Wrap Text
Unaudited interim financial results for the six months ended 31 December 2018 and dividend distribution declaration
Emira Property Fund Limited
(Incorporated in the Republic of South Africa)
Registration number: 2014/130842/06
Share code: EMI
ISIN: ZAE000203063
JSE interest rate issuer code: EMII
Tax number: 9995/739/15/9
('Emira' or 'the Fund' or 'the Company') (Approved as a REIT
by the JSE)
Unaudited interim financial results
for the six months ended 31 December 2018 and dividend distribution
declaration
Highlights
* Final dividend per share 72,86c (3,1% growth)
* Net asset value per share 1 783c
* Vacancies 3,7%
* USA investments USD50,5m
* Transcend Residential Property Fund 34,9% shareholding acquired
* Sale of R1,8bn office portfolio unconditional
Commentary
The Board of directors of Emira ('Board') is pleased to announce
that an interim dividend of 72,86 cents per share (Dec 2017:
70,65 cents) has been declared for the six months to 31 December
2018. This is a year-on-year increase of 3,1% which is in line with
the positive guidance communicated in August 2018.
Distributable earnings
Emira has achieved positive growth despite the persistently difficult
local economic conditions. Reduced vacancies have allowed the Fund to
maintain existing rental streams but rental pressure in all sectors, and
particularly the ongoing over-supply of offices, has necessitated a further
reduction in rentals and an increase in tenant incentivisation in order
for Emira to remain competitive. Further strides into the United States of
America ('USA') and local residential property has enhanced Emira's
geographical and sectorial diversification strategy thus improving the
defensiveness of its income streams.
Revenue increased by 3,5% year-on-year to R869,9m (excluding straight-
lining adjustments in respect of future rental escalations of R8,8m)
(Dec 2017: R840,7m). Income from Knightsbridge and Summit Place
contributed to this increase, being, for the first time, for a full period.
This was partially offset by the income lost in respect of disposals of
R462,0m between July 2017 and June 2018. The stable portfolio performed well,
with like-for-like income growth of 6,1% for the period ended 31 December
2018, driven by contractual escalations and the filling of vacancies.
Property expenses (excluding amortised upfront lease costs incurred
before 1 July 2015 of R1,0m) increased by 6,9% to R324,7m. The movement
includes the expenses for completed developments, now in for a full period,
as well as the expenses lost from properties disposed. Expenses on the
stable portfolio showed like-for-like growth of 9,7% for the period.
The gross cost-to-income ratio increased to 37,3% (Dec 2017: 36,1%)
due to higher rates charges, specifically on the Johannesburg and
Pretoria portfolios, a large proportion of which are not recoverable.
Administration expenses (excluding charges in respect of leave pay
provision and share appreciation rights scheme of R2,2m), which includes
staff costs and property management fees, increased by 22,8% to R57,6m
(Dec 2018: R46,9m). Most of this increase was due to incremental
administration costs arising from the Fund's investments into the United
States of America ('USA'), increased property management fees due to the
addition of Knightsbridge and Summit Place as well as the forfeitable share
plan which was introduced in December 2017 to incentivise and retain staff.
Income from the Fund's listed investment in Growthpoint Australia Limited
('GOZ') decreased by 8,0% to R27,1m (which includes R1,6m recognised for
distribution purposes only in respect of the cum dividend element of
2 000 000 GOZ units sold during the period). This decrease is attributable
to the units sold in this period as well as the units sold in June 2018.
The underlying Australian dollar ('AUD') distribution per unit of GOZ
increased by 3,6% to 11,4 cents.
Distributable income from equity-accounted investments of R68,4m includes
the following:
* Income from investments made into the USA of R30,1m represents Emira's
share of the net distributable income of the four properties acquired
during the year ended 30 June 2018 as well as the two properties acquired
in the current period.
* Income from Enyuka of R37,5m, being the interest received on Emira's loan
to Enyuka (R38,8m) less Emira's portion of Enyuka's net loss (R1,3m after
interest).
* Income from Transcend Residential Property Fund ('Transcend') of R0,8m,
which comprises interest on Emira's loan to Transcend. In addition, and
for distribution purposes only, the forecast Transcend dividend due for
the period ended 31 December 2018 has been accrued for in the distribution
calculation. The Transcend dividend includes the portion due from the date
of the investments to 31 December 2018 of R2,6m as well as an antecedent
portion of R12,9m, calculated from 1 July 2018 to the date of the
investments. For the antecedent element, 50% (R6,45m) has been included in
the distribution for the current period and 50% will be included in the
distribution for the six months ended 30 June 2019.
Other income of R2,2m relates to a raising fee of 1,5% charged in respect
of a mezzanine loan provided by Emira to Transcend pursuant to Emira's
equity investment into Transcend.
In accordance with the SA REIT Association's best practice recommendations,
transaction advisory fees of R0,8m have been excluded from the calculation
of distributable earnings. These costs are once-off in nature and relate to
the set-up of the investment into the USA and the investment in Transcend.
Distribution statement
Half-year Half-year
ended ended %
R'000 31 Dec 2018 31 Dec 2017 change
Operating lease rental income
and tenant recoveries excluding
straight-lining of leases 869 863 840 678 3,5
Property expenses excluding
amortised upfront lease costs (324 684) (303 743) 6,9
Net property income 545 179 536 935 1,5
Income from listed property
investment 25 549 29 491 (13,4)
Income from equity-accounted
investments 68 380 38 725 76,6
Other income 2 152 — 100,0
Administration expenses (57 599) (46 912) 22,8
Realised foreign exchange losses (513) — 100,0
Minority shareholders interests (27) — 100,0
GOZ shares sold cum dividend 1 574 — 100,0
Accrual for listed security income
(Transcend) 2 557 — 100,0
Accrual for listed security income
(Transcend) — antecedent element 6 474 — 100,0
Net finance costs (210 839) (188 975) 11,6
Finance income 8 395 6 499 29,2
Premium on BEE share option 9 013 8 988 0,3
Finance costs (228 247) (204 462) 11,6
Interest paid and amortised
borrowing costs (238 764) (220 270) 8,4
Interest capitalised to the cost of
developments 10 517 15 808 (33,5)
Taxation (2 054) — 100,0
Dividend payable to shareholders 380 833 369 264 3,1
Number of shares in issue 522 667 247 522 667 247 —
Dividend per share (cents) 72,86 70,65 3,1
Net finance costs increased by 11,6% to R210,8m. Debt levels were higher
during the period, as a result of the USA investments, the Transcend
investment as well as capital expenditure all being debt funded. Interest
received on loans receivable include both interest on the Vendor Loans
provided under the BEE Transaction (as defined in the circular to
shareholders dated 29 May 2017) and loan finance provided on the disposal
of certain properties. The Vendor Loans issued under the BEE Transaction
are not recognised for accounting purposes as they are deemed to be the
granting of a call option on Emira's shares. In terms of the loan
agreements, interest is charged to the BEE parties at a rate equal to
Emira's dividend yield and is recognised for distribution purposes. For
accounting purposes, the income earned from the BEE parties is classified
as a 'premium on BEE share option' and recognised against equity.
The BEE parties settle the interest charged on a six-monthly basis.
Taxation of R2,1m was withheld during the period on foreign dividends
declared to Emira by its USA subsidiary in respect of profits generated
on the underlying USA investments.
The net asset value ('NAV') has risen to 1 783 cents per share (June 2018:
1 758 cents). This was mainly as a result of a gain on bargain purchase
of R73,8m, being the difference between the cost and the fair value at the
date of acquisition, recognised on the investment in Transcend as well as
an improvement in the value of the held shares in GOZ. The NAV per Emira
share at 31 December 2018 is calculated based on 510 296 737 shares in
issue. The shares relating to the outstanding capital on the Vendor Loans
provided to the BEE Parties under Emira's June 2016 BEE Transaction
(12 370 510 shares) are not deemed to be issued for accounting purposes.
The calculation of NAV disregards these shares, thus the actual number
of shares in issue differs from the number of shares used for accounting
purposes.
Vacancies
The reduction of vacancies and retention of tenants have remained key
strategic priorities over the past 36 months. The aggressive management
of vacancies occurs through a combination of tenant retention and letting
strategies and, where necessary, the disposal of non-core properties.
It is pleasing to report that vacancies are lower, having decreased to
3,7% at 31 December 2018 from 4,5% at 31 December 2017 and are stable
when compared with those reported at 30 June 2018. Urban retail sector
vacancies have lowered slightly to 2,0% (Dec 2017: 2,2%), which is well
below the national average of 4,4%. Industrial vacancies have increased
to 3,7% (Dec 2017: 2,1%), which is slightly above the national average
of 3,3%. Emira's office sector vacancies have shown a marked year-on-year
improvement, decreasing to 5,6% (Dec 2017: 9,4%). This is well below
the SAPOA national levels of 11,1%, and is evidence of the hard work
and programmes that Emira have put in place.
Number of GLA Vacancy Vacancy
buildings Dec 2018 Dec 2018 Dec 2018
Dec 2018 (m2) (m2) (%)
Office 44 317 368 17 870 5,6
Retail 21 322 696 6 390 2,0
Industrial 39 339 010 12 431 3,7
Total 104 979 074 36 691 3,7
Number of GLA Vacancy Vacancy
buildings Jun 2018 Jun 2018 Jun 2018
Jun 2018 (m2) (m2) (%)
Office 44 318 524 22 584 7,1
Retail 21 322 065 6 303 2,0
Industrial 39 348 699 4 621 1,3
Total 104 989 288 33 508 3,4
Major leases concluded and tenant renewals
During the period under review, the largest new leases concluded, by lease
value, were West Pack Lifestyle at Wonderpark in Pretoria (1 532m2 for a
total value of R19,2m), Network Space at Corobay Corner in Menlyn (1 062m2
for a total value of R11,8m) and BUCO Hardware Buildware at Wonderpark in
Pretoria (2 227m2 for a total value of R7,2m).
Tenant retention and lease renewals saw a pleasing improvement year-on-year.
A total of 82% by GLA (December 2017: 77%) and 86% by revenue (December 2017:
75%) of expiring tenants were renewed and retained. The largest renewals were
RTT Group at RTT ACSA Park in Johannesburg (46 673m2 for a total value of
R153,9m), RTT Group at RTT Continental in Johannesburg (12 921m2 for a total
value of R31,9m), National Technologies Implementation Platforms at Tuinhoff
in Centurion (2 200m2 for a total value of R23,8m), Builders Express at
Wonderpark in Pretoria (2 483m2 for a total value of R21,9m) and
Trellidor Innovations at Trellidor in Cape Town (7 672m2 for a total value
of R18,9m).
Disposals
While no properties have transferred out of Emira in the past six months,
the Fund has made significant progress in its portfolio rebalancing programme
with the conclusion of an agreement on 5 October 2018 for the disposal of a
R1,8bn 25 office asset portfolio to Inani Prop Holdings ('Inani'). Inani is
51% owned by Zungu Investment Company ('Zico'), a 98% black-owned, Level 1
B-BBEE entity and 29% by Boyno Trade and Invest Proprietary Limited, a
subsidiary of One Property Holdings. Emira owns the remaining 20% of the
structure. The transaction was subject to the approval of the Competition
Commission which was received on 19 December 2018. The transfers of
properties will occur on a property-by-property basis, with the first
transfers having been registered on 4 January 2019 (11 properties totalling
R701,8m), and the remaining transfers expected before 31 March 2019.
The transaction was financed by Inani through a combination of senior debt
and equity of R1,48bn (Emira will receive R1,46bn in cash considering the
R21,0m it contributed for its 20% equity interest), with Emira providing
a mezzanine loan of R319,8m, upon which a 1% capital raising fee will be
earned on each drawdown. The disposal, concluded at Emira's 30 June 2018
carrying values, represents a 10,47% yield for Emira. The proceeds will be
used to fund Emira's offshore expansion strategy as well as to reduce local
debt levels, which were inflated at 31 December 2018 due to funding the
investment into Transcend and a further two investments into the USA, ahead
of the receipt of disposal proceeds from Inani.
The mezzanine loan is for a term of five years and will attract interest at
a rate equal to 3-month JIBAR plus a margin of 350 basis points, which
margin will be increased by 50 basis points 15 months subsequent
to the first properties transferring to Inani (being 4 January 2019), and
by a further 50 basis points per annum thereafter. Interest on the mezzanine
loan will be payable quarterly in arrears. The mezzanine loan is payable
at the end of the five-year term.
The portfolio is mainly located in Gauteng, as well as in KwaZulu-Natal and
the Free State. It includes offices in major nodes including Woodmead,
Bryanston, Rivonia, Centurion, and Menlyn, with the largest asset being
the R232m Corobay Corner P-grade offices in Menlyn. Once fully implemented,
the effect of thedisposal will see Emira's exposure to the office sector,
by value, decrease from 41% at 31 December 2018 to circa 31%.
A total of R1,9bn of investment property has been classified as held for
sale, which includes the office portfolio sold to Inani and two additional
properties earmarked for disposal.
Developments and refurbishments
Emira has maintained its approach of recycling its capital and strategically
investing in tactical upgrades that unlock value and strengthen its assets.
The quality and attractiveness of its assets are key elements
to retain existing and attracting new tenants.
The conversion of Emira's B-grade ex Sasol tenanted offices in Rosebank,
12 Baker Street and 2 Sturdee Avenue, into The Bolton, a 282 unit residential
development, is well underway. The Bolton is being converted in partnership
with the Feenstra Group who, in addition to being the developer, has acquired
a 25% interest in the asset. The Feenstra Group has extensive experience in
developing, owning and managing residential units. The project has an
estimated completion value of R207,0m and will be targeting LSM brackets
7 to 8. The development is nearing completion with final handover expected
at the end of May 2019.
The following additional major projects to the value of R62,4m were commenced
or concluded during the period:
* A major upgrade and replacement of the air-conditioning system at Southern
Centrum in Bloemfontein which will improve the efficiency of the building
and reduce the electricity costs for tenants.
* A redevelopment of Denver Warehouse (previously known as Defy) in
Johannesburg into a logistics warehouse.
* An extension of the façade at Menlyn Corporate Park in Menlyn to create
a more prominent entrance.
* A general refurbishment of Granada Square in Durban to upgrade and modernise
the building.
* The installation of a 1,2MWh photovoltaic (PV) solar farm at Wonderpark in
Pretoria to reduce the reliance on Eskom produced power.
Debt
Emira has diversified sources of funding and banking facilities in place with
all the major South African banks. In addition, Emira continues to successfully
access funding via the debt capital markets at competitive rates.
Total debt as at the reporting date was R6,5bn with a weighted average duration
to expiry of 1,9 years. Debt levels at 31 December 2018 were higher due to the
investment in Transcend taking place ahead of receiving the Inani office
portfolio disposal proceeds. The first tranche of disposals transferred out
on 4 January 2019 and the net cash proceeds received of R569,0m were used to
settle debt. Steps have been taken to extend those debt facilities that are
expiring over the next 12 months that are not intended to be permanently
settled from the office disposal proceeds. At 31 December 2018, the Fund
had undrawn, backup facilities of R368,0m which further reduces debt
refinance risk.
In line with Emira's strategy to increase the duration of its debt book,
the following facilities were either put in place or refinanced during
the six months ended 31 December 2018:
* A maturing R500,0m secured three-year unlisted note with RMB was refinanced
with RMB as follows: a R200,0m secured three-year unlisted note at
three-month JIBAR plus 170bps, and a R300,0m secured five-year unlisted
note at three-month JIBAR plus 185bps.
* A new R500,0m unsecured short-term two-month ABSA bridging facility at a
fixed rate of 8,0%. This facility was put in place to bridge the gap between
the outflows in respect of the investment into Transcend and the inflows
from the disposals to Inani. This facility has been settled post
31 December 2018.
* During the period, Emira issued R824,0m of new listed commercial paper and
corporate bonds to refinance R697,0m of maturing notes. The new instruments
were issued for an average term of 3,0 years and at an average cost of 1,35%
above three-month JIBAR versus the matured notes of 1,6 years and a cost
of 1,24%.
As at 31 December 2018, Emira's gearing had temporarily increased due to timing
differences between outflows on the investments into Transcend and the USA and
inflows from the office portfolio disposal. Interest-bearing debt, net of cash,
to total income producing assets was 41,0%. Post the completion of the office
portfolio disposal, and taking into account anticipated investments as well as
capital expenditure, the gearing ratio is forecast to reduce to approximately
37,0% by 30 June 2019. The Fund has fixed 71,8% of its debt for periods of
between 0,2 and 5,9 years, with a weighted average duration of 2,7 years.
The percentage of fixed debt is also provisionally lower due to the higher
level of interest-bearing debt but is anticipated to increase to approximately
90% once debt levels are reduced post the completion of the disposals to Inani.
Weighted Weighted
average average Amount % of
rate % term (Rm) debt
Debt — Fixed swap 7,9 2,7 years 4 667,4 71,8
Debt — Floating 8,7 1 830,5 28,2
Total 8,1 6 497,9 100,0
Less: Costs capitalised not yet
amortised (5,9)
Add: Accrued interest 32,4
Per statement of financial position 6 524,4
As at 31 December 2018, Emira had effective AUD denominated debt of AUD87,5m
through its AUD cross-currency interest-rate swaps ('CCIRS') against assets
valued at AUD90,0m. The AUD CCIRS relate to the Fund's investment in GOZ.
In addition, Emira has effective United States dollar ('USD') denominated debt
of USD49,6m through its USD CCIRS. These USD CCIRS relate to investments based
in the USA valued at USD50,5m.
Valuations
Total portfolio movement
Jun 2018 Dec 2018
Sector (R'000) R/m2 (R'000) R/m2
Office 5 232 144 16 426 5 231 546 16 484
Retail 5 244 250 16 283 5 345 596 16 565
Industrial 1 905 350 5 464 1 936 656 5 553
Residential 154 064 — 195 888 —
12 535 808 12 709 686
Difference Difference
Sector (%) (R'000)
Office (0,0) (598)
Retail 1,9 101 346
Industrial 1,6 31 306
Residential 27,1 41 824
1,4 173 878
Investments
Transcend
Transcend, which is listed on the AltX of the JSE, was identified as an avenue
through which Emira could enhance the diversification of the Company into the
residential rental market, given Transcend's expertise in specialised
residential property assets and access to significant pipeline opportunities.
In line with Emira's co-investment strategy with hands-on sector specialists
who have a good track record of success in their markets, Emira took a
34,9% stake in Transcend during the period.
On 4 October 2018 Emira subscribed for 7 300 000 shares in Transcend at
R6,26 per share for a total consideration of R45,9m giving Emira an initial
9,9% interest in Transcend. On 13 December 2018 Emira subscribed for a further
38 382 283 Transcend shares at R6,46 per share for a total consideration of
R247 949 548 increasing its total equity interest to 34,9%. Geoff Jennett,
Emira's CEO, was simultaneously elected to the Transcend board as a
non-executive director.
The investment in Transcend was initially recognised as a financial asset and
accounted for on a fair value basis through profit and loss. Upon making the
second investment, Emira is considered to exercise significant influence
resulting in Transcend being equity-accounted. A bargain purchase adjustment
of R73,8m has been recognised on Transcend, being the difference between the
cost and the fair value at acquisition.
In addition to the equity investment, Emira provided a mezzanine loan of
R143 461 497 to Transcend on 13 December 2018 upon which a 1,5% raising
fee was charged. Interest is charged at a rate of 3,5% above 3-month
JIBAR and the loan is repayable on 12 June 2020.
Enyuka
Enyuka is the rural retail venture between Emira and One Property Holdings
('One Prop'). Emira equity accounts its interest in Enyuka and the
R51,4m recognised includes Emira's share of Enyuka's net profit of
R12,6m and R38,8m of interest received on the shareholder loan provided
to Enyuka.
At 31 December 2018, Enyuka's total property portfolio was valued at
R1,1bn and its loan to value ratio was 34,0%, excluding shareholder
loans of R648,8m, including interest.
No properties were acquired by Enyuka during the period.
GOZ
During the six-month period, the Company disposed of 2 000 000 GOZ
units at an average price of AUD3,80 per unit. The rationale for the
disposal was the opportunity to sell at a price that was significantly
higher than the initial cost and to deploy those proceeds into a higher
yielding investment.
As at 31 December 2018, GOZ's unit price was AUD3,74. Emira's remaining
investment of 24 058 566 units, comprising 3,3% of the total units in issue,
is valued at R918,1m compared to the initial cost price of R351,1m, a 161,5%
increase in the capital value of this investment.
USA
In October 2017 Emira embarked on an investment strategy into the USA
together with its US partners, The Rainier Group of Companies ('Rainier').
As at 31 December 2018, Emira had, together with Rainier, on a deal by
deal basis, co-invested into six grocery-anchored dominant value-orientated
power centres in the USA at a total cost to Emira of USD50,5m. During the
reporting period the following two properties were acquired:
* Woodlands Square shopping center in Tampa, Florida, was transferred in
October 2018 at a total cost to Emira of USD12,2m for a 49,4% equity interest
at an expected initial equity yield of 11,8%.
* Truman's Marketplace shopping center in Grandview, Missouri was transferred
in December 2018 at a total cost to Emira of USD6,1m for a 49,5% equity interest
at an expected equity yield of 11,1%.
Emira, through its USA subsidiary CIL2 LLC, holds a minority share in the six
direct property-owning entities but has a unanimous voting arrangement on all
major decisions. Emira equity accounts the six direct property-owning entities.
Foreign income hedging
To minimise potential adverse foreign exchange fluctuations on Emira's earnings,
a portion of the expected net foreign income, after offsetting foreign interest
on CCIRS, is hedged.
Foreign income in respect of GOZ is hedged in terms of the following policy:
* To hedge 100% of the expected net dividend to be received in the following
12 months;
* To hedge 67% of the expected net dividend to be received in months 13 to
24; and
* To hedge 33% of the expected net dividend to be received in months 25
to 36.
For the USA investments to date, at least 90% of the expected net income for
the first four years was hedged at the date the investments were made. It is
anticipated that this policy will be maintained for future investments.
In line with these policies, the following hedges are in place:
GOZ USA
Forward rate against R AUD USD
Jun 19 R11,14 R13,96
Dec 19 R11,34 R14,21
Jun 20 R11,64 R14,74
Dec 20 R11,33 R15,11
Jun 21 R11,85 R15,45
Dec 21 — R15,83
Jun 22 — R16,37
Dec 22 — R17,56
Worley Parsons update
The arbitration hearing between Emira and Worley Parsons, regarding its
lease obligations at Corobay Corner, is still ongoing. The hearing for the
quantum arguments together with the amendment to Worley Parsons' claim which
was due to be heard in December 2018 was postponed and has now been set
for 1 to 12 April 2019. Emira's positive view of its legal position in
the arbitration remains unchanged.
For the six months ended 31 December 2018, no further income has been
accrued in respect of rentals or damages due by Worley Parsons.
Subsequent events
There have been no significant events subsequent to the reporting date,
other than the transfer of properties to Inani, as highlighted above.
Prospects
Emira's rebalancing and diversification strategies, which are well
underway, will continue to counter the effects of the challenging local
economic conditions and political uncertainties which continue to impede
local growth. Factoring in the current and expected market conditions
for the year ahead, vacancy profiles and expected rental reversions,
as well as anticipated opportunities, shareholders can expect a similar
growth rate in distributions for the next six-month period.
This forecast is the responsibility of the directors of Emira, and,
has not been reviewed or reported on by Emira's external auditors.
Dividend distribution declaration
The Board has approved, and notice is hereby given that an interim
gross dividend of 72,86 cents per share has been declared (Dec 2017:
70,65 cents), payable to the registered shareholders of Emira on Friday,
8 March 2019. The issued share capital at the declaration date is
522 667 247 listed ordinary shares. The source of the dividend comprises
net income from property rentals, income earned from the Company's
listed property investment, income earned from the Company's
equity-accounted investments, interest earned on loans receivable
and interest earned on cash on deposit. Please refer to the condensed
consolidated statement of comprehensive income for further information.
Last day to trade cum dividend Tuesday, 5 March 2019
Shares trade ex dividend Wednesday, 6 March 2019
Record date Friday, 8 March 2019
Payment date Monday, 11 March 2019
Share certificates may not be dematerialised or rematerialised between
Wednesday, 6 March 2019 and Friday, 8 March 2019, both days inclusive.
Tax implications
In accordance with Emira's status as a REIT, shareholders are advised that
the dividend meets the requirements of a 'qualifying distribution' for the
purposes of section 25BB of the Income Tax Act, No. 58 of 1962 ('Income Tax
Act'). Accordingly, qualifying distributions received by local tax residents
must be included in the gross income of such shareholders (as a non-exempt
dividend in terms of section 10(1)(k)(aa) of the Income Tax Act), with the
effect that the qualifying distribution is taxable as income in the hands
of the shareholder. These qualifying distributions are, however, exempt
from dividend withholding tax in the hands of South African tax resident
shareholders, provided that the South African resident shareholders have
provided the following forms to their Central Securities Depository Participant
('CSDP') or broker, as the case may be, in respect of uncertificated shares,
or the transfer secretaries, in respect of certificated shares:
a) a declaration that the dividend is exempt from dividends tax; and
b) a written undertaking to inform the CSDP, broker or the transfer secretaries,
as the case may be, should the circumstances affecting the exemption change
or the beneficial owner cease to be the beneficial owner, both in the form
prescribed by the Commissioner for the South African Revenue Service.
Shareholders are advised to contact their CSDP, broker or the transfer
secretaries, as the case may be, to arrange for the abovementioned documents
to be submitted prior to payment of the dividend, if such documents have
not already been submitted.
Qualifying dividends received by non-resident shareholders will not be taxable
as income and instead will be treated as ordinary dividends but which are
exempt in terms of the usual dividend exemptions per section 10(1)(k) of the
Income Tax Act. On 22 February 2017, the dividends withholding tax rate was
increased from 15% to 20% and accordingly, any distribution received by a
non-resident from a REIT will be subject to dividend withholding tax at
20%, unless the rate is reduced in terms of any applicable agreement for
the avoidance of double taxation ('DTA') between South Africa and the
country of residence of the shareholder. Assuming dividend withholding tax
will be withheld at a rate of 20%, the net amount due to non-resident
shareholders will be 58,288 cents per share. A reduced dividend withholding
tax rate in terms of the applicable DTA, may only be relied on if the
non-resident shareholder has provided the following forms to their CSDP
or broker, as the case may be, in respect of the uncertificated shares,
or the transfer secretaries, in respect of certificated shares:
c) a declaration that the dividend is subject to a reduced rate as a result
of the application of a DTA; and
d) a written undertaking to inform their CSDP, broker or the transfer
secretaries, as the case may be, should the circumstances affecting
the reduced rate change or the beneficial owner cease to be the
beneficial owner, both in the form prescribed by the Commissioner for
the South African Revenue Service. Non-resident shareholders
are advised to contact their CSDP, broker or the transfer secretaries,
as the case may be, to arrange for the abovementioned documents to be
submitted prior to payment of the dividend if such documents have not
already been submitted, if applicable.
Local tax resident shareholders as well as non-resident shareholders are
encouraged to consult their professional advisors should they be in any
doubt as to the appropriate action to take.
The Company's tax reference number is 9995/739/15/9.
By order of the Emira Property Fund Limited Board
Acorim Proprietary Limited
Company Secretary
Gerhard van Zyl Geoff Jennett
Chairman Chief Executive Officer
Bryanston, 13 February 2019
Reviewed condensed consolidated financial statements
Condensed consolidated statement of financial position
at 31 December 2018
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2018 2017 2018
R'000
Assets
Non-current assets 13 819 840 13 401 135 12 856 899
Investment properties 10 391 847 11 331 794 10 313 515
Fixtures and fittings 100 722 76 045 71 725
Allowance for future rental
escalations 247 075 218 569 208 420
Unamortised upfront lease costs 48 209 37 118 32 915
Fair value of investment
properties 10 787 853 11 663 526 10 626 575
Investment and loans in equity-
accounted investments 1 947 167 713 504 1 105 944
Listed property investment 918 057 940 647 956 209
Loans receivable 119 372 72 365 116 431
Derivative financial instruments 47 391 11 093 51 740
Current assets 2 282 556 1 511 332 2 313 779
Accounts receivable and
prepayments 183 379 255 796 219 562
Derivative financial instruments 82 438 92 738 75 529
Cash and cash equivalents 94 906 99 348 109 455
Investment properties held for
sale 1 921 833 1 063 450 1 909 233
Total assets 16 102 396 14 912 467 15 170 678
Equity and liabilities
Share capital and reserves 9 100 622 8 984 035 8 968 682
Non-current liabilities 3 461 457 2 965 930 3 223 360
Interest-bearing debt 3 345 689 2 953 077 3 112 530
Other financial liabilities 22 636 — 21 666
Derivative financial instruments 93 132 12 853 82 571
Deferred tax — — 6 593
Current liabilities 3 540 317 2 962 502 2 978 636
Short-term portion of interest-
bearing debt 3 178 695 2 522 741 2 535 354
Accounts payable 261 899 370 328 335 705
Derivative financial instruments 99 723 68 165 106 636
Taxation — 1 268 941
Total equity and liabilities 16 102 396 14 912 467 15 170 678
Net asset value per share (cents) 1 783,4 1 761,0 1 758,0
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 Dec 31 Dec 30 June
R'000 2018 2017 2018
Revenue 878 631 855 356 1 771 585
Operating lease rental income and
tenant recoveries 869 863 840 678 1 748 876
Allowance for future rental
escalations 8 768 14 678 22 709
Property expenses (325 642) (306 738) (647 537)
Income from listed property
investment 25 549 29 491 52 831
Administration expenses (57 618) (47 098) (103 360)
Transaction and advisory fees (887) (6 993) (8 030)
Depreciation (5 707) (4 636) (9 611)
Operating profit 514 326 519 382 1 055 878
Net fair value adjustments 15 611 194 886 49 212
Net fair value (loss)/gain on
investment properties (24 612) 89 759 (49 437)
Change in fair value as a result of
straight-lining lease rentals (8 768) (14 678) (22 709)
Change in fair value as a result of
amortising upfront lease costs 958 2 995 4 455
Change in fair value of investment
properties (16 802) 101 442 (31 183)
Revaluation of derivative financial
instruments relating to share
appreciation rights scheme 6 388 110 4 755
Unrealised (loss)/gain on fair
valuation of interest-rate swaps (11 607) 43 707 (45 250)
Unrealised gain/(loss) on fair
valuation of listed
property investments 45 442 61 310 139 144
Foreign exchange profit/(loss) 23 645 (30 890) 23 572
Realised (513) — (164)
Unrealised 24 158 (30 890) 23 736
Loss on deconsolidation of Enyuka — (392) (392)
Income from equity-accounted
investments 163 288 45 352 131 564
Distributable 68 380 38 957 94 566
Non-distributable 94 908 6 395 36 998
Profit before finance costs 716 870 728 338 1 259 834
Net finance costs (219 852) (197 963) (403 437)
Interest received 8 395 6 499 15 007
Interest paid (228 247) (204 462) (418 444)
Profit before income tax charge 497 018 530 375 856 397
Taxation 4 539 (1 413) (7 751)
Profit for the period 501 557 528 962 848 646
Other comprehensive income
Items that may be subsequently
reclassified to profit or loss
Exchange differences on
translation of foreign operations 17 415 (6 028) 17 952
Total comprehensive income for the
period 518 972 522 934 866 598
Total profit for the period
attributable to:
Emira shareholders 500 121 529 204 848 486
Non-controlling interest 1 436 (242) 160
501 557 528 962 848 646
Total comprehensive income for the
period attributable to:
Emira shareholders 517 485 523 151 866 404
Non-controlling interest 1 487 (217) 194
518 972 522 934 866 598
Condensed consolidated statement of changes in equity
Foreign
Revaluation currency
and other translation
R'000 Shares reserves reserve
Balance at 1 July 2017 3 766 132 4 776 034 —
Shares recognised on partial
repayment of BEE vendor loan 9 702
REIT restructure costs (373)
Total comprehensive income for the
period
Exchange differences on
translation of foreign operations (6 053)
Transfer to fair value reserve 236 989
Transfer to currency
translation reserve (8 836)
Dividend paid — September 2017
Balance at 31 December 2017 3 775 461 5 013 023 (14 889)
Balance at 1 July 2018 3 775 458 4 844 848 17 918
Premium on share option
Total comprehensive income for the
period — — 17 364
Profit for the year
Other comprehensive income 17 364
Equity-settled share scheme 2 192
Transfer to fair value reserve 23 421
Dividend paid — September 2018
Dividend paid — subsidiary
Balance at 31 December 2018 3 775 458 4 870 461 35 282
Non-
Retained controlling
earnings interest Total
R'000
Balance at 1 July 2017 297 686 — 8 839 852
Shares recognised on partial
repayment of BEE vendor loan 9 702
REIT restructure costs (373)
Total comprehensive income for the
period 529 204 (242) 528 962
Exchange differences on translation
of foreign operations 25 (6 028)
Transfer to fair value reserve (236 989) —
Transfer to currency
translation reserve 8 836 —
Dividend paid — September 2017 (388 080) (388 080)
Balance at 31 December 2017 210 657 (217) 8 984 035
Balance at 1 July 2018 330 351 107 8 968 682
Premium on share option 9 420 9 420
Total comprehensive income for the
period 500 121 1 487 518 972
Profit for the year 500 121 1 436 501 557
Other comprehensive income 51 17 415
Equity-settled share scheme 2 192
Transfer to fair value reserve (23 421) —
Dividend paid — September 2018 (397 998) (397 998)
Dividend paid — subsidiary (646) (646)
Balance at 31 December 2018 418 473 948 9 100 622
Condensed statement of cash flows
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 Dec 31 Dec 30 June
R'000 2018 2017 2018
Cash generated from operations 468 765 491 799 997 969
Finance income 8 395 6 499 15 007
Income from equity-accounted 69 080 — 94 566
investments
Interest paid (237 255) (204 462) (452 365)
Taxation paid (2 054) — (766)
Dividends paid to shareholders (397 998) (388 080) (757 344)
Dividends paid to non-controlling
interest (646) — (87)
Net cash utilised in operating
activities (91 713) (94 244) (103 020)
Acquisition of, and additions to,
investment properties and
fixtures and fittings excluding
capitalised interest (184 947) (284 866) (507 185)
Proceeds on disposal of
investment properties and
fixtures and fittings 150 235 500 530 575
Investment in equity-accounted
investments (700 388) (101 973) (415 694)
Disposal of investment in listed
property fund 77 324 — 90 156
Enyuka deconsolidation — (36 772) (36 772)
Net cash utilised in investing
activities (807 861) (188 111) (338 920)
REIT restructure costs — (373) (376)
Shares recognised on partial
repayment of BEE vendor loan — 9 702 9 702
Premium on share option 9 420 — 8 989
Interest-bearing debt raised 4 158 000 1 837 000 4 208 666
Interest-bearing debt repaid (3 282 395) (1 633 285) (3 844 245)
Net cash generated from financing
activities 885 025 213 044 382 736
Net increase in cash and cash
equivalents (14 549) (69 311) (59 204)
Cash and cash equivalents at the
beginning of the period 109 455 168 659 168 659
Cash and cash equivalents at the
end of the period 94 906 99 348 109 455
Basis of preparation and accounting policies
These unaudited condensed consolidated interim financial statements
have been prepared in accordance with International Financial Reporting
Standards ('IFRS') including IAS 34: Interim Financial Reporting, the
SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee, Financial Pronouncements as issued by the Financial Reporting
Standards Council, the JSE Listings Requirements and the requirements of
the Companies Act of South Africa. The accounting policies used in the
preparation of these financial statements are in terms of IFRS and are
consistent with those used in the audited annual financial statements
for the year ended 30 June 2018.
This report was compiled under the supervision of Greg Booyens CA(SA),
the Chief Financial Officer of Emira. These condensed consolidated interim
financial statements have not been reviewed or audited by Emira's
independent auditor, Ernst & Young Inc.
Reconciliation between earnings and headline earnings and distributable
earnings
Unaudited Unaudited Audited
six months six months year
ended ended ended
31 Dec 31 Dec 30 June
R'000 2018 2017 2018
Profit for the period
attributable to shareholders 501 557 528 962 848 486
Adjusted for:
Net fair value loss/(gain) on
revaluation of investment
properties 24 612 (89 759) 49 437
Loss on deconsolidation of
Enyuka — — 392
Headline earnings 526 169 439 203 898 315
Adjusted for:
Allowance for future rental
escalations (8 768) (14 678) (22 709)
Amortised upfront lease costs 958 2 995 4 455
Unrealised surplus on revaluation
of interest-rate
swaps 11 607 (43 707) 45 250
Revaluation of share appreciation
rights scheme
derivative financial instruments (6 388) (110) (4 755)
Charge/(credit) in respect of
leave pay provision and share
appreciation rights scheme 2 171 344 3 394
Unrealised gain on revaluation
of listed property investment (45 442) (61 310) (139 144)
Unrealised foreign exchange loss (24 158) 30 890 (23 736)
Non-distributable income from
equity-accounted investments (94 908) (6 395) (36 998)
Depreciation 5 707 4 478 9 286
Transaction and advisory fees 887 6 993 8 030
Deferred taxation (6 593) 1 268 6 044
Distributable portion of non-
controlling interest (27) (87) (521)
Premium on BEE share option 9 013 8 988 18 160
GOZ shares sold cum dividend 1 574 — 2 205
Accrual for listed security
income (Transcend) 2 557 — —
Accrual for listed security
income (Transcend) — antecedent
element 6 474 — —
Distributable earnings 380 833 368 872 767 276
Distribution per share
Interim (cents) 72,86 70,65 70,65
Final (cents) — — 76,15
72,86 70,65 146,80
Number of shares in issue at the
end of the period 522 667 247 522 667 247 522 667 247
Weighted average number of
shares in issue 510 296 737 509 214 644 510 140 337
Earnings per share (cents) 98,29 103,88 166,32
The calculation of earnings per
share is based on net profit for
the period of R501,6 million
(2017: R529,0 million), divided
by the weighted average number
of shares in issue during the
period of 510 296 737 (2017:
509 214 644).
Diluted earnings per share
(cents) 98,08 103,88 166,20
The calculation of diluted
earnings per share is based on
net profit for the period of
R501,6 million (2017: R529,0
million), divided by the diluted
weighted average number of shares
in issue during the period of
511 387 515 (2017: 509 214 644).
Headline earnings per share
(cents) 103,11 86,25 176,09
The calculation of headline
earnings per share is based on
net profit for the period, adjusted
for non-trading items, of R526,2
million (2017: R439,2 million),
divided by the weighted average
number of shares in issue during
the period of 510 296 737 (2017:
509 214 644).
Diluted headline earnings per
share (cents) 102,89 86,25 175,96
The calculation of diluted
headline earnings per share is
based on net profit for the period,
adjusted for non-trading items, of
R526,2 million (2017: R439,2
million), divided by the diluted
weighted average number of shares
in issue during the period of
511 387 515 (2017: 509 214 644).
Diluted weighted average number
of shares in issue
Weighted average number of
shares in issue 510 296 737 509 214 644 510 140 337
Issued for zero consideration
under the call option to BEE
parties 1 090 718 375 436
511 387 515 509 214 644 510 515 773
Segmental information
R'000 Office Retail Industrial Other
Revenue 368 682 358 361 151 588 —
Operating lease rental
income and tenant
recoveries 362 171 353 693 153 999 —
Allowance for future
rental escalations 6 511 4 668 (2 411) —
Property expenses (138 769) (126 180) (60 693) —
Profit for the period 187 375 209 650 104 833 141 273
Total assets 5 279 713 5 295 496 1 936 655 1 382 779
R'000 Offshore Corporate Total
Revenue — — 878 631
Operating lease rental income and
tenant recoveries — 869 863
Allowance for future rental
escalations — 8 768
Property expenses — (325 642)
Profit for the period 67 433 (209 007) 501 557
Total assets 1 678 333 529 420 16 102 396
Measurements of fair value
1. Financial instruments
The financial assets and liabilities measured at fair value in the
statement of financial position are grouped into the fair value
hierarchy as follows:
Level 1 Level 2 Level 3 Total
R'000 Dec 2018 Dec 2018 Dec 2018 Dec 2018
Group
Assets
Investments 918 057 — — 918 057
Derivative financial
instruments — 129 433 396 129 829
Total 918 057 129 433 396 1 047 886
Liabilities
Derivative financial
instruments — 192 855 — 192 855
Total — 192 855 — 192 855
Net fair value 918 057 (63 422) 396 855 031
Level 1 Level 2 Level 3 Total
R'000 Dec 2017 Dec 2017 Dec 2017 Dec 2017
Group
Assets
Investments 940 647 — — 940 647
Derivative financial
instruments 103 721 110 103 831
Total 940 647 103 721 110 1 044 478
Liabilities
Derivative financial
instruments — 81 018 — 81 018
Total — 81 018 — 81 018
Net fair value 940 647 22 703 110 963 460
The methods and valuation techniques used for the purpose of measuring
fair value are unchanged compared to the previous reporting period.
Investments
This comprises shares held in a listed property company at fair value
which is determined by reference to quoted closing prices at the
reporting date.
Derivative financial instruments
The fair values of the interest-rate swap contracts are determined using
discounted cash flow projections based on estimates of future cash flows,
supported by the terms of the relevant swap agreements and external
evidence such as the ZAR 0-coupon perfect-fit swap curve.
The fair values of the cross-currency interest-rate swap contracts are
valued by discounting the future cash flows using the basis swap curve
of the respective currencies at the dates when the cash flows will
take place.
The AUD and USD forward exchange contracts are valued by discounting
the forward rates applied at the period end to the open hedged positions.
The call option contracts relating to the employee share scheme are
valued using a Black Scholes option pricing model. The expected
volatility of the unit price of the call options was 22,7% and the
risk-free discount rate used was 7,2%. Management considers the key
input in the valuation to be the spot price. A 10% increase in the
spot price results in an increase to the call options of R0,4m.
A 10% decrease in the spot price results in a decrease to the call
options of R0,2m. The call option contracts have been classified
as Level 3. During the period R0,3m of the option premiums relating
to these contracts were amortised and a fair value loss of R0,5m was
recognised at 31 December 2018.
The forward contracts relating to the employee share scheme are valued
using a cost of carry financial model. The risk-free discount rate used
ranged between 7,2% and 7,4%. Management considers the key input in the
valuation to be the spot price. A 10% increase in the spot price results
in an increase to the forward contracts of R11,4m. A 10% decrease in the
spot price results in a decrease to the forward contracts of R11,4m.
2. Non-financial assets
The following table reflects the levels within the hierarchy of non-
financial assets measured at fair value at 31 December 2018:
2018 2017
R'000 Level 3 Level 3
Assets
Investment properties 10 787 853 11 663 526
Investment properties held for sale 1 921 833 1 063 450
Fair value measurement of investment properties
The fair value of commercial buildings is estimated using an income
approach which discounts the estimated rental income stream, net of projected
operating costs, as well as an exit value, using a discount rate derived from
market yields. The estimated rental stream takes into account current occupancy
levels, estimates of future vacancy levels, the terms of in-place leases and
expectations of rentals from future leases over the remaining economic life
of the buildings.
The most significant inputs, all of which are unobservable, are the estimated
rental value, assumptions regarding vacancy levels, the discount rate and the
reversionary capitalisation rate. The estimated fair value increases if
the estimated rentals increase, vacancy levels decline or if discount rates
(market yields) and reversionary capitalisation rates decline. The overall
valuations are sensitive to all four assumptions. Management considers
the range of reasonable possible alternative assumptions to be greatest for
reversionary capitalisation rates, rental values and vacancy levels and that
there is also an interrelationship between these inputs. The inputs used in the
valuations at 31 December 2018 were the following:
* The permanent vacancy factor for retail ranged between 0,25% and 5% (2017:
0% and 5,0%), offices between 1,0% and 5,0% (2017: 0,9% and 5,0%) and
industrial between 0,25% and 5,0% (2017: 0,2% and 5,0%).
* The weighted average rental escalation percentage applied for retail was
6,4% (2017: 6,7%), offices 7,2% (2017: 7,8%) and industrial 7,7% (2017: 6,7%),
and for renewals and new leases ranged between 6,0% and 9,0% (2017: 6,0%
to 8,0%).
* The range of the reversionary capitalisation rates applied to the portfolio
are between 7,25% and 11,75% with the weighted average, by value, being
9,06% (2017: 9,33%).
* The discount rates applied range between 12,50% and 16,25% with the
weighted average, by value, being 14,13% (2017: 14,36%).
* Changes in discount rates and reversionary capitalisation rates attributable
to changes in market conditions can have a significant impact on property
valuations. A 25 basis points increase in the discount rate will decrease the
value of investment property by R180,9m (1,4%) and a 25 basis points decrease
will increase the value of investment property by R187,5m (1,5%). A 25 basis
points decrease in the reversionary capitalisation rate will increase the value
of investment property by R197,7m (1,6%) and a 25 basis points increase will
decrease the value of investment property by R186,7m (1,5%).
Fair values are estimated twice a year by Emira's internal registered valuer,
whereafter they are reviewed by the executive directors and approved by the Board.
One third of the portfolio is valued externally each year end on a rolling basis.
Fair value measurement of investment properties held for sale
The fair value of investment properties held for sale is based on the expected
sale price.
Directors: G van Zyl (Chairman)*, GM Jennett (CEO), MS Aitken*, G S Booyens (CFO),
BH Kent*, V Mahlangu*, NE Makiwane*, W McCurrie*, V Nkonyeni*, D Thomas**,
U van Biljon (COO)
* Independent Non-executive Director
** Non-executive Director
Registered address: 1st Floor, Block A, Knightsbridge, 33 Sloane Street,
Bryanston, 2191
Sponsor: Questco Corporate Advisory (Pty) Ltd
1st Floor, Yellowwood House, Ballywoods Office Park, 33 Ballyclare Drive,
Bryanston, 2191
Transfer Secretaries: Computershare Investor Services (Pty) Ltd, Rosebank Towers,
15 Biermann Avenue, Rosebank, 2196
Date: 13/02/2019 11:37:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.