To view the PDF file, sign up for a MySharenet subscription.

TEXTON PROPERTY FUND LIMITED - Interim Financial Results for the Six Months Ended 31 December 2018

Release Date: 05/03/2019 07:05
Code(s): TEX     PDF:  
 
Wrap Text
Interim Financial Results for the Six Months Ended 31 December 2018

Texton Property Fund Limited
(Incorporated in the Republic of South Africa) 
(Registration number: 2005/019302/06)
A Real Estate Investment Trust, listed on the JSE Limited
JSE share code: TEX ISIN: ZAE000190542

www.texton.co.za

Interim financial results
For the six months ended 31 December 2018

Key metrics

- Portfolio value* R5,139 billion (Jun 2018: R5,403 billion) down 4,9%
- LTV ratio 40,3% (Jun 2018: 42,7%)** down 2,4%
- Net asset value 826,79 cents per share (Jun 2018: 657,48 cents per share) 
up 25,8%
- GLA 378 357m2 (47 properties) (Jun 2018: 385 042m2 (49 properties))
down 1,7%
- Vacancies 10,5% (Jun 2018: 7,9%) up 2,6%
- National/listed/blue chip tenantS (by GLA)* 61,7% (Jun 2018: 64,2%)
down 2,5%
- Investment property income R286,8 million (Dec 2017: R303,9 million)
down 5,5%
- Net property income* R188,1 million (Dec 2017: R212,4 million) 
down 11,4%
- Interim dividend per share 36,18 cents (Dec 2017: 47,95 cents) 
down 24,6%

* Including Texton's 50% interest in Broad Street Mall
** Excluding PIC Put Option

Commentary
Nature of the business
Texton Property Fund Limited ("Texton" or "the Company" or "the Fund") is an 
internally asset managed Real Estate Investment Trust ("REIT") listed on the 
JSE Limited. It has a portfolio of R5,2 billion of assets with retail, office 
and industrial exposure located in South Africa and the United Kingdom.

As part of the recent management changes and in response to shareholder 
feedback, the investment strategy is subject to review. The strategy's main 
objectives are to rebalance the Fund to achieve consistent property income 
streams, portfolio optimisation and enhanced total returns to achieve a 
re-rating of the share price. Our intention is to selectively reposition 
the portfolio and to dispose of assets that are considered non-core 
properties either due to their location, age or property fundamentals.

Texton is committed to achieving the highest possible returns for its 
shareholders by executing its mandate through achieving growth via 
diversification.

Distributable earnings and commentary on results
The Board of Directors of Texton ("the Board") declares an interim dividend of 
36,18 cents per share, a decrease from 47,95 cents per share at December 2017. 
This is primarily a result of increased vacancies at Vunani Chambers, 
Hermanstad Industrial Park and Xstrata as well as continuing vacancies at Scott 
Street and St George's Mall. Higher net finance costs, lower realised foreign 
exchange gains and increased tax charges, specifically on the UK portfolio also 
contributed to lower distributable earnings. The core portfolio performed in 
line with budget albeit in a difficult trading environment and macro-economic 
pressures.

South African overview
The outlook for the South African economy for the 2019 year indicates another 
challenging year ahead with growth of 1,3% forecast by the IMF. The technical 
recession announced in September 2018, together with the upcoming elections in 
May 2019, is expected to put a hold on economic recovery in the short term, 
with the first quarter's GDP contraction revised upward to 2,6%.

Stats SA reported inflation at 4,5% to December 2018, only marginally lower 
than the 4,6% reported for June 2018. This falls within the target range set by 
the South African Reserve Bank of between 3% and 6%. Economists are predicting 
one possible further interest rate hike in 2019.

Across the spectrum, tenants continue to scrutinise rentals and operating 
costs. Accommodation requirements are reassessed more regularly resulting in 
shorter lease terms and pushback in rentals. There has been an evident shift 
to flexible and serviced work space. Texton remains agile and well placed to 
respond to these opportunities.

The property sector experienced a number of challenges in the recent past 
including loss of investor confidence, increasing occupancy costs and 
increasing vacancies. There has also been a significant increase in the 
amount of space available with a number of developments coming online across 
all sectors.

United Kingdom overview
The UK economy has remained relatively resilient in a challenging political 
and global trading environment. The overall GDP rate for 2019 is expected to 
be circa 1,3%, reflecting a slowdown in the fourth quarter resulting from 
the uncertainty caused by the scheduled departure from the EU in March 2019 
and the absence of finalised withdrawal terms.

On a positive note, wage growth rose to a decade-high in October 2018 and 
inflation has slowed considerably. CPI inflation is set to reduce to 
government's target level of 2,0% within the coming months, which suggests 
that the economy is well placed to bounce back when Brexit is resolved.

The UK property market remains active with investment volume estimated to be 
circa GBP55 billion in 2018. Total returns are forecast to be driven mainly by 
income returns during the next stage of the cycle as interest rate increases 
impact capital returns. There remains considerable divergence in fortunes 
between the different sectors. Demand remains strong for industrial and 
alternatives while liquidity in the retail sector is being affected by a 
structural change in the occupier markets.

PIC Put Option
At a general meeting held on 28 December 2018, the shareholders voted against 
the repurchase of the shares in terms of the Public Investment Corporation SOC 
Limited ("PIC") Put Option, which was exercised during 2018.

In line with the legal advice received from senior counsel and after having 
followed the prescribed legal process in terms of the contract, the 
shareholders' 'no' vote means that Texton is released from its obligation 
to repurchase shares in terms of the PIC Put Option and accordingly the 
liability has expired.

Subsequent to the resolution of the PIC Put Option in December 2018, the 
breaches of facility covenants have been resolved.

Property portfolio
Key performance indicators
The major focus has been tenant retention and letting vacant space. The 
oversupply of offices, weaker economic performance and significant rent-free 
periods and other leasing incentives offered by the larger landlords, has made 
this challenging. In addition, two large tenants have consolidated their 
operations into other premises and one tenants has gone into business rescue 
in the six months to December 2018.

Texton continues to maintain a well-positioned and defensive portfolio 
underpinned by good property fundamentals and strong covenants. The office 
properties have performed well despite the oversupplied and competitive market.
The standing industrial portfolio has largely performed in line with 
expectations and there is a continued drive to fill vacancies at Hermanstad 
Industrial Park. The retail portfolio remains a solid asset class and has 
performed remarkably with high occupancies across all properties and regions.

The geographic dispersion of Texton's current portfolio by value is 61,8% 
(June 2018: 59,3%) located in South Africa and 38,2% (June 2018: 40,7%) located 
in the United Kingdom (including our portion of Broad Street Mall).

There were no acquisitions in the six months to December 2018. The properties 
classified as held for sale at 30 June 2018 have been transferred and the 
proceeds have been allocated to reduce debt and to fund capital expenditure 
commitments at Broad Street Mall.

Overall lease expiry

                                                    By GLA            By revenue
                                                         %                     %
Vacant                                                10,5
Jun 2019                                              10,4                  11,4
Jun 2020                                              19,1                  23,0
Jun 2021                                              14,2                  15,1
Jun 2022                                               9,8                  11,4
Jun 2023                                              11,1                   7,5
>Jun 2023                                             24,9                  31,6
                                                     100,0                 100,0


Overall vacancies

                            Dec 2018      Sept 2018      Jun 2018       Mar 2018
                                   %              %             %              %
Overall                         10,5            7,5           7,9            6,8
Office                           6,2            5,0           4,5            4,4
Retail                           1,4            0,7           0,7            0,6
Industrial                       2,9            1,8           2,7            1,8

Texton continued its active drive to fill its vacancies, retain tenants and 
engage with its broker network, principals and prospective users. Vacancies 
have increased to 10,5% compared to 7,9% at 30 June 2018.

South Africa
Market conditions remain challenging. We continue to foster relationships with 
our tenants in order to improve tenant retention. Texton continually assesses 
new manners of offering incentives in order to attract and retain tenants.

The Department of Public Works deadline to finalise long-term leases at 
31 December 2018 was extended to 31 March 2019. Texton continues to proactively 
engage with all stakeholders and decision makers in this regard. Texton has 
progressed in discussions with the Department of Public Works at Foretrust and 
14 Loop Street in Cape Town, as well as Lion Roars in Port Elizabeth. Proposals 
for both three and five-year tenures have been presented and Texton's senior 
management is actively involved in this process.

As communicated previously, vacancies have increased in the first half of the 
2019 financial year, as significant occupiers at Vunani Chambers and Hermanstad 
Industrial Park have vacated. The continued vacancies at Scott Street and St 
George's Mall, together with longer re-let periods and increasing vacancies at 
Bryanston Gate and Xstrata, have significantly impacted Texton's net property 
income for the interim period.

Lease expiry: SA

                                                    By GLA            By revenue
                                                         %                     %
Vacant                                                12,6
Jun 2019                                              13,3                  15,8
Jun 2020                                              24,7                  33,0
Jun 2021                                              17,2                  19,7
Jun 2022                                              10,7                  11,6
Jun 2023                                              14,1                   9,7
>Jun 2023                                              7,4                  10,2
                                                     100,0                 100,0


Texton's lease expiry profile has improved. Between July and December 2018, 
Texton successfully concluded 30 new leases amounting to 11 783m2. In the same 
period, 16 existing leases were renewed, amounting to 31 275m2, which is proof 
of the success of our focused and proactive approach to tenant retention in a 
challenging market. 

The majority of lease renewals expiring in the period to June 2022 are already 
progressed and we foresee muted to positive reversions.

Vacancies: SA

                            Dec 2018      Sept 2018      Jun 2018       Mar 2018
                                   %              %             %              %
Overall                         12,6            8,8           9,3            7,9
Office                           7,8            6,3           5,6            5,5
Retail                           1,0            0,1           0,1              -
Industrial                       3,8            2,4           3,6            2,4

Vacancies have increased to 10,5% (39 724m2) compared to 7,9% (30 296m2) at 
30 June 2018. Texton's vacancy levels are slightly higher than the South 
African Property Owners' Association ("SAPOA") average at December 2018 with 
Texton's office vacancies of 11,6% marginally ahead of the SAPOA average of 
11,1%. Filling these vacancies is a key priority for Texton.

United Kingdom
We have made a successful start in repositioning the portfolio through the 
disposal of assets which do not align with our long-term strategic 
objectives. Stanford House, Warrington, was sold for GBP13 million in November 
2018. The property which was income-producing but unoccupied, required 
significant capital expenditure on lease expiry. Texton achieved a capital 
profit from the sale and a high leveraged income return throughout the hold 
period. The proceeds were partially utilised to reduce debt and partially 
to fund capital expenditure commitments at Broad Street Mall.

Our recent steps to streamline the asset and property management structure in 
the UK include the internalisation of the asset management function and 
engagement of new property managers, which has resulted in a cost saving of 
GBP56 000 to date. We are exploring further cost savings within the offshore 
structure.

The Texton UK portfolio is diversified across the three main asset classes of 
Retail, Offices and Industrial. The pool of assets that is wholly owned by 
Texton is 100% let and industrial property now makes up 32,2% by value. The 
industrial assets are performing well and are let on long-term leases to strong 
covenants such as DHL, Caterpillar and Coveris for an average lease term of 
over 11,5 years. Altogether, 94% of the industrial rental income is subject to 
guaranteed rental uplifts which are either inflation-linked or based on stepped 
rents.

Retail assets that are wholly owned comprise 15,8% of the total UK portfolio by 
value. The retail sector in the UK is undergoing significant challenges driven 
by structural change and a shift to multichannel retailing. The Texton retail 
warehouses in Camarthen and Camborne are both let to the strong covenants of 
Dunelm and B&Q for unexpired terms of over nine years. The "big box" retail 
units are well suited to "click and collect" and therefore less exposed to 
structural change than other retail formats.

Texton's city centre asset in Nottingham occupies a prime location and trades 
very well. It occupies an island site and we are progressing development options
to add residential accommodation above the retail. Our 50% interest in Broad 
Street Mall and Fountain House offices comprises 30% of the value of the total 
UK portfolio. Significant progress has been made on Broad Street Mall over the 
last six months with a trio of major lettings signed in September 2018. Part 
of the former Argos store was let to Iceland, the national food retailer. 
Poundland has been relocated to a more prominent unit in the west mall and 
New Look committed to the centre for an additional 10 years following their 
restructuring exercise. Terms have been agreed and legal negotiations advanced 
with both a cinema operator and a major national hotel chain. Both of these 
occupiers will be significant new additions to the tenant line-up at the 
centre. These lettings deliver on our business plan to increase the range of 
uses at Broad Street Mall.

The past six months have also been busy with the development proposals at Broad 
Street Mall. The centre is significantly better placed than the majority of UK 
shopping centres due to the mixed-use offering and the opportunity to add value 
through a large-scale residential development above the shopping centre. 
Reading is an affluent south-east town, set to become increasingly attractive 
with the arrival of the new Crossrail infrastructure which will improve links 
with central London. Reading was recently ranked by Lambert Smith Hampton as 
the third strongest location in the UK, outside of London, in terms of 
"demand hotspots" for private rented residential locations. At the end of 
November 2018, a planning application was submitted for 493 residential units. 
Feedback on this application is expected before Texton's year-end.

Texton's management are more involved with the ongoing and future activities at 
this asset. The maximisation of value at Broad Street Mall is seen as a major 
priority element for the UK operations and Texton is in complete alignment in 
working towards this with our partners.

Lease expiry: UK

                                                    By GLA            By revenue
                                                         %                     %
Vacant                                                 3,7                      
Jun 2019                                               1,2                   1,5
Jun 2020                                               0,8                   0,8
Jun 2021                                               4,2                   5,2
Jun 2022                                               6,9                  11,0
Jun 2023                                               1,3                   2,6
>Jun 2023                                             81,9                  78,9
                                                     100,0                 100,0


The United Kingdom portfolio benefits from long-term leases with the majority 
expiring after 2023. Texton will continue to focus on obtaining long-term 
income from strong tenant covenants. Being a REIT, these long-term income-
generating opportunities fit well in the Texton portfolio and allow for 
continuous stable returns. Texton's properties in the United Kingdom have an 
average unexpired lease term of 8,4 years by income and 9,5 years by area.

Vacancies: UK

                            Dec 2018      Sept 2018      Jun 2018       Mar 2018
                                   %              %             %              %
Overall                          3,7            3,6           3,6            3,6
Office                           1,0            0,9           0,9            1,0
Retail                           2,7            2,7           2,7            2,6
Industrial                         -              -             -              -

The ongoing vacancies at Broad Street Mall relate to the 5th floor of Fountain 
House and the remaining Argos space not yet let.

Greening initiatives
Sustainable business and greening initiatives remain a priority for Texton. As 
previously reported, various water-saving initiatives were implemented at our 
properties located in the Western Cape.

The installation of a 432kWh solar plant at Kempstar Mall was completed in 
December 2018. Significant electricity savings will be realised and allocated 
to further greening initiatives at the property.

Additional solar plant initiatives are being investigated throughout the 
portfolio.

Capital management
As reported at June 2018, Texton had breached LTV covenants with a number of 
lenders as a result of the exercise of the PIC Put Option. The breaches were 
remedied when the liability expired on 28 December 2018. The Group LTV ratio 
reverted to 40,3% from 55,4% at June 2018.

The determination of whether facilities should be classified as current or 
non-current liabilities has reverted to maturity dates of the facilities.

Texton has facilities of R490 million expiring in March 2019 and we have 
commenced discussions with the banks in this regard.

Texton's focus is to reduce the LTV ratio to a level comfortably below 40% as 
well as to diversify its lending portfolio in order to reduce concentration 
risk. We continue to leverage off our good relationships with our lenders.

An area of significant focus is the reduction of the cost of debt and the 
enhancement of treasury management practices.

Debt maturity profile
Rand denominated facilities

                                        Drawndown
                      Facility      Fixed    Floating*                   Margin
Expiry                   R'000      R'000       R'000      Base rate          %
31 March 2019          140 000          -     140 000       3m JIBAR       1,72
31 March 2019          350 000          -     226 440          PRIME      (1,60)
30 November 2019        85 326          -      85 326       3m JIBAR       1,65
31 January 2020        200 000          -     199 309       3m JIBAR       1,80
31 March 2020          175 000          -     172 574       3m JIBAR       1,88
30 November 2020       200 000          -     200 000       3m JIBAR       1,75
28 May 2021            149 379          -     149 379       3m JIBAR       2,50
30 June 2021            50 502          -      50 502       3m JIBAR       1,95
                     1 350 207          -   1 223 530

* Partially hedged via interest rate swaps.

Pound denominated facilities

                                        Drawndown
                      Facility      Fixed    Floating*                   Margin
Expiry                   R'000      R'000       R'000      Base rate          %
27 February 2020 (%)     6 986      6 986           -           3,66        n/a
27 February 2020 (%)     6 986      6 986           -           3,61        n/a
27 February 2020 (%)    54 873     54 873           -           3,61        n/a
27 February 2020 (%)    27 812     27 812           -           3,61        n/a
27 February 2020 (%)   145 389    145 389           -           3,61        n/a
28 May 2021            184 614          -     184 614       3m LIBOR       3,50
15 August 2021          77 538          -      77 538       3m LIBOR       2,00
15 August 2021         188 306          -     188 306       3m LIBOR       2,00
15 August 2021         109 107          -     109 107       3m LIBOR       2,00
15 August 2021          94 556          -      94 556       3m LIBOR       2,00
15 August 2021          83 448          -      83 448       3m LIBOR       2,00
                       979 615    242 046     737 569

* Partially hedged via interest rate swaps.

Interest rate swap maturity profile

                   Nominal amount           Nominal amount            Fixed rate
Expiry                      R'000                  GBP'000                     %
16 May 2020               225 000                        -                  7,27
2 November 2020           200 000                        -                  7,19
16 May 2021               225 000                        -                  7,40
30 June 2021              270 000                        -                  7,82
12 August 2021                  -                   20 310                  0,49
12 August 2021                  -                    9 509                  1,28
15 February 2022          200 000                        -                  7,31
                        1 120 000                   29 819


The Board has reaffirmed the interest rate hedging strategy in terms of which 
at least 80% of borrowings must be hedged against interest rate risk. Texton is 
85,7% hedged at 31 December 2018.

Currency
The closing exchange rate at 31 December 2018 was R18,46: GBP1 
(June 2018: R18,09: GBP1); and the average exchange rate for the period ended
31 December 2018 was R18,38: GBP1 (June 2018: R17,29: GBP1).

It is the Board's policy to hedge the currency risk associated with the net 
property income from the UK properties for six months ahead, which is in line 
with Texton's budgeting period.

Texton has reassessed the instruments used in hedging its currency exposure and 
taken a decision to utilise forward exchange contracts rather than currency put 
options going forward.

These instruments are more cost efficient and will provide more certainty 
regarding the rate at which Texton can repatriate cash from its UK operations.

Cross-currency interest rate swaps

             Nominal amount    Nominal amount    Texton receives     Texton pays
Expiry                R'000           GBP'000                  %               %
2 Sept 2021         600 000            30 801                 11    3,18 + LIBOR
27 Jan 2022         128 547             7 710                 12    3,98 + LIBOR
                    728 547            38 511

Forward exchange contracts

                                             Texton sells          Exchange rate
Expiry                                            GBP'000                 to GBP
19 Jun 2019                                         2 900         R18,5835: GBP1

Stated capital and shares repurchased
There are 376 066 766 ordinary shares of no-par value in issue 
(June 2018: 376 066 766). The Group holds 10 428 348 treasury shares via Texton
Property Fund Limited Share Incentive Scheme Trust and 16 243 865 treasury 
shares via Discus House Proprietary Limited, a subsidiary of Texton. There have 
been no share buybacks in the six months to December 2018. Going forward, the 
Board will assess the application of available proceeds from disposals against 
the reduction of debt to improve the LTV ratio as well as potential share 
buybacks depending on the price, market conditions and timing. 

The Company's share structure is in line with international best practice 
for REITs.

Prospects
Texton's portfolio is defensively positioned in both of the markets in which it 
operates. However, vacancies in the SA portfolio are expected to increase over 
the short term, which will result in lower net property income in the 2019 
financial year.

The low economic growth forecast for SA and continued uncertainty around 
Brexit, together with increasing costs of tenancy, perpetuate a challenging 
operating environment for Texton. We continue to place significant focus on 
tenant retention and the filling of our vacancies through active asset 
management.

Payment of interim dividend
Notice is hereby given of the declaration of a dividend of 36,18 cents per 
share for the interim six-month period to 31 December 2018. The dividend was 
declared out of income reserves.

Changes to the Board 
In compliance with paragraph 3.59 of the JSE Listings Requirements, the Board 
hereby notifies its shareholders of the following changes which occurred during 
the period to 31 December 2018:
- Marius Muller was appointed as permanent Chief Executive Officer on 
27 November 2018, effective start date of 1 March 2019.
- Marcel Golding was appointed as Chairman of the Board on 27 November 2018.
- Chick Legh, Thys van Heerden and Trurman Zuma resigned as Non-executive
Directors on 27 November 2018.
- Dempsey Naidoo resigned as Chairman of the Board and Non-executive
Director on 27 November 2018.
- Patrick Ntshalintshali retired as Non-executive Director on 27 November 2018.
- Andrew Hannington was appointed as a Non-executive Director on 
11 October 2018.
- Shelley Thomas was appointed as Non-executive Director on 29 October 2018.

Salient dates
Dividend declaration date            Tuesday, 5 March 2019
Last date to trade                   Tuesday, 26 March 2019
Ex dividend date                     Wednesday, 27 March 2019
Record date                          Friday 29, March 2019
Payment date                         Monday, 1 April 2019

Share certificates may not be dematerialised or rematerialised between
Wednesday, 27 March 2019 and Friday, 29 March 2019, both dates inclusive.

An announcement informing shareholders of the tax treatment of the dividends 
will be released on SENS on 5 March 2019.

Texton's income tax reference: 9353785158
Issued shares as at 5 March 2019: 376 066 766

By order of the Board

MH Muller                            IF Pick
Chief Executive Officer              Chief Financial Officer

5 March 2019
Johannesburg


Condensed consolidated statement of financial position
   
                                    Unaudited          Restated*        Audited
                                   six months        six months            year
                                        ended             ended           ended
                                  31 Dec 2018       31 Dec 2017     30 Jun 2018
                                        R'000             R'000           R'000
Assets
Non-current assets                  4 860 579         5 252 318       4 864 870
Investment property                 4 554 652         4 829 708       4 534 810
Property, plant and equipment           1 368             2 318           1 851
Tenant installation                    10 412            14 151          11 908
Investment in joint venture           239 632           251 442         231 302
Other non-current assets                8 984             9 290          19 370
Other financial assets                 25 494           102 530          32 600
Restricted cash                        20 037            42 879          33 029
Current assets                        350 832           166 248         458 857
Restricted cash                        19 489             8 944          16 427
Trade and other receivables            34 996            46 389          56 169
Non-current assets classified as
held for sale                          12 400                 -         272 156
Other financial assets                  3 403            12 516           6 692
Income tax receivable                  11 239             5 887          13 745
Cash and cash equivalents             269 305            92 512          93 668
Total assets                        5 211 411         5 418 566       5 323 727
Equity and liabilities
Equity                              2 888 742         2 513 075       2 297 186
Stated capital                      2 842 473         2 257 206       2 257 206
Retained earnings                     247 288           544 887         254 934
Foreign currency translation
reserve                             (201 019)          (289 065)       (214 954)
Share-based payment reserve                 -                47               -
Liabilities                         2 322 669         2 905 491       3 026 541
Non-current liabilities             1 846 926         1 736 753         384 987
Other financial liabilities         1 836 259         1 723 167         374 289
Lease liability                         3 364             3 426           3 395
Deferred tax                            7 303            10 160           7 303
Current liabilities                   475 743         1 168 738       2 641 554
Other financial liabilities           378 060           456 017       1 898 441
PIC Put Option liability                    -           634 527         642 570
Trade and other payables               92 340            78 194         100 543
Income tax payable                      5 343                 -               -
Total equity and liabilities        5 211 411         5 418 566       5 323 727

* See note 5 for details.


Condensed consolidated statement of comprehensive income
   
                                    Unaudited          Restated*        Audited
                                   six months        six months            year
                                        ended             ended           ended
                                  31 Dec 2018       31 Dec 2017     30 Jun 2018
                                        R'000             R'000           R'000
Investment property income            286 756           303 931         581 192
Straight-line rental adjustment         1 711              (712)          7 721
Revenue                               288 467           303 219         588 913
Property expenses                    (100 410)          (90 830)       (171 925)
Net property income                   188 057           212 389         416 988
Other income                            9 852                37             478
Administrative expenses               (14 596)          (14 556)        (28 270)
Loss from joint venture                (7 452)             (472)        (47 452)
Foreign exchange (loss)/gain          (12 337)            5 879          17 304
Asset management fees                       -            (6 139)         (6 139)
Operating profit                      163 524           197 138         352 909
Finance income                         52 589            51 834         102 727
Finance costs                         (90 740)          (80 983)       (167 016)
Fair value adjustments                (19 489)           22 421        (208 423)
Capital expenses                      (14 156)           (3 806)         (3 806)
Cancellation of asset management
contract                                    -          (180 102)       (180 102)
PIC Put Option recognition
adjustment                                  -            (5 560)        (13 603)
Profit/(loss) before tax               91 728               942        (117 314)
Taxation                              (12 167)            4 773             611
Profit/(loss) for the period           79 561             5 715        (116 703)
Other comprehensive income:
Items that may be reclassified to 
profit or loss:
Exchange differences on                13 935           (18 934)         55 177
translating foreign operations
Total comprehensive
income/(loss) for the period           93 496           (13 219)        (61 526)
Profit and total comprehensive 
income/(loss) for the period 
attributable to: 
Equity holders of the Company          93 496           (13 219)        (61 526)
Earnings/(loss) per share
Basic and diluted earnings/(loss) 
per share(cents)                        22,77              2,99          (33,36)
Headline and diluted earnings
per share (cents)                       24,46              1,63           26,80

* See note 5 for details.


Condensed consolidated statement of changes in equity

                                   Foreign       Share
                                  currency       based
                      Stated   translation     payment     Retained
                     capital       reserve     reserve     earnings       Total
                       R'000         R'000       R'000        R'000       R'000
Balance at 
30 June 2017       2 263 137      (270 131)         47      731 327   2 724 380
Treasury shares
acquired              (5 931)                                            (5 931)
Total 
comprehensive 
income for the 
period
- Profit for
the period                                                    5 715       5 715
- Exchange 
differences on 
translation of 
foreign operations                 (18 934)                             (18 934)
Transactions with 
shareholders 
recognised 
directly in equity
- Dividend paid                                            (192 155)   (192 155)
Balance at 
31 December 2017   2 257 206      (289 065)         47      544 887   2 513 075
Elimination of 
share-based 
payments reserve 
on transfer of 
liability to new 
share incentive
scheme                                             (47)                     (47)
Total 
comprehensive 
loss for the 
period
- Profit for
the period                                                 (122 418)   (122 418)
- Exchange 
differences 
on translation 
of foreign
operations                          74 111                               74 111
Transactions with 
shareholders 
recognised 
directly in equity
- Dividend paid                                            (167 535)   (167 535)
Balance at 
30 June 2018       2 257 206      (214 954)          -      254 934   2 297 186
Extinguishment of 
PIC Put Option
liability            642 570                                            642 570
Derecognition
of PIC Put Option
liability            (57 303)                                57 303          -
Total 
comprehensive 
income for the 
period
- Profit for
the period                                                   79 561      79 561
- Exchange 
differences on 
translation of 
foreign
operations                          13 935                               13 935
Transactions
with shareholders 
recognised directly 
in equity
- Dividend paid                                            (144 510)   (144 510)
Balance at 
31 December 2018    2 842 473     (201 019)          -      247 288   2 888 742


Condensed consolidated statement of cash flows
   
                                    Unaudited          Restated*        Audited
                                   six months        six months            year
                                        ended             ended           ended
                                  31 Dec 2018       31 Dec 2017     30 Jun 2018
                                        R'000             R'000           R'000
Cash flows from operating 
activities
Cash generated by operations          178 423             4 377         199 960
Interest received                      42 520            34 457          84 050
Interest paid                         (81 032)          (68 471)       (152 530)
Dividends paid                       (144 510)         (192 155)       (359 690)
Taxation paid                          (4 385)           (1 889)        (17 026)
Net cash outflow from operating
activities                             (8 984)         (223 681)       (245 236)
Cash inflows from investing 
activities
Additions to property, plant and
equipment                                   -            (5 364)           (515)
Additions to investment property       (3 467)          (10 223)        (19 488)
Proceeds on disposal of
investment property                   272 156            87 250          87 250
Additions to other non-current
assets                                      -              (964)              -
Loans repaid                                -                 -             272
Repayments from joint venture               -                 -           2 923
Loans advanced to joint venture        (9 231)                -               -
Commissions paid                       (2 175)                -          (2 910)
Costs and deposit paid for
Equites acquisition                         -                 -         (10 128)
Tenant installation incurred             (929)                -          (5 321)
Net cash inflow from investing
activities                             256 354           70 699          52 083
Cash inflows from financing 
activities
Treasury shares acquired                     -           (5 931)         (5 931)
Premiums paid on hedging
instruments                                  -           (3 523)         (6 823)
Proceeds from other financial
liabilities                            356 729          498 046         721 822
Repayments of other financial
liabilities                           (440 402)        (405 201)       (593 353)
Lease liability payment                   (236)               -            (472)
Net cash (outflow)/inflow from
financing activities                   (83 909)          83 391         115 243
Net increase/(decrease) in cash 
and cash equivalents for the
period                                 163 461          (69 591)        (77 910)
Cash and cash equivalents at the
beginning of the period                 93 668          154 424         154 424
Effect of exchange rate movement
on cash and cash equivalents             1 626           (1 265)          5 165
Release of restricted cash              10 550            8 944          11 989
Cash and cash equivalents at the
end of the period                      269 305           92 512          93 668

* See note 5 for details.

Notes
1. Preparation and accounting policies
The condensed unaudited consolidated interim financial statements have been 
prepared in accordance with and contain the information required by IAS 34: 
Interim Financial Reporting, the SAICA Financial Reporting Guides as issued 
by the Accounting Practices Committee and Financial Reporting Pronouncements 
as issued by the Financial Reporting Standards Council, the JSE Listings 
Requirements and the requirements of the Companies Act of South Africa. This 
report complies with the SA REIT Association Best Practice Recommendations.

This report was compiled under the supervision of Inge Pick CA(SA), the
Chief Financial Officer.

The accounting policies applied in the preparation of the condensed 
consolidated unaudited financial statements are in terms of IFRS and are 
consistent with those applied in the previous consolidated annual financial 
statements. None of the new standards, interpretations and amendments 
effective as of 1 July 2018 have had a material impact on the condensed 
consolidated unaudited interim financial statements.

All monetary information is presented in the functional currency of the 
Company, being South African Rand, and is rounded to the nearest thousand 
(R'000).

The condensed consolidated interim financial statements have not been 
audited or reviewed by Texton's auditors.

The Group's investment properties are valued internally using the 
capitalisation of net income method at interim reporting periods, and 
externally by an independent valuer for year-end reporting. In terms 
of IAS 40: Investment Property and IFRS 7: Financial Instruments: 
Disclosure, investment properties are measured at fair value and are 
categorised as level 3 investments.

The revaluation of investment property requires judgement in the determination 
of future cash flows from leases and an appropriate capitalisation rate which 
varies between 6,59% and 9,21%.

In terms of IAS 39: Financial Instruments: Recognition and Measurement and 
IFRS 7, the Group's currency and interest rate derivatives are measured at 
fair value through profit or loss and are categorised as level 2 investments.

The fair value of the currency derivatives was an asset of R27,8 million 
(June 2018: R32,6 million) and the fair value of the interest rate derivative 
net asset was R3,3 million (June 2018: R7,0 million). These fair values were 
determined using valuation techniques that present value to the net cash flows. 
These cash flows are based on observable market data.

The fair values of all financial instruments, interest rate swaps and 
fixed-rate financial liabilities are substantially the same as the carrying 
amounts reflected on the statement of financial position. 

There were no transfers between levels 1, 2 and 3 during the year. The 
valuation methods applied are consistent with those applied in preparing 
the previous consolidated financial statements.

The Board is not aware of any matters or circumstances arising subsequent to 
December 2018 that require any additional disclosure or adjustment to the 
financial statements.


2. Distributable earnings

                                    Unaudited          Restated*        Audited
                                   six months        six months            year
                                        ended             ended           ended
                                  31 Dec 2018       31 Dec 2017     30 Jun 2018
                                        R'000             R'000           R'000
Revenue                               286 756           303 931         581 192
Property expenses                    (100 410)          (90 830)       (171 925)
Loss from joint venture                (7 452)             (472)        (47 452)
Non-cash items included in loss
from joint venture                      2 011               847          44 740
Other income                            9 852                37             478
Administrative expenses               (14 596)          (14 556)        (28 270)
Asset management fees                       -            (6 139)         (6 139)
Net finance cost                      (38 151)          (29 149)        (64 289)
- Finance income                       52 589            51 834         102 727
- Finance cost                        (90 740)          (80 983)       (167 016)
Taxation                              (12 167)             (859)         (7 039)
Capital gains tax on disposal
from non-REIT group entity              2 560                 -               -
Realised foreign exchange
(loss)/gain                            (2 007)            4 763          10 604
Dividends on treasury shares            9 650            12 789          23 982
Total distribution                    136 046           180 362         335 882
Less: Distribution to
shareholders (interim)                      -                 -        (180 324)
Available for distribution            136 046           180 362         155 558
Headline earnings
Headline earnings attributable to 
shareholders
Profit/(loss) attributable to
shareholders                           79 561             5 715        (116 703)
Gross revaluation of investment
property                                3 885                 -         167 578
Gross revaluation of investment 
property recognised in equity
accounted joint venture                 2 011                 -          42 862
Headline earnings attributable to
shareholders                           85 457             5 715          93 737

* See note 5 for details.


3. Cash generated from operations

                                    Unaudited          Restated*        Audited
                                   six months        six months            year
                                        ended             ended           ended
                                  31 Dec 2018       31 Dec 2017     30 Jun 2018
                                        R'000             R'000           R'000
Cash generated by operations
Profit/(loss) before tax               91 728               942        (117 314)
Adjusted for:
Amortisation and depreciation           5 188             4 501           9 277
Impairment allowance                    2 734             1 693           1 772
Loss from joint venture                 7 452               472          47 452
Finance income                        (52 589)          (51 834)       (102 727)
Straight-line adjustment               (1 711)              712          (7 721)
Finance costs                          90 740            80 983         167 016
Fair value adjustments                 19 489           (22 421)        207 761
Share-based payment expense                 -                 -             662
PIC Put Option recognition
adjustment                                  -             5 560          13 603
Unrealised foreign exchange
loss/(gain)                            10 330            (1 116)         (6 700)
Assets scrapped                           153                 -             111
Forfeiture of Equites deposit          10 128                 -               -
Cash generated before working
capital changes                       183 642            19 492         213 192
Changes in working capital:
- Decrease/(increase) in trade
and other receivables                   8 524            (2 583)        (21 625)
- (Decrease)/increase in trade
and other payables                    (13 743)          (12 532)          8 393
Cash generated by operations          178 423             4 377         199 960

* See note 5 for details.


4. Restatements
Shareholders are advised that the Company's financial results for the six 
months ended 31 December 2017 have been restated as follows:

                                   Previously                         
                                    reported/                         Restated  
                                   six months                       six months         
                                        ended                            ended
                                  31 Dec 2017        Adjustment    31 Dec 2017
                                        R'000             R'000          R'000
Statement of financial position
Finance lease liability  (1)           35 427           (32 001)         3 426
Stated capital (2)                  2 842 473          (585 267)     2 257 206
PIC Put Option liability (2)                -           634 527        634 527
                                    2 877 900            17 259      2 895 159
Retained earnings                     561 379           (17 259)       544 120
Impact on equity                      561 379           (17 259)       544 120
Statement of comprehensive income
Fair value adjustments (1)             21 626               795         22 421
PIC Put Option adjustment (2)               -            (5 560)        (5 560)
Profit before tax                       5 707            (4 765)           942
Profit for the period                  10 480            (4 765)         5 715
Total comprehensive loss for the       (8 454)           (4 765)       (13 219)
period
Impact on earnings per share
Basic and diluted headline
earnings per share                       2,99             (1,36)          1,63
Headline and diluted headline
earnings per share                       3,03             (1,36)          1,67


(1) The lease liability for Woodmead Commercial Park has been restated due 
to a prior year error. Contingent rentals were erroneously included in the 
calculation of the lease liability, resulting in an overstatement of the 
liability by R32,0 million.

(2) Texton entered into the Put Option Agreement in 2015. The exercise of the 
Put Option in September 2018 by the PIC gave rise to a contractual liability 
under IAS 32 as Texton does not have an unconditional right to avoid paying 
cash. This led to the raising of the liability and the restatement of the prior 
year financial statements. In the prior year, this amount was not recognised 
based on judgements made by management which took into account external 
accounting and legal opinions. After a further review of the judgements used 
in accounting for the liability, it was recognised as a prior period error 
at June 2018. As December 2017 is shown as a comparative period, the 
restatement of the PIC Put Option has been disclosed although the liability 
has been extinguished at December 2018. A liability of R634,5 million was 
raised for the PIC Put Option at 31 December 2017.

5. Segmental analysis

                                                South Africa
                                    Unaudited          Restated*        Audited
                                   six months        six months            year
                                        ended             ended           ended
                                  31 Dec 2018       31 Dec 2017     30 Jun 2018
                                        R'000             R'000           R'000
Segmental revenue - rental revenue
Retail                                 35 707            35 294          74 397
Office                                171 298           183 715         351 336
Industrial                             22 051            24 648          46 993
                                      229 056           243 657         472 726
Profit before tax
Retail                                 17 931            22 052          42 982
Office                                112 325           119 578         170 493
Industrial                             10 347            15 288          14 739
Corporate                             (62 125)         (199 208)       (310 465)
                                       78 478          (42 290)        (82 251)
Total assets
Retail                                474 253           470 351         474 328
Office                              2 506 207         2 596 896       2 541 199
Industrial                            291 459           305 562         293 825
Corporate                             115 463           133 031          85 957
                                    3 387 382         3 505 840       3 395 309

* See note 5 for details.

  
                                                      UK
                                    Unaudited          Restated*        Audited
                                   six months        six months            year
                                        ended             ended           ended
                                  31 Dec 2018       31 Dec 2017     30 Jun 2018
                                        R'000             R'000           R'000
Segmental revenue - rental revenue
Retail                                 13 142            12 946          25 297
Office                                 26 994            28 313          55 104
Industrial                             19 275            18 303          35 786
                                       59 411            59 562         116 187
Profit before tax
Retail                                  1 004             8 408         (95 211)
Office                                 13 043            20 752          (5 007)
Industrial                             13 587            14 366          49 162
Corporate                             (14 384)             (294)         15 993
                                       13 250            43 232         (35 063)
Total assets
Retail                                598 271           634 082         576 524
Office                                589 437           721 566         736 784
Industrial                            634 806           556 532         614 383
Corporate                               1 515               546             727
                                    1 824 029         1 912 726       1 928 418

* See note 5 for details.

   
                                                      Total
                                    Unaudited          Restated*        Audited
                                   six months        six months            year
                                        ended             ended           ended
                                  31 Dec 2018       31 Dec 2017     30 Jun 2018
                                        R'000             R'000           R'000
Segmental revenue - rental revenue
Retail                                 48 849            48 240          99 694
Office                                198 292           212 028         406 440
Industrial                             41 326            42 951          82 779
                                      288 467           303 219         588 913
Profit before tax
Retail                                 18 935            30 460         (52 229)
Office                                125 368           140 330         165 486
Industrial                             23 934            29 654          63 901
Corporate                             (76 509)         (199 502)       (294 472)
                                       91 728             942          (117 314)
Total assets
Retail                              1 072 524         1 104 433       1 050 852
Office                              3 095 644         3 318 462       3 277 983
Industrial                            926 265           862 094         908 208
Corporate                             116 978           133 577          86 684
                                    5 211 411         5 418 566       5 323 727

* See note 5 for details.


Summary of financial performance

                          Unaudited                     Restated*
                            for the       Audited        for the        Audited
                         six months       for the     six months        for the
                              ended    year ended          ended     year ended
                        31 Dec 2018   30 Jun 2018    31 Dec 2017    30 Jun 2017 
Shares in issue and 
used for dividend
calculation ('000)          349 395       349 395        349 395        350 328
Weighted average number 
of shares in  
issue ('000)                349 395       349 812        350 223        351 633
Net asset value per     
share (cents)                826,79        657,48         717,35         777,67
Net tangible asset 
value less deferred
tax per share (cents)        829,08        659,57         720,25         781,93
Basic and diluted 
earnings/(loss)
per share (cents)             22,77       (33,36)           1,63          82,76
Headline and diluted 
earnings per share
(cents)                       24,46        26,80            1,67         114,70
Dividend per share
(cents)                       36,18        89,31           47,95         102,80
Share price (cents)          479,00       605,00          640,00         790,00
Loan-to-value ratio(%)         40,3         55,4            50,9           53,1
Loan-to-value ratio 
excluding PIC Put
Option (%)                     40,3         42,7            41,8           40,1
IFRS
Gross property cost-
to-income ratio (%)            35,0         29,6            29,9           25,7
Net property cost-to-
income ratio (%)               20,5         14,6            13,4            9,1
Gross total cost-to-
income ratio (%)               38,8         36,3            38,0           28,4
Net total cost-to-
income ratio (%)               27,1         22,7            23,4           15,7
Management accounts
(unaudited)
Gross property cost-
to-income ratio (%)            35,3         28,9            29,9           26,9
Net property cost-to-
income ratio (%)               22,0         15,0            14,6           11,9
Gross total cost-to-
income ratio (%)               38,8         35,1            37,3           34,7
Net total cost-to-
income ratio (%)               26,7         22,4            23,7           21,5

* See note 5 for details.

Corporate information
Physical and registered address
Block C, Investment Place
10th Road, Hyde Park 2196
PO Box 653129, Benmore 2010

Board of directors
M Golding@ (Non-executive Chairman)
MH Muller$* (Chief Executive Officer) 
IF Pick* (Chief Financial Officer)
A Hannington^ (Independent Non-executive) 
JR Macey (Lead Independent)
S Thomas# (Independent Non-executive)
* Executive director
@ Appointed as Chairman of the Board on 27 November 2018
$ Appointed as Chief Executive Officer on 27 November 2018
^ Appointed as Non-executive Director on 11 October 2018
# Appointed as Non-executive Director on 29 October 2018

Company secretary
Motif Capital Partners 
Suite 11, 2nd Floor 
Melrose Boulevard 
Melrose Arch 2193

Auditor
SizweNtsalobaGobodo Grant Thornton Inc.
20 Morris Street East
Woodmead 2191

Sponsor
Merchantec Capital
2nd Floor North Block
Hyde Park Office Tower
Cnr 6th Road and Jan Smuts Avenue
Hyde Park 2196
PO Box 41480, Craighall 2024

Transfer secretary
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue
Rosebank 2196
PO Box 61051, Marshalltown 2107

Investor relations
Catchwords
Block B, 2 Davidson Street, Rynfield
Benoni 1501





Date: 05/03/2019 07:05:00 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.

Email this JSE Sens Item to a Friend.

Share This Story