Wrap Text
Unaudited condensed consolidated interim results for the 6 months ended 31 August 2018
Equites Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2013/080877/06)
JSE share code: EQU ISIN: ZAE000188843
(Approved as a REIT by the JSE)
("Equites" or "the group" of "the company")
Equites: Unaudited condensed consolidated interim results for the 6 months
ended 31 August 2018
Commentary
Highlights
- 11.7% increase in distribution per share for the 6 months ended
31 August 2018 compared to the corresponding financial period
- Net asset value per share increased by 9.5% to R16.67 from 31 August 2017
to 31 August 2018
- Significant progress made with transformation initiatives with certified
black ownership of 53%
- Strong like-for-like property income growth of 7.8% reflective of
strength of underlying property portfolio
- Weighted average lease expiry has increased from 7.9 years at
28 February 2018 to 8.3 years at 31 August 2018
- Vacancies reduced to 0.2% from 2% at year-end following the letting
of logistics property at Cape Town International Airport
- Fair value of fund exceeds R10 billion at 31 August 2018
- Agreements concluded to dispose of R265.3 million of non-core assets
- First of four UK developments completed in August 2018 with a further
67 664m2 of modern logistics properties currently under development
between South Africa ("SA") and the United Kingdom ("UK")
- Loan-to-value of 22.1% at 31 August 2018 marginally lower compared to
the 23.5% at 28 February 2018
- Successfully raised R800 million in an oversubscribed bookbuild in
June 2018
- Significant reduction in all-in average fixed cost of debt of 73 basis
points from 7.99% at 28 February 2018 to 7.26% at 31 August 2018
- Awarded first-time issuer national scale ratings of A(ZA) and A1(ZA)
for the long and short term respectively with the outlook accorded as
'Stable'
1. Nature of the business
In its four years since listing, Equites (the "group") has
established itself as a market leader in the logistics property
space. The group has executed its vision of becoming a globally
relevant REIT, with a focus on SA and the UK. The group focuses on
high quality logistics assets, let to A-Grade tenants on
long-dated leases, in key logistics nodes.
Whilst retaining a clear focus on high-quality logistics properties,
the value of the fund has grown significantly to exceed R10 billion
at 31 August 2018. This growth has been achieved through strategic
portfolio acquisitions, large single asset acquisitions, and
high-quality developments in both SA and the UK.
The group is the only listed property company on the JSE to provide
shareholders with pure exposure to modern logistics assets combined
with proven in-house development expertise. The growth strategy in
SA is focused on high-quality acquisitions, the acquisition of
strategic land holdings in order to capture emerging logistics
nodes and the development of modern facilities on controlled
land parcels.
The group has grown its investment into the UK where high levels of
demand for the asset class point to continued robust performance of
the sector. Despite some concerns around Brexit, strong market
fundamentals supported by e-commerce suggest continued optimism
and further yield compression, making this market increasingly
desirable.
Given the significant demand, opportunities to acquire completed
properties that meet the group's requirements have been limited and
consequently the last four transactions concluded in that market
have been development funding arrangements. The group's in-house
capacity to oversee developments and close working relationships
with key UK-based developers have been key in securing these
opportunities. In August 2018, the group completed its development
in Peterborough, let to DSV on a 10-year lease and is in the
process of developing a further three properties pre-let to DHL,
Coloplast and DPD.
2. Commentary on results
Despite a challenging economic climate, Equites' portfolio
continued to perform well during the period, which translated
into a 11.7% growth in distribution per share compared to the
corresponding financial period. The distribution per share for
the six months ended 31 August 2018 amounts to 68.12 cents, which
is at the upper end of the guidance previously provided.
The group's distribution per share growth was underpinned by:
- Like-for-like rental growth of 7.8% mainly due to the group's
strong in force contractual lease escalations;
- Financial leverage contributed 0.8% as a result of comparatively
low levels of gearing throughout the period;
- Acquisitions and developments contributed 2.3% predominantly
through the deployment of equity and debt capital at net initial
yields that exceeded the underlying weighted average cost of
capital;
- A decrease in the group's average cost of debt partially because
of the 25-basis point decrease in repurchase rate in March 2018
but also through the increased weighting of UK debt funding as a
proportion of the group's total outstanding debt; and
- Increased fixed costs over the period partially due to nominal
increases in the administrative cost base and as a result of the
group's investment in the Michel Lanfranchi Foundation and other
Broad-Based Black Economic Empowerment ("B-BBEE")-related costs.
In June 2018, the group raised R800 million of equity capital and
the differential between the marginal cost of debt and the
effective yield of the equity price achieved added 1.1% to the
distribution growth per share.
3. Transformation and B-BBEE
Equites remains committed to transformation and making a meaningful
contribution in this regard within the property sector. The amended
property sector code was gazetted by the Department of Trade and
Industry in June 2017 which encouraged Equites to focus on
improving ownership, management control, employment equity, skills
development, enterprise and supplier development.
Brimstone Investment Corporation Limited made strategic empowerment
investments into Equites in 2015 and 2016. The board of directors
of Equites ("board") is also pleased to have large shareholders
with predominantly black beneficiaries such as the Government
Employment Pension Fund and the Eskom Pension Fund, which has
contributed to Equites having certified black ownership of 53% at
31 August 2018.
Various initiatives have resulted in a largely transformed
workforce, a fully implemented learnership programme, a successful
enterprise and supplier and development programme and significant
investments into under resourced areas as part of economic
development efforts. These have all contributed to a level 4
contributor rating under the amended property sector code as at
31 August 2018.
4. Portfolio movements
During the period under review, the group's portfolio has evolved
as a result of acquisitions, developments and disposals which are
outlined in the tables below:
GLA of industrial portfolio
Vacant
Note Occupied (available)
At 1 March 2018 429 897 9 098
Acquisition of Nestle,
Longmeadow 4.1 36 741 1 093
DSV Peterborough,
UK completed 4.5 28 124
Premier FMCG,
Lord's View
completed 4.8 15 216
Properties recognised
as held for sale 4.11 (17 015)
Tower Road, Cape Town
let to Courier IT/RTT 9 098 (9 098)
Remeasurements and
extensions 235
At 31 August 2018 502 296 1 093
GLA of industrial portfolio
Under development
Note Pre-let Speculative Total
At 1 March 2018 61 725 26 390 527 110
Acquisition of Nestle,
Longmeadow 4.1 37 834
DSV Peterborough,
UK completed 4.5 (28 124) -
Coloplast, UK
development
commenced 4.6 12 609 12 614
DPD, UK development
commenced 4.7 4 024 4 024
Premier FMCG,
Lord's View
completed 4.8 (15 216) -
Unit let to
JF Hillebrand
at Atlantic Hills 4.10 4 623 (4 623) -
Development in
Bellville,
Cape Town commenced 4.10 6 003 6 003
Properties
recognised as
held for sale 4.11 (17 015)
Tower Road, Cape Town
let to Courier IT/RTT -
Remeasurements and
extensions 253 488
At 31 August 2018 39 894 27 770 571 053
4.1. Acquisition of portfolio from Investec
Equites concluded an agreement to acquire two properties from
Investec Group Holdings Proprietary Limited - a 37 834m2
distribution centre let to Nestle South Africa Proprietary Limited
("Nestle") in Longmeadow Business Estate, Gauteng and a 26 857m2
distribution centre let to Pick n Pay Retailers Proprietary
Limited ("Pick n Pay") situated in New Germany, KwaZulu-Natal.
The properties have a capital value of R648 million and represent
well-located, high-quality modern logistics assets which meet
Equites' strict investment criteria. The Nestle property
transferred during August 2018 and the Pick n Pay property shortly
after the end of the current reporting period on 7 September 2018.
4.2. Acquisition of Simba distribution centre from Investec
On 6 August 2018, Equites announced the acquisition of a 40 426m2
distribution centre from Investec Property Fund Limited for
R462 million. The distribution centre is situated on a 101 769m2
site in Germiston and is let to Simba Proprietary Limited on a
ten-year lease, which commenced in November 2017. The transaction
has now been finalised, pending competition commission approval,
and transfer should occur within the next three months.
4.3. Acquisition of strategic land holdings
The group continues to see an increase in the demand for logistics
assets, despite the headwinds facing the SA economy. Equites has
started to see significant interest for new development leases with
retailers investigating options for large-scale distribution
centres as part of their supply chain optimisation strategies.
These development opportunities are essential to grow the scale of
the portfolio, and in order to execute these, it is necessary for
the group to hold strategic land holdings in proven or emerging
logistics nodes.
Negotiations are ongoing to acquire further strategically located
land parcels to be well-positioned to cater for tenant-driven
logistics development.
4.4. DHL development - acquisition of land and conclusion of development
funding agreement
The group previously announced its acquisition of 7.96 acres of
vacant land for £9.7 million and the conclusion of a development
funding agreement for the construction of a 9 325m2 last-mile
fulfilment centre pre-let to DHL International (UK) Limited ("DHL")
on a ten-year lease. The property is situated in Reading,
40 miles west of London.
The distribution centre is expected to be completed in December
2018 and will have a capital value of £29 million on completion.
4.5. DSV development - acquisition of land and conclusion of development
funding agreement
On 5 March 2018, Equites announced that it had entered into an
agreement to acquire 13.26 acres of vacant land for £4.6 million
and simultaneously concluded a forward funding agreement for the
development of a 28 124m2 distribution warehouse to be let to DSV
Solutions Limited ("DSV") on a ten-year lease. The property is
situated in Peterborough, a proven logistics area, 80 miles north
of London.
The building was completed on 23 August 2018 and has a capital
value of £30 million.
4.6. Coloplast development - acquisition of land and conclusion of
development funding agreement
On 9 May 2018, Equites announced the acquisition of 7.33 acres of
vacant land for £2.6 million and a forward funding agreement to
develop a 12 609m2 warehouse which will be situated in Peterborough,
UK. On completion, the property will have a capital value of
c.£13 million and will be let to Coloplast Limited ("Coloplast")
on a 10-year lease.
At the date of this report, construction has commenced on the site
and completion is expected in April 2019.
4.7. DPD development - acquisition of land and conclusion of development
funding agreement
During the period under review, Equites concluded a development
funding and land acquisition agreement to purchase the property and
to fund the development of a new 4 024m2 warehouse for a maximum
commitment of £12 million. The property is situated in Burgess Hill,
West Sussex and will be let to DPD Group UK Limited ("DPD") on a
25-year lease on completion.
Construction of the asset commenced in August 2018 and completion is
expected in March 2019.
4.8. New Premier FMCG development
Equites concluded a development lease with Premier FMCG Proprietary
Limited ("Premier"), in terms of which Equites developed a 15 216m2
modern logistics facility for Premier. Construction commenced in
October 2017 and was completed in August 2018, within the agreed
time frame. The total capital value of the development on completion
is R177 million. This development was constructed on 3.9 hectares
of vacant land which Equites owns in Lord's View Industrial Park in
Gauteng and demonstrates an exceptional asset management play,
where Equites catered for an existing tenant's growing requirement
for modern logistics space.
Equites is targeting a 4 Star Custom Industrial As-Built Rating
from the Green Building Council of South Africa ("GBCSA") for this
building. This will be only the fourth such achievement in South
Africa, according to the GBCSA. Sustainability has been at the core
of the design process to ensure a more environmentally conscious
building that will operate with a reduced impact on the environment;
this includes renewable energy generation through its 2 000
photovoltaic panels, automated energy sub-metering for real time
feedback on consumption, water efficient fittings throughout the
building and measures to reduce waste which may end up in the
council storm water system. The building was designed as a
sustainable and long-term beneficial investment for the occupants,
the group and the environment. Equites will be looking at rolling
out similar projects where feasible. The photovoltaic plant
incorporated into this property will provide subsidised clean
energy to 4 of the group's properties in the precinct - a first for
an industrial development in SA.
4.9. Federal Mogul development
Equites concluded a development agreement with Federal Mogul South
Africa Proprietary Limited, a global supplier of quality products
to the automotive industry, to develop a 10 147m2 warehouse with
an estimated capital value R95 million. The development lease
includes an option to extend the warehouse by a further 5 000m2 at
the option of the tenant. The warehouse and office will serve as
the South African headquarters of the global business.
Construction commenced in August 2018 and estimated completion is
May 2019.
4.10. Speculative developments
Equites expects to complete a speculative development at Equites
Park, Atlantic Hills by the end of October 2018. The three units
will have a combined GLA of 14 956m2 and capital value of
R152 million on completion. To date, there has been significant
interest in the units, and one unit measuring 4 623m2 has been
let to JF Hillebrand to cater for their growing requirement for
modern logistics space.
The group has also started a new speculative development in
Bellville South, Cape Town. The development commenced in September
2018 and will house a 6 003m2 warehouse on a 10.1 hectare site.
The anticipated capital value on completion is R55 million and is
expected to be completed in April 2019.
A speculative development at Lord's View, with a GLA of 11 275m2
and a capital value of R94 million, is expected to be completed
by the end of the calendar year.
4.11. Disposals
The group continues to actively asset manage its portfolio and
recycle capital. With its focus on large, logistics properties,
the group concluded a transaction to sell four smaller, non-core
assets to Texton Property Fund Limited for R205.3 million. Transfer
of this portfolio is expected to be completed before the end of the
financial year.
The group also concluded an agreement to dispose of one of its
commercial properties situated at 8 Melville Road, Illovo for
R60 million. The transfer of this property is expected to be
completed during October 2018. Following this transaction, the
group will only have one remaining office building in the portfolio
valued at R50 million.
The R265.3 million that will be raised from these disposals have
been earmarked to contribute to the group's development pipeline.
5. Distributable earnings
Unaudited Unaudited Audited
6 months 6 months 12 months
Reconciliation between ended ended ended
earnings, headline earnings 31 August 31 August 28 February
and distributable earnings 2018 2017 2018
(dividend declared) R'000 R'000 R'000
Earnings (profit attributable
to owners of the parent) 226 076 466 889 870 189
Adjusted for:
Fair value adjustments to
investment properties (117 492) (251 504) (239 546)
Less: Fair value adjustments to
investment properties (NCI)+ 13 050 902 5 578
Profit or loss on sale of
investment property and
property, plant and equipment 1 874 - (2 482)
Headline earnings 123 508 216 287 633 739
Adjusted for:
Straight-lining of leases
adjustment (38 207) (21 904) (33 548)
Less: Straight-lining of
leases adjustment (NCI)+ 3 633 2 474 12 522
Fair value adjustments to
derivative financial assets
and liabilities 210 578 31 343 (93 729)
Less: Fair value adjustments to
derivative financial assets and
liabilities (NCI)+ 1 495 (1 460) (3 215)
Equity-settled share-based
payment reserve 3 177 2 884 6 514
Capital items non-distributable 1 933 (12 183) (12 636)
Less: Capital items
non-distributable (NCI)+ - 2 345 2 345
Deferred taxation (12 697) - (34 409)
Antecedent dividend* 15 846 30 220 30 220
Distributable earnings 309 266 250 007 507 802
Number of shares in issue 454 026 222 409 973 231 409 973 231
Weighted average number
of shares in issue 431 277 246 359 692 816 384 863 859
Diluted weighted average
number of shares in issue 432 368 432 360 720 790 298 044 931
Distribution per share (cents) 68.12 60.98 123.86
Headline earnings per
share (cents) 28.64 59.88 164.67
Diluted headline earnings
per share (cents) 28.57 59.71 164.12
+ Non-controlling interest
* In the determination of distributable earnings, the group elects
to make an adjustment for the antecedent dividend arising as
result of the issue of shares during the period for which the
company did not have full access to the cash flow from such
issue. The antecedent dividend has been calculated in line with
financial reporting periods.
The board approved an interim dividend of 68.12 cents per share on
8 October 2018 for the 6 months ended 31 August 2018. This
represents a growth of 11.7% over the comparative period.
6. Net asset value per share
The net asset value per share of the group grew to 1 667 cents per
share by 31 August 2018. This equates to a growth of 9.5% from
31 August 2017, which represents a compounded annual growth rate
("CAGR") of 12.9% since listing on the JSE on 18 June 2014:
On listing
18 Jun-14 Aug-18 Aug-17 Feb-18
Net asset value
(cps) 1 000 1 667 1 522 1 536
Growth since listing 66.7% 52.2% 53.6%
Growth since Aug-17 9.5%
CAGR since listing 12.9%
7. Expense ratios
7.1. Cost to income ratios
Aug-18 Aug-17 Feb-18
Gross property cost to income
ratio 16.29% 15.95% 16.28%
Gross administrative cost to
income ratio 5.85% 4.99% 6.12%
The gross property cost-to-income ratio is based on total
property-related expenses divided by revenue, excluding straight-
line lease income adjustments. Property costs include utility
costs, repairs and maintenance costs and the salaries of property
management and operational staff. As 93% of our leases are fully
repairing and maintaining ("triple net") leases, the group has
remained largely shielded from increasing utility costs and
municipal rates in SA.
The administrative cost-to-income ratio is based on total
administrative expenses divided by revenue, excluding straight-line
lease income adjustments. The administrative cost comprises
primarily of head office staff and overhead costs. This ratio has
increased compared to the comparative period largely as a result
of increased B-BBEE-related spend.
7.2. Cost to total property assets ratios
Aug-18 Aug-17 Feb-18
Property costs as a % of total
property assets 0.98% 1.16% 1.11%
Administrative costs as a
% of total property assets 0.36% 0.36% 0.42%
The ratios above are based on the total property costs and total
administrative costs as a percentage of total property assets
(including properties held for sale). The group continues to
contain administrative costs at well-below sector averages.
8. Updated property fundamentals
8.1. Lease expiry profile
Lease expiry Based on rentable Based on contractual
area revenue
Aug-18 Feb-18 Aug-18 Feb-18
Vacant / Monthly 0.2% 2.0% n/a n/a
Expiry in the year
to 28 February 2019 2.2% 4.3% 2.4% 4.3%
Expiry in the year
to 28 February 2020 3.1% 3.4% 4.2% 4.1%
Expiry in the year
to 29 February 2021 3.3% 3.9% 3.7% 4.1%
Expiry in the year
to 28 February 2022 12.2% 14.4% 9.7% 11.4%
Expiry in the year
to 28 February 2023
and later 79.0% 72.0% 80.0% 76.1%
100.0% 100.0% 100.0% 100.0%
8.2. Weighted average lease expiry
Weighted average lease expiry (years) Based on contractual revenue
Aug-18 Feb-18
South Africa - Industrial 7.4 6.6
South Africa - Office 2.1 4.1
7.4 6.6
United Kingdom - Industrial 10.7 10.9
Weighted average lease expiry 8.3 7.9
8.3. Tenant grade profile
Tenant profile Based on contractual revenue
Aug-18 Feb-18
A - Large nationals, large listeds and
government 92.9% 89.9%
B - Smaller international and national tenants 2.2% 2.6%
C - Other local tenants and sole proprietors 4.9% 7.5%
100.0% 100.0%
8.4. Property geographic distribution
Geographic profile Based on Based on
rentable area contractual revenue
Aug-18 Feb-18 Aug-18 Feb-18
Gauteng 49.6% 47.3% 53.4% 53.2%
Cape Town 22.0% 32.9% 20.5% 31.3%
United Kingdom 28.4% 19.8% 26.1% 15.5%
100.0% 100.0% 100.0% 100.0%
8.5. Sectoral profile (including vacancy profile)
Sectoral profile
Based on Based on
contractual rentable
revenue area Vacancy
Aug-18 Feb-18 Aug-18 Feb-18 Aug-18 Feb-18
Industrial 97.5% 96.1% 98.8% 98.8% 0.2% 2.0%
Office 2.5% 3.9% 1.2% 1.2% 0.0% 0.0%
100.0% 100.0% 100.0% 100.0% 0.2% 2.0%
9. Funding
9.1. South African funding
The group continued to diversify its sources of funding further
and now has term loan facilities of R2.6 billion (Feb-18:
R2.5 billion) with five institutions, namely: Nedbank, Standard
Bank, ABSA, Rand Merchant Bank and Sanlam. R1.2 billion (Feb-18:
R1.05 billion) of these facilities are undrawn at the end of the
period and are available to fund acquisitions and developments.
The maturity dates of the various facilities range from November
2019 to September 2021. Prime linked facilities accrue interest
at an average margin of 1.47% below prime (Feb-18: 1.47% below
prime) and JIBAR linked loans accrue interest at an average margin
of 1.90% above 3-month JIBAR (Feb-18: 2.20% above 3-month JIBAR).
The following table shows the expiry profile of the SA term loan
facilities:
Nominal amount
Expiry date R'000
FY19 200 000
FY20 715 000
FY21 450 000
FY22 1 242 102
Total 2 607 102
Pursuant to the group's objective of further diversifying its
sources of debt funding via, inter alia, a domestic medium-term
note ("DMTN") programme, it sought an unsecured credit rating from
GCR as the first step in this process. A first-time issuer credit
rating on national scale ratings of A(ZA) and A1(ZA) was awarded
to the group for the long and short term respectively. This
achievement is testament to the group's sound corporate finance
and conservative capital management policies. The board is
currently evaluating the appropriate timing for the launch of
its DMTN programme.
9.2. UK funding
During the period under review, the group expanded its sources of
debt funding and took advantage of pricing mismatches between the
UK gilt curve and the GBP LIBOR forward curve by entering into a
8-year term loan facility of £48m with Aviva Commercial Finance
Limited ("Aviva"), £20.5m of which has been drawn at an all-in
fixed interest rate of 2.96%, with the residual portion of the
facility to be drawn before year-end. A comparable GBP LIBOR
8-year forward rate at the time of drawdown was around 3.12%,
16 basis points higher than the contracted interest rate. This
loan facility increases the group's UK debt sources to three
financial institutions - HSBC, RBS and Aviva with total debt
facilities at the reporting date of £51 million (Feb-18:
£31 million) with a further £27.5m available by the end of the
current year. The average margin above 3-month GBP LIBOR on the
variable rate term loan funding is 2.08% (Feb-18: 2.08%).
The following table shows the expiry profile of the existing UK
term loan facilities:
Nominal amount
Expiry date £'000
FY19 1 000
FY20 1 000
FY21 1 000
FY22 9 250
FY23 and beyond 38 414
Total 50 664
10. Financial risk management
10.1. Interest rate hedging
The group has continued to use a combination of natural hedges and
derivative financial instruments to hedge its exposure to interest
rate risk. Furthermore, the group has also sought to negotiate
fixed all-in interest rates where preferential rates are available.
As aforementioned, £20.5m was negotiated at an all-in fixed
interest rate of 2.96% thereby limiting the group's exposure to
GBP LIBOR interest rate movements.
The group has the following open interest rate derivative hedging
arrangements at 31 August 2018:
Interest rate swap agreements
Nominal value
Expiry Fixed rate R'000
JIBAR
Sep-21 7.61% 210 000
Sep-21 8.08% 100 000
Mar-22 7.61% 550 000
Nominal value
Expiry Fixed rate £'000
GBP LIBOR
Nov-21 1.01% 12 250
Jun-22 1.00% 17 914
Cross currency swap agreement
Nominal value
Expiry Rate R'000
Oct-21 3M JIBAR 600 000
The group's future committed net capital floating debt service
obligations have been assessed to ascertain the effective interest
rate exposure hedged both over term loan balances and over future
capital commitments as follows:
Nominal amount
R'000
Aug-18 Aug-17
Interest-bearing borrowings 2 345 460 1 568 593
Less:
Fixed interest-bearing borrowings (390 978) -
Floating interest-bearing borrowings 1 954 482 1 568 593
Interest rate swaps 1 435 291 1 383 355
Cross currency interest rate swap 600 000 600 000
Effect of natural hedge - embedded derivative 271 822 292 500
Total hedging instruments 2 307 113 2 275 855
Hedge cover of term loan balances 118.0% 145.1%
Add:
Capital commitments (and including
development accruals) 2 114 803 1 788 000
Less:
Fixed all-in UK funding rate to be
secured over capital commitments (524 483) -
Assets held-for-sale (265 300) (18 000)
Transaction to be settled via equity issue (197 053) -
Cash and cash equivalents on hand (57 655) (1 004 730)
Total contracted net future floating debt 3 024 794 2 333 863
Total effective interest rate risk
exposure hedged 76.3% 97.5%
At 31 August 2018, the group had hedged 118.0% and 76.3% of the
existing term loan balances and total contracted net future
capital floating debt respectively. A significant component of the
group's contracted capital commitments pertains to ongoing
development funding agreements which have an s-curve cash flow
profile. The group's intention is to hedge exposure to the
remaining interest rate risk relating to these existing capital
commitments as these developments progress further and therefore
targets a hedging level of at least 80.0% and 70.0% of the
existing floating interest-bearing borrowings and total contracted
net future floating debt respectively at any point in time.
The group continues to manage the effects of interest rate risk by
considering the term structure of interest rates over the weighted
average lease expiry period across the two jurisdictions in which
the group operates. To this end, the group has open forward-
starting GBP LIBOR swaps with a total nominal value of £74.86m to
manage its exposure to fluctuations in the GBP LIBOR interest rate
until 2026. The group has locked in a weighted average GBP LIBOR
rate until 2026 of approximately 1.00%.
The table below reflects the currency and interest rate profile
of the group's loans and borrowings after the impact of interest
rate hedging.
Aug-18
R'000 Fixed Floating Total
South African Rand 1 393 489 - 1 393 489
Pound Sterling 951 971 - 951 971
Total 2 345 460 - 2 345 460
Ratio of fixed to floating 100% 0% 100%
All-in ZAR fixed interest rate 8.86%
All-in GBP fixed interest rate 2.89%
All-in average fixed interest rate 7.26%
Marginal ZAR interest rate 8.64%
Marginal GBP interest rate n/a*
* There were no undrawn facilities at either reporting date.
However, had the remaining £27.5 million of the £48 million
debt facility with Aviva been drawn at 31 August 2018, the
all-in effective fixed interest rate for that tranche would
have been 2.99%.
Feb-18
R'000 Fixed Floating Total
South African Rand 1 446 059 - 1 446 059
Pound Sterling 496 611 - 496 611
Total 1 942 669 - 1 942 669
Ratio of fixed to floating 100% 0% 100%
All-in ZAR fixed interest rate 9.03%
All-in GBP fixed interest rate 2.86%
All-in average fixed interest rate 7.99%
Marginal ZAR interest rate 8.84%
Marginal GBP interest rate n/a
10.2. Foreign exchange rate hedging
During the period under review, the group revised its foreign
exchange risk management policy to delineate its strategy towards
foreign exchange rate risk in further detail. The salient aspects
of the revised foreign exchange rate risk management policy are
outlined below. Several factors have demanded that a detailed
policy be established including, inter alia, the fact that the UK
segment of the group has increased significantly over the past
24 months and this has prompted a thorough evaluation of the
variability of the group's returns because of its exposure to
foreign exchange rates.
10.2.1. Hedging net investment in foreign operation
The group continually monitors its exposure to foreign exchange
rates as a result of its investment into the UK. In the current
period under review, the group has effectively reduced its hedge
cover over its net investment into the UK by maintaining the
same nominal value of cross currency interest rate swaps despite
an increase in the foreign denominated net assets. This was
executed as a strategy in light of the diminishing excess USD
liquidity and the consequential adverse impact on high yield
carry trades. The group has also considered the contagion risk
associated with emerging market foreign currency weakness in
this decision.
The table below shows the carrying amounts of the group's
foreign currency denominated assets and liabilities and the
percentage which is currently hedged:
£'000 31 August 28 February 28 February
2018 2018 2017
Foreign denominated assets 197 244 146 945 49 126
Foreign denominated liabilities (68 638) (33 031) (14 559)
Foreign denominated net assets 128 606 113 914 34 567
Nominal value of currency
hedging instruments 74 860 74 860 32 905
Effective hedge of net
investment in foreign operation 58.2% 65.7% 95.2%
Effective hedge of foreign
denominated assets 38.0% 50.9% 67.0%
The group did not initially set an internal policy limit for the
utilisation of cross currency swaps as the group's primary
objective with its initial investment offshore was to protect the
net asset value of the group from foreign currency fluctuations.
The group maintains that the employment of cross currency swaps
continues to provide an effective hedge against the erosion of
the net asset value of the group. Given the growth of the UK
portfolio, the board has revised the foreign exchange rate
policy, to now focus on reducing the volatility of foreign
translated earnings. The board has, therefore, introduced an
internal policy limit in relation to the utilisation of cross
currency swaps of 45% of foreign assets over time, which is
considered to balance protection against net asset value erosion
and exposure to long-term pound appreciation.
10.2.2. Hedging distributable earnings and cash flow risk
Wherever possible, the group continues to utilise natural hedges to
minimise its exposure of fluctuations in foreign exchange rates
on its distributable earnings. To this end, the group settles
Pound-based interest on the open cross currency interest rate
swaps which partially hedges its foreign exchange rate exposure.
In relation to the residual exchange rate risk, the group
assesses the likely impact on the net income to be earned from
its foreign operations of reasonably possible changes in the
GBP/ZAR exchange rate using financial modelling and hedges its
exposure to this exchange rate. The group has implemented a base
hedging level for net income expected to be earned from its UK
operations in the next 24 months in line with the following policy:
Base Enhanced Exceptional
hedging hedging hedging
Period level level level
Months 1-6 80.0% 85.0% 90.0%
Months 7-12 70.0% 80.0% 85.0%
Months 13-18 45.0% 60.0% 70.0%
Months 19-24 30.0% 47.5% 60.0%
As shown above, the average 12-month minimum hedging level is
currently 75% while this level tapers off with later maturities
to provide the group with further potential upside in relation
to the GBP/ZAR exchange rate.
As a result of the recent sell-off in the Rand, the group's
foreign exchange policy has dictated that an enhanced hedging
level be applied to Pound-based net income over the next 24
months. In line with the enhanced hedging level policy, the group
has hedged net income to be earned over the next 24 months as
follows:
Six-month period ended Effective Blended Blended
hedging participation participation
level floor cap
28 February 2019 85.9% R18.60/£ R18.98/£
31 August 2019 81.0% R19.24/£ R19.97/£
29 February 2020 58.7% R19.93/£ R20.89/£
31 August 2020 45.8% R20.82/£ R21.76/£
As time elapses, each maturity will move closer towards the
initial period and therefore the group's minimum level of hedging
will increase in line with the above policy.
11. Vacancies and reversions
The previously reported vacancy at Tower Road, Cape Town was let
to Courier IT/RTT, on a new six-year lease, resulting in a fully
let portfolio at 30 June 2018. The Nestle property acquired in
August 2018, includes a 1 093m2 (which was not included in the
purchase consideration), which has resulted in the group ending
the period with a total vacancy rate of 0.2%.
With the completion of the new Premier FMCG facility, the tenant
vacated their existing premises in Meadowview in September 2018.
A refurbishment commenced on this 8 283m2 property during
September 2018 and it will be marketed to new tenants for
occupation in 2019. Currently unlet speculative developments of
10 492m2 in Cape Town and 11 275m2 in Gauteng will also be
completed by year-end. The feasibilities of these developments
allow for 6-month vacancy periods and management are pursuing
several opportunities to let them.
The group has successfully renewed 91% by GLA (95% by value) of
industrial leases expiring in the year to February 2019 and is
pleased that this was achieved with a positive average rental
reversion of 4.3%. This represents a retention rate of 83% by
GLA (86% by value), which will increase to 92% if the remaining
lease is renewed. Only 1 lease expiring in the year to February
2019 and 1 in the year to February 2020 remains to be negotiated
with an annual rental value of R211 660 and R220 901 respectively.
Despite a challenging economic environment, Equites' tenants
remain largely satisfied with the efficiency and total occupancy
cost of the group's well-located and highly specified facilities.
Expiring in Expiring in
year Feb 2019 year Feb 2020
Number of leases 6 2
GLA 36 052m2 7 450m2
Renewed with
existing tenant 29 853m2 83% 4 345m2 58%
Let to new tenant 2 919m2 8% - 0%
Total re-let 32 772m2 91% 4 345m2 58%
Last year rental of
renewed leases 2 187 847 347 945
First year rental
of new lease 2 280 857 375 781
Positive reversion
on renewal 4.3% 8.0%
Number of
leases still to
be renegotiated 1 1
Annual rental value 211 660 220 901
12. Capital commitments
The group has capital commitments of at least R1.7 billion over
the next 12 months:
Estimated
cost to
complete
Description of project Estimated completion date R'm
Construction of UK
development acquired
in terms of pre-let forward
funding agreements December 2018 - May 2019 459
Construction of SA developments
- Meadowview March 2019 - May 2019 66
- Atlantic Hills September 2018 21
- Lord's View September 2018 13
- Bellville May 2019 32
Acquisition of SA investment properties
- Gauteng and KZN Various 724
Strategic land acquisitions
- Gauteng Various 412
Total capital commitments 1 727
In addition to the capital commitments above, the group declared
a dividend of R309 million on 8 October 2018.
13. Prospects
The group has established itself as a developer of choice in SA
for logistics facilities that meet the exacting requirements of
large users with sophisticated supply chains. It has also
successfully established itself as a recognised player in the
sector in the UK, having concluded high quality transactions,
which will have an estimated value of some £220 million on
completion of the current developments. The South African economy
is undoubtedly under severe strain, but the group continues to
see demand for modern logistics space and the group is benefitting
from the increased importance of property specifications, security
and location.
The group had previously forecast full year distribution growth
for the year ending 28 February 2019 to be 10% - 12% higher than
the previous financial year. The board now expects the full year
results to be in the upper quartile of this range.
This guidance is based on the assumptions that a stable macro-
economic environment will prevail, no major tenant failures will
occur, tenants will be able to absorb the recovery of rising
utility costs and municipal rates, speculative builds will have a
six-month vacancy on completion and that any vacant buildings will
remain unlet for the forecast period. The forecast also assumes an
average GBP/ZAR exchange rate for the year ended 28 February 2019
of R18.00. This forecast has not been audited or reviewed by
Equites' auditors.
14. Subsequent events
The transfer of the Pick n Pay distribution centre in
KwaZulu-Natal was completed on 7 September 2018.
Other than disclosed in this announcement, the Board is not aware
of any events that have a material impact on the results or
disclosures of the group, which have occurred subsequent to the
end of the reporting period.
15. Basis of preparation
The condensed consolidated interim results for the 6 months ended
31 August 2018 are prepared in accordance with the International
Financial Reporting Standard, IAS34 Interim Financial Reporting,
the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by
Financial Reporting Standards Council and the requirements of the
Companies Act of South Africa. The accounting policies applied in
the preparation of these interim financial statements are in terms
of International Financial Reporting Standards and are consistent
with those applied in the previous annual financial statements
except for the adoption of IFRS 15 and IFRS 9.
15.1. Adoption of IFRS 15: Revenue from contracts with customers
IFRS 15 is applied to all contracts with tenants to provide a
distinct good or service (excluding those that are in the scope
of another standard) whether over time or at a point in time.
Revenue is recognised when control over the distinct good or
service is transferred to the tenant. Revenue is recognised at the
transaction price which is the consideration expected to be
received for providing the distinct good or service. Where the
transaction price is variable, an estimate of the variable
consideration should be included in the transaction price.
Where the group is acting as a principal, i.e. the group maintains
the performance obligation, revenue is recognised on a gross
basis. Where the group is acting as an agent, i.e. the group is
acting on behalf of a third party, revenue is recognised on a net
basis as the amounts collected are not considered to be revenue.
In the prior year, tenant recoveries were recognised as they were
earned in line with the contractual rights in the leases.
IFRS 15 has been applied cumulatively and no retrospective
adjustments have been made.
15.2. Adoption of IFRS 9: Financial instruments
IFRS9 contains three principal classification categories for
financial assets:
- measured at amortised cost;
- measured at fair value through OCI; and
- measured at fair value through profit or loss.
The classification of financial assets is based on how the asset
is managed and its contractual cash flow characteristics. The
accounting policy for financial liabilities remain the same under
IFRS 9.
Impairment of financial assets is to be assessed using the
expected credit loss model which requires the recognition of a
loss allowance for expected credit losses on certain financial
assets. This model applies to financial assets measured at
amortised cost and to contract assets.
IFRS 9 has been applied prospectively and no retrospective
adjustments have been made.
Bram Goossens (CA) SA, in his capacity as Financial Director,
was responsible for the preparation of these condensed
consolidated interim financial statements.
These condensed consolidated interim financial statements have
not been reviewed or audited by the group's external auditors.
16. Declaration of an interim cash dividend with the election to
reinvest the cash dividend in return for Equites shares
The board has approved and notice is hereby given of the
declaration of a gross interim dividend (dividend number 10) of
68.11618 cents per share.
Subject to final regulatory approvals, shareholders will be
entitled, in respect of all or part of their shareholdings, to
elect to reinvest the cash dividend in return for Equites shares.
A circular containing details of the election to reinvest the cash
dividend, and the requisite SENS announcements will be issued in
due course.
The board in its discretion may withdraw the share reinvestment
alternative should market conditions warrant such actions and
such withdrawal will be communicated to shareholders via SENS.
By order of the Board
Equites Property Fund Limited
8 October 2018
Condensed consolidated statement of financial position
Equites Property Fund Limited and its subsidiaries at 31 August 2018
Unaudited Unaudited Audited
31 August 31 August 28 February
2018 2017 2018
R'000 R'000 R'000
ASSETS
Non-current assets
Investment property 9 619 713 6 601 774 7 899 697
Straight-lining lease income accrual 209 559 159 708 171 352
Fair value of investment property 9 829 272 6 761 482 8 071 049
Derivative financial assets 85 224 113 583 132 732
Deferred tax asset 52 068 - 32 639
Property, plant and equipment 9 100 8 438 7 529
9 975 664 6 883 503 8 243 948
Current assets
Investment property held-for-sale 265 300 18 000 28 000
Trade and other receivables 103 148 69 067 58 202
Derivative financial assets 22 109 - 135 532
Financial assets held at fair value 900 3 976 900
Cash and cash equivalents 57 655 1 004 730 17 813
449 112 1 095 773 240 447
TOTAL ASSETS 10 424 776 7 979 276 8 484 396
EQUITY AND LIABILITIES
Equity and reserves
Stated capital 6 050 250 5 201 191 5 203 773
Accumulated profit 1 308 122 1 186 565 1 339 846
Foreign currency translation reserve 17 554 (159 441) (312 423)
Share-based payment reserve 61 377 10 765 67 578
Total attributable to owners 7 437 303 6 239 080 6 298 774
Non-controlling interest 124 774 93 204 109 410
TOTAL EQUITY 7 562 077 6 332 284 6 408 185
Liabilities
Non-current liabilities
Derivative financial liabilities 6 852 21 918 18 542
Loans and borrowings 2 092 217 1 363 997 1 887 730
2 099 069 1 385 914 1 906 272
Current liabilities
Loans and borrowings 253 243 195 133 54 939
Derivative financial liabilities 62 868 - 613
Current tax liability 614 - 92
Trade and other payables 446 905 65 945 114 296
763 630 261 078 169 940
TOTAL LIABILITIES 2 862 699 1 646 992 2 076 211
TOTAL EQUITY AND LIABILITIES 10 424 776 7 979 276 8 484 396
Condensed consolidated statement of comprehensive income
Equites Property Fund Limited and its subsidiaries for the period
ended 31 August 2018
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R'000 R'000 R'000
Property revenue and tenant recoveries 297 447 240 711 540 150
Straight-lining of leases adjustment 38 207 21 904 33 548
Gross property revenue 335 654 262 615 573 698
Property operating and management
expenses (48 464) (38 390) (87 957)
Other net operating
(losses) /gains (145 481) 34 389 208 343
Administrative expenses (17 397) (12 010) (33 055)
Fair value adjustments -
investment property 117 492 251 504 239 546
Operating profit before
financing activities 241 804 498 108 900 575
Finance costs (16 486) (37 312) (68 765)
Finance income 7 179 8 776 24 990
Net profit before tax 232 497 469 571 856 801
Tax (expense)/income 12 237 - 34 313
Profit for the period 244 734 469 571 891 114
OTHER COMPREHENSIVE INCOME
Items that may subsequently be
reclassified to profit or loss:
Translation of foreign operations 329 977 13 933 (173 374)
TOTAL COMPREHENSIVE INCOME
FOR THE PERIOD 574 711 483 504 717 740
PROFIT ATTRIBUTABLE TO:
Owners of the parent 226 076 466 889 869 796
Non-controlling interest 18 658 2 682 21 317
244 734 469 571 891 114
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent 556 053 480 822 696 422
Non-controlling interest 18 658 2 682 21 317
574 711 483 504 717 740
Basic earnings per share (cents) 52.4 129.8 264.4
Diluted earnings per share (cents) 52.3 129.4 263.3
Condensed consolidated statement of cash flows
Equites Property Fund Limited and its subsidiaries for the period
ended 31 August 2018
Restated Restated
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R'000 R'000 R'000
Cash flows from operating activities
Profit before tax 232 497 469 571 856 800
Adjusted for:
Finance costs 16 486 37 312 68 765
Finance income (7 179) (8 776) (24 990)
Loss/(Profit) on disposal of
investment property 664 (457) (2 498)
Loss on disposal of property, plant
and equipment 1 210 - 16
Straight-lining of leases adjustment (38 207) (21 904) (33 548)
Fair value adjustments - investment
property (117 492) (251 504) (239 546)
Fair value adjustments - derivative
financial instruments 210 578 11 586 (106 184)
Foreign exchange differences - (2 633) -
Depreciation 843 476 941
Share based payment charge 3 177 2 884 6 514
Working capital movements:
(Increase)/Decrease in trade and
other receivables (34 306) 65 100 42 977
Decrease/(Increase) in accrued
investment income 1 453 - (23 130)
(Decrease)/Increase in trade and
other payables (37 433) (28 756) 3 107
Cash generated from operations 232 291 272 900 549 224
Finance costs paid (67 460) (55 074) (127 679)
Finance income received 7 179 8 776 24 990
Dividends paid (215 722) (202 437) (454 491)
Net cash flows generated (utilised)
from operating activities (43 712) 24 164 (7 956)
Cash flows utilised by investing
activities
Acquisition of investment properties (392 103) (337 219) (1 477 496)
Development of investment property (645 082) (132 787) (345 257)
Proceeds from disposal of investment
property 28 000 234 839 254 166
Purchases of current financial assets (210 000) - (1 260 000)
Proceeds on divestment of
current financial assets 210 000 - 1 262 453
Proceeds on disposal of property,
plant and equipment - - 215
Purchase and development of property,
plant and equipment (3 529) (271) (257)
Net cash flows utilised by
investing activities (1 012 714) (235 438) (1 566 176)
Cash flows from financing activities
Proceeds from share issue
(net of share issue costs) 791 840 1 007 442 1 006 911
Repurchase of ordinary share capital (115) - -
Proceeds from bank loans 1 013 226 400 247 1 016 876
Repayment of bank loans (712 971) (201 929) (443 180)
Disposal of financial instruments
held at fair value - (207) -
Net cash flows from financing
activities 1 091 980 1 205 553 1 580 607
Net increase in cash and cash
equivalents 35 554 994 279 6 475
Effect on exchange rate movements
in cash and cash equivalents 4 288 (591) 296
Cash and cash equivalents at the
beginning of the period 17 813 11 042 11 042
Cash and cash equivalents at
the end of the period 57 655 1 004 730 17 813
Condensed consolidated statement of changes in equity
Equites Property Fund Limited and its subsidiaries for the period
ended 31 August 2018
Foreign
currency
Stated Retained translation
capital earnings reserve
R'000 R'000 R'000
Balance at 1 March 2017 4 193 749 919 099 (173 374)
Profit for the period - 466 889 -
Other comprehensive income - - 13 933
Shares issued for cash 1 015 157
Equity-settled share-based
payment charge - - -
Dividends distributed to shareholders - (199 424) -
Share issue costs (7 715)
Balance at 31 August 2017 5 201 191 1 186 565 (159 441)
Balance at 1 September 2017 5 201 191 1 186 565 (159 441)
Profit for the period - 602 724 -
Other comprehensive income - - (152 982)
Shares issued for cash - - -
Shares issued in terms of
Conditional share plan 3 113 - -
Equity-settled share based
payment for the acquisition of land - - -
Equity-settled share-based payment charge - - -
Dividends distributed to shareholders - (449 441) -
Share issue costs (531) - -
Balance at 28 February 2018 5 203 773 1 339 847 (312 423)
Balance at 1 March 2018 5 203 773 1 339 847 (312 423)
Profit for the period - 226 076 -
Other comprehensive income - - 329 977
Shares issued for cash 799 454 - -
Shares issued in terms of the dividend
re-investment program 45 375 - -
Shares issued in terms of the
conditional share plan 9 378 - -
Treasury shares acquired (115) - -
Equity-settled share-based payment charge - - -
Dividends distributed to shareholders - (257 801) -
Share issue costs (7 614) - -
Balance at 31 August 2018 6 050 250 1 308 122 17 554
Condensed consolidated statement of changes in equity (continued)
Share
based Total Non-
payment attributable controlling
reserve to parent Interest Total
R'000 R'000 R'000 R'000
Balance at 1 March 2017 7 881 4 947 355 93 535 5 040 889
Profit for the period - 466 889 2 682 469 571
Other comprehensive income - 13 933 - 13 933
Shares issued for cash 1 015 157 - 1 015 157
Equity-settled share-based
payment charge 2 884 2 884 - 2 884
Dividends distributed
to shareholders - (199 424) (3 013) (202 437)
Share issue costs (7 715) - (7 715)
Balance at 31 August 2017 10 765 6 239 079 93 204 6 332 283
Balance at
1 September 2017 10 765 6 239 079 93 204 6 332 283
Profit for the period - 602 724 18 244 620 967
Other comprehensive income - (152 982) - (152 982)
Shares issued for cash - - - -
Shares issued in terms of
Conditional share plan (3 113) - - -
Equity-settled share based
payment for the
acquisition of land 56 296 56 296 - 56 296
Equity-settled share-based
payment charge 3 630 3 630 - 3 630
Dividends distributed to
shareholders - (449 441) (2 037) (451 478)
Share issue costs - (531) - (531)
Balance at
28 February 2018 67 578 6 298 774 109 411 6 408 185
Balance at 1 March 2018 67 578 6 298 775 109 411 6 408 186
Profit for the period - 226 076 18 658 244 734
Other comprehensive income - 329 977 - 329 977
Shares issued for cash - 799 454 - 799 454
Shares issued in terms
of the dividend
re-investment program - 45 375 - 45 375
Shares issued in terms of
the conditional share plan (9 378) - - -
Treasury shares acquired - (115) - (115)
Equity-settled share-based
payment charge 3 177 3 177 - 3 177
Dividends distributed to
shareholders - (257 801) (3 295) (261 096)
Share issue costs - (7 614) - (7 614)
Balance at 31 August 2018 61 377 7 437 303 124 774 7 562 077
Selected explanatory notes to the results
3. Segment information
Accounting Policy
The group identifies and presents operating segments based on
the information that is provided internally to the chief operating
decision maker ("CODM") which comprises the executive directors
("exco"). The CODM allocates resources and assesses the
performance of the operating segments of the group.
The group has assessed its operations and determines its segments
in line with the clear geographic distinction between South
African and the United Kingdom. The South African and United
Kingdom markets are vastly different in terms of market risk,
political risk and the processes for the purchase and letting of
assets. For this reason, the CODM analyses the assets in these
market separately and allocates resources according to this
analysis.
Equites generates the majority of revenue from properties in South
Africa, while the remainder of revenue is generated through
properties situated in the UK. The geographic analysis of
revenue is based on the country where the building is situated,
and therefore where the rental income is derived. The geographic
analysis of non-current assets, which exclude derivative financial
instruments, investments and deferred tax assets, is based on the
location of the assets.
The group organises its segments in line with the respective asset
classes. In order to streamline its focus on high quality logistics
assets, the group has disposed of the majority of its offices, with
only two remaining in the portfolio at the reporting date, one of
which is currently held for sale. The office segment no longer
meets the quantitative threshold as set out in IFRS 8 'Operating
Segments' and is therefore not reported as a segment. The financial
impact is now included in the "other" segment.
All treasury functions, corporate costs and other expenses that
are not specifically attributable to individual properties or are
negotiated or incurred on a group basis are included in the "other"
segment.
Based on the nature of the business and the factors discussed
above, the following segments are presented:
- SA logistics assets
- UK logistics assets
- Other
The segment information for the group for the period ended
31 August 2018 is set out below:
Operating segments
R'000 SA logistics UK logistics Other Total
Statement of
profit or
loss and other
comprehensive
income
Segment revenue 236 553 54 532 6 361 297 447
Fair value
adjustments
- investment
property 34 806 83 995 (1 309) 117 492
Depreciation - - 843 843
Operating profit
before financing
activities 178 680 60 576 2 549 241 804
Finance income 7 178 - - 7 179
Finance costs (11 767) (4 718) - (16 486)
Tax (expense)/income - 12 237 - 12 237
Statement of
financial
position
Investment
property 6 159 660 3 619 612 50 000 9 829 272
Non-current
assets held
for sale 205 300 - 60 000 265 300
Total assets 6 552 918 3 761 858 110 000 10 424 776
Total
liabilities 1 553 629 1 309 070 - 2 862 699
The segment information for the group for the period ended
31 August 2017 is set out below:
Operating segments
R'000 SA logistics UK logistics Other Total
Statement of
profit or loss
and other
comprehensive
income
Segment revenue 197 867 29 395 13 448 240 711
Fair value
adjustments
- investment
property 140 456 108 558 2 491 251 504
Depreciation - - (483) (483)
Operating profit
before financing
activities 382 410 127 707 (12 010) 498 108
Finance income 8 586 190 - 8 776
Finance costs (35 753) (1 559) - (37 312)
Tax (expense)/income - - - -
Statement of
financial position
Investment
property 5 343 344 1 281 376 136 762 6 761 482
Non-current
assets held
for sale 18 000 - - 18 000
Total assets 6 534 352 1 308 162 136 762 7 979 276
Total
liabilities 1 101 292 545 700 - 1 646 992
The segment information for the group for the year ended
28 February 2018 is set out below:
Operating segments
R'000 SA logistics UK logistics Other Total
Statement of
profit or
loss and other
comprehensive
income
Segment revenue 447 958 75 646 16 546 540 150
Fair value
adjustments
- investment
property 22 181 234 372 (17 007) 239 546
Depreciation - - (942) (942)
Operating profit
before financing
activities 605 206 318 307 (22 938) 900 575
Finance income 24 795 194 - 24 990
Finance costs (55 973) (12 791) - (68 765)
Tax (expense)/income - 34 313 - 34 313
Statement of
financial position
Investment
property 5 612 033 2 338 016 121 000 8 071 049
Non-current
assets held
for sale 28 000 - - 28 000
Total assets 5 962 587 2 400 810 121 000 8 484 396
Total
liabilities 1 536 547 539 664 - 2 076 210
4. Fair value measurement
IFRS 13 requires that an entity discloses for each class of
financial instruments and investment property measured at fair
value, the level in the fair value hierarchy into which the fair
value measurements are categorised in their entirety.
All assets and liabilities measured at fair value are classified
using a three-tiered fair value hierarchy that reflects the
significance of the inputs used in determining the measurement as
follows:
Level 1 - measurements in whole or in part are done by reference
to unadjusted, quoted prices in an active market for identical
assets and liabilities. Quoted prices are readily available from
an exchange, dealer, broker, industry group, pricing service or
regulatory agency and those prices represent actual and regularly
occurring market transactions on an arm's length basis.
Level 2 - measurements are done by reference to inputs other than
quoted prices that are included in level 1.
These inputs are observable for the financial instrument, either
directly (i.e. as prices) or indirectly (i.e. from derived prices).
Level 3 - measurements are done by reference to inputs that are not
based on observable market data.
31 August 2018
Figures
in R'000s Fair value Level 1 Level 2 Level 3
Assets
Non-financial
assets at
fair value
- investment
properties 10 094 572 - - 10 094 572
Financial
assets held
at fair value 900 - 900 -
Derivative
financial assets 107 334 - 107 334 -
10 202 805 - 108 233 10 094 572
Liabilities
Derivative
financial
liabilities 69 720 - 69 720 -
69 720 - 69 720 -
28 February 2018
Figures
in R'000s Fair value Level 1 Level 2 Level 3
Assets
Non-financial
assets at
fair value
- investment
properties 7 047 339 - - 7 047 339
Financial
assets held
at fair value 900 - 900 -
Derivative
financial assets 268 264 - 268 264 -
7 316 503 - 269 164 7 047 339
Liabilities
Derivative
financial
liabilities 19 155 - 19 155 -
19 155 - 19 155 -
31 August 2017
Figures
in R'000s Fair value Level 1 Level 2 Level 3
Assets
Non-financial
assets at
fair value
- investment
properties 6 761 482 - - 6 761 482
Financial
assets held
at fair value - - - -
Derivative
financial assets 113 583 - 113 583 -
6 875 065 - 113 583 6 761 482
Liabilities
Derivative
financial
liabilities 21 918 - 21 918 -
21 918 - 21 918 -
Details of valuation techniques
Investment property
The fair value of investment properties is updated at each
reporting period either by way of external valuations or
directors' valuations. External valuations are obtained as
required, but at least once every three years for each property.
Directors' valuations were performed on all properties at
31 August 2018. Capitalisation rates were adjusted as considered
necessary given any significant changes in the building, tenant
or economic environment which directly affects the property.
Derivative financial assets and liabilities
Interest rate and cross-currency swaps
The fair value is calculated as the present value of the estimated
future cash flows. Estimates of future floating-rate cash flows
are based on quoted swap rates, futures prices and interbank
borrowing rates. Estimated cash flows are discounted using a
yield curve constructed from similar sources which reflects the
relevant benchmark interbank rate used by market participants
for this purpose when pricing interest rate swaps. The fair value
estimate is subject to a credit risk adjustment that reflects the
credit risk of the group and of the counterparty. This is
calculated based on credit spreads derived from current credit
default swap or bond prices.
The key input to the valuation of investment property is the
capitalisation rate. The table below illustrates the sensitivity
of the fair value to changes in the capitalisation rate:
Sensitivity analysis to capitalisation rates Group
R'000
Increase in fair value if capitalisation rates
are decrease by 0.1% 122 856
Decrease in fair value if capitalisation rates are
increased by 0.1% (119 479)
There were no transfers between Level 1, 2 or 3 during the year.
6. Related parties
Related party relationships exist between the company, its
subsidiaries, directors as well as their close family members,
and key management of the company.
In the ordinary course of business, the company entered into
the following other transactions with related parties:
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
31 August 31 August 28 February
2018 2017 2018
R'000 R'000 R'000
Fees paid to BTKM (Pty) Ltd
(of which Nazeem Khan is a Director) - 625 685
7. Reclassification note
During the prior year, the group undertook a streamlining exercise
on its financial statements. This resulted in a reclassification
of amounts shown on the face of the statement of comprehensive
income and the statement of cash flows to reflect the items
presented in the statement of comprehensive income on a function
basis.
The impact on the presentation of the statement of comprehensive
income and statement of cash flows is as follows:
Group
Revised
31 August 31 August
Statement of 2017 Difference 2017
comprehensive income R'000 R'000 R'000
Other net operating
(losses) /gains 12 922 21 467 34 389
Administrative expenses (11 534) (476) (12 010)
Depreciation (476) 476 -
Fair value adjustments
- financial instruments (31 343) 31 343 -
Foreign exchange gain 2 633 (2 633) -
Finance costs (24 738) (12 574) (37 312)
Finance income 46 378 (37 602) 8 776
Impact on profit before tax and
distributable earnings -
Group
Revised
31 August 31 August
2017 Difference 2017
Statement of cash flows R'000 R'000 R'000
Profit before tax 469 571 - 469 571
Finance costs 24 738 12 574 37 312
Finance income (46 378) 37 602 (8 776)
Fair value adjustments
- investment property (251 504) - (251 504)
Fair value adjustments
- derivative financial
instruments 31 343 (19 757) 11 586
Cash generated from operations 242 481 30 419 272 900
Finance costs paid (62 257) 7 183 (55 074)
Finance income received 46 378 (37 602) 8 776
Impact on net cash
flows from operating activities -
There has been no impact on either the statement of changes
in equity or the statement of financial position at any
reporting period.
Administration
Directors
A Taverna-Turisan (CEO)^, G.R. Gous (COO), B Goossens (CFO), P.L. Campher*+
(Chairman), G Lanfranchi* (Deputy Chairman), A.J. Gouws*, K Dreyer*,
N Khan*+, R.E. Benjamin-Swales*+, M.E. Brey *+, G. Mtetwa *+
* Non-executive
+ Independent
^ Italian
Equites Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2013/080877/06)
JSE share code: EQU ISIN: ZAE000188843
(Approved as a REIT by the JSE)
("Equites" or "the group" of "the company")
Registered office
14th Floor
Portside Tower
4 Bree Street
Cape Town
8001
Contact details
info@equites.co.za
Company secretary
Riaan Gous
Transfer secretary
Computershare Investor Services Proprietary Limited
Auditors
PricewaterhouseCoopers Inc.
Sponsor
Java Capital
Bankers
Nedbank Limited
Attorneys
DLA Cliffe Dekker Hofmeyr
Date of publication
11 October 2018
Date: 11/10/2018 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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