| Tue 2 Aug 2011, 17:05 | | CPL - Capital - Condensed Consolidated Unaudited Interim Financial Report |
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CPL
CPL
CPL - Capital - Condensed Consolidated Unaudited Interim Financial Report
for the six months ended 30 June 2011
CAPITAL PROPERTY FUND
("Capital" or "the Fund")
Share code CPL ISIN ZAE000001731
(A portfolio in Capital Property Trust Scheme, a Collective Investment Scheme in
Property established in terms of the Collective Investment Schemes Control Act,
No 45 of 2002)
Managed by Property Fund Managers Limited
(Registration No. 1980/009531/06)
("PFM")
CONDENSED CONSOLIDATED UNAUDITED INTERIM FINANCIAL REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2011
DIRECTORS` COMMENTARY
1 DISTRIBUTABLE EARNINGS
Capital`s distribution per unit for the interim period ended 30 June 2011 of
31,36 cents represents an increase of 10,58% over the 28,36 cents for the
interim period ended 30 June 2010.
2 REVIEW
The most significant event of the past six months has been the acquisition by
Capital of all the Pangbourne Properties Limited ("Pangbourne") linked units in
issue that were not already owned by it ("Pangbourne merger"). The consideration
offered by Capital was 2,38 Capital units for every Pangbourne linked unit held
on Friday, 1 April 2011, save that any Pangbourne linked unitholder holding 500
or less Pangbourne linked units on the scheme consideration record date was
entitled to elect to receive a cash consideration of R20,00 per Pangbourne
linked unit held. Prior to the Pangbourne merger, Capital acquired an additional
23 768 569 Pangbourne linked units from Panya Investments (Proprietary) Limited
(a Pangbourne BEE partner) at R17,00 per linked unit.
The portfolio now comprises R17,4 billion of direct property and R257 million in
listed equity investments. Capital is currently the third largest listed
property fund on the JSE Limited, is now significantly more liquid and has
attracted a broader group of investors.
Capital`s portfolio includes R7,9 billion of industrial properties, R5,4 billion
of commercial properties, R3,8 billion of retail centres and approximately R300
million of other properties. Capital`s strategy remains to invest in prime
commercial and industrial properties in the four major metropolitan areas.
Whilst the retail properties are not part of the focus, the size of the existing
retail holding means that it will remain a significant portion of the overall
assets for the foreseeable future. Capital will, however, seek to reduce these
holdings when appropriate opportunities arise.
The operating environment has remained difficult for landlords and tenants for
the period under review. Increases in rates and taxes, utility charges and
"indirect taxes" such as additional levies imposed by local authorities,
continue unabated. Warehousing for distribution is relatively stable, however,
manufacturing continues to be negatively affected by the strong Rand, increases
in electricity costs and the cost of labour. Capital`s strategy of acquiring
generic properties with flexible utilisation continues to be rewarded with
positive results and has ensured that the portfolio remains resilient relative
to the market.
Arrears remain firmly under control and are declining as a percentage of gross
monthly billings. The portfolio is currently 6,9% vacant
(6,8% industrial, 11,0% commercial and 3,0% retail based on gross lettable
area). Industrial demand has improved, commercial vacancies have deteriorated
and retail vacancies have declined marginally.
The high vacancies, particularly in the commercial market, and tenants`
increased cost of occupancy, are negatively impacting on Capital`s ability to
increase rentals on renewals. Capital is, however, benefitting from reduced cost
of funding, particularly as a result of the improved swap profile.
3 ACQUISITIONS
Besides the Pangbourne merger, Capital acquired two properties during the period
under review. A 4 053mSquared industrial property acquired for R10 million, at a
yield of 9,5%, adjacent to City Deep Industrial Park will be incorporated into
the park. Georgian Crescent, an office park in Bryanston, was acquired for R39,5
million at a yield of 9,5%. This property will be extensively refurbished to A-
grade specifications. The industrial property has not yet transferred.
4 DEVELOPMENTS
The Pangbourne merger allows Capital to strategically focus on new developments
in order to grow and rejuvenate the portfolio. Developments will be funded with
debt, with the objective of maintaining Capital`s gearing at between 25% and
30%. The following developments are currently in progress:
Estimated
value Estimated Start End
Property name GLA R`000 yield date date
N1 Business Park (20%) 9 56 000 10% Apr 11 Sep 11
150mSquared
Montague Business Park
(25%) 12 76 200 9% Apr 11 Feb 12
700mSquared
Grand Central * 36 000 10% Sep 11 May 12
*253 Covered parking bays
The following developments are currently being evaluated:
Estimated Estimated Estimated
value yield start
Property name GLA R`000 date
Raceway Industrial Park 12 60 800 10% Oct 11
000mSquared*
87 Goodwood Road Mahogany Ridge 1 8 700 10% Oct 11
450mSquared**
11 Fitzmaurice Epping 3 20 600 9% Feb 12
400mSquared*
Tradeport Merino Avenue City
Deep 10 55 600 9,5% Feb 12
000mSquared*
*Additional building in park **Extension
5 DISPOSALS
Capital sold the following non-core properties during the interim period:
Property name Net Book Exit
proceeds value yield
R`000 R`000 % Transferred
N1 Value Centre 154 000 154 000 9,1% 24 Jun 11
Porcelain Street
Olifantsfontein 53 800 53 800 Vacant 6 Jun 11
Baycove (land) 31 500 32 939 - 18 Mar 11
Montague Business Park (land) 22 022 15 061 - 18 Feb 11
6 LISTED EQUITY INVESTMENTS
Capital currently owns 3 450 000 (R110,4 million) New Europe Property
Investments plc shares and 45 000 000 (R146,7 million) Fortress Income Fund
Limited - B linked units.
7 CAPITAL STRUCTURE AND SECURITISATION
Capital accepted new facilities of R450 million and R145 million from RMB and
Standard Bank respectively.
Standard Bank has been appointed as the programme arranger for a Domestic Medium
Term Note programme to enable Capital to raise unsecured finance in the capital
markets. Capital has appointed Moody`s Investors Service South Africa
(Proprietary) Limited as rating agency to provide a credit rating for the Fund.
As part of the Pangbourne merger, Capital inherited two Commercial Mortgage
Backed Securitisation ("CMBS") programmes. The Props 1 programme of R470 million
is arranged through Absa and the Props 2 programme of R621 million is arranged
through RMB. The existing notes under both programmes are repayable in 2012 and
the board has decided to terminate both programmes on the repayment of the
notes.
A R460 million swap for the Props 1 CMBS programme was to expire on
1 October 2014 whereas the notes are repayable on 1 October 2012. To eliminate
this mismatch, the swap was prematurely terminated at a cost of R32,6 million.
This cost will be amortised until 1 October 2012.
Following the Pangbourne merger, Capital`s gearing increased from 18,6% at
December 2010 to 24,8% at 30 June 2011. Capital`s relatively low gearing places
it in a strong position to continue to take advantage of opportunities that may
arise.
8 OUTLOOK
In the 2010 financial report, the board forecast growth in distributions of
between 8% and 10% per Capital unit. The Pangbourne merger positively impacted
on Capital`s distribution as Pangbourne traded at a higher yield than Capital.
The board is confident that Capital will achieve growth in distributions of
between 9% and 11% for the December 2011 financial year. The growth is based on
the assumptions that a stable macro-economic environment will prevail, no major
corporate failures will occur and that tenants will be able to absorb the
recovery of rising utility costs. Budgeted rental income was based on
contractual escalations and market related renewals. This forecast has not been
reviewed or reported on by Capital`s auditors.
By order of the board
Barry Stuhler Rual Bornman
Managing director Financial director
2 August 2011
Johannesburg
Registered office
4th Floor, Rivonia Village, Rivonia Boulevard, Rivonia, 2191
(PO Box 2555, Rivonia, 2128)
Transfer secretaries
Link Market Services South Africa (Proprietary) Limited
13th Floor, Rennie House, 19 Ameshoff Street, Braamfontein, 2001
(PO Box 4844, Johannesburg, 2000)
Sponsor
Java Capital
Company secretary
Inge Pick
Directors
Willy Ross (chairman)*, Barry Stuhler (managing director), Iraj Abedian*,
Rual Bornman, Des de Beer, Andries de Lange, Protas Phili*, Andrew Teixeira,
Banus van der Walt*, Tshiamo Vilakazi*, Trurman Zuma*
*Independent non-executive director
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited Restated
Jun 2011 Dec 2010 Jun 2010
R`000 R`000 R`000
ASSETS
Non-current assets 17 644 178 7 122 844 6 322 736
Investment property 16 843 215 5 923 042 5 248 466
Straight-lining of rental revenue
adjustment 102 541 88 667 76 100
Investment property under development 441 322 166 702 137 330
Investments 257 100 944 433 860 840
Current assets 212 259 15 281 47 410
Trade and other receivables 183 054 15 099 11 347
Cash and cash equivalents 29 205 182 36 063
Total assets 17 856 437 7 138 125 6 370 146
EQUITY AND LIABILITIES
Capital of Fund 11 880 707 5 298 062 4 769 103
Trust capital 9 273 620 2 645 963 2 645 963
Non-distributable reserves 2 607 087 2 652 099 2 123 140
Retained earnings - - -
Total liabilities 5 975 730 1 840 063 1 601 043
Non-current liabilities 3 525 426 752 814 959 103
Interest-bearing borrowings 2 949 386 693 781 918 534
Deferred tax 576 040 59 033 40 569
Current liabilities 2 450 304 1 087 249 641 940
Trade and other payables 462 739 194 682 96 744
Unitholders for distribution 503 951 228 046 203 505
Interest-bearing borrowings 1 483 614 632 329 317 202
Bank overdraft - 32 192 24 489
Total equity and liabilities 17 856 437 7 138 125 6 370 146
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Jun 2011 Dec 2010 Jun 2010
R`000 R`000 R`000
Net rental and related revenue 507 865 518 240 242 636
Recoveries and contractual rental
revenue 744 733 704 415 335 771
Straight-lining of rental revenue
adjustment 13 874 16 348 3 781
Rental revenue 758 607 720 763 339 552
Property operating expenses (250 742) (202 523) (96 916)
Distributable income from investments 5 068 70 926 34 893
Fair value gain on investment
property and investments 19 347 564 468 19 518
Fair value gain on investment
property 5 413 467 247 3 045
Adjustment resulting from straight-
lining of rental revenue (13 874) (16 348) (3 781)
Fair value gain on investments 27 808 113 569 20 254
Administrative expenses (32 596) (35 545) (17 330)
Impairment of goodwill (98 042) - -
Impairment of subsidiary loans - (319) -
Profit before net finance costs 401 642 1 117 770 279 717
Net finance income/(costs) 52 197 (130 183) (67 599)
Finance income 193 261 2 484 1 289
Interest on units issued cum
distribution 175 900 - -
Fair value adjustment on interest
rate swaps 14 709 - -
Interest received 2 652 2 484 1 289
Finance costs (141 064) (132 667) (68 888)
Interest paid on borrowings (154 194) (122 678) (60 444)
Capitalised interest 13 130 14 472 6 242
Fair value adjustment on interest
rate swaps - (24 461) (14 686)
Profit before income tax expense 453 839 987 587 212 118
Income tax expense 5 100 (11 143) 7 321
Profit for the period attributable to
equity holders 458 939 976 444 219 439
Total comprehensive income for the
period 458 939 976 444 219 439
Basic earnings per unit (cents)* 28,56 136,07 30,58
*The Fund has no dilutionary instruments in issue.
RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS AND DISTRIBUTABLE
INCOME
Unaudited Audited Unaudited
for the for the for the
six months year six months
ended ended ended
Jun 2011 Dec 2010 Jun 2010
R`000 R`000 R`000
Profit for the period attributable
to equity holders 458 939 976 444 219 439
Adjusted for: 101 860 (433 962) (6 585)
- Fair value gain on investment
property (5 413) (467 247) (3 045)
- Adjustment resulting from
straight-lining of rental revenue 13 874 16 348 3 781
- Impairment of goodwill 98 042 - -
- Impairment of subsidiary loans - 319 -
- Income tax effect (4 643) 16 618 (7 321)
Headline earnings 560 799 542 482 212 854
Reconciliation of profit for the
period to amount available for
distribution
Profit for the period attributable to
equity holders 458 939 976 444 219 439
Straight-lining of rental revenue
adjustment (13 874) (16 348) (3 781)
Fair value gain on investment
property (5 413) (467 247) (3 045)
Adjustment resulting from straight-
lining of rental revenue 13 874 16 348 3 781
Fair value gain on investments (27 808) (113 569) (20 254)
Impairment of goodwill 98 042 - -
Impairment of subsidiary loans - 319 -
Fair value adjustment on interest
rate swaps (14 709) 24 461 14 686
Income tax expense (5 100) 11 143 (7 321)
Distributable income 503 951 431 551 203 505
Less: distribution declared (503 951) (431 551) (203 505)
Interim (503 951) (203 505) (203 505)
Final - (228 046) -
Income not distributed - - -
Headline earnings per unit 34,90 75,60 29,66
Basic earnings per unit and headline earnings per unit are based on the
weighted average of 1 606 986 279(Dec 2010: 717 578 059; Jun 2010: 717
578 059) units in issue during the period.
ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOW
Unaudited Audited Unaudited
Jun 2011 Dec 2010 Jun 2010
R`000 R`000 R`000
Net cash inflow from operating
activities 157 230 31 933 10 499
Cash inflow/(outflow) from investing
activities 328 855 (361 265) (205 873)
Cash (outflow)/inflow from financing
activities (424 870) 272 145 181 771
Increase/(decrease) in cash and cash
equivalents 61 215 (57 187) (13 603)
Cash and cash equivalents at the
beginning of the period (32 010) 25 177 25 177
Cash and cash equivalents at the end
of the period 29 205 (32 010) 11 574
Cash and cash equivalents consist of:
Current accounts 29 205 182 36 063
Bank overdraft - (32 192) (24 489)
INCOME DISTRIBUTION
Notice is hereby given that a cash distribution of 31,36 cents interest per
unit, being number 56 for Capital Property Fund, has been declared in respect of
the period 1 January 2011 to 30 June 2011 and is payable to the unitholders
recorded in the books of Capital at the close of business on the record date,
Friday, 26 August 2011. Unitholders are advised that the last day to trade cum
distribution will be Friday, 19 August 2011. The units will trade ex
distribution from Monday, 22 August 2011. Payment will be made on Monday, 29
August 2011. Unit certificates may not be dematerialised or rematerialised
during the period 22 August 2011 to 26 August 2011, both days inclusive.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non-dis-
Trust tributable Retained
capital reserves earnings Total
Restated R`000 R`000 R`000 R`000
Balance at
31 December 2009 2 645 963 2 052 409 4 698 372
Change in accounting
policy for deferred tax 54 797 54 797
Restated balance at
31 December 2009 2 645 963 2 107 206 - 4 753 169
Total comprehensive
income for the period 219 439 219 439
Transfer to non-
distributable reserves 15 934 (15 934) -
Distribution (203 505) (203 505)
Restated balance at
30 June 2010 2 645 963 2 123 140 - 4 769 103
Total comprehensive
income for the period 757 005 757 005
Transfer to non-
distributable reserves 528 959 (528 959) -
Distribution (228 046) (228 046)
Balance at
31 December 2010 2 645 963 2 652 099 - 5 298 062
Total comprehensive
income for the period 458 939 458 939
Issue of units - 889 408
220 on 4 April 2011 6 627 657 6 627 657
Transfer from non-
distributable reserves (45 012) 45 012 -
Distribution (503 951) (503 951)
Balance at 30 June 2011 9 273 620 2 607 087 - 11 880 707
PREPARATION AND ACCOUNTING POLICIES
The condensed consolidated unaudited interim financial statements have been
prepared in accordance with the measurement and recognition requirements of
IFRS, the AC500 standards, the principles of IAS 34: Interim Financial
Reporting, the JSE Listings Requirements, the requirements of the South African
Companies Act and the Collective Investment Schemes Control Act (Act 45 of
2002). The interim financial statements have not been audited or reviewed by the
Fund`s auditors.
The accounting policies adopted are consistent with those applied in the prior
periods except for the recognition of deferred tax. In December 2010 the IASB
released amendments to IAS 12 effective from 1 January 2012. These amendments
impact on the rate at which deferred tax is recognised specifically on the fair
value movement of the building component of investment property as it
establishes a presumption that it will be recovered through disposal and hence
will attract deferred tax at the capital gains tax rate. Capital has elected the
early adoption of these amendments and applied them retrospectively as required
by IAS 8. It is the view of the board that the adoption of this policy results
in more accurate and meaningful information. The early adoption had the
following effect on the 30 June 2010 results: deferred tax balance - R54,797
million decrease.
The directors are not aware of any matters or circumstances arising subsequent
to the interim period that require any additional disclosure or adjustment to
the financial statements.
SUMMARY OF FINANCIAL PERFORMANCE
Jun 2011 Dec 2010 Jun 2010 Dec 2009
Distribution per unit
(cents) 31,36 31,78 28,36 28,86
Units in issue 1 606 986 279 717 578 059 717 578 059 717 578 059
Net asset value R7,39 R7,38 R6,65 R6,62
Gearing ratio* 24,8% 18,6% 19,4% 17,1%
*The gearing ratio is calculated by dividing interest-bearing borrowings
by total assets.
HEDGED BORROWINGS
Nominal
amount % of
Expiry R`million Rate borrowings
Interest rate swaps
Dec 2011 50 8,29% 1,12%
Dec 2011 200 8,55% 4,51%
Oct 2012 10 8,22% 0,22%
Feb 2013 100 8,18% 2,26%
Aug 2013 100 8,05% 2,26%
Sep 2013 400 9,85% 9,02%
May 2014 50 8,67% 1,12%
May 2014 100 8,60% 2,26%
Aug 2014 100 7,15% 2,26%
Mar 2015 100 7,69% 2,26%
Apr 2015 300 8,26% 6,77%
Jul 2015 100 7,50% 2,26%
Sep 2015 200 9,61% 4,51%
Dec 2015 100 7,85% 2,26%
Aug 2016 200 8,51% 4,51%
Sep 2016 400 8,42% 9,02%
Dec 2016 200 7,50% 4,51%
Mar 2017 300 8,60% 6,77%
Jun 2017 100 7,69% 2,26%
Nov 2017 200 7,91% 4,51%
Dec 2017 200 7,66% 4,51%
Jan 2018 200 7,55% 4,51%
Jul 2018 300 8,62% 6,77%
Securitised loan
Jul 2012 621 9,98% 14,01%
The securitised loan is shown as nominal annual compounded semi-annually
and is inclusive of lending margin.
Total hedged borrowings 4 631 104,47%
Variable rate borrowings (198) (4,47%)
Total borrowings 4 433 9,99% 100,00%
SECTORAL SPLIT
Based on: GLA Book value
Commercial 18% 31%
Industrial 67% 45%
Retail 14% 22%
Other 1% 2%
100% 100%
LEASE EXPIRY PROFILE
Rental
Based on: GLA income
Vacant 6,9% -
Dec 2011 15,9% 17,3%
Dec 2012 22,4% 23,8%
Dec 2013 19,0% 20,8%
Dec 2014 11,5% 12,8%
Dec 2015 11,6% 11,9%
Dec 2016 6,2% 5,6%
>Dec 2016 6,5% 7,8%
100,0% 100,0%
SEGMENTAL ANALYSIS
Unaudited Audited Unaudited
Jun 2011 Dec 2010 Jun 2010
R`000 R`000 R`000
Segmental revenue - recoveries and
contractual rental revenue
Commercial 242 084 311 250 151 590
Industrial 342 340 319 660 148 955
Retail 149 508 73 505 35 226
Other 10 801 - -
Total 744 733 704 415 335 771
Property operating expenses
Commercial (82 780) (84 971) (42 095)
Industrial (113 292) (95 883) (43 292)
Retail (52 244) (21 669) (11 529)
Other (2 426) - -
Total (250 742) (202 523) (96 916)
Segmental revenue - rental revenue
Commercial 244 265 318 715 149 126
Industrial 353 918 327 972 154 643
Retail 150 068 74 076 35 783
Other 10 356 - -
Total 758 607 720 763 339 552
Profit for the period
Commercial 159 794 462 622 109 349
Industrial 235 630 399 394 108 894
Retail 95 606 107 123 23 657
Other 8 374 - -
Corporate (40 465) 7 305 (22 461)
Total 458 939 976 444 219 439
CAPITAL COMMITMENTS
Unaudited Audited Unaudited
Jun 2011 Dec 2010 Jun 2010
R`000 R`000 R`000
Authorised and contracted 137 377 9 035 126 495
Authorised and not yet contracted 123 874 67 240 92 584
261 251 76 275 219 079
Date: 02/08/2011 17:05:01 Produced by the JSE SENS Department.
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