| Mon 2 Mar 2020, 8:00 | | MAS REAL ESTATE INC. - MSP : Reviewed results for the six months ended 31 December 2019 and changes to the board of directors |
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MSP : Reviewed results for the six months ended 31 December 2019 and changes to the board of directors: https://senspdf.jse.co.za/documents/2020/jse/isse/msp/MASHY2020.pdf
Reviewed results for the six months ended 31 December 2019 and changes to the board of directors
MAS Real Estate Inc.
Registered in British Virgin Islands
Registration number 1750199
SEDOL (EMTF): B96VLJ5 SEDOL
(JSE): B96TSD2
JSE share code: MSP
ISIN: VGG5884M1041
LEI code: 213800T1TZPGQ7HS4Q13
(MAS, the Company or the Group)
SHORT-FORM ANNOUNCEMENT: REVIEWED INTERIM CONDENSED CONSOLIDATED FINANCIAL RESULTS
FOR THE SIX MONTHS ENDED 31 DECEMBER 2019 AND CHANGES TO THE BOARD OF DIRECTORS
INTRODUCTION
MAS is currently disposing of direct and indirect investments in Western Europe (WE)
and redeploying proceeds in Central and Eastern Europe (CEE). Since the extraordinary
shareholders' meeting (20 November 2019) and consequential alterations to the Board and
executive management, strategy has altered significantly (detailed in Strategy Implementation
Update below). The financial results include, in addition to the reported IFRS results,
segmental reporting prepared on a proportionate, consolidated basis. These do not replace
IFRS results but assist with interpretation. Detailed financial results, as well as a revised and
updated Company Profile, as of 31 December 2019, including highlights and supplemental
operational information, are available on the Company website. Shareholders should read the
Company Profile and Strategy Implementation Update in conjunction with the financial results
for the six months ending 31 December 2019.
FINANCIAL PERFORMANCE AND DIVIDEND
The Company achieved adjusted total earnings of EUR46.54 million for the six months ending 31 December 2019,
divided into adjusted distributable earnings of EUR27.55 million and adjusted non-distributable earnings of
EUR18.99 million. Tangible net asset value (NAV) is EUR1.24 per share as of 31 December 2019 (down 6.77%
from 30 June 2019).
The issue of 67 million shares on 27 November 2019 to acquire Prime Kapital's interest in the
Investment Joint Venture (IJV) was predicted to dilute per share NAV. However, investments
in CEE performed excellently, with positive CEE revaluations substantially offsetting dilution.
Unfortunately, Tangible NAV per share was heavily impacted by the amount of EUR36.07 million
raised, subsequent to 31 December 2019 but recorded herein, to provide for costs and discounts to
book value expected to be incurred by selling the assets in WE (detailed in Disposals below).
Adjusted distributable earnings were 4.24 euro cents per share (compared to 4.33 euro cents
per share for the previous six months). The Board has consequently declared a cash dividend of
4.24 euro cents per share for the six months ending 31 December 2019 (compared to 3.78 euro
cents per share for the six months ended 31 December 2018). The dividend will be paid on, or
about, 27 March 2020.
OPERATIONAL PERFORMANCE
Group adjusted total earnings is, on a segmented basis, the combined return of (i) the
Company's directly owned income property and operations in CEE, (ii) its investment in
the Development Joint Venture (DJV) with Prime Kapital in CEE (including earnings from a
proportion of completed DJV owned income properties and the development activities which
are reported on separately under Developments, Extensions and Refurbishments below), (iii)
its directly owned income property operations in WE and (iv) investments in listed securities
(together with elements disclosed as Corporate).
Property in CEE performed very well. CEE income properties acquired directly or developed in
the DJV for EUR415.2 million were valued at EUR516.2 million on 31 December 2019, of this increase
EUR39.76 million was recognised in the six months to 31 December 2019. Like-for-like (LFL) retail
sales per square meter increased by 8.2% in the six months to 31 December 2019 (7.8% in the
twelve months), resulting in a 10.6% overall occupancy cost ratio. Over the same six months,
passing net rental income increased by EUR10.1 million (35.8%), which includes EUR7.0 million
from the acquisition of Prime Kapital's 20% effective interest in the IJV, EUR2.5 million from the
completion of developments, and EUR0.6 million from LFL growth in passing net rental income.
The latter represents an increase of 2.1% in the six months to 31 December 2019, driven
primarily by a 16% uplift on EUR2.5 million of re-lettings (23% uplift on EUR4.5 million of re-lettings
for twelve months) achieved in spite of a significant base rent reduction for the food anchor
at Nova Park (Gorzow Wielkopolski, Poland). The relatively low occupancy of 95.2% on
31 December 2019 is not a concern, as occupancy is affected by the ongoing refurbishment of two
malls and predicted lower initial occupancy at two newly developed open-air malls (detailed in
Developments, Extensions and Refurbishments below). The 0.8% decrease in LFL footfall is due
to Poland's Sunday trading ban and ongoing refurbishments. Strong growth in retail sales of the
Group's assets is expected throughout the current financial period, leading to expected further
positive results for properties in CEE during the second half of the financial year.
The assets in WE performed as expected due to 82% of rental being fixed, with a weighted
average lease term of 8.54 years. The EUR2.26 million valuation gain (due mostly to tightening
yields) is blighted by the amount of EUR36.07 million raised to provide for the estimated costs and
discounts related to the planned disposals of the Western European properties (detailed in Disposals
below). MAS has accelerated the Western European disposal program and intends to dispose of EUR508 million
worth of properties in WE by the end of the 2020 calendar year (and the balance soon thereafter). These assets
should be considered as 'Held for Sale' (despite not all having been classified as such due to strict
held for sale recognition criteria under IFRS), and, as a result, their contribution to total adjusted
earnings will reduce in the future.
On 31 December 2019, listed securities were valued for EUR131.35 million, with EUR61.93 million
of debt secured against it. EUR28.07 million of securities were disposed of at a realised loss of
EUR4.30 million whilst the difference to the gain reported on at 31 December 2019 was unrealised.
Due to efficient gearing, investments contributed EUR3.71 million to adjusted distributable
earnings, and this will reduce during the current period as shares to the value of EUR51.06 million
were sold between 31 December 2019 and the date of this report.
DEVELOPMENTS, EXTENSIONS AND REFURBISHMENTS
In the DJV, Prime Kapital completed the Zalau Value Centre and DN1 Value Centre
developments (both in Romania) and these were opened for trade in November and December 2019,
respectively. These open-air malls were developed to the same design as the Roman
and Baia Mare developments: a large number of international and national anchors directly
and conveniently accessible from extensive parking, combined with a hypermarket-anchored
services mall with significant, upmarket leisure, fast food and entertainment components.
The yields on cost are 12.2% at Zalau and 11.1% at DN1. These continual, impressive results
underline the strength of Prime Kapital's unique integrated development and construction approach.
With projects worth EUR220.83 million under construction and EUR552.17 million under permitting,
the total DJV development pipeline is EUR773 million.
Currently under construction are a 32,900m(2) GLA mall (Targoviste, Romania) that is expected
to open for trading in May 2020, Mall Moldova, a 92,000m(2) GLA super-regional enclosed mall
(Iasi, Romania), a 17,000m(2) GLA open-air mall (Sfantu Gheorghe, Romania) and Prime Kapital's
first residential development in Bucharest, Marmura Residence with 135 of 465 apartments
sold to date. The latter is the first in a pipeline of high-quality residences sold at similar prices
to lower-quality residences, a deliberate strategy establishing Prime Kapital's reputation for
reliable, superior housing.
Exposure to DJV projects under permitting was EUR14.1 million at 31 December 2019.
This is an important development risk indicator, as it highlights the relative risk to which
MAS is exposed from a permitting perspective based on its interest in the DJV.
The Silk District, a mixed-use office and residential development (Iasi, Romania), represents
EUR258.03 million of DJV projects under permitting. Iasi is the country's second-largest city, the
second largest university hub outside Bucharest, and the most important industrial location
in Romania's north east, with 369,000 inhabitants, of which 53,000 are students. The project
will convert a 10ha industrial site near the city centre into a vibrant business and community
hub, with approximately 97,600m(2) GLA of A-grade offices and over 2,500 modern residential
units, with a wide range of ancillary facilities, including retail, leisure, hotel, kindergarten and
private clinic. The project addresses the significant shortage of A-grade offices and quality
housing reducing Iasi's ability to attract investment and retain young talent, by rejuvenating
derelict industrial property, introducing over 4.9ha of parkland and making use of the excellent,
under-utilised, public transport network to efficiently service a burgeoning community.
Unsurprisingly, the project was enthusiastically received by the locals and benefits from
overwhelming public support. Independent analysis by Cushman this will be in addition to IFRS accounts
and general Johannesburg Stock Exchange (JSE) disclosure obligations. This information is
in the Company Profile and will be regularly updated. Using this resource, shareholders can
more easily track financial performance and total investment returns generated by income
property and assess expected net initial rental values for property developments and expected
sales margins for residential developments. This, combined with the commitment to provide
more relevant and improved information, will make it easier for shareholders to evaluate the
Company's investment return and future adjusted distributable earnings potential.
Management engage shareholders by considering requests, if relevant and not unduly affecting
the Groups' competitive market position, for further disclosure, and updating them regularly
about relevant developments.
CORPORATE STRUCTURE AND RELOCATION OF FUNCTIONS
Current corporate structure is costly, inefficient and inappropriate for a business focused on
investment in CEE, therefore, a new Maltese corporate holding company for the current and
future CEE investments is being incorporated. Malta is a member of the European Union (EU)
and the British Commonwealth. As an EU member state it benefits from single market access
and a robust EU compliant regulatory framework. As a member of the Commonwealth the
legal system has strong British overtones, familiar to South African investors and suitable for
a JSE listed company. Geographically, Malta is in close proximity to the CEE markets. MAS will
hire staff and set up an office in Malta to house some core functions. The Company's asset
and property management platform will be housed in a subsidiary of the Maltese holding
company located in Romania. Once assets in WE have been disposed of, the Isle of Man office
will close and Group companies in the Netherlands and Luxembourg will be wound up.
DELISTING FROM THE LUXEMBOURG STOCK EXCHANGE (LUXSE)
Virtually no trading in Company's shares occurs on LuxSE, and it creates unnecessary
bureaucracy and costs. Therefore, in the short-term, MAS will seek the necessary regulatory
approvals to be delisted from the Euro MTF Market LuxSE. Once effective, the facility in place for
depository interest shareholders will be unwound and depository interest holders entered onto
the certificated register. Should a shareholder wish to transfer shares to the South African share
register, they will need to instruct Computershare accordingly. As some shareholders may not
wish to hold their shares on the South African share register, MAS will maintain a certificated
share register following the delisting, and these individuals will continue to benefit from
investment as before. Shareholders holding shares in certified form will be able to transfer them
on an over-the-counter basis to other shareholders. Further details of the LuxSE delisting will
be published in due course.
Martin Slabbert, CEO Victor Semionov, CFO
CHAIRMAN'S LETTER
Further to the recent announcements regarding Board composition and changes, the Board has been
considering executive reporting lines, the functions of executive directors and the balance between
executive and non-executive directors. The chief investment officer function has been combined with
that of the CEO and reporting lines have been restructured. The Board has also concluded that the
Company has more executive directors than required. As a result, Dan Petrisor and Jonathan Knight
have resigned as executive directors of the Board of the Company. They remain senior executives of
the Group, have been appointed as alternative executive directors and are permanent invitees to
the Company's Board meetings.
Since the implementation of the transaction with Prime Kapital referred to in the Directors'
commentary, the new significantly enlarged management team has undertaken an enormous
amount of work to get to grips with MAS' Western European business and to ensure a smooth
integration of the former Prime Kapital and MAS management teams and businesses. The
Board is impressed with the standard of work. Significant improvements were introduced
to disclosure and the Board wishes to express their thanks to the new CEO and CFO for their
work ethic, attention to detail and drive towards a successful transition during the lock-in.
Shareholders are aware that the CEO and CFO may vacate management roles at the end of lock-in,
returning full-time to Prime Kapital. However, this will not end the relationship with Prime
Kapital, as the DJV, of which MAS owns a significant interest, terminates, at the earliest, in
2030. Furthermore, the DJV is expected to own a substantial amount of commercial investment
property by December 2022, which will be managed by the Group's property and asset
management team. Additionally, Prime Kapital's position as a substantial, long-term MAS'
shareholder requires that the two groups are intertwined for the foreseeable future. Given
these relationships, MAS and Prime Kapital are natural business partners and may explore other
mutually beneficial transactions, strengthening and expanding their relationship (subject, of
course, to MAS shareholders' approval during lock-in, when required). To ensure MAS is fully
prepared for any potential management changes occurring December 2022, the Company
will appoint a Deputy CEO and CFO, who have no affiliation to, or interest in, Prime Kapital by
December 2021 at the latest.
Werner Alberts, Interim Chairman
28 February 2020 Douglas, Isle of Man
All amounts in EUR thousand unless otherwise stated.
CONSOLIDATED STATEMENT OF Reviewed Reviewed Audited
FINANCIAL POSITION 31 Dec 19 31 Dec 18 30 Jun 19
Non-Current Assets 1,041,931 969,130 1,104,097
Current Assets 358,370 269,063 285,749
Total Assets 1,400,301 1,238,193 1,389,846
Equity Attributable to Owners of the Group 906,328 838,346 858,119
Non-Controlling Interest - 6,293 7,439
Total Equity 906,328 844,639 865,558
Non-Current Liabilities 334,422 252,589 341,760
Current Liabilities 159,551 140,965 182,528
Total Liabilities 493,973 393,554 524,288
Total Shareholder Equity & Liabilities 1,400,301 1,238,193 1,389,846
Reviewed Reviewed Audited
CONSOLIDATED STATEMENT OF 6 months ended 6 months ended Year ended
COMPREHENSIVE INCOME 31 Dec 19 31 Dec 18 30 Jun 19
Rental income 33,547 26,145 57,620
Service charge income and other recoveries 7,418 4,504 12,455
Revenue 40,965 30,649 70,075
Service charge and other property operating expenses (10,977) (6,891) (18,479)
Net rental income 29,988 23,758 51,596
Profit on sale of inventory property 326 4,288 8,151
Sales of inventory property 6,729 27,985 39,165
Cost of sales of inventory property (6,403) (23,697) (31,014)
Other income 4,672 1,957 7,259
Corporate expenses (3,493) (3,103) (5,627)
Investment expense (2,063) (1,347) (3,210)
Net operating income 29,430 25,553 58,169
Fair value adjustments 41,908 (24,735) (7,632)
Foreign exchange differences 4,586 34 (365)
Share of profit from equity accounted 8,378 6,399 11,009
investee, net of taxation
Goodwill impairment /Gain on bargain purchase (22,627) 12,263 12,263
Profit/(loss) before net financing costs 61,675 19,514 73,444
Finance income 6,691 5,149 12,058
Finance costs (6,944) (3,854) (10,251)
Profit/(loss) before taxation 61,422 20,809 75,251
Current Tax (950) (1,994) (3,948)
Deferred Tax (6,477) (2,758) (9,425)
Profit/(loss) for the period 53,995 16,057 61,878
Attributable to:
Owners of the group 52,567 11,088 55,035
Non-controlling interest 1,428 4,969 6,843
Reviewed Reviewed Audited
FINANCIAL PERFORMANCE 31 Dec 19 31 Dec 18 30 Jun 19
IFRS Net asset value attributable to Owners of the Group 906,328 838,346 858,119
IFRS Net asset value per share (euro cents) 129 132 135
IFRS Gross revenue 40,965 30,649 70,075
Earnings per share (euro cents)* 7.46 1.74 8.63
Gross headline earnings 34,775 (20,450) 5,330
Net headline earnings 42,762 (14,782) 16,037
Gross headline gain/(loss) per share (euro cents) 5.35 (3.21) 0.84
Net headline gain/(loss) per share (euro cents) 6.58 (2.32) 2.52
Gross diluted headline gain/(loss) per share (euro cents) 5.35 (3.21) 0.84
Net diluted headline gain/(loss) per share (euro cents) 6.58 (2.32) 2.52
Closing number of shares in issue** 704,493,798 637,493,798 637,493,798
Weighted average number of shares in issue** 649,874,233 637,493,798 637,493,798
* The Group's earnings per share have increased by 329% vs. 31 Dec 2018.
** Excluding treasury shares.
SEGMENTAL ANALYSIS Proportionate accounts Adjustments Adjusted proportionate accounts
INCOME STATEMENT (JUL - DEC 2019) Six months ended 31 Dec 2019 Six months ended 31 Dec 2019 Six months ended 31 Dec 2019
Total CEE DJV WE CO*** Total CEE DJV WE CO Total CEE DJV WE CO
EARNINGS 52,567 35,491 14,007 8,672 (5,603) (6,025) 4,155 3,178 (36,073) 22,715 46,542 39,646 17,185 (27,401) 17,112
Distributable earnings 27,726 12,680 4,920 8,691 1,435 (176) - - - (176) 27,550 12,680 4,920 8,691 1,259
Net rental income - income property 28,643 14,899 885 12,859 - - - - - - 28,643 14,899 885 12,859 -
Net income - preference shares 3,950 - 3,950 - - - - - - - 3,950 - 3,950 - -
Net dividends - listed securities 3,890 - - - 3,890 (176) - - - (176) 3,714 - - - 3,714
Net corporate expenses (3,377) (344) (120) (333) (2,580) - - - - - (3,377) (344) (120) (333) (2,580)
Interest on debt financing (5,819) (1,630) (477) (3,256) (456) - - - - - (5,819) (1,630) (477) (3,256) (456)
Interest capitalised on developments 738 - 738 - - - - - - - 738 - 738 - -
Other distributable net income/(cost) 545 (15) (27) 4 583 - - - - - 545 (15) (27) 4 583
Income tax (844) (230) (29) (583) (2) - - - - - (844) (230) (29) (583) (2)
Non-distributable earnings 24,841 22,811 9,087 (19) (7,038) (5,849) 4,155 3,178 (36,073) 22,891 18,992 26,966 12,265 (36,092) 15,853
Fair value adjustments - income property 42,023 27,338 12,423 2,262 - - - - - - 42,023 27,338 12,423 2,262 -
Fair value adjustments - interest rate derivatives 439 507 - (68) - - - - - - 439 507 - (68) -
Fair value adjustments - listed securities 12,051 - - - 12,051 176 - - - 176 12,227 - - - 12,227
Fair value adjustments - other financial liabilities (171) - (265) 94 - - - - - - (171) - (265) 94 -
Foreign currency exchange differences - indirect 4,554 (188) - - 4,742 - - - - - 4,554 (188) - - 4,742
Goodwill impairment (22,627) - - - 22,627) 22,627 - - - 22,627 - - - - -
Investment expenses (1,990) (691) (34) (149) (1,116) - - - - - (1,990) (691) (34) (149) (1,116)
Share-based payment expense (155) (67) - - (88) 155 67 - - 88 - - - - -
Other non-distributable income/(cost) 141 - 141 - - - - - - - 141 - 141 - -
Deferred tax (9,424) (4,088) (3,178) (2,158) - 7,266 4,088 3,178 - - (2,158) - - (2,158) -
Estimation for WE disposal realisation costs and losses - - - - - (36,073) - - (36,073) - (36,073) - - (36,073) -
Weighted average number of shares (million) 649.87
Adjusted distributable earnings per share (euro cents) 4.24
Dividend per share (euro cents) 4.24
SEGMENTAL ANALYSIS Proportionate accounts Adjustments Adjusted proportionate accounts
BALANCE SHEET (31 DEC 2019) 31 Dec 2019 31 Dec 2019 31 Dec 2019
Total CEE DJV WE CO Total CEE DJV WE CO Total CEE DJV WE CO
NET ASSET VALUE 906,328 344,309 171,275 298,051 92,693 (31,518) 397 4,158 (36,073) - 874,810 344,706 175,433 261,978 92,693
Assets 1,462,182 524,309 206,174 565,630 166,069 (24,664) (24,664) - - - 1,437,518 499,645 206,174 565,630 166,069
Income property 1,043,146 467,375 48,452 527,319 - - - - - - 1,043,146 467,375 48,452 527,319 -
Developments - income property 47,673 331 30,608 16,734 - - - - - - 47,673 331 30,608 16,734 -
Developments - residential property 12,555 - 12,555 - - - - - - - 12,555 - 12,555 - -
Preference shares 105,577 - 105,577 - - - - - - - 105,577 - 105,577 - -
Listed securities 131,350 - - - 131,350 - - - - - 131,350 - - - 131,350
Goodwill 8,286 8,286 - - - (8,286) (8,286) - - - - - - - -
Deferred tax asset 4,316 3,208 549 559 - - - - - - 4,316 3,208 549 559 -
Interest rate derivative financial assets 702 - - 702 - - - - - - 702 - - 702 -
Other assets 1,484 57 508 - 919 - - - - - 1,484 57 508 - 919
VAT receivable 4,820 92 3,923 637 168 - - - - - 4,820 92 3,923 637 168
Share-based payment prepayments 16,378 16,378 - - - (16,378) (16,378) - - - - - - - -
Trade and other receivables 17,294 9,667 492 6,746 389 - - - - - 17,294 9,667 492 6,746 389
Cash and cash equivalents 68,601 18,915 3,510 12,933 33,243 - - - - - 68,601 18,915 3,510 12,933 33,243
Liabilities 555,854 180,000 34,899 267,579 73,376 6,854 (25,061) (4,158) 36,073 - 562,708 154,939 30,741 303,652 73,376
Debt financing 485,266 142,207 22,032 248,644 72,383 - - - - - 485,266 142,207 22,032 248,644 72,383
Interest rate derivative financial liabilities 2,157 1,205 - 952 - - - - - - 2,157 1,205 - 952 -
Other liabilities 693 - - 693 - - - - - - 693 - - 693 -
Deferred tax liability 36,426 25,061 4,158 7,207 - (29,219) (25,061) (4,158) - - 7,207 - - 7,207 -
Trade and other payables 31,312 11,527 8,709 10,083 993 - - - - - 31,312 11,527 8,709 10,083 993
Estimation for WE disposal realisation costs and losses - - - - - 36,073 - - 36,073 - 36,073 - - 36,073 -
Closing number of shares in issue (million) 704.49
Net asset value per share (euro cents) 129 50 24 42 13
Tangible net asset value per share (euro cents) 124 49 25 37 13
***Corporate (Co), other assets, liabilities and activities related to the Group's management, including investments in listed securities, Group
level financing, as well as corporate level administration.
This short-form announcement is the responsibility of the directors and is only a summary of the information contained in the full announcement
released on Monday, 2 March 2020 and available at: https://senspdf.jse.co.za/documents/2020/jse/isse/msp/MASHY2020.pdf or on the Company's website.
This short-form announcement does not contain full or complete details, any investment decisions by investors and/or shareholders should be based on
consideration of the full announcement. The full announcement is available for inspection or may be requested and obtained in person, at no charge,
at the head office of the Company on the 2nd floor, Clarendon House, Douglas, Isle of Man, IM1 2LN, and at the offices of our sponsor Java Capital,
at 6A Sandown Valley Crescent, Sandton, 2196, South Africa, during office hours from 2 March 2020 to 16 March 2020.
Date: 02-03-2020 08:00:00
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