CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2016

Transcription

1 LODESTONE REIT LIMITED Incorporated in the Republic of South Africa Reg no 2010/017830/06 JSE share code LDO ISIN ZAE ( Lodestone or the Company ) CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2016 DIRECTORS COMMENTARY 1. NATURE OF THE BUSINESS Lodestone s primary objective is to invest in real estate assets with strong growth prospects across all sectors. Lodestone is looking to diversify into global markets that demonstrate favourable returns on a riskweighted basis. Lodestone proactively takes advantage of buying and selling prospects as they arise and maintains a disciplined approach to the asset management of its portfolio. 2. PROPERTY PORTFOLIO Lodestone s property portfolio consists of 37 properties valued at R1,4 billion and comprises 55,4% retail, 41,0% industrial and 3,6% residential based on value. Geographically, the properties are located in the following provinces: Gauteng 65,4% North West 8,9% KwaZulu-Natal 7,7% Limpopo 6,3% Northern Cape 6,0% Western Cape 4,3% Mpumalanga 1,4% Lodestone continues to focus primarily on the retail and industrial sectors where management has identified better yield and capital growth opportunities. Development of the 94 two-bedroom units and 62 one-bedroom units at The Prism in Rivonia is on schedule and completion is scheduled for March Construction of the bridge and infrastructure commenced at Union Park subsequent to the granting of access in March Development of m2 of the total anticipated m2 of A-grade logistics warehouses at Union Park has commenced. Completion of phase I is expected in September The new access road will be operational by the end of 2016.

2 3. VACANCIES AND ARREARS At September 2016 the overall vacancy was 3,1% up from the 2,5% reported at March The industrial vacancy at September 2016 was 4,3% which has increased from 3,2% at March 2016 and the retail vacancy was 1,0% compared to 1,3% at March Given the current economic environment in South Africa, management placed particular emphasis on tenant retention and letting vacant space and this will continue to be a focus area. No significant increase in vacancies is anticipated in the next financial year. There were no material changes in arrears and potential bad debts are well provided for. 4. FORTRESS TRANSACTION On 11 August 2016, Lodestone announced that it had received a firm intention from Fortress Income Fund Limited ( Fortress ) to acquire all of the Lodestone shares in issue at a swap ratio of 1 Fortress A share and 1 Fortress B share for every Lodestone shares held. The Fortress offeror circular to Lodestone shareholders was posted on 17 September 2016 and the Lodestone offeree circular was posted on 17 October Competition Commission approval was obtained on 10 November The results of the general offer were published on 9 December 2016 and are discussed in note 7 Interim Dividend. 5. EQUITY INVESTMENTS Sep 2016 Mar 2016 Number of Fair value Number of Fair value Counter shares R 000 shares R 000 Greenbay (GRP) Lodestone acquired an additional R150,0 million worth of shares in Greenbay Properties Limited in order to invest in Euro denominated equities in high growth markets. Greenbay Properties Limited has its primary listing on the Stock Exchange of Mauritius and its secondary listing on the AltX of the Johannesburg Stock Exchange. 6. FACILITIES AND INTEREST RATE DERIVATIVES Average Amount Margin over Facility expiry R' million Jibar Mar ,77% Mar ,00% Total 584 1,80%

3 Interest Rate Derivatives Amount Average Interest rate swap expiry R' million swap rate Mar ,10% Mar ,23% Mar ,32% Mar ,61% Total 250 6,87% Variable rate instruments R 000 Loans to BEE vehicle ( ) Cash and cash equivalents (723) Interest-bearing borrowings Capital commitments Total interest rate derivatives Percentage hedged 110% The all-in weighted average cost of funding of Lodestone was 8,90% at September 2016 and the average hedge term was 2,08 years. 7. GEARING Lodestone s gearing at September 2016 was 19,6% which is below the board s target range of between 30% to 40%. Gearing is expected to increase as the developments progress and the offshore strategy gains traction. Lodestone s strong balance sheet will allow it to effectively take advantage of opportunities as they arise. The information contained in notes 2, 3 and the Fair value information section of note 8 of the Directors Commentary has been compiled using proportionate consolidation. This results in Lodestone accounting for its share of the property investment that is not held in undivided shares (The Prism).

4 8. SUMMARY OF FINANCIAL PERFORMANCE Sep 2016 Mar 2016 Sep 2015 Mar 2015 Shares in issue Fair value information Net asset value per share R6,50 R6,36 R5,49 R5,38 Loan-to-value ratio* 19,6% 10,2% 32,6% 29,9% Net property expense ratio 21,7% 16,7% 16,8% 13,8% Gross property expense ratio 44,5% 38,9% 39,4% 39,1% Net total expense ratio 30,6% 25,5% 26,1% 20,7% Gross total expense ratio 50,8% 45,3% 46,1% 43,7% IFRS accounting Net asset value per share R6,50 R6,36 R5,49 R5,38 *The loan-to-value ratio is calculated by dividing interest-bearing borrowings net of cash on hand by the total of investment property, investments and loans advanced. Fair value information Summarised statement of financial Sep 2016 Mar 2016 Sep 2015 position R 000 R 000 R 000 ASSETS Investment property Investment property under development Investments Share purchase scheme loans Loans to employees Loans to BEE vehicle Other assets Current assets Total assets

5 EQUITY AND LIABILITIES Total equity attributable to equity holders Interest-bearing borrowings net of cash on hand Deferred tax Current liabilities Total equity and liabilities OUTLOOK While the domestic outlook remains a concern for 2017, the board is confident that Lodestone remains well positioned to grow distributions between 16% and 17% for the year ending 31 March 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 and municipal rates. Budgeted rental income was based on contractual escalations and market-related renewals. This forecast has not been audited or reviewed by Lodestone s auditors. By order of the board Jason Cooper Managing director Johannesburg 14 December 2016 Inge Pick Financial director

6 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Unaudited Audited Unaudited Sep 2016 Mar 2016 Sep 2015 ASSETS R 000 R 000 R 000 Non-current assets Investment property Straight-lining of rental revenue adjustment Investment property under development Investments Loans to employees Share purchase scheme loans Loans to BEE vehicle Current assets Investment property held for sale Straight-lining of rental revenue adjustment Loans to employees Trade and other receivables Share purchase scheme loans Cash and cash equivalents Total assets EQUITY AND LIABILITIES Total equity attributable to equity holders Stated capital Reserves Minority interest Total liabilities Non-current liabilities Interest-bearing borrowings Deferred tax

7 Current liabilities Trade and other payables Income tax payable Total equity and liabilities CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Unaudited for Audited for Unaudited for the 6 months the year the 6 months ended ended ended Sep 2016 Mar 2016 Sep 2015 R 000 R 000 R 000 Net rental and related revenue Recoveries and contractual rental revenue Straight-lining of rental revenue adjustment Rental revenue Property operating expenses (42 600) (61 594) (28 693) Fair value gain on investment property, investments and currency derivatives (1 578) Fair value (loss)/gain on investment property (3 530) Adjustment resulting from straight-lining of rental revenue (3 368) (8 061) (1 578) Fair value gain/(loss) on investments (384) - Fair value gain on currency derivatives Administrative expenses (6 046) (10 202) (5 029) Profit before net finance costs Net finance income/(costs) (4 919)

8 Finance income Interest received Fair value adjustment on interest rate derivatives Finance costs (16 443) (23 900) (14 435) Interest on borrowings (15 144) (24 703) (14 495) Capitalised interest Fair value adjustment on interest rate derivatives (3 425) - Profit before income tax Income tax (12 566) (1 432) (932) Profit for the period Total comprehensive income for the period Profit for the period attributable to: Equity holders of the company Minority interest Total comprehensive income for the period attributable to: Equity holders of the company Minority interest Basic earnings per share (cents) 39,96 92,60 23,91 Lodestone has no dilutionary instruments in issue.

9 SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited for Audited for Unaudited for the 6 months the year the 6 months ended ended ended Sep 2016 Mar 2016 Sep 2015 R 000 R 000 R 000 Cash inflow from operating activities Cash outflow from investing activities ( ) ( ) (59 254) Cash inflow from financing activities (Decrease)/increase in cash and cash equivalents (10 309) (3 081) Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Cash and cash equivalents consist of: Current accounts CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Equity Stated attributable to Minority Total capital Reserves equity holders interest equity Group R'000 R'000 R'000 R'000 R'000 Balance at Mar Total comprehensive income for the period Dividends paid (18 636) (18 636) (18 636) Balance at Sep Issue of ordinary shares on 19 Nov

10 Issue of ordinary shares on 26 Nov Issue of ordinary shares on 11 Dec Total comprehensive income for the period Dividends paid (48 371) (48 371) (163) (48 534) Equity contributed by minorities Balance at Mar Total comprehensive income for the period Dividends paid (61 240) (61 240) (31) (61 271) Balance at Sep NOTES 1. PREPARATION AND ACCOUNTING POLICIES The condensed unaudited consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ), IAS 34: Interim Reporting, 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 JSE Listings Requirements and the requirements of the Companies Act of South Africa. This report complies with the SA REIT Association Best Practice Recommendations. This report was compiled under the supervision of Inge Pick CA(SA), the financial director. The accounting policies applied in the preparation of the condensed consolidated interim financial statements are in terms of IFRS and are consistent with the accounting policies applied in the preparation of the previous consolidated financial statements, with the exception of the adoption of new and revised standards which became effective during the period.

11 The group s investment properties are valued internally by the directors at interim reporting periods and externally by an independent valuer for year-end reporting. In terms of IAS 40: Investment Property and IFRS 7: Financial Instruments: Disclosure, the group s investment properties are measured at fair value and are categorised as level 3 investments. In terms of IAS 39: Financial Instruments: Recognition and measurement and IFRS 7, the group s currency and interest rate derivatives are measured at fair value through profit or loss and are categorised as level 2 investments. In terms of IAS 39, investments are measured at fair value being the quoted closing price at the reporting date and are categorised as level 1 investments. There were no transfers between levels 1, 2 and 3 during the period. The valuation methods applied are consistent with those applied in preparing the previous consolidated financial statements. The directors are not aware of any matters or circumstances arising subsequent to September 2016 that require any additional disclosure or adjustment to the financial statements. The interim financial statements have not been audited or reviewed by Lodestone s auditors 2. SECTORAL SPLIT Based on: GLA Book value Retail 36,0% 53,4% Industrial 64,0% 39,6% Residential - 7,0% 100,0% 100,0% 3. LEASE EXPIRY PROFILE Based on: GLA Rental revenue Vacant 3,1% Mar ,6% 11,6% Mar ,2% 14,4% Mar ,1% 16,8% Mar ,1% 19,3% Mar ,3% 9,3% >Mar ,6% 28,6% 100,0% 100,0%

12 4. SEGMENTAL ANALYSIS Unaudited for Audited for Unaudited for the 6 months the year the 6 months ended ended ended Sep 2016 Mar 2016 Sep 2015 R 000 R 000 R 000 Segmental revenue recoveries and contractual rental revenue Industrial Retail Total Property operating expenses Industrial (20 171) (26 608) (12 328) Retail (22 429) (34 986) (16 365) Total (42 600) (61 594) (28 693) Segmental revenue rental revenue Industrial Retail Total Profit for the period Industrial Retail Residential (1 067) (633) - Corporate (8 960) (10 880) Total Total assets Industrial Retail Residential Corporate Total Reconciliation of profit for the period to dividend declared

13 Unaudited for Audited for Unaudited for the 6 months the year the 6 months ended ended ended Sep 2016 Mar 2016 Sep 2015 R 000 R 000 R 000 Profit for the period Fair value loss/(gain) on investment property (75 026) - Fair value (gain)/loss on investments (41 838) Fair value adjustment on interest rate derivatives (5 274) (3 251) Fair value adjustment on currency derivatives (14 496) - - Income tax Antecedent dividend Minority interest (31) (163) - Dividends accrued Amount available for distribution under best practice Dividend declared - interim (48 371) (48 371) Dividend declared - final (61 240) RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS Unaudited for Audited for Unaudited for the 6 months the year the 6 months ended ended ended Sep 2016 Mar 2016 Sep 2015 R 000 R 000 R 000 Basic earnings profit for the period attributable to equity holders Adjusted for: (67 006) Fair value (loss)/gain on investment property (66 965) Income tax effect (94) (41) (21) Headline earnings Headline earnings per

14 share (cents) 42,84 54,43 24,28 Basic earnings per share and headline earnings per share are based on the weighted average of (Mar 2016: ; Sep 2015: ) shares in issue during the period. Lodestone has no dilutionary instruments in issue. 6. CAPITAL COMMITMENTS Unaudited Audited Unaudited Sep 2016 Mar 2016 Sep 2015 R 000 R 000 R 000 Authorised and contracted Authorised and not yet contracted INTERIM DIVIDEND At the close of the general offer on Friday, 9 December 2016, Fortress had received acceptances in respect of Lodestone shares, representing 99.43% of all Lodestone shares in issue. Fortress has invoked section 124(1)(a) of the Companies Act, 71 of 2008 to compulsorily acquire all of the remaining Lodestone shares not already acquired by Fortress in terms of the general offer as announced on SENS on 25 November 2016 (the compulsory acquisition ). It is thus certain that Lodestone s listing will be terminated and that the remaining Lodestone shareholders will receive Fortress shares in consideration for the Lodestone shares currently held by them. Fortress is acquiring Lodestone shares cum the entitlement to receive the interim distribution for the period 1 April 2016 to 30 September 2016 in terms of the general offer and the compulsory acquisition. No interim distribution will be declared and paid. Subject to section 124 of the Companies Act, 71 of 2008, the Lodestone shares of the remaining Lodestone shareholders who have not accepted the general offer will be compulsorily acquired by Fortress on or about 20 January Further information on the compulsory acquisition is set out in the circular issued to the remaining Lodestone shareholders on 25 November Registered office 3rd Floor Rivonia Village, Rivonia Boulevard, Rivonia, 2191 PO Box 6063, 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 Designated advisor Java Capital Company secretary Leonie Gindan Directors Annalese Manickum* (chairperson); Jason Cooper (managing director); Craig Hallowes*; Michael McNamara*; Inge Pick; Ndhlabole Shongwe*; Gidon Trope; Jacques van Wyk*; Herman Zolty (*independent non-executive director)