| Tue 5 Sep 2017, 7:05 | | FAIRVEST PROPERTY HOLDINGS LIMITED - Audited Summarised Consolidated Results and Cash Dividend Declaration for the Year Ended 30 June 2017 |
|
FVT 201709050001A
Audited Summarised Consolidated Results and Cash Dividend Declaration for the Year Ended 30 June 2017
FAIRVEST PROPERTY HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number 1998/005011/06)
("Fairvest" or "the company" or "the group")
Share code: FVT ISIN: ZAE0000203808
Granted REIT status with the JSE
AUDITED SUMMARISED CONSOLIDATED RESULTS AND CASH DIVIDEND DECLARATION
FOR THE YEAR ENDED 30 JUNE 2017
HIGHLIGHTS
TOP PERFORMING SA REIT WITH
38.5% ANNUALISED RETURN
2017 DISTRIBUTION INCREASED BY
10.04% TO 18.333 cents per share
LIKE FOR LIKE ANNUALISED
PROPERTY INCOME INCREASED BY 9.3%
TOTAL PROPERTY PORTFOLIO VALUE
UP BY 14.5% TO R2.20 billion
RAISED R224.50 million
OF NEW EQUITY
NET ASSET VALUE UP BY 8.2% TO
218.18 cents per share
VACANCIES REMAIN LOW
4.7% OF THE TOTAL LETTABLE AREA
DISTRIBUTION GROWTH OF
9% to 10% EXPECTED FOR THE YEAR TO 30 JUNE 2018
SUMMARISED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Audited Audited
30 June 30 June
2017 2016
R'000 R'000
ASSETS
NON-CURRENT ASSETS 2 263 812 1 895 958
Investment property 2 157 747 1 849 158
Loans receivable 61 603 11 377
Investments 2 154 2 064
Office equipment 343 504
Operating lease asset 41 965 32 855
CURRENT ASSETS 54 110 31 229
Loans receivables 5 476 1 482
Trade and other receivables 36 000 19 831
Cash and cash equivalents 12 634 9 916
Non-current asset held for sale - 40 000
TOTAL ASSETS 2 317 922 1 967 187
EQUITY AND LIABILITIES
SHAREHOLDERS INTEREST 1 723 218 1 327 079
Share capital 327 951 105 332
Retained earnings 1 395 267 1 221 747
Non-controlling interest 4 454 1 081
TOTAL EQUITY 1 727 672 1 328 160
NON-CURRENT LIABILITIES 309 366 593 799
Interest-bearing borrowings 272 339 571 227
Amounts owing to minorities 23 756 13 398
Derivative financial instrument 4 404 1 945
Other non-current liabilities 8 395 6 948
Deferred taxation 472 281
CURRENT LIABILITIES 280 884 45 228
Interest-bearing borrowings 224 652 3 530
Trade and other payables 56 232 41 698
TOTAL EQUITY AND LIABILITIES 2 317 922 1 967 187
SUMMARISED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Audited Audited
12 months 12 months
to 30 June to 30 June
2017 2016
R'000 R'000
GROSS REVENUE 331 142 279 735
Rental income - contractual 320 431 268 140
- straight-line accrual 10 711 11 595
Property expenses (121 690) (103 416)
Net profit from property operations 209 452 176 319
Corporate administrative expenses (19 393) (16 680)
OPERATING PROFIT 190 059 159 639
Fair value adjustment to investment properties 159 348 107 571
Fair value adjustment to derivatives (2 459) (1 534)
Fair value adjustment to investments 90 85
Finance cost (53 091) (43 717)
Investment revenue 9 420 2 050
PROFIT BEFORE CAPITAL EXPENSES 303 367 224 094
Capital expenses (557) (870)
PROFIT BEFORE TAXATION 302 810 223 224
Taxation (191) (6)
COMPREHENSIVE INCOME ATTRIBUTABLE
TO SHAREHOLDERS 302 619 223 218
Profit and total comprehensive income
attributable to:
- Owners of the parent 299 234 222 137
- Non-controlling interest 3 385 1 081
302 619 223 218
Reconciliation between profit attributable
to shareholders, distributable earnings and
headline earnings per share
Comprehensive income attributable to owners of
the parent 299 234 222 137
Fair value adjustment to investment properties
(attributable to owners of the parent) (157 283) (106 584)
Headline and diluted headline profit attributable
to shareholders 141 951 115 553
Distributable earnings calculation
Net profit from property operations 209 452 176 319
Straight-line rental income accrual (10 711) (11 595)
Corporate administrative expenses (19 393) (16 680)
Finance cost (52 673) (43 162)
Investment revenue 9 420 2 050
Share issued cum distribution 8 267 2 749
Non-controlling interest share of distribution (443) (12)
Distributable earnings 143 919 109 669
Distribution 143 919 109 669
DISTRIBUTION (Dividend)
Interim dividend per share (cents) 8.953 8.171
Final dividend declaration per share (cents) 9.380 8.489
Total distribution per share (cents) 18.333 16.660
EARNINGS PER SHARE
Basic and diluted earnings per share (cents) 40.53 34.65
Headline and diluted headline earnings per
share (cents) 19.23 18.03
Net asset value per share (cents) 218.18 201.60
Share statistics
Shares in issue 789 836 312 658 261 805
Treasury shares (12 067) -
Effective shares in issue 789 824 245 658 261 805
Weighted average number of shares 738 319 633 641 064 762
SUMMARISED CONSOLIDATED SEGMENT REPORT
Reconciling
KwaZulu- Western Free Northern Eastern items/
Natal Cape Gauteng State Cape Limpopo Cape Mpumalanga (Eliminations) Total
FOR THE YEAR ENDED 30 JUNE 2017
Revenue - external customers 70 689 66 944 44 794 47 737 37 415 20 089 21 191 11 572 - 320 431
Operating profit 56 307 45 265 24 713 27 208 19 845 14 045 16 144 5 925 (19 393) 190 059
Total assets 603 980 477 613 296 230 311 473 200 229 131 543 142 918 63 940 89 996 2 317 922
FOR THE YEAR ENDED 30 JUNE 2016
Revenue - external customers 64 323 51 469 42 898 39 881 31 205 18 551 10 241 9 572 - 268 140
Operating profit 52 401 33 449 24 239 23 427 16 036 12 747 7 845 6 175 (16 680) 159 639
Total assets 546 571 375 630 269 066 283 825 177 193 118 543 101 917 61 680 32 762 1 967 187
SUMMARISED CONSOLIDATED STATEMENTS OF CASH FLOWS
Audited Audited
12 months 12 months to
to 30 June 30 June
2017 2016
R'000 R'000
Cash generated from operations 182 446 159 220
Finance costs (50 785) (41 681)
Investment income 1 631 1 352
Dividend paid (125 136) (99 194)
Cash inflow from operating activities 8 156 19 697
Acquisitions of and improvements to
investment properties (151 265) (443 858)
Office equipment acquired - (372)
Cash outflow to investing activities (151 265) (444 230)
Net interest bearing borrowings (repaid)/advanced (78 004) 325 551
Net amounts owing to minorities raised 8 291 13 134
Net advances to loans receivable (7 078) (7 001)
Proceeds from issue of shares 222 642 99 338
Acquisition of treasury shares (23) -
Cash inflow from financing activities 145 828 431 022
Net increase in cash and cash equivalents 2 718 6 489
Cash and cash equivalents at beginning of period 9 916 3 427
Cash and cash equivalents at end of period 12 634 9 916
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Non-
Share Retained Shareholders' controlling Total
capital earnings interest interest Equity
R'000 R'000 R'000 R'000 R'000
Balance at 1 July 2015 5 994 1 099 427 1 105 421 - 1 105 421
Shares issued 100 000 - 100 000 - 100 000
Capital issue expenses (662) - (662) - (662)
Total comprehensive income
for the period - 222 137 222 137 1 081 223 218
Dividends paid and declared - (99 817) (99 817) - (99 817)
Balance at 30 June 2016 105 332 1 221 747 1 327 079 1 081 1 328 160
Shares issued 224 494 - 224 494 - 224 494
Capital issue expenses (1 852) - (1 852) - (1 852)
Acquisition of treasury
shares (23) - (23) - (23)
Total comprehensive income
for the period - 299 234 299 234 3 385 302 619
Dividends paid and declared - (125 714) (125 714) (12) (125 726)
Balance at 30 June 2017 327 951 1 395 267 1 723 218 4 454 1 727 672
OTHER SEGMENTAL INFORMATION
Audited Audited
30 June 30 June
2017 2016
Regional profile based on leasable area
KwaZulu-Natal 22.4% 23.3%
Western Cape 20.9% 18.9%
Gauteng 15.5% 16.1%
Free State 15.4% 16.1%
Northern Cape 9.2% 9.6%
Eastern Cape 8.3% 7.3%
Limpopo 5.9% 6.2%
Mpumalanga 2.4% 2.5%
Vacancy profile based on gross lease area
Gross lease area in metres squared as at end of period * 194 311 185 937
Properties held 41 39
Vacancy area in metres squared * 9 094 7 060
Vacancy area as % of gross lease area 4.7% 3.8%
Regional vacancy profile (m2)
(regions where vacancies are located)
Free State 2 425 1 093
Gauteng 2 327 1 160
Western Cape 1 690 3 409
KwaZulu-Natal 1 467 771
Limpopo 652 248
Northern Cape 483 379
Mpumalanga 50 -
* Gross lease area and vacancy in the prior and current periods has been updated
after the remeasurement of various properties and excludes unlettable space.
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The preparation of these provisional summarised consolidated financial statements was supervised by the Chief Financial Officer,
BJ Kriel CA(SA).
The accounting policies applied in the preparation of these audited summarised consolidated results for the year ended 30 June
2017, which are based on reasonable judgements and estimates, are in accordance with International Financial Reporting Standards
("IFRS") and are consistent with those applied in the annual financial statements for the year ended 30 June 2016. Any other new
and amendments to IFRS and IFRIC interpretations did not impact on the financial position or performance of the company but has
resulted in additional disclosures. These audited summarised consolidated results, as set out in this report, have been prepared in
accordance and containing the information required by IAS 34 - Interim Financial Reporting, the SAICA Financial Reporting Guidelines
as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting
Council, the Companies Act of South Africa, No 71 of 2008, as amended ("Companies Act") and the Listings Requirements of
JSE Limited.
These summarised consolidated results for the year ended 30 June 2017 have been prepared in accordance with the historic cost
basis, except for the measurement of investment properties and certain financial assets and financial liabilities which are stated at
fair value.
The financial results are presented in Rands, which is Fairvest's functional and presentation currency and have been prepared on a
going-concern basis.
AUDIT REPORT
The audited summarised consolidated results for the year ended 30 June 2017 set out above, have been extracted from the group's
annual financial statements which have been audited by BDO South Africa Inc. A copy of their unmodified audit opinion is available
for inspection at the company's registered office. Any reference to future financial performance included in this announcement has
not been reviewed or reported on by the company's auditors.
The directors take full responsibility for the preparation of the audited summarised consolidated results presented and that the
financial information has been correctly extracted from the underlying financial statements.
ESTIMATES AND CRITICAL JUDGEMENTS
Except for the measurement of investment properties, and certain financial assets and financial liabilities the financial statements do
not include any material estimates.
COMMENTARY
INTRODUCTION
Fairvest is a Real Estate Investment Trust ("REIT"), with a unique focus on retail assets weighted toward non-metropolitan and rural
shopping centres, as well as convenience and community shopping centres servicing the lower LSM market, in high-growth nodes,
close to commuter networks. The Fairvest property portfolio consists of 41 properties, with 194 311m2 of lettable area and valued
at R2.20 billion.
REVIEW OF RESULTS
Fairvest board of directors are pleased to announce a 10.49% increase in the final dividend distribution of 9.380 cents per share for
the six months ended 30 June 2017. This brings the total combined dividend for the year to 18.333 cents per share, which is a
10.04% increase from the previous year, again exceeding our guidance issued of between 9% and 10% growth in distribution for
the full year.
Distribution history Interim Final Total
Jun-13 4.570 6.000 10.570
Jun-14 6.750 6.970 13.720
Jun-15 7.427 7.679 15.106
Jun-16 8.171 8.489 16.660
Jun-17 8.953 9.380 18.333
Revenue increased by 18.4% to R331.1 million, the result of income growth in the historic portfolio as well as the acquisitions during
the period. Net profit from property operations increased by 18.8% to R209.5 million, while corporate administration expenses
increased by 16.3% to R19.4 million, resulting in distributable earnings increasing by 31.2% to R143.9 million.
A strong focus on cost containment and more efficient recoveries of municipal charges improved the net property expense ratio
(expenses net of utility recoveries) to 15.5% compared to 17.3% for the previous financial year. Certain municipal expenses provided
for in the previous financial year, being lower than anticipated, also contributed to the improved ratio. This resulted in the gross cost
to income ratio reducing from 38.6% to 37.6%.
Gross rentals across the portfolio trended upwards, with a 4.6% increase in the weighted average rental to R103.99/m2 at 30 June
2017 compared to R99.40/m2 at 30 June 2016. The weighted average contractual escalation for the portfolio reduced marginally
from 7.5% as at 30 June 2016 to 7.4% at 30 June 2017.
The net asset value increased by 29.8% to R1.72 billion (2016: R1.33 billion). On a per share basis, this equates to 218.18 cents per
share, or an increase of 8.2%.
Net asset
Market Net asset value
capitalisation value per share
Net asset value and market capitalisation R'million R'million (cents)
Jun-13 503.7 546.5 151.90
Jun-14 733.4 838.9 159.00
Jun-15 1 079.0 1 105.4 184.40
Jun-16 1 020.3 1 327.1 201.60
Jun-17 1 540.2 1 723.2 218.18
PROPERTY PORTFOLIO
The total property portfolio increased by 14.5% from R1.93 billion at 30 June 2016 to R2.20 billion. The growth is attributable to
acquisitions to the value of R113.5 million, as well as capital expenditure incurred of R35.7 million, offset by the disposal of the
SASSA House asset for R40.0 million. The historic portfolio increased by 10.1% compared to 30 June 2016. Asset quality continues to
improve, with the average value per property increasing by 8.9% to R53.8 million, and the average value per square meter increased
by 9.6% to R11 345/m2.
Average
value per Value per
Valuation property m(2)
Portfolio valuation history R'million R'million R
Jun-13 774.8 27.7 7 704
Jun-14 1 109.1 34.7 8 836
Jun-15 1 361.8 40.1 9 780
Jun-16 1 925.1 49.4 10 355
Jun-17 2 204.4 53.8 11 345
In line with the accounting policy of the group, at least a third of the portfolio was valued by independent external valuers. Of the
41 properties in the portfolio, 14 properties equating to 39.5% by value, was valued by independent valuers, DDP Valuers and De
Leeuw Valuers, with the remainder valued by the directors. All properties are valued by independent external valuers at least every
three years. The properties are valued using the five-year discounted cash flow method. Assumptions are made on the discount rates
used to determine the present value of the cash flows and on the capitalisation rate on an assumed sale after five years. The weighted
average discount rate used was 15.0% compared to 15.2% in 2016 and the weighted average capitalisation rate used was 10.2%
compared to 10.3% in 2016.
ACQUISITIONS
Shareholders are referred to Fairvest's various SENS announcements, regarding certain acquisitions by the company. Four new
properties were acquired during the period, of which three transferred during the current period and one transferred after year-end.
Properties transferred during the year
Purchase
price Anchor Date of
Property Location GLA (m2) R'000 tenant transfer
Mqanduli Boxer* Eastern Cape 4 689 37 600 Boxer 07-Jul-16
Tabankulu Boxer* Eastern Cape 4 117 32 000 Boxer 15-Jul-16
Macassar Shoprite** Western Cape 4 528 41 500 Shoprite 12-Sep-16
* The properties were acquired as part of the Mainstream portfolio and were acquired in a newly incorporated subsidiary FPP Property Venture
103 Proprietary Limited, of which Fairvest owns 80%.
** Macassar Shoprite was acquired in a newly incorporated subsidiary, Macassar Retail Centre Proprietary Limited (previously Urban Growth Properties
Proprietary Limited), of which Fairvest owns 80%.
Properties transferred after 30 June 2017
Purchase
price Anchor Date of
Property Location GLA (m2) R'000 tenant transfer
Shoprite Empangeni* KwaZulu-Natal 13 645 172 500 Shoprite 18-Jul-17
* Shoprite Empangeni was acquired in a newly incorporated wholly-owned subsidiary, FPP Property Venture 102 Proprietary Limited.
DISPOSALS
Fairvest disposed of the SASSA House asset with an effective date of transfer of ownership of 1 October 2016. Fairvest provided
vendor finance to the purchaser for the transaction.
VALUE EXTRACTION
Various value extraction projects continued during the financial year on the current portfolio. R34.08 million was spent on these capital
enhancement projects. The largest projects were at Parow Valley Spar and Macassar Shoprite. Parow Valley Spar redevelopment was
completed during the financial year and the expansion of Macassar Shoprite is expected to be completed before the end of the next
financial year.
PORTFOLIO COMPOSITION, LETTING AND VACANCIES
Tenant grade as a percentage of GLA
A-grade tenants 75.3%
B-grade tenants 8.3%
C-grade tenants 16.5%
A - Anchor and national tenants
B - Franchise, professional and large tenants
C - Other
The portfolio remains well diversified across South Africa, with no province contributing more than 25% of revenue. The high
national tenant component of 75.3% of the portfolio provides shareholders with a low risk investment profile.
Vacancies increased from 3.8% to 4.7% or 9 094m2 during the year, mainly as a result of some new vacancies at Middestad Mall
in anticipation of a redevelopment, The Palms, Clubview Corner and Masingita Centre, partly offset by positive letting at Nyanga
Junction, Parow Valley Centre and Sebokeng. 1 992m2 of vacant space has been let after 30 June 2017.
Based on Based on
Lease expiry profile rentable area gross rental
Vacant 4.7% 0.0%
Monthly 2.9% 3.9%
Jun-18 22.7% 24.7%
Jun-19 13.3% 15.8%
Jun-20 19.2% 20.4%
Jun-21 7.5% 7.7%
After Jun-22 29.7% 27.5%
During the period under review, 71 new leases were concluded with a total GLA of 16 774m2. Fairvest successfully renewed
27 336m2 of leases with a positive reversion of 7.5% achieved. Tenant retention for the period was 72.8%, a reduction from the
85.2% for the previous financial year. The weighted average lease term increased from 36 to 38 months.
CAPITAL RAISING ACTIVITIES
Shareholders are referred to the company's SENS announcement dated 7 November 2016, regarding the placement of 111 764 705 new
ordinary shares which were issued through combination of a vendor consideration placement and a general authority to issue shares
for cash at an issue price of R1.70 per share, raising R190.0 million of new equity.
Shareholders are referred to the company's SENS announcements dated 17 October 2016 and 18 April 2017, regarding the placement
of 9 984 011 and 9 825 791 new ordinary shares which were issued through the dividend reinvestment alternative. The shares were
issued at R1.67041 and R1.81322 per share respectively resulting in the retention of R34.5 million of equity.
BORROWINGS
The loan to value ("LTV") ratio at 22.4%, decreased from 29.7% at 30 June 2016 as a result of the new equity raised in during the
year (LTV is calculated as total interest-bearing debt divided by total property assets). 87.1% of the debt was fixed either through
swaps or fixed rate loans as at 30 June 2017, with a weighted average expiry for the fixed debt of 18 months.
The weighted average all-in cost of funding increased to 9.46% compared to 9.42% in 2016. The weighted average maturity of debt
decreased from 27 months to 15 months.
PROSPECTS
The company will continue to provide shareholders exposure to retail assets servicing the lower LSM market and are actively pursuing
yield accretive acquisitions. In a low economic growth environment, pressure will remain on tenants. With a low-risk tenant base
the portfolio is well positioned to continue to achieve strong property growth. We will remain conservatively geared and sufficiently
hedged to minimize the impact of potential interest rate increases. Management is confident that Fairvest should be able to achieve
distribution growth of between 9% and 10% for the 2018 financial year.
This view assumes no material deterioration in the macroeconomic environment relative to current levels, that no major corporate
failures will occur and that tenants will be able to absorb increases in municipal and utility costs. Forecast rental income is based on
contractual lease terms and anticipated market related renewals. This forecast is the responsibility of the board of Fairvest and has
not been reviewed or reported on by the auditors.
DIVIDEND WITH ELECTION TO REINVEST
The board has approved and declared a final gross distribution of 9.38 cents per share for the six-month period ended 30 June 2017,
payable to shareholders registered as such at the close of business on Friday, 6 October 2017.
Shareholders will be entitled, in respect of all or part of their shareholdings, to elect to reinvest the cash dividend of 9.38 cents per
share, in return for new Fairvest ordinary shares ("Reinvestment Alternative"), failing which they will receive the cash dividend.
Further details regarding the dividend and Reinvestment Alternative, including the tax treatment and a detailed timetable, will
be included in a separate SENS announcement, to be released today, 5 September 2017.
In accordance with Fairvest'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 dividends on
the shares will be deemed to be taxable dividends for South African tax purposes in terms of section 25BB of the Income Tax Act.
SUBSEQUENT EVENTS
The acquisition of Shoprite Empangeni as announced on SENS during the year were concluded after year-end with the asset
registering in the name of FPP Property Venture 102 Proprietary Limited, a newly incorporated wholly owned subsidiary of the
company on 18 July 2017.
The directors of Fairvest are not aware of any further material matters or circumstances arising between 30 June 2017 and this report
which may materially affect the financial position of the group or the results of its operation.
APPRECIATION
We extend our appreciation to our directors, management and staff for their valued efforts as well as our advisers and shareholders
for their continuing belief in and support of Fairvest.
For and on behalf of the board
Fairvest Property Holdings Limited
5 September 2017
Cape Town
Executive directors Non-executive directors
DM Wilder (Chief executive officer) JF du Toit (Chairman)
BJ Kriel (Chief financial officer) LW Andrag (Lead independent director)#
AJ Marcus (Chief operating officer)* KR Moloko(#)
* Alternate to DM Wilder N Mkhize(#)
JD Wiese(#)
TJ Cohen (Appointed 19 June 2017, with effect 1 July 2017)(#)
(#) Independent
Company Secretary
SecCorp Secretarial Services Proprietary Limited
Registered office
8th Floor, The Terraces, 34 Bree Street, Cape Town, 8001
Postnet Suite 30, Private Bag X3, Roggebaai, 8012
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank
Johannesburg, 2196
PO Box 61051, Marshalltown, 2107
Auditor
BDO South Africa Incorporated
Registered Auditors
Sponsor
PSG Capital Proprietary Limited
www.fairvest.co.za
Date: 05/09/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
