INGENUITY PROPERTY INVESTMENTS LIMITED - Reviewed preliminary condensed consolidated results for the year ended 31 August 2018

Release Date: 22/11/2018 08:30
Code(s): ING
 
Wrap Text
Reviewed preliminary condensed consolidated results for the year ended 31 August 2018

INGENUITY PROPERTY INVESTMENTS LIMITED
("the Company" or "the group" or "Ingenuity")
(Incorporated in the Republic of South Africa)
Registration number 2000/018084/06
JSE share code: ING
ISIN: ZAE000127411

REVIEWED PRELIMINARY CONDENSED CONSOLIDATED RESULTS
FOR THE YEAR ENDED 31 AUGUST 2018

KEY FINANCIAL INDICATORS
FOR THE YEAR ENDED 31 AUGUST 2018
                                                                                                                                2018                 2017
                                                                                                                               R'000                R'000
Total contractual rental income                                                                       (R'000)                452 000              436 411
Investment property portfolio fair value                                                              (R'000)              3 261 645            4 132 062
Investment properties under development and inventory                                                 (R'000)                457 458              208 398
Development properties - land                                                                         (R'000)                137 282              136 314
(Decrease)/Growth of asset base                                                                           (%)                    (14)                   6
Borrowings                                                                                            (R'000)              1 944 900            3 065 144
Loan-to-value ratio*                                                                                      (%)                     50                   60
Vacancy                                                                                                   (%)                    7.9                  2.1
Market capitalisation at year-end                                                                     (R'000)              1 255 995            1 318 796
Number of shares in issue (net of treasury shares)                                                                     1 148 933 920        1 176 835 524
Earnings per share                                                                                    (cents)                   12.7                  8.0
Headline earnings per share                                                                           (cents)                    3.6                  0.6
Net asset value per share                                                                             (cents)                    139                  124
Growth in net asset value per share                                                                       (%)                     12                    4

*Loan-to-value ratio is defined as interest-bearing debt divided by total assets (asset value of all properties and investments).

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 AUGUST 2018
                                                            Reviewed      Audited
                                                                2018         2017
                                                               R'000        R'000
ASSETS
Non-current assets                                         3 769 551    4 431 768
Investment properties                                      3 155 140    4 004 878
Straight-line lease accrual                                   96 353      115 841
Investment properties under development                      327 325      129 683
Development properties - land                                137 282      136 314
Other financial assets                                        10 262            -
Property and equipment                                        14 043       14 552
Investment in joint venture                                   29 146       30 500
Current assets                                               199 663      492 360
Trade and other receivables                                   21 565       22 061
Straight-line lease accrual                                   10 152       11 343
Loan receivable                                                    -      285 809
Inventory                                                    130 133       78 715
Cash and cash equivalents                                     37 813       94 432
Total assets                                               3 969 214    4 924 128
EQUITY AND LIABILITIES
Shareholders' interest                                     1 602 906    1 455 197
Stated capital                                               747 610      747 610
Treasury shares                                              (69 541)     (42 161)
Non-distributable reserve                                    576 284      556 169
Retained earnings                                            348 553      178 761
Total equity attributable to equity holders of the parent  1 602 906    1 440 379
Non-controlling interest                                           -       14 818
Non-current liabilities                                    1 231 602    3 093 153
Borrowings                                                   942 946    2 778 673
Finance lease                                                      -        4 821
Deferred tax                                                 273 100      245 909
Other financial liabilities                                   15 556       63 750
Current liabilities                                        1 134 706      375 778
Trade and other payables                                      73 735       54 951
Current portion of borrowings                              1 001 954      286 471
Prepaid rent received                                         20 750       18 370
Taxation                                                      23 128           69
Share-based payment                                           15 139       15 917
Total equity and liabilities                               3 969 214    4 924 128

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 31 AUGUST 2018
                                                                                              Reviewed     Audited
                                                                                                  2018        2017
                                                                                                 R'000       R'000
Revenue                                                                                        468 379     435 548
- Contractual                                                                                  452 000     436 411
- Straight-lining                                                                               16 379        (863)
Net operating expenses                                                                        (176 052)   (154 061)
Profit on disposal of subsidiary                                                                15 796           -
Operating profit before fair value adjustments                                                 308 123     281 487
Fair value gains on investment and development properties                                      192 984     181 676
Fair value losses on investment and development properties                                     (61 324)    (72 842)
Fair value gains/(losses) on share-based incentive                                                 777      (8 112)
Fair value gains on interest rate swap agreements                                               33 863           -
Reclassification of interest rate hedge from other comprehensive income                        (33 266)          -
Total fair value adjustments                                                                   133 034     100 722
Operating profit                                                                               441 157     382 209
Interest received                                                                               17 296       8 238
Interest paid                                                                                 (257 510)   (260 024)
Equity-accounted investment loss                                                                (6 754)     (1 450)
Profit before taxation                                                                         194 189     128 973
Taxation                                                                                       (44 796)    (32 719)
Profit for the year                                                                            149 393      96 254
Attributable to:
Equity holders of the parent                                                                   148 247      93 576
Non-controlling interest                                                                         1 146       2 678
                                                                                               149 393      96 254
Basic and diluted earnings per share                                                (cents)       12.7         8.0

STATEMENT OF COMPREHENSIVE INCOME
Profit for the year                                                                            149 393      96 254
Other comprehensive income:
To be reclassified subsequently to profit or loss:
Fair value gains/(losses) on interest swap agreements                                           24 593     (51 782)
Income tax relating to fair value gains/(losses) on interest rate swap agreements               (6 886)     14 499
Reclassification of interest rate hedge to profit or loss                                       33 266           -
Income tax relating to reclassification of interest rate hedge to profit or loss                (9 314)          -
Other comprehensive income for the year, net of tax                                             41 659     (37 283)
Total comprehensive income for the year                                                        191 052      58 971
Total comprehensive income attributable to:
Equity holders of the parent                                                                   189 906      56 293
Non-controlling interest                                                                         1 146       2 678
                                                                                               191 052      58 971
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR
LOSS AND OTHER COMPREHENSIVE INCOME

1. Headline and diluted headline earnings per share                                 (cents)        3.6         0.6
2. The calculation of earnings per share is based on earnings attributable to
   equity holders of the parent of R148.247 million (2017: R93.576 million) and
   a weighted average number of 1 171 864 081 (2017: 1 169 904 017) shares
   (net of treasury shares) in issue during the year.

Headline earnings are calculated as follows:
Earnings attributable to equity holders                                                        148 247      93 576
Adjustments to earnings:
Fair value adjustments to investment and development properties
(net of selling costs)                                                                        (121 225)   (108 834)
Profit on disposal of subsidiary                                                               (15 796)          -
Total tax effects of adjustments                                                                30 907      21 902
Headline earnings                                                                               42 133       6 644

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 AUGUST 2018

                                                         Reviewed     Audited
                                                             2018        2017
                                                            R'000       R'000
Cash flows from operating activities
Cash generated from operations                            311 614     295 490
Interest received                                          17 296       8 238
Interest paid                                            (252 377)   (257 652)
Taxation paid                                                (132)       (508)
Dividends paid                                                  -      (5 082)
Net cash inflow from operating activities                  76 401      40 486
Cash flows from investing activities
Additions to property, plant and equipment                    (71)       (413)
Interest capitalised to investment properties             (20 728)    (13 165)
Proceeds from property, plant and equipment                     -         100
Additions to investment property                          (42 528)          -
Additions to investment property under development       (116 115)          -
Additions to development property land                       (967)          -
Proceeds from disposal of investment properties           251 764           -
Proceeds from disposal of subsidiary                       35 700           -
Additions to equity accounted interest                     (5 400)    (31 950)
Net cash inflow/(outflow) from investing activities       101 655     (45 428)
Cash flows from financing activities
Proceeds from disposal of treasury shares                       -       9 965
Purchase of treasury shares                               (27 380)          -
Financial liabilities raised                              133 937     112 162
Financial liabilities repaid                             (341 000)    (80 204)
Repayments of finance lease                                  (232)       (305)
Net cash (outflow)/inflow from financing activities      (234 675)     41 618
Net (decrease)/increase in cash and cash equivalents      (56 619)     36 676
Cash and cash equivalents at the beginning of the year     94 432      57 756
Cash and cash equivalents at the end of the year           37 813      94 432

STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 AUGUST 2018
                                                                             Non-                      Non-
                                                Stated    Treasury  distributable    Retained   controlling        Total
                                               capital      shares        reserve    earnings      interest       equity
AUDITED                                          R'000       R'000          R'000       R'000         R'000        R'000
Balance at 1 September 2016                    747 610     (52 296)       522 414     156 224        17 222    1 391 174
Total comprehensive income for the year              -           -        (37 283)     93 576         2 678       58 971
Profit for the year                                  -           -              -      93 576         2 678       96 254
Other comprehensive income
- Cash flow hedges                                   -           -        (37 283)          -             -      (37 283)
Transfer to/from non-distributable reserve
Fair value gain realised on properties sold          -           -        (15 894)     15 894             -            -
Fair value adjustments to properties                 -           -         86 932     (86 932)            -            -
Disposal of treasury shares                          -      10 135              -           -             -       10 135
Dividend paid                                        -           -              -           -        (5 082)      (5 082)
Balance at 31 August 2017                      747 610     (42 161)       556 169     178 762        14 818    1 455 198
                                                                             Non-                      Non-
                                                Stated    Treasury  distributable    Retained   controlling        Total
                                               capital      shares        reserve    earnings      interest       equity
REVIEWED                                         R'000       R'000          R'000       R'000         R'000        R'000
Balance at 1 September 2017                    747 610     (42 161)       556 169     178 762        14 818    1 455 198
Total comprehensive income for the year              -           -         41 659     148 247         1 146      191 052
Profit for the year                                  -           -              -     148 247         1 146      149 393
Other comprehensive income
- Cash flow hedges                                   -           -         41 659           -             -       41 659
Transfer to/from non-distributable reserve
Fair value gain realised on properties sold          -           -       (123 498)    123 498             -            -
Fair value adjustments to properties                 -           -        101 954    (101 954)            -            -
Purchase of 27 901 604 treasury shares 
at an average cost of 98 cents per share             -     (27 380)             -           -             -      (27 380)
Dividend paid                                        -           -              -           -          (660)        (660)
Non-controlling interests on disposal of
subsidiary                                           -           -              -           -       (15 304)     (15 304)
Balance at 31 August 2018                      747 610     (69 541)       576 284     348 553             -    1 602 906
Comprising:
Fair value reserve                                   -           -        580 526           -             -            -
Cash flow hedge                                      -           -         (4 242)          -             -            -

CONDENSED CONSOLIDATED SEGMENTAL INFORMATION
AS AT 31 AUGUST
                                                         Development                       Light                  Straight-
                                Offices       Retail      Properties      Parking     industrial        Other        lining       Total
2017                              R'000        R'000           R'000        R'000          R'000        R'000         R'000       R'000
Additions to non-current
assets, including transfers
between segments                  1 072       44 225          47 589       14 603          1 656       51 715             -     160 860
Disposals of
non-current assets             (118 608)     (44 846)              -      (18 880)             -         (665)            -    (183 000)
Total assets                  2 618 118      846 894         296 497      531 660         85 323      545 636             -   4 924 128
Borrowings                            -            -          62 196            -              -    3 002 948             -   3 065 144
Revenue                         285 325       86 304             559       53 033          3 652        7 538          (863)    435 548
Operating profit/
(loss) before fair value
adjustment                      190 978       60 706          (1 090)      38 399          2 780       (9 423)         (863)    281 487
Fair value adjustment            52 970       27 610          17 265        9 504            395       (7 022)            -     100 722
Profit/(loss) before
interest and taxation           243 948       88 316          16 175       47 903          3 175      (16 445)         (863)    382 209
Interest received                     -            -               -            -              -        8 238             -       8 238
Interest paid                         -            -               -            -              -     (260 024)            -    (260 024)
Equity-accounted
investment loss                       -            -               -            -              -       (1 450)            -      (1 450)
Profit/(loss) before 
taxation                        243 948       88 316          16 175       47 903          3 175     (269 681)         (863)    128 973

To present more meaningful information, the single line item which was previously reported as "Additions to non-current assets
(includes transfers between segments)", has now been split into more detail and discloses "Disposals of non-current assets" as an
additional line item.

                                                        Development                     Light                  Straight-
                               Offices       Retail      Properties      Parking   industrial        Other        lining       Total
2018                             R'000        R'000           R'000        R'000        R'000        R'000         R'000       R'000
Additions to non-current
assets, including transfers
between segments                48 015      (54 751)        298 307       (6 876)        (933)    (143 245)            -     140 517
Disposals of
non-current assets            (581 813)    (299 776)              -     (112 483)           -         (131)            -    (994 203)
Total assets                 2 189 211      494 869         594 821      430 931       87 005      172 377             -   3 969 214
Borrowings                           -            -         207 939            -            -    1 736 961             -   1 944 900
Revenue                        292 196       83 701           2 321       55 218        9 111        9 453        16 379     468 379
Operating profit/
(loss) before fair value
adjustment                     194 381       56 415            (688)      39 914        7 354       (5 632)       16 379     308 123
Fair value adjustment          104 892        2 502              17       18 630        2 616        4 377             -     133 034
Profit/(loss) before
interest and taxation          299 273       58 917            (671)      58 544        9 970       (1 255)       16 379     441 157
Interest received                    -            -               -            -            -       17 296             -      17 296
Interest paid                        -            -               -            -            -     (257 510)            -    (257 510)
Equity-accounted
investment loss                      -            -               -            -            -       (6 754)            -      (6 754)
Profit/(loss) before
taxation                       299 273       58 917            (671)      58 544        9 970     (248 223)       16 379     194 189

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 AUGUST 2018

PRESENTATION OF PRELIMINARY CONDENSED CONSOLIDATED FINANCIAL
RESULTS

The reviewed condensed consolidated financial results ("the financial statements") for the year ended 31 August 2018 have been prepared
in accordance with the framework concepts, the measurement and recognition requirements of International Financial Reporting
Standards ("IFRS") and the information required by IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as issued
by the Accounting Practices Committee, the JSE Listings Requirements and in the manner required by the Companies Act of South Africa.
The accounting policies and methods of computation applied in the preparation of the financial statements are in accordance with IFRS
and are consistent with those applied in the audited annual financial statements for the year ended 31 August 2017.

The independent auditor, Mazars, have reviewed the preliminary condensed consolidated annual financial statements of Ingenuity Property
Investments Limited for the year ended 31 August 2018 and have expressed an unqualified reviewer's conclusion. Their review was
conducted in accordance with ISRE 2410 "Review of interim financial information performed by the independent auditor of the entity".
The reviewer's report does not necessarily report on all the information contained in this report. Shareholders are therefore advised that
to obtain a full understanding of the nature of the reviewer's engagement they should obtain a copy of the reviewer's report together with
the accompanying financial information from the registered office.

These preliminary financial statements have been prepared by Ms. M Hassan, BCom (Acc) (Hons), CA(SA) under the supervision
of Mr. M Wagenheim, BCom (Hons), CTA, CA(SA) in his capacity as Financial Director. The directors are not aware of any matters
or circumstances arising after 31 August 2018 that require additional disclosure or adjustment to the financial statements, other than
as disclosed in this announcement.

COMMENTARY

JOINT CHAIRMAN'S AND CHIEF EXECUTIVE OFFICER'S REPORT

Ingenuity is pleased to announce its results for the year ended 31 August 2018. Despite a prevailing environment of poor business
confidence and political uncertainty, the Company has maintained a steady course while achieving significant changes and successes
during the year under review. The portfolio continues to be buoyant and is well managed by a strategically focused management team
and board. No new acquisitions were made during the year as the Company placed its efforts in strengthening the balance sheet,
unlocking developments and realising value through opportune deals. The quality of our tenant base remains strong and solid cash flow
generation supports this fact.

Ingenuity's business remains geographically focused in the Western Cape region with the emphasis to grow the Company through quality
property deals and value-add development or refurbishment propositions.

This is our unique offering, differentiating Ingenuity from other counters in the sector.

The major items to highlight for this financial year are discussed below:

The core investment portfolio at year-end was R3.262 billion (2017: R4.132 billion), while investment property under development,
inventory and land holdings increased to R594.7 million (2017: R344.7 million). This represents a total decrease in our asset base
of R620.4 million or 14%. The decrease was attributable to the sales of our Century City Portfolio and our equity interest in Insight
Property Developers (Palmyra Road) (Pty) Ltd (the entity that holds the Palmyra Shopping Centre). The sales afforded us the ability to
realise growth in assets that had matured at attractive prices and played a significant role to reduce debt levels in the Company to 50%
(2017: 60%). Our efforts to unlock certain developments and the completion of major refurbishment programmes also added to the
growth of the underlying assets. These items are further reported on below.

We did not issue any equity during the period. Our share trades at a significant discount to net asset value ("NAV") of around 30%. To
issue shares would be both costly and dilutionary to existing shareholders. During the past financial year, we bought back 27.9 million
shares at an average cost of 98 cents per share. The effect of such dealings enhances existing shareholder value. We will continue to
buy back shares at discounted levels.

The resultant effect of the above items has been an overall growth in our NAV per share by 12% from 124 cents to 139 cents.

INCOME

Despite some fairly large sales the Company still managed to grow net property income from R297.2 million to R309. 2 million with the
sale of the Century City Portfolio being finalised at year-end. The effect of materially reduced borrowing levels should also bode well for
future earnings growth. Costs are well managed, and we expect modest growth in the core investment portfolio for 2019.

Our portfolio remains very well managed with virtually all rentals collected timeously. We have strong cash flows with only R342 000
being written off in bad debts during the past year. Our vacancy ratio at year-end is 7.9% and our WALE (weighted average lease expiry)
based on income is a strong 4.05 years. The vacancy ratio, albeit unusually high, is largely attributable to a few large vacancies at
year-end, i.e. 8 410 m2 at Reeds House, 1 416 m2 at Founders House and 615 m2 at Claremont Central, of which 7 428 m2 has been let
subsequently. Management's focus is to let all vacancies.

Milestones achieved during the year under review are as follows:

PROPERTY TRANSACTIONS CONCLUDED

Acquisitions

-  We concluded the deal to acquire the leasehold rights from the City of Cape Town of Erf 211, in terms of an agreement to purchase
   signed in June 2011. This is situated adjacent to Erf 205 already owned by us at Lower Long Street, Cape Town. Transfer of this
   leasehold to us, which was registered on 27 September 2018, effectively converted our rights to freehold and provides us with the
   ability to develop the now consolidated erven in accordance with rights granted to us in terms of a site development plan application
   we made as part of the transaction. The combined sites measure 3 156 m2 with an approved bulk of 23 635 m2.

Sales

-  Our Century City Portfolio comprising Aurecon East, Aurecon West, Mazars House, Gateway and Virgin Active was sold on
   31 August 2018. The portfolio's original cost was R769.1 million and was sold for a gross sales value of R949.2 million. Palmyra
   Shopping Centre was sold on 31 May 2018 through the realisation of our equity interest in Insight Property Developers (Palmyra Road)
   (Pty) Ltd. Our interest was originally acquired for R20.7 million and was sold for R36.5 million.

-  Subsequent to year-end, the property known as State House was sold. Transfer of this property is expected to take place in November
   2018. The original cost was R35.5 million and it was sold for R45 million.

We will continue to evaluate our properties and, when mature, realise assets in order to apply proceeds to higher-growth opportunities.

DEVELOPMENT AND REFURBISHMENT INITIATIVES

-  Construction of the building to be known as 20 Vineyard Road commenced and is due for completion during March 2019. This
   development comprises approximately 2 400 m2 of premium grade offices and retail and is situated directly opposite Cavendish
   Square. The anticipated total capital expenditure is R86 million with a targeted 9% initial yield on completion.

-  Santam Head Office - the refurbishment was completed during the year. The total capital value of the project was R120 million resulting
   in a total value to the precinct, comprising three buildings, of R870 million. The project created substantial value to this investment
   and is underpinned by a 12-year lease with Santam that commenced on 1 January 2018.

-  117 on Strand - construction of the building is proceeding well. Costs are well contained, and we are confident that this sizeable project
   will deliver solid returns to shareholders. Completion is expected in mid-2019. Targeted initial returns on the commercial and residential
   components are 8% and 23% respectively. The total estimated capital expenditure for the components are R350 million and R302
   million respectively. Sales of the 117 residential units have gone extremely well with only two apartments still available for sale. The
   commercial section's major leases have been concluded. Virgin Active, Pick n Pay and Avior Financial Services have all committed to
   long leases ranging from seven to 15 years. This development will produce attractive trading profits as well as generating premium
   quality investment stock with long-term income.

-  The Modern - all planning approvals have been obtained to allow us to proceed with formal building plan submission to commence
   construction. The project, however, will only be triggered once suitable pre-lettings have been secured. The project will require
   substantial investment and we are evaluating proposals to best unlock the site.

-  City Park - this development opportunity, owned jointly with the Rabie Property Group, was acquired in June 2017 for R300 million.
   Since taking transfer, we have been busy with a formal planning application. This application was approved by the City of Cape Town
   on 1 November 2018. The proposed scheme will comprise 948 parking bays, approximately 200 luxury apartments, 11 500 m2 of
   premium grade offices and 2 700 m2 of prime retail space. Construction, subject to securing a major national office tenant, is expected
   to commence during the first quarter of 2019 with an estimated completion date of December 2020. This development is set to become
   one of Cape Town's most prominent buildings and is ideally situated in the heart of Bree Street.

DIVIDEND

The group announces that no dividend is to be paid to shareholders for this financial year. While we have generated solid returns for the
year, we feel it prudent, considering our development pipeline requirements, to retain funds in the business. The decision to retain funds
to reinvest in growth opportunities should generate greater benefit to shareholders. From 2019 onwards, the Company intends embarking
upon a growing dividend policy for shareholders.

GENERAL

Ingenuity remains focused on its strategy. We are committed to creating lasting wealth for shareholders focusing on underlying quality
assets.

Our sincere thanks go to the directors and staff of Ingenuity for their dedication and commitment to the success of the Company, and
to the shareholders for their continued support and encouragement.

GENERAL REVIEW

During the year under review the total property asset base, including development assets, decreased in value by R620.4 million or 14%
due to the sales of the Century City Portfolio and Palmyra Junction Shopping Centre.

The vacancy percentage of gross lettable area ("GLA") as at year-end was 7.9%, largely attributable to a few large vacancies of which
some has subsequently been let. Management is focused on letting all vacancies as soon as possible.

The group achieved a weighted average borrowing cost of 9.9% (2017: 9.6%). Total borrowings at year-end amounted to R1.945 billion
(2017: R3.065 billion) of which 100% is fixed with interest rate swap contracts. The decrease in borrowings for the current year is due to
applying the proceeds on the sales of the property assets against borrowings. This has resulted in a reduction in the loan-to-value ratio
to 50% at year-end from 60% as at the comparative year-end.

The current portion of borrowings of R1 001.9 million (2017: R286.5 million) comprises mainly the Medium-Term Loan 1 facility which
expires on 31 May 2019 and which management intends to renew.

Total cash on hand at year-end amounted to R37.8 million (2017: R94.4 million). Excess cash is applied to reduce borrowings or held
in access facilities.

FAIR VALUE ADJUSTMENTS ON INVESTMENT AND DEVELOPMENT PROPERTIES

The directors have considered the current prevailing climate of poor business confidence and political uncertainty in the market place in
their approach to the valuations of the property portfolio.

Valuations of all properties were performed by either the directors or an independent external valuer, and have resulted in a net upward
revaluation adjustment of R131.7 million (2017: R108.8 million) which includes the fair value adjustments to the Century City Portfolio
which was sold on 31 August 2018. Independent external valuations are carried out on a rotational basis to ensure each property
is valued independently at least every three years. Prudent valuation assumptions have been applied to take account of weakening
market conditions. The valuations are based on either the discounted cash flow method or the capitalisation of net income method or a
combination of these methods, which is consistent with the basis used in prior years.

The fair value measurement for investment property has been categorised as a level 3 fair value based on the inputs to the valuation
technique used.

Significant unobservable inputs used were as follows:

-  a capitalisation rate, ranging between 7% and 9% (2017: 7% and 9%) has been used; and

-  the discount rates applied range between 12.75% and 14% (2017: 12.25% and 14.5%).

PROFIT ON DISPOSAL OF SUBSIDIARY

The Company disposed of its 67% shareholding in Insight Property Developers (Palmyra Road) Pty Ltd ("Insight") on 31 May 2018. Insight
holds the investment in the Palmyra Junction Shopping Centre situated in Claremont, Cape Town.

Insight's property was previously included in the Group Retail and Office segment.

Details of the disposal are as follows:

Carrying amount of net assets over which control was lost                                                                        R'000
Investment property                                                                                                             96 107
Plant and equipment                                                                                                                 49
Trade and other receivables                                                                                                      5 020
Taxation receivable                                                                                                                222
Cash and cash equivalents                                                                                                          815
Other financial liabilities                                                                                                    (40 010)
Finance lease liability                                                                                                         (5 148)
Non-controlling interest                                                                                                       (15 392)
Deferred tax                                                                                                                   (16 431)
Trade and other payables                                                                                                        (4 513)
Net assets                                                                                                                      20 719
Consideration received
Cash                                                                                                                            36 515
Total consideration                                                                                                             36 515
Net cash inflow from disposal of subsidiary:
Cash consideration received                                                                                                     36 515
Cash and cash equivalents disposed of                                                                                             (815)
                                                                                                                                35 700
BORROWINGS

The group's borrowings were substantially reduced (by R938 million) on 31 August 2018 when the proceeds on the sale of the Century
City Portfolio were applied against borrowings.

INVENTORY

This amount comprises the proportion of residential units of the 117 on Strand mixed-use development for which agreements of sale have
been signed and is valued at cost. Construction of the development is expected to be completed during the year ending 31 August 2019.

FAIR VALUE OF FINANCIAL INSTRUMENTS RECOGNISED IN THE STATEMENT OF
FINANCIAL POSITION

INTEREST RATE SWAP AGREEMENTS

The fair value of interest rate swap agreements is determined by using a valuation technique that discounts future cash flows using
risk-free rates and yield curves derived from quoted rates. Interest rate swaps are classified as level 2 financial instruments.

During the year the group discontinued hedge accounting for certain of its interest rate swap agreements subsequent to the sale of the
Century City Portfolio and the settlement of related borrowings. As a result, cumulative fair value adjustments on the interest rate swaps
amounting to R33.3 million were reclassified from other comprehensive income to profit or loss.

At year-end, the group's interest rate swap contracts with notional amounts totalled R2 billion (2017: R2 billion), with a fair value liability
amounting to R15.5 million (2017: R63.75 million) and a fair value asset amounting to R10.3 million (2017: Nil). These values are calculated
using anticipated long-term interest rate expectations and which are impacted by political and economic outlooks.

TAXATION

The taxation liability of R23.1 million comprises mainly the capital gains tax payable on the sales of the investment properties.

RELATED PARTY TRANSACTIONS

During the year the group paid executive directors' remuneration of R8.9 million (2017: R9 million) and non-executive directors'
remuneration of R1 million (2017: R842 000).

CAPITAL COMMITMENTS

AUTHORISED AND COMMITTED

Authorised and contracted for commitments amount to R383.5 million (2017: R572.5 million) at year-end. The commitments comprise
costs for the construction and development of the 117 on Strand project (R284.3 million), the construction and development costs of
the 20 Vineyard Road commercial building (R49.4 million) and the acquisition of Erf 211 Roggebaai (R49.8 million), all of which will be
financed from existing cash resources and finance facilities.

STATED CAPITAL

During the year under review:

-  no new shares were issued (2017: no new shares were issued); and

-  the Company purchased 27.902 million treasury shares at an average cost of 98 cents per share (2017: no treasury shares were
   purchased).

EVENTS AFTER THE REPORTING PERIOD

Other than as mentioned above, there are no other material reportable events after the reporting period which have occurred since the
end of the financial year being reported on and the date of this report.

For and on behalf of the Board

Arnold Aaron Maresky                                               Mark Wagenheim
Chief Executive Officer                                            Chief Financial Officer

Cape Town
22 November 2018

INGENUITY PROPERTY INVESTMENTS LIMITED
("the Company" or "the group" or "Ingenuity")
(Incorporated in the Republic of South Africa)
Registration number 2000/018084/06
JSE share code: ING
ISIN: ZAE000127411

DIRECTORS

RC Squire-Howe (Chairman)*#, AJ Branch *# (British), J Bielich, LH Cohen*, DB Fabian*#
SR Leon*#, AA Maresky (CEO), RS Schur*#, M Wagenheim

*Non-executive #Independent

Mrs. J Solms resigned on 1 November 2018.

REGISTERED OFFICE AND POSTAL ADDRESS

Suite 102, 1st Floor, Intaba, 25 Protea Road, Claremont, 7708, Cape Town, South Africa

COMPANY SECRETARY

M Wagenheim

CONTACT DETAILS

Tel: 021 674 5130
Fax: 021 674 5135
E-mail: info@ingenuityproperty.com
www.ingenuityproperty.com

TRANSFER SECRETARIES

Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
(PO Box 61051, Marshalltown, 2107)
Tel: 011 370 5000

COMMERCIAL BANK

Absa Bank Limited
3rd Floor, Bridge Park East, Bridge Way, Century City, 7446

SPONSOR

Nedbank Corporate and Investment Banking
3rd Floor, Corporate Place, Nedbank Sandton
135 Rivonia Road, Sandton, 2196
(PO Box 1144, Johannesburg, 2000)

AUDITORS

Mazars, Mazars House, Rialto Road, Grand Moorings Precinct
Century City, 7441, Cape Town
(PO Box 2785, Cape Town, 8000)

Date: 22/11/2018 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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