Wrap Text
Condensed unaudited consolidated interim financial statements for the six months ended 31 December 2018
Fortress REIT Limited
Incorporated in the Republic of South Africa
Registration number 2009/016487/06
JSE share code: FFA ISIN: ZAE000248498
JSE share code: FFB ISIN: ZAE000248506
Bond company code: FORI
(Approved as a REIT by the JSE)
("Fortress" or "the group" or "the company")
Condensed unaudited consolidated interim financial statements
for the six months ended 31 December 2018
Summary of financial performance
Dec 2018 Jun 2018 Dec 2017 Jun 2017
Dividend
per A
share
(cents) 74,73 70,57 71,20 67,67
Dividend
per B
share
(cents) 77,49 88,93 90,07 93,41
Shares in
issue at
the end
of the
period
- A 1 189 915 138 1 184 496 438 1 184 496 438 1 175 214 835
- B 1 091 532 994 1 086 114 294 1 086 114 294 1 076 832 691
Shares
used
for
dividend
per
share
calcu-
lation
- A 1 189 915 138 1 184 496 438 1 184 496 438 1 175 214 835
- B 1 058 732 543 1 069 690 297 1 086 114 294 1 076 832 691
B shares
held in
treasury 32 800 451 16 423 997 - -
Management
accounts
information
Net asset
value
per
A share* R17,26 R16,26 R17,39 R16,89
Net asset
value
per
B share R13,87 R16,54 R35,08 R26,75
Loan-to-value
ratio** (%) 32,3 31,8 22,9 22,8
Net property
expense ratio
(%) 19,2 16,1 18,3 14,9
Gross property
expense ratio
(%) 37,2 33,6 35,4 34,9
Net total
expense ratio
(%) 15,1 13,1 13,8 12,4
Gross total
expense ratio
(%) 27,9 25,7 26,1 26,5
IFRS
accounting
Net asset
value
per A
share* R17,26 R16,26 R17,39 R16,89
Net asset
value
per B
share R13,87 R16,54 R28,85 R23,43
* 60-day volume-weighted average traded price at reporting date, limited
to combined net asset value.
** The loan-to-value ratio is calculated by dividing total interest-bearing
borrowings adjusted for cash on hand by the total of investments in
property, listed securities and loans advanced.
Directors' commentary
Capital structure and nature of business
Fortress REIT Limited ("Fortress") was listed on the JSE Limited ("JSE")
in 2009 and converted to a Real Estate Investment Trust ("REIT") in 2013.
Fortress is internally asset managed with two separately listed shares
offering investors different risk and reward profiles. The Fortress A share
(share code: FFA) has a preferential right to distribution of income and
to capital participation upon winding up, which is calculated as the
60-day volume weighted average traded price on the JSE. The Fortress B
share (share code: FFB) has entitlement to the residual distributable
income and capital participation on winding up.
At 31 December 2018, Fortress owned 302 properties (including co-owned
properties), and several strategically located undeveloped land parcels,
mostly in Gauteng and KwaZulu-Natal. These parcels of land are
predominantly zoned for the development of A-grade logistics facilities.
Fortress continues to be the market leader in the development of premium
logistics real estate in South Africa. The strategy of focusing on A-grade
logistics facilities with long leases and commuter-oriented retail shopping
centres remains relevant, as sustained rental growth is anticipated to
flow from these sectors in the future.
Group results
On a comparable combined basis, being the total Fortress A share and
Fortress B share dividends, after adjusting for the effects of limiting
the distributable income in respect of interest accrued on the loans to
the Siyakha Education Trust and the Siyakha 2 Education Trust
("Siyakha Trusts") to the dividend accrued on the Fortress A and Fortress B
shares owned by the Siyakha Trusts which serve as security for the loans,
the total distributable income for the six months ended 31 December 2018
has increased by 1,6%.
The increase in the dividend for the six months ended 31 December 2018
attributable to the A share was 4,96% compared to the six months ended
31 December 2017, calculated as being the lower of CPI or 5,0% using data
supplied by Statistics SA. Accordingly, the dividend for the A share
increased from 71,20 cents to 74,73 cents per share for the 2019
interim period.
The B share dividend decreased by 13,97% compared to the six month
period ended 31 December 2017, from 90,07 cents per share to 77,49 cents
per share. The decrease in the interim B share dividend was largely driven
by the aforementioned limitation in the interest accrued on the Siyakha
Trusts loans, accounting for approximately 12% of the reduction, with the
balance being as a result of the preferred growth given to the A share of
4,96% which was in excess of the total distributable income growth of 1,6%.
The performance of the direct retail and logistics properties was pleasing,
however, the office and industrial properties continued to trade in
challenging markets. The increase in the direct property portfolio's net
rental income was marginally below expectations.
Direct property portfolio
Logistics
Savino Del Bene has taken occupation of the new 24 280m2 logistics facility
in Eastport Logistics Park (65% owned). Construction of the adjacent
21 835m2 logistics warehouse has commenced and completion is scheduled
for April 2019. In addition, several other tenant-driven developments are
currently being negotiated.
The construction of phase three of Louwlardia Logistics Park has been
completed and Vodacom has taken occupation of this warehouse measuring
17 715m2. We Buy Cars and Worldwide Automotive Group ("WAG") have both
indicated their intention to acquire a 50% undivided share in the
respective facilities they occupy and transfer is expected by June 2019.
The last site for a warehouse development in this park is currently
being planned and construction of this 14 000m2 facility is anticipated to
commence shortly.
Phase two of Westlake View Logistics Park, a logistics facility measuring
23 569m2, will be completed in March 2019. An offer has been received for
this facility and Fortress is confident that a lease agreement will be
concluded shortly. A 10% undivided share has been sold to RPP Developments
under the terms of the original land purchase agreement and transfer is
expected shortly.
The current warehouse under construction at Union Park is due for
completion at the end of March 2019. This 21 764m2 development has been
constructed to the same high specification as the recently completed
neighbouring warehouse occupied by the Voltex division of Bidvest.
Negotiations are underway with a potential tenant.
The first logistics facility at Clairwood Logistics Park has been
completed and this state-of-the-art 24 975m2 warehouse has been let to
Sammar Logistics under a 10-year triple net lease agreement. Negotiations
are at an advanced stage with several other large logistics users to
locate to Clairwood and take advantage of its easy access to rail, road
and the Durban port.
The new facility for Decofurn at Montague Business Park (25% owned) is
expected to be completed in April 2019. Decofurn has entered into a
10-year lease over this 24 896m2 facility.
Construction of the new 18 925m2 Makro store at Cornubia Ridge Logistics
Park (50,1% owned) opposite Umhlanga has been completed and the official
opening is planned for 27 March 2019. The new off-ramps from the N2 highway
have been completed and opened.
Retail
Sales growth in the retail portfolio for the 12 months ended 31 December
2018 was 3,8% compared to the preceding 12 months. This is positive in
light of the fact that trading conditions in South Africa are constrained
by low economic growth. The provincial sales growth breakdown compared to
the previous 12 months is detailed below:
%
Free State 11,0
Western Cape 7,7
North West 7,0
KwaZulu-Natal 5,1
Gauteng 2,7
Limpopo 2,5
Eastern Cape 2,4
Mpumalanga (1,9)
Northern Cape (2,1)
Fortress' current exposure to the Edcon group is approximately 39 000m2.
Contractual rental income from the Edcon group represents 2,3% of total
portfolio contractual rental income. Management aims to reduce this
exposure to approximately 1,1% in the next 12 months. Fortress supported
Edcon in its restructure and recapitalisation programme by agreeing to
reduce the rental and receive equity in lieu of such reduction during the
course of the two-year rent reduction period. Fortress will include only
the cash component of the rental received from Edcon in its future
distributions.
Construction of the 10 300m2 White River Shopping Centre (51% owned) is
underway. Retail trade in phase one of the development is expected to
commence in August 2019. Phase one will be anchored by Checkers, Dis-Chem,
Mr Price Home, Pick n Pay Clothing and Woolworths. The forecast yield on
completion is 8,2% (including the cost of the additional land for
expansion by 13 000m2 of GLA).
The redevelopment and expansion at The Plaza in Mbombela is nearing
completion and Clicks, Mr Price and Sports Scene have been introduced,
with Truworths taking additional space. The refurbishment of Central Park
Bloemfontein has been completed and the centre is trading well.
Offices
The challenging conditions experienced in the office market are expected
to continue, with both vacancies and rentals expected to remain stagnant.
Transfer of the strategically located Sandton development site opposite
the Gautrain station, with a bulk of 42 000m2, was effected during the
period. This site offers users unique and attractive features such as the
possibility of dedicated access to the Gautrain station and a private
precinct. An in-principle offer has been received from a hotel operator
for part of the planned development.
Fortress will continue to dispose of the non-core office portfolio and
recycle capital into the new A-grade logistics developments.
Industrial
The reduction in vacancies in the industrial portfolio is a positive trend.
However, rental growth remains muted and Fortress' in-house sales team
continues to focus on disposing of this portfolio.
Vacancies
Total vacancies, measured as a percentage of GLA, decreased to 7,0% at
31 December 2018, from 7,4% at 30 June 2018.
Sector % of Sector % of
property property
portfolio portfolio
Dec 2018 Jun 2018 by value by value
Sectoral vacancy by GLA % % Dec 2018 Jun 2018
Logistics 5,5 5,2 42,2 41,1
Retail 4,9 5,2 33,2 34,5
Industrial 7,1 8,1 12,5 13,0
Offices 23,2 23,4 10,6 9,7
Other 1,7 6,3 1,5 1,7
Information based on Fortress' management accounts.
Property disposals
The following properties were sold during the period:
Book
Net value Exit
proceeds Jun 2018 Transfer yield
Property name Sector R'000 R'000 date %
New Redruth
Village* Retail 184 450 184 450 Aug 2018 8,59
Pricewater-
houseCoopers
Pretoria Office 153 000 115 000 Dec 2018 @
Woolworths
Newcastle* Retail 31 400 31 400 Sep 2018 9,24
Yaldwyn
Road
Jet Park Industrial 28 500 23 350 Dec 2018 @
243 JG
Strydom
Drive
Constantia Other 22 300 23 500 Dec 2018 @
Kloof^
Westar Park
Stormill* Industrial 20 000 20 000 Jul 2018 9,25
Tradeport
Land
(erf 30 City
Deep)* Logistics 18 740 18 740 Nov 2018 -
4 Electron
Street
Linbro
Park Logistics 17 500 14 740 Nov 2018 8,30
Palm Springs
Mall (petrol
station)# Retail 16 750 16 750 Dec 2018 -
Total 492 640 447 930
* Shown as held for sale at 30 June 2018.
@ Vacant.
^ Motor dealership.
# Portion of property.
The disposal of these non-core properties was concluded at an overall
10,0% premium to the book value at 30 June 2018.
The following properties were held for sale at 31 December 2018:
Book
Net value Exit
proceeds Jun 2018 yield
Property name Sector R'000 R'000 %
Louwlardia Logistics
Park*
- Occupied by WAG - 50%
undivided share Logistics 145 000** 140 500 8,50
- Occupied by We Buy
Cars
- 50% undivided share Logistics 111 000** 107 200 8,25
22 On Sloane* Office 65 000 65 000 8,80
17 Kosi Place Umgeni*& Office 36 000 36 000 @
204 Rivonia Road
Morningside (Block A)^ Office 31 350 28 178 @
Westlake View Logistics
Park phase two - 10%
undivided share Logistics 18 422$ 18 422$ @
456 Granite Drive Industrial 14 000 13 320 @
Flamwood Walk (petrol
station) - 50%
undivided
share***^ Retail 7 250 7 200 8,20
31 Indianapolis
Street Kyalami Industrial 2 100 2 100 @
Total 430 122 417 920
* Shown as held for sale at 30 June 2018.
** Net proceeds will be calculated on date of transfer at the
pre-determined exit yield.
& Leasehold property.
@ Vacant.
^ Portion of property.
$ Property under development at 30 June 2018 and 31 December 2018. The net
proceeds will be determined as 10% of costs incurred at the completion
date. The book value and expected net proceeds amounts disclosed are the
costs incurred at 31 December 2018.
*** Transferred on 24 January 2019.
Listed portfolio
Dec 2018 Jun 2018
Number Fair value Number Fair value
Counter of shares R'000 of shares R'000
Greenbay Properties
Limited (GRP)#* - - 1 987 507 364 2 623 510
Lighthouse Capital
Limited (LTE)#* 99 375 366 785 065 - -
NEPI
Rockcastle plc
(NRP)* 139 990 000 15 818 870 139 990 000 17 143 175
Resilient REIT
Limited (RES)^ 41 060 000 2 340 420 41 060 000 2 309 625
18 944 355 22 076 310
# Greenbay Properties changed its name to Lighthouse Capital during the
period. A 20:1 share consolidation was undertaken after a return of
capital was completed during the interim period ended 31 December 2018.
* Fortress' interests in Lighthouse Capital (and Greenbay Properties
previously) and NEPI Rockcastle were treated as associates
(equity accounted) and were not fair valued in the financial statements.
These equity accounted investments were impaired as the carrying values
exceeded the recoverable amounts.
^ Shown as an investment in the IFRS and management accounts.
The dividends from Lighthouse Capital were received in cash on 4 January
2019. Fortress received cash dividends on its investments in NEPI
Rockcastle and Resilient during the six months ended 31 December 2018.
The exposure to Central and Eastern Europe through the equity investment
in NEPI Rockcastle and to various foreign jurisdictions through the
investment in Lighthouse Capital provides Fortress with offshore
diversification of both its asset base and income streams.
At 1 March 2019, having revalued the listed equity portfolio to current
market prices and without making adjustments to investment property, the
loan-to-value ratio is 31,6%.
Information based on Fortress' management accounts.
Broad-based black economic empowerment
Fortress is committed to meaningful participation in B-BBEE transformation
in South Africa and is working on a number of initiatives to improve its
B-BBEE status as per the Amended Property Sector code. A specialist
procurement consultant has been appointed to review all aspects of the
supply chain to facilitate the entry of more black-owned businesses. In
terms of Enterprise Development, Fortress is very excited to partner with
an entrepreneur hub that has the largest start-up campus in Africa. From a
socio-economic perspective, Fortress will continue to work with a number
of organisations that play a vital role in uplifting the youth.
Fortress is a member of the South African Institute of Black Property
Practitioners ("SAIBPP") and is considering various initiatives with
SAIBPP to support transformation within the property sector. Fortress
continues to engage with the Property Sector Charter Council on various
industry-related matters.
Ongoing consultation is occurring with the trustees of the Siyakha
Trusts and Resilient to unwind the current structure.
Staff scheme loans
As a result of the decline in the price of Fortress A and Fortress B shares
in the previous financial year, the loans previously granted to staff
under the legacy share scheme were impaired to the market value of the
related Fortress A and Fortress B shares. From 1 July 2018, for purposes
of dividend calculations, interest income accrued on the staff scheme loans
is distributed only to the extent of dividends accrued on those Fortress
shares funded by loans under the scheme.
Shares have been issued to staff under the new long-term incentive plan
("LTIP"), approved by shareholders at the annual general meeting held on
1 November 2017. In total, 5 418 700 Fortress A and 5 418 700 Fortress B
shares were issued in October 2018 with 2 017 500 of these Fortress A and
2 017 500 of these Fortress B shares being issued on loan account under
the rules of the LTIP. Share issuances under the new LTIP are accounted for
in terms of IFRS 2: Share-based Payment.
Funding and liquidity
At 31 December 2018, the loan-to-value ratio of Fortress
(based on management accounts) marginally increased to 32,3% from
30 June 2018 (31,8%). Fortress early-settled R733,4 million facilities,
principally as a result of the return of capital in cash by Lighthouse
Capital.
Fortress remains well positioned in terms of its liquidity requirements
given its low level of reliance on the debt capital markets, its healthy
relationships with its main bankers, its non-core investment property
disposals programme and its long-term committed funding.
During the period, Fortress refinanced approximately R2,2 billion of
senior secured funding with RMB. In October 2018, Standard Bank
re-financed R260 million of senior secured facilities and Nedbank
advanced new facilities totalling R450 million.
A number of loan facilities that are secured by listed equity are in the
process of being restructured. Nedbank previously had a facility of
R2 billion secured only by listed equity, but this has been restructured
by providing direct property as security. The Sanlam facility secured by
listed equity was also reduced. Fortress is committed to further
reducing lenders' reliance on listed equity as security.
Average
margin
over
3-month
Amount Jibar
Facility expiry R'million %
Jun 2019 1 290 1,73
Jun 2020 4 502 1,72
Jun 2021 4 864 1,84
Jun 2022 3 310 1,89
Jun 2023 4 347 1,77
Jun 2024 677 1,95
Jun 2025 750 1,85
Jun 2026 - -
Jun 2027 250 1,99
19 990 1,80
The following interest rate derivatives are in place in mitigation of
South African interest rate risk:
Average
Interest rate Amount swap rate
swap expiry R'million %
Jun 2020 1 000 7,16
Jun 2021 700 8,16
Jun 2022 600 7,99
Jun 2023 300 7,79
Jun 2024 200 7,47
Jun 2025 600 7,88
Jun 2026 500 8,07
Jun 2027 250 8,30
4 150 7,79
Average
Interest rate Amount cap rate
cap expiry R'million %
Jun 2019 200 7,39
Jun 2020 200 7,52
Jun 2021 400 7,80
Jun 2022 400 7,76
Jun 2023 300 7,71
Jun 2024 400 7,98
Jun 2025 750 7,90
Jun 2026 500 7,90
Jun 2027 250 8,18
3 400 7,83
The all-in weighted average cost of local funding of Fortress was 9,01%
at 31 December 2018 and the average hedge term was 4,12 years.
The following interest rate derivatives are in place in mitigation of the
group's exposure to foreign interest rate risk:
Average
Interest rate Amount swap cap
cap expiry EUR'million %
Jun 2022 146 900 0,36
Jun 2023 146 900 0,49
Jun 2024 79 900 0,33
Jun 2025 53 900 0,38
427 600 0,40
In total, 88,7% of the exposure to foreign base rates is hedged and the
average hedge term was 4,04 years.
Offshore
listed in
South South
Africa Africa
Variable interest rates* '000 '000
Interest-bearing borrowings R17 753 797
Currency derivatives (R7 591 009) R7 591 009
Loans to co-owners (R573 827)
Cash and cash equivalents (R705 859)
Capital commitments contracted for R343 187
Capital commitments approved R92 147
Investment property held for sale (R430 122)
R8 888 314 R7 591 009
Spot rate R15,74
Exposure EUR482 275
Total interest rate derivatives
(swaps/caps) R7 550 000 EUR427 600
Percentage hedged 84,9% 88,7%
Information based on Fortress' management accounts.
Fortress entered into additional local interest rate derivatives of
R1 billion to further mitigate rises in Rand interest rates.
Currency derivatives
Balance sheet hedging
The board's policy is to use cross-currency swaps as a means of obtaining
funding at rates in a currency matched to that of the foreign investments.
Fortress' cross-currency swap exposure has reduced by EUR50,8 million
since 30 June 2018 as a result of reduced exposure to Lighthouse Capital.
Cross-currency swaps totalled EUR482,3 million against investments of
EUR1 087 billion (4 March 2019).
Income hedging
Income from foreign investments is hedged in line with the following policy:
- Hedge 100% of the income projected to be received in the following
12 months;
- Hedge 67% of the income projected to be received in months 13 to 24;
and
- Hedge 33% of the projected income to be received in months 25 to 36.
In line with this policy, the following forward exchange contracts are in
place:
Lighthouse NEPI
Capital Rockcastle
EUR EUR
Forward rate against
ZAR: Jun 2019 18,35 18,39
Forward rate against
ZAR: Dec 2019 18,94 17,97
Forward rate against
ZAR: Jun 2020 19,74 18,98
Forward rate against
ZAR: Dec 2020 19,35 19,08
Forward rate against
ZAR: Jun 2021 20,84 20,50
Forward rate against
ZAR: Dec 2021 21,09 20,72
Buyback of shares
A total of 16 376 454 Fortress B shares were bought back during the
interim period at an average price of R14,21 per share.
Succession planning
With a view to creating a sustainable management structure, Fortress has
developed a succession plan and has recently made several changes to its
board of directors, including executive management. The current chief
executive officer, Mark Stevens, who has been in this role since listing
in 2009, intends to retire during 2019. Steven Brown has been appointed
chief executive officer designate and continues to work closely with
Mark until his retirement. Steven will be supported by Donnovan Pydigadu,
who fills a newly-created role of chief operating officer and Ian
Vorster, who joined Fortress from Grant Thornton, as the chief financial
officer. Vuso Majija continues as the retail executive overseeing the
retail portfolio and the investment in NEPI Rockcastle.
Fortress also welcomed three new non-executive directors appointed during
the period, being Robin Lockhart-Ross, Susan Ludolph and Vuyiswa
Mutshekwane, who all bring a range of fresh skills and insights to Fortress.
Fortress subcommittee
Fortress established a subcommittee to undertake an investigation following
a request made by several institutional stakeholders as announced via
SENS on 6 September 2018. The subcommittee appointed PricewaterhouseCoopers
to review certain historical property transactions by Fortress and
directors, as well as share trading activities. The scope of work is
available on the Fortress website. The review is on-going and stakeholders
will be updated in due course.
Fortress has also established a whistle-blower hotline, but no substantiated
allegations have been received to date. Fortress is committed to the
highest levels of corporate governance and open communication with all
stakeholders. Significant progress has been made in this regard in recent
months and the board is committed to further improve thereon.
Fortress has noted that the Financial Sector Conduct Authority ("FSCA")
has closed its investigation into insider trading in Fortress shares.
The FSCA has an open investigation into prohibited trading practices
of Fortress shares between 1 October 2017 and 31 March 2018. It should
be noted that this FSCA investigation is not into the affairs of
Fortress but into the trading in shares on the stock exchange. Fortress
looks forward to the conclusion of this one outstanding investigation.
Proposed transaction with Resilient
Shareholders are referred to the announcement published on SENS on
5 March 2019 in which shareholders have been advised that Fortress
has entered into a non-binding expression of interest with Resilient,
in terms of which Fortress proposes to acquire certain properties
from Resilient, and discharge the purchase consideration through
the transfer to Resilient of shares held by Fortress in Resilient
and Lighthouse Capital, as well as an interest in directly held
properties ("the Proposed Transaction"). The full details of the
Transaction are contained in the SENS.
Prospects
The stagnant South African economy is unlikely to grow materially in the
short to medium term with tenants continuing to focus on cost containment.
The long-term leases on the newer logistics developments and defensive
nature of the retail portfolio are likely to continue to provide income
growth. The exit of the office and industrial portfolios will be
accelerated while maximising proceeds from these disposals. Assuming
distribution growth of 5% on the Fortress A share, Fortress expects
distributions on the Fortress B share of between 155 cents and 163 cents
per share for the full 2019 financial year.
On a comparable combined basis, after adjusting for the effect of limiting
the distributable income in respect of interest accrued on the loans to
the Siyakha Trusts to the dividend accrued on the Fortress A and Fortress
B shares owned by the Siyakha Trusts, which serve as security for the
loans, the total distributable income for the full 2019 financial year
is expected to reduce by approximately 1,0% from that of the period
ended 30 June 2018. This expected reduction in distributable income for
the year ending 30 June 2019 is mainly as a result of the following:
- A reduction in interest received on the cross-currency position as a
result of reduced Euro exposure (approximately EUR50,8 million);
- An increase in Fortress' cost of funding as a result of the increase in
the prime rate in November 2018; and
- Proportionately lower dividends expected from Fortress' investment in
Lighthouse Capital post its return of capital during the 2019 interim period.
This forecast for the year ending 30 June 2019 is based on the following
assumptions:
Macro-economic
- The macro-economic environment will not deteriorate further;
- The current political landscape does not change dramatically; and
- South Africa's sovereign rating remains at investment grade (as rated
by Moody's) and the outlook does not deteriorate.
Fortress specific
- Contractual escalations and market-related renewals will be achieved with
no major change in vacancy rates;
- No major corporate failures will occur;
- Tenants will be able to absorb the recovery of rising utility costs and
municipal rates; and
- Distributions from Lighthouse Capital, NEPI Rockcastle and Resilient
will be in line with their guidance communicated to the market.
This forecast has not been audited, reviewed or reported on by Fortress'
auditor.
Fortress expects a return to positive growth on the Fortress B dividend
for the year ending 30 June 2020.
By order of the board
Mark Stevens Steven Brown Ian Vorster
Chief executive Chief executive Chief financial
officer officer designate officer
Johannesburg
5 March 2019
Condensed consolidated statement of financial position
Re-presented* Re-presented*
Unaudited Audited Unaudited
Dec 2018 Jun 2018 Dec 2017
R'000 R'000 R'000
Assets
Non-current assets 52 521 586 54 611 851 68 093 254
Investment property 25 280 197 24 822 540 24 859 768
Straight-lining of rental
revenue adjustment 505 941 469 458 423 165
Investment property under
development 4 828 049 4 266 318 3 740 896
Property, plant and equipment 28 039 28 039 -
Investment in and loans to
associates and joint venture 17 282 881 20 440 010 28 775 930
Investments 2 340 420 2 309 625 5 987 448
Staff scheme loans 318 715 328 914 713 991
Loans to BEE vehicles 1 879 010 1 946 947 3 592 056
Deferred tax 58 334 - -
Current assets 1 453 359 1 428 926 1 753 829
Staff scheme loans 9 321 18 359 19 749
Trade and other receivables 738 407 733 716 1 716 944
Cash and cash equivalents 705 631 676 851 17 136
Non-current assets held for
sale 430 122 603 290 124 790
Investment property held for
sale 418 776 596 878 124 618
Straight-lining of rental
revenue adjustment 11 346 6 412 172
Total assets 54 405 067 56 644 067 69 971 873
Equity and liabilities
Total equity attributable to
equity holders 35 219 151 36 951 001 51 930 548
Stated capital 45 571 807 45 571 944 45 571 944
Treasury shares (491 918) (259 171) -
Currency translation reserve 8 856 28 821 5 856
Reserves (9 869 594) (8 390 593) 6 352 748
Non-controlling interests 103 604 99 017 35 503
Total equity 35 322 755 37 050 018 51 966 051
Total liabilities 19 082 312 19 594 049 18 005 822
Non-current liabilities 14 580 093 14 971 050 16 043 512
Interest-bearing borrowings 14 580 093 14 924 587 15 836 757
Deferred tax - 46 463 206 755
Current liabilities 4 502 219 4 622 999 1 962 310
Trade and other payables 1 040 964 1 281 218 591 994
Taxation 232 328 - -
Interest-bearing borrowings 3 228 927 3 341 781 1 370 316
Total equity and liabilities 54 405 067 56 644 067 69 971 873
* Investment property held for sale with the related straight-lining of
rental revenue adjustment have been removed from current assets, as
historically presented, and presented under non-current assets held for
sale.
Condensed consolidated statement of comprehensive income
Restated*
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Dec 2018 Jun 2018 Dec 2017
R'000 R'000 R'000
Recoveries and contractual
rental revenue 1 673 989 3 290 708 1 653 591
Straight-lining of rental
revenue adjustment 41 417 99 207 46 674
Revenue from direct property
operations 1 715 406 3 389 915 1 700 265
Revenue from investments 106 337 243 489 117 656
Total revenue 1 821 743 3 633 404 1 817 921
Fair value gain/(loss) on
investment property,
investments and derivative
financial instruments 205 168 (2 104 143) 1 946 733
Fair value gain/(loss) on
investment property 88 506 127 197 (62 289)
Adjustment resulting from
straight-lining of rental
revenue (41 417) (99 207) (46 674)
Fair value gain/(loss) on
investments 30 795 (1 746 035) 1 850 842
Fair value gain/(loss) on
derivative financial
instruments 127 284 (386 098) 204 854
Property operating expenses (619 989) (1 096 350) (582 529)
Administrative expenses (66 472) (109 898) (48 459)
Impairment of staff scheme
loans (1 974) (151 932) -
Impairment of loans to BEE
vehicles (177 614) (1 858 177) -
Impairment of investments in
associates (1 098 279) (9 128 395) -
IFRS 2 - share-based payment (9 283) - -
Profit on sale of interest in
associate - 3 706 415 3 706 415
Income from associates and
joint venture 779 721 1 913 476 531 057
- Distributable 756 979 1 250 111 638 129
- Non-distributable 22 742 663 365 (107 072)
Profit/(loss) before net
finance costs 833 021 (5 195 600) 7 371 138
Net finance costs (337 153) (655 337) (296 317)
Finance income 246 713 531 694 263 341
- Interest on staff scheme and
other 22 229 99 126 43 839
- Interest on loans to BEE
vehicles 224 484 432 568 219 502
Finance costs (583 866) (1 187 031) (559 658)
- Interest on borrowings (794 364) (1 523 878) (723 859)
- Capitalised interest 210 498 336 847 164 201
Profit/(loss) before income tax 495 868 (5 850 937) 7 074 821
Income tax (current and
deferred) (190 821) 981 577 940 006
Profit/(loss) for the period 305 047 (4 869 360) 8 014 827
Other comprehensive
income/(loss) net of tax
Items that may subsequently
be reclassified to profit
or loss
Exchange gain realised on
translation of associates - 134 200 134 200
Exchange (loss)/gain on
translation of associates (19 965) 28 770 5 805
Total comprehensive
income/(loss) for the period 285 082 (4 706 390) 8 154 832
Profit/(loss) for the period
attributable to:
Equity holders of the company 298 804 (4 904 290) 8 017 425
Non-controlling interests 6 243 34 930 (2 598)
305 047 (4 869 360) 8 014 827
Total comprehensive
income/(loss) for the period
attributable to:
Equity holders of the company 278 839 (4 741 320) 8 157 430
Non-controlling interests 6 243 34 930 (2 598)
285 082 (4 706 390) 8 154 832
Basic earnings/(loss) per A
share (cents) 13,27 (216,76) 354,83
Basic earnings/(loss) per B
share (cents) 13,27 (216,76) 354,83
Diluted earnings per A share
(cents) 13,27 @ @
Diluted earnings per B share
(cents) 13,27 @ @
* Refer to note 4 - restatement of financial statements.
@ For the periods ended 30 June 2018 and 31 December 2017, diluted
earnings/loss per share is the same as basic earnings/loss per share as
there were no dilutionary instruments in issue.
Condensed consolidated statement of cash flows
Restated* Restated*
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Dec 2018 Jun 2018 Dec 2017
R'000 R'000 R'000
Operating activities
Cash generated from
operations 1 677 333 3 004 690 1 132 379
Interest on staff
scheme and other 31 267 103 110 43 839
Interest on borrowings (797 837) (1 493 712) (723 859)
Dividends paid (1 788 744) (3 626 296) (1 801 137)
Income tax (46 975) (118 721) -
Cash outflow from operating
activities (924 956) (2 130 929) (1 348 778)
Investing activities
Development and improvement
of investment property (688 306) (1 515 055) (784 359)
Acquisition of investment
property (405 148) (238 899) (238 899)
Disposal of investment
property 492 640 1 698 757 1 457 367
Decrease/(increase) of
interest in and loans
advanced to
associates and joint venture 18 577 (1 272 746) (1 095 554)
Loans advanced to staff - (84 292) -
Staff scheme loans repaid 8 225 367 701 52 858
Cash flow on derivative
financial instruments (51 524) 43 340 (967 721)
Acquisition of investments - (197 706) (19 481)
Return of capital by associate 2 067 244 - -
Loan repaid by BEE vehicles 114 807 559 882 559 884
Cash inflow/(outflow) from
investing activities 1 556 515 (639 018) (1 035 905)
Financing activities
(Decrease)/increase in
interest-bearing borrowings (370 032) 3 431 028 2 386 049
Acquisition of treasury shares (232 747) - -
Cash (outflow)/inflow from
financing activities (602 779) 3 431 028 2 386 049
Increase in cash and cash
equivalents 28 780 661 081 1 366
Cash and cash equivalents at
the beginning of the period 676 851 15 770 15 770
Cash and cash equivalents at
the end of the period 705 631 676 851 17 136
Cash and cash equivalents
consist of:
Current accounts 86 204 533 400 17 136
Restricted cash 619 427 143 451 -
705 631 676 851 17 136
* Refer to note 4 - restatement of financial statements.
Condensed consolidated statement of changes in equity
Currency
Stated Treasury translation
capital shares reserve
Unaudited R'000 R'000 R'000
Balance at Jun 2017 45 072 151 - (134 149)
Issue of shares
(equal number
of A and B shares) 499 793
Profit for the period
Exchange gain realised on
translation of associates 134 200
Exchange gain on translation
of associates 5 805
Dividends paid
Balance at Dec 2017 45 571 944 - 5 856
Loss for the period
Non-controlling interest on
Mantraweb consolidation
Exchange gain on translation
of associates 22 965
FFB treasury shares (259 171)
Dividends paid
Balance at Jun 2018 45 571 944 (259 171) 28 821
Issue of shares (equal number
of A and B shares)* (137)
Profit for the period
IFRS 2 - share-based payment
- retained earnings
FFB treasury shares (232 747)
Exchange loss on translation
of associates (19 965)
Dividends paid
Balance at Dec 2018 45 571 807 (491 918) 8 856
Equity
attributable Non-
to equity controlling Total
Reserves holders interests equity
Unaudited R'000 R'000 R'000 R'000
Balance at Jun
2017 136 460 45 074 462 38 101 45 112 563
Issue of shares
(equal number of A
and B shares) 499 793 499 793
Profit for the
period 8 017 425 8 017 425 (2 598) 8 014 827
Exchange gain
realised on
translation of
associates 134 200 134 200
Exchange gain on
translation of
associates 5 805 5 805
Dividends paid (1 801 137) (1 801 137) (1 801 137)
Balance at
Dec 2017 6 352 748 51 930 548 35 503 51 966 051
Loss for the
period (12 921 715) (12 921 715) 37 528 (12 884 187)
Non-controlling
interest on
Mantraweb
consolidation 29 519 29 519
Exchange gain on
translation of
associates 22 965 22 965
FFB treasury
shares (259 171) (259 171)
Dividends paid (1 821 626) (1 821 626) (3 533) (1 825 159)
Balance at
Jun 2018 (8 390 593) 36 951 001 99 017 37 050 018
Issue of shares
(equal number of
and B shares)* (137) (137)
Profit for the
period 298 804 298 804 6 243 305 047
IFRS 2 - share-based
payment -
retained earnings 9 283 9 283 9 283
FFB treasury
shares (232 747) (232 747)
Exchange loss on
translation of
associates (19 965) (19 965)
Dividends paid (1 787 088) (1 787 088) (1 656) (1 788 744)
Balance at
Dec 2018 (9 869 594) 35 219 151 103 604 35 322 755
* 5 418 700 Fortress A and 5 418 700 Fortress B shares were issued under
the new long-term incentive scheme, accounted for in terms of IFRS 2:
Share-based Payment, with the effect that these shares are issued at no
value, other than share issue costs incurred.
Notes
1. Preparation and accounting policies
The condensed unaudited consolidated interim financial statements have been
prepared in accordance with and contain the information required by IAS 34:
Interim Financial Reporting, the SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee and Financial Reporting Pronouncements
as issued by the Financial Reporting Standards Council, the JSE Listings
Requirements and the requirements of the Companies Act of South Africa.
This report complies with the SA REIT Association Best Practice
Recommendations. This report was compiled under the supervision of
Ian Vorster CA(SA), the financial director.
The accounting policies applied in the preparation of the condensed
consolidated interim financial statements are consistent with the
accounting policies applied in the preparation of the previous consolidated
annual financial statements for the year ended 30 June 2018, with the
exception of the adoption of new and revised standards which became
effective during the period.
The group's investment properties are valued internally by the directors
at interim reporting periods and externally by an independent valuer for
year-end reporting. 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 7,5% and 12,0%, with the exception
of Musina Shopping Centre, which has a capitalisation rate of 19,12% and
which is a leasehold property with seven years remaining on the lease.
Changes in the capitalisation rate attributable to changes in market
conditions can have a significant impact on property valuations. A 25 basis
points increase in the capitalisation rate will decrease the value of
investment property by R712,2 million. A 25 basis points decrease in the
capitalisation rate will increase the value of investment property by
R753,2 million.
In terms of IFRS 9: Financial Instruments 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. In terms of IFRS 9,
investments are measured at fair value, being the quoted closing price at
the reporting date, and are categorised as level 1 investments.
There were no transfers between levels 1, 2 and 3 during the period.
The valuation methods applied are consistent with those applied in
preparing the previous consolidated financial statements.
IFRS 9 was adopted in the current reporting period and had no effect on
previously reported results.
Other than the Proposed Transaction, the directors are not aware of
any matters or circumstances arising subsequent to 31 December 2018
that require additional disclosure or adjustment to the financial
statements.
The condensed consolidated interim financial statements have not been
audited or reviewed by Fortress' auditor.
2. Lease expiry profile
Contractual
Rentable rental
area revenue
Based on % %
Vacant 7,0
Jun 2019 14,1 10,7
Jun 2020 21,1 19,2
Jun 2021 14,5 14,8
Jun 2022 9,4 10,9
Jun 2023 11,2 13,7
>Jun 2023 22,7 30,7
100,0 100,0
3. Segmental analysis
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Dec 2018 Jun 2018 Dec 2017
R'000 R'000 R'000
Total revenue
Retail 608 716 1 232 300 626 546
Logistics 598 788 1 089 064 536 191
Industrial 261 447 588 942 297 671
Offices 172 894 384 370 210 183
Other 73 561 95 239 29 674
Corporate 106 337 243 489 117 656
1 821 743 3 633 404 1 817 921
Profit/(loss) after tax
Retail 426 118 1 148 617 410 647
Logistics 420 397 756 464 370 014
Industrial 144 959 420 998 173 998
Offices 133 882 30 419 64 322
Other 41 343 50 127 21 339
Corporate (861 652) (7 275 985) 6 974 507
305 047 (4 869 360) 8 014 827
Total assets
Retail 10 417 733 10 528 551 10 156 292
Logistics 13 735 670 12 960 647 12 277 347
Industrial 3 950 827 3 990 562 3 978 773
Offices 3 320 487 3 005 757 3 148 460
Other 690 349 695 114 689 956
Corporate 22 290 001 25 463 436 39 721 045
54 405 067 56 644 067 69 971 873
Restated*
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Dec 2018 Jun 2018 Dec 2017
R'000 R'000 R'000
Reconciliation of
profit/(loss) for the
period to dividend
declared
Profit/(loss) for the period 305 047 (4 869 360) 8 014 827
Fair value (gain)/loss on
investment property (88 506) (127 197) 62 289
Fair value (gain)/loss on
investments (30 795) 1 746 035 (1 850 842)
Fair value (gain)/loss on
derivative financial
instruments (127 284) 386 098 (204 854)
Impairment of staff scheme
loans 1 974 151 932 -
Impairment of loans to BEE
vehicles 177 614 1 858 177 -
Impairment of investments
in associates 1 098 279 9 128 395 -
Profit on sale of interest
in associate - (3 706 415) (3 706 415)
Non-distributable income/(loss)
from associates and joint
venture (22 742) (663 365) 107 072
Interest received on
long term incentive plan
(reversed for IFRS 2 charge) 840 - -
IFRS 2 - share-based payment 9 283 - -
Income tax 190 821 (981 577) (940 006)
Non-controlling interests 870 1 298 2 598
Antecedent dividend 5 961 8 957 8 957
Loans to BEE vehicles interest
reversal@ (224 484) (183 612) -
BEE vehicles FFA dividend@ 708 669 -
BEE vehicles FFB dividend@ 111 323 102 267 -
Staff scheme interest
limitation^ (5 073) - -
Dividends accrued (15 227) 3 242 (26 654)
Interest on cross-currency
swaps 312 887 611 921 284 417
Foreign dividend hedging 27 335 176 426 24 838
Interest rate derivatives (19 195) (35 092) 45 397
Amount available for
distribution 1 709 636 3 608 799 1 821 624
Interim dividend
- A shares (889 224) (843 361) (843 361)
- B shares (2018 net of
treasury shares) (820 412) (978 263) (978 263)
Final dividend declared
- A shares (835 899)
- B shares (2018 net of
treasury shares) (951 276)
- - -
* Refer to note 4 - restatement of financial statements.
@ The methodology applied in calculating the dividend is consistent with
that of the prior period (1 January 2018 to 30 June 2018) insofar as the
interest accrued on the Siyakha Trusts' loans has been limited to the
dividends accrued on the Fortress shares provided as security, held by the
Siyakha Trusts in the same period. This methodology was not in effect for
the six months ended 31 December 2017.
^ From 1 July 2018, interest income accrued on staff scheme loans is
distributed only to the extent of dividends accrued on those Fortress
shares funded by loans under the scheme.
Restated*
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Dec 2018 Jun 2018 Dec 2017
R'000 R'000 R'000
Headline earnings
Profit/(loss) for the period 298 804 (4 904 290) 8 017 425
attributable to equity holders
Adjusted for: 520 078 5 350 178 (3 590 414)
- Fair value (gain)/loss on
investment property (net of
straight-lining adjustment) (47 089) (27 990) 108 963
- Profit on sale of interest
in associate - (3 706 415) (3 706 415)
- Impairment of associate 1 098 279 9 128 395 -
- Fair value (gain)/loss on
investment property of
associate and joint venture (711 678) (34 962) -
- Income tax effect 180 566 (8 850) 7 038
Headline earnings 818 882 445 888 4 427 011
Headline earnings per A share
(cents) 36,37 19,71^ 195,93
Headline earnings per B share
(cents) 36,37 19,71^ 195,93
Diluted headline earnings per A
share (cents) 36,36 @ @
Diluted headline earnings per B
share (cents) 36,36 @ @
Basic earnings per share, diluted earnings per share, headline
earnings per share and diluted headline earnings per share are based on
the following weighted average shares in issue during the period:
Dec 2018 Jun 2018 Dec 2017
Weighted average number
of shares
- A shares 1 184 496 438 1 181 699 243 1 178 947 654
- B shares 1 066 923 211 1 080 842 250 1 080 565 510
Diluted weighted average
number of shares
- A shares 1 184 979 390 @ @
- B shares 1 067 026 047 @ @
* Refer to note 4 - restatement of financial statements.
@ For the periods ended 30 June 2018 and 31 December 2017, diluted earnings
per share and diluted headline earnings per share are the same as basic
earnings per share and headline earnings per share, respectively, as there
were no dilutionary instruments in issue.
^ Restated for the year ended 30 June 2018 in respect of the impairment of
associates removed from headline earnings.
4. Restatement of financial statements
Audited Unaudited
for the for the
year six months
ended ended
Jun 2018 Dec 2017
R'000 R'000
Impact on statement of comprehensive
income (increase/(decrease) in profit)
Revenue from investments (86 085)
Fair value (loss)/gain on derivative
financial instruments 309 255
Finance income
- Interest received on loans (263 341)
- Interest received on cross-currency
swaps (284 417)
- Interest on staff scheme loans and other 43 839
- Interest on loans to BEE vehicles 219 502
Finance costs
- Interest on borrowings 15 850
- Fair value adjustment on interest rate
derivatives 45 397
Net impact on profit for the period -
Impact on statement of cash flows
(increase/(decrease) in cash flows)
Cash generated from operations 583 715 (86 085)
Interest on staff scheme loans and other 43 839
Interest received on loans (263 341)
Interest received on cross-currency swaps (284 417)
Interest on borrowings 15 850
Cash flow from operating activities 583 715 (574 154)
Cash flow on derivative financial
instruments (583 715) 370 502
Loans advanced to BEE vehicles 719 295
Cash flow from investing activities (583 715) 1 089 797
Increase in interest-bearing borrowings (15 850)
Raising of share capital (499 793)
Cash flow from financing activities (515 643)
Movement in cash and cash equivalents - -
Presentation of the statement of comprehensive income
In the 2018 financial year, the presentation of the following items in the
statement of comprehensive income was reassessed with the statement of
comprehensive income for the six months ended 31 December 2017 being
restated:
- The line item "Income from investments", as previously reported, has been
renamed "Revenue from investments".
- The consolidated statement of comprehensive income has been re-ordered in
order to reflect total revenue, which includes revenue from direct property
operations and revenue from investments.
- Interest received on loans, previously presented as a single line item,
was presented as two separate line items, being interest on staff scheme
loans and other and interest on loans to BEE vehicles.
Reclassification of derivatives in the statement of comprehensive income
In the 2018 financial year, the presentation of interest rate and currency
derivatives in the statement of comprehensive income was reassessed to
ensure compliance with IFRS. Fortress does not apply hedge accounting and,
as such, the following reclassifications were made in respect of the six
months ended 31 December 2017, as a result of a prior period error:
- Interest on interest rate derivatives, together with the fair value
adjustment on interest rate derivatives were removed from net finance costs
and are now disclosed in the statement of comprehensive income as a fair
value (loss)/gain on derivative financial instruments.
- Similarly, the interest on currency derivatives was removed from net
finance costs and is now included in the fair value (loss)/gain on
derivative financial instruments in the statement of comprehensive income.
- The cash flow on the expiry of forward exchange contracts, previously
included in revenue from investments, has also been reclassified to fair
value (loss)/gain on derivative financial instruments.
Restatement of items disclosed in the statement of cash flows
(prior period error)
In respect of the six months ended 31 December 2017, the cash inflow from
financing activities was restated as it incorrectly included an amount of
R499,8 million as cash inflow for the raising of share capital issued to
BEE vehicles, which was not a cash flow item. The cash outflow from
investing activities was restated as it incorrectly included non-cash
items under loans advanced to BEE vehicles, being the corresponding
raising of share capital issued to BEE vehicles (R499,8 million) and
accrued interest income (R219,5 million). These errors have been
corrected in the comparative figures presented for the six months
ended 31 December 2017.
The classification of derivative financial instruments in the statement of
cash flows for the year ended 30 June 2018 and the six months ended
31 December 2017 was revisited. As contracts are not held for dealing or
trading purposes, the cash flows were reclassified as investing activities.
The following reclassifications were made:
- Interest on cross-currency swaps previously classified as cash flows from
operating activities has been reclassified to cash flow on derivative
financial instruments in cash flow from investing activities; and
- Interest on interest rate derivatives previously classified as cash flows
from operating activities has been reclassified to cash flow on derivative
financial instruments in cash flows from investing activities.
Restatement of headline earnings per share
Headline earnings per share for the year ended 30 June 2018 has been
restated in respect of the impairment of associates removed from headline
earnings.
Payment of interim dividends
The board has approved and notice is hereby given of interim dividends of
74,73000 cents per A share and 77,49000 cents per B share for the six
months ended 31 December 2018. The dividends are payable to Fortress
shareholders in accordance with the timetable set out below:
Last date to trade cum dividend Tuesday, 26 March 2019
Shares trade ex dividend Wednesday, 27 March 2019
Record date Friday, 29 March 2019
Payment date Monday, 1 April 2019
Share certificates may not be dematerialised or rematerialised between
Wednesday,27 March 2019 and Friday, 29 March 2019, both days inclusive.
In respect of dematerialised shareholders, the dividend will be transferred
to the CSDP accounts/broker accounts on Monday, 1 April 2019. Certificated
shareholders' dividend payments will be deposited on or about Monday,
1 April 2019. An announcement informing shareholders of the tax treatment
of the dividends will be released separately on SENS.
Directors
Iraj Abedian (chairman); Mark Stevens*; Steven Brown*; Robin Lockhart-Ross;
Susan Ludolph; Vuso Majija*; Tshiamo Matlapeng-Vilakazi; Vuyiswa Mutshekwane;
Bongiwe Njobe; Jan Potgieter; Donnovan Pydigadu*; Banus van der Walt;
Djurk Venter; Ian Vorster*
*Executive director
Changes to the board of directors
The following changes to the Fortress board were recorded in the reporting
period ended 31 December 2018:
Effective 2 July 2018
- Rual Bornman resigned as financial director and executive director;
- Steven Brown was appointed as interim financial director and executive
director; and
- Robin Lockhart-Ross was appointed as an independent non-executive
director.
Effective 25 July 2018
- Kura Chihota resigned as an independent non-executive director.
Effective 3 December 2018
- Fareed Wania retired as an executive director and continues to manage
Fortress' office portfolio;
- Ian Vorster was appointed as financial director and executive director;
- Donnovan Pydigadu was appointed as chief operating officer and executive
director;
- Vuyiswa Mutshekwane was appointed as an independent non-executive
director;
- Susan Ludolph was appointed as an independent non-executive director; and
- Steven Brown resigned as interim financial director and was appointed as
chief executive officer designate.
Management accounts
Basis of preparation
In order to provide information of relevance to investors, Fortress
presents management accounts in addition to IFRS accounts. These management
accounts comprise financial information extracted from the unaudited
interim financial information for the six months ended 31 December 2018
and have been prepared on the following basis:
- The group's interest in Arbour Town, an associate, accounted for on the
equity method for IFRS purposes, is proportionately consolidated.
- The group's listed investments in Lighthouse Capital and NEPI Rockcastle
that are accounted for on the equity method for IFRS purposes, are fair
valued.
- The group accounts for its share of the assets, liabilities and results
of partially-owned subsidiaries (Araxia, Bridge, Cornubia and Mantraweb)
on a proportionately consolidated basis instead of consolidating it.
The pro forma financial information (management accounts) has been prepared
in terms of the JSE Listings Requirements and the SAICA Guide on pro forma
financial information.
This pro forma information has not been reviewed or reported on by
Fortress' auditor.
Directors' responsibility statement
The preparation of the management accounts is the sole responsibility of
the directors. These accounts have been prepared on the basis stated, for
illustrative purposes only, to show the impact on the summarised
consolidated statement of financial position and the summarised
consolidated statement of comprehensive income. Due to their nature, the
management accounts may not fairly present the financial position and
results of the group in terms of IFRS.
Management accounts adjustments
Adjustment 1
This adjustment proportionately consolidates the indirect investments in
The Galleria and Arbour Crossing that are held through Arbour Town
(Fortress has a 25% interest), accounted for on the equity method in terms
of IFRS.
It effectively discloses the group's interest in the assets, liabilities
and results of operations from these investments by disclosing the
consolidated management accounts for the six months ended 31 December 2018
on a line-by-line basis.
Adjustment 2
The investments in Lighthouse Capital and NEPI Rockcastle are reflected at
their respective fair values by multiplying the 99 375 366 and 139 990 000
shares held respectively by their quoted closing prices at 31 December 2018.
All entries relating to accounting for these investments on the equity
method are reversed. This more accurately reflects the group's
loan-to-value ratio and net asset value.
Adjustment 3
This adjustment proportionately consolidates the indirect investments in
partially-owned subsidiaries (the indirect investments in Araxia, Bridge,
Cornubia and Mantraweb), consolidated in terms of IFRS.
It uses the management accounts for the six months ended 31 December 2018
of Araxia, Bridge, Cornubia and Mantraweb to reverse the non-controlling
interests to reflect the group's interest in the assets, liabilities and
results of operations from these investments.
Condensed consolidated statements of financial position
Adjustment 1
Proportionate
consolidation of
investment
in associate
IFRS - Arbour Town
Dec 2018 Dec 2018
R'000 R'000
Assets
Non-current assets 52 521 586 (553)
Investment property 25 280 197 666 689
Straight-lining of rental revenue
adjustment 505 941 11 704
Investment property under development 4 828 049
Property, plant and equipment 28 039
Investment in and loans to associates 17 282 881 (678 946)
Investments 2 340 420
Staff scheme loans 318 715
Loans to BEE vehicles 1 879 010
Loans to co-owners -
Deferred tax 58 334
Current assets 1 453 359 6 442
Staff scheme loans 9 321
Trade and other receivables 738 407 4 039
Cash and cash equivalents 705 631 2 403
Non-current assets held for sale 430 122
Investment property held for sale 418 776
Straight-lining of rental revenue
adjustment 11 346
Total assets 54 405 067 5 889
Equity and liabilities
Total equity attributable to equity
holders 35 219 151
Share capital 45 571 807
Treasury shares (491 918)
Currency translation reserve 8 856
Reserves (9 869 594)
Non-controlling interests 103 604
Total equity 35 322 755
Total liabilities 19 082 312 5 889
Non-current liabilities 14 580 093
Interest-bearing borrowings 14 580 093
Current liabilities 4 502 219 5 889
Trade and other payables 1 040 964 5 889
Income tax payable 232 328
Interest-bearing borrowings 3 228 927
Total equity and liabilities 54 405 067 5 889
Adjustment 2
Fair value
accounting for Adjustment 3
investments Proportionate
in associates consolidation of
- listed partially-owned Management
investments subsidiaries accounts
Dec 2018 Dec 2018 Dec 2018
R'000 R'000 R'000
Assets
Non-current assets - (136 989) 52 384 044
Investment property (358 870) 25 588 016
Straight-lining of rental
revenue adjustment (20 384) 497 261
Investment property under
development (331 562) 4 496 487
Property, plant and equipment 28 039
Investment in and loans to
associates (16 603 935) -
Investments 16 603 935 18 944 355
Staff scheme loans 318 715
Loans to BEE vehicles 1 879 010
Loans to co-owners 573 827 573 827
Deferred tax 58 334
Current assets (24 153) 1 435 648
Staff scheme loans 9 321
Trade and other receivables (21 978) 720 468
Cash and cash equivalents (2 175) 705 859
Non-current assets held for
sale 430 122
Investment property held for
sale 418 776
Straight-lining of rental
revenue adjustment 11 346
Total assets (161 142) 54 249 814
Equity and liabilities
Total equity attributable to 35 219 151
equity holders
Share capital 45 571 807
Treasury shares (491 918)
Currency translation reserve 8 856
Reserves (9 869 594)
Non-controlling interests (103 604) -
Total equity (103 604) 35 219 151
Total liabilities (57 538) 19 030 663
Non-current liabilities (55 223) 14 524 870
Interest-bearing borrowings (55 223) 14 524 870
Current liabilities (2 315) 4 505 793
Trade and other payables (2 315) 1 044 538
Income tax payable 232 328
Interest-bearing borrowings 3 228 927
Total equity and liabilities - (161 142) 54 249 814
Condensed consolidated statement of comprehensive income
Adjustment 1
Proportionate
consolidation of
investment
in associate
IFRS - Arbour Town
Dec 2018 Dec 2018
R'000 R'000
Recoveries and contractual rental revenue 1 673 989 41 293
Straight-lining of rental revenue
adjustment 41 417 (414)
Revenue from direct property operations 1 715 406 40 879
Revenue from investments 106 337
Total revenue 1 821 743 40 879
Fair value gain/(loss) on investment
property, investments and derivative
financial instruments 205 168 414
Fair value gain on investment property 88 506
Adjustment resulting from straight-lining
of rental revenue (41 417) 414
Fair value gain/(loss) on investments 30 795
Fair value gain on derivative financial
instruments 127 284
Property operating expenses (619 989) (17 080)
Administrative expenses (66 472) (75)
Impairment of staff scheme loans (1 974)
Impairment of loans to BEE vehicles (177 614)
Impairment of investments in associates (1 098 279)
IFRS 2 - share-based payment (9 283)
Income from associates 779 721 (24 193)
- Distributable 756 979 (24 193)
- Non-distributable 22 742
Profit before net finance costs 833 021 (55)
Net finance costs (337 153) 55
Finance income 246 713
- Interest on staff scheme and other 22 229
- Interest on loans to BEE vehicles 224 484
Finance costs (583 866) 55
- Interest on borrowings (794 364) 55
- Capitalised interest 210 498
Profit before income tax 495 868
Income tax (current and defered) (190 821)
Profit for the period 305 047
Non-controlling interests (6 243)
Profit for the period attributable to
equity holders of the company 298 804 -
Adjustment 2
Fair value
accounting for Adjustment 3
investments Proportionate
in associates consolidation of
- listed partially-owned Management
investments subsidiaries accounts
Dec 2018 Dec 2018 Dec 2018
R'000 R'000 R'000
Recoveries and contractual
rental revenue (21 305) 1 693 977
Straight-lining of rental
revenue adjustment (6 344) 34 659
Revenue from direct property
operations (27 649) 1 728 636
Revenue from investments 732 786 839 123
Total revenue 732 786 (27 649) 2 567 759
Fair value gain/(loss) on
investment property,
investments and derivative
financial instruments (1 075 537) (769) (870 724)
Fair value gain on investment
property (7 113) 81 393
Adjustment resulting from
straight-lining of rental
revenue 6 344 (34 659)
Fair value gain/(loss) on
investments (1 075 537) (1 044 742)
Fair value gain on derivative
financial instruments 127 284
Property operating expenses 6 378 (630 691)
Administrative expenses 60 (66 487)
Impairment of staff scheme
loans (1 974)
Impairment of loans to BEE
vehicles (177 614)
Impairment of investments in
associates 1 098 279 -
IFRS 2 - share-based payment (9 283)
Income from associates (755 528) -
- Distributable (732 786) -
- Non-distributable (22 742) -
Profit before net finance
costs - (21 980) 810 986
Net finance costs 15 737 (321 361)
Finance income (205) 246 508
- Interest on staff scheme and
other (205) 22 024
- Interest on loans to BEE
vehicles 224 484
Finance costs 15 942 (567 869)
- Interest on borrowings 30 654 (763 655)
- Capitalised interest (14 712) 195 786
Profit before income tax (6 243) 489 625
Income tax (current and defered) (190 821)
Profit for the period (6 243) 298 804
Non-controlling interests 6 243 -
Profit for the period
attributable to equity
holders of the company - - 298 804
Corporate information
Company address
Block C, Cullinan Place,
Cullinan Close, Morningside, 2196
(PO Box 138, Rivonia, 2128)
Commercial bankers
The Standard Bank of South Africa Limited
(Registration number: 1962/000738/06)
Corporate and Investment Banking
7th Floor, 3 Simmonds Street, Johannesburg, 2001
(PO Box 61029, Marshalltown, 2107)
Transfer secretaries
Link Market Services South Africa Proprietary Limited
(Registration number: 2000/007239/07)
13th Floor,19 Ameshoff Street, Braamfontein, 2001
(PO Box 10462, Johannesburg, 2000)
Lead sponsor
Java Capital Trustees and Sponsors Proprietary Limited
(Registration number: 2006/005780/07)
6A Sandown Valley Crescent, Sandown, Sandton, 2196
(PO Box 522606, Saxonwold, 2132)
Joint sponsor
Nedbank Limited, acting through its Corporate and Investment
Banking Division
(Registration number: 1951/000009/06)
3rd Floor, Corporate Place, Nedbank Sandton,
135 Rivonia Road, Sandton, 2196
(PO Box 1144, Johannesburg, 2000)
Secretary and registered office
Tamlyn Stevens CA(SA)
Block C, Cullinan Place,
Cullinan Close, Morningside, 2196
(PO Box 138, Rivonia, 2128)
www.fortressfund.co.za
Date: 05/03/2019 05:26:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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