UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS. to R194.2 million. to cents per share. to cents per share

Transcription

1 DISTRIBUTABLE EARNINGS 9,5% to R194.2 million COMBINED DIVIDENDS PER SHARE 6,3% A-SHARE DIVIDEND 5% to cents per share B-SHARE DIVIDEND 7,9% to cents per share INTEREST RATE HEDGING IN EXCESS OF 80% IN PROGRESS ACQUISITIONS R500 million REVAMPS R200 million UNAUDITED CONDENSED CONSOLIDATED INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY NON-CORE DISPOSALS R400 million including post period

2 COMMENTARY Introduction The unaudited condensed consolidated interim results for the ended 28 February 2017 ( the period ) highlights Dipula s continued growth in a challenging environment, with distributable earnings up 9.5%, resulting in an increase in combined dividends per share of 6.3%, in line with management guidance. This organic growth is the result of effective value extraction and sweating our assets. Profile Dipula owns a sectorally and geographically diversified portfolio valued at approximately R7 billion, including retail, industrial and offices in all nine provinces of South Africa. Dipula trades under JSE share codes DIA and DIB. The A-shares are entitled to a 5% preferred dividend growth while the B-shares receive the remaining net dividend declared. Distributable earnings Distributable earnings increased 9.5% over the prior period to R194.2 million (February 2016: R177.3 million). This translated into a 6.3% growth in dividends per combined share (February 2016: 7.1%). The dividend attributable to the A-shares increased 5% over the prior period to cents per share (February 2016: cents per share) in line with the dividend policy of the A-share. The dividend attributable to B-shares is cents per share (February 2016: cents per share), which equates to an increase of 7.9% over the prior period. Property portfolio At period end Dipula s portfolio consisted of 193 properties valued at approximately R7 billion with a total gross lettable area (GLA) of m² (February 2016: 201 properties valued at R6.7 billion with a GLA of m²). The net asset value per combined share increased 7% on the prior period to R Cost-to-income ratios February 2017 February 2016 Property cost to income (gross basis) 35.0% 35.7% Property cost to income (net basis) 18.0% 19.3% Total cost to income (net basis) 22.2% 23.8% Vacancies Vacancies remained at 9.2% compared to the prior period. This level of vacancy is due to challenging market conditions particularly in the office sector where vacancies had increased from 11.7% in the prior period to 15.1% at reporting date. Industrial vacancies reduced significantly to 8.8% from 11.5%. Retail vacancies increased marginally from 7.6% in February 2016 to 7.9% at period end. Acquisitions During the period, acquisitions of R21.7 million were concluded. Acquisitions of approximately R500 million at yields ranging between 9% to 10.5% are in progress. Disposals During the period eight properties valued at R72.3 million were sold and transferred. Subsequent to the period end, twenty properties worth R325.4 million were sold at an aggregate yield of 10%. These properties are at various stages of transfer. Refurbishments and redevelopments A total of R17.6 million was spent on refurbishments during the period. A further R200.8 million will be spent on refurbishments over the next 18 months at income enhancing yields. 1 DIPULA INCOME FUND Condensed Consolidated Interim Results 2017

3 Dipula lease expiry profile Subsequent to the period end, a further 23% of the leases expiring before 31 August 2017 were renewed GLA (m ² ) (R) Income Vacant 31 Aug Aug Aug Aug 20 After 31 Aug 20 0 GLA Average monthly gross rental income Segmental and geographic profile Dipula s portfolio as at 28 February 2017 is set out below: Sectoral profile by GLA (%) Sectoral profile by revenue (%) Geographic profile by GLA (%) Geographic profile by revenue (%) Retail 61% Offices 15% Industrial 24% Retail 70% Offices 16% Industrial 14% Gauteng 58% Limpopo 14% Eastern Cape 9% KwaZulu-Natal 6% North West 4% Free State 3% Western Cape 2% Mpumalanga 2% Northern Cape 2% Gauteng 60% Mpumalanga 2% Limpopo 13% Western Cape 2% Eastern Cape 9% Free State 2% KwaZulu-Natal 7% Northern Cape 1% North West 4% DIPULA INCOME FUND Condensed Consolidated Interim Results

4 COMMENTARY continued Funding At 28 February 2017, Dipula s all-in blended rate of interest was 9.06% (2016: 8.73%). The company has total debt facilities of R3.0 billion with R2.9 billion utilised to date. The aggregate period of borrowings and hedges is two years. Approximately 70.6% of the interest on the debt had been fixed at the end of the period (2016: 48.2%). Subsequently, further swaps were contracted into, improving the hedge to 82.1% of the debt facilities. Debt maturity and hedging profile Financial Facility Fixed/Swap Floating year-end R 000 % R 000 % R 000 % ( ) (7.4) Swap maturity profile Maturity date R 000 Nominal rate % 27 Oct Dec Jan Aug Aug Oct Jan Feb Jul Prospects The current economic environment is one of almost no growth which has a significant impact on the property sector. The ability to lease new space or expand existing tenants is greatly reduced. The board of directors ( the board ) expects the current economic conditions to continue in the short to medium term. Management will continue to focus on extracting the maximum value from the portfolio and reducing the vacancy factor. Reflecting the challenging environment, the board expects growth in distributions of between 5% and 6.5% for the year ending 31 August This growth assumes that macroeconomic conditions do not deteriorate further, no major corporate failures occur and that tenants will be able to absorb rising utility and assessment rates costs. Forecast rental income is based on contractual escalations and market-related renewals. This forecast has not been reviewed or reported on by the group s auditors. Payment of interim dividend The board has approved and notice is hereby given of the interim dividend (dividend number 12) for the period 1 September 2016 to 28 February 2017 of cents per A-share and cents per B-share. Dipula shareholders will be offered an election, in respect of all or part of their shareholding, to re-invest the cash dividend of cents per A-share and cents per B-share in return for A-shares or B-shares, as the case may be (the re investment option ). By electing to participate in this re-investment option, shareholders will be able to increase their shareholding in Dipula without incurring dealing costs. In turn, Dipula will benefit from an increase in the amount of shareholders funds available to support continued growth. Further details regarding the re-investment option, including the manner in which the number of shares to which a participating shareholder is entitled will be determined and the action to be taken by A and B shareholders in order to participate in the re investment option, will be set out in a circular to shareholders to be issued on or about 17 May 2017, and will also be released on SENS. 3 DIPULA INCOME FUND Condensed Consolidated Interim Results 2017

5 The dividend is payable to Dipula shareholders in accordance with the timetable set out below: Last day to trade cum dividend Shares trade ex-dividend Record date Payment date 2017 Tuesday, 6 June Wednesday, 7 June Friday, 9 June Monday, 12 June Share certificates may not be dematerialised or rematerialised between Wednesday, 7 June 2017 and Friday, 9 June 2017 both days inclusive. The dividend will be transferred to dematerialised shareholders CSDP accounts/broker accounts on Monday, 12 June Certificated shareholders dividend payments will be paid to certificated shareholders bank accounts on or about Monday, 12 June An announcement relating to the tax treatment will be released separately on SENS. On behalf of the board Zanele Matlala Chairperson Izak Petersen CEO 17 May 2017 Directors: ZJ Matlala* (Chairperson), IS Petersen (CEO), BH Azizollahoff* #, R Asmal (FD), NS Gumede, E Links*, Y Waja*, SA Halliday* * Independent non-executive # British There were no changes to the board during this period. DIPULA INCOME FUND Condensed Consolidated Interim Results

6 COMMENTARY continued BASIS OF PREPARATION AND ACCOUNTING POLICIES These results were prepared by the Financial Director, Mr R Asmal and the Group Financial Manager, Mrs N Kotze. The unaudited condensed consolidated financial results for the ended 28 February 2017 have been prepared in accordance with the JSE Listings Requirements and the requirements of the Companies Act of South Africa. The JSE Listings Requirements require interim reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards ( IFRS ) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the 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 are consistent with those applied in the previous year s consolidated annual financial statements. The interim financial statements have not been reviewed or reported on by Dipula s independent external auditor. Subsequent events Subsequent to the reporting date, the fund acquired the additional 20% interest that it does not currently own in Jarabilla Investments Proprietary Limited and Lizinex Proprietary Limited ( Moolman transaction ) for R134 million. Basis of measurement Given the nature of its business, Dipula uses distribution per share as its key performance measure as it is considered a more relevant performance measurement than earnings or headline earnings per share. Measurement of fair value Investment property On an annual basis, properties above R12 million (at the last valuation date) and one-third of properties below R12 million are valued by independent registered valuers. The remaining two-thirds are valued internally by directors. The properties are valued using either the discounted cash flow or capitalisation of net income methods by the internal and external valuers. The valuations are done on an open-market basis with consideration given to the future earnings potential and applying an appropriate capitalisation rate to a property. The capitalisation rates used range between 7.75% and 12%. Investment properties held for sale were valued at the net sale price, which is considered to be the fair value. Financial instruments Financial instruments are measured at fair value including derivatives. The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the reporting date. Hierarchy levels The fair value hierarchy reflects the significance of the inputs used in making fair value measurements. The level within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. The different levels have been defined as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly Level 3: Inputs for assets or liabilities that are not based on observable market data Investment properties and derivative financial instruments have been categorised as Level 3 and 2 respectively. There has been no material change between levels during the period. 5 DIPULA INCOME FUND Condensed Consolidated Interim Results 2017

7 2017 Fair value measurements for investment properties categorised as Level 3: R 000 Balance at beginning of the year Acquisitions/additions Transferred to non-current assets held for sale ( ) Tenant installation/lease commission (445) Balance at end of the period Valuation technique and significant unobservable inputs Valuation technique Discounted cash flows: The valuation model considers the present value of net cash flows to be generated from the property taking into account expected rental and capitalisation rates. The expected net cash flows are discounted using riskadjusted discount rates. Among other factors, the discount rate estimation considers the quality of the property, its location and lease terms. Capitalisation model establishes the market related rental income for the property and applies an appropriate capitalisation rate. Significant unobservable inputs Expected rental growth varies between 6% to 8% per annum. Risk-adjusted discount rates varies between 14% and 16%. Capitalisation rates vary between 7.75% to 12%. Inter-relationship between key unobservable inputs and fair value measurement The estimated fair value would increase/(decrease) if: expected rentals were higher/ (lower); and risk-adjusted discount rates and capitalisation rates were lower/(higher). The group s Audit Committee determines the policies and procedures for recurring fair value measurement. At each reporting date, management analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the group s accounting policies. For this analysis, management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to market conditions and other relevant documents. DIPULA INCOME FUND Condensed Consolidated Interim Results

8 CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS Audited ended ended year ended 28 February 29 February 31 August R 000 R 000 R 000 Non-current assets Investment property Fair value of property portfolio Straight-line rental income accrual Goodwill Property, plant and equipment Derivative financial assets Current assets Trade and other receivables Cash and cash equivalents Non-current assets held for sale Investment property held for sale Total assets EQUITY AND LIABILITIES Equity Stated capital Fair value reserve Retained income Non-controlling interest Non-current liabilities Interest-bearing liabilities Current liabilities Interest-bearing liabilities Derivative financial liability Trade and other payables Total equity and liabilities DIPULA INCOME FUND Condensed Consolidated Interim Results 2017

9 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Audited ended ended year ended 28 February 29 February 31 August R 000 R 000 R 000 Revenue Contractual rental income Recoveries and other income Straight-line rental income accrual Property expenses ( ) ( ) ( ) Net property income Administration and corporate costs (17 559) (17 766) (32 013) Net operating profit Net finance cost ( ) ( ) ( ) Finance income Finance cost ( ) ( ) ( ) Net profit after finance cost Transaction costs on business combination (2 943) (3 032) Fair value adjustments (24 893) (23 163) Investment properties and held for sale (821) Straight-line rental income accrual (10 819) (33 464) (41 912) Interest rate swaps (13 253) Profit before taxation Taxation Profit for the period after taxation Other comprehensive income Total comprehensive income for the period Total profit and comprehensive income for the period attributable to: Shareholders of the company Non-controlling interests Earnings and diluted earnings per share A-share (cents) B-share (cents) DIPULA INCOME FUND Condensed Consolidated Interim Results

10 RECONCILIATION BETWEEN PROFIT, EARNINGS AND HEADLINE EARNINGS Audited ended ended year ended 28 February 29 February 31 August R 000 R 000 R 000 Earnings Adjustments: ( ) Fair value investment properties revaluation 821 (1 054) ( ) Fair value straight-line rental income Headline earnings Weighted average number of A-shares in issue* Weighted average number of B-shares in issue* Basic earnings per A-share (cents) Basic earnings per B-share (cents) Headline earnings per A-share (cents) Headline earnings per B-share (cents) Dividend per A-share (cents) Interim Final Dividend per B-share (cents) Interim Final Combined dividend per share (cents) Interim Final Total number of shares in issue* Number of A-shares in issue Number of B-shares in issue Net asset value per A-share (cents) Net asset value per B-share (cents) Loan to Value (LTV) 39.2% 42.0% 40.1% * Net of treasury shares Basic and headline earnings per share are based on the weighted average number of shares in issue during the period. The company does not have any dilutionary instruments in issue. 9 DIPULA INCOME FUND Condensed Consolidated Interim Results 2017

11 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Stated capital Fair value reserve Retained Income Noncontrolling interest Total equity R 000 R 000 R 000 R 000 R 000 Balance at 31 August 2015 (Audited) Total comprehensive income for the period Dividends declared ( ) ( ) Issue of shares Equity contributed by non controlling shareholders Transfer to fair value reserve investment properties (1 054) Transfer to fair value reserve interest rate swaps (9 247) Balance at 29 February 2016 () Balance at 31 August 2016 (Audited) Total comprehensive income for the period Dividends declared ( ) (8 200) ( ) Issue of shares Transfer to fair value reserve investment properties (821) 821 Transfer to fair value reserve interest rate swaps (13 253) Balance at 28 February 2017 () DIPULA INCOME FUND Condensed Consolidated Interim Results

12 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW CASH FLOWS FROM OPERATING ACTIVITIES Audited ended ended year ended 28 February 29 February 31 August R 000 R 000 R 000 Cash generated from operations Net finance cost ( ) ( ) ( ) Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of investment properties and capital expenditure (50 006) ( ) ( ) Acquisition of property, plant and equipment (324) (384) (474) Proceeds on disposal of investment properties Contribution from non-controlling interest Net cash generated from/(utilised in) investment activities ( ) ( ) CASH FLOWS FROM FINANCING ACTIVITIES Issue of shares Interest-bearing liabilities (repaid)/raised (25 502) Dividend paid ( ) ( ) ( ) Net cash (utilised in)/generated from financing activities ( ) Net increase/(decrease) in cash and cash equivalents (12 428) (4 314) Cash and cash equivalents at the beginning of the year CASH AND CASH EQUIVALENTS AT END OF PERIOD DIPULA INCOME FUND Condensed Consolidated Interim Results 2017

13 CONDENSED CONSOLIDATED SEGMENTAL INFORMATION Retail Offices Industrial Land Segment total R 000 R 000 R 000 R 000 R 000 SIX MONTHS ENDED 28 FEBRUARY 2017 Revenue from property portfolio* Property expenses ( ) (30 774) (21 006) (8) ( ) Net property income (8) Investment property at fair value Investment property held for sale SIX MONTHS ENDED 29 FEBRUARY 2016 Revenue from property portfolio* Property expenses ( ) (28 873) (21 405) (7) ( ) Net property income (7) Investment property at fair value Investment property held for sale * Excluding straight-line rental income The entity has four reportable segments based on the sectorial nature these are the entity s strategic business segments. For each strategic business segment, the entity s executive directors review internal management reports on a monthly basis. Reconciliation of reportable segment revenues and profit Revenue Audited ended ended year ended 28 February 29 February 31 August R 000 R 000 R 000 Total revenue for reportable segments Straight-line rental income accrual Consolidated revenue Profit Total profit for reportable segments Straight-line rental income accrual Administration and corporate costs (17 559) (17 766) (32 013) Net finance cost ( ) ( ) ( ) Transaction costs on business combination (2 943) (3 032) Fair value adjustments (24 893) (23 163) Profit before taxation DIPULA INCOME FUND Condensed Consolidated Interim Results

14 DISTRIBUTABLE EARNINGS Reconciliation of profit for the period to distributable earnings Audited ended ended year ended 28 February 29 February 31 August R 000 R 000 R 000 Profit attributable to shareholders of the company Fair value investment properties revaluation 821 (1 054) ( ) Fair value straight-line rental income Fair value Interest rate swaps (9 247) (2 813) Antecedent dividend Transaction costs on business combination Straight-line rental income accrual (10 819) (33 464) (41 912) Distributable earnings and dividends declared Dividend statement Revenue Contractual rental income Recoveries and other income Property expenses ( ) ( ) ( ) Net property income Administration and corporate costs (17 559) (17 766) (32 013) Net operating profit Net finance cost ( ) ( ) ( ) Antecedent dividend Non-controlling interests (6 366) (7 692) (17 670) Dividend DIPULA INCOME FUND Condensed Consolidated Interim Results 2017

15 CORPORATE INFORMATION DIPULA INCOME FUND LIMITED (Incorporated in the Republic of South Africa) (Registration number 2005/013963/06) JSE share code : DIA ISIN: ZAE JSE share code: DIB ISIN: ZAE (Approved as a REIT by the JSE) ( Dipula or the company or the fund, and together with its subsidiaries, the group ) Registered office and business address Block B, Dunkeld Park 6 North Road, Dunkeld West Johannesburg, 2196 Corporate advisor and Sponsor Java Capital 6A Sandown Valley Crescent Sandton, 2196 Company secretary CIS Company Secretaries Proprietary Limited (Registration number 2006/024994/07) Rosebank Towers 15 Biermann Avenue Rosebank, 2196 Independent auditors Deloitte & Touche Practice number: Registered Auditors Deloitte Place The Woodlands 20 Woodlands Drive Woodmead Sandton Transfer secretaries Link Market Services South Africa Proprietary Limited (Registration number 2000/007239/07) 13th Floor, Rennie House 19 Ameshoff Street Braamfontein, 2001 Bankers The Standard Bank of South Africa Limited (Registration number 1962/000738/06) 3rd Floor, East Wing, 30 Baker Street Rosebank, 2196

16 15 DIPULA INCOME FUND Condensed Consolidated Interim Results 2017