About Redefine. Top 40

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2 About Redefine Redefine is an internally managed Real Estate Investment Trust (REIT) with the primary goal of growing and improving cash flow to deliver quality earnings, to underpin sustained growth in distribution, which supports growth in total return per share. Top 40 We are listed on the Johannesburg Stock Exchange (JSE) and are included in the JSE Top 40 index. We manage a diversified property asset platform with a value of R84.1 billion, comprising local and international property assets. Our shares are among the most actively traded on the JSE, making them a highly liquid, single-entry point for gaining exposure to quality domestic properties, and a spread of international commercial real estate markets.

3 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Our reporting suite We remain committed to reporting transparently to our wide range of stakeholders. To view the full suite, please visit our website Integrated report (IR) Our integrated report is the primary report to our stakeholders. It is structured to show the relationship between the interdependent elements involved in our value creation story, in compliance with: JJThe International Integrated Reporting <IR> Framework JJThe Companies Act, No 71 of 2008, as amended (Companies Act) JJThe JSE Listings Requirements JJKing IV report on Corporate Governance for South Africa 2016 (King IV) Group annual financial statements (AFS) A comprehensive report of the group s financial performance for the year, in compliance with: JJThe Companies Act JJThe JSE Listings Requirements JJKing IV JJInternational Financial Reporting Standards (IFRS) Contents The reports and statements set out below comprise the group annual financial statements presented to the shareholders: GROUP ANNUAL FINANCIAL STATEMENTS Directors responsibilities and approval Certificate by company secretary 4 Audit and risk committee report 5 Directors report 9 Independent auditor s report 11 Statement of financial position 18 Statement of profit or loss and other comprehensive income 3 19 Statement of changes in equity 20 Statement of cash flows 22 Notes to the financial statements 23 SUPPLEMENTARY INFORMATION Environmental, social and governance (ESG) report A detailed account of the group s holistic performance for the year, including environmental, social and governance elements. The report also includes the remuneration report and the social, ethics and transformation committee report, in compliance with: JJThe Companies Act JJThe JSE Listings Requirements JJKing IV Property information 105 Shareholders analysis 117 Definitions 119 Administration 120 Notice of annual general meeting (AGM) Supporting information for shareholders to participate in the annual general meeting, in compliance with: JJThe Companies Act JJThe JSE Listings Requirements JJKing IV These group financial statements have been audited by KPMG Inc. in compliance with section 30 of the Companies Act, No 71 of 2008, as amended, and the preparation of the group financial statements has been supervised by Leon Kok CA(SA), Redefine s financial director. These group financial statements are published on 6 November The complete annual financial statements of the group for the financial years ended 31 August 2017 and 2016 may be obtained: JJfrom the transfer secretaries, Computershare Investor Services Proprietary Limited, or JJfrom the company s website at: or JJby request from the company. FEEDBACK Your feedback is important to us and we welcome your input to enhance our reporting processes. Please visit or investorenquiries@redefine.co.za 1

4 Who we are Our VISION is to be the best South African REIT. Our MISSION is to create sustained value for all our stakeholders. Our primary GOAL is to grow and improve cash flow. What sets us apart Our values Our values-driven culture guides our daily behaviours and actions to create and uphold our brand promise. Challenge the norm Make it happen Respect personal relationships We re not landlords. We re people. Property is our commodity, but people are our business. We believe it is our unique and focused approach to relationships that enables us to create and sustain meaningful value for our stakeholders. Oneness Mean it What matters most We execute our strategic objectives in an integrated manner, by focusing on what matters most. Operate efficiently Invest strategically Optimise capital Engage talent Grow reputation 2

5 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Directors responsibilities and approval The directors are responsible for the preparation and fair presentation of the group annual financial statements of Redefine Properties Limited. These financial statements comprise the statement of financial position as at 31 August 2017, and the statement of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements, in accordance with International Financial Reporting Standards and the requirements of the Companies Act, No 71 of 2008, as amended. In addition, the directors are responsible for preparing the directors report. The directors are also responsible for such internal control as the directors determine necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management, as well as the preparation of the supplementary schedules included in these financial statements. The directors have made an assessment of the ability of the group to continue as a going concern and have no reason to believe that the businesses will not be going concerns in the year ahead. The auditor is responsible for reporting on whether the group financial statements are fairly presented in accordance with the applicable financial reporting framework. Approval of group annual financial statements The group annual financial statements of Redefine Properties Limited, as identified in the first paragraph, were approved by the board of directors on 2 November 2017 and are signed by: AJ König Authorised director LC Kok Authorised director 2 November November

6 Certificate by company secretary In terms of section 88(2)(e) of the Companies Act, No 71 of 2008, as amended (the Act), I declare that to the best of my knowledge, for the year ended 31 August 2017, Redefine Properties Limited has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Act and that such returns are true, correct and up to date. B Baker Company Secretary 2 November

7 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Audit and risk committee report The committee acts for the company and all of its subsidiaries (the group). The committee, which is independent, is accountable to both the board and shareholders. The committee operates within a documented mandate, acts in accordance with its statutory duties, the delegated authority of the board and within the guidelines as outlined in King IV. The committee s formal terms of reference are reviewed annually. These were reviewed updated and approved in February 2017, taking into account material changes to the JSE Listings Requirements and ensuring that the principles of King IV were adequately entrenched therein. Composition and meeting procedures The committee comprises three independent non-executive directors, all of whom satisfy the requirements of section 94(4) of the Companies Act, No 71 of 2008, as amended. As a collective and having regard to the size and circumstances of the group, the committee is adequately skilled and all members possess the appropriate financial and related qualifications, skills, financial expertise and experience required to discharge their responsibilities. During the 2017 financial year, the committee met on four occasions; which meetings were scheduled in line with the group s financial reporting cycle. The committee also met separately with the internal and external auditors. As at 31 August 2017, the committee comprised the following members: Member Appointed Attendance Regular invitees Phumzile Langeni (Chairperson)* BCom; BCom (Hons) Bernard Nackan BA Economics David Nathan CA(SA) February % 3/3 meetings October % 4/4 meetings March % 4/4 meetings Executive chairman Chief executive officer Financial director Chief operating officer Internal auditor External auditors Group finance * Phumzile Langeni was appointed as chairperson and member of the committee on 9 February 2017, replacing Günter Steffens who retired on 9 February The performance and effectiveness of the committee and its individual members was assessed as part of the FY2017 board evaluation, undertaken by an independent service provider. Discharge of duties for the 2017 financial year In the execution of its statutory duties and in accordance with its terms of reference, the committee effectively discharged the following responsibilities during the past financial year: Finance function In accordance with the JSE Listings Requirements, the committee considered and satisfied itself that Leon Kok CA(SA), the group s financial director, has the appropriate expertise and experience to meet the responsibilities of his appointed position. The committee similarly satisfied itself, regarding the quality and effectiveness of the finance function and the adequacy of resources employed. 5

8 Audit and risk committee report (continued) External audit The committee: JJConsidered and satisfied itself regarding the effectiveness, independence and objectivity of KPMG Inc. and Mr Gawie Kolbé, in their respective capacities as the company s appointed external audit firm and lead audit partner; JJRecommended KPMG for reappointment by shareholders at the company s annual general meeting on 9 February 2017; JJConfirmed that the appointment of KPMG complied with the Companies Act, No 71 of 2008, the Auditing Profession Act and other relevant legislation; JJIn consultation with management, reviewed and confirmed the external auditor s terms of engagement and proposed fees for the 2017 financial year; JJDetermined the nature and extent of allowable non-audit services and pre-approved the contract terms for the provision of non-audit services; JJMonitored non-audit service fees to ensure they remained within limit and in line with the non-audit services policy; JJReviewed and approved the FY2017 external audit plan; and JJReviewed the external audit reports and management s response to them and considered their effect on the financial statements and the internal financial controls. The committee confirmed that the external auditors had executed their audit responsibilities in accordance with International Standards on Auditing and had functioned in accordance with their mandate for the 2017 financial year. No matters of concern regarding the performance of the external auditors were noted by the committee. Financial statements and accounting practices The committee reviewed the interim results and the annual financial statements for the year ended 31 August 2017, including the public announcements of the group s financial results, and recommended their approval to the board. In the course of its review, the committee: JJTook steps to ensure that the financial statements were prepared in accordance with International Financial Reporting Standards and in compliance with the provisions of the Companies Act, No 71 of 2008, and the JSE Listings Requirements; JJConsidered the appropriateness of the accounting policies and the disclosures made therein; and JJCompleted a detailed review of the going concern assumption, confirming that it was appropriate in the preparation of the financial statements. The committee reviewed the significant accounting matters and management s key estimates and assumptions and confirmed that they were adequately addressed. Those which were most significant in the compilation of the financial statements included: JJInvestment properties and properties under development; JJGoodwill; JJImpairment of investments in associates; and JJBusiness combination versus asset acquisition. During the financial year, the committee reviewed the JSE s report on the proactive monitoring of the company s interim results for the six months ended 29 February 2016 and annual financial statements for the year ended 31 August The committee ensured that appropriate actions were taken to apply the recommendations made by the JSE on those matters to the extent required. Furthermore, the committee considered and noted the general proactive monitoring report issued by the JSE on 15 February The committee and company continue to be committed and to practise the highest standards of financial disclosure. The committee has satisfied itself that appropriate financial reporting procedures are in place and operating. 6

9 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Internal audit The committee: JJReviewed and approved the internal audit charter and internal audit plan for the financial year ended 31 August 2017, ensuring that material risk areas were included and that coverage of significant business processes was acceptable; and JJOversaw and monitored that the internal audit function: objectively assured the effectiveness of risk management and internal control frameworks; analysed and assessed business processes and associated controls; and reported significant audit findings and recommendations to management and the committee. The internal audit function provided a written assessment regarding the company s system of internal controls and confirmed that, based on the results of the work undertaken, these were adequate and effective. The committee satisfied itself that the function was independent and had the necessary resources, standing and authority to discharge its duties. Furthermore, the committee confirmed that in executing the FY2017 plan, there had been no impairments to the objectivity, independence and scope of the internal audit function, which remained effective in carrying out its mandate. Internal financial control The committee reviewed the reports of both the internal and external auditors in respect of audits conducted on the internal control environment, took note of any matters arising from these audits and considered the appropriateness of the responses received from management. Nothing was brought to the attention of the committee that would suggest a material breakdown of any internal control system; accordingly, the committee is satisfied that the internal financial control environment continued to function effectively. There were no complaints requiring the attention of the committee pertaining to accounting practices, internal audit, the content or audit of the financial statements, internal financial controls or related matters. Risk governance The committee: JJReviewed, approved and monitored compliance with the enterprise risk management policy and framework and the annual risk management plan; JJReviewed the risk appetite framework, setting out the group s propensity to take appropriate levels of risk, and recommended the framework to the board for approval; JJConducted assessments of the strategic risks and opportunities emanating from the triple context in which the group operates and monitored management s consideration and implementation of appropriate risk responses; JJMonitored fraud risk management, including the whistle-blower facility; and JJReviewed the risk disclosures, including key sustainability risks, to be included in the integrated report and advised the board on their appropriateness. The committee was reasonably satisfied that adequate controls are in place in order to mitigate identified significant risks. Technology and information governance The board mandated the committee to provide oversight over technology and information (IT) governance. As such, the committee oversaw the implementation and review of all relevant IT governance mandates, policies, processes and control frameworks while ensuring compliance with the standards adopted by the group. In order to assist the committee in the discharge of its duties in respect of IT governance, the committee mandated the group s IT steering committee with the executive oversight of IT governance. The steering committee ensures that the IT strategy supports the business goals and objectives as well as the sustainability objectives of the group. The steering committee is responsible for the implementation of, and measurement against, the IT governance framework and other related initiatives, in conjunction with the other existing oversight bodies. The IT steering committee met twice this year under the chairmanship of the financial director. 7

10 Audit and risk committee report (continued) Compliance The committee exercised ongoing oversight of compliance and ensured continual monitoring of the group s regulatory environment and the appropriate responses to changes and developments therein. In exercising this function, the committee: JJReviewed quarterly legal and regulatory reports, setting out the latest legislative and regulatory developments impacting the group; JJConsidered all legal matters having a material impact on the company and any material reports and/or enquiries from regulatory or governmental bodies; and JJReviewed the group s policies and procedures for preventing and detecting fraud, bribery and corruption, as well as its mechanisms for protected disclosure and whistle-blowing. The committee complied with all its applicable legal and regulatory responsibilities. Integrated report The committee will evaluate the integrated report for the 2017 financial year and assess its consistency with operational, financial and other information available to the committee. Similarly, the committee will ensure that the report is prepared using appropriate reporting standards, which conform to the requirements of King IV and the JSE Listings Requirements. In conjunction with the social, ethics and transformation committee, the committee will review the integrity of the sustainability disclosures included in the environmental, social and governance report and confirm that they are reliable and do not conflict with financial information. Based on the processes and assurances obtained, the committee will recommend the 2017 integrated report to the board for approval. Committee focus in 2018 While the committee will continue to operate within its terms of reference and ensure that meetings address all regular matters reserved for its consideration, the following additional key activities are expected to require the committee s attention during 2018: JJIT governance and business continuity; JJTax governance; and JJIFRS transitions (including IFRS 9, 15 and 16) On behalf of the audit and risk committee P Langeni Audit and risk committee chairperson 2 November

11 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Directors report To the shareholders of Redefine Properties Limited We have pleasure in presenting the annual financial statements of Redefine Properties Limited for the year ended 31 August Corporate overview Redefine is a listed Real Estate Investment Trust (REIT). It derives rental income from investments in office, retail, industrial and specialised properties, and distributions from listed security investments. Nature of the business The nature of business and operations are commented on in detail in the company overview section of the integrated report. Financial results The financial results for the year ended 31 August 2017 are set out in detail on pages 18 to 104 of these annual financial statements. International Financial Reporting Standards The financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act, No 71 of 2008 of South Africa. Stated capital The company s authorised stated capital was increased to ordinary shares of no par value (2016: authorised stated capital of ordinary shares of no par value). The following shares were issued during the course of the year: JJ shares were issued (under specific authority) at an issue price of R10.53 per share on 28 November 2016; JJ shares were issued (under general authority) at an issue price of R11.32 per share on 9 January 2017; and JJ shares were issued (under specific authority) at an issue price of R10.45 per share on 2 June At 31 August 2017, there were shares in issue, all of which rank for the dividend declared on 2 November Dividend distributions On 3 November 2016, the board declared a final dividend of cents for the six months ended 31 August 2016, which was paid on 28 November On 8 May 2017, the board declared an interim dividend of cents for the six months ended 28 February 2017, which was paid on 5 June Subsequent to year end, on 2 November 2017, the board declared a final dividend of 47,18 cents for the six months ended 31 August 2017, which will be paid on 4 December This dividend has been declared from distributable earnings and meets the requirement of a REIT qualifying distribution for purposes of section 25BB of the Income Tax Act, No 58 of 1962 (as amended). 9

12 Directors report (continued) Directorate The directors of the company at the date of this report were: Executive directors M Wainer Executive chairman AJ König Chief executive officer LC Kok Financial director Non-executive directors B Mathews* Lead independent and deputy chairperson B Nackan* DA Nathan* HK Mehta M Barkhuysen* NB Langa-Royds* P Langeni* * Independent AJ König, P Langeni and DA Nathan are obliged to retired by rotation and B Nackan by virtue of his age at the forthcoming annual general meeting. Having so retire, these members are eligible for re-election as directors of the board. The following changes to the directorate took place during the year: JJDH Rice resigned as an executive director on 9 February 2017; JJMJ Ruttell resigned as an executive director on 9 February 2017; JJGZ Steffens resigned as an independent non-executive director on 9 February 2017; JJMJ Watters resigned as a non-executive director on 9 February 2017; JJB Mathews was appointed as an independent non-executive director on 9 February 2017; JJB Nackan resigned as the lead independent director on 3 August 2017, remaining as an independent non-executive director; and JJB Mathews was appointed as the lead independent director and the deputy chairperson on 3 August Directors emoluments and interests Refer to note 42 and 43 to the financial statements for disclosure regarding directors emoluments and directors interests. Service contracts Executive directors retire from their positions and from the board (as executive directors) at the age of 65. Though normal retirement age is 65 years for executive directors, the company s retirement policy makes provision to extend the working relationship beyond the normal retirement age. The executive directors are subject to three calendar months written notice under their existing employment contracts. Shareholders analysis Refer to page 117 to 118 in the annual financial statements for disclosure regarding shareholders analysis. Going concern Refer to note 45 to the financial statements for disclosure regarding going concern. Subsequent events Refer to note 44 to the financial statements for disclosure regarding subsequent events. 10

13 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Independent auditor s report TO THE SHAREHOLDERS OF REDEFINE PROPERTIES LIMITED Report on the audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of Redefine Properties Limited (the group) set out on pages 18 to 104, which comprise the consolidated statement of financial position as at 31 August 2017, and the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Redefine Properties Limited as at 31 August 2017, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 11

14 Independent auditor s report (continued) Valuation of investment properties Refer to notes 1.4, 1.5, 1.24, 3 and 5 to the consolidated financial statements. The key audit matter The group s most significant asset is its investment property portfolio, which comprises investment properties with a fair value of R57.3 billion and properties under development of R3.9 billion. The valuation of the investment property portfolio is an area of judgement which could materially affect the financial statements, as investment properties are measured at fair value at each year end. Investment properties It is the group s policy that independent valuations are obtained for all properties over R20 million, while properties under R20 million are valued externally on a three-year rotational basis. The fair values of investment properties at year-end were determined by independent external valuers using a discounted cash flow method of valuation. The data used in the discounted cash flow models incorporated significant unobservable inputs, including expected market rental growth, expected expense growth, vacancy periods, occupancy rates, rent-free periods, discount rates and exit capitalisation rates. Properties under development The comparable sales method was used to determine the fair value of properties under development. The comparable sales method include unobservable bulk rates for undeveloped bulk land. Our audit focused on the fair value measurement of the investment property portfolio due to its significance to the group s financial statements, the significance of the judgements involved in the determination of the fair value and the work effort required by the audit team together with our own valuation specialist. Accordingly, the valuation of the investment property portfolio was determined to be a key audit matter. How the matter was addressed in our audit The audit procedures we performed included the following: JJWe assessed the competence, capabilities and independence of the independent external valuers. JJWe agreed all investment property fair values to the underlying independent valuers reports. JJTogether with our own valuation specialist, we tested the key assumptions used in the determination of the fair value, including: Challenging the appropriateness of the market rental and expense growth assumptions used in the forecast cash flows based on the accuracy of previous forecasts and budgets, and our experience of the industry; Comparing discount rates and exit capitalisation rates used to available industry data for similar investment properties; and Assessing the reasonableness of the bulk rates utilised when valuing the undeveloped bulk land in relation to recent sales prices of similar properties. JJWe assessed the reasonableness of the remaining key inputs by comparing the inputs used in the models to historic information. JJWe assessed the appropriateness of the disclosures made in the financial statements. 12

15 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Impairment of goodwill Refer to notes 1.10, 1.24 and 7 to the consolidated financial statements. The key audit matter As a result of historical business combinations, the group carries goodwill on the statement of financial position. The group is required to test this goodwill for impairment at each year-end by comparing the recoverable amount of the cash-generating unit (operating segment) to which the goodwill has been allocated, to the carrying amount of the allocated goodwill. The main driver of the recoverable amount of each operating segment is the fair value of the investment properties in that operating segment. The recoverable amount was determined in accordance with IAS 36 Impairment of Assets to be the higher of the fair value less cost of disposal, represented by allocating the share price of the company between the operating segments, and the value in use, determined by discounting future cash flows. There is uncertainty in estimating the value in use of operating segments, which principally arises from the inputs used in both forecasting and discounting the future cash flows. Furthermore, the value in use is highly sensitive to changes in these inputs. Due to the inherent uncertainty in the assumptions supporting the valuation of goodwill, the impairment assessment of goodwill was determined to be a key audit matter in our audit of the consolidated financial statements. How the matter was addressed in our audit As the recoverable amount of each operating segment is driven by the fair value of the investment properties in that operating segment, we relied on the work that we performed on the fair value of investment properties, as described in the previous key audit matter. In addition, the auditing procedures that we performed in relation to the impairment of goodwill included the following: JJWe assessed whether goodwill was appropriately allocated to the correct operating segment based on the nature of the investment properties acquired in each historical business combination. JJWe assessed the appropriateness of the group s valuation methodology and assumptions applied in determining the recoverable amount. JJWe challenged the reasonableness of the forecasts and assumptions applied in the valuation of goodwill by applying an alternative valuation model. JJWe challenged the fair value less cost of disposal of each operating segment prepared by management by performing our own allocation of the company s share price at year-end to the operating segments based on our knowledge of the business. JJWe performed a sensitivity analysis around the key drivers of the cash flow forecasts, in particular discount rates and long-term growth rates and discussed potential changes in key drivers with management. JJWe assessed the appropriateness of the disclosures made in the financial statements. 13

16 Independent auditor s report (continued) Accounting for business combinations refer to notes 1.2.1, 1.24 and 35 to the consolidated financial statements. The key audit matter During the year, the group acquired a 100% equity interest in The Pivotal Fund Limited (Pivotal) and management prepared a purchase price allocation at the date of acquisition. Accounting for a business combination is complex and an area of judgement which could materially affect the financial statements. When the group obtains control of a business, the business combination is accounted for using the acquisition method at the acquisition date (the date on which control is transferred to the group). The consideration transferred in the acquisition is generally measured at fair value, as are the net identifiable assets acquired. The purchase price allocation that management prepared for the acquisition of Pivotal was complex, particularly as a result of the following: JJThe group making a number of judgements, including whether any intangible assets are identifiable at acquisition and whether the goodwill recognised was appropriate; and JJIn determining the fair value of the acquired investment properties, cash flow projections were prepared by the group which involved making key assumptions about expected market rental growth, expected expense growth, bulk rates, occupancy rate, vacancy periods and rent-free periods, as well as the discount and exit capitalisation rates. The complexity of the accounting for the acquisition of Pivotal and the significance of the judgements and assumptions made in determining the fair value of the net identifiable assets and forecasting future cash flows, as well as the work effort from the audit team together with our own valuation specialists, made this a key audit matter. How the matter was addressed in our audit Our audit procedures included the following: JJWe inspected the purchase agreement to determine the effective date and identify the acquired assets and liabilities, and independently recalculated the goodwill at acquisition by performing the procedures set out below. JJWe obtained the purchase price allocation calculation and agreed the fair value of the identifiable assets and liabilities to supporting documentation such as broker statements, bank statements, loan agreements and derivative contracts. JJGiven the significant judgments required in determining the fair value of investment properties, together with our valuation specialists we performed the following procedures for each property included in the portfolio: We assessed the competency and experience of the external valuers and the appropriateness of the valuation methodologies used to determine the values of the properties; Assessed the appropriateness of the key assumptions utilised in the valuations with reference to external industry information and our own industry experience; Assessed the reasonableness of the bulk rates utilised when valuing the undeveloped bulk land in consultation with our independent property expert and our own experience; Compared the forecast net operating income (NOI) in the first forecast year to the budgeted NOI received directly from Pivotal management; and Assessed whether the assumptions used in the valuations at 28 February 2017 when the valuations were performed were consistent with the assumptions that would have applied at 1 January 2017, the acquisition date. JJWe discussed with management and, based on our understanding of the acquisition, assessed whether the difference between the purchase price paid and the net asset value of Pivotal was attributable to any other intangible assets. JJWe assessed the appropriateness of the disclosures made in the financial statements. 14

17 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Impairment of investment in associates refer to notes 1.12, 1.24 and 8 to the consolidated financial statements. The key audit matter During the current year, impairment indicators were identified on the investments in certain associates, namely Redefine international PLC and Cromwell Property Group. As a result, an impairment assessment was required to be performed by comparing the carrying value of these associates to their recoverable amount to determine whether an impairment was required to be recognised. The recoverable amount was determined in accordance with IAS 36 Impairment of Assets to be the higher of the fair value less cost of disposal, represented by the share price of these listed associates, and the value in use, determined by discounting future cash flows. There was uncertainty in estimating the recoverable amount of the investments in associates, which principally arose from the inputs used in both forecasting and discounting future cash flows. Furthermore, the value in use is highly sensitive to changes in these inputs. The determination of the recoverable amount of the investments in associates was one of the key judgemental areas in preparing the financial statements due to a combination of the significance of the investments in the associates and the inherent uncertainty in the assumptions supporting the recoverable amount of these investments. Accordingly, the impairment of investments in associates was determined to be a key audit matter in our audit of the consolidated financial statements. How the matter was addressed in our audit Our audit procedures performed included the following: JJWe inspected published market information on the share price, financial position and performance of the associates to evaluate the completeness of management s impairment assessment and to identify whether there were any additional indicators of impairment on other associates not assessed for impairment. JJTogether with our technical and valuation specialists, we assessed the appropriateness of the group s valuation methodology applied in determining the recoverable amount. JJTogether with our valuation specialists, we assessed the assumptions around the key drivers of the cash flow forecasts with reference to historic dividend income and expected growth rates, as well as exit yields referenced to forward dividend yields. JJWe discussed potential changes in key drivers with management in order to evaluate whether the inputs and assumptions used in the cash flow forecasts were suitable. JJWe assessed the appropriateness of the disclosures made in the financial statements. 15

18 Independent auditor s report (continued) Other information The directors are responsible for the other information. The other information comprises the certificate by the company secretary, the audit and risk committee report and the directors report, as required by the Companies Act of South Africa, as well as the directors responsibilities and approval, property information and shareholders analysis, which we obtained prior to the date of this report. Other information also comprises the integrated report; environmental, social and governance report; and notice of annual general meeting, which are expected to be made available to us after that date. Other information does not include the consolidated financial statements and our auditor s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information obtained prior to the date of this auditor s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the consolidated financial statements The directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so. Auditor s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: JJIdentify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. JJObtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group s internal control. JJEvaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. JJConclude on the appropriateness of the directors use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt 16

19 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION on the group s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the group to cease to continue as a going concern. JJEvaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. JJObtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on other legal and regulatory requirements In terms of the IRBA Rule published in Government Gazette Number dated 4 December 2015, we report that KPMG Inc. has been the auditor of Redefine Properties Limited for two years. KPMG Inc. Registered auditor Per GS Kolbé Chartered Accountant (SA) Registered Auditor Director 3 November 2017 KPMG Crescent 85 Empire Road Parktown 2193 South Africa 17

20 Statement of financial position as at 31 August 2017 Figures in R 000s Notes ASSETS Non-current assets Investment properties Fair value of investment properties Straight-line rental income accrual Properties under development Listed securities Goodwill and intangible assets Investment in associates and joint ventures Derivative assets Loans receivable Other financial assets Property, plant and equipment Current assets Trade and other receivables Loans receivable Other financial assets Derivative assets Listed security income receivable Cash and cash equivalents Non-current assets held-for-sale Total assets EQUITY AND LIABILITIES Equity Shareholders interest Stated capital Reserves Non-controlling interests Non-current liabilities Interest-bearing borrowings Interest-bearing borrowings at fair value Derivative liabilities Other financial liabilities Deferred taxation Current liabilities Trade and other payables Interest-bearing borrowings Interest accrual on interest-bearing borrowings Derivative liabilities Other financial liabilities Taxation payable Non-current liabilities held-for-sale Total equity and liabilities Number of shares in issue^ ( 000) Net asset value per share (excluding deferred tax and NCI) (cents) Net tangible asset value per share (excluding deferred tax, NCI and goodwill and intangible assets) (cents) ^ Group net of (2016: ) treasury shares. 18

21 GROUP ANNUAL FINANCIAL STATEMENTS SUPPLEMENTARY INFORMATION Statement of profit or loss and other comprehensive income for the year ended 31 August 2017 Figures in R 000s Notes Continuing operations Revenue Property portfolio revenue Contractual rental income Straight-line rental income accrual Investment income Total revenue Costs Operating costs ( ) ( ) Administration costs ( ) ( ) Net operating profit Other gains Trading (loss)/income (2 595) 294 Fee income Sundry income Changes in fair values of properties, listed securities and financial instruments 26 ( ) Amortisation of intangible asset (62 856) (62 856) Impairments 27 ( ) (13 886) Equity-accounted profit (net of taxation) Profit before finance costs and taxation Net interest costs ( ) ( ) Interest income Interest expense 29 ( ) ( ) Foreign exchange gains Profit before taxation Taxation 31 ( ) (88 298) Profit from continuing operations Discontinued operations (Loss)/profit from discontinued operations (net of taxation) (13 877) Profit for the year Attributable to: Redefine Properties Limited shareholders Non-controlling interests Other comprehensive income ( ) Items that may not be reclassified subsequently to profit or loss Share of revaluation of property, plant and equipment of an associate Items that are or may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations: Subsidiaries (6 938) (12 687) Associates ( ) Total comprehensive income for the year Attributable to: Redefine Properties Limited shareholders Non-controlling interests Earnings per share from continuing operations 32 Basic Diluted