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FFA FFB
FORT
FFA / FFB - Fortress Income Fund - Condensed Unaudited Consolidated Financial
Statements for the three months ended 31 December 2009
Fortress Income Fund Limited
Incorporated in the Republic of South Africa
Registration no 2009/016487/06
JSE codes: "FFA" ISIN: ZAE000141313 and "FFB" ISIN: ZAE000141321 respectively
("Fortress" or "the company" or "the group")
Condensed Unaudited Consolidated Financial Statements for the three months ended
31 December 2009
Directors` commentary
Fortress listed on the JSE Limited on 22 October 2009 following the successful
private placing of 13 000 000 Fortress A linked units ("Fortress A units" or "A
units") and 13 000 000 Fortress B linked units ("Fortress B units" or "B units")
at R9,00 and R1,00 per linked unit respectively. In total 176 592 192 A and B
units were issued on listing.
Fortress` A and B linked unit structure offers investors two different risk and
reward propositions. The A units offer an attractive yield (10,75% on the
listing price) on a preferred basis, escalating at 5% per annum for five years
and at the lower of CPI and 5% thereafter. These units have preferential
entitlements to income distributions and to capital participation on winding up.
The remaining distributable income accrues to the B units.
At the date of listing the Fortress property portfolio consisted of 103
properties valued at R2 209 124 292 with an effective GLA of 524 243m2. Based on
property valuations, the sectoral split of the portfolio was 45,4% retail, 41,0%
industrial and 13,6% commercial. In addition to its property portfolio Fortress
acquired 14 814 814 Capital Property Fund ("Capital") units for R100 million.
With the exception of 121 Gazelle Avenue Corporate Park, Mussina Shopping Centre
and 456 Granite Drive Kya Sands, all properties have been transferred. These
properties are anticipated to be transferred within the next six weeks.
Results
The distribution per linked unit for the three months ended 31 December 2009 was
24,19 cents and 2,36 cents for the A and B units respectively. The distribution
for the B units was slightly ahead of the forecast presented in the prospectus
dated 16 October 2009.
Acquisition and investments
Fortress acquired Shoprite Mayville for R196 million with effect from 1 October
2009. The purchase consideration was settled by the issue of 9 800 000 A and B
units and R98 million in cash. Fortress acquired an additional 12 185 186
Capital units in the market at an average price of R6,75 per unit. It further
invested R75 million in offshore listed real estate investment trusts. Fortress
is also currently negotiating the acquisition of two large parcels of
properties.
Disposals
Burry Koen Jet Park was sold for R35,4 million against its book value of R34,4
million and transfer has been effected. Negotiations for the disposal of a
number of properties are in progress.
The fund has adopted an aggressive and opportunistic approach to asset
management of the portfolio and will take advantage of attractive offers to sell
properties as well as buying opportunities when they arise.
The market for owner-occupied properties is recovering as bank finance becomes
more easily available and this bodes well for the disposal of particularly the
small industrial properties in future.
Performance of the property portfolio
In the three months since listing the property portfolio has performed within
budget despite an increase in vacancies to 4,2%. Management has focused on
tenant retention and letting vacant space and this will continue to be a focus
area. No significant increase in vacancies is anticipated for the remainder of
the financial period.
Gearing
Fortress` gearing of 28,5% is below the board`s target range of between 30% and
35% and the group currently has unutilised facilities of over R200 million.
Prospects
The board is confident that Fortress will achieve its forecast distribution of
72,56 cents per A unit and 6,75 cents per B unit for the 9 month period to June
2010.
By order of the board
Mark Stevens Nick Hanekom
Managing director Financial director
Johannesburg
17 February 2010
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
Dec 2009
R`000
ASSETS
Non-current assets 2 721 608
Investment property 2 365 861
Straight-lining of rental revenue adjustment 6 306
Investment property under development 27 981
Investments 275 585
Loans 45 875
Current assets 43 502
Trade and other receivables 36 328
Cash and cash equivalents 7 174
Total assets 2 765 110
EQUITY AND LIABILITIES
Total equity attributable to equity holders 223 628
Share capital 3 728
Share premium 182 544
Non-distributable reserves 37 356
Retained earnings -
Total liabilities 2 541 482
Non-current liabilities 2 404 234
Linked debentures 1 677 530
Interest-bearing borrowings 723 790
Deferred tax 2 914
Current liabilities 137 248
Trade and other payables 23 332
Linked debenture interest payable 49 487
Income tax payable 134
Interest-bearing borrowings 64 295
Total equity and liabilities 2 765 110
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited
for the three
months ended
Dec 2009
R`000
Net rental and related revenue 71 524
Recoveries and contractual rental revenue 89 699
Straight-lining of rental revenue adjustment 6 306
Rental revenue 96 005
Property operating expenses (24 481)
Distributable income from investments 4 054
Fair value gain on investment property and investments 34 075
Fair value gain on investment property 26 007
Adjustment resulting from straight-lining of rental (6 306)
revenue
Fair value gain on investments 14 374
Administrative expenses (2 429)
Listing costs (3 197)
Profit before net finance costs 104 027
Net finance costs (63 623)
Finance income 4 963
Interest from loans 1 743
Fair value adjustment on interest rate derivatives 3 220
Finance costs (68 586)
Interest on borrowings (19 680)
Capitalised interest 581
Interest to linked debenture holders
- A linked units (45 088)
- B linked units (4 399)
Profit before income tax expense 40 404
Income tax expense (3 048)
Profit for the period attributable to equity holders 37 356
Total comprehensive income for the period 37 356
Basic earnings per A share (cents) 10,02
Basic earnings per B share (cents) 10,02
Basic earnings per A linked unit (cents) 34,21
Basic earnings per B linked unit (cents) 12,38
*Fortress has no dilutionary instruments in issue.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity holders of the
group
Non-
Share Share distributable Retained
capital premium reserves earnings Total
Unaudited R`000 R`000 R`000 R`000 R`000
Balance at 30
September 2009 - - - - -
Issue of linked 3 728 182 544 186 272
units
- Issue of 176 592
192 units effective
1 October 2009 3 532 173 000 176 532
- Issue of 9 800
000 units effective
1 October 2009 196 9 544 9 740
Total comprehensive
income for the 37 356 37 356
period
Transfer to non-
distributable 37 356 (37 356) -
reserves
Balance at 31
December 2009 3 728 182 544 37 356 - 223 628
RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS
AND DISTRIBUTABLE INCOME
Unaudited
for the three
months ended
Dec 2009
R`000
Basic earnings (shares) - profit for the period
attributable to equity holders 37 356
- interest to linked debenture holders 49 487
Basic earnings (linked units) 86 843
Adjusted for: (19 567)
- fair value gain on investment property (19 701)
- income tax effect 134
Headline earnings (linked units) 67 276
Adjustment resulting from straight-lining of rental (6 306)
revenue
Fair value gain on investments (14 374)
Fair value adjustment on interest rate derivatives (3 220)
Listing costs 3 197
Income tax effect 2 914
Distributable income 49 487
Less: distribution declared (49 487)
Income not distributed -
Headline earnings per A linked unit (cents) 28,96
Headline earnings per B linked unit (cents) 7,13
Basic earnings per share, basic earnings per linked unit and headline
earnings per linked unit are based on the weighted average of 186 392 192
shares/linked units in issue during the period.
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
for the
three
months ended
Dec 2009
R`000
Cash inflow from operating activities 32 523
Cash outflow from investing activities (2 677 236)
Cash inflow from financing activities 2 651 887
Increase in cash and cash equivalents 7 174
Cash and cash equivalents at the beginning of the period -
Cash and cash equivalents at the end of the period 7 174
Cash and cash equivalents consist of:
Current accounts 7 174
NOTES
1 PREPARATION
The condensed consolidated financial statements have been prepared in
accordance with IAS 34, the JSE Listings Requirements and the requirements
of the South African Companies Act. The accounting policies adopted are in
accordance with IFRS.
This report was not audited or reviewed by the company`s auditors.
2 SUMMARY OF FINANCIAL PERFORMANCE
Dec 2009
Distribution per A linked unit (cents) 24,19
Distribution per B linked unit (cents) 2,36
A linked units in issue 186 392 192
B linked units in issue 186 392 192
Net asset value per combined linked unit* R10,20
Net asset value per A linked unit** R9,42
Net asset value per B linked unit R0,78
Gearing ratio*** 28,5%
* Net asset value includes total equity attributable to equity
holders and linked debentures.
**Volume weighted average trading price since listing.
***The gearing ratio is calculated by dividing interest-bearing
borrowings by total assets.
3 GEARING
Amount Interest % of
Expiry R`000 rate borrowings
Interest rate swaps*
September 2011 100 000 7,37% 12,69%
September 2012 100 000 7,77% 12,69%
September 2013 100 000 8,04% 12,69%
September 2014 100 000 8,24% 12,69%
September 2015 100 000 8,36% 12,69%
Hedged borrowings 500 000 63,45%
Variable rate borrowings 288 085 36,55%
Total gearing** 788 085 9,76% 100,00%
*Fortress pays the fixed rate and receives the 3-month Jibar floating
rate on the swaps.
**Total gearing comprises the level of external interest-bearing
borrowings.
4 LEASE EXPIRY PROFILE
Based on
Based on contractual
Lease expiry rentable rental
area income
Vacant 4,2% -
June 2010 15,8% 15,0%
June 2011 21,9% 20,4%
June 2012 22,0% 25,2%
June 2013 16,0% 18,2%
June 2014 7,1% 8,2%
June 2015 3,7% 4,8%
>June 2015 9,3% 8,2%
Total 100,0% 100,0%
5 SEGMENTAL ANALYSIS
Dec 2009
Rental revenue R`000
Retail 45 493
Industrial 38 718
Commercial 11 794
Total 96 005
Dec 2009
Profit before net finance costs R`000
Retail 42 055
Industrial 33 525
Commercial 15 645
Investments and other 12 802
Total 104 027
6 PAYMENT OF INTERIM DISTRIBUTION
The board has approved and notice is hereby given of interim interest
distributions (distribution no 1) of 24,19 cents per A linked unit and 2,36
cents per B linked unit for the period ended 31 December 2009.
The last date to trade linked units cum distribution will be Friday, 5
March 2010 and trading will commence ex distribution on Monday, 8 March
2010. The record date to participate in the distribution will be Friday, 12
March 2010.
Linked unit certificates may not be dematerialised or rematerialised
between Monday, 8 March 2010 and Friday, 12 March 2010, both days
inclusive. Payment of the distribution will be made to linked unitholders
on Monday, 15 March 2010.
In respect of dematerialised linked unitholders, the distribution will be
transferred to the Central Securities Depository Participant
accounts/broker accounts on Monday, 15 March 2010. Certificated linked
unitholders` distribution payments will be posted on or about Monday, 15
March 2010.
Directors
Jeff Zidel (chairman), Mark Stevens (MD)*, Kura Chihota, Des de Beer*, Nick
Hanekom*, Nontando Kunene, Jannie Moolman, Djurk Venter
(* Executive director)
Company secretary
Stephanie Botha
Registered address
3rd Floor Rivonia Village Rivonia Boulevard Rivonia 2191
Transfer secretaries
Link Market Services South Africa (Proprietary) Limited 11 Diagonal Street
Johannesburg 2001
Sponsor
Java Capital (Proprietary) Limited
Date: 18/02/2010 14:26:02 Produced by the JSE SENS Department.
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