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Preliminary summarised audited consolidated financial results for the year ended 31 December 2018
SA Corporate Real Estate Limited
("SA Corporate" or "the Group")
Incorporated in the Republic of South Africa
Share Code: SAC; ISIN Code: ZAE000203238
(Registration number 2015/015578/06)
PRELIMINARY SUMMARISED AUDITED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2018
Distribution
- Full year 6.0% lower than 2017
Capital structure
- Effective fixed debt of 73.1%
- LTV of 34.6%
Portfolio activity
- Completed and committed developments of R1.2bn
- Acquisitions and contracted acquisitions R1.1bn
Property performance
- NPI growth of 4.3%
- Retail portfolio tenant retention is 87.1%
- Traditional portfolio vacancy of 2.1% of GLA
INTRODUCTION
SA Corporate Real Estate Limited is a JSE-listed Real Estate Investment Trust (?REIT?) which owns a diversified portfolio of industrial, retail, commercial, storage and residential buildings located primarily in the major metropolitan areas of South Africa with a secondary node in Zambia.
REVIEW OF FINANCIAL RESULTS AND PORTFOLIO PERFORMANCE
Distribution
SA Corporate's distributions per share decreased for the year by 6.0% compared to the prior year. This amounts to distributions of R1,068bn (2017: R1,137bn) in absolute terms and 42.22 cps (2017: 44.92 cps) for the year. This is marginally below the pre-close guidance of 5.7%, arising mainly from increased bad debt provisions impacted by the challenging economic climate. The decline in distributions arose from non-recurring income and base effects in the prior year, increased property rates expenses, additional re-financing costs as well as economic pressure negatively impacting portfolio performance.
Portfolio Performance
Total net property income (?NPI?) increased by 4.3%, with the like-for-like increasing by 1.0%.
Retail NPI growth of 6.8% (excluding the impact of disposals) was underpinned by strong tenant retentions of 87.1%, and weighted average lease escalations of 7.6%. The retail like-for-like (excluding developments) portfolio grew by 2.9%.
Industrial NPI remained flat with the commissioning of a large logistics development. The like-for-like portfolio NPI retracted by 2.7% resulting from negative reversions in respect of logistics leases with long tenors with 8% escalations and reverted to market and 33% increase in ground lease rentals at the Maydon Warf leasehold properties.
Afhco NPI grew by 25.4% due to net positive investment activities. Afhco like-for-like NPI grew by 5.9%, mainly due to a 1.0% reduction in annual average vacancies, 80.5% retail retentions, escalations of 8.9% and average residential increases of 4% on the back of rental rebasing and/or discounting and the introduction of other lifestyle and marketing interventions in 2017.
The income from the investment in the Zambian joint venture increased by 4.6% with an overall annual average vacancy reduction of 3.2%.
Net Finance Costs
Net funding cost increased by 27.1%, arising from a net increase in debt drawn of R648m, as a result of increased investment activity. This is also attributable to increased marginal cost of funding in respect of refinancing of R1,2bn of expiring debt in December 2017 at a rate 45bps higher than the expiring marginal costs of funding and a reduction in borrowing costs capitalised in respect of the completion of major retail developments.
DISTRIBUTION STATEMENT
Year ended Year ended
DISTRIBUTABLE EARNINGS (R000) 31.12.2018 31.12.2017
Rent (excluding straight line rental
adjustment) 1,690,835 1,509,933
Net property expenses (235,312) (138,909)
Property expenses (832,529) (711,433)
Recovery of property expenses 597,217 572,524
Net property income attributable to
non-controlling interest (26,182) (508)
Net property income 1,429,341 1,370,516
Investment in joint ventures 61,668 58,960
Taxation on distributable earnings (136) (260)
Dividends from investment in listed shares 13,954 23,783
Net finance cost (391,958) (308,443)
Interest income 88,816 78,263
Interest expense (508,964) (386,706)
Interest attributable to non-controlling
interest 28,190 -
Distribution related expenses (44,653) (45,506
Distribution related income - 11,631
Antecedent distribution - 26,029
Distributable earnings 1,068,216 1,136,710
Interim 549,038 566,355
Final 519,178 570,355
Shares in issue (000) 2,530,689 2,530,689
Weighted number of shares in issue (000) 2,530,689 2,473,310
Distribution (cents per share) 42.22 44.92
Interim 21.70 22.38
Final 20.52 22.54
PROPERTY VALUATIONS
The Group's independently valued property portfolio increased by R1,0bn (5.8%) to R17,8bn as at December 2018 (December 2017: R16,8bn). The like-for-like portfolio held for the full 12 months to December 2018 increased by R204,6m (1.8%) from December 2017.
The capitalisation and discount rates in the Group's like-for-like portfolio at 31 December 2018 calculated on a weighted average basis were:
Sector Capitalisation Discount rate (%) Growth in like-for
rate (%) -like portfolio (%)
31.12.2018 31.12.2017 31.12.2018 31.12.2017 31.12.2018
Industrial 9.6 9.3 15.6 15.3 1.3
Retail 8.9 8.7 14.9 14.7 3.6
Commercial 9.4 9.0 15.4 15.0 (4.8)
Afhco 10.5 10.4 * * 2.2
Weighted average 9.6 9.4 15.3 15.0 1.8
* Afhco properties are not valued on a discounted rate basis, but on the basis of capitalisation of the net income earnings in perpetuity, due to the short term nature of residential leases.
The Net Asset Value (?NAV?) per share (508 cps) decreased by 1.2% (December 2017: 514 cps) of which a decrease of 0.5% and 0.3% are attributable to revaluation of investment property and investment in listed shares, respectively. The NAV is further impacted by 0.4% due to the decrease of the distributable income from 2017 to 2018.
PROPERTY PORTFOLIO
The portfolio comprised 200 properties (December 2017: 196) which excludes the 3 Zambian properties held as a 50% investment in the joint ventures. The sectoral and geographic spread by value as at 31 December 2018 are set out below:
Sectoral Spread
Retail
R7,2bn
364,801 m2
26 properties
43%
Industrial
R4,7bn
684,478 m2
78 properties
28%
Afhco
R4,0bn
381,907 m2
62 properties
23%
Commercial
R1,0bn
55,241 m2
11 properties
5%
Storage
R0,1bn
31,458 m2
14 properties
1%
Geographic Spread
Gauteng
R11,0bn
998,494 m2
136 properties
65%
KwaZulu-Natal
R5,0bn
382,051 m2
44 properties
30%
Western Cape
R0,5bn
51,989 m2
7 properties
3%
Other
R0,5bn
85,351 m2
4 properties
2%
The above excludes:
1. Development bulk across the Traditional, Afhco and Storage portfolios measuring 153,786m2 comprising 9 properties and valued at R0,4bn.
2. Listed investments of R0,1bn.
3. Joint venture investment in Zambia valued at R1,0bn.
4. Non-controlling interest.
Redevelopments completed:
Properties Total Completion Yield Sector Region
development date forecast
cost (Rm) 1st 12
months
(%)
57 Sarel Baard Crescent, 391,0 10/2018 8.0 1 Industrial Gauteng
Centurion
Afhco pipeline 200,6 09/2018 10.8 Retail/ Gauteng
-12/2018 Residential
Total 591,6 8.9
1 Yield of 8.0% based on pre-development valuation using a market rental, which is a negative 40% reversion on the closing rental of an initial 5 year lease renewed for a further 7 year period.
Committed Redevelopments:
Properties Total Forecast Yield Sector Region
development completion forecast
cost (Rm) date 1st 12
months
(%)
252 Montrose Avenue, 92,0 06/2019 9.5 1 Residential Gauteng
Randburg
51 Pritchard Street, 85,3 04/2020 8.5 2 Retail Gauteng
Johannesburg CBD
Afhco pipeline 3 459,8 03/2019 10.8 Retail/ Gauteng
-11/2019 Residential
Total 637,1 10.3
Spent to 31/12/2018 365,1
Total unspent 272,0
1 Should targeted rentals not be realised, consideration will be given to sale of units to achieve yield.
2 Yield calculated as incremental income on capex including capitalised interest plus current building value of R180m.
3 In addition to the above, Afhco's development bulk represents a pipeline of R300m.
The investment case of converting commercial to residential at North Park Mall, Cnr Old Pretoria and Alexandra Roads and Kempton Park Shoprite is under review.
Acquisitions:
Properties Cost Acquisi- Yield Sector Region
(Rm) tion forecast
date 1st 12
months
(%)
Northgate Heights Phases 24,7 01/2018 10.0 Residential Gauteng
1 & 2, Northgate - 12/2018
Calgro M3 Developments 177,0 02/2018 10.0 Residential Gauteng
- South Hills 1 - 11/2018
The Oaks, Ermelo 105,0 03/2018 10.7 Retail Mpuma
-langa
African City Mall Final 32,9 04/2018 11.6 Retail Gauteng
Phase, Johannesburg CBD - 06/2018
Calgro M3 Developments 55,0 04/2018 10.0 Residential Gauteng
- Jabulani Lifestyle Phases - 09/2018
1 - 6, Soweto 1
M&T Development - Etude 47,8 12/2018 10.0 Residential Gauteng
Phase 4, Midrand
Total 442,4 10.3
1 Represents 51% ownership in the joint initiative.
The cancellation of the contract for the acquisition of units at Fleurhof and Scottsdene from Calgro M3 Developments is under negotiation. This acquisition, amounting to R63,6m, was disclosed in the June 2018 announcement.
Contracted and Unconditional Acquisitions:
Properties Cost Acquisi- Yield Sector Region
(Rm) tion forecast
date^ 1st 12
months
(%)
Northgate Heights Phase 3,1 1 01/2019 10.0 Residential Gauteng
2, Northgate
M&T Development - Etude 117,5 03/2019 10.0 Residential Gauteng
Phases 5 & 6, Midrand -05/2019
M&T Development - 285,9 03/2019 9.5 Residential Gauteng
Founders Hill Phases -06/2020
1-6, Founders Hill 2
M&T Development - Menlyn 211,6 06/2021 10.0 Residential Gauteng
East End Development,
Menlyn 2
Total 618,1 9.8
^ Acquisition date represents the expected effective date of the transaction.
1 Transferred.
2 Represents 60% ownership in the joint initiative.
Disposals:
Properties Transfer Gross Exit Sector Region
date selling yield
price on sale
(Rm) price
(%)
Atterbury D?cor, Pretoria 01/2018 86,8 8.5 Retail Gauteng
Rhodesdene Shopping Centre, 03/2018 52,0 8.8 Retail Northern
Kimberley Cape
22 Voortrekker Road, 05/2018 78,5 8.8 Commercial Western
Vredenburg Cape
Lebombo Road, Garsfontein 06/2018 12,0 6.2 Commercial Gauteng
(Portion)
21 Pomona Road, Pomona 06/2018 18,3 8.0 Industrial Gauteng
9/15 Lanner Road, New 07/2018 36,0 7.9 Industrial KwaZulu-
Germany Natal
1/5 Stockville Road, 09/2018 53,6 7.7 Industrial KwaZulu-
Westmead Natal
28 Durham Street, Mthatha 09/2018 86,5 8.8 Commercial Eastern
Cape
11 Coconut Grove, Shakashead 10/2018 2,4 7.6 Industrial KwaZulu-
Natal
6 Cedarfield Close, 10/2018 57,0 12.1 1 Industrial KwaZulu-
Springfield Park Natal
Burgundy Estate, Centurion 10/2018 4,9 8.0 Residential Gauteng
(Portion) -12/2018
24 Westmead Road, Westmead 11/2018 26,0 6.7 Industrial KwaZulu-
Natal
1 Marconi Street, Montague 12/2018 45,0 8.2 Industrial Western
Gardens Cape
Table Bay Industrial Park, 12/2018 118,4 8.3 Industrial Western
Paarden Eiland Cape
Total 677,4 8.6
1 Exit yield in year 2 is 6.8% due to a negative reversion.
Contracted Disposals:
Properties Expected Gross Exit Sector Region
transfer selling yield
date price on sale
(Rm) price
(%)
14/24 Mahoganyfield Way, 01/2019 1 36,0 8.0 Industrial KwaZulu-
Springfield Park 2 Natal
40 Electron Avenue, 01/2019 1 59,7 9.0 Industrial Gauteng
Isando 2
Lebombo Road, Garsfontein 03/2019 27,1 9.3 Commercial Gauteng
(Remaining) 2
Hotel at Cullinan Jewel 11/2019 2,7 9.0 Retail Gauteng
Shopping Centre, Pretoria
The Mall, Vanderbijl 03/2020 13,6 10.0 3 Afhco Gauteng
Park 2 Retail
Total 139,1 8.9
1 Transferred.
2 Contracted and unconditional.
3 Exit yield based on head lease rental.
VACANCIES AND LEASE EXPIRIES
Vacancies in terms of rentable area and rental income were as follows:
Sector Vacancy as % of GLA* Vacancy as % of rental income
31.12.2018 31.12.2017 31.12.2018 31.12.2017
Traditional Portfolio:
Industrial 0.6 1.5 0.4 1.0
Retail 4.1 3.1 4.2 3.0
Commercial 6.2 6.4 5.5 6.0
Traditional Portfolio
total 2.1 2.3 2.9 2.4
Storage Portfolio:
Storage 21.8 16.5 26.5 22.9
Storage Portfolio total 21.8 16.5 26.5 22.9
Afhco Portfolio:
Residential 1 13.4 7.3 16.4 9.2
Retail / Commercial 2 4.8 2.1 3.3 1.7
Rest of Africa
Portfolio:
Retail 2.7 2.7 1.8 1.7
Commercial 1.1 10.7 1.0 8.0
Rest of Africa Portfolio
total 2.3 4.3 1.6 3.0
* GLA = Gross lettable area
1 Vacancy calculated on number of units and includes 571 units in the tenanting up phase of the joint venture with Calgro M3 Developments. Excluding the latter, vacancy would be 7.1%. Seasonal end of year higher vacancy reduced to 5.7% excluding units in the tenanting up phase at end February 2019.
2 1.7% of the 4.8% GLA vacancy is low yielding basement and upper level space.
The traditional portfolio vacancies by GLA reduced marginally to 2.1%. The reduction in vacancies by GLA stem from lower industrial and commercial vacancies with an increase in retail vacancies related to delayed tenanting in respect of the larger developments.
With focus on improving the leasing capability, the Afhco like-for-like annual average residential vacancies reduced by 1,8%.
Zambian commercial vacancies have been reduced with a blue chip financial institution take up of a large portion of the vacant space at Acacia Office Park.
The lease expiry profile and vacancies (by GLA) are set out below:
Sector Vacancy (%) Expiries (%)
Monthly 2019 2020 2021 2022 Thereafter
Traditional Portfolio:
Industrial 0.6 4.3 17.6 12.6 24.9 9.6 30.4
Retail 4.1 10.3 15.2 18.1 16.5 10.8 25.0
Commercial 6.2 8.9 14.1 23.1 37.1 8.2 2.4
Traditional Portfolio
total 2.1 6.5 16.7 15.0 23.0 9.9 26.8
Afhco Portfolio:
Residential (by units) 13.4 48.8 36.7 1.1 - - -
Retail / Commercial 4.8 6.0 16.0 24.8 13.6 7.3 27.5
Rest of Africa
Portfolio:
Retail 2.7 - 33.9 13.3 17.6 15.5 17.0
Commercial 1.1 - 35.7 6.5 12.9 6.2 37.6
Rest of Africa
Portfolio total 2.3 - 34.2 12.0 16.7 13.6 21.2
The expiry profile of the storage sector is not disclosed due to the short term nature of the leases.
TENANT RETENTION, RENTAL REVERSIONS AND ESCALATIONS
The table below reflects the Group's retention ratio, rental reversions and escalations per sector for the year ended December 2018:
Sector Expiries Retention Retention Rental Escalation
(m2) (m2) (%) reversions (%)
(%)
Traditional Portfolio:
Industrial 173,640 136,172 78.4 (13.5) 7.8
Retail 58,651 51,060 87.1 (4.6) 1 7.6
Commercial 7,762 6,113 78.8 (1.5) 8.0
Traditional Portfolio
total 240,053 193,345 80.5 (9.1) 7.7
Afhco Portfolio:
Retail / Commercial 6,256 3,918 62.6 7.7 8.9
No retentions and reversions have been disclosed for the Residential and Storage sectors due to the short term nature of their leases.
1 This includes a negative reversion relating to a national retailer renewal at East Point without which the reversion would be a positive 1.8%.
With 21.8% of the traditional portfolio expired in 2018, the Group successfully retained 80.5% of its tenants at a total reversion of negative 9.1%. This was largely impacted by negative reversions in the Industrial portfolio in respect of leases with long tenors and negative reversions at East Point as reflected above.
Afhco retail/commercial portfolio expiries were 8.8% of which, 62.6% were retained with a positive reversion of 7.7%
BORROWINGS
The debt profile as at 31 December 2018 is detailed below:
Facility Maturity date Value (Rm) Interest Rate (%)
Term revolver 1 28.02.2019 425 8.89
Fixed 28.02.2019 200 8.95
Fixed 28.02.2019 270 8.90
Fixed 28.02.2019 30 8.90
Term revolver 2 24.03.2019 - 8.84
Term revolver 3 01.11.2019 - 8.96
Fixed 15.12.2019 848 9.19
Fixed 03.01.2020 500 9.09
Fixed 13.06.2020 950 9.17
Fixed 4 01.11.2020 387 3.59
Fixed 11.12.2020 500 9.21
Fixed 11.12.2021 500 9.34
Fixed 13.12.2021 550 9.24
Fixed 11.12.2022 1,000 9.40
Fixed 29.11.2022 236 9.74
Amortising 15.04.2024 94 6.88
Total interest bearing
borrowings 6,490 8.84
Non-Controlling
Interest 29.11.2022 (116) 9.74
Sub-total 6,374 8.82
Cross Currency Swap 19.09.2022 (132) (9.40)
Cross Currency Swap 4 19.09.2022 143 3.98
Cross Currency Swap 26.01.2023 (120) (9.26)
Cross Currency Swap 4 26.01.2023 143 4.36
Total/weighted average 6,408 8.59
1 R325m revolving credit facility undrawn
2 R200m revolving credit facility undrawn
3 R300m revolving credit facility undrawn
4 US Dollar denominated loan
The loan to value (?LTV?) has increased from 33.1% at 31 December 2017 to 34.6% as at 31 December 2018.
The weighted average cost of debt excluding and including the cross currency swaps, was 8.8% and 8.6% respectively.
The weighted average swap margin was 0.24% and the weighted average debt margin of 1.7%.
The weighted average tenor of loans including the cross currency swaps is 1.8 years which includes R2,6bn of facilities maturing during 2019, excluding which the weighted average tenor of loans would be 2.5 years. A programme is underway to refinance these facilities by H1 2019.
73.1% of total debt drawn was fixed through a combination of fixed rate debt and interest rate swaps in respect of the variable debt for a period of 2.5 years.
STRATEGY AND PROSPECTS
In an environment of low economic growth in South Africa and challenging conditions in the property sector SA Corporate's strategy is to refocus its portfolio to establish a platform for sustainable distribution growth into the future. This is to be achieved by:
? Continuing to refresh and re-tenant its retail shopping centres to provide an attractive offering to the catchment areas they serve. In the next year this will include the redevelopment of Morning Glen Mall, 51 Pritchard Street and the Food Court at East Point. The Group's retail portfolio is to concentrate on food services and convenience as a defensive strategy against the rising competition to ?bricks and mortar? retail emanating from e-commerce.
? Consolidating a quality industrial property portfolio. The Group will continue to dispose of those properties that are not assured of generating robust above inflation net property income growth whilst investing in existing properties to provide superior logistics space to tenants with covenant strength.
? Divesting from its remaining commercial properties given the continued weak prospects for this sector.
? Establishing a quality residential rental portfolio to offer investors diversification to other South African property sectors.
? In the near term the Group?s pipeline of acquisitions from developers is to be restructured to ensure focus.
The Group's 2019 performance is to be negatively impacted upon by the substantial negative reversions in the renewal of historic long leases to blue chip logistics tenants in the latter part of 2018, although this will contribute to strong net property income from the industrial portfolio's net property income post 2019. Based on the aforementioned the Board's view is that the distribution growth for the 2019 financial year is anticipated to be flat.
As at As at
SUMMARISED CONSOLIDATED STATEMENT 31.12.2018 31.12.2017
OF FINANCIAL POSITION (R000) Audited Audited
Assets
Non-current assets 19,070,265 17,340,262
Investment property 17,309,740 15,712,340
Letting commissions and tenant installations 42,893 48,187
Investment in joint ventures 981,179 847,033
Property, plant and equipment 16,396 16,703
Intangible assets 81,904 81,904
Loans to developers 9,391 131,027
Rental receivable - straight line adjustment 235,476 191,348
Investment in listed shares 128,960 170,260
Swap derivatives 261,056 138,849
Other financial assets 3,071 2,611
Deferred taxation 199 -
Current assets 1,109,496 1,160,363
Trade and other receivables 451,114 351,093
Swap derivatives 30,361 12,609
Rental receivable - straight line adjustment 40,112 40,509
Inventory 279 157
Loans to developers 212,804 263,894
Taxation receivable 1,128 852
Other financial assets 167,103 215,795
Cash and cash equivalents 206,595 275,454
Non-current assets held for sale 216,246 890,271
Total assets 20,396,007 19,390,896
Equity and liabilities
Share capital and reserves 12,861,300 13,008,861
Non-current liabilities 5,258,034 4,821,772
Loan from non-controlling shareholder 252,165 90,191
Interest bearing borrowings 4,698,774 4,575,411
Deferred tax - 1,616
Swap derivatives 307,095 154,554
Current liabilities 2,276,673 1,560,263
Trade and other payables 462,828 349,073
Interest bearing borrowings 1 791 376 1 192 376
Taxation payable - 340
Swap derivatives 22,469 18,474
Total equity and liabilities 20,396,007 19,390,896
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT 31.12.2018 31.12.2017
OF COMPREHENSIVE INCOME (R000) Audited Audited
Revenue 2,309,524 2,113,844
Income 2,414,386 2,225,341
Rent 1,690,835 1,509,933
Straight line rental adjustment 21,472 31,387
Recovery of property expenses 597,217 572,524
Interest income 88,816 78,263
Dividends from investments in listed shares 16,046 16,138
Other group income - 17,096
Expenses (1,417,221) (1,166,172)
Audit fees (4,138) (3,276)
Administrative fees (65,389) (60,631)
Depreciation (6,201) (4,126)
Interest expense (508,964) (386,706)
Property expenses (731,490) (628,377)
Property administration fees (101,039) (83,056)
Operating income 997,165 1,059,169
Foreign exchange adjustments (93,593) 37,176
Revaluation of swap derivatives 24,874 (52,380)
Capital loss on disposal of investment properties
and property, plant and equipment (9,242) (8,430)
Revaluation of investment properties and listed
investments (88,384) 407,465
- Revaluations (66,912) 438,852
- Straight line rental adjustment (21,472) (31,387)
Revaluation of investment in listed shares (41,300) (34,540)
Profit from joint ventures 38,818 121,333
Profit before taxation 828,338 1,529,793
Taxation 1,679 (3,656)
Profit after taxation 830,017 1,526,137
Other comprehensive income
Items that may be reclassified to profit or loss
Foreign exchange adjustments on investment in joint
ventures 139,098 (88,018)
Total comprehensive income 969,115 1,438,119
Profit attributable to:
Owners of the company 847,850 1,525,629
Non-controlling interest (17,833) 508
Profit after taxation 830,017 1,526,137
Earnings and diluted earnings cents per share 33.50 61.68
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT OF 31.12.2018 31.12.2017
CHANGES IN EQUITY (R000) Audited Audited
Share capital and reserves at the beginning of
the year 13,008,861 12,070,009
Total comprehensive income for the year 969,115 1,438,119
Shares issued - 568,569
Treasury shares repurchased (1,974) (10,071)
Antecedent distribution - 26,029
Share-based payment reserve 4,688 4,340
Distribution attributable to shareholders (1,119,390) (1,088,134)
Share capital and reserves at the end of the year 12,861,300 13,008,861
Year ended Year ended
SUMMARISED CONSOLIDATED STATEMENT 31.12.2018 31.12.2017
OF CASH FLOWS (R000) Audited Audited
Operating profit before working capital changes 1,459,528 1,374,678
Working capital changes 41,272 17,230
Cash generated from operations 1,500,800 1,391,908
Operating activities changes (1,595,750) (1,450,793)
Interest received 86,449 78,415
Interest paid (562,057) (440,868)
Taxation paid (752) (206)
Distributions paid (1,119,390) (1,088,134)
Net cash outflows from operating activities (94,950) (58,885)
Net cash outflows from investing activities (802,719) (1,736,245)
Net cash inflows from financing activities 828,810 1,879,204
Issue of new shares (net of expenses) - 594,598
Treasury buy back of shares (1,974) (10,071)
Proceeds on interest bearing borrowings 936,186 2,375,356
Repayment of interest bearing borrowings (267,376) (1,170,870)
Loan from non-controlling shareholder 161,974 90,191
Net (decrease) / increase in cash and cash
equivalents (68,859) 84,074
Cash and cash equivalents at the beginning of year 275,454 191,380
Cash and cash equivalents at the end of year 206,595 275,454
NOTES
Basis for preparation
The summarised consolidated financial statements have been prepared in accordance with the requirements of the JSE Limited Listings Requirements and the Companies Act, No. 71 of 2008. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (?IFRS?), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, and to also, as a minimum, contain the information required by IAS 34, Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements, from which the summarised consolidated financial statements were derived, are in terms of IFRS and are consistent with the accounting policies applied in the preparation of the prior year consolidated financial statements, except where the Group adopted IFRS 9 and 15. The new standards were adopted in terms of the transitional provisions of these Standards and did not have a significant impact on the 2018 financial statements. This report and the consolidated financial statements were compiled under the supervision of AM Basson CA(SA), the financial director. The auditors, Deloitte & Touche, have issued their unmodified opinion on the consolidated financial statements for the year ended 31 December 2018. A copy of their audit report and the financial statements are available for inspection on the website and at the Group's registered address. The audit was conducted in accordance with International Standards on Auditing. These preliminary summarised consolidated financial statements have been derived from the consolidated financial statements and are consistent, in all material respects, with the consolidated financial statements. The summarised financial statements report has been audited by Deloitte & Touche and an unmodified audit opinion has been issued. The auditor's report does not necessarily report on all of the information contained in this announcement. Shareholders are therefore advised that in order to obtain a full understanding of the nature of the auditor's engagement, they should obtain a copy of that report together with the accompanying financial information from SA Corporate's registered address or on the Company website. Any reference to future financial performance or prospects included in this announcement has not been reviewed or reported on by the Group's auditors.
1. Reconciliation of profit after tax to headline earnings and distributable earnings attributable to shareholders
Year ended Year ended
31.12.2018 31.12.2017
Audited Audited
R000 CPS R000 CPS
Profit after taxation attributable to
shareholders 847,850 33.50* 1,525,629 61.68*
Adjustments for:
Capital loss on disposal of investment
properties and property, plant and
equipment 9,242 8,430
Revaluation of investment properties
and investment properties in joint
ventures 105,759 (475 794)
Non-controlling interest in
revaluation of investment properties (15,825) -
Headline earnings 947,026 37.42* 1,058,265 42.79*
Antecedent distribution - 26,029
Depreciation 6,201 4,126
Dividend from investment in listed
shares not yet declared (2,092) 7,645
Foreign exchange adjustments 94,075 (37,176)
Non-distributable expenses 22,450 18,401
Non-distributable expenses on investment
in joint ventures 7,417 491
Non-distributable taxation (1 815) 3,396
Revaluation of interest rate swap
derivatives (24,874) 52,380
Revaluation of investment in listed
shares 41,300 34,540
Straight line rental adjustment (21,472) (31,387)
Distributable earnings attributable
to shareholders 1,068,216 42.22 1,136,710 44.92
Interim 549,038 21.70 566,355 22.38
Final 519,178 20.52 570,355 22.54
* calculated on weighted number of shares in issue and excludes non-controlling interest.
2. Audited primary operational segments for the year ended 31.12.2018 (R000)
Business Industrial Retail Commer- Afhco Storage Group 3
segment cial
Revenue 613,494 953,028 117,923 604,827 20,252 2,309,524
Rental income
(excluding straight
line rental
adjustment) 514,705 563,094 91,653 501,236 20,147 1,690,835
Net property
expenditure (46,804) (10,623) (18,435) (144,688) (14,762) (235,312)
Property
expenses (159,171) (364,481) (48,360) (245,650) (14,867) (832,529)
Recovery of
property
expenses 112,367 353,858 29,925 100,962 105 597,217
Net property
income 467,901 552,471 73,218 356,548 5,385 1,455,523
Straight line
rental
adjustment (13,578) 36,076 (3,655) 2,629 - 21,472
Net interest
expense - - - - - (420,148)
Dividend from
investments in
listed shares - - - - - 16,046
Foreign exchange
adjustments - - - - - (93,593)
Group expenses - - - - - (75,728)
Profit from
investment in
joint ventures - - - - - 38,818
Revaluation of
investment
properties (19,778) (10,021) (49,870) (5,219) (3,496) (88,384)
Investment
properties (33,356) 26,055 (53,525) (2,590) (3,496) (66,912)
Straight line
rental
adjustment 13,578 (36,076) 3,655 (2,629) - (21,472)
Revaluation of
swap derivatives - - - - - 24,874
Revaluation of
investment in
listed shares - - - - - (41,300)
Capital loss on
disposal of
investment
properties - - - - - (9,242)
Taxation - - - - - 1,679
Profit after
taxation 434,545 578,526 19,693 353,958 1,889 830,017
Other
comprehensive
income, net of
taxation - - - - - 139,098
Total
comprehensive
income 434,545 578,526 19,693 353,958 1,889 969,115
Profit after
taxation
attributable to:
Owners of the
company 434,545 578,526 19,693 371,791 1,889 847,850
Non-controlling
interest - - - (17,833) - (17,833)
Total profit after
taxation 434,545 578,526 19,693 353,958 1,889 830,017
Other Industrial Retail Commer- Afhco Storage Group 3
information cial
Properties
(excluding
straight
line rental
adjustment): 4,738,222 7,347,750 903,800 4,695,128 116,100 17,801,000
Non-current
investment
property 4,576,229 7,175,590 858,436 4,583,385 116,100 17,309,740
At valuation 4,100,580 7,165,050 803,700 4,095,063 116,100 16,280,493
Straight line
rental
adjustment (66,321) (169,460) (18,264) (21,543) - (275,588)
Under
development 541,970 180,000 73,000 509,865 - 1,304,835
Non-current
investment
property held
for sale 94,778 2,700 27,037 89,771 - 214,286
Classified
as held for
disposal 95,672 2,700 27,100 90,200 - 215,672
Straight line
rental
adjustment (894) - (63) (429) - (1,386)
Other assets 140,162 378,654 48,924 279,633 12,164 2,871,981
Total assets 4,811,169 7,556,944 934,397 4,952,789 128,264 20,396,007
Total
liabilities 57,366 141,741 18,211 773,600 5,408 7,534,707
Acquisitions and
improvements 362,663 301,595 56,225 988,761 3,528 1,712,772
Segmental Industrial Retail Commer- Afhco Storage 1 Group
growth rates cial
(%)
Rental income
(excluding
straight line
rental adjustment) (0.3) 1.3 (5.5) 51.4 - 12.0
Property expenses 9.6 6.8 (2.7) 43.7 - 17.0
Recovery of
property expenses 13.6 4.3 (2.3) (2.5) - 4.3
Net property income (0.4) (0.2) (6.0) 35.3 - 6.2 2
Above table reflects the position inclusive of the non-controlling interest.
1 The Storage portfolio has no comparatives as it became operational on 1 July 2017.
2 Net property income excluding NCI is 4.3%.
3 Included in the Group is the Corporate segment.
3. Fair value measurement
The swap derivatives are valued based on the discounted cash flow method. Future cash flows are estimated based on forward exchange and interest rates (from observable yield curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk. The investment in listed shares is valued at the quoted market price at year end. The investment in joint ventures is valued at the ownership of the underlying joint ventures' net asset value. The fair value of the investment property is determined by an independent registered valuer. The fair value of the industrial, retail, commercial and storage portfolio of investment properties, excluding properties subject to unconditional contracted sales, is based on the discounted cash flow method. The fair value of the inner-city retail, residential and commercial investment properties is based on the capitalisation of the net income earnings in perpetuity. The discounted cash flow method is not appropriate due to the short term nature of the portfolio's leases. The financial instruments are grouped into levels 1 to 3 based on the degree to which the fair value is observable.
The table below analyses assets that are measured at fair value.
Investments in listed shares Level 1
Swap derivatives Level 2
Investment in joint ventures Level 3
Investment property Level 3
There were no transfers between the levels.
This announcement does not include the information required pursuant to paragraph 16A(j) of IAS 34. This can be found in the financial statements which are available for inspection on the website.
4. Capital commitments and contingent liabilities
The Group had capital commitments of R922,7m as at 31 December 2018 (2017: R2 619,6m) and contingent liabilities of R660,7m (2017: R211,4m).
5 Significant related party balances
The Group has the following related party balances:
- Loan to developer, which is a co-owner of a subsidiary, of R214,0m (2017: R385,6m) repayable between 31 March 2019 and 30 June 2019 at a weighted average rate of 10.1% and
- Loan from non-controlling shareholder, which is a co-owner of a subsidiary, of R252,2m (2017: R90,2m) repayable as part of the restructuring of the joint initiative at a weighted average rate of prime.
6. Dividends and events after the reporting period
The Company declared a distribution of 20.52 cents on 5 March 2019. Subsequent to year end, the Group has entered into a binding term sheet with Edcon in terms of which the Group will incur a rental reduction of R2,4m (0.1% of Revenue) for the period 1 April 2019 to 31 March 2020.
The directors are not aware of other significant events between the end of the financial year under review and the date of signature of these financial statements.
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice to shareholders resident in South Africa
Notice is hereby given of the declaration of distribution no.8 in respect of the income distribution period 1 July to 31 December 2018. The distribution amounts to 20.52 cps. The source of the distribution comprises net income from property rentals. Please refer to the statement of comprehensive income for further details. As SA Corporate has REIT status, shareholders are advised that the distribution 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"). The distributions on SA Corporate shares will be deemed to be dividends, for South African tax purposes, in terms of section 25BB of the Income Tax Act. The distributions received by or accrued to South African tax residents must be included in the gross income of such shareholders and are not exempt from income tax (in terms of the exclusion to the general dividend exemption, contained in paragraph (aa) of section 10(1)(k)(i) of the Income Tax Act) because they are dividends distributed by a REIT, with the effect that the distribution is taxable in the hands of the shareholder. These 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 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 distribution 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 ceases to be the beneficial owner, both in the form prescribed by the Commissioner for the South African Revenue Service. SA Corporate shareholders are advised to contact the CSDP, broker or transfer secretaries, as the case may be, to arrange for the abovementioned documents to be submitted prior to payment of the distribution, if such documents have not already been submitted.
Notice to non-resident shareholders
Distributions received by non-resident shareholders will not be taxable as income and instead will be treated as ordinary dividends which are exempt from income tax in terms of the general dividend exemption in section 10(1)(k)(i) of the Income Tax Act. It should be noted that until 31 December 2013 distributions received by non-residents from a REIT were not subject to dividend withholding tax. From 22 February 2017, any distribution received by a non-resident from a REIT is 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 dividend amount due to non-resident shareholders is 16.4160 cents per SA Corporate share. A reduced dividend withholding rate, in terms of the applicable DTA, may only be relied on if the non-resident shareholders has provided the following forms to the 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 subject to a reduced rate as a result of the application of a DTA; and b) a written undertaking to inform the CSDP, broker or the transfer secretaries, as the case may be, should the circumstances affecting the reduced rate change or the beneficial owner ceases 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 the 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 distribution if such documents have not already been submitted, if applicable. 2,530,689,337 SA Corporate shares are in issue at the date of this distribution declaration and SA Corporate's income tax reference number is 9179743191.
Last date to trade cum distribution Tuesday, 2 April 2019
Shares will trade ex-distribution Wednesday, 3 April 2019
Record date to participate in the distribution Friday, 5 April 2019
Payment of distribution Monday, 8 April 2019
Share certificates may not be dematerialised or re-materialised between Wednesday, 3 April and Friday, 5 April 2019 both days inclusive.
By order of the Board
DIRECTORATE AND STATUTORY INFORMATION
Registered office
South Wing, First Floor
Block A
The Forum
North Bank Lane
Century City
7441
Tel 021 529 8410
Registered auditors
Deloitte & Touche
1st Floor
The Square
Cape Quarter
27 Somerset Road
Cape Town
8005
Transfer secretaries
Computershare Investor Services (Pty) Ltd
Rosebank Towers
15 Biermann Avenue
Rosebank
2196
Sponsor
Nedbank Corporate and Investment Banking, a division of Nedbank Limited
135 Rivonia Road
Sandton
2196
Website:
www.sacorporatefund.co.za
Directors: J Molobela (Chairman), TR Mackey (Managing)*, AM Basson (Finance)*, RJ Biesman-Simons, A Chowan, GP Dingaan, U Fikelepi, EM Hendricks, MA Moloto, ES Seedat
* Executive
Mr Ken Forbes retired on 29 May 2018 and we would like to thank him for his contribution and his long service to the company. We welcome Ms Ursula Fikelepi who joined the Board on 30 October 2018.
5 March 2019
Date: 05/03/2019 05:20:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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