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TRANSCEND RESIDENTIAL PROPERTY FUND LIMITED - Provisional summarised audited financial statements for the year ended 31 December 2018

Release Date: 08/03/2019 13:58
Code(s): TPF     PDF:  
 
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Provisional summarised audited financial statements for the year ended 31 December 2018

Transcend Residential Property Fund Limited 
(Incorporated in the Republic of South Africa) 
Registration Number 2016/277183/06
JSE share code TPF ISIN: ZAE000227765
(Approved as a REIT by the JSE) ('Transcend' or 'the Company')

Provisional summarised audited financial statements for the year 
ended 31 December 2018

Highlights
Distribution per share (cents)          64.68 (1% growth)
Total units                             4,691
Investment property value               R2.59 billion
Net Asset Value (per share Rand value)  R9.57
Growth in portfolio size (% Rand value) 53%

Basis of preparation
The summary financial statements have been prepared in accordance 
with the requirements of the JSE Limited ('JSE') Listings 
Requirements for provisional reports, and the requirements of 
the Companies Act of South Africa, No 71 of 2008, as amended, 
applicable to summary financial statements. The JSE Listings 
Requirements require provisional reports to be prepared in 
accordance with the framework concepts and the measurement and 
recognition requirements of International Financial Reporting 
Standards ('IFRS'), the SAICA Financial Reporting Guides as issued 
by the Accounting Practices Committee and Financial Pronouncements 
as issued by the Financial Reporting Standards Council, and to also, 
as a minimum, contain the information required by IAS 34 Interim 
Financial Reporting. The accounting policies applied in the preparation 
of the financial statements from which the summary financial statements 
were derived are in terms of IFRS and are, except for the adoption of
the IFRSs as set out in Note 1. Basis of measurement, consistent with 
those applied to the financial statements for the year ended 31 December 
2017, as published on 9 March 2018.

The provisional summarised report is extracted from the audited 
information but is not itself audited. The financial statements were 
audited by KPMG Inc. who expressed an unmodified opinion thereon. 
Shareholders are advised that in order to obtain a full understanding of 
the nature of the auditor's engagement, they should obtain a copy of the 
auditor's report together with the accompanying audited financial statements, 
both of which are available for inspection at the company's registered 
office. The directors of Transcend take full responsibility for the 
preparation of this report and that the selected financial information 
has been correctly extracted from the underlying financial statements.

Myles Kritzinger CA(SA), Transcend's Chief Financial Officer, was 
responsible for supervising the preparation of the financial 
statements that this provisional report summarises, as well as the 
preparation of these summary financial statements.

Commentary
Main business and operations
Transcend is a Real Estate Investment Trust ('REIT') and owns a property 
portfolio of 22 directly-owned properties valued at R2.72 billion located 
primarily in Gauteng, the Western Cape and Mpumalanga – a discontinued 
operation – in South Africa. The primary business of Transcend is the 
acquisition and operation of income-generating residential properties, 
with a focus on housing opportunities that are affordable, lifestyle 
enhancing and well located in high growth urban areas. In line with its 
strategy, Transcend acquired 9 properties during 2018, comprising 2,219 
units. One of these properties, Vanguard Village, consisting of 60 units 
registered and transferred in the name of Transcend during August 2018. The 
remaining 2,159 units, located across 8 properties, are effective date 
transactions with related parties. The respective sales agreements for 
these units became unconditional on 30 November 2018, making the effective 
date of the sales 1 December 2018 ('effective date'). The risks and rewards 
of ownership transferred to Transcend on the effective date, however, 
the registration and transfer of these units are expected to only take 
place during the first half of 2019. Transcend is also in the process of 
disposing of a non-performing property, Acacia Place, located in Mpumalanga. 
This property has been classified as an asset held-for-sale and discontinued
operation. A sales agreement has been signed for Acacia Place and occupational 
rent is payable to Transcend until transfer is effected, which is expected 
to be concluded in the first half of 2019.

Equity raised
During the financial year, Transcend issued a total of 64.59 million of 
Transcend ordinary shares and raised R415.92 million of share capital. The 
equity raised was utilised to finance Transcend's investment activities for the 
acquisition of new properties during 2018.

* On 4 October 2018, the Company issued 7.3 million Transcend ordinary 
  shares at a price of R6.29 per share under the Company's general  
  authority to issue shares for cash.
* On 14 December 2018, the Company issued 57.29 million Transcend 
  ordinary shares at a price of R6.46 per share in terms of the private 
  placement. The shares were issued at a 15.35% premium to the 30-day volume 
  weighted average price ('VWAP') up to and including Monday, 10 December 2018.

Debt raised
Transcend recognised new interest-bearing borrowings during 2018 for 
the acquisition of Vanguard Village. This amounted to R26.99 million 
through a new facility with The Standard Bank of South Africa Limited 
('Standard Bank') and an additional R7 million on an existing Standard 
Bank facility. Borrowings to the value of R786.72 million with Standard 
Bank and Nedbank Limited ('Nedbank') were secured to fund the acquisition 
of the 8 properties still due to transfer to the Company. Upon registration 
and transfer of the properties to Transcend, these facilities will 
be drawn upon and recognised in the statement of financial position 
as interest-bearing borrowings. At 31 December 2018 Transcend had loans
with related parties of R828.84 million which are classified as current
and payable on transfer of the respective properties. The R786.72 million
secured bank debt and excess cash will be used to settle these loans.

A shareholder loan of R143.46 million from Emira Property Fund Limited 
('Emira') was secured during the year. This loan was also used to 
finance Transcend's investment in the 8 new properties.

Results
Transcend has outperformed its guidance of flat growth for the year ending
31 December 2018. On 6 March 2019, the board of directors of the Company 
(the 'Board') declared a final distribution of 34.58 cents per share for 
the six months ended 31 December 2018. This brings the full year distribution 
to 64.68 cents per share (2017: 64.04 cents per share), which is 1% 
greater than the forecast flat dividend per share of 64.04 cents per 
share published in the SENS announcement on 24 August 2018. The slight 
increase in distribution growth relates to a portfolio-wide improvement 
in occupancies for the second half of 2018; recovery of water and 
certain utilities at Parklands, located in the Western Cape; as well 
as securing occupational rent and increased operating income under an 
agreement for the sale of Acacia Place.

In August 2018, management revised its forecast distribution to one 
of flat growth for the year due to the deteriorating economic climate 
experienced during the first half of 2018. This downswing resulted from 
pressures on tenant affordability, rental escalations and property 
vacancies; and a drop-off in the overall performance of the market.
Despite these pressures, Transcend was able to grow its distribution 
from 2018 due to the defensive nature of the residential asset class 
and by owning well-located properties in high demand areas.

Acacia Place, a property located in Duvha, Witbank, eMalahleni, was 
identified by management as a non-performing property. This was as a 
result of large vacancies from the non-renewal of bulk leases and the 
depressed market in Witbank. Management took a decision to sell this 
property to Instratin Properties Proprietary Limited ('Instratin'). 
The property has an anticipated transfer date of 30 April 2019 until 
which time an occupational rent is payable to Transcend by Instratin.

Profit and total comprehensive income for the year amounts to 
R197.07 million (2017: R67.97 million), of which R188.4 million 
(2017: R63.11 million) is from continuing operations. The increase 
from continuing operations is mainly due to a net gain on fair value 
adjustments to investment property of R160.63 million (2017: 
R35.54 million), and an unrealised gain on revaluation of interest rate 
swaps of R2.16 million (2017: loss of R3.03 million). The headline 
earnings attributable to equity holders is R36.53 million (2017: 
R38.73 million). Total assets as at 31 December 2018 amounted to 
R2.87 billion (2017: R1.27 billion), with the increase attributable to 
the property acquisitions as detailed in 'Property portfolio'. The total 
liabilities as at 31 December 2018 amounted to R1.61 billion (2017: 
R581 million).

Property portfolio
Acquisitions
In line with its strategy, Transcend acquired 9 properties during 2018, 
comprising 2,219 units.

Geographically, the properties are located in the following provinces:

Gauteng                                                 77% 
Western Cape                                            17% 
Mpumalanga*                                              6%

The above allocation is based on Gross lettable area ('GLA')

* Mpumalanga relates to a single property, Acacia Place. This 
  property is in the process of being sold and has been disclosed 
  as an asset held-for-sale. Consequently, Mpumalanga has also 
  been presented as a discontinued operation.

An agreement for the acquisition of a further property, 
Silverleaf, consisting of 76 units has been entered into 
between Transcend and the seller, De Facto Investments 264 
Proprietary Limited. This agreement was entered into on 
28 March 2018 for a purchase consideration of R44.5 million.  
The transfer of this property was expected prior to 31 December 
2018, however, due to delays in the finalisation of town-planning 
amendments, the transfer has not yet taken place.

Vacancies and arrears
Based on existing leases as at 31 December 2018, the total 
portfolio's vacancy rate was 7.7%. Excluding Acacia Place, the 
vacancy rate for the remaining 21 properties is 5.4%. It is 
expected that the vacancies of the stabilised portfolio will 
remain within the 3% to 7.5% range.

Facilities
As at 31 December, the following interest-bearing borrowings with 
Standard Bank were in place:

* Facility A, Tranche 1: R278.13 million – Interest only loan with
  a variable rate at 3-month JIBAR plus 1.85% with a maturity date of 
  31 January 2020;
* Facility A, Tranche 2: R278.36 million – Interest only loan with 
  a variable rate at 3-month JIBAR plus 2.35% with a maturity date of 
  31 January 2022;
* Facility C: R26.86 million – Interest only loan with a variable rate 
  at JIBAR plus 2.15% with a maturity date of August 2021; and
* Final facility B: R7.1 million – Interest only loan at prime less 
  1% with a maturity date of 23 August 2021.

The administrative fee of R1.11 million on the raising of the 
Standard Bank facilities A, B and C, was capitalised and is 
amortised over the average term of the respective loans.

The Standard Bank facilities are secured by investment properties 
owned by Transcend with a fair value of R1.27 billion. This 
includes Acacia Place, an investment property that was transferred 
to non-current assets held-for-sale. This property is valued at its 
sales price less cost to sell, at an amount of R127.5 million. After 
the sale and transfer of Acacia Place, the security will be adjusted 
accordingly for the remaining properties.

All other properties that act as funding security are included as 
investment properties.

Interest is payable quarterly in arrears on these facilities. 
Transcend currently has interest rate swaps on the A facilities. 
The 3-year tranche is 50% hedged by an interest rate swap at a 
fixed rate of 7.59% which expired in January 2019, and the 5-year 
tranche is 50% hedged by an interest rate swap at a fixed rate of 
7.62% which terminates in January 2020. In January 2019 Transcend 
entered into a new 50% interest rate swap on the Facility A 3-year 
tranche at a fixed rate of 7.26% and a maturity date of 31 January 
2019 to replace the existing swap over this tranche. During February 
2019, Transcend also extended the 50% interest rate swap on the 
Facility A 5-year tranche to 31 January 2022 so to align to the 
maturity date of the principal debt. The revised rate of this 3-year 
swap is fixed at 7.56%. These are both non-adjusting subsequent events.

At 31 December 2018, 50% of the company's interest rate exposure on 
the A facilities only was hedged. This was through its swaps with 25% 
(50% of the 50%) of the risk being hedged out by way of a one-year 
swap and 25% (50% of the 50%) being hedged out by way of a 3-year 
swap.

It is the Board's policy to economically hedge at least 50% of the 
company's exposure to interest rate risk. During the year a new interest- 
bearing facility was secured for the acquisition of Vanguard Village. 
This facility has a balance of R26.86 million at 31 December 2018 
and has not been hedged.

At 31 December 2018 the total interest rate hedge for the external bank 
borrowing exposure to interest rate risk is 44%. This ratio will be 
adjusted by management on the transfer of the 8 investment properties 
acquired from International Housing Solutions Res 1 (RF) Proprietary 
Limited ('IHS Res 1') and Sunnyshore Trade and Invest 105 Proprietary 
Limited ('Sunnyshore') and the utilisation of the secured borrowings 
with Standard Bank and Nedbank.

                                                         R'000    R'000
                                                          2018     2017
Facility A, Tranche 1: Interest only loan with a 
variable rate at 3-month JIBAR plus 1.85% with a 
maturity date of 31 January 2020. Properties with 
a fair value of R1.23 billion are provided as 
security over the bond.                                 278 131  278 143

Facility A, Tranche 2: Interest only loan with a 
variable rate at 3-month JIBAR plus 2.35% with a 
maturity date of 31 January 2022. Properties with 
a fair value of R1.23 billion are provided as 
security over the bond.                                 278 363  278 375

Facility C: Interest only loan with a variable 
rate at JIBAR plus 2.15% with a maturity date of 
August 2021. A property with a carrying value of 
R36.2 m is provided as security over the bond.           26 857        - 

Final facility B: Interest only loan at prime 
less 1% with a maturity date of 23 August 2021. 
This facility is secured by a bond over the same 
properties utilised as security for Facility A.           7 057        -

Carrying value of administrative fee on raising 
of new loan facility capitalised.                        (1 108)  (1 194) 
Subtotal                                                589 300  555 324
Less: Short-term portion of interest-bearing
borrowings.                                             (52 924) (52 431)
Total                                                   536 376  502 893

Gearing
Transcend's loan-to-value ('LTV') ratio is 47% (2017: 41.8%), which 
represents an increase from the prior year, mainly due to the property 
acquisitions during the year. This falls outside the targeted long-term 
range of 30% to 40%, however, management plans to reduce this LTV ratio 
to the targeted range within the medium-term by raising equity for new
acquisitions and using proceeds from the sale of Acacia Place to pay
down on existing debt.

Summary of financial performance 
December 2018  December 2017
Dividend per share (cents)                         64.68          64.04
Shares in issue (number ‘000)                    130 895         66 306
Net asset value per share (Rand)                    9.57          10.39
Loan-to-value ratio (%) (*)                        47.0%          41.8% 
Net property expense ratio (%) (**)                29.0%          29.8% 
Gross property expense ratio (%) (**)              34.9%          34.6% 
Net total expense ratio (%) (**)                   43.4%          36.5% 
Gross total expense ratio (%) (**)                 48.1%          40.9%

(*)  The LTV ratio is calculated by dividing property backed interest- 
     bearing borrowings (excluding the subordinated shareholder loan) 
     less cash, by the total value of investment property and assets 
     held-for-sale (Acacia Place).
(**) For the calculation of net ratios, utility recoveries are excluded 
     from rental revenue, whilst gross ratios include utility recoveries in 
     rental revenue.

Statement of financial position
                                                 Audited as  Audited as 
                                                      at 31       at 31
                                                   December    December
                                                       2018        2017
Assets                                                R'000       R'000
Non-current assets                                2 591 069   1 219 394
Investment properties                             2 588 000   1 218 640
Plant and equipment                                   3 069         754
Current assets                                      148 146      50 489
Trade and other receivables                           6 525       4 441
Cash and cash equivalents                           141 621      46 048
Assets held-for-sale                                127 500           - 
Total assets                                      2 866 715   1 269 883
Equity and liabilities
Equity                                            1 252 701     688 829
Stated capital                                    1 020 934     632 276
Retained earnings                                   231 767      56 553
Non-current liabilities                             678 041     505 763
Interest-bearing borrowings                         536 376     502 893
Loan from shareholder                               140 986           - 
Derivative liabilities                                  679       2 870
Current liabilities                                 934 576      75 291
Loans from related parties                          828 835           - 
Interest-bearing borrowings                          52 924      52 431
Trade and other payables                             51 827      22 636
Loan from shareholder                                   795           - 
Derivative liabilities                                  195         158
Taxation                                                  -          66
Liabilities directly associated with asset
held-for-sale                                         1 397           -
Total equity and liabilities                      2 866 715   1 269 883

Statement of profit or loss and other comprehensive income
Audited for the year ended 31 December 2018

                                                 Audited as  Audited as 
                                                      at 31       at 31
                                                   December    December
                                                       2018        2017
Continuing operations                                 R'000       R'000
Rental income from investment properties            148 346     129 143
Recoveries of operating costs from tenants           13 452       9 558
Revenue                                             161 798     138 701
Property operating expenses                         (53 907)    (45 612) 
Impairment losses                                    (2 506)     (2 392) 
Net operating income                                105 385      90 697
Other operating expenses                            (21 375)     (8 660)
Operating profit                                     84 010      82 037
Gain on fair value adjustment of investment
property                                            160 627      35 540
Unrealised gain/(loss) on revaluation of
interest rate swaps                                   2 155      (3 028) 
Net finance charges                                 (58 390)    (51 382) 
Finance income                                        3 098       1 590
Finance costs                                       (61 488)    (52 972) 
Profit before taxation                              188 402      63 167
Taxation                                                  -         (57) 
Profit and total comprehensive income for the
period                                              188 402      63 110
Profit/(loss) from discontinued operation net
of tax                                                8 666       4 863
Total comprehensive income for the period           197 068      67 973
Basic and diluted earnings per share (cents) -
continuing operations                                265.70       95.20

Statement of cash flows
                                                 Audited as  Audited as 
                                                      at 31       at 31
                                                   December    December
                                                       2018        2017
                                                      R'000       R'000
Cash generated by operating activities              111 358      94 655
Finance income received                               3 130       1 591
Finance costs paid                                  (53 672)    (44 012) 
Net cash generated from operating activities         60 816      52 234
Investment properties acquired                     (505 206)          -
Property and equipment acquired                      (2 759)       (856) 
Net cash utilised in investing activities          (507 965)       (856) 
Proceeds from share issue                           410 915           - 
Interest-bearing borrowings drawn down               33 476        (887) 
Shareholder loan raised                             140 986           - 
Dividends paid                                      (42 655)     (27 944) 
Net cash generated from/(utilised in) financing
activities                                          542 722     (28 831)
Net increase in cash and cash equivalents            95 573      22 547
Cash and cash equivalents at the beginning of
the year                                             46 048      23 501
Cash and cash equivalents at the end of the
year                                                141 621      46 048
Cash and cash equivalents consist of:
Tenant deposits                                      25 487      13 829
Cash on hand                                        116 134      32 219
                                                    141 621      46 048

Statement of changes in equity

                                           Stated  Retained       Total 
                                          capital  earnings      equity
                                            R'000     R'000       R'000
Balance at 31 December 2017               632 276    56 553     688 829
Total comprehensive income for the
year                                            -         -           -
Profit for the year                             -   197 068     197 068
Total comprehensive income for the
year                                            -   197 068     197 068
Transactions with owners
Dividends                                       -   (42 655)    (42 655) 
Issue of share capital                    409 459         -     409 459
Transfer of antecedent dividend           (20 801)   20 801           - 
Balance at 31 December 2018             1 020 934   231 767   1 252 701

Note: Stated capital includes acquisition and transaction 
fees of R8.94 million that were capitalised against equity.

* An antecedent dividend was reclassified from stated capital to retained 
  earnings for 64.59 million shares issued during 2018. On 4 October 2018, 
  7.3 million shares were issued under the Company's general authority. 
  A further 57.29 million shares were issued on 14 December 2018 at an 
  ex-dividend price of R6.29 per share (cum-dividend price of R6.46 per
  share).

Notes

1. Basis of measurement
The financial statements have been prepared on the historical cost basis, 
except for investment properties and derivatives that are measured at 
fair value, as explained in the accounting policies that follow. The 
presentation currency in the financial statements is South African Rand
('Rand') and all amounts have been rounded to the nearest thousand (R'000). 
In the current year, the Company has adopted all new and revised IFRS that 
are relevant to its operations and effective for reporting periods 
beginning on or after 1 January 2018. At the date of authorisation of 
these financial statements for the year ended 31 December 2018, the 
following IFRSs requirements were adopted:

IFRS 9 Financial Instruments

IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. 
The standard contains requirements in the following areas:
* Classification and measurement: Financial assets are classified by 
  reference to the business model within which they are held and their 
  contractual cash flow characteristics. IFRS 9 introduces a fair value 
  through other comprehensive income category for certain debt instruments. 

Financial liabilities are classified in a similar manner as under IAS 39. 
However, there are differences in the requirements applying to measurement 
of an entity's own credit risk;
* Impairment: IFRS 9 introduces an expected credit loss model for the 
  measurement of the impairment of financial assets, so it is no longer 
  necessary for a credit event to have occurred before a credit loss is 
  recognised;
* Hedge accounting: IFRS 9 introduces a new hedge accounting model that 
  is designed to be more closely aligned with how entities undertake risk 
  management activities when hedging financial and non-financial risk  
  exposures; and
* Derecognition: The requirements for the derecognition of financial assets 
  and liabilities are carried forward from IAS 39.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 provides a single, principles based five-step model to be applied 
to all contracts with customers. The five steps in the model are as 
follows:
* Identify the contract with the customer;
* Identify the performance obligations in the contract;
* Determine the transaction price;
* Allocate the transaction price to the performance obligations in the 
  contracts; and
* Recognise revenue when (or as) the entity satisfies a performance 
  obligation.

Guidance is provided on topics such as the point in which revenue is 
recognised, accounting for variable considerations, costs of fulfilling 
and obtaining a contract and various related matters. New disclosures about 
revenue are also introduced.

Transfers of Investment Property (Amendments to IAS 40) 

The amendments to IAS 40 Investment Property:
* Amends paragraph 57 to state that an entity shall transfer a property
  to, or from, investment property when, and only when, there is evidence 
  of a change in use. A change of use occurs if a property meets, or ceases 
  to meet, the definition of investment property. A change in management's
  intentions for the use of a property by itself does not constitute 
  evidence of a change in use; and
* The list of examples of evidence of a change in use in the standard 
  is now presented as a non-exhaustive list of examples instead of the  
  previous exhaustive list.

Definition of a Business (Amendments to IFRS 3)

In October 2018, the IASB issued amendments to IFRS 3 Business Combinations 
which are effective for years beginning on or after 1 January 2020. These 
amendments may be early adopted. Transcend has elected to early adopt these 
amendments as at 31 October 2018.

The definition of a business has been updated in this amendment. Per the 
amendment, in order to assess whether a transaction is the acquisition of
a business, an entity first assesses whether substantially all of the fair 
value of the gross assets acquired are concentrated in a single asset or 
group of similar assets. If the fair value is concentrated in this way, 
then the transaction is not the acquisition of a business.

The Company has not entered into any business combinations during the year 
as the fair value of the assets acquired is substantially all concentrated 
into a single asset or group of similar assets. Therefore, the acquisition 
of the properties during the year is considered to be an acquisition of a 
group of assets and not an acquisition of a business.

Application of the above standards did not require any prior year 
adjustments.

2. Reconciliation of profit for the year to headline earnings

                                                 Audited as  Audited as 
                                                      at 31       at 31
                                                   December    December
                                                       2018        2017
                                                      R'000       R'000
Reconciliation of basic earnings to headline 
earnings
Profit for the year attributable to Transcend
shareholders                                          197 068     67 973
Change in fair value of investment properties        (160 543)   (29 240) 
Headline earnings attributable to Transcend
shareholders                                           36 525     38 733
Profit/(loss) from discontinued operation 
net of tax                                              8 666      4 863
Actual number of shares in issue                      130 895     66 306
Weighted average number of shares in issue             70 911     66 306
Basic and diluted earnings per share (cents)           277.91     102.51
Basic and diluted earnings per share (cents) -
continuing operations                                  265.70      95.20
Headline and diluted headline earnings per share
(cents)                                                 51.51      58.42
Net asset value per share (Rand)                         9.57      10.39

3. Sectoral split
Based on:                                           GLA      Book value
Residential                                        100%            100%

4. Lease expiry profile
Based on:                                           GLA  Rental revenue 
Vacancy                                            8,0%            7,7% 
Monthly                                           79,6%           80,2%
30 June 2019                                      12,4%           12,1%
31 December 2019                                   0,0%            0,0%
                                                 100,0%          100,0%

5. Related parties and related party transactions
Transcend is 45.1% owned by the South African Workforce Housing Fund SA 
(PVE), a South African en commandite partnership duly represented by its 
general partner, the South African Workforce Housing Fund SA GP (RF) Pty 
Ltd (the 'Partnership'). The Partnership is comprised of three partners 
being the South African Workforce Housing Fund (Cayman) I Ltd, South 
African Workforce Housing Fund (Cayman) II Ltd and South African 
Workforce Housing Fund (SA) II. The relationship between the 
Partnership and International Housing Solutions (RF) (Pty) Ltd 
('IHS (RF) (Pty) Ltd') is governed by a signed investment advisory 
agreement.

IHS RF (Pty) Ltd has a shareholding of 11.5%.

Transcend is externally managed by IHS Asset Management (Pty) Ltd 
('IHS AM'), a private company registered and incorporated in accordance 
with the laws of South Africa and a wholly-owned subsidiary of IHS (RF) 
(Pty) Ltd. An asset management agreement was entered into by Transcend 
and IHS AM and became effective 1 October 2016. In turn, IHS AM outsources 
certain functions to IHS (RF) (Pty) Ltd in terms of a service level 
agreement. IHS AM charged Transcend asset management fees of R5.75 million 
(2017: R4.47 million) during the year in accordance with the asset 
management agreement.

The property management function of the Company is outsourced on market 
related terms to IHS Property Management (Pty) Ltd ('IHS PM'), a private 
company registered and incorporated in accordance with the laws of South 
Africa. A property management agreement was entered into by Transcend and 
IHS PM on 16 October 2016. IHS PM charged Transcend property management 
fees of R12.4 million (2017: R11.12 million) during the year in accordance 
with the property management agreement.

34.9% of the shares are held by Emira. In addition to its shareholding, 
Emira also has a shareholder’s loan of R141.78 million with Transcend at 
31 December 2018. This loan is subordinated against all other interest-bearing 
borrowings. Interest is payable to Emira quarterly at an effective rate of 
JIBAR plus 3.5%.

The loans from related parties are in respect of outstanding balances owing 
to IHS Res 1 and Sunnyshore for the acquisition of 2,159 units. The purchase 
considerations are funded partially through equity and debt on transfer of 
the properties.

IHS Res 1
From 1 December 2018, interest is payable to IHS Res 1 on the balance owing 
at an effective rate of 9.4%, with interest payable monthly in arrears on 
the balance of the loan outstanding. The first payment of interest was due 
in January 2019 and the total interest accrued at 31 December 2018 is 
classified as current. The loan is unsecured as at 31 December 2018, however, 
will be secured through new debt of R740 million upon the issue of guarantees 
by Standard Bank and Nedbank prior to the properties transferring to Transcend. 
Investment properties recognised in respect of these units hold a fair value 
of R1.39 billion at 31 December 2018.

Sunnyshore
From 1 December 2018, interest is payable to Sunnyshore on the balance owing 
at an effective rate of 5.6%, with interest payable monthly in arrears on the 
outstanding balance. The first payment of interest is due in January 2019 and 
the total interest of R216,382 accrued at 31 December 2018 is classified as 
current. As at 31 December 2018, funding is secured by the way of a guarantee 
issued by Standard Bank. Investment properties recognised in respect of these 
units hold a fair value of R61.4 million at 31 December 2018.

On transfer of the 2,159 units to Transcend, the existing bonds over the 
properties will be cancelled and new bonds will be registered to the value of 
R786.72 million. New 3-year, 5-year and overdraft facilities in respect of 
these units have been secured through Standard Bank and Nedbank. These 
facilities amount to R786.72 million and will be secured by the target 
investment properties with a value of R1.45 billion.

Transcend does not have any subsidiaries.

6. Summarised segmental analysis
Transcend has four reportable segments based on the entity's strategic 
business segments. For each strategic business segment, the entity's 
executive directors review internal management reports on a monthly basis. 
All segments are located in South Africa and are based on specific regions 
in which the properties are located.

Asset held-for-sale and discontinued operation: Transcend has concluded a 
sale agreement to dispose of one of the reportable segments (Mpumalanga: 
Investment property - Acacia Place), and the transfer of this property is 
expected to be concluded in the first half of 2019. This property, and 
operating segment, has therefore been presented as a discontinued operation 
at 31 December 2018.

Audited as at 31 December 2018
Statement of profit or loss and other comprehensive income

R'000                                        Mpumalanga    Western Cape
Rental income from investment properties         12 212         20 152
Recoveries of operating costs from tenants        2 390          1 558
Revenue                                          14 602         21 710
Property operating expenses                      (4 893)        (8 493) 
Impairment losses                                  (911)        (1 012) 
Net operating income                              8 798         12 205
Other operating expenses                            (80)        (1 135) 
Operating profit                                  8 718         11 070
Unrealised gain/(loss) on revaluation of
interest rate swaps                                   -              - 
Gain/(loss) on fair value adjustment of
investment property                                 (84)        37 674
Net finance charges                                  32             40
Finance costs                                         -              - 
Finance income                                       32             40
Profit before taxation                            8 666         48 784
Taxation                                              -              - 
Profit and total comprehensive income for
the year                                          8 666         48 784
Statement of financial position
Investment properties                                 -        470 900
Assets held-for-sale                            127 500              - 
Other assets                                      4 103          2 804
Interest-bearing borrowings                           -              -

R'000                                 Gauteng Reconciliation     Total
Rental income from investment
properties                            128 194              -   160 558
Recoveries of operating costs from
tenants                                11 894              -    15 842
Revenue                               140 088              -   176 400
Property operating expenses           (45 413)              -  (58 799) 
Impairment losses                      (1 494)              -   (3 417) 
Net operating income                   93 181              -   114 184
Other operating expenses                 (685)       (19 557)  (21 457) 
Operating profit                       92 496        (19 557)   92 727
Unrealised gain/(loss) on
revaluation of interest rate swaps          -          2 155     2 155
Gain/(loss) on fair value adjustment 
of investment property                122 953              -   160 543
Net finance charges                       222        (58 652)  (58 358) 
Finance costs                               -        (61 488)  (61 488) 
Finance income                            222          2 836     3 130
Profit before taxation                215 671        (76 054)  197 067
Taxation                                    -              -         - 
Profit and total comprehensive
income for the year                   215 671        (76 054)  197 067
Statement of financial position
Investment properties               2 117 100              - 2 588 000
Assets held-for-sale                        -              -   127 500
Other assets                            9 411        134 897   151 215
Interest-bearing borrowings                 -        589 300   589 300

Audited as at 31 December 2017
Statement of profit or loss and other comprehensive income
                                                                 Western
R'000                                            Mpumalanga         Cape
Rental income from investment properties             15 641       17 126
Recoveries of operating costs from tenants            2 878        1 074
Revenue                                              18 519       18 200
Property operating expenses                          (7 205)      (6 590) 
Impairment losses                                       (88)        (792) 
Net operating income                                 11 226       10 818
Other operating expenses                                (45)        (575) 
Operating profit                                     11 181       10 243
Unrealised gain/(loss) on revaluation of
interest rate swaps                                       -            - 
Gain/(loss) on fair value adjustment of 
investment property                                  (6 300)       8 700
Net finance charges                                     (18)           4
Finance costs                                           (19)           - 
Finance income                                            1            4
Profit before taxation                                4 863       18 947
Taxation                                                  -            - 
Profit and total comprehensive income for 
the year                                              4 863       18 947
Statement of financial position
Investment properties                               127 500      134 300
Assets held-for-sale                                      -            - 
Other assets                                          3 185        2 271
Interest-bearing borrowings                               -            -

R'000                                 Gauteng  Reconciliation     Total
Rental income from investment
properties                            112 017               -   144 784
Recoveries of operating costs from
tenants                                 8 484               -    12 436
Revenue                               120 501               -   157 220
Property operating expenses           (39 022)              -   (52 817) 
Impairment losses                      (1 600)                   (2 840) 
Net operating income                   79 879               -   104 403
Other operating expenses                 (433)         (7 652)   (8 705) 
Operating profit                       79 446          (7 652)   95 698
Unrealised gain/(loss) on
revaluation of interest rate swaps          -          (3 028)   (3 028)
Gain/(loss) on fair value adjustment
of investment property                 26 840               -    29 240
Net finance charges                        (9)        (51 377)  (51 400) 
Finance costs                             (10)        (52 962)  (52 991) 
Finance income                              1           1 585     1 591
Profit before taxation                106 277         (62 057)   70 510
Taxation                                    -             (57)      (57)
Profit and total comprehensive
income for the year                   106 277         (62 114)   70 453
Statement of financial position
Investment properties                 956 840               - 1 218 640
Assets held-for-sale                        -               -         - 
Other assets                           11 564          34 223    51 243
Interest-bearing borrowings                 -         555 324   555 324

7. Reconciliation of profit for the year to distributable earnings

                                                 Audited as  Audited as 
                                                      at 31       at 31
                                                   December    December
                                                       2018        2017
                                                      R'000       R'000
Profit for the year attributable to Transcend
shareholders                                         197 068     67 973
Unrealised loss/(gain) on interest rate swaps         (2 155)     3 028
Change in fair value of investment properties       (160 543)   (29 240) 
Acquisition and transaction costs expensed             9 493          - 
Surplus working capital available for
distribution**                                         3 956        703
Antecedent dividend available for distribution*       17 403          - 
Distributable income for the year***                  65 222     42 464
Distribution per share (cents)                         64.68      64.04
Interim                                                30.10      29.81
Final                                                  34.58      34.23

*  Antecedent dividend reclassified from stated capital to retained earnings 
   for 64.59 million shares issued during 2018.
** Surplus working capital available for distribution relates to taxable 
   temporary differences.
***The adjustments made to profit to derive the amount available for 
   distribution to shareholders have not been audited.

8. Financial instrument and investment property fair value disclosures
Financial asset classification
The Company classifies financial assets into the following categories:
* Financial assets subsequently measured at amortised cost; and
* Financial assets subsequently measured at fair value through profit or
  loss.

The classification depends on the entity's business model for managing the 
financial assets and the contractual terms of the cash flows. The Company 
intends to hold the financial assets being trade and other receivables to 
collect contractual cash flows (interest and or payment of principal).

The Company reclassifies debt instruments when, and only when, its business 
model for managing those assets changes. In the current year there was no 
change in the business model for managing the recognised financial assets.

Transcend has classified trade and other receivables and cash and cash 
equivalents as financial assets measured at amortised cost. As at 
31 December 2018 Transcend does not have any financial assets which are 
measured at fair value through profit or loss.

Financial liability classification
The Company classifies financial liabilities into the following categories:
* Financial liabilities subsequently measured at amortised cost; and
* Financial liabilities subsequently measured at fair value through profit
  or loss.

Transcend has classified its shareholder loan, interest-bearing borrowings, 
loans from related parties and trade and other payables as financial 
liabilities subsequently measure at amortised cost. Derivative liabilities 
are classified as financial liabilities measured at fair value through 
profit or loss.

Fair value hierarchy for financial instruments and investment property 
When measuring the fair value of an asset or liability, the Company uses 
observable market data as far as possible. Fair values are categorised into 
different levels in a fair value hierarchy based on inputs used in the valuation 
techniques as follows:
* Level 1: quoted prices (unadjusted) in active markets for identical assets 
  or liabilities.
* Level 2: inputs other than quoted prices included in level 1 that are 
  observable for the asset or liability, either directly (i.e. as prices) 
  or indirectly (i.e. derived from prices).
* Level 3: inputs for the asset or liability that are not based on observable 
  market data (unobservable inputs).

Figures in R'000s              Fair value  Level 1  Level 2    Level 3
31 December 2018
Assets
Investment properties           2 588 000        -        -  2 588 000
Non-current assets held-for-
sale                              127 500                      127 500
                                2 715 500        -        -  2 715 500
Liabilities
Derivative liabilities               (874)       -     (874)         - 
                                     (874)        -    (874)         -

There have been no transfers between level 1, level 2 and level 3 during 
the year under review.

The carrying amounts of loans and receivables, and financial liabilities 
reasonably approximate their fair value.

Details of valuation techniques

Investment properties
Investment properties are valued using a level 3 model.
The properties were valued as at 31 December 2018 by capitalising the net 
contractual income derived from the properties for a period of one year in 
advance by an applicable capitalisation rate as determined by the independent 
valuer. The calculation of the market value of all properties in Transcend 
has been based on the income capitalisation method. This is the fundamental 
basis on which income producing properties are traded in the South African 
market. This is also due to there being strong supporting evidence of open 
market rental rates and capitalisation rates which are evidenced by sales 
in the market.

All of the Company's investment properties, except for Protea Glen, were 
valued at 31 December 2018 by an external registered valuer. The valuations 
were reviewed by the executive directors and asset managers and presented to 
the Investment Committee for recommendation and approval by the Board on
on 6 March 2019. Protea Glen was independently valued at 1 August 2018, and 
the value at that date approximated its actual value at 31 December 2018. 
For all investment properties, their current use equates to the highest and 
best use.

Key assumptions used to determine the value of the properties: 
Expected net operating income: 
The average rental income ranges from R4 060 to R10 273 (2017: R4 259 to R6 530) 
per unit. Generally, the rentals are market related compared to similar 
buildings in comparable areas.

Capitalisation rate:
The capitalisation rate ranges from 8% to 10% (2017: 8.25% to 9.5%). The 
capitalisation rate applied was derived using an appropriate risk-free
rate and adding on a property related risk and illiquidity risk related to 
property, as well as further amounts related to each property's construction, 
size, age, rental, use and other property specific risks. Testing this 
for reasonableness was achieved by comparing the resultant value per 
opportunity and effective yield rate against current project sales 
information, and comparative sales of similar properties in similar 
locations.

Vacancy factor:
In order to apply a conservative approach, 3% to 15% (2017: 2.5% to 13.25%) 
of the gross income was deducted as a provision for rental that may not be 
collected as a consequence of vacancy, tenant failure or tenant refitting 
during the course of the coming year. The current vacancies are market 
related, with the exception of Acacia Place, which has a vacancy of
38% at 31 December 2018 due to a bulk lease which was terminated. This 
property is in the process of being sold.

Derivative liabilities - Valuation process
Transcend has entered into a number of interest rate swap agreements to 
mitigate the impact of fluctuating interest rates on the financial 
performance of the Company. Throughout the year, 50% of the floating 
interest rate borrowings has been economically hedged to fixed interest 
rates. At year end, 44% of floating interest rate borrowings are hedged. 
Management will adjust this ratio back to policy required norms upon 
transfer of the 2,159 units acquired from IHS Res 1 and Sunnyshore.

Interest rate swaps
Transcend uses interest rate swaps to protect the Company against adverse 
movements in interest rates. These interest rate swaps are measured at 
fair value through profit or loss, are classified as derivative financial 
liabilities at fair value through profit of loss and are categorised in 
terms of the Company's fair value hierarchy as level 2.

The fair value is calculated as the present value of the estimated future 
cash flows. Estimates of the future floating-rate cash flows are based on 
quoted swap rates, future prices and interbank borrowing rates. Estimated 
cash flows are discounted using a yield curve constructed from similar 
sources, which reflects the relevant benchmark interbank rate used by 
market participants for this purpose when pricing interest rate swaps. 
The fair value estimate is subject to a credit risk adjustment that 
reflects the credit risk of the company and of the counterparty. This is 
calculated based on credit spreads derived from current credit default 
swap or bond prices.

As at 31 December 2018, the derivative financial liabilities relating to 
interest rate swaps were fair valued, resulting in a decrease of R2.16 
million in the liability and a corresponding fair value movement of 
R2.16 million (2017: R3.03 million) in profit or loss.

9. Outlook
The economic climate of 2018 saw higher taxes and increased fuel costs 
which placed added pressure on tenant affordability and consumer costs. 
This had a resultant impact on market performance, and more specifically
on the residential property sector. In light of the upcoming elections and 
the current Eskom constraints, South Africa appears as though it will 
experience moderate growth in 2019. Management supports this view and 
therefore expects Transcend's performance to be slightly better 
than its performance over the past 12 months provided there are no 
material changes to the existing portfolio. This, coupled with
rental escalations, the effects of gearing and pro-active cost management, 
should result in an increase in distribution for the 2019 year.

This forecast assumes that current market and trading conditions prevail 
for the portfolio. This forecast has not been reviewed or reported on by 
the independent external auditors. Transcend's use of distribution per 
share as a relevant measure of financial performance remains unchanged 
from the Listing Prospectus issued on its listing in 2016.

10. Subsequent events
In line with IAS 10 Events After the Reporting Date, the declaration of 
the final dividend of 34.58 cents per share, as disclosed in Note 12
Payment of final dividend, occurred after the end of the reporting period,
resulting in a non-adjusting event that is not recognised in the financial 
statements.

The directors are not aware of any events or circumstances arising since 
the end of the financial year that would significantly affect the operations 
of the Company or the results of those operations.

11. Liquidity
As at 31 December 2018, the Company had a positive net asset value of 
R1.25 billion (2017: R0.69 billion). Its current liabilities exceeded its 
current assets by R786.43 million (2017: R24.8 million). The cause of current 
liabilities exceeding current assets is due to loans from related parties and a 
portion of long-term borrowings becoming due and payable in the next 12 months. 
Loans from related parties amount to R828.84 million and these were incurred in the 
acquisition of various properties which became effective on 1 December 2018. 
Transcend has secured R786.72 million of external interest-bearing borrowings 
with Standard Bank and Nedbank which is available and will be drawn on upon 
transfer of the units to Transcend. The balance of loans payable will be repaid
with excess cash. Interest payments on long-term borrowings are due quarterly, 
and the Company has satisfied itself that it will have sufficient cash to settle 
these liabilities as they become due and payable each quarter. The Company has 
performed a cashflow forecast for the next 12 months, and the directors are 
satisfied that the Company will be liquid and solvent after the declaration 
of the dividend.

12. Payment of final dividend
The Board has approved and notice is hereby given of a final dividend of
34.58 cents per share for the six months ended 31 December 2018. This brings 
the full year distribution to 64.68 cents per share (2017: 64.04 cents per 
share) for the year ended 31 December 2018.

In accordance with Transcend's status as a REIT, shareholders are advised 
that the dividend meets the requirements of a 'qualifying distribution' for 
the purposes of section 25BB of the Income Tax Act, No. 58 of 1962 ('Income 
Tax Act). The dividend on the shares will be deemed to be a dividend, for 
South African tax purposes, in terms of section 25BB of the Income Tax Act.

The dividend received by or accrued to South African tax residents must be 
included in the gross income of such shareholders and will not be 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 it is a dividend distributed by a REIT. This 
dividend is, however, exempt from dividend withholding tax in the hands 
of South African tax resident shareholders, provided that the South African 
resident shareholders provide the following forms to their Central Securities 
Depository Participant ('CSDP') or broker, as the case may be, in respect of 
uncertificated shares, or the Company, in respect of certificated shares:

a) a declaration that the dividend is exempt from dividends tax; and
b) a written undertaking to inform the CSDP, broker or the Company, as the 
   case may be, should the circumstances affecting the exemption change or
   the beneficial owner cease to be the beneficial owner,
   both in the form prescribed by the Commissioner for the South African
   Revenue Service. Shareholders are advised to contact their CSDP, broker or
   the Company, as the case may be, to arrange for the abovementioned 
   documents to be submitted prior to payment of the dividend, if such 
   documents have not already been submitted.

Dividends received by non-resident shareholders will not be taxable as 
income and instead will be treated as an ordinary dividend which is 
exempt from income tax in terms of the general dividend exemption in 
section 10(1)(k)(i) of the Income Tax Act, (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 27.66400 cents per share. A reduced dividend 
withholding rate in terms of the applicable DTA may only be relied 
on if the non-resident shareholder has provided the following forms 
to their CSDP or broker, as the case may be, in respect of 
uncertificated shares, or the Company, 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 their CSDP, broker or the Company, 
   as the case may be, should the circumstances affecting the reduced 
   rate change or the beneficial owner cease to be the beneficial owner,

both in the form prescribed by the Commissioner for the South African 
Revenue Service. Non-resident shareholders are advised to contact their 
CSDP, broker or the Company, as the case may be, to arrange for the 
abovementioned documents to be submitted prior to payment of the dividend 
if such documents have not already been submitted, if applicable.

As at the date of this announcement, the Company had a total of 130 894 793 
shares in issue. The Company's tax reference number is 9015377253.

The dividend is payable to Transcend shareholders in accordance with the 
timetable set out below:
Last date to trade cum dividend              Tuesday, 26 March 2019
Shares trade ex dividend                     Wednesday, 27 March 2019
Record date                                  Friday, 29 March 2019
Payment date                                 Monday, 01 April 2019

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

In respect of dematerialised shareholders, the dividend will be transferred 
to CSDP accounts/broker accounts on Monday, 1 April 2019. Certificated 
shareholders' dividend payments will be deposited on or about 
Monday, 1 April 2019.

By order of the board

Solly Mboweni                        Myles Kritzinger

Chief Executive Officer              Chief Financial Officer
Johannesburg
6 March 2019


Registered office: 54 Peter Place, Block C, Peter Place Office Park, 
Bryanston, 2191

Transfer secretaries: Link Market Services South Africa Proprietary 
Limited, 13th Floor, 19 Ameshoff Street, Braamfontein, 2001, 
PO Box 4844, Johannesburg, 2000

Designated Advisor: Questco Corporate Advisory Proprietary Limited

Company secretary: Karen Waldeck-Kruger

Directors: Robert Reinhardt Emslie* (Chairperson); Robert Nicolaas Wesselo 
(former Chief Executive Officer)**(1); David Peter Lange(4) (former Chief 
Financial Officer); Myles Kritzinger(5) (Chief Financial Officer); Solly 
Mboweni (Chief Executive Officer)(2); Cathal Padraig Conaty**(6); Faith 
Nondumiso Khanyile*; Michael Simpson Aitken*; Michael Louis Falcone**; 
Vanessa Perfect (Chief Operating Officer)(3); Geoff Jennet**(7); 
Michelle Dickens*(8)

*  Independent non-executive director
** Non-executive director

(1) Rob Wesselo has stepped down as Chief Executive Officer but will 
remain on the Board as a non-executive director effective 14 December
2018.
(2) Solly Mboweni, previously the Chief Operating Officer, replaces Rob
Wesselo as the Company’s Chief Executive Officer effective 14 December
2018.
(3) Vanessa Perfect replaces Solly Mboweni as the Company’s Chief
Operating Officer effective 14 December 2018.
(4) David Peter Lange resigned as Chief Financial Officer and executive 
director of the Company effective 8 March 2018.
(5) Myles Kritzinger was appointed as Chief Financial Officer and 
executive director of the Company effective 9 March 2018.
(6) Cathal Conaty resigned as a non-executive director effective 
14 December 2018.
(7) Geoff Jennet was appointed as a non-executive director effective 
14 December 2018.
(8) Michelle Dickens was appointed as an independent non-executive 
director effective 14 December 2018.

8 March 2019

Date: 08/03/2019 01:58:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
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