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VKE
VKE
VKE - Vukile Property Fund Limited - Condensed financial statements and interim
results for the six months ended 30 September 2010
Vukile Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
JSE Share code: VKE ISIN: ZAE000056370
NSX Share code: VKN
("Vukile" or "the group")
CONDENSED FINANCIAL STATEMENTS AND INTERIM RESULTS for the six months ended 30
September 2010
* Distribution for the six months up 7.5% on comparable period
* Rentable area of portfolio exceeds 1 million mSquared
* Nine properties worth R537.8 million acquired
* Overall cost of funding reduced from 10.4% to 9.74%
COMMENTS
1. Nature of operations
The group is a long term investor in commercial properties with strong
contractual cash flows for long-term sustainability and capital appreciation.
2. Basis of preparation
The unaudited condensed interim financial statements ("interim financial
statements") for the six months ended 30 September 2010, and comparative
information, have been prepared in terms of IAS 34 (Interim Financial
Reporting), AC 500 Standards as issued by the Accounting Practices Board, the
JSE Listings Requirements and relevant sections of the South African Companies
Act 1973, as amended. The interim financial statements do not include all of
the information required in annual financial statements in accordance with IFRS,
and should be read in conjunction with the consolidated financial statements of
the group for the year ended 31 March 2010. The condensed interim financial
statements have been approved for issue by the board of directors on 22 November
2010.
3. Significant accounting policies
The interim financial statements have been prepared in terms of IFRS and in
accordance with the accounting policies adopted in the last annual financial
statements for the year ended
31 March 2010, except for the adoption of the following standards as of 1 April
2010:
* IFRS 3 Business Combinations (Revised 2008)
* IAS 27 Consolidated and Separate Financial Statements (Revised 2008)
Details of the above standards were set out in the annual financial statements
at 31 March 2010 and have not had any impact on these interim results.
4. Significant event and transactions
During this reporting period, the group acquired nine properties from Sanlam and
disposed of two properties as outlined in more detail in paragraph 6.
The refinancing of R462 million of securitised debt was successfully concluded
on 8 November 2010 - refer to further details in paragraph 13.
5. Financial results
The directors of Vukile are pleased to report that the distribution for the six
months ended 30 September 2010 has increased by 7.5% to 50.525 cents per linked
unit from 47 cents per linked unit. The group`s net rental income, exclusive of
straight-line rental accruals, has increased by 9.25% over the comparable
period. Net profit available for distribution has increased by 13.2%, from
49.27 cents per linked unit to 55.77 cents per linked unit. This higher than
normal increase is primarily due to a timing difference, as sales commission
from the asset management business is not earned equally over a 12 month period.
If this and other timing differences are taken into account, the increase in net
profit over the comparable period reduces to 8.1%. This is in line with
expectations following a period characterised by tough trading conditions and
increasing vacancies.
Summary of financial performance
Sept Sept Mar
2010 2009 2010
Net asset value per linked
unit (cents) 1 074 910 986
Distribution per linked
unit (cents) 50.525 47.0 107.9
Loan to value ratio 29.5% 32.6% 30.2%
The increase in the distribution of 3.5 cents per linked unit is made up as
follows:
Sept 2010
Cents per
linked unit
Contribution to increased rental income 11.2
Increase in rentals 5.8
Higher recoveries of electricity and rates
and taxes 4.0
Other 1.4
Less: Increase in property expenditure (2.0)
Higher electricity and rates and taxes charges (4.4)
Refurbishment projects carried beyond Sept 2010 0.9
Reduction in asset management fees 1.5
Net increase in group property revenue 9.2
Net income from asset management business 7.1
Net increase in finance costs (3.0)
Increase in administrative expenses/taxation (1.3)
Timing differences retained (3.0)
Adjustment for new linked units issued (5.5)
Net increase in distribution 3.5
6. Acquisition and disposals
At the general meeting of unitholders held on Tuesday 24 August 2010, the
unitholders approved the acquisition of nine properties for R537.6 million. As
the properties were only registered on 3 September 2010, and not the originally
envisaged 31 August 2010, the purchase price increased marginally to R537.8
million. This acquisition was funded as follows:
R`m
Cash on hand 100.3
Issue of linked units 235.7
Bank debt 201.8
537.8
The Hillcrest and Pongola Shopping Centres were sold during the reporting period
for a total of R47.1 million, generating an accounting loss of R14.75 million.
The excess between proceeds received and purchase price of the sold properties
amounted to R14 million.
The movement in investment properties during the reporting period is summarised
below:
Capitalised
Investment lease
properties commissions Total
R000 R000 R000
Balance 1 April 2010 4 888 936 14 549 4 903 485
Change in fair value of
investment properties 364 636 - 364 636
Expansion and
development costs 39 823 - 39 823
Tenant installation costs 7 861 - 7 861
Portfolio acquisition
including transaction
costs 541 155 - 541 155
Sale of properties (61 892) - (61 892)
Reduction of capitalised
lease commissions - (1 222) (1 222)
Balance 30 September 2010 5 780 519 13 327 5 793 846
R000
Allocated as follows:
Non-current assets 5 763 405
Non-current assets held for sale 30 441
Total 5 793 846
7. Borrowings
The company raised bank debt of R201.8 million to partly fund the acquisition of
the R537.8 million property portfolio referred to above. The interest rate risk
on this loan has been hedged to 2 September 2013 and an all-in cost of funding
of 8.13% has been achieved. The tenure of four interest rate swaps was extended
to match the maturity dates of the underlying loans, at lower interest rates.
Taking the benefits of the lower swap rates into account, as well as the
refinanced R462 million securitisation debt (refer paragraph 13), the overall
cost of funding of the Vukile group has reduced from 10.4% at 31 March 2010 to
9.74%.
The group`s interest rate risk on long-term debt is hedged using interest rate
swap agreements for periods expiring between two and three years. Due to the
fact that 97% of the group`s interest rate risk on long-term debt is hedged or
fixed, changes in interest rates will have little impact on the group`s cost of
debt for the current financial year.
The group has a facility of R114 million available which can be utilised without
credit approval due to the equity available in the non-securitised portfolio.
The group has also negotiated a new R350 million facility for the acquisition of
investment properties, subject to credit approvals and the registration of
mortgage bonds over the properties to be acquired.
8. Share issue
In order to partly fund the acquisition of properties referred to in paragraph
6, the company issued 18 994 341 linked units in a vendor placement, at a price
equivalent to the 20 day VWAP less a 5% discount, which equated to R12.41 per
linked unit. This generated cash of R235.7 million.
9. Property portfolio
The combined property portfolio currently comprises 82 properties with a gross
lettable area of 1 010 152mSquared.
The sectoral spread by gross rentals comprises 28% commercial, 54% retail and
18% industrial.
During the six month period under review, new leases and renewals with a total
area of 106 374mSquared and a contract value of R756 million were concluded.
This includes the renewal of the lease at the Louis Leipoldt Hospital for a 15
year period at a contract value of R500 million. Since 1 October 2010, leases
and renewals with a total area of 13 745mSquared and a contract value of R82
million have been concluded.
Bad debt write-offs have been in line with expectations for the six month
period. The provision for doubtful debts at 30 September 2010 is R7.4 million
(R10.2 million at 31 March 2010) which is considered adequate at this stage.
The vacancy profile (% gross rentals) below indicates that the overall vacancy
percentage has increased from 4.1% at 31 March 2010 to 5.3% at 30 September
2010.
10. Valuations
The directors have valued the group`s property portfolio at R5.78 billion as at
30 September 2010. Inclusive of the portfolio acquisition of R537.8 million,
this represents an increase in the directors` valuation of R892 million as
compared to the valuation at 31 March 2010. The directors valued the properties
utilising the discounted cashflow methodology.
In terms of the company`s accounting policies, approximately 50% of all
properties are valued every six months on a rotational basis by qualified
independent external valuers. The external valuation by Colliers Property
Facilities Management (Pty) Ltd and CB Richard Ellis (Pty) Ltd of approximately
44% of the total portfolio is R152.6 million (6.0%) lower than the directors`
valuation of the same properties at 30 September 2010. This difference is
attributable to a marginal difference in views with regards to future
capitalisation rates and discount rates.
11. Developments and expansion projects
The expansions at Oshakati Shopping centre and Oshikango Centre have been
completed within budget.
12. Segment reporting
The revenues and profit generated by the group`s operating segments and segment
assets are summarised in the table below.
During the six month period to 30 September 2010, there has been no changes from
prior periods in the measurement methods used to determine operating segments
and reported segment profits.
SEGMENTAL ANALYSIS
Group income for the
six months ended Industrial Commercial Retail
30 September 2010 R000 R000 R000
Property Revenue 62 219 116 125 216 526
Property expenses (22 686) (36 247) (80 773)
39 533 79 878 135 753
Add: Excluded item
Straight-line rental
income accrual 2 405 4 488 8 369
Net profit from
property operations 41 938 84 366 144 122
Group balance sheet at
30 September 2010
Assets
Investment properties 1 046 827 1 728 236 2 975 015
Add: Lease commissions - - -
Add: Goodwill 5 114 4 978 66 207
Intangible asset
investment property
held for sale 30 441 - -
1 082 382 1 733 214 3 041 222
Add: Excluded items
Development expenditure
Furniture, fittings and
computer equipment
Available for sale
financial assets
Financial asset at
amortised cost
Trade and other
receivables
Cash and cash
equivalents
Total assets
Liabilities
Linked debentures
and premium 277 113 458 755 798 552
Interest bearing
borrowings 306 990 508 214 884 650
584 103 966 969 1 683 202
Add: Excluded items
Equity attributable
to owners of the parent
Derivative financial
instrument
Deferred taxation
Trade and other
payables
Current taxation
liabilities
Linked unitholders
for distribution
Total liabilities
Segmental analysis CONTINUED
Asset
management Total
Total business group
R000 R000 R000
Property Revenue 394 870 44 466 439 336
Property expenses (139 706) (20 626) (160 332)
225 164 23 840 279 004
Add: Excluded item
Straight-line rental
income accrual 15 262 - 15 262
Net profit from
property operations 270 426 23 840 294 266
Group balance sheet at
30 September 2010
Assets
Investment properties 5 750 078 5 750 078
Add: Lease commissions 13 327 13 327
5 763 405 5 763 405
Add: Goodwill 76 299 76 299
Intangible asset 362 767 362 767
Investment property
held for sale 30 441 30 441
5 870 145 362 767 6 232 912
Add: Excluded items
Development expenditure 166
Furniture, fittings
and computer equipment 1 603
Available for sale
financial assets 15 457
Financial asset at
amortised cost 5 450
Trade and other
receivables 52 930
Cash and cash
equivalents 149 334
Total assets 6 457 852
Liabilities
Linked debentures
and premium 1 534 420 583 183 2 117 603
Interest bearing
borrowings 1 699 854 1 699 854
3 234 274 583 183 3 817 457
Add: Excluded items
Equity attributable
to owners of
the parent 1 653 186
Derivative financial
instrument 36 051
Deferred taxation 632 975
Trade and other
payables 143 504
Current taxation
liabilities 5 510
Linked unitholders
for distribution 169 169
Total liabilities 6 457 852
13. Events after the reporting date
On 8 November 2010, securitisation debt of R462 million was successfully
refinanced through a "tap" at an all-in cost of finance of 9.66%, which is 0.54%
lower than the previous rate of 10.20%. The issue was 2.7 times oversubscribed.
14. Replacement of CEO
As reported previously, the current CEO, Gerhard van Zyl, has resigned from
Vukile with effect from 31 March 2011. The board has initiated discussions with
a candidate which may only be concluded early in 2011. To ensure a smooth
handover, Gerhard van Zyl has agreed to remain on as CEO.
15. Prospects
It has become clear that a recovery in the property sector will take longer to
materialise than originally anticipated. Trading conditions remain tough and
there is little growth in rentals.
In accordance with its strategy to grow the portfolio, Vukile intends to
exercise the option it has to acquire certain properties valued at approximately
R500 million from Sanlam Life which has to be exercised prior to 31 December
2010. At this stage, the relevant properties have been identified and Vukile is
in the process of evaluating the future income streams in order to formulate an
offer to Sanlam Life if the option is exercised.
Therefore, taking the above into account and, given the inherent quality of the
Vukile portfolio and the astute management of the portfolio by our management
team and service providers, the board is of the opinion that the company will be
able to deliver reasonable growth in distributions for the year ending
31 March 2011. This information has not been reviewed and reported on by
Vukile`s auditors.
16. Payment of debenture interest and dividend
Notice is hereby given of a distribution amounting to 50.525 cents per linked
unit, for the six-month period to 30 September 2010. The distribution comprises
interest on debentures of 50.422 cents per linked unit and a dividend of 0.103
cents per linked unit.
Last date to trade cum distribution Thursday, 9 December 2010
Linked units trade ex distribution Friday, 10 December 2010
Record date for unitholders to
participate in the distribution Friday, 17 December 2010
Payment of distribution Monday, 20 December 2010
Linked unit certificates may not be dematerialised or re-materialised between
Friday, 10 December 2010 and Friday, 17 December 2010, both days inclusive.
On behalf of the board
AD Botha G van Zyl
Chairman Chief executive
Roodepoort
22 November 2010
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2010 2009 2010
R000 R000 R000
Property revenue 394 870 357 442 742 072
Straight-line rental income
accrual 15 262 1 413 7 041
Gross property revenue 410 132 358 855 749 113
Property expenses (139 706) (133 125) (267 061)
Profit from property
operations 270 426 225 730 482 052
Administrative expenses (12 531) (10 241) (23 781)
Operating profit 257 895 215 489 458 271
Net profit from the asset
management business 23 840 - 3 067
Investment and other income 5 701 5 531 21 188
Finance costs (78 422) (68 272) (145 340)
Profit before debenture
interest 209 014 152 748 337 186
Debenture interest (168 825) (138 626) (319 231)
Profit before capital items 40 189 14 122 17 955
Capital items
Amortisation of debenture
premium 1 832 390 1 361
(Loss)/profit on sale of
revalued properties (14 753) 1 386 1 387
Profit before fair value
adjustments 27 268 15 898 20 703
Fair value adjustments 349 374 (6 736) 293 975
Gross change in fair value
of investment properties 364 636 (5 323) 301 016
Straight-line rental
income adjustment (15 262) (1 413) (7 041)
Profit before taxation 376 642 9 162 314 678
Taxation (105 303) (4 551) (79 081)
Profit for the period after
taxation 271 339 4 611 235 597
Other comprehensive
(losses)/gains
Cash flow hedging (7 848) 3 642 (11 436)
Current period (losses)/
gains (7 914) 3 131 (22 390)
Reclassification to
profit or loss 66 511 10 954
Available-for-sale
financial assets (820) (1 418) (6 486)
Current period (losses)/
profits (820) (1 418) (6 486)
Other comprehensive (losses)/
income for the period, net
of tax (8 668) 2 224 (17 922)
Total comprehensive income
for the period 262 671 6 835 217 675
Earnings per share
Basic earnings per share
(cents) 131.99 48.46 182.37
Diluted earnings per
share (cents) 131.99 48.46 182.37
Total number of linked
units in issue (000) 351 015 295 551 332 021
Weighted average number
of linked units in
issue (000) 333 478 295 551 304 244
Reconciliation: Headline earnings and distributable earnings
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2010 2009 2010
R000 R000 R000
Attributable profit for the
period after taxation 271 339 4 611 235 597
Adjusted for:
Net change in fair value of
investment properties (349 374) 6 736 (293 975)
Total tax effects of
adjustments 93 216 (1 597) 70 139
Loss/(profit) on sale of
revalued properties 14 753 (1 386) (1 387)
Amortisation of debenture
premium (1 832) (390) (1 361)
Debenture interest 168 825 138 626 319 231
Headline earnings of linked
units 196 927 146 600 328 244
Straight-line rental accrual
net of deferred taxation (10 949) (982) (4 979)
Available for distribution 185 978 145 618 323 265
Distribution to unitholders
Interest 168 825 138 626 319 231
Dividend 344 283 651
Total distribution 169 169(1) 138 909 319 882
Headline earnings per
linked unit (cents) 59.05 49.60 107.89
Available for distribution
per linked unit (cents) 55.77 49.27 109.54
Note:
1. Made up as follows:
Linked units Debenture Participation
in issue Dividends interest period
332 020 877 341 656.92 167 411 891.18 183 days
18 994 341 2 883.78 1 413 050.93 27 days
351 015 218 344 540.70 168 824 942.11
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2010 2009 2010
R000 R000 R000
ASSETS
Non-current assets 6 225 147 4 634 414 5 272 170
Investment properties 5 662 078 4 465 772 4 725 437
Investment properties 5 763 405 4 547 106 4 811 152
Straight-line rental
income adjustment (101 327) (81 334) (85 715)
Other non-current assets 563 069 168 642 546 733
Intangible asset 362 767 - 362 767
Straight-line rental
income asset 101 327 81 334 85 715
Development expenditure 166 908 1 391
Furniture, fittings and
computer equipment 1 603 86 1 510
Available-for-sale
financial asset 15 457 10 015 13 601
Financial asset at
amortised cost 5 450 - 5 450
Goodwill 76 299 76 299 76 299
Current assets 202 264 244 509 261 066
Trade and other receivables 52 930 30 698 46 741
Cash and cash equivalents 149 334 213 811 214 325
Investment properties
held for sale 30 441 16 046 92 333
Total assets 6 457 852 4 894 969 5 625 569
EQUITY AND LIABILITIES
Equity attributable to
owners of the parent 1 653 186 1 154 866 1 381 502
Non-current liabilities 4 025 123 3 486 252 3 463 718
Linked debentures
and premium 2 117 603 1 534 029 1 890 753
Other interest bearing
borrowings 1 238 494 1 471 422 1 012 203
Derivative financial
instruments 36 051 18 971 28 136
Deferred tax liabilities 632 975 461 830 532 626
Current liabilities 779 543 253 851 780 349
Trade and other payables 143 504 111 157 136 275
Short-term borrowings 461 360 - 460 727
Current taxation
liabilities 5 510 3 785 2 373
Linked unitholders for
distribution 169 169 138 909 180 974
Total equity and
liabilities 6 457 852 4 894 969 5 625 569
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
30 Sept 30 Sept 31 Mar
2010 2009 2010
R000 R000 R000
Cash flow from operating
activities 270 664 208 909 452 245
Cash flow from investing
activities (536 532) (16 763) (410 110)
Cash flow from financing
activities 200 877 (39 142) 111 383
Net (decrease)/increase in
cash and cash equivalents (64 991) 153 004 153 518
Cash and cash equivalents
at the beginning of the
period 214 325 60 807 60 807
Cash and cash equivalents
at the end of the period 149 334 213 811 214 325
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
TO 30 SEPTEMBER 2010
Revaluation of
Share Available-
capital and Non- for-sale
share distributable financial
premium reserves assets
R000 R000 R000
Balance at 31 March 2009 20 297 1 137 743 (9 788)
Dividend distribution 20 297 1 137 743 (9 788)
Net profit for the
period
Change in fair value of
investment properties (5 323)
Deferred taxation on
change in fair value
of investment
properties and
straight-line
rental accrual 1 597
Share-based
remuneration 3 213
Other comprehensive
income
Revaluation of
available-for-
sale financial asset (1 418)
Revaluation of interest
rate swaps
Balance at
30 September 2009 20 297 1 137 230 (11 206)
Issue of share capital 7 299 - -
Dividend distribution - - -
27 596 1 137 230 (11 206)
Net profit for the period
Change in fair value of
investment properties 306 339
Deferred taxation on
change in fair value of
investment properties
and straight-line rental
accrual (73 798)
Share-based remuneration 8 865
Transfer to non-
distributable reserve 1 387
Other comprehensive
Income
Revaluation of available-
for-sale financial asset (5 068)
Revaluation of interest
rate swaps
Balance at 31 March 2010 27 596 1 380 023 (16 274)
Issue of share capital 4 667 - -
Dividend distribution - - -
32 263 1 380 023 (16 274)
Net profit for the
period
Change in fair value of
investment properties 364 636
Deferred taxation on
change in fair value
of investment properties
and straight-line
rental accrual (97 529)
Share-based remuneration 4 690
Transfer from non-
distributable reserve (14 753)
Other comprehensive
income
Revaluation of available
-for-sale financial asset (820)
Revaluation of interest
rate swaps
Balance at
30 September 2010 32 263 1 637 067 (17 094)
Unaudited consolidated statement of changes in equity
to 30 September 2010 continued
Cash flow Retained
hedges income Total
R000 R000 R000
Balance at 31 March 2009 (16 854) 13 703 1 145 101
Dividend distribution (283) (283)
(16 854) 13 420 1 144 818
Net profit for the period 4 611 4 611
Change in fair value of
investment properties 5 323 -
Deferred taxation on change
in fair value of investment
properties and straight-
line rental accrual (1 597) -
Share-based remuneration 3 213
Other comprehensive income
Revaluation of available-
for-sale financial asset (1 418)
Revaluation of interest
rate swaps 3 642 3 642
Balance at
30 September 2009 (13 212) 21 757 1 154 866
Issue of share capital - - 7 299
Dividend distribution - (368) (368)
(13 212) 21 389 1 161 797
Net profit for the period 230 986 230 986
Change in fair value of
investment properties (306 339) -
Deferred taxation on change
in fair value of investment
properties and straight-line
rental accrual 73 798 -
Share-based remuneration 8 865
Transfer to non-
distributable reserve (1 387) -
Other comprehensive
income
Revaluation of available-
for-sale financial asset (5 068)
Revaluation of interest
rate swaps (15 078) (15 078)
Balance at 31 March 2010 (28 290) 18 447 1 381 502
Issue of share capital - - 4 667
Dividend distribution - (344) (344)
(28 290) 18 103 1 385 825
Net profit for the period 271 339 271 339
Change in fair value of
investment properties (364 636) -
Deferred taxation on
change in fair value of
investment properties
and straight-line
rental accrual 97 529 -
Share-based remuneration 4 690
Transfer from non-
distributable reserve 14 753 -
Other comprehensive
income
Revaluation of
available-for-sale
financial asset (820)
Revaluation of interest
rate swaps (7 848) (7 848)
Balance at
30 September 2010 (36 138) 37 088 1 653 186
JSE Sponsor: Barnard Jacobs Mellet Corporate Finance (Pty) Ltd, Illovo, Sandton
NSX Sponsor: IJG Securities (Pty) Ltd, Windhoek, Namibia
Executive directors: G van Zyl (Chief Executive), MJ Potts (Financial Director),
HC Lopion
Non-executive directors: AD Botha (Chairman), HSC Bester, PJ Cook, JM Hlongwane,
PS Moyanga, MH Serebro and UJ van der Walt
Registered office: Ground floor Meersig Building, Constantia Boulevard,
Constantia Kloof, 1709.
Company secretary: J Neethling
Transfer secretaries: Link Market Services South Africa (Pty) Ltd, Sandton,
Johannesburg
Investor and media relations: Contact Helen McKane at vukile@dpapr.com, tel: 011
728-4701.
www.vukileprops.co.za
Date: 22/11/2010 12:15:01 Produced by the JSE SENS Department.
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