Wrap Text
Preliminary audited summarised consolidated financial statements for the year ended 30 June 2018
Fortress Reit Limited
Incorporated in the Republic of South Africa
Registration number 2009/016487/06
JSE share codes: FFA ISIN ZAE000248498 FFB ISIN ZAE000248506
Bond company code: FORI
("Fortress" or "the group" or "the company")
(Approved as a REIT by the JSE)
(Previously Fortress Income Fund Limited)
Preliminary audited summarised consolidated financial statements
for the year ended 30 June 2018
Directors' commentary
Nature of business
Fortress REIT Limited is an internally asset managed Real Estate Investment
Trust ("REIT") and was established as a hybrid fund, investing in both direct
property as well as other listed property stocks and REITs.
Fortress owned 308 properties at 30 June 2018 which, together with its
development pipeline, had a carrying value of R30,2 billion@. The property
portfolio consists predominantly of A-grade logistics warehouses, which
Fortress has been developing on its strategically owned land and a portfolio of
retail shopping centres, which primarily service the commuter-oriented market.
The listed property portfolio consists of three significant holdings: NEPI
Rockcastle plc, Resilient REIT Limited and Greenbay Properties Limited. At
30 June 2018, these investments were valued at R22,1 billion@.
Capital structure
Fortress is listed on the Johannesburg Stock Exchange with two separately
listed shares. The A share (share code: FFA) has a preferential right to
distribution of income and to capital participation, which is calculated as the
60-day volume weighted average price, in the event of winding up. The B share
(share code: FFB) has entitlement to the residual distributable income and
capital participation on winding up.
As a result of Resilient unbundling its investment in Fortress B shares in
May 2018, Fortress received 16 423 997 Fortress B shares which were held in
treasury shares at 30 June 2018.
Group results
The increase in the dividend for the six months to 30 June 2018 attributable
to the A share was 4,29% compared to the six months to 30 June 2017. This
was calculated as being the lower of CPI or 5,0% using data supplied by
Statistics South Africa. Accordingly, the dividend for the A share increased
from 67,67 cents to 70,57 cents per share. The B share dividend decreased by
4,80% from 93,41 cents per share to 88,93 cents per share compared to the
previous comparable period. Shareholders are referred to the SENS
announcement published by Fortress on 7 March 2018 and 29 May 2018 in
this regard.
For the 2018 financial year, the dividend for the A share amounts to 141,77
cents per share, a 4,53% increase, and the dividend for the B share increased
by 4,07% to 179,00 cents per share.
The B share dividend was negatively impacted by the decision to distribute
interest accrued on the loans advanced to the Siyakha Education Trust and
Siyakha 2 Education Trust ("Siyakha Trusts") only to the extent that this
interest is matched by dividends accrued to the Siyakha Trusts from Fortress
A and B shares in the same period which were funded by Fortress.
Direct retail and logistics properties performed satisfactorily, however, the
office and industrial properties continued to trade in challenging markets. The
increase in the direct property portfolio's net rental income was in line with
expectations.
The dividend growth from the Euro denominated listed property securities, as
well as the attractive forward hedged exchange rates, continued to
contribute positively to Fortress' distributions. The dividend growth from the
investment in Resilient was in line with Resilient's revised guidance.
The net asset value of the Fortress B share decreased from R26,75 per share at
30 June 2017 to R16,54 per share at 30 June 2018. This decrease was driven by
the decline in the value of Fortress' listed securities, the impairment of the
loans to the Siyakha Trusts as well as the impairment of the staff scheme
loans.
Direct property portfolio
The entire direct property portfolio was valued externally. Fortress appointed
four new external valuers to perform the valuations at 30 June 2018, being
Cushman & Wakefield, Viking Valuations, Yield Property Valuers and
Strata Properties (a black owned firm associated with Quadrant Properties).
These new firms valued portfolios based on their expertise in certain markets,
being Gauteng Logistics for Cushman & Wakefield, the Cape Town portfolio for
Viking Valuations, the KwaZulu-Natal portfolio for Yield Property Valuers and
the office portfolio for Strata Properties. Given the geographical spread of
the retail properties, Quadrant Properties continued to value this portfolio.
The valuers predominantly used a discounted cashflow method with specific
discount rates for each property. However, on a capitalisation rate equivalent
(forecast net income divided by the value), the portfolio average
capitalisation rate was 9,4% at 30 June 2018. Discount rates varied from
13,25% to 15,75%.
Logistics
The construction of phase two of Louwlardia Logistics Park has been completed
and Worldwide Automotive Group has taken occupation of this 34 025m2 facility.
The development was concluded at a yield of 9,5%. Construction of phase three
of an additional logistics facility in this park measuring 17 715m2 is nearing
finalisation and this warehouse has been let to Vodacom on a new five-year
lease agreement. We Buy Cars has exercised their option to purchase a 50%
undivided share in their facility.
Phase two of Westlake View Logistics Park opposite Bongani Rainmaker Logistics,
is scheduled for completion in October 2018 at a projected yield of 9,0%. This
speculative logistics facility measuring 23 569m2, is being constructed using
tilt-up technology and has an eaves height of 15 metres with an FM2 floor.
Negotiations are underway with a logistics user to lease this facility.
The second logistics warehouse at Union Park Logistics, south of Johannesburg,
is due for occupation in February 2019. The construction of this 21 958m2
facility, adjacent to the new Voltex warehouse, has commenced on a speculative
basis. A projected yield of 10,0% is anticipated on the successful letting of
this warehouse.
Eastport Logistics Park (65% owned) located on the R21 highway and
strategically situated between OR Tambo International Airport and Pretoria,
will welcome Savino Del Bene to this new 24 280m2 logistics facility in
December 2018. Construction of an adjacent 21 835m2 logistics warehouse has
commenced with completion scheduled for April 2019. In addition, several
tenant driven developments are currently being negotiated.
The first logistics facility at Clairwood Logistics Park is scheduled for
completion in October 2018. This state-of-the-art 24 975m2 warehouse is
anticipated to yield 7,5% on the conclusion of a successful lease. Negotiations
are at an advanced stage with a user for this warehouse. The soil improvements
and platform construction on platforms two and three have been completed.
Fortress has been approached by a logistics user to purchase platform two and
discussions are progressing well. A conditional offer has been signed with a
large multi-national user for a 42 000m2 warehouse on platform three. Soil
improvements on platform four and seven will be completed by the end of August
2018 and September 2018 respectively. The gatehouse and central access road
will be completed by September 2018 followed shortly by the on-ramp and
off-ramp to the M4 highway. The creation of the seven-hectare wetland has been
completed.
Construction of the new 18 925m2 Makro store at Cornubia Ridge Park (50,1%
owned) opposite Umhlanga, is progressing well and is expected to open in March
2019. Makro has signed a 20-year lease for this facility.
A new ten-year lease agreement has been concluded for the construction of a
24 896m2 warehouse and showroom facility for Decofurn in Montague Business
Park (25% owned).
Projected yields on all the speculative developments above assume market-
related rentals.
Retail
Sales growth in this portfolio for the 12 months ended 30 June 2018 has
shown a 4,1% increase over the preceding 12 months which is satisfactory
given current economic headwinds. These trading numbers include a successful
Black Friday trade in November 2017 and robust trade in December 2017.
Sales growth for the current year compared to the prior year is detailed
per province below:
Gauteng 4,3%
Western Cape 5,0%
KwaZulu-Natal 5,0%
North West 9,1%
Limpopo 4,0%
Mpumalanga (2,9%)
Free State 8,3%
Eastern Cape 6,1%
Turnover rental budgeted for the year ended 30 June 2018 amounted to
R11,6 million while turnover rental collected was R13,4 million.
Fortress commenced extensions and refurbishments at The Plaza Mbombela, Central
Park Bloemfontein and a new access road at Palm Springs Mall during the year.
The earthworks required for construction of phase one at White River
Shopping Centre is nearing completion and the top structure for this
10 000m2 centre will commence thereafter. The opening of this neighbourhood
centre is anticipated in August 2019 with two food anchors and a discount
pharmacy chain amongst its offerings. Fortress has a 51% interest in this
development.
Offices
The difficult conditions experienced in the office market are expected to
persist as lower demand and a continuing new supply stream have caused a glut of
office space. In line with its strategy, Fortress will continue to dispose of
its remaining 39 office properties which had a combined value of R2,7 billion@
at 30 June 2018.
Transfer of the strategically located site with 42 000m2 of bulk opposite
the Gautrain station in Sandton was delayed and is now expected in September
2018. Offers have been received from a number of hotel operators for this site
given its proximity to the Gautrain. The board is considering several options
for this site.
Industrial
The portfolio of industrial properties continues to show limited growth and
this trend is expected to persist. In line with its strategy, Fortress will
continue to dispose of its industrial assets which had a combined value of
R3,9 billion@ at 30 June 2018. The majority of the industrial properties are
smaller and well suited to owner-occupiers and private investors.
Other
These investments consist primarily of residential flats in Mthatha (60%
owned), Secunda and The Prism in Rivonia (50,1% owned). The Prism has been
successfully let to Corporate Apartment Group ("CAG") on a four-year lease
agreement at an initial yield of 9,2%. CAG has leased the entire complex to
Huawei Technologies. Fortress considers all the assets classified in this
category, valued at R504 million@, as non-core.
@ Information based on Fortress' management accounts.
Property disposals
The following properties were sold at a premium of 3,1% to book value during
the year:
Net Book Exit
proceeds value Transfer yield
Property name Sector R'000 R"000 date %
The Crescent
Umhlanga & Retail 550 000 486 000 Aug 2017 8,2
West Street
Sandton Office 273 000 350 000 Dec 2017 n/a
Kingsburgh
Shopping Centre & Retail 114 660 94 184 Jul 2017 8,6
45 Richard Carte
Road Mobeni Logistics 110 000 101 100 Dec 2017 9,0
Constantia Park
Durban Industrial 78 000 73 200 Mar 2018 8,7
Van Riebeeck
Mall & Retail 74 000 77 497 Jul 2017 9,3
33 Angus Crescent
Longmeadow & Logistics 62 000 58 000 Aug 2017 8,2
Shoprite Bela-
Bela & Retail 53 550 47 000 Sep 2017 9,1
87-91 Goodwood
Road Durban Logistics 49 000 42 100 Nov 2017 7,7
Union Park (50%
undivided share of
the facility occupied
by Bidvest) Logistics 48 500 40 500 ## 9,0
Imperial Motors
Strijdom Park Other 42 000 43 600 May 2018 @
Rutherfords
Germiston Industrial 41 000 42 000 May 2018 @
Essex Street
Meadowdale Industrial 39 500 37 700 Oct 2017 9,4
204 Rivonia Road
Morningside * Office 28 842 24 000 Nov 2017 @
Broadwalk Motor
City & Retail 27 350 26 800 Aug 2017 9,1
21E Polo Crescent
Woodmead & Office 23 000 27 000 Aug 2017 9,8
Brewery Road
Isando & Industrial 16 950 14 700 Sep 2017 @
York Road Wynberg
Cape Town Industrial 17 750 17 600 Nov 2017 10,2
19 Indianapolis
Street Industrial 15 100 14 410 May 2018 9,6
3 Capital Hill
Business Park Industrial 12 000 10 700 Mar 2018 8,7
22 Skietlood Street
Isando (portion of
Isando Business
Park) Logistics 10 500 10 500 Dec 2017 9,3
Chelsea Office
Park Rivonia
(Block C) * Office 6 790 4 716 Mar 2018 @
28 Linbro Village
Linbro Park Industrial 5 265 4 750 Nov 2017 8,5
1 698 757 1 648 057
@ vacant occupation.
## 1 March 2018 effective date transaction.
* a portion of the property was sold.
& property was held for sale at 30 June 2017. Book value shown is at
30 June 2016.
The following properties were held for sale at 30 June 2018:
Expected net Book Anticipated
sales amount value exit yield
Property name Sector R'000 R'000 %
New Redruth Village && Retail 184 450 184 450 8,6
Louwlardia Logistics Park
- 50% undivided
share of the facility
occupied by WAG Logistics 140 500* 140 500* 8,25
Louwlardia Logistics Park
- 50% undivided share
of the facility occupied
by We Buy Cars Logistics 107 200* 107 200* 8,5
22 on Sloane Office 65 000 65 000 8,8
17 Kosi Place Umgeni Office 36 000 36 000 @
Woolworths Newcastle Retail 31 400 31 400 9,1
Westar Park Stormill & Industrial 20 000 20 000 9,3
Tradeport (Erf 30
City Deep) Land 18 740 18 740 @
603 290 603 290
& transferred on 27 July 2018.
&& transferred on 21 August 2018.
@ vacant occupation.
* price will be calculated on date of transfer at the pre-determined exit
yield.
Vacancies
Total vacancies increased to 7,4% from 5,8% at 31 December 2017. The vacancy
as a percentage of total gross income, assuming the vacancy was let at market
related rentals, amounts to 6,2%.
In particular, vacancies in the industrial portfolio increased due to
continuing weakness in the local economy and the further de-industrialisation
of the South African economy.
Johnson Controls vacated their logistics facility of 23 370m² in Uitenhage
which contributed to the increase in the logistics vacancy. The retail vacancy
includes 3 124m2 currently being refurbished.
Sector % of Sector % of
property property
portfolio portfolio
Jun 2018 Dec 2017 by value by value
Sectoral vacancy by GLA % % Jun 2018 Dec 2017
Logistics 5,2 3,3 41,1 40,8
Retail 5,2 4,5 34,5 33,6
Industrial 8,1 6,5 13,0 13,1
Offices 23,4 19,6 9,7 10,4
Other 6,3 14,8 1,7 2,1
Information based on Fortress' management accounts.
Listed portfolio
Jun 2018 Jun 2017
Number of Fair value Number of Fair value
Counter shares R'000 shares R'000
Nepi (NEP) $^ & 59 154 000 9 787 621
Resilient (RES) ^ 41 060 000 2 309 625 39 456 000 4 803 373
2 309 625 14 590 994
Greenbay (GRP) * 1 987 507 364 2 623 510 1 480 410 000 2 857 191
Rockcastle
(ROC) * & 358 432 000 12 788 854
NEPI Rockcastle
(NRP) &* 139 990 000 17 143 175
Total 22 076 310 30 237 039
$ The deferred tax liability relating to the fair value adjustment on the
NEPI investment at 30 June 2017 was reversed as a result of the merger.
& In July 2017 NEPI and Rockcastle merged into a new company, NEPI Rockcastle
plc, which is listed on the JSE and Euronext in Amsterdam.
* Fortress' interests in Greenbay, NEPI Rockcastle and Rockcastle were treated
as associates (equity accounted) and were not fair valued in the financial
statements. In July 2017 Fortress' investment in Rockcastle was sold as a
consequence of the merger, resulting in a profit on the sale of an interest in
an associate of R3,7 billion being recorded.
^ Accounted for as an investment.
Fortress received cash dividends on its investments in NEPI Rockcastle and
Greenbay during the six months ended 30 June 2018 and elected to receive scrip
dividends on its investments in NEPI Rockcastle and Greenbay during the six
months ended 31 December 2017.
The listed portfolio's exposure to Central and Eastern Europe through NEPI
Rockcastle provides Fortress with offshore diversification of both its asset
base and income streams.
The board has noted the announcement by Greenbay of its intention to buy back
up to 30% of its shares for cash and awaits further announcements in this
regard.
The board currently considers Fortress' investment in Resilient as offering
value through its exposure to a well-managed and defensive retail portfolio.
Broad-based black economic empowerment
The Property Sector Charter, which was gazetted in June 2017, and which
Fortress both subscribes to and is committed, forms the guidance for management.
Fortress is in the process of finalising the restructuring of the Siyakha
Trusts in conjunction with the trustees of the Siyakha Trusts and Resilient and
will update the market in due course. The intention remains that Siyakha 2 will
become a dedicated empowerment vehicle for Fortress.
Fortress remains committed to its obligations to fund the on-going expenditure
of the Siyakha Trusts.
Staff scheme loans
Staff scheme loans under the old share purchase scheme were granted to staff
to align the interests of staff, management and executive directors to
shareholders. As a result of the decline in the price of Fortress shares,
the staff scheme loans under this scheme have been impaired by R126,3 million.
Fortress staff, including two executive directors who repaid the capital
outstanding on their loans in full, repaid scheme loans by an amount of
R367,7 million during the year. A new long-term incentive scheme was approved
by shareholders at the annual general meeting held on 1 November 2017. No
shares have been issued to staff under the new scheme.
During the second half of the year, Fortress relocated to its new offices in
Morningside and certain staff joined Fortress from Resilient. Given that
many of these staff members had negative equity in their old Resilient share
schemes, Fortress advanced loans to them totalling R84,3 million, secured by
Resilient shares. These loans were impaired by an amount of R25,6 million.
No debt to any staff member has been written off and the full loan amounts
owing to Fortress still remain.
Funding and liquidity
At 30 June 2018, the loan-to-value ratio of Fortress increased to 31,8% mainly
as a result of the decline in the prices of the listed securities portfolio.
Fortress remains well capitalised and continues to enjoy strong relationships
with its institutional lenders.
During the year, Fortress accepted a new R500 million facility from Absa with a
tenure of five years and a R300 million facility that was due to expire in
August 2018 was refinanced and increased to R500 million with a tenure of five
years.
Fortress accepted a new seven-year facility of R500 million from Sanlam and a
new R400 million facility from LibFin with tenures of six years (R150 million)
and seven years (R250 million) respectively.
Standard Bank facilities totalling R897 million that were due to expire in
October 2017 and November 2017 were renewed and extended for five years. An
existing Standard Bank facility (1 July 2021) of R750 million was extended by
a further 17 months to 30 November 2022.
During the year Fortress raised a total of R700 million (five-year:
R500 million; six-month: R200 million) and repaid R462,5 million under its
Domestic Medium Term Note Programme.
Negotiations are underway with RMB to refinance the R2,2 billion of facilities
expiring in November 2018 and a termsheet has been received in this regard.
Standard Bank has approved the refinancing of a R260 million facility expiring
in October 2018 and negotiations are underway with Standard Bank to refinance
R1 billion of facilities expiring in March 2019 and R430 million in June 2019
respectively.
Fortress had facilities secured only by shares through Nedbank and Sanlam. The
Nedbank facility was restructured and is now also secured with direct property.
The Sanlam facility was also restructured and gearing levels significantly
reduced. Fortress is committed to further reducing lenders' reliance on listed
shares as security.
Average
margin
Amount over Jibar
Facility expiry R'million %
Jun 2019 4 329 1,69
Jun 2020 4 503 1,71
Jun 2021 3 782 1,80
Jun 2022 1 900 1,84
Jun 2023 4 347 1,77
Jun 2024 400 1,75
Jun 2025 750 1,85
Jun 2026 - -
Jun 2027 250 1,99
20 261 1,76
The following interest rate derivatives are in place in mitigation of South
African interest rate risk:
Average
Amount swap rate
Interest 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 250 7,94
3 650 7,73
Average
Amount cap rate
Interest 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 250 8,03
Jun 2026 500 7,90
Jun 2027 250 8,18
2 900 7,83
The all-in weighted average cost of local funding of Fortress was 8,78% at
30 June 2018 and the average hedge term was 4,23 years.
The following interest rate derivatives are in place in mitigation of the
group's exposure to foreign interest rate risk:
Average
Amount cap rate
Interest rate cap expiry EUR'000 %
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 80,2% of the exposure to foreign base rates are hedged and the average
hedge term was 4,5 years.
Offshore
listed in
South Africa South Africa
Variable interest rates '000 '000
Interest-bearing borrowings R18 211 092
Currency derivatives (R7 969 651) R7 969 651
Loans to co-owners (R477 597)
Cash and cash equivalents (R676 651)
Capital commitments contracted for R1 264 175
Capital commitments approved R12 140
Properties held-for-sale (R603 290)
R9 760 218 R7 969 651
Spot rate R14,95
Exposure EUR533 087
Total interest rate derivatives
(swaps/caps) R6 550 000 EUR427 600
Percentage hedged 67,1% 80,2%
Information based on Fortress' management accounts.
Fortress entered into additional local interest rate derivatives of
R700 million during the six months ended 30 June 2018.
Fortress advanced loans to the Siyakha Trusts linked to the prime interest
rate, for which loans Fortress adjusted its prior hedging calculation.
Following the decision to limit interest received on the loans to dividends
on the Fortress A and B shares held by the Siyakha Trusts, Fortress no longer
considers these loans as a hedge against movements in short-term 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 similar to that of the foreign investments. At
30 June 2018 cross-currency swaps totalled EUR533,1 million at an exchange rate
of R14,95 against investments of EUR1 232 million (NEPI Rockcastle and
Greenbay).
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 currently
in place:
NEPI
Greenbay Rockcastle
EUR EUR
Forward rate against ZAR: Dec 2018 17,18 17,46
Forward rate against ZAR: Jun 2019 18,27 18,35
Forward rate against ZAR: Dec 2019 18,22 18,08
Forward rate against ZAR: Jun 2020 19,39 18,98
Forward rate against ZAR: Dec 2020 19,35 19,05
Forward rate against ZAR: Jun 2021 20,84 20,05
Summary of financial performance
Jun 2018 Dec 2017 Jun 2017 Dec 2016
Dividend per
A share
(cents) 70,57 71,20 67,67 67,96
Dividend per B
share (cents) 88,93 90,07 93,41 78,59
Shares in issue
at period end
- A 1 184 496 438 1 184 496 438 1 175 214 835 1 172 508 991
- B 1 086 114 294 1 086 114 294 1 076 832 691 1 067 026 847
Shares used for
dividend per share
calculation
- A 1 184 496 438 1 184 496 438 1 175 214 835 1 165 408 991
- B 1 069 690 297 1 086 114 294 1 076 832 691 1 067 026 847
A shares held
in treasury - - - 7 100 000
B shares held
in treasury 16 423 997 - - -
Management accounts
information
Net asset value per
A share * R16,26 R17,39 R16,89 R16,32
Net asset value per
B share R16,54 R35,08 R26,75 R24,73
Loan-to-value
ratio ** 31,8% 22,9% 22,8% 25,2%
Net property
expense ratio 16,1% 18,3% 14,9% 19,5%
Gross property
expense ratio 33,6% 35,4% 34,9% 36,2%
Net total
expense ratio 13,1% 13,8% 12,4% 15,8%
Gross total
expense ratio 25,7% 26,1% 26,5% 28,0%
IFRS
accounting
Net asset value per
A share * R16,26 R17,39 R16,89 R16,32
Net asset value per
B share R16,54 R28,85 R23,43 R22,83
* 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.
Prospects
The slowing economic growth rate currently being experienced in South Africa is
expected to continue with the likelihood of a near term recovery diminishing.
However, the strategy of developing high quality logistics real estate
continues to bear fruit. Fortress will continue to dispose of its
non-core industrial and office properties and reinvest the proceeds in
logistics and retail assets. The stable escalations and low credit risk of the
tenants will positively impact income growth into the future.
Assuming distribution growth of 5% on the Fortress A shares, Fortress expects
distributions on the Fortress B share of between 175 cents and 183 cents for
the 2019 financial year, which is lower than previously guided principally
because of revised forecast distributions from Fortress' investments in
Greenbay and Resilient, as well as further weakening in the office and
industrial portfolios.
This forecast is based on the assumption that the macro environment will not
deteriorate further, the current political landscape does not change
dramatically, no major corporate failures will occur and that tenants will
be able to absorb the recovery of rising utility costs and municipal rates.
The forecast is further based on the assumption that the growth in
NEPI Rockcastle, Greenbay and Resilient's distributions will be in
line with their guidance communicated to the market. Budgeted rental
income was based on contractual escalations and assuming market-related
renewals and no major change in vacancy rates. This forecast has not been
audited, reviewed or reported on by Fortress' auditors.
By order of the board
Mark Stevens Steven Brown
Managing director Financial director
Johannesburg
21 August 2018
Summarised consolidated statement of financial position
Audited Audited
Jun 2018 Jun 2017
R'000 R'000
Assets
Non-current assets 54 611 851 60 144 415
Investment property 24 822 540 24 848 981
Straight-lining of rental revenue
adjustment 469 458 364 862
Investment property under development 4 266 318 3 282 103
Property, plant and equipment 28 039 -
Investment in and loans to associates
and joint venture 20 440 010 12 860 576
Investments 2 309 625 14 590 994
Staff scheme loans 328 914 764 254
Loans to BEE vehicles 1 946 947 3 432 645
Current assets 2 032 216 1 921 566
Investment property held for sale 596 878 990 409
Straight-lining of rental revenue
adjustment 6 412 11 801
Staff scheme loans 18 359 22 344
Trade and other receivables 733 716 881 242
Cash and cash equivalents 676 851 15 770
Total assets 56 644 067 62 065 981
Equity and liabilities
Total equity attributable to equity
holders 36 951 001 45 074 462
Stated capital 45 571 944 45 072 151
Treasury shares (259 171) -
Currency translation reserve 28 821 (134 149)
Reserves (8 390 593) 136 460
Non-controlling interests 99 017 38 101
Total equity 37 050 018 45 112 563
Total liabilities 19 594 049 16 953 418
Non-current liabilities 14 971 050 14 951 626
Interest-bearing borrowings 14 924 587 13 804 864
Deferred tax 46 463 1 146 762
Current liabilities 4 622 999 2 001 792
Trade and other payables 1 281 218 1 001 482
Interest-bearing borrowings 3 341 781 1 000 310
Total equity and liabilities 56 644 067 62 065 981
Summarised consolidated statement of comprehensive income
Restated*
Audited audited
for the for the
year ended year ended
Jun 2018 Jun 2017
R'000 R'000
Recoveries and contractual rental revenue 3 290 708 3 204 670
Straight-lining of rental revenue adjustment 99 207 92 245
Revenue from direct property operations 3 389 915 3 296 915
Revenue from investments 243 489 596 950
Total revenue 3 633 404 3 893 865
Fair value (loss)/gain on investment
property, investments and derivative
financial instruments (2 104 143) 1 929 057
Fair value gain on investment property 127 197 856 542
Adjustment resulting from straight-
lining of rental revenue (99 207) (92 245)
Fair value loss on investments (1 746 035) (223 138)
Fair value (loss)/gain on derivative
financial instruments (386 098) 1 387 898
Property operating expenses (1 096 350) (1 115 193)
Administrative expenses (109 898) (122 694)
Impairment of staff scheme loans (151 932) -
Impairment of loans to BEE vehicles (1 858 177) -
Impairment of goodwill on Lodestone
merger - (1 707)
Impairment of investments in
associates (9 128 395) -
Profit on sale of interest in
associate 3 706 415 -
Income from associates and joint venture 1 913 476 640 113
- distributable 1 250 111 634 467
- non-distributable 663 365 5 646
(Loss)/profit before net finance costs (5 195 600) 5 223 441
Net finance costs (655 337) (733 095)
Finance income 531 694 438 312
Interest on staff scheme and other 99 126 136 462
Interest on loans to BEE vehicles 432 568 301 850
Finance costs (1 187 031) (1 171 407)
Interest on borrowings (1 523 878) (1 393 699)
Capitalised interest 336 847 222 292
(Loss)/profit before income tax (5 850 937) 4 490 346
Income tax 981 577 (64 063)
(Loss)/profit for the year
attributable to equity holders (4 869 360) 4 426 283
Other comprehensive (loss)/income net
of tax
Items that may subsequently be
reclassified to profit or loss:
Exchange gain realised on translation
of associates 134 200 -
Exchange gain/(loss) on translation of
associates 28 770 (100 074)
Total comprehensive (loss)/income for
the year (4 706 390) 4 326 209
(Loss)/profit of the year attributable to:
Equity holders of the company (4 904 290) 4 420 054
Non-controlling interests 34 930 6 229
(4 869 360) 4 426 283
Total comprehensive (loss)/income for
the year attributable to:
Equity holders of the company (4 741 320) 4 319 980
Non-controlling interests 34 930 6 229
(4 706 390) 4 326 209
Basic (loss)/earnings per A share (cents) (216,76) 201,93
Basic (loss)/earnings per B share (cents) (216,76) 201,93
* Refer to note 4 - restatement of financial statements.
Summarised consolidated statement of cash flows
Restated*
Audited audited
for the for the
year ended year ended
Jun 2018 Jun 2017
R'000 R'000
Operating activities
Cash generated from operations 2 420 975 2 375 529
Interest on staff scheme and other 103 110 140 996
Interest on borrowings (1 493 712) (1 285 704)
Dividends paid (3 626 296) (3 105 190)
Income tax (118 721) -
Cash outflow from operating activities (2 714 644) (1 874 369)
Investing activities
Development and improvement of
investment property (1 515 055) (1 031 231)
Acquisition of investment property (238 899) (907 201)
Disposal of investment property 1 698 757 1 471 189
Increase of interest in and loans
advanced to associates and joint venture (1 272 746) (1 423 636)
Loans advanced to staff (84 292) -
Staff scheme loans repaid 367 701 670 387
Investment property and related assets
and liabilities acquired not included in
additions to investment property or
financing activities - 2 927
Cash flow on derivative financial instruments 627 055 1 792 984
Cash flow on Hammerson equity derivative - 278 349
Acquisition of investments (197 706) (759 234)
Co-owner loans repaid - 169 029
Loan repaid by BEE vehicles 559 882 -
Loans advanced to BEE vehicles - (35 416)
Cash (outflow)/inflow from investing
activities (55 303) 228 147
Financing activities
Increase in interest-bearing borrowings 3 431 028 1 652 091
Cash inflow from financing activities 3 431 028 1 652 091
Increase in cash and cash equivalents 661 081 5 869
Cash and cash equivalents at the
beginning of the year 15 770 9 901
Cash and cash equivalents at the end of
the year 676 851 15 770
Cash and cash equivalents consist of:
Current accounts 533 400 15 770
Restricted cash 143 451 -
676 851 15 770
Investing activities includes the following cash flow items available for
distribution: Interest rate derivatives and cross-currency swaps of
R596 million and realised profits on forward exchange contracts of
R176 million. Scrip dividends received amounted to R607 million and
capitalised interest on developments was R337 million.
* Refer to note 4 - restatement of financial statements.
Summarised consolidated statement of changes in equity
Stated Treasury
capital shares
Audited R'000 R'000
Balance at Jun 2016 42 241 795 (104 827)
Issue of shares (equal number of
A and B shares) 2 935 183
Non-controlling interests on Lodestone
merger
Total comprehensive income for the year
Exchange loss on translation of associates
Cancellation of treasury shares (104 827) 104 827
Dividends paid
Balance at Jun 2017 45 072 151 -
Issue of 9 281 603 A and B shares each
on 19 October 2017 499 793
Total comprehensive loss for the year
Non-controlling interest on Mantraweb
consolidation
FFB treasury shares (259 171)
Exchange gain realised on translation
of associates
Exchange gain on translation of associates
Dividends paid
Balance at Jun 2018 45 571 944 (259 171)
Equity
Currency attributable
translation to equity
reserve Reserves holders
Audited R'000 R'000 R'000
Balance at Jun 2016 (34 075) (1 178 404) 40 924 489
Issue of shares (equal number
of A and B shares) 2 935 183
Non-controlling interests on
Lodestone merger
Total comprehensive
income for the year 4 420 054 4 420 054
Exchange loss on
translation of associates (100 074) (100 074)
Cancellation of
treasury shares -
Dividends paid (3 105 190) (3 105 190)
Balance at Jun 2017 (134 149) 136 460 45 074 462
Issue of 9 281 603
A and B shares each on
19 October 2017 499 793
Total comprehensive
loss for the year (4 904 290) (4 904 290)
Non-controlling interest on
Mantraweb consolidation
FFB treasury shares (259 171)
Exchange gain realised
on translation of associates 134 200 134 200
Exchange gain on
translation of associates 28 770 28 770
Dividends paid (3 622 763) (3 622 763)
Balance at Jun 2018 28 821 (8 390 593) 36 951 001
Non-
controlling Total
interests equity
Audited R'000 R'000
Balance at Jun 2016 40 924 489
Issue of shares (equal number of
A and B shares) 2 935 183
Non-controlling interests on
Lodestone merger 31 872 31 872
Total comprehensive income for the year 6 229 4 426 283
Exchange loss on translation of
associates (100 074)
Cancellation of treasury shares -
Dividends paid (3 105 190)
Balance at Jun 2017 38 101 45 112 563
Issue of 9 281 603 A and B shares each
on 19 October 2017 499 793
Total comprehensive loss for the year 34 930 (4 869 360)
Non-controlling interest on Mantraweb
consolidation 29 519 29 519
FFB treasury shares (259 171)
Exchange gain realised on
translation of associates 134 200
Exchange gain on translation of associates 28 770
Dividends paid (3 533) (3 626 296)
Balance at Jun 2018 99 017 37 050 018
Notes
1. Preparation and accounting policies
The preliminary audited summarised consolidated financial statements have been
prepared in accordance with the requirements of the JSE Listings Requirements
for preliminary reports and the requirements of the Companies Act of South
Africa applicable to summary financial statements. The JSE Listings
Requirements require preliminary reports to be prepared in accordance with
the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards ("IFRS"), the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting Standards
Council, and to also, as a minimum, contain the information required by
IAS 34: Interim Financial Reporting. This report complies with the
SA REIT Association Best Practice Recommendations. This report and the
full set of consolidated financial statements were compiled under the
supervision of Steven Brown CA(SA), the financial director.
The accounting policies applied in the preparation of the consolidated
financial statements, from which the summarised consolidated financial
statements were derived, are in terms of IFRS and are consistent with the
accounting policies applied in the preparation of the previous consolidated
financial statements, with the exception of the adoption of new and revised
standards which became effective during the 30 June 2018 financial year.
The entire direct property portfolio was valued externally. Fortress
appointed four new external valuers to perform the valuations at
30 June 2018, being Cushman & Wakefield, Viking Valuations, Yield Property
Valuers and Strata Properties (a black owned firm associated with Quadrant
Properties). These new firms valued portfolios based on their expertise in
certain markets, being Gauteng Logistics for Cushman & Wakefield, the Cape
Town portfolio for Viking Valuations, the KwaZulu-Natal portfolio for Yield
Property Valuers and the office portfolio for Strata Properties. Given the
geographical spread of the retail properties, Quadrant Properties continued
to value this portfolio. 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 7,50% and 12,00%, 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 R676 million. A 25 basis points decrease
in the capitalisation rate will increase the value of investment property
by R715 million.
In terms of IAS 39: Financial Instruments: Recognition and measurement and
IFRS 7, the group's currency and interest rate derivatives are measured at
fair value through profit or loss and are categorised as level 2 investments.
In terms of IAS 39, 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.
The directors are not aware of any matters or circumstances arising
subsequent to 30 June 2018 that require any additional disclosure or
adjustment to the financial statements.
The auditors, Deloitte & Touche, have issued their opinion on the
consolidated audited financial statements for the year ended 30 June
2018. The audit was conducted in accordance with International Standards
on Auditing. They have issued an unmodified audit opinion. These
preliminary summarised consolidated audited financial statements have been
derived from the consolidated audited financial statements and are
consistent, in all material respects, with the consolidated audited
financial statements. This preliminary report has been audited by Deloitte
& Touche and an unmodified audit opinion has been issued. Copies of their
audit reports and the consolidated audited financial statements are
available for inspection at Fortress' registered address.
The auditor's report does not necessarily report on all of the information
contained in this announcement. Shareholders are therefore advised that in
order to obtain a full understanding of the nature of the auditor's
engagement, they should obtain a copy of that report together with the
accompanying financial information from Fortress' registered address.
2. Lease expiry profile
Based on
Based on contractual
rentable rental
area revenue
% %
Vacant 7,4
Jun 2019 26,0 22,8
Jun 2020 17,7 17,6
Jun 2021 13,6 14,8
Jun 2022 7,0 9,1
Jun 2023 11,2 14,1
> Jun 2023 17,1 21,6
100,0 100,0
3. Segmental analysis
Audited Audited
for the for the
year ended year ended
Jun 2018 Jun 2017
R'000 R'000
Total revenue
Logistics 1 089 064 940 487
Industrial 588 942 603 015
Offices 384 370 491 743
Retail 1 232 300 1 203 854
Other 95 239 57 816
Corporate 243 489 596 950
Total 3 633 404 3 893 865
(Loss)/profit after tax
Logistics 756 464 1 031 575
Industrial 420 998 440 193
Offices 30 419 229 998
Retail 1 148 617 1 275 658
Other 50 127 51 644
Corporate (7 272 985) 1 397 215
Total (4 869 360) 4 426 283
Total assets
Logistics 12 941 907 11 585 403
Industrial 4 009 302 3 957 574
Offices 3 005 757 3 547 279
Retail 10 528 551 10 852 993
Other 695 114 671 314
Corporate 25 463 436 31 451 418
Total 56 644 067 62 065 981
Audited Audited
for the for the
year ended year ended
Reconciliation of (loss)/profit for Jun 2018 Jun 2017
the year to dividend declared R'000 R'000
(Loss)/profit for the year (4 869 360) 4 426 283
Fair value gain on investment property (127 197) (856 542)
Fair value loss on investments 1 746 035 223 138
Fair value loss/(gain) on
derivative financial instruments 386 098 (1 387 898)
Impairment of staff scheme loans 151 932 -
Impairment of loans to BEE vehicles 1 858 177 -
Impairment of goodwill on Lodestone merger - 1 707
Impairment of investments in associates 9 128 395 -
Profit on sale of interest in associate (3 706 415) -
Non-distributable income from
associates and joint venture (663 365) (5 646)
Income tax (981 577) 64 063
Non-controlling interests 1 298 3 348
Antecedent dividend * 8 957 116 652
Loans to BEE vehicles interest
reversal January 2018 to June 2018 (183 612) -
BEE vehicles FFA distribution
January 2018 to June 2018 669 -
BEE vehicles FFB distribution
January 2018 to June 2018 102 267 -
Dividends accrued 3 242 173 274
Interest on cross-currency swaps 611 921 534 281
Foreign dividend hedging 176 426 143 784
Interest rate derivatives (35 092) (4 719)
Amount available for distribution 3 608 799 3 431 725
Interim dividend declared
- A shares (2017 net of treasury shares) (843 361) (792 012)
- B shares (978 263) (838 576)
Final dividend declared
- A shares (835 899) (795 268)
- B shares (2018 net of treasury shares) (951 276) (1 005 869)
- -
* The antecedent dividend includes eight months' performance of Lodestone
prior to 1 December 2016.
The methodology applied in calculating the dividend is consistent with that
of the prior year, except for the interest accrued on the Siyakha Trusts
loans which has been limited to the dividends accrued on the Fortress shares
held by the Siyakha Trusts in the same period. The methodology was changed
with effect from the period 1 January 2018 to 30 June 2018.
Audited Audited
for the for the
year ended year ended
Jun 2018 Jun 2017
Headline (loss)/earnings R'000 R'000
Basic earnings - (loss)/profit for the
year attributable to equity holders (4 904 290) 4 420 054
Adjusted for: (3 778 217) (791 029)
- fair value gain on investment property (27 990) (764 297)
- profit on sale of interest in associate (3 706 415) -
- fair value gain on investment property
of associate and joint venture (34 962) (23 720)
- impairment of goodwill on Lodestone merger - 1 707
- income tax effect (8 850) (4 719)
Headline (loss)/earnings (8 682 507) 3 629 025
Headline (loss)/earnings per A share (cents) (383,75) 165,79
Headline (loss)/earnings per B share (cents) (383,75) 165,79
Diluted earnings per share and diluted headline earnings per share are the
same as basic earnings per share and headline earnings per share as there
are no dilutionary instruments in issue.
Basic earnings per share and headline earnings per share are based on the
following weighted average shares in issue during the year:
Jun 2018 Jun 2017
- A share 1 181 699 243 1 143 654 442
- B share 1 080 842 250 1 045 272 298
4. Restatement of financial statements
Audited
for the
year ended
Impact on statement of profit or loss Jun 2017
(increase/(decrease) in profit) R'000
Fair value (loss)/gain on derivative financial instruments 614 755
Revenue from investments (143 784)
Interest on cross-currency swaps (534 281)
Finance costs - interest on borrowings 4 719
Fair value adjustment on interest rate derivatives 58 591
Net impact on profit for the year -
Audited
for the
year ended
Impact on statement of cash flows Jun 2017
(increase/(decrease) in cash flows R'000
Interest on other 4 534
Interest on loans to BEE vehicles (301 850)
Interest on cross-currency swaps (534 281)
Interest on borrowings 112 714
Cashflow from operating activities (718 883)
Staff scheme loans advanced 335 199
Staff scheme loans repaid (4 701)
Cash flow on derivative financial instruments 529 562
Loans advanced to BEE vehicles 1 301 435
Cashflow from investing activities 2 161 495
Increase in interest-bearing borrowings (107 995)
Raising of share capital (1 334 617)
Cashflow from financing activities (1 442 612)
Movement in cash and cash equivalents -
Presentation of the statement of comprehensive income
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.
Reclassification of derivatives in the statement of comprehensive income
During the current year, the presentation of interest rate and currency
derivatives in the statement of comprehensive income was reassessed in order
to ensure compliance with IFRS. Fortress does not apply hedge accounting and
as such the following reclassifications as a result of a prior period error
were made.
Interest on interest rate derivatives, together with the fair value
adjustment on interest rate derivatives was removed from net finance costs
and is now disclosed in the income statement 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 income statement.
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)
The 2017 cash inflow from financing activities was restated as it
incorrectly included an amount of R1 334,6 million as cash inflow for
the raising of share capital issued to BEE vehicles and to the staff
share scheme, which was not a cash flow item. The corresponding cash
outflow from investing activities incorrectly included loans advanced to
BEE vehicles (R999,6 million) and loans advanced to the staff share scheme
(R335,0 million) which was also not a cash flow item. This error has been
corrected in the 2017 comparative figures presented.
The classification of derivative financial instruments in the statement
of cash flows was revisited in the current year. 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.
5. Payment of final dividends
The board has approved and notice is hereby given of final dividends
of 70,57000 cents per A share and 88,93000 cents per B share for
the six months ended 30 June 2018. The dividends are payable to
Fortress shareholders in accordance with the timetable set out below:
Last date to trade cum dividend Tuesday, 18 September 2018
Shares trade ex dividend Wednesday, 19 September 2018
Record date Friday, 21 September 2018
Payment date Tuesday, 25 September 2018
Share certificates may not be dematerialised or rematerialised
between Wednesday, 19 September 2018 and Friday, 21 September 2018,
both days inclusive. In respect of dematerialised shareholders, the
dividend will be transferred to the CSDP accounts/broker accounts on
Tuesday, 25 September 2018. Certificated shareholders' dividend payments
will be deposited on or about Tuesday, 25 September 2018. An announcement
informing shareholders of the tax treatment of the dividend will be
released separately on SENS.
Management accounts
Basis of preparation
In order to provide information of relevance to investors, these
management accounts, which comprise financial information extracted
from the audited consolidated financial statements for the year ended
30 June 2018, have been prepared and are presented below to provide
users with the position:
- Had the group's interest in Arbour Town, an associate, accounted for
using the equity method under IFRS, been proportionately consolidated.
- Had the group's listed investments in Greenbay and NEPI Rockcastle,
that were accounted under using the equity method for IFRS, been fair
valued.
- Had the group accounted 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.
Directors' responsibility statement
The preparation of the management accounts is the sole responsibility
of the directors and 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.
Pro forma summarised consolidated statement of financial position
Adj 2
Adj 1 Fair value
Fair value accounting for
accounting for investments in
investments in associates -
associate - listed
IFRS Arbour Town investments
Jun 2018 Jun 2018 Jun 2018
R'000 R'000 R'000
Assets
Non-current assets 54 611 851 (600) -
Investment property 24 822 540 660 608
Straight-lining of rental
revenue adjustment 469 458 12 117
Investment property under
development 4 266 318
Property, plant and equipment 28 039
Investment in and loans
to associates 20 440 010 (673 325) (19 766 685)
Investments 2 309 625 19 766 685
Staff scheme loans 328 914
Loans to BEE vehicles 1 946 947
Loans to co-owners -
Current assets 2 032 216 5 749 -
Investment property held
for sale 596 878
Straight-lining of rental
revenue adjustment 6 412
Staff scheme loans 18 359
Trade and other receivables 733 716 4 146
Cash and cash equivalents 676 851 1 603
Total assets 56 644 067 5 149 -
Equity and liabilities
Total equity attributable to
equity holders 36 951 001 - -
Stated capital 45 571 944
Treasury shares (259 171)
Currency translation reserve 28 821
Reserves (8 390 593)
Non-controlling interests 99 017
Total equity 37 050 018 - -
Total liabilities 19 594 049 5 149 -
Non-current liabilities 14 971 050 - -
Interest-bearing borrowings 14 924 587
Deferred tax 46 463
Current liabilities 4 622 999 5 149 -
Trade and other payables 1 281 218 5 149
Interest-bearing borrowings 3 341 781
Total equity and liabilities 56 644 067 5 149 -
Adj 3
Proportionate
consolidation of
partially-owned Management
subsidiaries accounts
Jun 2018 Jun 2018
R'000 R'000
Assets
Non-current assets (153 531) 54 457 720
Investment property (364 250) 25 118 898
Straight-lining of rental revenue adjustment (14 039) 467 536
Investment property under development (252 839) 4 013 479
Property, plant and equipment 28 039
Investment in and loans to associates -
Investments 22 076 310
Staff scheme loans 328 914
Loans to BEE vehicles 1 946 947
Loans to co-owners 477 597 477 597
Current assets (10 692) 2 027 273
Investment property held for sale 596 878
Straight-lining of rental revenue adjustment 6 412
Staff scheme loans 18 359
Trade and other receivables (8 889) 728 973
Cash and cash equivalents (1 803) 676 651
Total assets (164 223) 56 484 993
Equity and liabilities
Total equity attributable to equity holders - 36 951 001
Stated capital 45 571 944
Treasury shares (259 171)
Currency translation reserve 28 821
Reserves (8 390 593)
Non-controlling interests (99 017) -
Total equity (99 017) 36 951 001
Total liabilities (65 206) 19 533 992
Non-current liabilities (55 276) 14 915 774
Interest-bearing borrowings (55 276) 14 869 311
Deferred tax 46 463
Current liabilities (9 930) 4 618 218
Trade and other payables (9 930) 1 276 437
Interest-bearing borrowings 3 341 781
Total equity and liabilities (164 223) 56 484 993
Pro forma summarised consolidated statement of comprehensive income
Adj 2
Adj 1 Fair value
Fair value accounting for
accounting for investments in
investments in associates -
associate - listed
IFRS Arbour Town investments
for the for the for the
year ended year ended year ended
Jun 2018 Jun 2018 Jun 2018
R'000 R'000 R'000
Recoveries and contractual
rental revenue 3 290 708 80 977
Straight-lining of rental
revenue adjustment 99 207 640
Revenue from direct
property operations 3 389 915 81 617 -
Revenue from investments 243 489 - 1 200 003
Total revenue 3 633 404 81 617 1 200 003
Fair value (loss)/gain on
investment property,
investments and
derivative financial
instruments (2 104 143) 34 322 (4 793 577)
Fair value gain on
investment property 127 197 34 962
Adjustment resulting from
straight-lining of rental
revenue (99 207) (640)
Fair value loss on investments (1 746 035) (4 793 577)
Fair value loss on derivative
financial instruments (386 098)
Property operating expenses (1 096 350) (30 884)
Administrative expenses (109 898) (94)
Impairment of staff scheme
loans (151 932)
Impairment of loans to BEE
vehicles (1 858 177)
Impairment of investments
in associates (9 128 395) 9 128 395
Profit on sale of interest
in associate 3 706 415 (3 706 415)
Income from associates 1 913 476 (85 070) (1 828 406)
- distributable 1 250 111 (50 108) (1 200 003)
- non-distributable 663 365 (34 962) (628 403)
Loss before net finance costs (5 195 600) (109) -
Net finance costs (655 337) 109 -
Finance income 531 694 109 -
Interest on staff scheme
and other 99 126 109
Interest on loans to BEE
vehicles 432 568
Finance costs (1 187 031) - -
Interest on borrowings (1 523 878)
Capitalised interest 336 847
Loss before income tax (5 850 937) - -
Income tax 981 577
Loss for the year attributable
to equity holders (4 869 360) - -
Loss for the year
attributable to:
Equity holders of the company (4 904 290) - -
Non-controlling interests 34 930
Total comprehensive loss
for the year (4 869 360) - -
Adj 3
Proportionate
consolidation of
partially-owned Management
subsidiaries accounts
for the for the
year ended year ended
Jun 2018 Jun 2018
R'000 R'000
Recoveries and contractual rental revenue (30 756) 3 340 929
Straight-lining of rental revenue adjustment (10 461) 89 386
Revenue from direct property operations (41 217) 3 430 315
Revenue from investments - 1 443 492
Total revenue (41 217) 4 873 807
Fair value (loss)/gain on investment
property, investments and
derivative financial instruments (25 767) (6 889 165)
Fair value gain on investment property (36 228) 125 931
Adjustment resulting from straight-lining of
rental revenue 10 461 (89 386)
Fair value loss on investments (6 539 612)
Fair value loss on derivative financial
instruments (386 098)
Property operating expenses 5 953 (1 121 281)
Administrative expenses 168 (109 824)
Impairment of staff scheme loans (151 932)
Impairment of loans to BEE vehicles (1 858 177)
Impairment of investments in associates -
Profit on sale of interest in associate -
Income from associates - -
- distributable -
- non-distributable -
Loss before net finance costs (60 863) (5 256 572)
Net finance costs 25 933 (629 295)
Finance income (202) 531 601
Interest on staff scheme and other (202) 99 033
Interest on loans to BEE vehicles 432 568
Finance costs 26 135 (1 160 896)
Interest on borrowings 50 934 (1 472 944)
Capitalised interest (24 799) 312 048
Loss before income tax (34 930) (5 885 867)
Income tax - 981 577
Loss for the year attributable to
equity holders (34 930) (4 904 290)
Loss for the year attributable to:
Equity holders of the company - (4 904 290)
Non-controlling interests (34 930) -
Total comprehensive loss for the year (34 930) (4 904 290)
Adj 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), previously accounted for on the equity
method. It effectively discloses the group's interest in the assets,
liabilities and results of operations from these investments using the
audited financial statements for the year ended 30 June 2018 on a
line-by-line basis.
Adj 2: The investments in Greenbay and NEPI Rockcastle are reflected at
their respective fair values by multiplying the 1 987 507 364 and
139 990 000 shares held respectively by their quoted closing prices at
29 June 2018. All entries relating to accounting for these investments on
the equity method are reversed. This more accurately reflects the group's
assets and liabilities. In addition to this, the profit on the sale of the
interest in associate Rockcastle has been included in fair value gain
on investments.
Adj 3: This adjustment proportionately consolidates the indirect investments
in partially-owned subsidiaries (the indirect investments in Araxia, Bridge,
Cornubia and Mantraweb) previously consolidated. It uses the audited financial
statements for the year ended 30 June 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.
Directors: Iraj Abedian (chairman); Mark Stevens*; Steven Brown*;
Robin Lockhart-Ross; Vuso Majija*; Tshiamo Matlapeng-Vilakazi; Bongiwe Njobe;
Jan Potgieter; Banus van der Walt; Djurk Venter; Fareed Wania*
(*executive director)
Changes to the board of directors: Effective 1 November 2017, Andrew Teixeira
retired as an executive director at the annual general meeting in accordance
with the provisions of clause 25.12 of the company's memorandum of
incorporation.
On 29 May 2018, Jeff Zidel retired as an independent non-executive director
and deputy chairman.
On 2 July 2018, Rual Bornman resigned due to ill health as financial and
executive director. Steven Brown was appointed as interim financial and
an executive director.
On 2 July 2018, Robin Lockhart-Ross was appointed as an independent
non-executive director.
On 25 July 2018, Kura Chihota resigned as an independent non-executive
director.
Company secretary: Tamlyn Stevens
Registered offices: Block C, Cullinan Place, Cullinan Close, Morningside,
2196. PO Box 138, Rivonia, 2128
Transfer secretaries: Link Market Services South Africa Proprietary
Limited, 13th Floor, 19 Ameshoff Street, Braamfontein, 2001.
PO Box 4844, Johannesburg, 2000
Lead sponsor: Java Capital
Joint sponsor: Nedbank Limited, acting through its Corporate
and Investment Banking division
www.fortressfund.co.za
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