed Real Estate Investment Trust ("REIT") listed on
the JSE Limited. It has a portfolio of R5,4 billion of assets with retail,
office and industrial exposure located in South Africa and the United Kingdom.
The Board of Directors has approved and adopted a revised investment strategy.
The strategy's main objectives are to rebalance the Fund to achieve consistent
property income streams, strong tenant covenants and portfolio optimisation.
Our intention is to pursue industrial opportunities with sound fundamentals,
particularly warehousing and logistics properties in main metropolitan nodes.
Texton is committed to achieving the highest possible returns for its
shareholders by executing its mandate through achieving growth through
diversification.
Distributable earnings and commentary on results
The Board of Directors of Texton ("the Board") is pleased to declare a final
dividend of 41,36 (30 June 2017: 54,85) cents per share. This was achieved
from a solid performance of the core portfolio albeit through a difficult
trading environment and macro-economic pressures. The total dividend for the
year amounting to 89,31 (30 June 2017: 102,80) cents per share was slightly
behind guidance given to the market.
The exercise of the PIC Put Option resulted in the Board having to delay our
results. As per the cautionary announcements released on 23 August and
13 September, the PIC Put Option requires Texton to repurchase the
51,9 million shares previously held by BEE SPV for the outstanding loan balance,
which is currently R642,6 million at year end. The repurchase is subject to
compliance with the JSE Listings Requirements and the Companies Act which
includes a special resolution being passed by shareholders. Texton has
commenced the process of obtaining shareholder approval and will keep
shareholders updated via SENS announcements. See note 5 for further details.
As guided to investors, we are nearing the completion of our portfolio
rationalisation. The reduction of net property income as a result of the
sale of non-core properties, additional finance costs associated with the
R180 million payment to cancel the asset management contract and lower foreign
exchange gains have resulted in lower distributable income for the 12 months
to June 2018.
Our challenges in 2018 were among the toughest in our company's history. We operated
in a tough political environment both in South Africa and the United Kingdom, a weak
macro-economic climate in South Africa and challenging times in the property market.
As we know, when the economy stops growing, capital growth in other sectors,
including the commercial sector, also declines.
Economic conditions exacerbated by the technical recession in South Africa continue
to present challenges, including weak local property fundamentals. Property owners
are focusing on the income stability of their respective portfolios due to the slow
economy.
The UK economy regained some pace in comparison to 2017 providing some green shoots
for the tightening of monetary policy. The property outlook is pointing towards
yield stability for the remainder of 2018, despite uncertainty about Brexit and the
prospect of rising interest rates. One of the main challenges relates to the
high-profile Company Voluntary Arrangements ("CVA") that have come to market.
Combined with rising e- commerce, shifts in landlord rent income and increased costs
have put pressure on the retail sector for both landlords and tenants.
Across the spectrum, there is added pressure on tenants with increased operational
and utility costs. Our continued alignment with the right service providers has
proven to unlock cost efficiencies where possible and savings of circa R9 million
were achieved for the period under review.
Texton continues to act on its investment strategy of acquiring complementary and
portfolio-enhancing properties which offer long-term distribution and capital growth
underpinned by strong contractual cash flows. As announced on SENS on 21 May 2018,
Texton has secured the acquisition of four A-grade industrial properties for
R205,3 million at an acquisition yield of 9,4%. The properties are single tenanted
with a weighted average lease term of 4,4 years. Competition Commission approval
was granted on 24 July 2018. Texton continues to focus on reducing the LTV ratio
to return to a target level of below 40%, however, this will take time given the
quantum of the Manco cancellation payment, together with the resolution of the
PIC Put Option.
Property portfolio
Key performance indicators
A key focus over the past twelve months has been cost rationalisation and
portfolio-enhancing acquisitions, which will diversify the Fund in terms of both
sector and geography. Texton continues to maintain a defensive office portfolio,
which has performed admirably considering the oversupply and vacancies currently
experienced in the major property nodes. Our industrial portfolio has performed
in line with budget other than the vacancy at Hermanstad Industrial Park.
Our South African retail portfolio has remained robust with full occupancy at
Woodmead Commercial Park, Goldurb (Truworths) and a small vacancy at
Kempstar Mall.
Texton's current portfolio, split by value, is 59,3% (June 2017: 61,0%;
December 2017: 59,9%) located in South Africa and 40,7% (June 2017:
39,0%; December 2017: 40,1%) located in the United Kingdom (including our portion
of Broad Street Mall).
The disposal of Parthenon Park and Talk Talk (Stanford House) are progressed and
both of these properties have been classified as held for sale at 30 June 2018.
The sale of the latter will open up an opportunity to repatriate funds back to
South Africa to reduce our gearing and grow our UK portfolio with the remainder
of the proceeds.
Vacancies
Texton has embarked on an active drive to fill its vacancies and continues to
engage with its broker network, principals and prospective users. Vacancies have
increased slightly to 7,9% at 30 June 2018 from 7,0% at 31 December 2017. On a
like-for-like basis to 30 June 2018, our vacancies remain below the South African
Property Owners' Association (“SAPOA”) average of 11,1%. We've seen positive
results with a decline in vacancies in our larger pockets of space, particularly
at Scott Street, where 2 400m2 has been successfully let. As we continue to
reduce vacancies, a key focus is on improving the tenant covenants, and
increasing exposure to large/national/listed entities.
South Africa
Market conditions remain challenging with competitors continuing to offer
significant lease incentives including attractive rent-free periods. Texton's
Asset Management team, which has been bolstered with the employment of two
additional asset managers, continues to foster relationships with our tenants
in order to improve tenant retention. Texton does not offer significant rent-free
periods but continually assesses new manners of offering incentives in order to
attract and retain tenants.
Texton is progressed in discussions with the Department of Public Works
on longer-term renewals at both the Foretrust building and 14 Loop Street in
Cape Town. Proposals for both three- and five-year tenures have been presented
and Texton’s senior management are actively involved in this process.
Scott Street, having been vacant since November 2017, has been partially let from
October 2018, with the tenant having a pre-emptive right to let the entire property.
The continued vacancy of Scott Street and St George's Mall, together with longer
re-let periods and increasing vacancies at Hermanstad Industrial Park, Bryanston
Gate and Xstrata, have significantly impacted Texton's net property income for
the 2018 financial year.
Vacancies are expected to increase in the first quarter of FY 2019 as significant
occupiers at Vunani Chambers and Hermanstad Industrial Park have indicated their
intention to vacate. We have been actively marketing the upcoming vacancies and
continue to work closely with our broker network, property managers and tenants in
order to retain occupancy.
United Kingdom
We have recently taken steps to streamline the asset and property management
structure. This has resulted in a major cost saving of GBP174 000 to be realised in
the 2019 financial year. The UK portfolio continues to offer a robust income stream
and a lengthy weighted average lease expiry profile. The combination of strong
covenants and long income profiles has provided a steady and consistent
income stream.
The United Kingdom property market has historically been characterised by
long-term lease tenures of between 10 and 20 years. Average lease tenures have been
progressively shortening as occupiers require greater flexibility and are prepared
to carry fewer liabilities on their balance sheets. The looming effect of Brexit has
increased uncertainty and is contributing to shorter-term decision making. Lease
terms are now often for 10 years with a five-year break. Clarity over the make-up of
a Brexit deal continues to be elusive, having a disruptive impact over politics
and business.
Additionally, there has been a substantial increase in the number of Company
Voluntary Arrangements (CVAs), with several national and multi-national brands
announcing branch closures.
Our vacancies in the UK are those at Broad Street Mall and Fountain House. The
United Kingdom overall vacancy is sitting at 3,6%. Broad Street Mall still
poses a challenge, given the depressed retail trading environment across the
United Kingdom.
The mall has seen a decrease in footfall as we reconfigure the layout and tenant
mix around the development plans underway. Nonetheless, our two main anchor tenants,
TK Maxx and Wilko, continue to trade particularly well. Food retailers continue to
perform well in the centre and Poundland has managed to attract substantial trade
due to the Poundworld closure.
Terms have been agreed and legal negotiations are progressing well with two
high-profile national brands to take occupation of the former Argos and Poundworld
stores. Securing these two lettings demonstrates that the mall continues to appeal
to a range of occupiers. One of these brands is Iceland which will drive footfall.
At Broad Street Mall, heads of terms were agreed during the quarter for a
101-bedroom hotel with Premier Inn for a new 25-year lease, subject to CPI uplifts
(capped at 4% p.a.) and a tenant break after 20 years. The hotel development
proposals have been positively received and the scheme is expected to generate
significant residual value.
Excellent progress has also been made with the wider residential plans to develop
over 400 units above the shopping centre. The arrival next year of Crossrail
(the new high-speed rail link connecting Reading to central London and the
eastern suburbs) will have a positive effect on the Reading residential market.
The development team have been value engineering the design and we aim to submit
a planning application in the fourth quarter.
Texton continues to work closely with our joint venture partners to maximise returns
and capital appreciation from this asset.
We are working with architects to explore the possibility of adding accommodation
above our property located at Lower Parliament Street in Nottingham. These plans are
still in their initial phase and financial feasibility still has to be determined.
The potential optimisation of this asset is extremely positive given that Nottingham
is a major university town and the budget hotel market continues to expand in the UK.
The UK portfolio benefits from an increasing income profile driven by fixed uplifts
at rent review on 19% of the portfolio and inflation linked uplifts on 18% of the
portfolio. Most of the remaining rent reviews are subject to an upward only basis
where the rent is reviewed to the higher of passing or market rent. In FY18 we had
two flat rent reviews. Six leases have rent reviews due over the course of 2019.
As can be seen from the above, the United Kingdom portfolio benefits from long-term
leases with the majority expiring after 2020. Texton will continue to focus on
obtaining long-term income from strong tenant covenants. Being a REIT, these
long-term income-generating opportunities fit well in the Texton portfolio and allow
for continuous stable returns. Texton's properties in the United Kingdom have an
average unexpired lease term of 8,4 years by income and 9,5 years by area.
SA lease expiry profile
Between January and June 2018, Texton successfully concluded 30 new leases amounting
to 4 615m2. In the same period, 73 existing leases were renewed, amounting to
41 338m2. This is pleasing given our focused and proactive approach to tenant
retention in a challenging market.
Texton's lease expiry profile has improved significantly through early and continual
engagement with our tenants. Texton's lease expiry profile (by GLA) has seen a
rewarding decline since June 2017, which indicated that 42% of existing leases
would be expiring in 2018. We are pleased to report that as of June 2018 this
figure is now below 5%, with terms agreed and the remaining tenants in possession
of the agreements for signature.
Looking forward, the largest contributor to the June 2019 renewals is a sizeable
occupier that is currently on a short-term lease and that we expect to renew for a
longer lease in the coming financial year. This will improve the lease expiry
profile from 37,3% to 31,6%. Most of these lease renewals are already progressed and
we foresee muted to positive reversions.
Lease expiry profile
GLA Revenue
(%) (%)
SA
Vacant 9,3
2019 37,3 43,9
2020 14,0 15,3
2021 18,7 20,1
2022 3,5 4,1
2023 11,6 7,2
>2023 5,6 9,4
100,0 100,0
UK
Vacant 3,6
2019 2,5 3,3
2020 2,9 3,1
2021 7,1 10,2
2022 1,5 2,3
2023 0,6 1,4
>2023 81,8 79,7
100,0 100,0
Combined
Vacant 7,9
2019 28,5 31,3
2020 11,3 11,5
2021 15,9 17,0
2022 3,0 3,6
2023 9,1 5,4
>2023 24,3 31,2
100,0 100,0
Greening initiatives
Sustainable business and greening initiatives remain a priority for Texton. As
previously reported, various water saving initiatives were implemented at our
properties located in the Western Cape. As part of the replacement of
air-conditioning plant at Foretrust, we will be installing an air chiller plant
which is significantly more energy and water efficient.
We will be assessing the efficiency of the solar plant at Kempstar Mall in Kempton
Park over the course of the coming year. Texton will assess the results of the
project and consider potentially rolling this out at additional properties.
Capital management
During the second half of the financial year, Texton successfully renewed facilities
with Standard Bank of R50,5 million for three years. The Investec facility of
GBP19 million was renewed for an additional three years, split between a GBP and
a ZAR facility. The HSBC facility of GBP10 million was successfully concluded
and drawn down post year-end.
Texton has made progress on its capital management strategy of matching SA assets
with SA debt by reducing the amount of GBP facilities secured by SA assets to
GBP10 million from GBP19 million in the prior year. We continue to work towards
a target of financing and securing all SA facilities with SA assets and UK
facilities with UK assets.
We are proactively engaging with the banks on rolling existing facilities well
in advance of expiry and have engaged with several banks to establish
relationships to further diversify the lending portfolio.
As a result of the recognition of the PIC Put Option liability, the Group
loan-to-value ratio increased to 55,4%. This led to the breach of the loan to
value covenant of facilities with Standard Bank, Investec and Santander. All
three banks have condoned the breach, however, the International Financial Reporting
Standards require that these are classified as current liabilities as indicated on
the statement of financial position. The condonements are between 6 and 12 months
thus no repayments are anticipated and the original loan maturity dates remain
as disclosed below.
Debt maturity profile
South Africa
Drawn down
Facility Fixed Floating*
R'000 R'000 R'000
FY19 506 549 - 477 659
FY20 460 326 - 457 210
FY21 399 881 - 399 881
1 366 756 - 1 334 750
* Partly/fully hedged by interest rate swaps.
United Kingdom
Drawn down
Facility Fixed Floating
R'000 R'000 R'000
FY20 370 335 370 335 -
FY22 548 274 - 548 274*
918 609 370 335 548 274
* Partly/fully hedged by interest rate swaps.
Interest rate swap maturity profile
Nominal Nominal Fixed
amount amount rate
R'000 GBP'000 %
Expiry
16 May 2020 225 000 - 7,27
2 Nov 2020 200 000 7,19
16 May 2021 225 000 - 7,40
30 Jun 2021 270 000 - 7,82
12 Aug 2021 - 20 310 0,49
15 Feb 2022 200 000 - 7,31
1 120 000 20 310
The Board has reaffirmed the interest rate hedging strategy that at least 80% of
borrowings must be hedged against interest rate risk. Texton is 82,4% hedged at
30 June 2018.
The Fund has an average cost of debt of 9,11% on its SA debt and 3,24% on its UK
debt.
Currency
The closing exchange rate at 30 June 2018 was R18,09:GBP1 (June 2017: R17,04:GBP1);
and the average exchange rate for the year ended 30 June 2018 was R17,29:GBP1
(June 2017: R17,26:GBP1).
Texton has hedged its currency exposure through various derivative instruments. It
is the Board's policy to hedge the net property income from the UK assets for one
year ahead which is in line with Texton's budgeting period.
Cross-currency interest rate swaps
Nominal Nominal Texton Texton
amount amount receives pays
R'000 GBP'000 % %
Expiry
2 Sep 2021 600 000 30 801 11 3,18+LIBOR
27 Jan 2022 128 547 7 710 12 3,98+LIBOR
728 547 38 511
Put options
Texton Exchange Premium
buys rate to paid
GBP'000 GBP R'000
Expiry
18 Dec 2018 2 900 19,25 3 523
29 Jun 2019 2 900 19,25 3 300
Stated capital and shares repurchased
There are 376 066 766 ordinary shares of no par value in issue (June
2017: 376 066 766). The Group holds 10 428 348 (June 2017: 10 428 348) treasury
shares via Texton Property Fund Limited Share Incentive Scheme Trust. Treasury
shares held by Discus House Proprietary Limited, a subsidiary of Texton, amount to
16 243 865 (June 2017: 15 310 276) shares, bringing the total treasury shares held
to 26 672 213 (June 2017: 25 738 624).
No further share buy backs were completed in the second half of the financial year.
The Company's share structure is in line with international best practice for REITs.
Prospects
Texton's portfolio is defensively positioned in both of the markets in which it
operates, however, vacancies in the SA portfolio are expected to increase over the
short term which will result in lower net property income in the 2019 financial
year. The cost of tenancy continues to pose a challenge, with low economic growth
forecast for SA and continued uncertainty around Brexit perpetuating a challenging
operating environment for Texton. We continue to place significant focus on tenant
retention and the filling of our vacancies through active asset management.
Texton aims to reduce its LTV ratio to ultimately achieve a level of 40% or lower.
A significant portion of the proceeds from our various disposals will be applied
to paying down facilities in order to achieve this. It is anticipated that the
reduction will take time particularly in light of the R180 million fee paid to
cancel the asset management contract in the 2018 financial year.
Payment of final dividend
Notice is hereby given of the declaration of dividend number 11 of 41,36 cents
per share for the final six-month period to 30 June 2018, bringing the total
dividends for the year ended 30 June 2018 to 89,31 cents per share. The
dividend was declared out of income reserves.
Changes to the Board and Company Secretary
In compliance with paragraph 3.59 of the JSE Listings Requirements, the Board
hereby notifies its shareholders of the following changes which occurred during
the period:
- Jacob Wiese resigned as a Non-Executive Director effective 5 April 2018;
- Kenneth Collins resigned as an Alternate Director effective 5 April 2018;
- Marius Muller was appointed on 21 May 2018 as a Non-executive Director and
as a member of the Audit and Risk Committee and Chairman of the Investment
Committee. On 17 September 2018, Marius was appointed interim Chief Executive
Officer with immediate effect;
- Marcel Golding was appointed on 21 May 2018 as a Non-executive Director;
- Nqaba Sokabo resigned as Company Secretary effective 30 June 2018;
- Motif Capital Partners represented by Joel Naidoo CA(SA) was appointed as the
Company Secretary from 1 July 2018;
- Shaheeda Mia resigned as an Independent Non-executive Director and Member of
the Audit and Risk Committee on 4 September 2018; and
- Nosiphiwo Balfour was appointed as the Chief Executive Officer on 17 July 2017
and resigned 14 September 2018.
- Inge Pick was appointed as the Chief Financial Officer on 18 September 2017.
- Termination of CIS Company Secretaries Proprietary Limited on
11 December 2017.
Salient dates
Dividend declaration date Friday, 28 September 2018
Last date to trade Tuesday, 16 October 2018
Ex dividend date Wednesday, 17 October 2018
Record date Friday, 19 October 2018
Payment date Monday, 22 October 2018
Share certificates may not be dematerialised or rematerialised between Wednesday,
17 October 2018 or Friday, 19 October 2018, both dates inclusive.
An announcement informing shareholders of the tax treatment of the dividends
will be released on SENS on 28 September 2018.
Texton's income tax reference: 9353785158
Issued shares as at 28 September 2018: 376 066 766
Condensed consolidated statement of financial position
as at 30 June 2018
Reviewed Restated* Restated*
as at as at as at
30 June 30 June 1 July
2018 2017 2016
R'000 R'000 R'000
Assets
Non-current assets 4 864 870 5 237 499 5 498 451
Investment property 4 534 810 4 836 757 4 991 066
Property, plant and equipment 1 851 2 376 2 594
Tenant installation* 11 908 11 284 8 184
Investment in joint venture 231 302 247 906 262 938
Other non-current assets 19 370 10 319 8 027
Other financial assets 32 600 72 565 132 108
Restricted cash 33 029 56 292 93 534
Current assets 458 857 310 193 324 569
Restricted cash 16 427 5 153 25 134
Trade and other receivables 56 169 35 732 38 659
Non-current assets classified
as held for sale 272 156 100 750 133 000
Other financial assets* 6 692 10 299 -
Income tax receivable 13 745 3 835 3 781
Cash and cash equivalents 93 668 154 424 123 995
Total assets 5 323 727 5 547 692 5 823 020
Equity and liabilities
Equity 2 297 186 2 724 380 2 979 986
Stated capital 2 257 206 2 263 137 2 321 656
Retained earnings 254 934 731 327 759 835
Foreign currency translation
reserve (214 954) (270 131) (102 579)
Share-based payment reserve - 47 1 074
Liabilities 3 026 541 2 823 312 2 843 034
Non-current liabilities 384 987 1 383 876 1 932 586
Other financial liabilities 374 289 1 365 469 1 928 971
Lease liability* 3 395 3 454 -
Deferred tax 7 303 14 953 3 615
Current liabilities 2 641 554 1 439 436 910 448
Other financial liabilities 1 898 441 720 742 80 681
PIC Put Option 642 570 628 967 614 338
Trade and other payables 100 543 89 727 215 429
Total equity and liabilities 5 323 727 5 547 692 5 823 020
*Refer to note 6.
Condensed consolidated statement of comprehensive income
for the year ended 30 June 2018
Reviewed Restated*
for the for the
year ended year ended
30 June 30 June
2018 2017
R'000 R'000
Investment property income 581 192 589 165
Straight-line rental adjustment 7 721 9 664
Revenue 588 913 598 829
Property expenses (171 925) (158 068)
Net property income 416 988 440 761
Other income 478 5 581
Administrative expenses (28 270) (17 623)
Loss on equity accounted joint venture (47 452) (1 613)
Foreign exchange gains 17 304 35 711
Asset management fees (6 139) (25 610)
Operating profit 352 909 437 207
Finance income 102 727 97 665
Finance costs (167 016) (159 520)
Fair value adjustments (208 423) (46 875)
Capital expenses (3 806) (8 522)
PIC Put Option recognition adjustment (13 603) (14 629)
Cancellation of asset management contract (180 102) -
(Loss)/profit before tax (117 314) 305 326
Taxation 611 (14 326)
(Loss)/profit for the year (116 703) 291 000
Other comprehensive income:
Items that may be reclassified to profit or loss:
Exchange differences on translating foreign
operations 55 177 (167 552)
Total comprehensive (loss)/income for the
year (61 526) 123 448
Profit and total comprehensive (loss)/income for
the year attributable to:
Equity holders of the Company (61 526) 123 448
Headline earnings
(Loss)/earnings attributable to shareholders (116 703) 291 000
Revaluation of investment property 167 578 108 450
Headline earnings attributable to
shareholders 50 875 399 450
Weighted average number of shares in issue
(’000) 349 812 351 633
Basic and diluted (loss)/earnings per share
(cents) (33,36) 82,76
Headline and diluted earnings per share
(cents) 14,54 113,60
Interim dividend per share (cents) 47,95 47,95
Final dividend per share (cents) 41,36 54,85
*Refer to note 6.
Condensed consolidated statement of cash flows
for the year ended 30 June 2018
Reviewed Restated*
for the for the
year ended year ended
30 June 30 June
2018 2017
R'000 R'000
Cash flows from operating activities
Cash generated from operations (note 3) 199 960 554 858
Finance income received 84 050 72 745
Finance costs paid (152 530) (144 468)
Dividends paid (359 690) (350 714)
Income tax paid (17 026) (3 047)
Net cash (outflow)/inflow from operating activities (245 236) 129 374
Cash flows from investing activities
Additions to property, plant and equipment (515) (8 232)
Additions to investment property (19 488) (6 841)
Proceeds on disposal of investment property 87 250 163 400
Additions to other non-current assets - (5 545)
Acquisition of business combination net of
cash acquired - (282 692)
Loans advanced to joint venture - (16 345)
Repayments from joint venture 2 923 13 191
Loans repaid 272 -
Letting commission paid (2 910) -
Costs and deposit paid for Equites acquisition (10 128) -
Tenant installation incurred (5 321) -
Net cash inflow/(outflow) from investing activities 52 083 (143 064)
Cash flows from financing activities
Treasury shares acquired (5 931) (58 519)
Premiums paid on hedging instruments (6 823) (11 681)
Proceeds from other financial liabilities 721 822 851 745
Settlement of lease liability (472) -
Repayments of other financial liabilities (593 353) (772 835)
Net cash inflow from financing activities 115 243 8 710
Decrease in cash and cash equivalents (77 910) (4 980)
Cash and cash equivalents at the beginning
of the year 154 424 123 995
Effect of exchange rate movement on cash
and cash equivalents 5 165 (6 945)
Release of restricted cash 11 989 42 354
Cash and cash equivalents at the end of the year 93 668 154 424
*Refer to note 6.
Condensed consolidated statement of changes in equity
for the year ended 30 June 2018
Foreign
currency Share-
trans- based
Stated lation payment Retained
capital reserve reserve earnings Total
Reviewed R'000 R'000 R'000 R'000 R'000
Balance previously reported 2 906 923 (102 579) 1 074 788 906 3 594 324
PIC Put Option liability
raised and lease liability (585 267) 2 135 (583 132)
Restated* balance at
30 June 2016 2 321 656 (102 579) 1 074 791 041 3 011 192
Treasury shares acquired (58 519) (58 519)
Share-based payments
transaction (1 027) (1 027)
Total comprehensive income
for the year 291 000 291 000
- Profit for the year
- Exchange differences on
translation of foreign
operations (167 552) (167 552)
Transactions with shareholders
recognised directly in equity -
- Dividend paid (350 714) (350 714)
Balance at 30 June 2017 2 263 137 (270 131) 47 731 327 2 724 380
Treasury shares acquired (5 931) (5 931)
Elimination of share-based
payments reserve on transfer
of liability to new share
incentive scheme (47) (47)
Total comprehensive income
for the year (116 703) (116 703)
- Loss for the year
- Exchange differences on
translation of foreign
operations 55 177 55 177
Transactions with shareholders
recognised directly in equity -
- Dividend paid (359 690) (359 690)
Balance at 30 June 2018 2 257 206 (214 954) - 254 934 2 297 186
*Refer to note 6.
Preparation, accounting policies and audit opinion
1. Basis of preparation
The condensed consolidated reviewed financial statements are prepared in
accordance with the requirements of the JSE Limited Listings Requirements, the
requirements of the Companies Act of South Africa, the measurement and recognition
requirements of International Financial Reporting Standards (“IFRS”) and the
SAICA Financial Reporting Guides as issued by the Accounting Practices Committee
and the Financial Reporting Pronouncements as issued by the Financial Reporting
Standards Council and to also, as a minimum, contain the information required
by IAS 34 – Interim Financial Reporting.
The accounting policies applied in the preparation of the condensed consolidated
reviewed financial statements are in terms of IFRS and are consistent with those
applied in the previous consolidated annual financial statements. None of the
new standards, interpretations and amendments effective as of 1 July 2017 have
had material impact on the condensed consolidated reviewed annual financial
statements.
These condensed consolidated reviewed financial statements have been prepared
on a going concern basis, however, we draw your attention to note 10.
All monetary information is presented in the functional currency of the Company,
being South African Rand and is rounded to the nearest thousand (R'000).
2. Preparation of the provisional condensed consolidated reviewed financial
statements and auditors' review conclusion
The Directors take full responsibility for the preparation of these condensed
consolidated reviewed financial statements. These condensed consolidated
reviewed financial statements for the year ended 30 June 2018 have been
prepared under the supervision of the Chief Financial Officer, Ms Inge Pick
CA(SA). These provisional condensed consolidated financial statements for
the year ended 30 June have been reviewed by SizweNtsalubaGobodo Grant
Thornton ("SNG GT"), who expressed an unmodified review conclusion. The
review conclusion contained the following Emphasis of Matter paragraph
and reportable irregularity paragraph:
Material uncertainty relating to going concern
We draw your attention to Note 10 on Going Concern which describes the
entity's liquidity position indicating the entity had current liabilities
of R2 641,6 million (2017: R1 439,4 million) and current assets of
R459,0 million (2017: 310,2 million). Note 10 indicates that these
conditions, along with other matters, indicate the existence of a material
uncertainty which may cast significant doubt on the company's ability to
continue as a going concern. Our conclusion is not qualified in respect
of this matter.
Compliance with laws and regulations
Texton Property Fund Limited did not submit its annual tax return for
the 2016 and 2017 years as required in terms of section 25 of the Tax
Administration Act, read with section 66(1) of the Income Tax Act. A
second report was submitted to the Independent Regulatory Board of Auditors
indicating that the reportable irregularity was no longer taking place
and that adequate steps had been taken for the prevention or recovery
of any loss as a result thereof.
The review opinion does not necessarily report on all of the information
in this announcement. Shareholders are therefore advised that, in order
to obtain a full understanding of the nature of the auditor's engagement,
they should obtain a copy of that report from Texton's registered address.
Financial instruments and investment property fair value disclosure The
Group's investment properties are valued internally using the capitalisation
of net income method at interim reporting periods and externally by an
independent valuer for year-end reporting.
The Group's investment properties were externally valued by an independent
valuer. In terms of IAS 40: Investment Property and IFRS 7: Financial
Instruments: Disclosure, investment properties are measured at fair value
and are categorised as level 3 investments.
The revaluation of investment property requires judgement in the
determination of future cash flows from leases and an appropriate
capitalisation rate which varies between 6,59% and 9,21%.
Changes in the capitalisation rate attributable to changes in market
conditions can have a significant impact on property valuations. An
increase in the capitalisation rate of 0,5% (2017: 0,5%) will decrease
the value of the portfolio by R31,8 million (2017: R170,0 million) and a
0,5% (2017: 0,5%) decrease will result in an increase of R32,2 million
(2017: R189,1 million).
In terms of IAS 39: Financial Instruments: Recognition and Measurement
and IFRS 7, the Group's currency and interest rate derivatives are measured
at fair value through profit or loss and are categorised as level 2
investments. The fair value of the currency derivatives was an asset of
R32,6 million (June 2017: R82,9 million) and the fair value of the interest
rate derivative net asset was R7,0 million (June 2017: net liability
R1,8 million). These fair values were determined using valuation
techniques that present value the net cash flows. These cash flows are
based on observable market data.
The fair values of all financial instruments, interest rate swaps and
fixed rate financial liabilities are substantially the same as the carrying
amounts reflected on the statement of financial position.
There were no transfers between levels 1, 2 and 3 during the year. The
valuation methods applied are consistent with those applied in preparing
the previous consolidated financial statements.
The Board is not aware of any matters or circumstances arising subsequent
to June 2018 that require any additional disclosure or adjustment to
the financial statements, other than the discussed in note 5.
3. Cash generated from operations
Reviewed Restated*
for the for the
year ended year ended
30 June 30 June
2018 2017
R'000 R'000
Cash generated by operations
(Loss)/profit before tax (117 314) 305 326
Adjusted for:
Amortisation and depreciation 9 277 7 613
Impairment allowance 1 772 1 239
Loss from joint venture 47 452 1 613
Finance income (102 727) (97 665)
Straight-line adjustment (7 721) (9 664)
Finance costs 167 016 127 547
Fair value adjustments 207 761 199 941
Share-based payment expense 662 (1 027)
PIC Put Option recognition adjustment 13 603 14 629
Unrealised foreign exchange (gains)/loss (6 700) (21 350)
Assets scrapped 111 -
Cash generated before working capital changes 213 192 528 202
Changes in working capital:
- Increase/(decrease) in trade and other receivable (21 625) 7 334
- Increase in trade and other payables 8 393 19 322
Cash generated by operations 199 960 554 858
* Refer to note 6.
4. Related party transactions
Hermanstad Electricity Agreement
A service agreement was entered into in December 2015 between Texton, the trustees
of the Nooitgedacht Family Trust, Chick Legh and Kuper Legh Property Management
Proprietary Limited. This agreement entitled Chick Legh and the Nooitgedacht Family
Trust, of which Thys van Heerden is a trustee and beneficiary, to retain a
percentage of the monthly electricity recovery invoiced to tenants of the
Hermanstad property. This amount was earned for services provided by Nooitgedacht
Family Trust and Chick Legh whereby they would obtain the municipal statements
relating to electricity consumption, pay the amount over to the municipality on
Texton's behalf, allocate the consumption to tenants using the reports from the
requisite service provider and provide such amounts to Kuper Legh Property
Management Proprietary Limited for electricity recovery from tenants. This is
a related party transaction as Thys van Heerden and Chick Legh are directors
of Texton Property Fund Limited and Kuper Legh Property Management Proprietary
Limited as well as beneficiaries of the contract in their personal capacities.
Reviewed Restated* Restated*
as at as at as at
30 June 30 June 1 July
2018 2017 2016
R'000 R'000 R'000
JA Legh 138 093 120 966 377 143
Nooitgedacht Family Trust 138 093 120 966 377 143
276 186 241 932 754 286
5. Post balance sheet events
PIC Put Option
To meet the Company's transformation and empowerment objectives, Texton entered
into the BEE transaction in 2015. The transaction aimed to provide a competitive
advantage to Texton in the execution of its stated strategy, which included
leveraging Texton's BEE status to retain and attract government and national
tenants. At the time of the transaction, the South African government was
Texton's single largest tenant, occupying approximately 20% of Texton's total
gross lettable area. This has been significantly reduced over time.
The BEE transaction was structured such that BEE SPV acquired 51 858 876
Texton shares using funding from GEPF. Texton entered into a Subscription and
Relationship Agreement and the PIC Put Option Agreement, as revised. In the event
of a default, which includes a breach of the loan covenants, PIC is obliged to
first place BEE SPV in breach and to give BEE SPV 15 business days to remedy
such breach. Should the breach remain unremedied, then the PIC (acting on behalf
of GEPF) may exercise the cession and pledge of Texton shares granted to it BEE
SPV and, with Texton's approval, which may not unreasonably be delayed or
withheld, PIC shall sell the Texton shares held by BEE SPV. If both of these
courses of action do not result in the full repayment of the outstanding
balance of the loan, then the PIC may exercise the PIC Put Option.
The exercise of the PIC Put Option is subject to compliance with the Companies
Act and JSE Listings Requirements. The PIC Put Option is considered a specific
repurchase of shares in terms of the JSE Listings Requirements and, as such,
would be subject to a fairness opinion (if, at the time, PIC constitutes a
related party for purposes of the JSE Listings Requirements) and authorisation
by shareholders by way of a special resolution.
The exercise of the PIC Put Option is also subject to the Board of Directors
being satisfied that Texton would pass the solvency and liquidity test after
payment of the amount to PIC pursuant to the exercise of the PIC Put Option.
On 22 August 2018, Texton received a letter from the Public Investment
Corporation ("PIC") on behalf of the Government Employees Pension Fund ("GEPF")
notifying Texton Broad-Based Empowerment Proprietary Limited ("BEE SPV") that
a default event had occurred and that BEE SPV had 15 working days to remedy
the breach.
A cautionary announcement was released on 23 August 2018 setting out the
steps per the Amended and Restated Put Option Agreement between GEPF and
Texton, in the event that the breach was not remedied within the time period.
As per the updated cautionary announcement on 13 September 2018, the PIC has
exercised the Put Option. This matter is subject to shareholder approval via
special resolution and further communication will follow in this regard. Per
the Put Option Agreement settlement is due within 90 days of receipt of the
exercise notice, subject to compliance with the Companies Act and JSE Listings
Requirements and any other regulatory approvals required.
A liability of R642,6 million was recognised at 30 June 2018 in accordance with
IFRS.
The PIC Put Option recognition adjustment relates to an adjustment to the amount
Texton is required to pay for the shares due to a further default by BEE SPV.
In accordance with IAS 32, this liability is for the repurchase of shares,
however, the change in value is not as a result of a change in the net present
value thus is not recognised as a finance cost.
Dividend declaration
Dividend of 41,36 cents per share has been declared post year end.
6. Restatements
6.1 Prior period error
Shareholders are advised that the Company's financial results for the year
ended 30 June 2017, have been restated as follows:
Previously
reported Restated
30 June 30 June
2017 Adjustment 2017
R'000 R'000 R'000
Statement of financial position
Finance lease liability(1) (35 427) 31 973 (3 454)
Stated capital(2) (2 848 404) 585 267 (2 263 137)
PIC Put option liability(2) - (628 697) (628 697)
(2 883 831) (11 457) (2 895 288)
Retained earnings (1)(2) (743 054) 11 727 (731 327)
Impact on equity (743 054) 11 727 (731 327)
Statement of comprehensive income
Fair value adjustments (1) (47 642) 31 973 (15 669)
PIC Put option recognition
adjustment (2) - (14 629) (14 629)
Profit before taxation 319 188 17 344 336 532
Profit for the year 304 862 17 344 322 206
Total comprehensive
(loss)/profit for the year 137 310 17 344 154 654
Impact on earnings per share
Basic and diluted earnings per share 86,70 (3,94) 82,76
Headline and diluted earnings
per share 117,54 (3,94) 113,60
Previously
reported Restated
30 June 30 June
2016 Adjustment 2016
R'000 R'000 R'000
Finance lease liability(1) (34 712) 31 206 (3 506)
Stated capital(2) (2 906 923) 585 267 (2 321 656)
PIC Put option liability(2) - (614 338) (614 338)
(2 941 635) 2 135 (2 939 500)
Retained earnings (1)(2) (788 906) (2 135) (791 041)
Impact on equity (788 906) (2 135) (791 041)
Statement of comprehensive income
Fair value adjustments (1) (37 430) 26 336 (11 094)
PIC Put option recognition
adjustment (2) - (17 977) (17 977)
Profit before taxation 323 892 (29 071) 294 821
Profit for the year 323 892 (29 071) 294 821
Total comprehensive
(loss)/profit for the year 212 090 (29 071) 183 019
Impact on earnings per share
Basic and diluted earnings per share
Headline and diluted earnings per share
(1) The lease liability for Woodmead Commercial Park has been restated due to a
prior year error. Contingent rentals were erroneously included in the calculation
of the lease liability resulting in an overstatement of the liability by
R32,0 million.
(2) A liability of R629,0 million was raised for the PIC Put Option. Texton
entered into the Put Option Agreement in 2015. The exercise of the Put Option
by the PIC gave rise to a contractual liability under IAS 32 as Texton does not
have an unconditional right to avoid paying cash. This led to the raising of the
liability and the restatement of the prior year financial statements. Refer to
note 5 for more details. In the prior year this amount was not recognised
based on judgements made by management which took into account external accounting
and legal opinions. During the current year, after a further review of the
judgements used in accounting for the liability it was recognised as a prior
period error.
6.2 Reclassification of assets and liabilities
Following a review of assets and liabilities disclosed in the Group statement
of financial position during the current financial year, the assets and
liabilities detailed below have been disclosed separately in the comparable
financial year to present the assets and liabilities in accordance with the
classification applied in the current year.
Tenant installation
Tenant installation of R11,2 million that was previously disclosed under
Property, plant and equipment, has now been separately disclosed on the
statement of financial position as a separate asset.
Currency put option
The currency put option asset of R10,2 million that was previously
included in Trade and other receivables has now been separately disclosed
in the statement of financial position under Other financial assets.
Lease liability
The lease liability R3,5 million* that was previously included in other
financial liabilities, has now been separately disclosed on the statement
of financial position as a separate liability.
* Restated amount as per note 6.1.
7. Segmental analysis
South Africa
Reviewed Restated
for the for the
year ended year ended
30 June 30 June
2018 2017
R'000 R'000
Segmental revenue - rental revenue
Office 351 336 365 844
Retail 74 397 70 326
Industrial 46 993 51 341
472 726 487 511
Profit before tax
Office 170 493 177 427
Retail 42 982 25 076
Industrial 14 739 25 218
Corporate (310 465) 71 912
(82 251) 299 633
Total assets
Office 2 541 199 2 632 492
Retail 474 328 478 738
Industrial 293 825 343 671
Corporate 85 957 411 987
3 395 309 3 866 888
UK
Reviewed Restated
for the for the
year ended year ended
30 June 30 June
2018 2017
Segmental revenue - rental revenue
Office 55 104 51 507
Retail 25 297 25 237
Industrial 35 786 34 574
116 187 111 318
Profit before tax
Office (5 007) (33 303)
Retail (95 211) 9 159
Industrial 49 162 29 837
Corporate 15 993 -
(35 063) 5 693
Total assets
Office 736 784 736 125
Retail 576 524 385 725
Industrial 614 383 558 954
Corporate 727 -
1 928 418 1 680 804
Total
Reviewed Restated
for the for the
year ended year ended
30 June 30 June
2018 2017
Segmental revenue - rental revenue
Office 406 440 417 351
Retail 99 694 95 563
Industrial 82 779 85 915
588 913 598 829
Profit before tax
Office 165 486 144 124
Retail (52 229) 34 235
Industrial 63 901 55 055
Corporate (294 472) 71 912
(117 314) 305 326
Total assets
Office 3 277 983 3 368 617
Retail 1 050 852 864 463
Industrial 908 202 902 625
Corporate 86 684 411 987
5 323 721 5 547 692
8. Summary of financial performance
Reviewed Restated
for the for the
year ended year ended
30 June 30 June
2018 2017
Shares in issue and used for dividend
calculation ('000) 349 395 350 328
Weighted average number of shares in issue ('000) 349 812 351 633
Net asset value per share (cents) 657,48 777,67
Net tangible asset value less deferred tax
per share (cents) 659,57 781,93
Basic and diluted (loss)/earnings per
share (cents) (33,36) 82,76
Headline and diluted earnings per share (cents) 14,54 113,60
Dividend per share (cents) 89,31 102,80
Share price (cents) 605,00 790,00
Loan-to-value ratio* 55,4% 53,1%
Loan-to-value ratio excluding PIC Put
Option liability 42,7% 40,8%
IFRS
Gross property cost to income ratio 29,6% 25,7%
Net property cost to income ratio 14,6% 9,1%
Gross total cost to income ratio 36,3% 28,4%
Net total cost to income ratio 22,7% 15,7%
* The loan-to-value ratio is calculated by dividing total liabilities by the
total property assets and investment in joint venture.
9. Distributable earnings
Reviewed Restated
for the for the
year ended year ended
30 June 30 June
2018 2017
R'000 R'000
Revenue 581 192 589 165
Property expenses (171 925) (158 068)
Loss from joint venture (47 452) (1 613)
Non-cash items included in loss from
joint venture 44 740 5 217
Other income 478 5 581
Administrative expenses (28 270) (17 623)
Asset management fees (6 139) (25 610)
Net finance cost (64 289) (58 801)
- Finance income 102 727 97 665
- Finance cost (167 016) (159 520)
- Amortisation of structuring fees* - 3 054
Taxation (7 039) -
Distribution of realised forex 10 604 22 586
Dividends on treasury shares 23 982 25 767
Total distribution 335 882 386 601
Less: Distribution to shareholders (interim) (180 324) (180 324)
Available for distribution (final) 155 558 206 277
* Following adoption of the SA REIT Best Practice Recommendations this item
will no longer be added back for distribution purposes.
10. Going concern
There are a number of factors that may result in uncertainties regarding the
going concern assumption for the Group as it may not be able to realise its
assets and discharge its liabilities in the normal course of business.
The Group's cash resources at 30 June 2018 total R93,8 million and are presently
not considered adequate to meet the Group's current obligations for the
foreseeable future in the event that shareholders vote in favour of the repurchase
of shares in terms of the PIC Put Option.
Availability of funding for the group's activities
A current facility of R466 million expires in March 2019. Management has engaged
with the banks regarding the renewal of this facility. The refinancing is
subject to the following:
- The Covenant is restored to the level as set out in the facility agreement
- The satisfactory completion of due diligence procedures which are customary
when reviewing a refinancing transaction
- Obtaining all internal credit approvals
- Being satisfied with the underlying collateral that is presented in support
of the refinancing
- Legal documentation being entered into in a form and substance acceptable
to the lender
Outcome of pic Put Option vote
As noted above Texton will seek approval from shareholders regarding the
repurchase of shares in terms of the PIC Put option.
In the event that shareholders pass the resolution approving the repurchase
of shares this will result in a cash outflow and the breach of the conditions
of condonements provided by the banks.
As discussed in note 5, Texton entered into the PIC Put Option in 2015 as
security for the loan given by GEPF to BEE SPV to acquire shares in Texton.
The PIC Put Option agreement sets out the steps should BEE SPV default and these
steps have been followed ending in the PIC exercising the PIC Put Option on
13 September 2018. The PIC Put Option agreement requires that Texton repurchases
the PIC Put Option shares for the outstanding loan balance, which is R642,6 million.
The repurchase is subject to compliance with the JSE Listings Requirements relating
to specific share repurchases and the Companies Act. In the context, the Pic Put
Option is a specific repurchase of Texton shares by Texton from a related party
which requires:
(i) a statement of solvency and liquidity after the share repurchase. Factually,
the solvency and liquidity test will not be met;
(ii) a fairness statement by the directors of Texton, supported by an independent
fairness opinion; and
(iii) approval by the shareholders of Texton by way of a special
resolution.
In addition to the above, and if the requirements set out above have been met, there
has to be further compliance with section 48 of the Companies Act to the fact that
immediately after the share repurchase Texton will meet the solvency and liquidity
test required by section 46 of the Companies Act. As indicated above, Texton will
not meet this requirement.
As a result of IFRS 10 Texton has raised the liability in its financial statements
for the full amount as a current liability. It is anticipated that Texton will not
meet the requirements of the JSE Listings Requirements and the Companies Act and
will thus not be in a position to repurchase the shares put to Texton by the PIC.
Notwithstanding, Texton is pursuing the steps to seek shareholder approval. If
approval is not obtained by Texton, Texton has been advised by senior counsel that
the PIC Put Option falls away and is of no further force and effect.
Texton's facilities with Santander, Standard Bank and Investec contain a number of
covenants including the requirement for the group LTV to be a maximum of 50%. Due
to the inclusion of the PIC Put Option liability at 30 June 2018, Texton's group
LTV is at 55,4% and a breach of the loan covenant has occurred. This has resulted
in the facilities being classified as current liabilities at 30 June 2018. Texton
has engaged with the three banks and obtained condonements of the breaches for
periods of between 6 and 12 months, subject to the outcome of the vote on the
special resolution authorising the specific repurchase of shares in terms of the
PIC Put Option. Texton's engagements with the banks regarding their position post
the shareholder vote has been positive as the uncertainty regarding this liability
would be removed. It should be noted that, should shareholders vote in favour of the
special resolution, the PIC Put Option Agreement states that Texton would be liable
but would only be required to settle the liability when it met the solvency and
liquidity requirements to do so.
Corporate information
Texton Property Fund Limited
Incorporated in the Republic of South Africa
Registration number: 2005/019302/06
A Real Estate Investment Trust listed on the JSE Limited
JSE share code: TEX ISIN: ZAE000190542
Formerly ISIN: ZAE000185872
Physical and registered address
Block C, Investment Place
10th Road, Hyde Park 2196
PO Box 653129, Benmore 2010
Board of directors
PD Naidoo (Chairperson)
NV Balfour*# (Chief Executive Officer)
IF Pick* (Chief Financial Officer)
JR Macey (Lead Independent)
M Golding
JA Legh
MH Muller*& (Interim Chief Executive Officer)
P Ntshalintshali
MJ van Heerden
TMZ Zuma
* Executive director
# Resigned as Chief Executive Officer on 14 September 2018
& Appointed as Interim Chief Executive Officer on 17 September 2018
Company secretary
Motif Capital Partners Suite 11,
2nd Floor Melrose Boulevard Melrose Arch 2193
Auditor
SizweNtsalobaGobodo Grant Thornton Inc.
20 Morris Street East, Woodmead 2191
Sponsor
Merchantec Capital
2nd Floor North Block
Hyde Park Office Tower
Cnr 6th Road and Jan Smuts Avenue
Hyde Park 2196
PO Box 41480, Craighall 2024
Transfer secretary
Computershare Investor Services
Proprietary Limited
Rosebank Towers, 15 Biermann Avenue
Rosebank 2196
PO Box 61051, Marshalltown 2107
Investor relations
FabNature
102 Taronga Road
Rondebosch East
Cape Town 7780
Date: 01/10/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.