| Thu 17 Nov 2011, 8:55 | | IPF - Investec Property Fund Limited - Reviewed interim condensed financial |
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IPF
IPF
IPF - Investec Property Fund Limited - Reviewed interim condensed financial
results
for the six months to 30 September 2011
Investec Property Fund Limited
(Registration number 2008/011366/06)
Share code: IPF ISIN: ZAE 000155099
Investec Property Fund Limited
Reviewed interim condensed financial results
for the six months to 30 September 2011
Statement of comprehensive income
Six months to
30 September
R`000 Note 2011
Revenue, excluding straight-line rental revenue 95 047
Straight-line rental revenue 11 863
Revenue 106 910
Property expenses (16 386)
Net property income 90 524
Other operating expenses (1 321)
Asset management fee (4 303)
Operating profit 84 900
Fair value adjustments on debentures 2 (11 863)
Finance income 1 335
Profit before debenture interest 74 372
Debenture interest (74 298)
Profit before taxation 74
Taxation (25)
- normal taxation (25)
- deferred taxation charge (3 322)
- deferred taxation credit 3 322
Total comprehensive income attributable to equity 49
holders
Linked units
Linked units in issue at the end of the period 170 000 000
Weighted average number of linked units in issue 170 000 000
cents
Distribution per linked unit 43.73
Earnings and headline earnings per linked unit 43.73
Dividend per share 0.03
Earnings and headline earnings per share 0.03
There are no dilutive instruments in issue.
Reconciliation of attributable income to
distributable earnings
Total comprehensive income attributable to equity 49
holders
Debenture interest 74 298
Distributable earnings 74 347
Distributable to linked unitholders 74 347
- debenture interest 74 298
- ordinary dividend 49
Statement of financial position
30 September
R`000 Note 2011
Assets
Non-current assets 1 708 363
Fair value of investment property 1 696 500
Straight-line rental revenue 11 863
Current assets 92 910
Trade and other receivables 11 363
Cash and cash equivalents 81 547
Total assets 1 801 273
Equity and liabilities
Equity - ordinary share capital 1 1 700
Fair value of debentures 4 1 710 163
Linked unitholders` interest 1 711 863
Current liabilities 89 410
Trade and other payables 15 038
Taxation payable 25
Linked unitholders for interest and dividends 74 347
Total equity and liabilities 1 801 273
Condensed statement of cash flows
Six months to
30 September
R`000 Note 2011
Cash generated from operations 76 712
Net finance income 1 335
Net cash inflow from operating activities 78 047
Net cash outflow from investing activities (1 696 500)
Net cash inflow from financing activities 1 1 700 000
Net increase in cash and cash equivalents 81 547
Cash and cash equivalents at the beginning of the -
period
Cash and cash equivalents at the end of the period 81 547
Condensed statement of changes in equity
for the six months to 30 September 2011
Ordinary share Retained Shareholder`s
R`000 capital earnings equity
Balance at the beginning of the - - -
period
Issue of ordinary shares 1 700 - 1 700
Total comprehensive income - 49 49
1 700 49 1 749
Dividends payable to ordinary - (49) (49)
shareholders
Balance at the end of the period 1 700 - 1 700
Condensed segmental information
for the six months to 30 September 2011
R`000 Office Industrial Retail Total
Statement of comprehensive
income extracts
Revenue, excluding straight- 51 279 35 906 7 862 95 047
line rental revenue
Property expenses (7 073) (9 157) (156) (16 386)
Segment result 44 206 26 749 7 706 78 661
Statement of financial
position extracts
Investment property acquired 976 500 545 800 174 200 1 696 500
Straight-line rental revenue 6 760 3 957 1 146 11 863
Non-current assets 983 260 549 757 175 346 1 708 363
Notes to the financial information
30 September
R`000 2011
1. Share and debenture capital
Issue of linked units
Ordinary shares 1 700
Debentures 1 698 300
Total issue 1 700 000
The authorised share capital is one billion ordinary
shares of 1 cent each. Each ordinary share is linked to
one unsecured variable rate debenture of 999 cents each.
The ordinary shares and debentures trade as linked units
on the JSE. In terms of the debenture trust deed, the
interest payable on the debenture component of the
linked unit is 999 over 1000 times the profit before
debenture interest.
No linked units have been issued subsequent to the
listing of the Fund.
2. Fair value adjustments
Debenture fair value adjustment (11 863)
Debentures are adjusted to fair value which represents
the net asset value attributable to the Investec
Property Fund Limited`s ("Fund") debenture holders.
3. Related party transactions
Investec Limited is the controlling shareholder of the Fund and through its
wholly-owned subsidiary Investec Property Limited is the Asset and Property
Manager of the Fund, and therefore, Investec Limited and its various
subsidiaries are deemed to be related parties to the Fund. All related party
transactions are at arm`s length.
On 1 April 2011 the Fund acquired 29 properties at arm`s length from various
wholly-owned subsidiaries of Investec Limited as follows:
Office Industrial Retail Total
Number of properties 7 18 4 29
Gross Lettable Area (GLA) 89 469 244 637 34 424 368 530
(m2)
Cost of acquisition 976 500 545 800 174 200 1 696 500
(R`000)
30 September
R`000 2011
Investec Property Limited
Asset management fee 4 303
In respect of the vacant space in 345 Rivonia Road,
Investec Property Limited has undertakento pay to the Fund
the gross rental in respect of the vacant space for a
period of up to 36 months from 1 April 2011.
4. Non-current liabilities - debentures
Debentures - issued 1 698 300
Fair value adjustment 11 863
Fair value at the end of the period 1 710 163
DIRECTORS` RESPONSIBILITY STATEMENT
The directors are responsible for the preparation and fair presentation of the
reviewed interim condensed financial results for the six months to 30 September
2011 of Investec Property Fund Limited.
This financial information comprises:
- statement of comprehensive income for the six months to 30 September 2011,
- statement of financial position at 30 September 2011,
- statement of cash flows for the six months to 30 September 2011,
- statement of changes in equity for the six months to 30 September 2011, and
- notes to the financial information,
in accordance with International Financial Reporting Standards, the presentation
and disclosure requirements of IAS 34, Interim Financial Reporting, AC500
standards issued by the Accounting Practices Board and the requirements of the
Companies Act 71 of 2008.
The directors are also responsible for such internal controls as they determine
are necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error and for maintaining
adequate accounting records and an effective system of risk management.
The directors have made an assessment of the ability of the company to continue
as a going concern and have no reason to believe that the business will not be a
going concern in the period ahead.
BASIS OF ACCOUNTING
The condensed financial information for the six months to 30 September 2011 has
been prepared in accordance with the recognition and measurement criteria of
International Financial Reporting Standards ("IFRS"), the presentation and
disclosure requirements of IAS 34, Interim Financial Reporting and AC500
standards issued by the Accounting Practices Board and the requirements of the
Companies Act 71 of 2008.
The company`s accounting policies as set out in the Fund`s prelisting statement
have been consistently applied.
These reviewed interim condensed financial results have been prepared under the
supervision of David Tew, CA (SA).
KEY ACCOUNTING POLICIES
FINANCIAL INSTRUMENTS
Financial instruments are contracts that give rise to a financial asset of one
entity, and a financial liability or equity instrument of another entity.
Financial instruments are initially recognised at their fair value plus, for
financial assets or financial liabilities not at fair value through profit or
loss, transaction costs that are directly attributable to the acquisition or
issue of the financial assets or financial liabilities. All other transaction
costs are recorded in the income statement immediately.
Debentures
Debentures are designated as "held at fair value through profit or loss"
financial liabilities. These instruments are measured initially at fair value,
which is the nominal value less debenture discount, and subsequently measured at
fair value. Fair value represents the net asset value attributable to debenture
holders after adjusting all other assets and liabilities to fair value. Until
such time as the debenture discount is fully utilised, the net change in fair
value of the tangible assets and liabilities will increase or decrease the
carrying amount of the debentures. Once the debenture discount has been fully
utilised, any increase in net asset value will increase the reserves
attributable to shareholders.
INVESTMENT PROPERTY
Investment property consists of land and buildings, installed equipment and
vacant land held to earn rental income for the long-term and subsequent capital
appreciation. Properties are measured initially at cost, including transaction
costs and subsequent additions that will result in future economic benefits and
whose cost can be measured reliably, are capitalised.
Should any properties no longer meet the company`s investment criteria and are
sold, any profits or losses will be of a capital nature and will be taxed at
rates applicable to capital gains.
Investment property under construction is measured at fair value. Direct costs
relating to major capital projects are capitalised until the properties are
brought into commercial operation.
Subsequent to initial recognition, investment properties are measured at their
fair value. The properties are valued by considering the aggregate of the net
annual rents receivable from the properties and, where relevant, associated
costs using the discounted cash flow method. This method takes projected cash
flows and discounts them at a rate which is consistent with comparable market
transactions. The discount rates reflect the risks inherent in the net cash
flows and are constantly monitored by reference to comparable market
transactions.
Gains and losses on revaluation or disposals of investment properties are
recognised in profit or loss. Such gains or losses are excluded from the
calculation of distributable earnings.
Investment property is maintained, upgraded and refurbished where necessary, in
order to preserve or improve the capital value as far as it is possible to do
so. Maintenance and repairs which neither materially add to the value of the
properties nor prolong their useful lives are recognised in profit or loss.
Independent valuations are obtained on a rotational basis ensuring that every
property is valued every three years. The directors value the remaining
properties annually on an open market basis.
Investment property held under an operating rental agreement is recognised in
the statement of financial position at its fair value.
RENTAL AGREEMENTS
The company is party to numerous rental agreements as the lessor of property.
All rental agreements are operating rental agreements, which are those rental
agreements where the company retains a significant portion of the risks and
rewards of ownership. An adjustment is made to contractual rental income earned
to bring to account in the current period the difference between the rental
income that the company is currently entitled to and the rental for the period
calculated on a smoothed, straight-line basis over the period of the rental
agreement term. This does not affect distributable earnings. Operating rental
agreements with fixed escalation clauses are recognised in profit and loss on a
straight-line basis over the rental agreement term. The resulting difference
arising from the straight-line basis and contractual cash flows is recognised as
an operating rental agreement asset or operating rental agreement liability.
Commentary
Introduction
Investec Property Fund Limited is a variable loan stock property company having
listed on the JSE Limited ("JSE") on 14 April 2011. It currently comprises a
portfolio of 29 properties in South Africa with a total Gross Lettable Area
("GLA") of 370 543 mSquared valued at R1.7 billion.
The objective of the Fund is to grow its asset base by investing in well priced
income producing properties in the office, industrial and retail sectors to
optimise capital and income returns over time for unitholders. Effectively, all
rental income, less operating costs and interest on debt, is distributed to
unitholders semi-annually.
In September 2011, effective 1 October 2011, the Fund announced the acquisition
of two single tenanted properties with long-term leases with strong tenants. In
October 2011, the Fund announced the acquisition of a retail property which will
bring the total portfolio to 32 properties valued at R2.03 billion.
Tenant retention and renewals of expiring rentals is a strong focus for the Fund
given the current economic climate. The Fund has been successful in achieving
this objective. One particular success in this area was the letting of 4 000
mSquared at 345 Rivonia Road to a strong tenant. The rental achieved on this
space exceeds the rental guarantee provided by Investec Property Limited and
this incremental income will accrue to the Fund from May 2012.
Commentary on results
The board of directors is pleased to report the maiden interim results for the
Fund which includes a distribution of 43.73 cents per unit (cpu) for the six
months ended 30 September 2011. As the Fund was a dormant company prior to its
listing and took effective control of its property portfolio only from the
beginning of the financial period under review, no comparative results are
presented.
The Fund`s property portfolio comprises a high proportion of single tenanted
properties with strong tenants and performance has been resilient over this
period despite a subdued economic environment. The operating environment has
been difficult with high increases in rates, taxes and utility charges having to
be absorbed by the Fund or tenants depending on the particular lease agreements.
At the interim stage the property portfolio reported a 3.4% vacancy,
representing marginal improvement to the 3.7% vacancy at listing. All vacancies
remain in the industrial portfolio (5.0% based on the industrial portfolio`s
GLA). During the period the Fund has successfully re-negotiated various leases
that came up for renewal. In the second half of the year there are certain
leases expiring in the industrial portfolio and it is anticipated that the
vacancy in some of these buildings could be slightly higher, however this will
be partially compensated for by increased rental renewals that have taken place
in the office and industrial portfolio.
Sectoral vacancies at 30 September 2011
Total
GLA Leased Vacant Vacancy
m2 m2 m2 %
Office 88 567 88 567 - -
Industrial 247 552 235 117 12 435 5.0
Retail 34 424 34 424 - -
Total 370 543 358 108 12 435 3.4
Forward Lease Expiries by GLA
The forward lease expiry profile of the Fund`s portfolio for years ending 31
March is detailed below, categorised as to office, industrial and retail:
% 2012 2013 2014 2015 2016 Thereafter
Office 6.1 2.0 2.4 4.5 - 10.9
Industrial 11.0 18.4 17.4 9.2 3.4 4.7
Retail - 1.2 - 0.1 0.9 7.8
Total 17.1 21.6 19.8 13.8 4.3 23.4
The above profile reflects an evenly distributed pattern of lease expiries.
Reconciliation of lease expiries with renewals and new leases
The table below provides a summary of lease expiries, renewals and new leases
over the six-month period from 1 April 2011 to 30 September 2011:
Average
gross
Average Renewals rent on
gross and renewals
expiry new and new Average
Expiries rent leases leases escalation
mSquared RmSquared mSquared RmSquared %
Office 7 106 80.08 7 163 80.96 10.0
Industrial 35 122 17.61 38 393 31.96 9.9
Total 42 228 28.12 45 556 39.67 10.0
Of the Office renewals 6 759 mSquared is a one-year lease to July 2012 and
therefore the escalation only applies to the balance of the re-let space.
Similarly, in the Industrial portfolio, 14 418 mSquared has been extended to
December 2011 and therefore the escalation applies only to the balance of the
re-
let space. The significant increase achieved in the Industrial renewals reflects
that this space was previously under-rented.
The following table places the six-month pattern of expiries, renewals and new
leases within the context of an overall reconciliation of change in the GLA of
the Fund`s combined portfolio:
GLA at Renewals Net GLA at
31 Mar and new change 30 Sep
mSquared 2011 Expiries leases in GLA 2011
Leased 354 799 (42 228) 45 556 (19) 358 108
Vacant 13 731 2 085 (2 657) (724) 12 435
Total 368 530 (40 143) 42 899 (743) 370 543
Unitholders
Investec Limited is the only unitholder holding in excess of 5% of the Fund`s
total issued linked units at 30 September 2011, holding 50.01% thereof.
30 September
2011
Numbers of units in issue 170 000 000
Number of unitholders 1 279
Cost to income ratio
The cost to income ratio is calculated on the basis where revenue includes
billings for contractual rental income, contractual operating cost and rates
recoveries, and turnover rentals whilst the full expense is included as property
expenses, except for utility expenses which are reflected net of recoveries. On
this basis the net cost to income ratio is 17.2%. Should utility expenses be
reflected on a gross basis with the recovery reflected in revenue the cost to
income ratio would be 25.7%.
Despite rapidly escalating electricity and rates charges, the net cost to income
ratio is relatively low as the rate of operating cost recovery from tenants has
been maintained since acquisition. In addition, the low cost to income ratio
reflects the fact that the Fund has a high proportion of single tenanted
properties where municipal charges are paid directly by the tenant to the
relevant authorities.
Acquisitions
On 18 October 2011 unitholders approved the acquisition of two properties from
related parties:
- Innovation Group building at a 9.75% forward yield situated at 192 Bram
Fischer Drive, Randburg. This property was refurbished by Investec Property
Limited in accordance with the tenant`s specifications and provides 15 500
mSquared of quality B-grade office accommodation over nine floors and two
basements providing 516 parking bays and storage space. The Innovation Group
occupies the entire building with a 10-year rental agreement and an 8% annual
escalation.
The Innovation Group is a wholly-owned subsidiary of Innovation Group Plc, a
specialist global provider of software and outsourcing solutions.
- The Scientific Building at a 10.0% forward yield situated in the new Cosmo
Business Park, just north of Kya Sands, Gauteng. This property provides 5 733
mSquared of industrial and auxiliary office space and is fully let to the
Scientific Group on a seven-year lease with an 8% annual escalation.
The Scientific Group provides diagnostic and medical equipment to the health
industry.
Whilst transfer of these properties remains pending, they have been effectively
acquired from 1 October 2011 for R185.9 million.
On 25 October 2011 the Fund announced the acquisition of a retail property
situated in the Limpopo Province to the value of R145 million. It is anticipated
to yield 9.2% in the first year. The purchase consideration will be funded by
borrowings.
These properties are anticipated to enhance the distributions of the Fund in the
second half of the year.
Fair value adjustments of Investment Properties
With the entire property portfolio having been recently acquired and given that
they were independently valued at listing, the board does not believe that a
revaluation of the properties is warranted at this stage, as the board is not
aware of any factors which would affect the valuation of the properties.
Arrears
Receivables have been tightly managed during the period under review and, at the
period end, arrears were limited to R1.3 million (representing 2.8% of total
collectables over the period). A provision of R0.8 million has been provided for
potential bad debts.
Borrowings
At 30 September 2011 the Fund had no borrowings in addition to the debentures
issued. A bridge loan and working capital facility amounting to R520 million in
total have been put in place for the acquisition of the three properties
referred to above and for other acquisition opportunities being assessed by the
Fund. The variable rate to be charged on these facilities is three month JIBAR
plus 225 basis points.
The Fund is evaluating its optimal long-term debt funding strategy which
includes an assessment of the commercial paper market.
Prospects
The board expects that the second half of the year will continue to present a
tough challenge in respect of the renewal of tenancies and accordingly, tenant
retention will remain a high priority. It is, however, confident that the Fund
will deliver distributions for the full year in line with the unaudited forecast
of financial information provided in the prelisting statement of the Fund of
approximately 90 cpu. This forecast is based on the assumptions that the macro-
economic environment will not deteriorate markedly, no major corporate failures
will occur, budgeted renewals will be concluded and that tenants will be able to
absorb the recovery of rising rates and utility costs. Budgeted rental income
was based on contractual escalations and market-related renewals.
The information and opinions contained above are recorded and expressed in good
faith and are based upon sources believed to be reliable. No representation,
warranty, undertaking or guarantee of whatever nature is made or given
concerning the accuracy and/or completeness of such information and/or the
correctness of such opinions.
This forecast has not been reviewed or reported on by the Fund`s independent
external auditors.
On behalf of the board of Investec Property Fund Limited
Sam Hackner Sam Leon
Chairman Chief Executive Officer
16 November 2011
Review conclusion
The interim condensed financial results for the six months to 30 September 2011,
has been reviewed by the external auditors, Ernst & Young Inc. This review has
been conducted in accordance with International Standards on Review Engagements
2410, "Review of Interim Financial Information Performed by the Independent
Auditor of the Entity", and their unmodified review opinion is available for
inspection at the company`s registered office.
Distribution
Notice is hereby given that interim dividend number 1 and debenture interest
payment number 1 has been declared for the six months to 30 September 2011
amounting to 0.029 cents and 43.705 cents respectively per linked unit totalling
43.734 cents per linked unit payable to holders of the linked units as recorded
in the books of the company at the close of business on Friday, 09 December
2011.
The salient dates relating to the distribution are as follows:
Last day to trade in order to participate in Friday, 02 December 2011
the distribution
Linked units to trade ex distribution Monday, 05 December 2011
Record date Friday, 09 December 2011
Distribution posted/paid to certificated Monday, 12 December 2011
linked unitholders
Accounts credited by CSDP or broker to Monday, 12 December 2011
dematerialised linked unitholders
Linked units may not be dematerialised between Monday, 05 December 2011 and
Friday, 09 December 2011, both days inclusive.
By order of the board
Investec Bank Limited
Company Secretary
16 November 2011
Directors
S Hackner* (Chairman)
MP Crawford (Lead Independent Director)#
SR Leon* (Chief Executive Officer)
DAJ Donald*
CM Mashaba#
MM Ngoasheng#
GR Rosenthal#
* Executive
# Independent non-executive
Changes to the board
GR Rosenthal and CM Mashaba have been appointed to the board effective 1 October
2011. GR Rosenthal is a qualified Chartered Accountant and will chair the Audit
Committee. B Molefe resigned on 31 October 2011, and the board thanks him for
his contribution.
Investec Bank Limited
Company Secretary
Registered office
100 Grayston Drive
Sandown, Sandton, 2196
Transfer Secretaries
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
Sponsor
Investec Bank Limited
100 Grayston Drive
Sandown, Sandton, 2196
For a copy of the Fund`s results, refer to the website
http://www.investecpropertyfund.com
Date: 17/11/2011 08:55:01 Produced by the JSE SENS Department.
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