85,47 cents. 965 cents. 993,89 cents 5,3% R2,21 billion 79,6% 82,5% R184 million 25,3% 10,6%

Transcription

1 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS for the year ended 30 June 2014

2 Distribution per share 85,47 cents from 77,25 cents up by 10,6% up by 25,3% Investment property income R271,8 million from R216,9 million As the costs of improving buildings environmental performance falls in line with the lower costs of technological innovations such as solar panels and efficient heating systems, so occupiers will demand these enhancements and be willing to pay a premium for them. Net asset value up by 15,4% 993,89 cents Share price 965 cents per share from 861,9 cents Vacancy 5,3% (2013: 5,6%) Portfolio value R2,21 billion up by 40,4% Net property income R184 million up by 18,8% Tenant retention (based on GLA) 82,5% Blue chip tenants 79,6%

3 Commentary INTRODUCTION This has been a busy and very positive year for the Fund. A number of fundamental changes have provided us with a solid platform from which to grow our asset base and deliver sustainable, superior earnings for our shareholders. The benefit to shareholders has already been evident during this financial year, with a marked increase in acquisition activity (40,4% growth compared with 9,9% to 30 June 2013). Despite strong growth, the Fund has retained its tight control of the assets and all acquisitions have enhanced the portfolio quality and the sustainability of its income. The purchase of the management company by a consortium comprising executive management, Angelique de Rauville, Chick Legh, Thys van Heerden and Gerard de Rauville and Investec has invigorated the Fund with the injection of considerable property skills and deal making ability. The underlying portfolio has proven to be an exceptionally stable platform and performed well. Going forward both the existing portfolio and our growth path will benefit from the expertise within the Texton Group. The executive team has grown considerably and we will continue to appoint highly experienced executives with property expertise to ensure we continue the Fund s focus on tight, hands-on management. On 7 August 2014 Texton successfully changed its name from Vunani Property Investment Fund Limited following the cession and assignment of the asset management agreement to Texton Property Investments Proprietary Limited with a corresponding change in the ISIN code from ZAE to ZAE The share code has changed from VPF to TEX effective 25 August The Johannesburg and Cape Town offices have been relocated to 54 Bompas Road, Dunkeld West, and 6th Floor, 33 Church Street, Cape Town, respectively. KEY PERFORMANCE INDICATORS A core discipline for the Fund is the tight management of our assets and monthly tracking of eleven primary indicators that flag the performance of our underlying assets. The last 12 months has been tough in the market, and nowhere more so than in the office sector. Despite a sluggish economy, we are pleased to report to shareholders that all our KPIs have improved. While the sector average vacancy is 11,3%, ours has improved to 5,3% on a total GLA of m 2, from 5,6% in June The Fund started the year with only two material leases expiring, amounting to 7,0% of our lettable area. We extended the Compensation Fund s lease to three years and SITA has also renewed their lease. The vacancy at Investment Place has continued to be an irritant; we are in negotiations with a number of tenants. We have filled other pockets of vacancies which have offset those at Investment Place, thereby reducing our overall vacancy rate. The average lease expiry is 3,96 years (2013: 4,75 years) with the average lease escalations at 8,6% (2013: 7,7%). Financial year 2015 will be a relatively quiet year for leasing activity, with 12,2% of leases due to expire. Negotiations are far advanced on 5,0% of the expiries and we are confident we will retain our tenants without rent reversions. Rent collection has improved to 98,0% excluding those referred to legal intervention. This is a remarkable statistic in what has been a prolonged tough environment. Of note is the fact that we have very little new arrear rentals and our arrears book is largely confined to managing the few long-term defaulters. The Fund s geographic profile, based on GLA and rental income, is still heavily weighted to Gauteng where 68,3% (2013: 58,7%) of our properties are located and 21,7% (2013: 28,4%) in the Western Cape. It is our intention to continue to acquire properties in economically strong nodes and over time, our geographical profile should mirror economic activity. Blue chip clients (listed, national and government tenants) contribute 79,8% (2013: 79,7%) of our revenue per month. Of our tenant base, on total revenue, national companies comprises 12,9% (2013: 18,3%) and government 38,9% (2013: 45,5%); listed and large entities rent 28,0% (2013: 15,9%). We have a 63%/37% split between single and multi-tenanted Texton Property Fund condensed consolidated financial statements 2014 I 1

4 Commentary continued buildings based on rental income per month. The vast majority of our tenants are in the commercial sector, at 92,9% (2013: 90,8%) by GLA and 95,0% (2013: 93,5%) by rental income. GREENING THE PORTFOLIO An aspect of our tenant retention strategy has involved the Fund in evolving into a specialist in refurbishments and green projects. Experience has proved that renovations result in higher property valuations and a more stable tenant profile as well as increasing distributions. Experience has also taught us that much of the savings punted at feasibility stage do not materialise. Management has taken time to understand this industry and this will ensure that capital expenditure will deliver enhanced returns to shareholders. The project to green the Foretrust building, located in the fast-developing node of the Cape Town foreshore, has been modelled on the successful 14 Loop Street environmental refurbishment we completed in late The feasibility stage is complete, with costs and savings now well defined. The project will be a joint effort between the Fund, Department of Public Works, Eskom and City of Cape Town. Capital expenditure is estimated to be around R23 million, and will be yield accretionary. We anticipate that we will reduce power and water consumption by over 50,0%. Our other green project is ACS House where we have had positive support from the tenants for the harvesting of spring and rain water. The payback on the capital expenditure will be four years and has resulted in savings of 70,0% in water consumption. The significant savings achieved indicate that the application of green principles in all refurbishments will sustain the growth of the Fund over the long term. We continue to assess all the buildings in our portfolio and will schedule green refurbishments provided they deliver enhanced returns to our shareholders and tenants. ACQUISITIONS When we listed the Fund in 2011 our main aim was to provide a platform for acquisitive growth so that we can grow our asset base by investing in well priced income and quality enhancing investment properties specifically in the commercial sector, to optimise returns for our shareholders. During the past financial year, we observed a closing of the gap between seller s asking prices and our understanding of value. Consequently, we acquired four excellent properties valued at R598,5 million in total (acquired for R544,4 million refer to note relating to acquisitions/business combinations for details of the acquisitions). We have another R379,6 million of assets in the process of being transferred into the Fund. BEE TRANSACTION The management and board of the Fund continue to be committed to the transformation and empowerment objectives of South Africa and have expended considerable effort in addressing our objective of having a meaningful, sustainable and commercially driven black economic empowerment shareholding at the listed level. Notably, the Fund scores very highly in all aspects of its operations except that of equity ownership. A sub-committee was appointed by the board to consider and propose both a suitable BBBEE structure and participants. The imminent transfer of the PD Naidoo portfolio will result in 6,2% of Texton shares being owned by black empowered individuals/entities and will ensure that the Fund achieves at least a Level 3 rating. Approximately 11,1 million shares will be issued for the settlement of the Scott Street property (refer events after the reporting date). An additional, circa 20% BBBEE Shareholder deal is at an advanced stage and we anticipate the deal being concluded by the end of the calendar year. EQUITY RAISED On 23 August 2013, Texton successfully concluded its rights offer and issued new shares (40,2%), raising R455 million. The proceeds were used to settle the acquisition price of the Greenstone Hill Office Park properties and to settle existing variable debt of R180 million. The shares were issued at a 4% discount to the closing clean price of Texton s shares on the JSE on 4 July I Texton Property Fund condensed consolidated financial statements 2014

5 Summary of financial performance Reviewed year to 30 June 2014 Audited year to 30 June 2013 Net asset value per share (cents) # 993,89 375,17 Net asset value per linked unit (cents) 861,86 Net tangible asset value less deferred tax per share (cents)^ 991,55 371,37 Net tangible asset value less deferred tax per linked unit (cents) 858,05 Distribution per share/linked unit (cents) 85,47 77,25 Interim distribution 40,00 38,00 Final distribution 39,25 Final dividend* 45,47 Share price (cents) 965, ,00 Loan to value (%) 31,6 31,3 # The calculation of net asset value per share was based on shareholders interest of R1 592,316 million (2013: R million), and shares in issue (excluding treasury shares) of (2013: ). ^ The calculation of tangible net asset value per share was based on shareholders interest less deferred tax of R1 588,561 million (2013: R million), and shares in issue (excluding treasury shares) of (2013: ). * Declared subsequent to year end. Texton Property Fund condensed consolidated financial statements 2014 I 3

6 Commentary continued GEOGRAPHICAL PROFILE GLA m 2 GLA percentage % Revenue per month R 000 Revenue percentage % 30 June 2014 Eastern Cape Province , ,1 Gauteng Province , ,9 KwaZulu-Natal Province , ,6 North West Province , ,1 Northern Cape Province ,6 98 0,5 Western Cape Province , , , ,0 30 June 2013 Eastern Cape Province , ,5 Gauteng Province , ,9 KwaZulu-Natal Province , ,2 North West Province , ,2 Northern Cape Province ,8 91 0,6 Western Cape Province , , , ,0 Geographical GLA (%) Geographical Revenue (%) Eastern Gauteng KwaZulu- North West Northern Western Cape Natal Province Cape Cape Eastern Gauteng KwaZulu- North West Northern Western Cape Natal Province Cape Cape I Texton Property Fund condensed consolidated financial statements 2014

7 SECTORAL PROFILE GLA m 2 GLA percentage % Revenue per month R 000 Revenue percentage % 30 June 2014 Commercial , ,0 Retail , ,8 Industrial , , , ,0 30 June 2013 Commercial , ,5 Retail , ,2 Industrial , , , ,0 Sectoral GLA (%) 100 Sectoral Revenue (%) Commercial Retail Industrial Commercial Retail Industrial Texton Property Fund condensed consolidated financial statements 2014 I 5

8 Commentary continued TENANT SPREAD Rentable area m 2 Rentable area % Revenue per month R 000 Revenue percentage % 30 June 2014 (A) National , ,9 (A) Government , ,9 (B) Listed/Large entities , ,0 (C) Other , , , ,0 30 June 2013 (A) National , ,3 (A) Government , ,5 (B) Listed/Large entities , ,9 (C) Other , , , ,0 Tenants are classified as follows: (A) (B) (c) Large national tenants, large listed tenants, government and major franchises; National tenants, listed tenants, franchises and medium to large professional firms; and Other. Tenant spread Rentable area (%) Tenant spread Revenue (%) National Government Listed/large Other Blue entities chip National Government Listed/large Other Blue entities chip I Texton Property Fund condensed consolidated financial statements 2014

9 VACANCY PROFILE 30 June June 2013 Rentable area m 2 Rentable area % Rentable area m 2 Rentable area % Commercial , ,7 Retail 230 2, ,3 Industrial , ,0 Vacancy by rentable area (%) Vacancy by rentable area as % of total GLA Commercial Retail Industrial Commercial Retail Industrial Texton Property Fund condensed consolidated financial statements 2014 I 7

10 Commentary continued Lease expiry profile per annum Vacant > June 2014 Rentable area % 5,3 12,2 31,9 18,5 32,1 Revenue % 12,4 31,9 18,4 37,3 Vacant > June 2013 Rentable area % 5,6 17,0 29,5 10,5 37,4 Revenue % 19,5 29,8 11,4 39,3 At 30 June 2014 the property portfolio reported a vacancy level of 5,3% (2013: 5,6%). Lease expiry profile per annum by rentable area (%) Lease expiry profile per annum by revenue (%) Vacant > Vacant > Total GLA m 2 Vacant 30 June 2014 % Total GLA m 2 Vacant 30 June 2013 % Commercial , ,4 Retail , ,2 Industrial Total , ,6 The abovementioned vacancy includes a vacancy that was acquired at Foretrust, which was not paid for. The weighted average lease escalation is 8,6% (2013: 7,7%) for the portfolio. 8 I Texton Property Fund condensed consolidated financial statements 2014

11 Reconciliation of change in GLA of the Fund Total GLA at 30 June 2013 m 2 Net increase in GLA m 2 Total GLA 30 June 2014 m 2 Commercial Retail Industrial Total EQUITY RAISED On 26 August 2013, following the successful rights offer, new linked units (before the conversion to stated capital) were issued with a face value of 250 cents each at a subscription price of 987,33 cents per share, in the ratio of 40,21283 rights offer units for every 100 units held. The subscription price of 987,33 cents per rights offer unit comprised a clean price of 938,07 cents determined as at 4 July 2013 being the day before the declaration announcement and total pre-paid distributions of 49,26 cents. The clean price of 938,07 cents per rights offer unit represented a 7% discount to the 30-day volume weighted average clean price of shares listed on the JSE at the close of business on Thursday, 4 July 2013 being the last business day prior to the release of the declaration data announcement; and 4% discount to the closing clean price of shares on the JSE on Thursday, 4 July The proceeds were used to acquire 10 buildings in Greenstone Hill Office Park and settle floating debt to the extent of R180 million. SUCCESSFUL CONVERSION TO A REAL ESTATE INVESTMENT TRUST (REIT) On 1 July 2013, Texton converted from a Property Loan Stock company to a Real Estate Investment Trust (REIT), which status was granted by the JSE in accordance with the REIT provisions contained in section 13 of the JSE Listings Requirements, as amended. The company s ISIN code, with effect from 1 July 2013, was: ZAE (formerly ISIN: ZAE ). Texton s listing on the JSE has been moved to Financial Services Real Estate Investment Trusts. As part of the REIT conversion, the company converted its share capital structure to an all-equity capital structure, aligned with international REIT capital structures. Investment property comprises land and buildings held to generate rental income over the long term. Capital profit on the sale of investment property will no longer be subject to capital gains taxation under the new REIT legislation. At a general meeting held on 16 January 2014, Texton s shareholders approved the delinking of Texton s debentures from its ordinary shares, the conversion of the ordinary shares of 250 cents each to shares of no par value. As at 30 June 2014, Texton s issued share capital comprised ordinary shares of no par value. As a result of the change in capital structure, the non-distributable reserves were transferred to retained earning. BASIS OF PRESENTATION These condensed consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports and the requirements of the Companies Act of South Africa. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Texton Property Fund condensed consolidated financial statements 2014 I 9

12 Commentary continued Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the condensed consolidated financial statements are in terms of IFRS and are consistent with those applied in the previous consolidated annual financial statements except for the adoption of new standards which became effective on 1 July The adoption of new standards and interpretations has had no material effect on the results for the period nor has it required the restatement of any prior year figures. The condensed consolidated financial statements information has been presented on the historical cost basis, except for financial instruments and investment properties carried at fair value, and are presented in Rand thousands which is Texton s functional and presentation currency. Ms M de Lange (CA (SA)), Texton s Financial Director, was responsible for the preparation of these condensed consolidated financial statements. The annual financial statements will not be issued at the same time as this announcement. AUDIT REVIEW The group s auditors KPMG Inc. have reviewed these condensed consolidated financial statements for the year ended 30 June The review was conducted in accordance with ISRE 2410: Review of interim financial information performed by the independent auditor of the entity. A copy of their unmodified review report dated 22 August 2014 is available for inspection at the company s registered office. NET PROPERTY INCOME The increase in investment property income (25,3%) from the prior year was largely due to the effects of contractual rental escalations and the property acquisitions made. Investment property income consists of rental income of R215,1 million (2013: R171,2 million) and recoveries of utilities from tenants of R56,7 million (2013: R45,7 million). The ratio of net property expenses (property expenses less recoveries) to rental income for the group has improved from 17,1% to 15,3% in the current year as a result of tight cost management. The ratio of gross property expenses to investment property income (rental income including recoveries from tenants) has also improved from 34,6% to 33,0%. ASSET MANAGEMENT FEES The asset management function is performed by Texton Property Investments Proprietary Limited after successful cession and assignment of the asset management agreement from Vunani Property Asset Management Proprietary Limited and the day-today property management function is performed by JHI Properties Proprietary Limited. The increase is attributable to the increased enterprise value on which the fee is calculated as a result of the property acquisitions. FAIR VALUE ADJUSTMENTS The revaluation of properties resulted in a positive upward revaluation of R110,7 million for investment property (including investment properties reclassified as held for sale). This was due to a decrease in the discount rate applied to the valuation as a result of a decrease in the risk free rate, based on the 10-year long bond rate, a revision of market cap rates, as well as increased future contractual rentals. Swap agreements were fair valued using the yield curve at 30 June 2014, resulting in a decrease in the overall swap liability of R4,3 million (74,2%). ARREARS Tight management of receivables resulted in total arrears decreasing significantly to R1,59 million (30 June 2013: R3,9 million). Arrears are being managed carefully. CAPITAL ITEMS Capital items represents the costs incurred on unsuccessful acquisitions. 10 I Texton Property Fund condensed consolidated financial statements 2014

13 ACQUISITIONS/BUSINESS COMBINATIONS During the period the Fund made the following acquisitions: Transfer date Acquisition cost R 000 GLA m 2 Acquisition yield % Weighted average annual escalation Greenstone Hill Office Park 1 Aug 2013 and 30 Oct ,8 7,0 Wellington Road Parktown 17 Mar ,5 8,0 Bryanston Gate Bryanston 1 Apr ,8 7, It is the Fund s stated intention to grow with yield-enhancing quality assets. As a result, Greenstone Hill Office Park Proprietary Limited, Wellington Road and Bryanston Gate was acquired. Greenstone Hill Office Park consists of 15 buildings, of which the Fund acquired 10, in the sectional title schemes known as Greenstone Hill Office Park, situated at Erf 1841 Greenstone Hill Extension 22 Township, Gauteng and occupied 83% by national and listed tenants with an average lease expiry of 4,2 years. Wellington Road is occupied by Transnet and the major tenants occupying Bryanston Gate are Primary Asset Management (3 518m²) to 31 August 2016, Nampak Products Limited (2 202m²) to 29 February 2016 and City Lodge Hotels (1 397m²) to 31 December Net assets acquired R 000 Total Investment property Trade and other receivables 365 Income tax receivable 105 Cash and cash equivalents 323 Other financial liabilities Trade and other payables ( ) (1 610) Net assets acquired Cost of investment Settlement of cost of investment Less: Cash acquired Cash paid After tax profits since acquisition Full year after tax profits (323) Texton Property Fund condensed consolidated financial statements 2014 I 11

14 Commentary continued INVESTMENT PROPERTY RECLASSIFIED AS HELD FOR SALE On 30 June 2014, the Brickfield property, valued at R24 million, was classified as held for sale. The transfer is expected to take place on 30 September The Fund entered into a sale agreement for Brickfield in order to realise a risk free profit equivalent to the anticipated profit from the proposed redevelopment. BORROWINGS At 30 June 2014 the Fund had a loan to value of 31,6% (2013: 31,3%). The calculation of loan to value was based on other financial liabilities (excluding the fair value of the interest rate swaps) of R695,9 million (2013: R489,9 million) and the value of investment property of R2 202,5 million (2013: R1 567,7 million). The Fund remains capitalised to take advantage of yield-enhancing acquisitions. The fund has an average cost of debt of 8,27% (2013: 7,65%) with 49,2% (2013: 66,6%) of the outstanding debt hedged through the use of interest rate swaps. On 17 July 2014 the Fund hedged (via a swap) an additional R200 million at 7,12% (base rate) for three years (17 July 2017). R 000 Reviewed 30 June 2014 Audited 30 June 2013 Measured at amortised cost Standard Bank Limited loan Finance costs capitalised to loan 530 Amortisation of finance costs (221) Measured at fair value through profit or loss Standard Bank Limited Interest rate swap Interest rate swap Interest rate swap Less: Amounts to be settled within 12 months and included in current liabilities # ( ) ( ) Amounts to be settled within 12 months and included in current liabilities Less: Redraw portion of facility* (25 223) (43 400) # On 1 August 2014, the current portion of the facilities was extended for a further three years. * Excess cash is paid into the facilities on a monthly basis and when required for the payment of the distribution or dividend, the cash can be accessed, without penalty, from the facility. 12 I Texton Property Fund condensed consolidated financial statements 2014

15 SHARE AND DEBENTURE CAPITAL At 30 June 2013, the authorised share capital was two billion ordinary shares of R0,0025 each. Each ordinary share was linked to one unsecured variable rate debenture of R2,4975. The ordinary shares and debentures traded as linked units on the JSE. In terms of the debenture trust deed, the interest payable on the debenture was calculated in accordance with the distributable income formula which was distributed 100% annually. During the period new linked units were issued in terms of a rights offer. On 16 January 2014 unitholders of the company approved the delinking of the linked units, the termination of the debenture tust deed, the termination of the debentures and the capitalisation of the value of the debentures in the accounts of the Fund to form part of Texton s stated capital as well as the conversion of the company s ordinary par value shares into ordinary shares with no par value, which took effect on Monday, 17 February The company further adopted a new Memorandum of Incorporation (MOI) which entrenches the relevant REIT provisions. CHANGE IN DIRECTORS AND BOARD SUB-COMMITTEES Messrs EG Dube, RR Emslie, CE Chimombe- Munyoro and PW Mackenzie resigned from the board of directors on 28 February As a result of the resignations and the cession and assignment of the asset management agreement, Messrs AN Du Hecquet de Rauville, JA Legh and MJ van Heerden were appointed on 1 March 2014 and NV Balfour and TS Sishuba on 30 June The following changes were made to the board committees resulting from the resignations and appointments: Mr JR Macey resigned as the chairperson, however remained as a member of the investment committee and was appointed as the chairperson to the audit and risk committee. Ms NV Balfour was appointed to the social and ethics committee. Ms AN Du Hecquet de Rauville was appointed as member of the investment and remuneration and nomination committees. Mr JA Legh was appointed to the investment committee. Mr MJ van Heerden was appointed as chairperson to the investment committee. Ms PM Tau-Sekati has resigned from the investment committee, was appointed on a temporary basis to the audit and risk committee and resigned upon the appointment of Mr TS Sishuba as member to the audit and risk committee and appointed as chairperson to the social and ethics committee. EVENTS AFTER THE REPORTING DATE On 3 July 2014, the shareholders of the Fund voted in favour of the acquisition of the PD Naidoo properties. The acquisition comprises a building in Scott Street, Waverley and sectional title sections in St George s Mall, Cape Town and on 24 July 2014, the Selby Property was successfully transferred to the Fund. The Fund further entered into sale of rental enterprise agreements for the acquisition of the Edcon building in Johannesburg and the Quintiles building in Bloemfontein. Transfer is expected to take place on 31 October 2014 and 30 September 2014 respectively. The details of the acquisitions are as follows: Texton Property Fund condensed consolidated financial statements 2014 I 13

16 Commentary continued Edcon, Johannesburg Quintiles, Bloemfontein Scott Street, Waverley Description of property Erven 28, 29, 30, 31, 32 and 33 New Centre. Measuring 932m², 932m², 915m², 915m², 915m² and 915m² respectively, situated at 12 Laub Street, New Centre, Johannesburg Purchase price R Payment method Shares Region Gauteng Sector Commercial Vacancy Nil Tenant Edcon 8,8 year triple net lease Gross lettable area (GLA) m² Annualised property yield 9,9% Description of property Portion 121 Erf 13021, Bloemfontein extension 77 Purchase price R Payment method Cash Region Bloemfontein Sector Commercial Vacancy Nil Tenant Quintiles Clindepharm 5 year triple net lease Gross lettable area (GLA) 3 404m² Annualised property yield 9,6% Description of property Portion 22 of Erf 13 Waverley Purchase price R Payment method Transfer of the Treasury Shares at R9,65 (R86 million) and the allotment and issue of shares to the value of R for the balance of the purchase price Region Gauteng Sector Commercial Vacancy Nil Tenant Mott MacDonald PDNA 3,5 year triple net lease Gross lettable area (GLA) 4 329m 2 Annualised property yield 9,5% 14 I Texton Property Fund condensed consolidated financial statements 2014

17 Selby Property St George s Mall, Cape Town Description of property Erf 544 Selby Extension 22, Erf 545 Selby Extension 22, Portion 1 of Erf 19 Crown City Extension 6 and Erf 20 Crown City Extension 6 Purchase price R Payment method Cash Region Gauteng Sector Industrial and commercial Vacancy Nil Tenant Toolquip and Allied 7 year triple net lease Gross lettable area (GLA) m 2 Annualised property yield 9,0% Description of property Sections 13, 50. Exclusive use areas 322, 323, 324, 325, 326, 327, 567, 568, 569, 576, 577 and 578 and an undivided share in the common property apportioned to the above sections and six single undercover parking bays and three tandem undercover parking bays in sectional title scheme numbered SS2134/2006 and SS267/2008 known as 5 St George s Mall, Cape Town Purchase price R Payment method Cash Region Western Cape Sector Commercial Vacancy Nil Tenant Mott MacDonald PDNA 3,5 year triple net lease Gross lettable area (GLA) 1 242m 2 Annualised property yield 10,5% Texton Property Fund condensed consolidated financial statements 2014 I 15

18 Commentary continued PROSPECTS The Fund has performed well since inception in The portfolio size, quality and income has grown consistently. The Fund listed three years ago and its distributions to shareholders has always been in the upper quartile. Despite the difficult economic climate, the portfolio has again performed well over the past year and the board anticipates the Fund remaining in the upper quartile for the next financial year. We will continue to focus on our strategy of growing the Fund with yield enhancing assets without compromising on quality. Importantly, the new management structure has enabled the executive team to grow materially. The effect of this can be seen in the solid performance of the portfolio and the significant increase in acquisitions. In addition, the management team now has greatly increased property skills, and deal making ability. The pipeline is stronger than it has been since inception. It is common knowledge that the office sector is struggling so some diversification of risk is prudent. We are seeing selected opportunities in the industrial and retail sectors that will enhance our offering to shareholders. The board is also applying itself to opportunities outside of South Africa. As with any acquisition, a clear, well defined and thought out strategy is mandatory. The board will not move offshore unless it is fully confident that we have the necessary skills and deep market knowledge. Fortunately, management has significant experience in markets outside of South Africa and this knowledge will deliver improved dividends and risk diversification has been a cornerstone year for the Fund in terms of creating a solid platform and skill base with which to grow. Management is confident that this next reporting period will be an exciting phase for the Fund and our shareholders will enjoy above market earnings growth coupled with solid capital appreciation. This prospects statement has not been reviewed or reported on by the Fund s independent external auditors. CASH DISTRIBUTION The board has approved and notice is hereby given of a final distribution (distribution number 6) of 45,47 cents per share for the year ended 30 June The source of the distribution comprises net income from property rentals and interest earned on cash on deposit. Please refer to the consolidated statement of comprehensive income for further details. In accordance with Texton s status as a REIT, shareholders are advised that the distribution 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). Accordingly, qualifying distributions received by local tax residents must be included in the gross income of such shareholders (as a non-exempt dividend in terms of section 10(1)(k)(aa) of the Income Tax Act), with the effect that the qualifying distribution is taxable as income in the hands of the shareholder. These qualifying distributions are, however, exempt from dividend withholding tax in the hands of South African tax resident shareholders, subject to provision of the required declarations to the shareholders Central Securities Depository Participant (CSDP) or broker, as the case may be, in respect of uncertificated shares, or the company, in respect of certificated shares. Qualifying distributions received by non-resident shareholders will not be taxable as income and instead will be treated as ordinary dividends but which are exempt in terms of the usual dividend exemptions per section 10(1)(k) of the Income Tax Act. It should be noted that until 30 June 2014 qualifying distributions received by non-residents were not subject to dividend withholding tax. From 1 January 2014, any qualifying distribution received by a non-resident from a REIT will be subject to dividend withholding tax at 15,0%, unless the rate is reduced in terms of any applicable agreement for the avoidance of double taxation between South Africa and the country of residence of the shareholder. Assuming dividend withholding tax will be withheld at a rate of 15,0%, the net amount due to non-resident shareholders will be 38,64950 cents per share. 16 I Texton Property Fund condensed consolidated financial statements 2014

19 Local tax resident shareholders as well as nonresident shareholders are encouraged to consult their professional advisors should they be in any doubt as to the appropriate action to take. Texton s shares in issue at the date of these results are and tax reference number is Summary of the salient dates relating to the cash distribution are as follows: Declaration date Last date to trade in order to participate in the cash distribution Shares to trade ex-distribution Record date Payment date Monday, 25 August 2014 Friday, 12 September 2014 Monday, 15 September 2014 Friday, 19 September 2014 Monday, 22 September 2014 Shares may not be dematerialised or rematerialised between Monday, 15 September 2014 and Friday, 19 September 2014, both dates inclusive. On behalf of the board PD Naidoo Chairman RF Kane Chief executive officer 22 August 2014 Texton Property Fund condensed consolidated financial statements 2014 I 17

20 Consolidated statement of financial position as at 30 June R 000 Reviewed 2014 Audited 2013 ASSETS Non-current assets Investment property Property, plant and equipment Other non-current assets Deferred tax Current assets Trade and other receivables Investment property reclassified as held for sale Income tax receivable Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity Ordinary share capital 301 Stated capital Retained earnings/(accumulated loss) (46 061) Non-distributable reserves Debentures Shareholders interest Other liabilities Other non-current liabilities Other financial liabilities Current liabilities Current portion of other financial liabilities Trade and other payables Total liabilities Total equity and liabilities Shares/linked units in issue ( 000) Net asset value per share (cents) 993,89 375,17 Net asset value per linked unit (cents) 861,86 Net tangible asset value less deferred tax per share (cents) 991,55 371,37 Net tangible asset value less deferred tax per linked unit (cents) 858,05 18 I Texton Property Fund condensed consolidated financial statements 2014

21 Consolidated statement of comprehensive income for the year ended 30 June R 000 Reviewed 2014 Audited 2013 Investment property income Straight-line rental adjustment Revenue Property expenses (89 571) (74 948) Net property income Other income Other operating expenses (4 689) (3 169) Asset management fees (9 588) (8 120) Operating profit Finance income Finance costs (41 421) (40 821) Fair value adjustments Capital items (9) Profit before debenture interest and income tax Debenture interest (64 022) (93 174) Profit before amortisation of debenture premium Amortisation of debenture premium Profit before income tax Income tax (370) Profit for the period Total comprehensive income for the year Basic and diluted earnings per share (cents) 123,60 120,49 Comparable basic and diluted earnings per share/linked unit (cents) 162,88 196,17 Distribution per share/linked unit (cents) 85,47 77,25 Interim distribution 40,00 38,00 Final distribution 39,25 Final dividend* 45,47 * Declared subsequent to year end. Texton Property Fund condensed consolidated financial statements 2014 I 19

22 Consolidated statement of changes in equity for the year ended 30 June R 000 Ordinary share capital Stated capital Nondistributable reserve (Accumulated loss)/ Retained earnings Total Balance at 30 June (56 500) Transactions with owners of the company recognised directly in equity Transfer to non-distributable reserve ( ) Total comprehensive income for the year Profit for the year Balance at 30 June (46 061) Transactions with owners of the company recognised directly in equity Issue of shares Treasury shares acquired (86 060) (86 060) Transfer from nondistributable reserve ( ) Conversion of debentures to shares (422) Total comprehensive income for the year Profit for the year Balance at 30 June I Texton Property Fund condensed consolidated financial statements 2014

23 Consolidated statement of cash flows for the year ended 30 June R 000 Reviewed 2014 Audited 2013 Cash flows from operating activities Cash generated/(utilised) by operations Finance income received Finance costs paid (41 200) (40 821) Debenture interest paid ( ) (86 810) Income tax paid (336) (262) Net cash (outflow)/inflow from operating activities (22 105) Net cash outflow from investing activities ( ) (93 361) Net cash inflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Texton Property Fund condensed consolidated financial statements 2014 I 21

24 Segmental analysis The group has six reportable segments based on the geographic split of the country. Each segment is further split into its various sectors. This has changed from the prior year to enable a more comprehensive analysis of the strategic business components. GAUTENG R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2014 Investment property income (excluding straightline rental adjustment) Property expenses (62 118) (2 374) (64 492) Segment results Extracts from the statement of financial position as at 30 June 2014 Investment property Opening balance Additions through business combinations Other additions Straight-line rental adjustment Cumulative fair value adjustments Investment property reclassified as held for sale Closing balance I Texton Property Fund condensed consolidated financial statements 2014

25 WESTERN CAPE R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2014 Investment property income (excluding straightline rental adjustment) Property expenses (18 159) (630) (915) (19 704) Segment results Extracts from the statement of financial position as at 30 June 2014 Investment property Opening balance Additions through business combinations Other additions Straight-line rental adjustment (4) Cumulative fair value adjustments Investment property reclassified as held for sale (24 000) (24 000) Closing balance NORTH WEST R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2014 Investment property income (excluding straightline rental adjustment) Property expenses (1 534) (1 534) Segment results Extracts from the statement of financial position as at 30 June 2014 Investment property Opening balance Other additions Straight-line rental adjustment Cumulative fair value adjustments Closing balance Texton Property Fund condensed consolidated financial statements 2014 I 23

26 Segmental analysis continued EASTERN CAPE R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2014 Investment property income (excluding straightline rental adjustment) Property expenses (1 918) (985) (2 903) Segment results Extracts from the statement of financial position as at 30 June 2014 Investment property Opening balance Other additions 6 6 Straight-line rental adjustment (133) Cumulative fair value adjustments Closing balance KWAZULU-NATAL R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2014 Investment property income (excluding straightline rental adjustment) Property expenses (661) (76) (737) Segment results Extracts from the statement of financial position as at 30 June 2014 Investment property Opening balance Other additions Straight-line rental adjustment (93) (14) (107) Cumulative fair value adjustments Closing balance I Texton Property Fund condensed consolidated financial statements 2014

27 NORTHERN CAPE R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2014 Investment property income (excluding straightline rental adjustment) Property expenses (201) (201) Segment results Extracts from the statement of financial position as at 30 June 2014 Investment property Opening balance Other additions Straight-line rental adjustment 8 8 Cumulative fair value adjustments Closing balance TOTAL PORTFOLIO R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2014 Investment property income (excluding straightline rental adjustment) Property expenses (84 591) (4 065) (915) (89 571) Segment results Extracts from the statement of financial position as at 30 June 2014 Investment property Opening balance Additions through business combinations Other additions Straight-line rental adjustment Cumulative fair value adjustments Investment property reclassified as held for sale (24 000) (24 000) Closing balance Texton Property Fund condensed consolidated financial statements 2014 I 25

28 Segmental analysis continued R 000 Total 2014 Reconciliation from segment results to profit for the period Segment results Straight-line rental adjustment Other income Other operating expenses (4 689) Asset management fees (9 588) Finance income Finance costs (41 421) Fair value adjustments Capital items (9) Debenture interest (64 022) Amortisation of debenture premium Income tax (370) Profit for the period GAUTENG R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2013 Investment property income (excluding straightline rental adjustment) Property expenses (49 054) (2 726) (51 780) Segment results Extracts from the statement of financial position as at 30 June 2013 Investment property Opening balance Additions through business combinations Other additions Straight-line rental adjustment Cumulative fair value adjustments Closing balance I Texton Property Fund condensed consolidated financial statements 2014

29 WESTERN CAPE R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2013 Investment property income (excluding straightline rental adjustment) Property expenses (15 772) (521) (1 326) (17 619) Segment results Extracts from the statement of financial position as at 30 June 2013 Investment property Opening balance Additions through business combinations Other additions Straight-line rental adjustment Cumulative fair value adjustments (7 499) (228) (4 406) Closing balance NORTH WEST R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2013 Investment property income (excluding straightline rental adjustment) Property expenses (1 496) (1 496) Segment results Extracts from the statement of financial position as at 30 June 2013 Investment property Opening balance Other additions Straight-line rental adjustment Cumulative fair value adjustments Closing balance Texton Property Fund condensed consolidated financial statements 2014 I 27

30 Segmental analysis continued EASTERN CAPE R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2013 Investment property income (excluding straightline rental adjustment) Property expenses (1 707) (1 093) (2 800) Segment results Extracts from the statement of financial position as at 30 June 2013 Investment property Opening balance Other additions Straight-line rental adjustment (7) Cumulative fair value adjustments Closing balance KWAZULU-NATAL R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2013 Investment property income (excluding straightline rental adjustment) Property expenses (965) (79) (1 044) Segment results Extracts from the statement of financial position as at 30 June 2013 Investment property Opening balance Other additions Straight-line rental adjustment Cumulative fair value adjustments (346) (346) Closing balance I Texton Property Fund condensed consolidated financial statements 2014

31 NORTHERN CAPE R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2013 Investment property income (excluding straightline rental adjustment) Property expenses (209) (209) Segment results Extracts from the statement of financial position as at 30 June 2013 Investment property Opening balance Other additions Straight-line rental adjustment Cumulative fair value adjustments Closing balance TOTAL PORTFOLIO R 000 Commercial Retail Industrial Total Extracts from the statement of comprehensive income 30 June 2013 Investment property income (excluding straightline rental adjustment) Property expenses (69 203) (4 419) (1 326) (74 948) Segment results Extracts from the statement of financial position as at 30 June 2013 Investment property Opening balance Additions through business combinations Other additions Straight-line rental adjustment Cumulative fair value adjustments Closing balance Texton Property Fund condensed consolidated financial statements 2014 I 29

32 Segmental analysis continued R 000 Total 2013 Reconciliation from segment results to profit for the period Segment results Straight-line rental adjustment Other income Other operating expenses (3 169) Asset management fees (8 120) Finance income Finance costs (40 821) Fair value adjustments Debenture interest (93 174) Amortisation of debenture premium Income tax Profit for the period I Texton Property Fund condensed consolidated financial statements 2014

33 Basic, diluted, headline, comparable basic and comparable headline earnings and distribution per share for the year ended 30 June Cents Reviewed 30 June 2014 Audited 30 June 2013 Basic earnings per share 123,60 120,49 Comparable basic earnings per share/linked unit* 162,88 196,17 Headline earnings per share 53,28 21,76 Comparable headline earnings per share/linked unit* 92,56 97,44 Distribution per share 85,47 77,25 * Comparable basic earnings per share/linked unit and comparable headline earnings per share/linked unit have been included to enable shareholders to compare the current year figures to those previously reported which related to linked units. BASIC EARNINGS PER SHARE The calculation of basic earnings per share was based on the comparable earnings attributable to shareholders of R194,657 million (2013: R145,334 million), and a weighted average number of shares outstanding of (2013: ). COMPARABLE BASIC EARNINGS PER SHARE/LINKED UNIT The calculation of comparable basic earnings per share/linked unit was based on the comparable earnings attributable to shareholders/linked unitholders of R256,520 million (2013: R236,619 million), and a weighted average number of shares outstanding of (2013: ). HEADLINE EARNINGS PER SHARE The calculation of headline earnings per share was based on headline earnings attributable to shareholders of R83,914 million (2013: R26,247 million), and a weighted average number of shares outstanding of (2013: ). Texton Property Fund condensed consolidated financial statements 2014 I 31

34 Basic, diluted, headline, comparable basic and comparable headline earnings and distribution per share continued for the year ended 30 June COMPARABLE HEADLINE EARNINGS PER SHARE/LINKED UNIT The calculation of comparable headline earnings per share/linked unit was based on comparable headline earnings attributable to shareholders/linked unitholders of R145,777 million (2013: R117,532 million), and a weighted average number of shares outstanding of (2013: ). DILUTED BASIC EARNINGS AND DILUTED HEADLINE EARNINGS PER SHARE There were no dilutive instruments in issue at year end. DISTRIBUTION PER SHARE The calculation of distribution per share was based on the distributable earnings attributable to shareholders of R144,541 million (2013: R93,174 million), and an issued number of shares outstanding of (2013: ). At year end the shares reflecting as treasury shares are not cancelled as they were repurchased by the controlled trust, Vunani Property Investment Trust. The distribution per share/linked unit is calculated with reference to the actual shares in issue at year end being WEIGHTED AVERAGE NUMBER OF SHARES 000 Reviewed 30 June 2014 Audited 30 June 2013 Issued at the beginning of the year Issued during the year Treasury shares (8 912) Shares in issue at the end of the year Weighted average number of shares in issue for the year * On 15 January 2014, Vunani Property Investment Trust (a controlled trust) purchase shares in the Fund at R9,65 per share as part of a repurchase plan. 32 I Texton Property Fund condensed consolidated financial statements 2014

35 EARNINGS R 000 Reviewed 30 June 2014 Audited 30 June 2013 Earnings attributable to shareholders: Adjust for: Debenture interest Amortisation of debenture interest (2 159) (1 889) Comparable earnings attributable to shareholders/linked unitholders HEADLINE EARNINGS R 000 Reviewed 30 June 2014 Audited 30 June 2013 Profit attributable to shareholders Adjust for: Profit on sale of subsidiaries (1 927) Gross revaluation of investment property ( ) (36 320) Deferred taxation on revaluation of investment property (80 840) Headline earnings attributable to shareholders Adjust for: Debenture interest Amortisation of debenture interest (2 159) (1 889) Comparable headline earnings attributable to shareholders/linked unitholders Texton Property Fund condensed consolidated financial statements 2014 I 33

36 Basic, diluted, headline, comparable basic and comparable headline earnings and distribution per share continued for the year ended 30 June DISTRIBUTABLE EARNINGS R 000 Reviewed 30 June 2014 Audited 30 June 2013 Revenue Property expenses (89 571) (74 948) Other income Other operating expenses (4 689) (3 169) Asset management fees (9 588) (8 120) Net finance cost (32 901) (39 205) Finance income Finance cost (41 421) (40 821) Finance cost amortisation 221 Deconsolidation of treasury shares Taxation 461 (234) Distributable earnings Reconciliation of comparable earnings to distributable earnings Comparable earnings attributable to shareholders/linked unitholders Straight-line rental adjustment (1 839) (12 957) Finance cost amortisation 221 Fair value adjustments ( ) (45 405) Deconsolidation of treasury shares Capital items 9 Deferred tax 831 (85 083) I Texton Property Fund condensed consolidated financial statements 2014

37 BASIC, DILUTED, HEADLINE EARNINGS AND DISTRIBUTION PER SHARE 000 Reviewed 30 June 2014 Audited 30 June 2013 Distributable earnings (R 000) Shares in issue ( 000) Distribution per share/linked unit (cents) 85,47 77,25 Distributable earnings (R 000) Less: Distributions to shareholders (payment 1) (R 000) (67 648) (45 835) Available for distribution (payment 2) (R 000) Units in issue ( 000) Distribution per share (cents) Dividend per share subsequent to year end 45,47 Distribution per linked unit 39,25 Texton Property Fund condensed consolidated financial statements 2014 I 35

38 Board of directors PD Naidoo (Chairman) RF Kane (Chief Executive Officer) M de Lange (Financial Director) NV Balfour AN Du Hecquet de Rauville JA Legh JR Macey TS Sishuba PM Tau-Sekati MJ van Heerden KN Vundla The composition of the board of directors and board committees is as follows: Board composition Date of appointment Audit and risk committee Investment committee Remuneration and nominations committee Social and ethics committee Independent non-executive directors PD Naidoo (Chairperson) 11 Aug 2011 Member Member NV Balfour 30 Jun 2014 Member JR Macey 11 Aug 2011 Chairperson Member PM Tau-Sekati 11 Mar 2013 Chairperson Chairperson TS Sishuba 30 Jun 2014 Member KN Vundla 11 Mar 2013 Member Non-executive directors AN Du Hecquet de Rauville 1 Mar 2014 Member Member JA Legh 1 Mar 2014 Member MJ van Heerden 1 Mar 2014 Chairperson Executive directors RF Kane 7 Aug 2008 Invitee Member Invitee Invitee M de Lange 11 Aug 2011 Invitee Invitee Invitee Member 36 I Texton Property Fund condensed consolidated financial statements 2014

39 Corporate information Texton Property Fund Limited (formerly Vunani Property Investment Fund Limited) (Incorporated in the Republic of South Africa) (Registration number: 2005/019302/06) A Real Estate Investment Trust, listed on the JSE Limited JSE share code: TEX ISIN: ZAE (formerly ISIN: ZAE ) Company secretary CIS Company Secretaries Proprietary Limited (N Toerien) Sponsor Investec Bank Limited Transfer secretary Computershare Investor Services Proprietary Limited 70 Marshall Street Johannesburg, 2001 Physical/Registered and postal address 54 Bompas Road Dunkeld West, 2196 PO Box Craighall Park, 2024

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