Fortress Income Fund Limited FY 2012 results

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Fortress Income Fund Limited FY 2012 results

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Fortress Income Fund Limited FY 2012 results

  1. 1. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Audited Share capital R’000 Share premium R’000 Non- distributable reserves R’000 Retained earnings R’000 Total R’000 Balance at 30 June 2010 4 036 214 924 148 930 – 367 890 Issue of linked units (equal number of A and B units) 584 110 540 111 124 Total comprehensive income for the year 282 883 282 883 Transfer to non-distributable reserves 282 883 (282 883) – Balance at 30 June 2011 4 620 325 464 431 813 – 761 897 Issue of linked units (equal number of A and B units) 1 242 308 510 309 752 – Issue of 3 780 000 units effective 6 September 2011 76 23 020 23 096 – Issue of 51 014 493 units effective 1 December 2011 1 020 216 557 217 577 – Issue of 7 290 000 units effective 29 March 2012 146 68 933 69 079 Total comprehensive income for the year 587 211 587 211 Transfer to non-distributable reserves 587 211 (587 211) - Balance at 30 June 2012 5 862 633 974 1 019 024 – 1 658 860 Consolidated statement of financial position Audited Jun 2012 R'000 Audited Jun 2011 R'000 ASSETS Non-current assets 5 755 600 3 975 937 Investment property 4 035 002 3 130 131 Straight-lining of rental revenue adjustment 37 539 28 618 Investment property under development 48 222 3 999 Investments 1 225 537 472 952 Fortress Unit Purchase Trust loans 202 644 135 947 Loan to BEE vehicle 175 711 183 991 Loans to development partners 30 945 20 299 Current assets 169 683 145 219 Investment property held for sale 123 595 101 815 Straight-lining of rental revenue adjustment 905 585 Fortress Unit Purchase Trust loans 5 499 3 809 Loans to development partners – 7 169 Trade and other receivables 31 333 27 934 Cash and cash equivalents 8 351 3 907 Total assets 5 925 283 4 121 156 EQUITY AND LIABILITIES Total equity attributable to equity holders 1 658 860 761 897 Share capital 5 862 4 620 Share premium 633 974 325 464 Non-distributable reserves 1 019 024 431 813 Retained earnings – – Total liabilities 4 266 423 3 359 259 Non-current liabilities 3 411 099 2 612 735 Linked debentures 2 637 760 2 079 000 Interest-bearing borrowings 650 862 474 565 Deferred tax 122 477 59 170 Current liabilities 855 324 746 524 Trade and other payables 171 377 66 431 Linked debenture interest payable 185 493 132 663 Income tax payable 1 088 31 Interest-bearing borrowings 497 366 547 399 Total equity and liabilities 5 925 283 4 121 156 Consolidated statement of comprehensive income Audited for the year ended Jun 2012 R'000 Audited for the year ended Jun 2011 R'000 Net rental and related revenue 379 719 317 996 Recoveries and contractual rental revenue 560 630 453 966 Straight-lining of rental revenue adjustment 9 241 11 949 Rental revenue 569 871 465 915 Property operating expenses (190 152) (147 919) Distributable income from investments 62 057 23 935 Fair value gain on investment property and investments 699 732 315 336 Fair value gain on investment property 447 370 278 698 Adjustment resulting from straight-lining of rental revenue (9 241) (11 949) Fair value gain on investments 261 603 48 587 Nepi underwriting fee 2 143 – Administrative expenses (23 669) (15 783) Profit before net finance costs 1 119 982 641 484 Net finance costs (460 068) (315 387) Finance income 65 347 34 193 Interest from loans 33 036 24 557 Fair value adjustment on derivatives 2 031 - Interest on linked units issued cum distribution 30 280 9 636 Finance costs (525 415) (349 580) Interest on borrowings (112 079) (91 327) Capitalised interest 2 297 1 073 Fair value adjustment on derivatives (51 090) (1 188) Interest to linked debenture holders – A linked units (308 774) (229 489) – B linked units (55 769) (28 649) Profit before income tax expense 659 914 326 097 Income tax expense (72 703) (43 214) Profit for the year attributable to equity holders 587 211 282 883 Total comprehensive income for the year 587 211 282 883 Basic earnings per A share (cents) 101,44 62,62 Basic earnings per B share (cents) 101,44 62,62 Basic earnings per A linked unit (cents) 208,12 164,22 Basic earnings per B linked unit (cents) 120,71 75,30 Fortress has no dilutionary instruments in issue. Reconciliation of profit for the year to headline earnings and distributable income Audited for the year ended Jun 2012 R'000 Audited for the year ended Jun 2011 R'000 Basic earnings (shares) – profit for the year attributable to equity holders 587 211 282 883 – interest to A linked debenture holders 308 774 229 489 – interest to B linked debenture holders 55 769 28 649 Basic earnings (linked units) 951 754 541 021 Adjusted for: (383 777) (229 523) – fair value gain on investment property (438 129) (266 749) – income tax effect 54 352 37 226 Headline earnings (linked units) 567 977 311 498 Straight-lining of rental revenue adjustment (9 241) (11 949) Fair value gain on investments (261 603) (48 587) Fair value adjustment on derivatives 49 059 1 188 Income tax effect 18 351 5 988 Distributable income 364 543 258 138 Less: distributions declared (364 543) (258 138) Income not distributed – – Headline earnings per A share (cents) 35,14 11,81 Headline earnings per B share (cents) 35,14 11,81 Headline earnings per A linked unit (cents) 141,82 113,41 Headline earnings per B linked unit (cents) 54,41 24,50 Basic earnings per share, basic earnings per linked unit, headline earnings per share and headline earnings per linked unit are based on the weighted average of 289 439 493 (2011: 225 875 000) shares/linked units in issue during the year for both A and B shares/linked units. Abridged consolidated statement of cash flows Audited for the year ended Jun 2012 R'000 Audited for the year ended Jun 2011 R'000 Cash inflow from operating activities 36 176 31 329 Cash outflow from investing activities (352 788) (753 062) Cash inflow from financing activities 321 056 720 660 Increase/(decrease) in cash and cash equivalents 4 444 (1 073) Cash and cash equivalents at the beginning of the year 3 907 4 980 Cash and cash equivalents at the end of the year 8 351 3 907 Cash and cash equivalents consist of current accounts. Notes 1 PREPARATION, ACCOUNTING POLICIES AND AUDIT OPINION The condensed audited consolidated financial statements have been prepared in accordance with the measurement and recognition requirements of IFRS, the AC500 standards as issued by the Accounting Practices Board, the information contained in IAS 34: Interim Financial Reporting, the JSE Listings Requirements and the requirements of the South African Companies Act 2008 (“the Act”). This report was compiled under the supervision of Wiko Serfontein CA(SA), the financial director. The accounting policies adopted are consistent with those applied in the prior periods. The directors are not aware of any matters or circumstances arising subsequent to 30 June 2012 that require any additional disclosure or adjustment to the financial statements. Deloitte & Touche have issued their unmodified opinion on the group financial statements for the year ended 30 June 2012. These condensed financial statements have been derived from the group financial statements and are, in all material respects, consistent with the group financial statements. These financial statements have been audited in compliance with all applicable requirements of the Act. A copy of the audit report is available for inspection at Fortress’ registered office. 2 Summary of financial performance Jun 2012 Dec 2011 Jun 2011 Dec 2010 Distribution per A linked unit (cents) 53,34 53,34 50,80 50,80 Distribution per B linked unit (cents) 9,95 9,31 6,63 6,04 A linked units in issue 293 084 493 285 794 493 231 000 000 220 750 000 B linked units in issue 293 084 493 285 794 493 231 000 000 220 750 000 Net asset value per combined linked unit* R14,66 R12,69 R12,30 R11,08 Net asset value per A unit# R13,20 R12,22 R10,88 R11,08 Net asset value per B unit R1,46 R0,47 R1,42 – Gearing ratio** 19,4% 21,5% 24,8% 22,6% *Net asset value includes total equity attributable to equity holders and linked debentures. # 60-dayvolumeweightedaveragetradingpriceatreportingdatelimitedtocombinednetassetvalue. **The gearing ratio is calculated by dividing interest-bearing borrowings by total assets. 3 FACILITIES AND INTEREST RATE DERIVATIVES Facility expiry Amount R’million Average margin over Jibar 2013 585 1,37% 2014 896 1,78% 2015 – – 2016 – – 2017 397 1,96% 1 878 1,69% Interest rate swaps expiry Amount R’million Average swap rate % of borrowings 2014 150,0 8,04% 13,06% 2015 300,0 7,53% 26,13% 2016 200,0 8,16% 17,42% 2017 166,0 7,35% 14,46% 2018 300,0 7,57% 26,13% 2019 100,0 7,65% 8,71% Hedged borrowings 1 216,0 7,69% 105,91% Variable rate borrowings (67,8) (5,91%) Total borrowings 1 148,2 9,43%* 100,00% *Represents the all-in average rate for Fortress at 30 June 2012. 4 Lease expiry profile (Unaudited) Lease expiry Based on rentable area Based on contractual rental revenue Vacant 5,1% June 2013 28,5% 25,7% June 2014 20,7% 21,8% June 2015 13,2% 15,9% June 2016 12,7% 14,1% June 2017 10,0% 12,4% June 2017 9,8% 10,1% Total 100,0% 100,0% 5 Segmental analysis Recoveries and contractual rental revenue Jun 2012 R’000 Jun 2011 R’000 Retail 347 834 241 929 Industrial 145 735 151 534 Office 57 584 56 082 Residential 9 477 4 421 Total 560 630 453 966 Property operating expenses Retail (118 987) (82 322) Industrial (49 361) (46 669) Office (19 755) (18 066) Residential (2 049) (862) Total (190 152) (147 919) Rental revenue Retail 357 442 250 515 Industrial 145 573 152 014 Office 57 379 58 965 Residential 9 477 4 421 Total 569 871 465 915 Profit before net finance costs Retail 571 622 336 568 Industrial 164 200 162 385 Office 73 641 79 039 Residential 8 385 6 753 Corporate 302 134 56 739 Total 1 119 982 641 484 6 Payment of final distributions The board has approved and notice is hereby given of the final cash interest distributions (distributions no 6) of 53,34 cents per A linked unit and 9,95 cents per B linked unit for the six months ended 30 June 2012. These interest distributions are not subject to dividend with- holding tax. The last date to trade linked units cum distribution will be Friday, 31 August 2012 and trading will commence ex distribution on Monday, 3 September 2012. The record date to participate in the distribution will be Friday, 7 September 2012. Linked unit certificates may not be dematerialised or rematerialised between Monday, 3 September 2012 and Friday, 7 September 2012, both days inclusive. Payment of the distribution will be made to linked unitholders on Monday, 10 September 2012. In respect of dematerialised linked unitholders, the distribution will be transferred to the Central Securities Depository Participant accounts/broker accounts on Monday, 10 September 2012. Certificated linked unitholders’ distribution payments will be posted on or about Monday, 10 September 2012. Registered office 3rd Floor Rivonia Village Rivonia Boulevard Rivonia 2191 (PO Box 2555 Rivonia 2128) Transfer secretaries Link Market Services South Africa Proprietary Limited 13th Floor Rennie House 19 Ameshoff Street Braamfontein 2001 (PO Box 4844 Johannesburg 2000) Sponsor Java Capital Company secretary Stephanie Botha Directors Jeff Zidel (chairman) Mark Stevens (managing director)* Kura Chihota Nontando Kunene Chris Lister-James Djurk Venter Wiko Serfontein* (*executive director) www.fortressfund.co.za 011 888 5511 visual IGNITION 3584 FORTRESSI N C O M E F U N D L I M I T E D Condensed audited consolidated financial statements for the year ended 30 June 2012 Incorporated in the Republic of South Africa Reg no 2009/016487/06 Share codes FFA ISIN ZAE000141313 and FFB ISIN ZAE000141321 respectively (“Fortress” or “the group”) DIRECTORS’ COMMENTARY 1 NATURE OF BUSINESS Fortress, a listed property loan stock company invests in both direct and indirect property. Its earnings are derived from collecting rentals as well as distributions from a portfolio of listed property securities. The direct property portfolio is weighted towards retail centres focusing on the commuter market. 2 COMPANY STRUCTURE Fortress is structured with separately listed A and B linked units offering unitholders an opportunity to have investments in different risk and reward propositions. The distribution of the A units escalates at 5% per annum until June 2014 and thereafter at the lower of CPI and 5%. These units have preferential entitlements to income distributions and to capital participation on winding up. The remaining distributable income accrues to the B units. 3 DISTRIBUTABLE EARNINGS Fortress increased total distributions for the year ended 30 June 2012 by 10,2% to 125,94 cents against 114,27 cents for the previous financial year. The distributions for the six months ended 30 June 2012 are 53,34 cents and 9,95 cents per A and B linked unit respectively, representing growth of 5,0% and 50,1% over the comparative prior period. 4 STRATEGIC DIRECTION The strategy of Fortress is to increase its investment in rural and CBD retail properties situated close to transport nodes. This will result in the reduction in the group’s exposure to small industrial properties over time. In addition to acquiring new retail centres, Fortress will continue to expand and redevelop its existing retail portfolio to improve the tenant profile and to accommodate tenant demand. 5 ASSET MANAGEMENT The 2012 financial year was again characterised by aggressive asset management with the disposal of 16 properties (R465 million) and the acquisition of 12 properties (R942 million). As a result, the portfolio is well positioned to provide superior growth in the future. 5.1 DISPOSALS The following properties that were sold, transferred during the financial year: Property name Book value R’000 Sale price R’000 Exit yield Transfer date Taxi City East London 24 000 24 000 10,0% Aug 2011 Silver Creek Centre Centurion 15 750 15 750 11,9% Sep 2011 Bryanston Ridge Office Park (portion only) 7 750 7 750 7,7% Sep 2011 Shorthorn Street City Deep 22 100 22 100 10,0% Oct 2011 Elston Street Benoni 8 000 6 250 7,1% Oct 2011 Grader Road Spartan 8 500 12 250 * Nov 2011 People’s Place Queenstown 15 700 22 000 10,5% Nov 2011 Meadowdale Centre 58 000 64 500 9,5% Dec 2011 Bayside Centre Mossel Bay 26 800 26 800 10,2% Jan 2012 Top Road Industrial Park Anderbolt (portion only) 9 500 10 250 10,4% Feb 2012 10 Skeen Boulevard 18 000 19 000 * May 2012 Grand Central Shopping Centre 121 700 125 693 10,0% May 2012 21 Ashfield Avenue Springfield 11 000 12 500 * Jun 2012 Nquthu Plaza (50% interest) 61 140 68 351 9,4% Jun 2012 The Avenues Industrial Park Anderbolt 21 600 21 600 10,5% Jun 2012 City Centre Carltonville 6 000 6 250 11,9% Jun 2012 Total 435 540 465 044 *Vacant 5.2 ACQUISITIONS The following retail properties were acquired and transferred during the financial year: Property name GLA m2 Purchase price R’000 Yield Effective from Park Central Shopping Centre 8 613 154 000 10,2% Dec 2011 Mutsindo Mall and Capricorn Plaza 12 330 145 000 8,4% Dec 2011 Morone Shopping Centre 13 487 120 500 9,6% Dec 2011 Crossroads KwaMhlanga 10 708 90 000 11,6% Dec 2011 West Street Durban 6 202 83 500 8,5% Dec 2011 Venda Plaza 10 284 81 000 10,8% Dec 2011 Shoprite Port Shepstone 8 792 30 000 10,8% Dec 2011 Shoprite Kokstad 7 917 38 000 12,0% Sep 2011 Metropolitan Centre Lebowakgomo 5 514 28 000 10,7% Dec 2011 Evaton Plaza (remaining 50% interest) 28 720 120 341 9,4% May 2012 Game Paarl 4 010 29 610 11,1% Jun 2012 Paradise and Corner House 3 932 22 000 9,0% Jun 2012 Total 941 951 5.3 INVESTMENT PROPERTIES HELD FOR SALE Fortress has agreed to sell 2 Skeen Boulevard for R46,5 million and Sebokeng Plaza for R78,0 million. 5.4 ACQUISITIONS TRANSFERRED AFTER YEAR-END Property name GLA m² Purchase price R’000 Yield Shell and McDonalds 954 31 267 9,0% Boxer Centre Lephalale* 4 655 13 000 10,8% Fashion Corner Lephalale* 5 017 19 000 10,1% Relebogile Centre Lephalale* 3 395 12 000 11,2% Standard Bank Building Lephalale* 2 594 7 200 11,2% Shoprite Centre Lephalale* 6 908 22 000 10,9% Total 104 467 *51% undivided share 5.5 REDEVELOPMENTS Monument Centre Standerton   The redevelopment and expansion of the centre to accom- modate Legit, Totalsports, Exact, Studio 88, Sportscene and additional space for Edgars will be completed in November 2012. The project is anticipated to yield 9,5% on the budgeted cost of R41,2 million. Secunda centres Pick ‘n Pay Secunda was refurbished and extended. The Pick ‘n Pay lease was renewed for a period of five years and the tenant profile was further improved. The Checkers lease at Checkers Secunda was renewed for five years and the mall was refurbished. New leases were entered into with Truworths and The Scene (Foschini Group). The offices on the first floor of Secunda Village were refurbished. Evaton Plaza Fortress is planning to expand the centre by 7 884m2 , to enclose the mall and to introduce Game and Edgars. Negotiations are at an advanced stage to introduce all the major national clothing retailers which are currently not represented in the centre. As a result of the extension, the centre will have four anchors and become the dominant retail centre in the area. The extension is anticipated to yield 8% on the budgeted cost of R130 million. 6 VACANCIES The board is pleased to report a reduction in vacancies from 5,6% at 30 June 2011 to 5,1% at 30 June 2012. Positive rental reversions of 7,6% were achieved on leases renewed during the year. Of the current vacancies, 1,1% were the result of planned vacancies at the Secunda centres, Monument Centre and Evaton Plaza which are undergoing refurbishment and redevelopment. 7 LISTED EQUITIES As a hybrid fund Fortress also invests in listed property securities. Investments Number of units/ shares % of units/ shares in issue Carrying value R’000 Capital Property Fund 38 500 000 2,40% 380 765 New Europe Property Investments plc (“Nepi”) 15 000 000 11,96% 600 900 Resilient Property Income Fund Limited 5 678 053 2,02% 243 872 Total 1 225 537 8 FUNDING Fortress has established a R1 billion unsecured Domestic Medium Term Note (“DMTN”) programme and has obtained a rating of A- (long term) and A1- (short term) from Global Credit Rating Co. Fortress intends to raise 50% of its funding from the capital markets. R250 million of commercial paper was issued in June 2012, the proceeds of which were used to repay an expiring facility in July 2012. Fortress has reduced its average cost of funding from 10,20% at 30 June 2011 to 9,43% at 30 June 2012 by accessing cheaper funding from the capital markets and negotiating lower margins on the renewal of existing facilities. Gearing reduced to 19,4% from 24,8% at 30 June 2011, which is below the board’s target range of 30% to 35%. 9 PROSPECTS TheboardisconfidentthatFortresswillachievegrowthindistributionsofapproximately10%for the 2013 financial year. The growth is based on the assumptions that a stable macro-economic environment will prevail, no major corporate failures will occur and that tenants will be able to absorb the recovery of rising utility costs. Budgeted rental income was based on contractual escalations and market related renewals. This forecast has not been audited or reviewed by Fortress’ auditors. By order of the board Mark Stevens Wiko Serfontein Managing director Financial director Johannesburg 15 August 2012

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