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Unaudited interim results for the six months ended 28 February 2015 and renewal of cautionary announcement
Fountainhead Property Trust Management Limited
(A collective investment scheme in property registered in terms
of the Collective Investment Schemes Control Act No 45 of 2002
and managed by Fountainhead Property Trust Management Limited)
(Registration number 1983/003324/06)
JSE share code: FPT ISIN: ZAE000097416
(Approved as a REIT by the JSE)
Unaudited interim results for the six months ended 28 February 2015
renewal of cautionary announcement
The directors of Fountainhead Property Trust Management Limited ("the board"), manager of Fountainhead Property Trust (“the Trust”
or “Fountainhead”), present the interim results of the Trust for the six months ended 28 February 2015.
- 5.5% increase in distribution
- R579 million redevelopments in progress
- 34.4% total return to investors
- 48.1% increase in market cap to R12 billion
Statement of financial position
Unaudited Unaudited Audited
28 February 28 February 31 August
2015 2014 2014
R’000 R’000 R’000
ASSETS
Non-current assets 11 659 899 10 917 208 11 214 867
Investment properties 11 657 437 10 848 165 11 191 357
Fair value of investment properties for accounting purposes 11 228 536 10 484 483 10 776 919
Unamortised letting commissions and tenant installations 19 703 7 065 15 520
Straight-line rental income accrual 409 198 356 617 398 918
Interest rate swaps 2 462 69 043 23 510
Current assets 703 566 1 444 535 1 386 585
Trade and other receivables 167 520 77 447 152 271
Cash and cash equivalents 271 988 422 348 257 590
Assets held-for-sale 264 058 944 740 976 724
Total assets 12 363 465 12 361 743 12 601 452
UNITHOLDERS’ FUNDS AND LIABILITIES
Unitholders’ funds 8 969 673 8 697 598 8 841 591
Capital of the fund 2 874 030 2 874 030 2 874 030
Retained income 407 770 372 873 398 976
Non-distributable reserve 5 687 873 5 450 695 5 568 585
Other non-current liabilities 2 832 542 2 883 619 2 992 679
Interest-bearing liabilities 2 832 542 2 883 619 2 992 679
Deferred taxation - - -
Current liabilities 561 250 780 526 767 182
Trade and other payables 205 461 193 341 176 745
Interest-bearing liabilities - 250 000 250 000
Unitholders for distribution 355 789 337 185 340 437
Total unitholders’ funds and liabilities 12 363 465 12 361 743 12 601 452
Number of units in issue 1 162 709 1 162 709 1 162 709
Net asset value per unit (excluding deferred tax) (cents) 771.45 748.05 760.43
Statement of comprehensive income
Unaudited Unaudited Audited
28 February 28 February 31 August
2015 2014 2014
R’000 R’000 R’000
Revenue
Property portfolio 627 929 632 234 1 282 033
- Contractual rental income 617 649 618 718 1 242 414
- Straight-line rental income accrual 10 280 13 516 39 619
Direct property operating expenses (124 297) (145 676) (272 630)
Net property income 503 632 486 558 1 009 403
Changes in fair values of properties and financial instruments 118 545 434 975 552 865
Loss on disposal of investment properties (743) - -
Administrative expenses (33 971) (34 587) (73 448)
Income from operations 587 463 886 946 1 488 820
Net finance costs (103 592) (101 270) (218 714)
- Interest income 10 716 14 539 25 882
- Interest expense (114 308) (115 809) (244 596)
Profit before taxation 483 871 785 676 1 270 106
Taxation - - -
Profit and total comprehensive income 483 871 785 676 1 270 106
Basic and diluted earnings per unit (cents) 41.62 67.57 109.24
Headline earnings and distributable income reconciliation
Profit for the period 483 871 785 676 1 270 106
Loss on the disposal of investment properties 743 - -
Fair value adjustments to investment properties (139 594) (444 168) (607 591)
Headline earnings 345 020 341 508 662 515
Less: Straight-line lease adjustment (10 280) (13 516) (39 619)
Less: Fair value adjustments on interest rate swaps 21 049 9 193 54 726
Distributable income 355 789 337 185 677 622
Headline earnings per unit (cents) 29.67 29.37 56.98
Distribution per unit (cents) 30.60 29.00 58.28
Units in issue ('000) 1 162 709 1 162 709 1 162 709
Statement of cash flows
Unaudited Unaudited Audited
28 February 28 February 31 August
2015 2014 2014
R’000 R’000 R’000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations 475 098 461 793 831 213
Interest income 10 716 14 539 25 882
Interest expense (114 308) (115 809) (244 596)
Income distributions (340 437) (277 771) (614 956)
Net cash generated from/(utilised in) operating activities 31 069 82 752 (2 457)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition and development of investment properties (748 506) (231 243) (419 853)
Proceeds on disposal of investment properties 1 141 972 - -
Net cash generated from/(utilised in) investing activities 393 466 (231 243) (419 853)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of interest-bearing borrowings (410 137) - (2 881 319)
Proceeds from interest-bearing borrowings - 252 300 3 242 679
Net cash (utilised in)/generated from financing activities (410 137) 252 300 361 360
Net increase/(decrease) in cash and cash equivalents 14 398 103 809 (60 950)
Cash and cash equivalents at beginning of the period 257 590 318 540 318 540
Cash and cash equivalents at end of period 271 988 422 349 257 590
Statement of changes in unitholders’ funds
Non-
Capital of distributable Retained
the fund reserve earnings Total
R’000 R’000 R’000 R’000
Balance at 1 September 2013 2 874 030 5 015 720 359 357 8 249 107
Profit and total comprehensive income for the period - - 1 270 106 1 270 106
Transactions recorded directly in equity - 552 865 (1 230 487) (677 622)
Fair value adjustment on investment properties transferred to - 647 210 (647 210) -
non-distributable reserve
Straight-line lease adjustment - (39 619) 39 619 -
Fair value adjustment on interest rate swaps - (54 726) 54 726 -
Income distributions - - (677 622) (677 622)
Balance at 31 August 2014 2 874 030 5 568 585 398 976 8 841 591
Profit and total comprehensive income for the year - - 483 871 483 871
Transactions recorded directly - 119 288 (475 077) (355 789)
in equity
Profit and fair value reserve realised - 743 (743) -
on sale of properties transferred to
non-distributable reserve
Fair value adjustment on investment properties transferred to - 149 874 (149 874) -
non-distributable reserve
Straight-line lease adjustment - (10 280) 10 280 -
Fair value adjustment on interest rate swaps - (21 049) 21 049 -
Income distributions - - (355 789) (355 789)
Balance at 28 February 2015 2 874 030 5 687 873 407 770 8 969 673
Commentary
Fountainhead is a property unit trust listed on the Johannesburg Stock Exchange. The Trust owns 46 (2014: 64)
investment properties (including assets held-for-sale) valued at R11.9 billion (2014: R11.8 billion). Fountainhead’s portfolio,
which is predominantly focused on retail assets located in South Africa’s major metropolitan areas, includes Centurion
Mall, Boulders Shopping Centre, Benmore Gardens Shopping Centre, Bryanston Shopping Centre, Blue Route Mall, Kenilworth
Centre and a majority share (58%) in the N1 City Mall.
1. Basis of preparation and accounting policies
The condensed interim financial statements are prepared in accordance with International Financial Reporting Standard,
(IAS) 34 Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the
Collective Investment Schemes Control 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.
The results were prepared under the supervision of Lesley Dukes CA(SA), Fountainhead’s Financial Director. These
condensed interim financial statements have not been reviewed or audited by Fountainhead’s independent auditor, KPMG Inc.
2. Financial results
Fountainhead has declared a distribution of 30.60000 cents per unit (2014: 29.00000 cents) for the six months to
28 February 2015, an increase of 5.5% on the comparable period and in line with the guidance provided to the market. The
Trust’s core portfolio (excluding properties acquired, sold and under development) achieved contractual rental and net
property income growth of 2.1% (2014: 6.4%) and 2.5% (2014: 7.3%) respectively. Operating costs net of electricity and
utility recoveries represented 20.1% (2014: 23.5%) of contractual rental income, the improvement arising mainly from higher
recoveries. Operating costs were 35.2% (2014: 39.5%) of contractual rental income.
Unaudited Unaudited Audited
28 February 28 February 31 August
2015 2014 2014
Distributable income summary R’000 R’000 R’000
Rental income (excluding straight-line rental adjustment) 617 649 618 744 1 072 958
Net property expenses (129 510) (150 521) (122 691)
Property expenses (230 998) (260 643) (501 464)
Recovery of property expenses 101 488 110 122 378 773
Net property income 488 139 468 223 950 267
Sundry revenue 5 213 5 134 19 517
Net finance costs (103 592) (101 270) (218 714)
Interest income 10 716 14 539 25 882
Interest expense (114 308) (115 809) (244 596)
Trust expenses (33 971) (34 900) (73 448)
Distributable income 355 789 337 187 677 622
Units in issue 1 162 709 1 162 709 1 162 709
Interim distribution (cents per unit) 30.60 29.00 29.00
Final distribution (cents per unit) - - 29.28
3. Strategy
Fountainhead continues to build a portfolio capable of achieving sustainable long-term growth over the property
cycles. The Trust has successfully implemented a strategy whereby it has reduced its exposure to smaller, riskier and
underperforming assets, illustrated by the sale of non-core industrial property assets and of its undivided shares in Westgate
and Southgate. Fountainhead continues to improve the quality of its portfolio through the redevelopment and refurbishment
of core properties. The Trust’s strategy extends beyond retail investments to large properties in metropolitan areas in
other sectors that offer low-risk growing income streams and value added opportunities as illustrated by the
acquisition of the Robor building and the redevelopment of the AMR office park during the period.
4. Major Capital Projects
Centurion Mall
A phased upgrade and expansion is underway totalling 6 540m² at a cost of R318 million with an estimated yield of
7.1%. The expected date of completion is March 2016. R43.4 million of the approved project cost has been spent to date.
Further expansion of this asset is being considered as part of a master plan for this asset.
Kenilworth Centre
R197 million is being spent on creating 4 834m² of new gross lettable area (“GLA”) on the upper level, and adding
reconfigured parking which will significantly improve access and egress to the centre at an estimated income yield of 6%.
The project commenced during September 2014 and completion is scheduled for September 2016. R16.4 million of the approved
project cost has been spent to date.
AMR Office Park
The refurbishment of AMR Buildings 1 and 2 in Bedfordview and tenant installation to accommodate a CTI education
campus has been completed. CTI entered into a 10-year lease for 8 100m² in two of the three buildings in the office park. The
approved cost of the project is R64 million which is anticipated to yield 7.1% in the first year and 10.0% in the
second year due to the tenant taking staggered occupation commencing February 2015 and December 2015. R35.9 million of the
approved project cost has been spent to date.
Various energy efficient building technologies, together with mechanical and electrical initiatives are being
implemented in all of the redevelopments as part of Fountainhead’s continued focus on sustainability and cost efficiency.
Fountainhead is taking steps to ensure that there is uninterrupted electricity supply at its retail properties.
5. Acquisitions and Disposals
The Robor industrial property situated in Elandsfontein was acquired for R570.5 million and transferred on 3 September
2014. This acquisition will show an initial yield of 8.5% escalating at 8% per annum with a lease period of 10 years.
Fountainhead’s undivided share in Westgate Shopping Centre was transferred on 19 September 2014 realising R720 million
and the transfer of Southgate Mall and Southgate Value Mart took place on 14 October 2014 for a cash consideration of R260
million. The aggregated estimated forward yield on these two disposals was 8.1%.
In line with Fountainhead’s long-term strategy to focus on its core portfolio, the Trust disposed of a further 16
properties to various parties with a combined GLA of 36 508m² for an aggregate consideration of R161.8 million and an
average yield of 10.6%. Subject to the normal conditions precedent, Fountainhead has concluded sale agreements for a further
seven properties for an aggregate consideration of R264 million and GLA of 59 428m² at an average yield of 9.6%
(including Brightwater Commons). These assets have been categorised as assets held-for-sale on the statement of financial
position. Proceeds from disposals will be used to fund redevelopment activities.
6. Segmental information
Unaudited months Unaudited months Audited
28 February 2015 28 February 2014 31 August 2014
Net Net Net
Revenue income % of Revenue income % of Revenue income % of
Rm Rm total Rm Rm total Rm Rm total
Retail 414 322 90 439 326 97 887 676 100
Office 115 93 26 115 92 27 229 185 27
Industrial 68 58 16 46 37 11 88 69 10
Specialised 21 21 6 19 19 6 39 39 6
Trust and administration - (138) (38) - (137) (41) - (291) (43)
Total 618 356 100 619 337 100 1 243 678 100
7. Portfolio Valuation
Cents/ Cents/ Cents/ % of portfolio
Income unit unit unit
Value 28 Feb 28 Feb 28 Feb 31 Aug 28 Feb 28 Feb 31 Aug
Sector (Rm) 2015 2015 2014 2014 2015 2014 2014
Retail 8 378 322 721 762 785 70 75 75
Office 1 950 93 168 162 167 16 16 16
Industrial 1 195 58 103 60 61 11 6 6
Specialised 399 21 34 31 33 3 3 3
Total properties 11 922 494 1 026 1 015 1 046 100 100 100
Interest-bearing liabilities (2 833) (244) (270) (279)
Net current liabilities (561) (48) (46) (44)
Other assets 442 38 49 37
8 970 772 748 760
Total properties includes assets held-for-sale of R264 million.
Investment property value by sector
Retail 70%
Office 17%
Industrial 10%
Specialised 3%
Contribution to distribution by sector
Retail 65%
Office 19%
Industrial 12%
Specialised 4%
The valuation of investment properties (including those held for sale) as determined by the board, resulted in a
positive fair value adjustment of R140 million (2014: R430 million) for the period. In terms of IAS 40 and IFRS 7,
Fountainhead’s investment properties are measured at fair value and are categorised as level 3 investments. There were no
transfers between levels 1, 2 and 3 during the financial period.
8. Letting activity
The table below reflects the tenant retention ratio:
Retention
Sector %
Retail 87
Office 62
Industrial 90
Total 82
9. Vacancy levels
During the period vacancies decreased to 6.8% (2014: 9.1%). Vacancy levels in terms of rentable area were as follows:
GLA (m2) GLA (m2) GLA (m2)
February February August February 2015 February 2014 August 2014
Sector 2015 2014 2014 % % %
Retail 11 475 16 836 22 509 3.0 3.8 5.1
Office 35 300 34 632 45 966 20.0 19.7 26.1
Industrial 11 405 22 635 23 129 4.0 13.6 13.8
Specialised - - - - - -
Total 58 180 74 103 91 604 6.8 9.1 11.3
The retail vacancies were 3.0% of which 1.7% relates to Brightwater Commons (which has been included in assets
held-for-sale). The balance of the vacancies primarily relate to Centurion Mall which is undergoing redevelopment. Office
vacancies within the Centurion Mall precinct amount to over 60% of the reported 20% vacancy. 9 156m² is vacant at Lakeside A
and 12 519m² at Die Anker. Industrial vacancies have reduced to 4.0% mainly as a result of the sale of the non-core
properties and the acquisition of fully let Robor building during the period. A significant portion of the vacancy is at
Nashua House (7 551 m²).
10. Lease expiry profile
2015 2016 2017 2018 2019 >2019
Retail 33 788 35 153 39 783 20 599 4 833 123 128
Office 50 293 15 569 14 636 30 550 15 235 46 189
Industrial 63 943 48 888 78 047 43 717 44 832 115 535
Specialised - - - - - 26 970
148 024 99 610 132 466 94 866 64 900 311 822
11. Borrowings
The weighted average cost of debt for the period was 8.1% (2014: 8.0%) and 94% (2014: 76%) of debt is hedged against
interest rate risk (including forward starting swaps) for a weighted average period of 3.4 years (2014: 4.2 years).
As at 28 February 2015, Fountainhead’s debt net of cash represented 23.8% (2014: 24.5%) of the fair value of its property
assets, including those held for sale.
Loan
Facility balance Facility Fixed/ All in
Funding provider R’000 R’000 maturity floating margin
Rand Merchant Bank 1 900 000 1 900 000 15 Aug 2019 Floating JIBAR + 1.57%
Rand Merchant Bank 385 000 182 542 15 Aug 2019 Floating PRIME - 1.73%
Rand Merchant Bank 225 000 225 000 4 Feb 2019 Floating JIBAR + 1.61%
Rand Merchant Bank 525 000 525 000 4 Feb 2019 Floating JIBAR + 1.61%
Total 3 035 000 2 832 542
Nominal
value
Swaps provider Status R’000 Maturity Rate
Rand Merchant Bank Current 500 000 22 May 2018 5.87%
Absa Capital Current 300 000 19 Sep 2016 6.58%
Absa Capital Current 300 000 17 Oct 2016 6.27%
Absa Capital Current 500 000 9 Apr 2019 7.79%
Rand Merchant Bank Forward start - 22 May 2015 350 000 22 May 2018 6.47%
Rand Merchant Bank Forward start - 22 May 2015 500 000 22 May 2020 7.06%
In terms of IAS 39 and IFRS 7, Fountainhead’s interest rate swaps are measured at fair value
through profit or loss and are categorised as level 2 investments. There were no transfers between levels 1, 2 and 3
during the reporting period.
12. Prospects
Fountainhead expects that growth in distribution of 5% to 6% will be achieved from the current portfolio for the 12 months
to 31 August 2015 compared to the annualised distribution for 12 months of 58.28 cents to 31 August 2014, not withstanding
the current challenging environment and the dilutive impact of implementing the strategy of improving the quality of the
portfolio. This forecast is the responsibility of the directors of the manager and has not been reviewed or reported on by
Fountainhead’s auditor.
13. Potential aquisition by Redefine
On 27 March 2015 the board was advised that Redefine Properties Limited (“Redefine”) reached agreement with significant
Fountainhead unitholders representing 35.7% of the votes capable of voting on the proposed transaction who have irrevocably
undertaken to vote in favour of the acquisition by Redefine of all of Fountainhead’s assets in exchange for 85 new Redefine shares
for every 100 Fountainhead units in issue and the assumption of all of Fountainhead’s liabilities. Redefine has also obtained
non-binding indications of support from a further 14.3% of those unitholders capable of voting. The board has established an
independent sub-committee which, together with its advisors Bowman Gilfillan Inc and RMB, will consider the proposal. Questco
Proprietary Limited has also been appointed by the independent committee to provide a fairness opinion on the proposal.
Fountainhead unitholders are accordingly advised to continue exercising caution when trading in Fountainhead units until a further
announcement is made.
14. Changes to the board
Len van Niekerk resigned from the board and Andrew Konig was appointed as the Chief Executive
Officer with effect from 30 November 2014. Lesley Dukes was appointed as Financial Director with effect from
28 October 2014 (subject to FSB approval).
15. Declaration of distribution
Notice is hereby given of distribution number 64 of 30.60000 cents per unit for the six months ended 28 February 2015.
Last date to trade cum distribution Friday, 8 May 2015
Commence trading ex distribution Monday, 11 May 2015
Record date Friday, 15 May 2015
Payment date Monday, 18 May 2015
Unit certificates may not be dematerialised or rematerialised between Monday, 11 May 2015 and Friday, 15 May 2015,
both dates inclusive. In respect of dematerialised unitholders, the distribution will be transferred to the CSDP
account/broker accounts on Monday, 18 May 2015. Certificated unitholders’ distribution payments will be posted on or about
Monday, 18 May 2015. An announcement informing unitholders of the tax treatment of the distribution will be released
separately on SENS.
By order of the board
Fountainhead Property Trust Management Limited
Registration number 1983/003324/06
16 April 2015
Transfer secretaries:
Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Secretary:
Java Capital Trustees and Sponsors Proprietary Limited
Registered office:
Redefine Place, 2 Arnold Road, Rosebank, Johannesburg (PO Box 1731, Parklands, 2121)
Directors:
WM Kirchmann@ (Chairman), AJ Konig* (CEO), LY Dukes* (FD), M Barkhuysen@, VA Christian@, HY Laher@, B Nackan,
DH Rice*+, DS Savage@, M Wainer*, T Wixley@ (*Executive, +British, @Independent)
Sponsor
Java Capital
17 April 2015
Date: 17/04/2015 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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