Premium Properties Limited HY 2014 results

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Premium Properties Limited HY 2014 results

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Premium Properties Limited HY 2014 results

  1. 1. www.premiumproperties.co.za CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME R’000 % change Unaudited Six months 31 August 2013 Unaudited Six months 31 August 2012 Audited Year to 28 February 2013 Revenue 317 442 285 672 585 918 earned on contractual basis 10,5 311 307 281 641 575 112 straight-line lease adjustment 6 135 4 031 10 806 Operating costs (143 741) (124 087) (253 238) Net rental income from properties 173 701 161 585 332 680 earned on contractual basis 6,4 167 566 157 554 321 874 straight-line lease adjustment 6 135 4 031 10 806 Administrative costs (15 482) (13 426) (27 514) Depreciation (705) (708) (1 412) Operating profit 6,8 157 514 147 451 303 754 Profit on sale of investment properties 386 – 851 Investment income 28 756 17 413 39 239 Interest received 1 128 526 1 856 Associate share of after-tax profit 10 496 7 662 16 733 reserves 13 121 6 570 15 246 interest and management fee 4 011 2 655 5 404 Finance costs 5,1 (63 128) (60 069) (118 880) Interest on borrowings (64 552) (62 790) (125 200) Interest capitalised 1 424 2 721 6 320 Fair value adjustments of investment properties 111 872 141 513 204 860 Fair value adjustments on interest rate derivatives 29 697 (23 701) (20 133) Amortisation of debenture premium 11 208 11 898 23 797 Profit before debenture interest 276 305 234 505 433 488 Debenture interest 10,3 (103 266) (93 594) (196 860) Profit before taxation 173 039 140 911 236 628 Taxation charge 350 386 (20 814) (32 151) Current taxation – – (190) Deferred taxation 350 386 (20 814) (31 961) Profit for the period 523 425 120 097 204 477 Other comprehensive income for the period – – – Total comprehensive income for the period attributable to equity holders 523 425 120 097 204 477 Weighted linked units in issue (’000) 156 773 156 773 156 773 Linked units in issue (’000) 156 773 156 773 156 773 Basic and diluted earnings per share (cents) 335,8 333,9 76,6 130,4 Basic and diluted earnings per linked unit (cents) 193,3 399,7 136,3 256,0 Distribution per linked unit (cents) Dividends 0,33 0,30 0,63 Interest 65,87 59,70 125,57 Total 10,3 66,20 60,00 126,20 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION R’000 Unaudited 31 August 2013 Audited 28 February 2013 ASSETS Non-current assets 5 052 009 4 691 091 Investment properties 4 625 741 4 320 082 Plant and equipment 7 406 8 111 Lease costs 19 249 16 744 Operating lease assets 51 764 45 629 Derivative financial instruments 584 – Investment in associate 347 265 300 525 Current assets 39 060 30 202 Non-current assets held for sale 6 970 7 770 Total assets 5 098 039 4 729 063 EQUITY AND LIABILITIES Share capital and reserves 2 461 636 1 938 728 Share capital and premium 4 472 4 472 Non-distributable reserve 2 407 585 1 898 505 Retained earnings 49 579 35 751 Non-current liabilities 1 635 932 1 626 491 Debentures and premium 709 708 720 916 Interest-bearing borrowings 924 803 524 655 Derivative financial instruments – 29 113 Deferred taxation 1 421 351 807 Current liabilities 1 000 471 1 163 844 Interest-bearing borrowings 788 206 955 537 Non-interest-bearing 118 999 105 041 Linked unitholders for distribution 103 266 103 266 Total equity and liabilities 5 098 039 4 729 063 Linked units in issue (’000) 156 773 156 773 Net asset value per linked unit (cents) 2 023 1 696 Net asset value per linked unit (cents) – before providing for deferred tax 2 024 1 921 Loan to investment value ratio (%) 33,7 31,5 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY R’000 Share capital and premium Capital reserve Fair value reserve Retained earnings Total Balance at 1 March 2012 4 472 92 206 1 600 182 38 331 1 735 191 Total comprehensive income for the year 204 477 204 477 Transfer to capital reserve Debenture premium amortised 23 797 (23 797) – Profit on sale of investment properties, net of capital gains tax 320 (320) – Dividends paid (940) (940) Reserves of associate 15 246 (15 246) – Transfer of fair value adjustments Investment properties, net of deferred taxation 166 754 (166 754) – Balances at 28 February 2013 4 472 116 323 1 782 182 35 751 1 938 728 Total comprehensive income for the period 523 425 523 425 Transfer to capital reserve Debenture premium amortised 11 208 (11 208) – Profit on sale of investment properties, net of capital gains tax 194 (194) – Dividends paid (517) (517) Reserves of associate 13 121 (13 121) – Transfer of fair value adjustments Investment properties, net of deferred taxation 463 176 (463 176) – Interest rate derivatives, net of deferred taxation 21 381 (21 381) – Balances at 31 August 2013 4 472 127 725 2 279 860 49 579 2 461 636 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS R’000 Unaudited Six months 31 August 2013 Unaudited Six months 31 August 2012 Audited Year to 28 February 2013 CASH FLOW FROM OPERATING ACTIVITIES Net rental income from properties 151 378 143 420 292 948 Adjustment for: Depreciation and amortisation 7 966 3 501 7 197 Working capital changes 11 033 9 417 2 725 Cash generated from operations 170 377 156 338 302 870 Investment income 15 635 3 181 7 260 Finance costs (63 128) (60 069) (118 880) Distribution to linked unitholders paid (103 783) (94 064) (188 128) Net cash inflow from operating activities 19 101 5 386 3 122 CASH FLOW FROM INVESTING ACTIVITIES Investing activities (236 785) (101 632) (181 347) Disposal of investment property 800 – 5 153 Net cash outflow used in investing activities (235 985) (101 632) (176 194) CASH FLOW FROM FINANCING ACTIVITIES Increase in interest-bearing borrowings 228 944 83 953 172 937 Net cash generated from financing activities 228 944 83 953 172 937 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 12 060 (12 293) (135) Cash and cash equivalents at beginning of period (5 937) (5 802) (5 802) Cash and cash equivalents at end of period 6 123 (18 095) (5 937) RECONCILIATION – EARNINGS TO DISTRIBUTABLE EARNINGS R’000 % change Unaudited Six months 31 August 2013 Unaudited Six months 31 August 2012 Audited Year to 28 February 2013 Earnings attributable to equity holders 523 425 120 097 204 477 Amortisation of deemed debenture premium (11 208) (11 898) (23 797) Profit on sale of investment properties (386) – (320) Equity reserves associate (13 121) (6 570) (15 246) Fair value adjustments investment properties (111 872) (141 513) (204 860) deferred tax (351 304) 26 323 38 106 Headline earnings/(loss) before debenture interest 35 534 (13 561) (1 640) Debenture interest 103 266 93 594 196 860 Headline earnings attributable to linked unitholders 138 800 80 033 195 220 Straight-line lease adjustment, net of deferred tax (4 418) (2 904) (7 761) Fair value adjustment on interest rate derivatives, net of deferred tax (21 381) 17 065 14 496 Deferred taxation adjustments (9 114) – (3 894) Distributable earnings 103 885 94 194 198 061 Headline earnings per linked unit (cents) 73,4 88,5 51,1 124,5 NOTES TO THE FINANCIAL STATEMENTS Basis of preparation The condensed consolidated interim financial information has been prepared in accordance with the framework, concepts and the measurement and recognition requirements of International Financial Accounting Standards (“IFRS”), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the information as required by IAS 34: Interim Financial Reporting, the JSE Listings Requirements and the requirements of the South African Companies Act (71 of 2008), as amended. These condensed consolidated results were prepared under the supervision of Mr AK Stein CA(SA), in his capacity as group financial director. The accounting policies adopted and methods of computation are consistent with those applied in the financial statements for the year ended 28 February 2013. Deferred taxation: Premium’s application to the JSE Limited (“JSE”) for Real Estate Investment Trust (“REIT”) status has been approved by the JSE. Accordingly, Premium will qualify as a REIT from the commencement of its next financial year, being 1 March 2014. In determining the aggregate capital gain or capital loss of a REIT or a controlled property company for purposes of the Income Tax Act 1958, as DIRECTORS’ COMMENTARY Introduction Premium invests in the retail, industrial and office property sectors and holds a large residential portfolio. The company has a great confidence in the future of the Pretoria and Johannesburg CBDs. All rental income received by the group, less operating costs and interest on debt, is distributed bi-annually. The group does not distribute capital profits and fair value gains. Review of results Premium has delivered a total distribution for the six months ended 31 August 2013 of 66,2 cents per linked unit representing growth in distributions to linked unitholders of 10,3%. Rental income and net rental income increased by 10,5% and 6,4% respectively, compared with the prior comparative period. Economic and trading conditions and consumer confidence remained challenging during the financial period. The residential portfolio, comprising 28,0% of the total property portfolio by rental income, achieved strong growth in rental income. This was underpinned by low vacancies and strong demand for affordable and secure accommodation. Bad debt write-offs and provisions decreased during the period from 1,4% to 0,4% of total tenant income. Arrears and doubtful debt provisions remain at acceptable levels and no significant deterioration is anticipated. Despite rapidly escalating utilities charges, the percentage of cost recovery from tenants has been maintained during the period. However, these escalating charges have, impacted the total occupancy costs of tenants. A saving in finance costs was achieved mainly due to the establishment of a R1 billion Domestic Medium-term Note Programme during March 2012. Property and investment portfolio Premium had three major projects under construction during the period. The total cost of these projects is approximately R86,8 million of which an amount of R58 million had already been spent by 31August 2013. Details of these projects are: • The construction of an additional residential block at The Fields in Hatfield, Pretoria. This project, which is progressing well, will create a further 87 residential units and 87 parking bays at an estimated cost of R71,3 million. The project is scheduled for completion in November 2013 and is expected to yield a return of 8,3% once fully let. • The upgrade of the Demar Building, a mixed-use property situated in the Pretoria CBD. The total cost of the project is R7,5 million. The residential units were completed in August 2013 and the retail upgrade will be completed in October 2013. • The upgrade of Prinsman Place, situated in the Pretoria CBD, a mixed-use property at a total cost of R8 million. The project was completed in September 2013. The transfer of the Hangar in Centurion took place on 31 July 2013. The Hangar, comprising six blocks of residential accommodation, will further enhance Premium’s residential property portfolio. The total purchase consideration amounted to R114,7 million. Premium’s investment in Investments Proprietary Limited (“IPS”) provided strong growth with profits earned from its associate company, excluding fair value gains, increasing to R14,5 million. This is an increase of 40,6% on the prior period. The performance of IPS was positively impacted by the improved occupancy levels achieved during the period at Craig’s Place and the mixed-use developments of Kempton Place and Tali’s Place. The construction of Jeff’s Place (previously known as Marchie Mansions),a greenfield residential development situated in the Pretoria CBD, commenced in February 2012. The total cost of the project is R139 million and it is anticipated that this will yield an initial return of 9,2% once fully let. The expected date of completion is November 2013. Vacancies in the Premium portfolio at 31 August 2013, including properties held for redevelopment, amounted to 18,8% (28 February 2013: 20,4%) of total lettable area. Details of these vacancies with reference to their sectoral spread are set out in the table below: Total lettable area m² Total vacancies % Properties held for redevelopment % Core vacancies % 31 August 2013 Offices 254 777 11,4 (3,1) 8,3 Retail 207 188 2,9 (1,6) 1,3 Industrial 136 909 3,3 (0,2) 3,1 Residential 152 397 1,2 (0,9) 0,3 Total 751 271 18,8 (5,8) 13,0 28 February 2013 Offices 253 419 12,8 (3,4) 9,4 Retail 207 475 3,3 (1,5) 1,8 Industrial 137 272 2,4 – 2,4 Residential 135 737 1,9 (1,6) 0,3 Total 733 903 20,4 (6,5) 13,9 Significant progress has been made in letting some of the retail and office space at The Fields. Recently, 6 296 m² of office space has been let at a rental of R135 per m².The lease commenced on 18 May 2013. Most of the properties remained fully let. As anticipated a number of properties under development or those which were recently upgraded, for example Demar, Prinsman Place and Centre Walk (Die Meent), had high vacancies. In recent years certain properties for example, Fedsure House, were acquired by Premium with large vacancies and for little consideration for the vacant space which offered redevelopment opportunities. As the opportunities arise the potential vacancies are being realised. Borrowings Premium’s loan to value ratio at 31 August 2013 was 33,7% of the total value of the investment portfolio as against 31,5% at 28 February 2013. Premium entered into various fixed interest rate and swap rate agreements which are set out below. As a result, interest rates in respect of 41,7% of borrowings have been fixed with expiry dates from May 2017 to August 2018. As at 31 August 2013, the weighted average annual cost of debt was 7,8% with unutilised banking facilities in an amount in excess of R431,8 million. Premium increased its debt capital market (“DCM”) issuance in June and July 2013 to R465 million, or 28% of borrowings. In August 2013 Global Credit Ratings upgraded the long and short-term national scale issuer ratings of Premium to A-(ZA) and A1-(ZA) respectively. Nominal amount R’000 Interest rate % Fixed rate borrowings expiry May 2018 160 000 12,15 160 000 12,15 Swap maturity May 2017 50 000 9,47 June 2017 50 000 9,32 July 2017 50 000 8,94 August 2017 100 000 8,70 September 2017 50 000 9,31 January 2018 50 000 9,43 April 2018 100 000 5,68 August 2018 100 000 9,00 550 000 8,50 Total hedged borrowings 710 000 9,30 Variable rate borrowings 993 009 6,70 Total gearing 1 703 009 7,80 Revaluation of property portfolio It is the group’s financial policy to perform directors’ valuations of all the properties every six months of the financial year.At the financial year-end, one third of the properties is valued by external valuers on a rotational basis. The directors’ valuation of the property portfolio increased by R111,9 million to R4,7 billion, an increase of 2,6% for the six-month period. Net asset value (“NAV”) The substantial increase in NAV per linked unit was mainly as a result of the elimination of deferred capital gains taxation on the fair value adjustment to investment property; in anticipation of the conversion to a REIT on 1 March 2014. Changes to the directorate Mr Gerard Kemp (58) was appointed as an independent non-executive director, on 1 October 2013. Gerard will also serve on the audit,risk,social and ethics,and remuneration and nominations committees. Gerard brings to the board a wealth of knowledge and experience in the areas of black economic empowerment, corporate finance and labour relations. Prospects Premium is considering a number of redevelopment opportunities for certain existing properties which will enhance the quality of the property portfolio and result in sustainable growing distributions in the future. It is anticipated that the growth in the local economy will remain subdued in the short term. Notwithstanding this environment, and barring unforeseen events, Premium anticipates that the percentage growth rate in distributions per linked unit for the full twelve-month period should be in line with the sector average growth rate. Unitholders are advised that the abovementioned information has not been reviewed nor reported on by the company’s auditors. DECLARATION OF DIVIDEND 39 AND INTEREST PAYMENT (“the distribution”) Notice is hereby given that dividend number 39 of 0,33 cents (2012: 0,30 cents) per ordinary share (out of income reserves) and interest of 65,87 cents per debenture (2012: 59,7 cents) has been declared for the period 1 March 2013 to 31 August 2013, payable to linked unitholders recorded in the register on Friday, 15 November 2013. The last date to trade “CUM” distribution is Friday, 8 November 2013. The units will commence trading “EX” distribution on Monday, 11 November 2013. Payment date will be Monday, 18 November 2013. No dematerialisation or rematerialisation of linked unit certificates may take place between Monday, 11 November 2013 and Friday, 15 November 2013, both days inclusive. The dividend component of the distribution is subject to dividends withholding tax at 15%. In determining dividend withholding tax, secondary tax on companies (“STC”) credits must be taken into account. The STC credits utilised as part of this declaration amount to R517 351,26 being 0,33 cents per share, and consequently no dividends withholding tax is payable by shareholders who are normally not exempt from dividends withholding tax. Shareholders will receive the dividend of 0,33 cents per share. The number of linked units in issue at the date of this declaration is 156 773 109 and the company’s tax reference number is 9660/013/64/1. By order of the board S Wapnick JP Wapnick Chairman Managing director 23 October 2013 UNAUDITED INTERIM RESULTS OF THE GROUP FOR THE SIX MONTHS ENDED 31 AUGUST 2013 Highlights  Distribution up by 10,3% to 66,2 cents per linked unit   Investment assets exceed R5,0 billion   Upgrade in GCR credit rating GREYMATTERFINCH#7202 SEGMENTAL INFORMATION The group earns revenue in the form of property rentals. On a primary basis the group is organised into four major operating segments: • Office • Retail • Industrial • Residential Rental income by sector: 2013 R’000 % 2012 R’000 % Offices 64 024 25,9 58 401 23,0 Retail 93 823 37,4 82 955 37,0 Industrial 20 422 8,3 18 293 10,4 Residential 69 221 28,0 67 485 29,6 Total rental income 247 490 100,0 227 134 100,0 Recoveries 63 817 54 507 Revenue 311 307 281 641 Further segmental results cannot be allocated on a reasonable basis due to the “mixed use” of certain of the properties. It is the company’s policy to invest predominantly in properties situated in the Gauteng area, therefore the company has not reported on a geographical basis. DISTRIBUTABLE EARNINGS R’000 % change Unaudited Six months 31 August 2013 Unaudited Six months 31 August 2012 Audited Year to 28 February 2013 Revenue earned on contractual basis 10,5 311 307 281 641 575 112 Operating costs (143 742) (124 087) (253 238) Net rental income from properties 6,4 167 565 157 554 321 874 Administrative costs (15 482) (13 426) (27 514) Depreciation (705) (708) (1 412) Operating profit 5,5 151 378 143 420 292 948 Investment income Interest received 1 128 526 1 856 Associate 14 507 10 317 22 137 Distributable profit before finance costs 8,3 167 013 154 263 316 941 Finance costs 5,1 (63 128) (60 069) (118 880) Unitholders distributable earnings 10,3 103 885 94 194 198 061 Weighted linked units in issue (’000) 156 773 156 773 156 773 Distributable earnings per linked unit (cents) 10,3 66,3 60,1 126,3 Distribution per linked unit (cents) 10,3 66,2 60,0 126,2 amended, any capital gain or capital loss determined in respect of the disposal of immovable property; a share in a REIT; or a share in a controlled property company, must be disregarded. This resulted in a reversal of the group’s deferred taxation liability amounting to R351,3 million at 1 March 2013. It is anticipated that no capital gains tax will become payable on the disposal of any of the company’s investment properties prior to 1 March 2014. Related party: City Property Administration Proprietary Limited is responsible for the property and asset management of the group. Commitments: Premium has capital commitments in an amount of R53,3 million relating to various redevelopments of properties. Subsequent events: There have been no significant subsequent events that require reporting. Contingent liability: Premium has issued guarantees of R5,0 million to City of Tshwane Metropolitan Municipality for the provision of services to its subsidiaries. Premium has provided a suretyship to Nedbank Property Finance in favour of its associate company, IPS. At 31 August 2013, the suretyship amounted to R224,2 million. Independent review by external auditors: These condensed consolidated financial statements have not been reviewed or audited by our auditors, Grant Thornton. PREMIUM PROPERTIES LIMITED and its subsidiaries (“Premium” or “the group” or “the company”) (Incorporated in the Republic of South Africa) (Registration number 1994/003601/06) Share code: PMM, ISIN: ZAE000009254, REIT status approved Directors: S Wapnick† (Chairman), JP Wapnick* (Managing), AK Stein* (Financial), MZ Pollack† , DP Cohena , PJ Strydom• , GH Kemp• * Executive director • Independent non-executive director † Non-executive director a Lead independent non-executive director Registered office: CPA House, 101 Du Toit Street, Pretoria, 0002 , PO Box 15, Pretoria, 0001, Tel: (012) 319-8781 Fax: (012) 319-8812 Transfer secretaries: Computershare Limited (Reg. No: 2000/006082/06), 70 Marshall Street, Johannesburg, 2001, PO Box 61051, Marshalltown, 2107, Tel: (011) 370-7700 Fax: (011) 688-7712 Property administrator, asset manager and company secretary: City Property Administration (Pty) Limited, Email: premium@cityprop.co.za, Website address: www.premiumproperties.co.za   Obtained REIT status effective from 1 March 2014  Increase in net asset value of 19,3% to 2 023 cents per linked unit  Weighted average cost of debt reduced to 7,8% per annum

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