Wrap Text
Interim Financial Results for the Six Months Ended 31 December 2018
Texton Property 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: ZAE000190542
www.texton.co.za
Interim financial results
For the six months ended 31 December 2018
Key metrics
- Portfolio value* R5,139 billion (Jun 2018: R5,403 billion) down 4,9%
- LTV ratio 40,3% (Jun 2018: 42,7%)** down 2,4%
- Net asset value 826,79 cents per share (Jun 2018: 657,48 cents per share)
up 25,8%
- GLA 378 357m2 (47 properties) (Jun 2018: 385 042m2 (49 properties))
down 1,7%
- Vacancies 10,5% (Jun 2018: 7,9%) up 2,6%
- National/listed/blue chip tenantS (by GLA)* 61,7% (Jun 2018: 64,2%)
down 2,5%
- Investment property income R286,8 million (Dec 2017: R303,9 million)
down 5,5%
- Net property income* R188,1 million (Dec 2017: R212,4 million)
down 11,4%
- Interim dividend per share 36,18 cents (Dec 2017: 47,95 cents)
down 24,6%
* Including Texton's 50% interest in Broad Street Mall
** Excluding PIC Put Option
Commentary
Nature of the business
Texton Property Fund Limited ("Texton" or "the Company" or "the Fund") is an
internally asset managed Real Estate Investment Trust ("REIT") listed on the
JSE Limited. It has a portfolio of R5,2 billion of assets with retail, office
and industrial exposure located in South Africa and the United Kingdom.
As part of the recent management changes and in response to shareholder
feedback, the investment strategy is subject to review. The strategy's main
objectives are to rebalance the Fund to achieve consistent property income
streams, portfolio optimisation and enhanced total returns to achieve a
re-rating of the share price. Our intention is to selectively reposition
the portfolio and to dispose of assets that are considered non-core
properties either due to their location, age or property fundamentals.
Texton is committed to achieving the highest possible returns for its
shareholders by executing its mandate through achieving growth via
diversification.
Distributable earnings and commentary on results
The Board of Directors of Texton ("the Board") declares an interim dividend of
36,18 cents per share, a decrease from 47,95 cents per share at December 2017.
This is primarily a result of increased vacancies at Vunani Chambers,
Hermanstad Industrial Park and Xstrata as well as continuing vacancies at Scott
Street and St George's Mall. Higher net finance costs, lower realised foreign
exchange gains and increased tax charges, specifically on the UK portfolio also
contributed to lower distributable earnings. The core portfolio performed in
line with budget albeit in a difficult trading environment and macro-economic
pressures.
South African overview
The outlook for the South African economy for the 2019 year indicates another
challenging year ahead with growth of 1,3% forecast by the IMF. The technical
recession announced in September 2018, together with the upcoming elections in
May 2019, is expected to put a hold on economic recovery in the short term,
with the first quarter's GDP contraction revised upward to 2,6%.
Stats SA reported inflation at 4,5% to December 2018, only marginally lower
than the 4,6% reported for June 2018. This falls within the target range set by
the South African Reserve Bank of between 3% and 6%. Economists are predicting
one possible further interest rate hike in 2019.
Across the spectrum, tenants continue to scrutinise rentals and operating
costs. Accommodation requirements are reassessed more regularly resulting in
shorter lease terms and pushback in rentals. There has been an evident shift
to flexible and serviced work space. Texton remains agile and well placed to
respond to these opportunities.
The property sector experienced a number of challenges in the recent past
including loss of investor confidence, increasing occupancy costs and
increasing vacancies. There has also been a significant increase in the
amount of space available with a number of developments coming online across
all sectors.
United Kingdom overview
The UK economy has remained relatively resilient in a challenging political
and global trading environment. The overall GDP rate for 2019 is expected to
be circa 1,3%, reflecting a slowdown in the fourth quarter resulting from
the uncertainty caused by the scheduled departure from the EU in March 2019
and the absence of finalised withdrawal terms.
On a positive note, wage growth rose to a decade-high in October 2018 and
inflation has slowed considerably. CPI inflation is set to reduce to
government's target level of 2,0% within the coming months, which suggests
that the economy is well placed to bounce back when Brexit is resolved.
The UK property market remains active with investment volume estimated to be
circa GBP55 billion in 2018. Total returns are forecast to be driven mainly by
income returns during the next stage of the cycle as interest rate increases
impact capital returns. There remains considerable divergence in fortunes
between the different sectors. Demand remains strong for industrial and
alternatives while liquidity in the retail sector is being affected by a
structural change in the occupier markets.
PIC Put Option
At a general meeting held on 28 December 2018, the shareholders voted against
the repurchase of the shares in terms of the Public Investment Corporation SOC
Limited ("PIC") Put Option, which was exercised during 2018.
In line with the legal advice received from senior counsel and after having
followed the prescribed legal process in terms of the contract, the
shareholders' 'no' vote means that Texton is released from its obligation
to repurchase shares in terms of the PIC Put Option and accordingly the
liability has expired.
Subsequent to the resolution of the PIC Put Option in December 2018, the
breaches of facility covenants have been resolved.
Property portfolio
Key performance indicators
The major focus has been tenant retention and letting vacant space. The
oversupply of offices, weaker economic performance and significant rent-free
periods and other leasing incentives offered by the larger landlords, has made
this challenging. In addition, two large tenants have consolidated their
operations into other premises and one tenants has gone into business rescue
in the six months to December 2018.
Texton continues to maintain a well-positioned and defensive portfolio
underpinned by good property fundamentals and strong covenants. The office
properties have performed well despite the oversupplied and competitive market.
The standing industrial portfolio has largely performed in line with
expectations and there is a continued drive to fill vacancies at Hermanstad
Industrial Park. The retail portfolio remains a solid asset class and has
performed remarkably with high occupancies across all properties and regions.
The geographic dispersion of Texton's current portfolio by value is 61,8%
(June 2018: 59,3%) located in South Africa and 38,2% (June 2018: 40,7%) located
in the United Kingdom (including our portion of Broad Street Mall).
There were no acquisitions in the six months to December 2018. The properties
classified as held for sale at 30 June 2018 have been transferred and the
proceeds have been allocated to reduce debt and to fund capital expenditure
commitments at Broad Street Mall.
Overall lease expiry
By GLA By revenue
% %
Vacant 10,5
Jun 2019 10,4 11,4
Jun 2020 19,1 23,0
Jun 2021 14,2 15,1
Jun 2022 9,8 11,4
Jun 2023 11,1 7,5
>Jun 2023 24,9 31,6
100,0 100,0
Overall vacancies
Dec 2018 Sept 2018 Jun 2018 Mar 2018
% % % %
Overall 10,5 7,5 7,9 6,8
Office 6,2 5,0 4,5 4,4
Retail 1,4 0,7 0,7 0,6
Industrial 2,9 1,8 2,7 1,8
Texton continued its active drive to fill its vacancies, retain tenants and
engage with its broker network, principals and prospective users. Vacancies
have increased to 10,5% compared to 7,9% at 30 June 2018.
South Africa
Market conditions remain challenging. We continue to foster relationships with
our tenants in order to improve tenant retention. Texton continually assesses
new manners of offering incentives in order to attract and retain tenants.
The Department of Public Works deadline to finalise long-term leases at
31 December 2018 was extended to 31 March 2019. Texton continues to proactively
engage with all stakeholders and decision makers in this regard. Texton has
progressed in discussions with the Department of Public Works at Foretrust and
14 Loop Street in Cape Town, as well as Lion Roars in Port Elizabeth. Proposals
for both three and five-year tenures have been presented and Texton's senior
management is actively involved in this process.
As communicated previously, vacancies have increased in the first half of the
2019 financial year, as significant occupiers at Vunani Chambers and Hermanstad
Industrial Park have vacated. The continued vacancies at Scott Street and St
George's Mall, together with longer re-let periods and increasing vacancies at
Bryanston Gate and Xstrata, have significantly impacted Texton's net property
income for the interim period.
Lease expiry: SA
By GLA By revenue
% %
Vacant 12,6
Jun 2019 13,3 15,8
Jun 2020 24,7 33,0
Jun 2021 17,2 19,7
Jun 2022 10,7 11,6
Jun 2023 14,1 9,7
>Jun 2023 7,4 10,2
100,0 100,0
Texton's lease expiry profile has improved. Between July and December 2018,
Texton successfully concluded 30 new leases amounting to 11 783m2. In the same
period, 16 existing leases were renewed, amounting to 31 275m2, which is proof
of the success of our focused and proactive approach to tenant retention in a
challenging market.
The majority of lease renewals expiring in the period to June 2022 are already
progressed and we foresee muted to positive reversions.
Vacancies: SA
Dec 2018 Sept 2018 Jun 2018 Mar 2018
% % % %
Overall 12,6 8,8 9,3 7,9
Office 7,8 6,3 5,6 5,5
Retail 1,0 0,1 0,1 -
Industrial 3,8 2,4 3,6 2,4
Vacancies have increased to 10,5% (39 724m2) compared to 7,9% (30 296m2) at
30 June 2018. Texton's vacancy levels are slightly higher than the South
African Property Owners' Association ("SAPOA") average at December 2018 with
Texton's office vacancies of 11,6% marginally ahead of the SAPOA average of
11,1%. Filling these vacancies is a key priority for Texton.
United Kingdom
We have made a successful start in repositioning the portfolio through the
disposal of assets which do not align with our long-term strategic
objectives. Stanford House, Warrington, was sold for GBP13 million in November
2018. The property which was income-producing but unoccupied, required
significant capital expenditure on lease expiry. Texton achieved a capital
profit from the sale and a high leveraged income return throughout the hold
period. The proceeds were partially utilised to reduce debt and partially
to fund capital expenditure commitments at Broad Street Mall.
Our recent steps to streamline the asset and property management structure in
the UK include the internalisation of the asset management function and
engagement of new property managers, which has resulted in a cost saving of
GBP56 000 to date. We are exploring further cost savings within the offshore
structure.
The Texton UK portfolio is diversified across the three main asset classes of
Retail, Offices and Industrial. The pool of assets that is wholly owned by
Texton is 100% let and industrial property now makes up 32,2% by value. The
industrial assets are performing well and are let on long-term leases to strong
covenants such as DHL, Caterpillar and Coveris for an average lease term of
over 11,5 years. Altogether, 94% of the industrial rental income is subject to
guaranteed rental uplifts which are either inflation-linked or based on stepped
rents.
Retail assets that are wholly owned comprise 15,8% of the total UK portfolio by
value. The retail sector in the UK is undergoing significant challenges driven
by structural change and a shift to multichannel retailing. The Texton retail
warehouses in Camarthen and Camborne are both let to the strong covenants of
Dunelm and B&Q for unexpired terms of over nine years. The "big box" retail
units are well suited to "click and collect" and therefore less exposed to
structural change than other retail formats.
Texton's city centre asset in Nottingham occupies a prime location and trades
very well. It occupies an island site and we are progressing development options
to add residential accommodation above the retail. Our 50% interest in Broad
Street Mall and Fountain House offices comprises 30% of the value of the total
UK portfolio. Significant progress has been made on Broad Street Mall over the
last six months with a trio of major lettings signed in September 2018. Part
of the former Argos store was let to Iceland, the national food retailer.
Poundland has been relocated to a more prominent unit in the west mall and
New Look committed to the centre for an additional 10 years following their
restructuring exercise. Terms have been agreed and legal negotiations advanced
with both a cinema operator and a major national hotel chain. Both of these
occupiers will be significant new additions to the tenant line-up at the
centre. These lettings deliver on our business plan to increase the range of
uses at Broad Street Mall.
The past six months have also been busy with the development proposals at Broad
Street Mall. The centre is significantly better placed than the majority of UK
shopping centres due to the mixed-use offering and the opportunity to add value
through a large-scale residential development above the shopping centre.
Reading is an affluent south-east town, set to become increasingly attractive
with the arrival of the new Crossrail infrastructure which will improve links
with central London. Reading was recently ranked by Lambert Smith Hampton as
the third strongest location in the UK, outside of London, in terms of
"demand hotspots" for private rented residential locations. At the end of
November 2018, a planning application was submitted for 493 residential units.
Feedback on this application is expected before Texton's year-end.
Texton's management are more involved with the ongoing and future activities at
this asset. The maximisation of value at Broad Street Mall is seen as a major
priority element for the UK operations and Texton is in complete alignment in
working towards this with our partners.
Lease expiry: UK
By GLA By revenue
% %
Vacant 3,7
Jun 2019 1,2 1,5
Jun 2020 0,8 0,8
Jun 2021 4,2 5,2
Jun 2022 6,9 11,0
Jun 2023 1,3 2,6
>Jun 2023 81,9 78,9
100,0 100,0
The United Kingdom portfolio benefits from long-term leases with the majority
expiring after 2023. Texton will continue to focus on obtaining long-term
income from strong tenant covenants. Being a REIT, these long-term income-
generating opportunities fit well in the Texton portfolio and allow for
continuous stable returns. Texton's properties in the United Kingdom have an
average unexpired lease term of 8,4 years by income and 9,5 years by area.
Vacancies: UK
Dec 2018 Sept 2018 Jun 2018 Mar 2018
% % % %
Overall 3,7 3,6 3,6 3,6
Office 1,0 0,9 0,9 1,0
Retail 2,7 2,7 2,7 2,6
Industrial - - - -
The ongoing vacancies at Broad Street Mall relate to the 5th floor of Fountain
House and the remaining Argos space not yet let.
Greening initiatives
Sustainable business and greening initiatives remain a priority for Texton. As
previously reported, various water-saving initiatives were implemented at our
properties located in the Western Cape.
The installation of a 432kWh solar plant at Kempstar Mall was completed in
December 2018. Significant electricity savings will be realised and allocated
to further greening initiatives at the property.
Additional solar plant initiatives are being investigated throughout the
portfolio.
Capital management
As reported at June 2018, Texton had breached LTV covenants with a number of
lenders as a result of the exercise of the PIC Put Option. The breaches were
remedied when the liability expired on 28 December 2018. The Group LTV ratio
reverted to 40,3% from 55,4% at June 2018.
The determination of whether facilities should be classified as current or
non-current liabilities has reverted to maturity dates of the facilities.
Texton has facilities of R490 million expiring in March 2019 and we have
commenced discussions with the banks in this regard.
Texton's focus is to reduce the LTV ratio to a level comfortably below 40% as
well as to diversify its lending portfolio in order to reduce concentration
risk. We continue to leverage off our good relationships with our lenders.
An area of significant focus is the reduction of the cost of debt and the
enhancement of treasury management practices.
Debt maturity profile
Rand denominated facilities
Drawndown
Facility Fixed Floating* Margin
Expiry R'000 R'000 R'000 Base rate %
31 March 2019 140 000 - 140 000 3m JIBAR 1,72
31 March 2019 350 000 - 226 440 PRIME (1,60)
30 November 2019 85 326 - 85 326 3m JIBAR 1,65
31 January 2020 200 000 - 199 309 3m JIBAR 1,80
31 March 2020 175 000 - 172 574 3m JIBAR 1,88
30 November 2020 200 000 - 200 000 3m JIBAR 1,75
28 May 2021 149 379 - 149 379 3m JIBAR 2,50
30 June 2021 50 502 - 50 502 3m JIBAR 1,95
1 350 207 - 1 223 530
* Partially hedged via interest rate swaps.
Pound denominated facilities
Drawndown
Facility Fixed Floating* Margin
Expiry R'000 R'000 R'000 Base rate %
27 February 2020 (%) 6 986 6 986 - 3,66 n/a
27 February 2020 (%) 6 986 6 986 - 3,61 n/a
27 February 2020 (%) 54 873 54 873 - 3,61 n/a
27 February 2020 (%) 27 812 27 812 - 3,61 n/a
27 February 2020 (%) 145 389 145 389 - 3,61 n/a
28 May 2021 184 614 - 184 614 3m LIBOR 3,50
15 August 2021 77 538 - 77 538 3m LIBOR 2,00
15 August 2021 188 306 - 188 306 3m LIBOR 2,00
15 August 2021 109 107 - 109 107 3m LIBOR 2,00
15 August 2021 94 556 - 94 556 3m LIBOR 2,00
15 August 2021 83 448 - 83 448 3m LIBOR 2,00
979 615 242 046 737 569
* Partially hedged via interest rate swaps.
Interest rate swap maturity profile
Nominal amount Nominal amount Fixed rate
Expiry R'000 GBP'000 %
16 May 2020 225 000 - 7,27
2 November 2020 200 000 - 7,19
16 May 2021 225 000 - 7,40
30 June 2021 270 000 - 7,82
12 August 2021 - 20 310 0,49
12 August 2021 - 9 509 1,28
15 February 2022 200 000 - 7,31
1 120 000 29 819
The Board has reaffirmed the interest rate hedging strategy in terms of which
at least 80% of borrowings must be hedged against interest rate risk. Texton is
85,7% hedged at 31 December 2018.
Currency
The closing exchange rate at 31 December 2018 was R18,46: GBP1
(June 2018: R18,09: GBP1); and the average exchange rate for the period ended
31 December 2018 was R18,38: GBP1 (June 2018: R17,29: GBP1).
It is the Board's policy to hedge the currency risk associated with the net
property income from the UK properties for six months ahead, which is in line
with Texton's budgeting period.
Texton has reassessed the instruments used in hedging its currency exposure and
taken a decision to utilise forward exchange contracts rather than currency put
options going forward.
These instruments are more cost efficient and will provide more certainty
regarding the rate at which Texton can repatriate cash from its UK operations.
Cross-currency interest rate swaps
Nominal amount Nominal amount Texton receives Texton pays
Expiry R'000 GBP'000 % %
2 Sept 2021 600 000 30 801 11 3,18 + LIBOR
27 Jan 2022 128 547 7 710 12 3,98 + LIBOR
728 547 38 511
Forward exchange contracts
Texton sells Exchange rate
Expiry GBP'000 to GBP
19 Jun 2019 2 900 R18,5835: GBP1
Stated capital and shares repurchased
There are 376 066 766 ordinary shares of no-par value in issue
(June 2018: 376 066 766). The Group holds 10 428 348 treasury shares via Texton
Property Fund Limited Share Incentive Scheme Trust and 16 243 865 treasury
shares via Discus House Proprietary Limited, a subsidiary of Texton. There have
been no share buybacks in the six months to December 2018. Going forward, the
Board will assess the application of available proceeds from disposals against
the reduction of debt to improve the LTV ratio as well as potential share
buybacks depending on the price, market conditions and timing.
The Company's share structure is in line with international best practice
for REITs.
Prospects
Texton's portfolio is defensively positioned in both of the markets in which it
operates. However, vacancies in the SA portfolio are expected to increase over
the short term, which will result in lower net property income in the 2019
financial year.
The low economic growth forecast for SA and continued uncertainty around
Brexit, together with increasing costs of tenancy, perpetuate a challenging
operating environment for Texton. We continue to place significant focus on
tenant retention and the filling of our vacancies through active asset
management.
Payment of interim dividend
Notice is hereby given of the declaration of a dividend of 36,18 cents per
share for the interim six-month period to 31 December 2018. The dividend was
declared out of income reserves.
Changes to the Board
In compliance with paragraph 3.59 of the JSE Listings Requirements, the Board
hereby notifies its shareholders of the following changes which occurred during
the period to 31 December 2018:
- Marius Muller was appointed as permanent Chief Executive Officer on
27 November 2018, effective start date of 1 March 2019.
- Marcel Golding was appointed as Chairman of the Board on 27 November 2018.
- Chick Legh, Thys van Heerden and Trurman Zuma resigned as Non-executive
Directors on 27 November 2018.
- Dempsey Naidoo resigned as Chairman of the Board and Non-executive
Director on 27 November 2018.
- Patrick Ntshalintshali retired as Non-executive Director on 27 November 2018.
- Andrew Hannington was appointed as a Non-executive Director on
11 October 2018.
- Shelley Thomas was appointed as Non-executive Director on 29 October 2018.
Salient dates
Dividend declaration date Tuesday, 5 March 2019
Last date to trade Tuesday, 26 March 2019
Ex dividend date Wednesday, 27 March 2019
Record date Friday 29, March 2019
Payment date Monday, 1 April 2019
Share certificates may not be dematerialised or rematerialised between
Wednesday, 27 March 2019 and Friday, 29 March 2019, both dates inclusive.
An announcement informing shareholders of the tax treatment of the dividends
will be released on SENS on 5 March 2019.
Texton's income tax reference: 9353785158
Issued shares as at 5 March 2019: 376 066 766
By order of the Board
MH Muller IF Pick
Chief Executive Officer Chief Financial Officer
5 March 2019
Johannesburg
Condensed consolidated statement of financial position
Unaudited Restated* Audited
six months six months year
ended ended ended
31 Dec 2018 31 Dec 2017 30 Jun 2018
R'000 R'000 R'000
Assets
Non-current assets 4 860 579 5 252 318 4 864 870
Investment property 4 554 652 4 829 708 4 534 810
Property, plant and equipment 1 368 2 318 1 851
Tenant installation 10 412 14 151 11 908
Investment in joint venture 239 632 251 442 231 302
Other non-current assets 8 984 9 290 19 370
Other financial assets 25 494 102 530 32 600
Restricted cash 20 037 42 879 33 029
Current assets 350 832 166 248 458 857
Restricted cash 19 489 8 944 16 427
Trade and other receivables 34 996 46 389 56 169
Non-current assets classified as
held for sale 12 400 - 272 156
Other financial assets 3 403 12 516 6 692
Income tax receivable 11 239 5 887 13 745
Cash and cash equivalents 269 305 92 512 93 668
Total assets 5 211 411 5 418 566 5 323 727
Equity and liabilities
Equity 2 888 742 2 513 075 2 297 186
Stated capital 2 842 473 2 257 206 2 257 206
Retained earnings 247 288 544 887 254 934
Foreign currency translation
reserve (201 019) (289 065) (214 954)
Share-based payment reserve - 47 -
Liabilities 2 322 669 2 905 491 3 026 541
Non-current liabilities 1 846 926 1 736 753 384 987
Other financial liabilities 1 836 259 1 723 167 374 289
Lease liability 3 364 3 426 3 395
Deferred tax 7 303 10 160 7 303
Current liabilities 475 743 1 168 738 2 641 554
Other financial liabilities 378 060 456 017 1 898 441
PIC Put Option liability - 634 527 642 570
Trade and other payables 92 340 78 194 100 543
Income tax payable 5 343 - -
Total equity and liabilities 5 211 411 5 418 566 5 323 727
* See note 5 for details.
Condensed consolidated statement of comprehensive income
Unaudited Restated* Audited
six months six months year
ended ended ended
31 Dec 2018 31 Dec 2017 30 Jun 2018
R'000 R'000 R'000
Investment property income 286 756 303 931 581 192
Straight-line rental adjustment 1 711 (712) 7 721
Revenue 288 467 303 219 588 913
Property expenses (100 410) (90 830) (171 925)
Net property income 188 057 212 389 416 988
Other income 9 852 37 478
Administrative expenses (14 596) (14 556) (28 270)
Loss from joint venture (7 452) (472) (47 452)
Foreign exchange (loss)/gain (12 337) 5 879 17 304
Asset management fees - (6 139) (6 139)
Operating profit 163 524 197 138 352 909
Finance income 52 589 51 834 102 727
Finance costs (90 740) (80 983) (167 016)
Fair value adjustments (19 489) 22 421 (208 423)
Capital expenses (14 156) (3 806) (3 806)
Cancellation of asset management
contract - (180 102) (180 102)
PIC Put Option recognition
adjustment - (5 560) (13 603)
Profit/(loss) before tax 91 728 942 (117 314)
Taxation (12 167) 4 773 611
Profit/(loss) for the period 79 561 5 715 (116 703)
Other comprehensive income:
Items that may be reclassified to
profit or loss:
Exchange differences on 13 935 (18 934) 55 177
translating foreign operations
Total comprehensive
income/(loss) for the period 93 496 (13 219) (61 526)
Profit and total comprehensive
income/(loss) for the period
attributable to:
Equity holders of the Company 93 496 (13 219) (61 526)
Earnings/(loss) per share
Basic and diluted earnings/(loss)
per share(cents) 22,77 2,99 (33,36)
Headline and diluted earnings
per share (cents) 24,46 1,63 26,80
* See note 5 for details.
Condensed consolidated statement of changes in equity
Foreign Share
currency based
Stated translation payment Retained
capital reserve reserve earnings Total
R'000 R'000 R'000 R'000 R'000
Balance at
30 June 2017 2 263 137 (270 131) 47 731 327 2 724 380
Treasury shares
acquired (5 931) (5 931)
Total
comprehensive
income for the
period
- Profit for
the period 5 715 5 715
- Exchange
differences on
translation of
foreign operations (18 934) (18 934)
Transactions with
shareholders
recognised
directly in equity
- Dividend paid (192 155) (192 155)
Balance at
31 December 2017 2 257 206 (289 065) 47 544 887 2 513 075
Elimination of
share-based
payments reserve
on transfer of
liability to new
share incentive
scheme (47) (47)
Total
comprehensive
loss for the
period
- Profit for
the period (122 418) (122 418)
- Exchange
differences
on translation
of foreign
operations 74 111 74 111
Transactions with
shareholders
recognised
directly in equity
- Dividend paid (167 535) (167 535)
Balance at
30 June 2018 2 257 206 (214 954) - 254 934 2 297 186
Extinguishment of
PIC Put Option
liability 642 570 642 570
Derecognition
of PIC Put Option
liability (57 303) 57 303 -
Total
comprehensive
income for the
period
- Profit for
the period 79 561 79 561
- Exchange
differences on
translation of
foreign
operations 13 935 13 935
Transactions
with shareholders
recognised directly
in equity
- Dividend paid (144 510) (144 510)
Balance at
31 December 2018 2 842 473 (201 019) - 247 288 2 888 742
Condensed consolidated statement of cash flows
Unaudited Restated* Audited
six months six months year
ended ended ended
31 Dec 2018 31 Dec 2017 30 Jun 2018
R'000 R'000 R'000
Cash flows from operating
activities
Cash generated by operations 178 423 4 377 199 960
Interest received 42 520 34 457 84 050
Interest paid (81 032) (68 471) (152 530)
Dividends paid (144 510) (192 155) (359 690)
Taxation paid (4 385) (1 889) (17 026)
Net cash outflow from operating
activities (8 984) (223 681) (245 236)
Cash inflows from investing
activities
Additions to property, plant and
equipment - (5 364) (515)
Additions to investment property (3 467) (10 223) (19 488)
Proceeds on disposal of
investment property 272 156 87 250 87 250
Additions to other non-current
assets - (964) -
Loans repaid - - 272
Repayments from joint venture - - 2 923
Loans advanced to joint venture (9 231) - -
Commissions paid (2 175) - (2 910)
Costs and deposit paid for
Equites acquisition - - (10 128)
Tenant installation incurred (929) - (5 321)
Net cash inflow from investing
activities 256 354 70 699 52 083
Cash inflows from financing
activities
Treasury shares acquired - (5 931) (5 931)
Premiums paid on hedging
instruments - (3 523) (6 823)
Proceeds from other financial
liabilities 356 729 498 046 721 822
Repayments of other financial
liabilities (440 402) (405 201) (593 353)
Lease liability payment (236) - (472)
Net cash (outflow)/inflow from
financing activities (83 909) 83 391 115 243
Net increase/(decrease) in cash
and cash equivalents for the
period 163 461 (69 591) (77 910)
Cash and cash equivalents at the
beginning of the period 93 668 154 424 154 424
Effect of exchange rate movement
on cash and cash equivalents 1 626 (1 265) 5 165
Release of restricted cash 10 550 8 944 11 989
Cash and cash equivalents at the
end of the period 269 305 92 512 93 668
* See note 5 for details.
Notes
1. Preparation and accounting policies
The condensed unaudited consolidated interim financial statements have been
prepared in accordance with and contain the information required by IAS 34:
Interim Financial 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
Chief Financial Officer.
The accounting policies applied in the preparation of the condensed
consolidated unaudited financial statements are in terms of IFRS and are
consistent with those applied in the previous consolidated annual financial
statements. None of the new standards, interpretations and amendments
effective as of 1 July 2018 have had a material impact on the condensed
consolidated unaudited interim financial statements.
All monetary information is presented in the functional currency of the
Company, being South African Rand, and is rounded to the nearest thousand
(R'000).
The condensed consolidated interim financial statements have not been
audited or reviewed by Texton's auditors.
The Group's investment properties are valued internally using the
capitalisation of net income method 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, investment properties are measured at fair value and are
categorised as level 3 investments.
The revaluation of investment property requires judgement in the determination
of future cash flows from leases and an appropriate capitalisation rate which
varies between 6,59% and 9,21%.
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.
The fair value of the currency derivatives was an asset of R27,8 million
(June 2018: R32,6 million) and the fair value of the interest rate derivative
net asset was R3,3 million (June 2018: R7,0 million). These fair values were
determined using valuation techniques that present value to the net cash flows.
These cash flows are based on observable market data.
The fair values of all financial instruments, interest rate swaps and
fixed-rate financial liabilities are substantially the same as the carrying
amounts reflected on the statement of financial position.
There were no transfers between levels 1, 2 and 3 during the year. The
valuation methods applied are consistent with those applied in preparing
the previous consolidated financial statements.
The Board is not aware of any matters or circumstances arising subsequent to
December 2018 that require any additional disclosure or adjustment to the
financial statements.
2. Distributable earnings
Unaudited Restated* Audited
six months six months year
ended ended ended
31 Dec 2018 31 Dec 2017 30 Jun 2018
R'000 R'000 R'000
Revenue 286 756 303 931 581 192
Property expenses (100 410) (90 830) (171 925)
Loss from joint venture (7 452) (472) (47 452)
Non-cash items included in loss
from joint venture 2 011 847 44 740
Other income 9 852 37 478
Administrative expenses (14 596) (14 556) (28 270)
Asset management fees - (6 139) (6 139)
Net finance cost (38 151) (29 149) (64 289)
- Finance income 52 589 51 834 102 727
- Finance cost (90 740) (80 983) (167 016)
Taxation (12 167) (859) (7 039)
Capital gains tax on disposal
from non-REIT group entity 2 560 - -
Realised foreign exchange
(loss)/gain (2 007) 4 763 10 604
Dividends on treasury shares 9 650 12 789 23 982
Total distribution 136 046 180 362 335 882
Less: Distribution to
shareholders (interim) - - (180 324)
Available for distribution 136 046 180 362 155 558
Headline earnings
Headline earnings attributable to
shareholders
Profit/(loss) attributable to
shareholders 79 561 5 715 (116 703)
Gross revaluation of investment
property 3 885 - 167 578
Gross revaluation of investment
property recognised in equity
accounted joint venture 2 011 - 42 862
Headline earnings attributable to
shareholders 85 457 5 715 93 737
* See note 5 for details.
3. Cash generated from operations
Unaudited Restated* Audited
six months six months year
ended ended ended
31 Dec 2018 31 Dec 2017 30 Jun 2018
R'000 R'000 R'000
Cash generated by operations
Profit/(loss) before tax 91 728 942 (117 314)
Adjusted for:
Amortisation and depreciation 5 188 4 501 9 277
Impairment allowance 2 734 1 693 1 772
Loss from joint venture 7 452 472 47 452
Finance income (52 589) (51 834) (102 727)
Straight-line adjustment (1 711) 712 (7 721)
Finance costs 90 740 80 983 167 016
Fair value adjustments 19 489 (22 421) 207 761
Share-based payment expense - - 662
PIC Put Option recognition
adjustment - 5 560 13 603
Unrealised foreign exchange
loss/(gain) 10 330 (1 116) (6 700)
Assets scrapped 153 - 111
Forfeiture of Equites deposit 10 128 - -
Cash generated before working
capital changes 183 642 19 492 213 192
Changes in working capital:
- Decrease/(increase) in trade
and other receivables 8 524 (2 583) (21 625)
- (Decrease)/increase in trade
and other payables (13 743) (12 532) 8 393
Cash generated by operations 178 423 4 377 199 960
* See note 5 for details.
4. Restatements
Shareholders are advised that the Company's financial results for the six
months ended 31 December 2017 have been restated as follows:
Previously
reported/ Restated
six months six months
ended ended
31 Dec 2017 Adjustment 31 Dec 2017
R'000 R'000 R'000
Statement of financial position
Finance lease liability (1) 35 427 (32 001) 3 426
Stated capital (2) 2 842 473 (585 267) 2 257 206
PIC Put Option liability (2) - 634 527 634 527
2 877 900 17 259 2 895 159
Retained earnings 561 379 (17 259) 544 120
Impact on equity 561 379 (17 259) 544 120
Statement of comprehensive income
Fair value adjustments (1) 21 626 795 22 421
PIC Put Option adjustment (2) - (5 560) (5 560)
Profit before tax 5 707 (4 765) 942
Profit for the period 10 480 (4 765) 5 715
Total comprehensive loss for the (8 454) (4 765) (13 219)
period
Impact on earnings per share
Basic and diluted headline
earnings per share 2,99 (1,36) 1,63
Headline and diluted headline
earnings per share 3,03 (1,36) 1,67
(1) The lease liability for Woodmead Commercial Park has been restated due
to a prior year error. Contingent rentals were erroneously included in the
calculation of the lease liability, resulting in an overstatement of the
liability by R32,0 million.
(2) Texton entered into the Put Option Agreement in 2015. The exercise of the
Put Option in September 2018 by the PIC gave rise to a contractual liability
under IAS 32 as Texton does not have an unconditional right to avoid paying
cash. This led to the raising of the liability and the restatement of the prior
year financial statements. In the prior year, this amount was not recognised
based on judgements made by management which took into account external
accounting and legal opinions. After a further review of the judgements used
in accounting for the liability, it was recognised as a prior period error
at June 2018. As December 2017 is shown as a comparative period, the
restatement of the PIC Put Option has been disclosed although the liability
has been extinguished at December 2018. A liability of R634,5 million was
raised for the PIC Put Option at 31 December 2017.
5. Segmental analysis
South Africa
Unaudited Restated* Audited
six months six months year
ended ended ended
31 Dec 2018 31 Dec 2017 30 Jun 2018
R'000 R'000 R'000
Segmental revenue - rental revenue
Retail 35 707 35 294 74 397
Office 171 298 183 715 351 336
Industrial 22 051 24 648 46 993
229 056 243 657 472 726
Profit before tax
Retail 17 931 22 052 42 982
Office 112 325 119 578 170 493
Industrial 10 347 15 288 14 739
Corporate (62 125) (199 208) (310 465)
78 478 (42 290) (82 251)
Total assets
Retail 474 253 470 351 474 328
Office 2 506 207 2 596 896 2 541 199
Industrial 291 459 305 562 293 825
Corporate 115 463 133 031 85 957
3 387 382 3 505 840 3 395 309
* See note 5 for details.
UK
Unaudited Restated* Audited
six months six months year
ended ended ended
31 Dec 2018 31 Dec 2017 30 Jun 2018
R'000 R'000 R'000
Segmental revenue - rental revenue
Retail 13 142 12 946 25 297
Office 26 994 28 313 55 104
Industrial 19 275 18 303 35 786
59 411 59 562 116 187
Profit before tax
Retail 1 004 8 408 (95 211)
Office 13 043 20 752 (5 007)
Industrial 13 587 14 366 49 162
Corporate (14 384) (294) 15 993
13 250 43 232 (35 063)
Total assets
Retail 598 271 634 082 576 524
Office 589 437 721 566 736 784
Industrial 634 806 556 532 614 383
Corporate 1 515 546 727
1 824 029 1 912 726 1 928 418
* See note 5 for details.
Total
Unaudited Restated* Audited
six months six months year
ended ended ended
31 Dec 2018 31 Dec 2017 30 Jun 2018
R'000 R'000 R'000
Segmental revenue - rental revenue
Retail 48 849 48 240 99 694
Office 198 292 212 028 406 440
Industrial 41 326 42 951 82 779
288 467 303 219 588 913
Profit before tax
Retail 18 935 30 460 (52 229)
Office 125 368 140 330 165 486
Industrial 23 934 29 654 63 901
Corporate (76 509) (199 502) (294 472)
91 728 942 (117 314)
Total assets
Retail 1 072 524 1 104 433 1 050 852
Office 3 095 644 3 318 462 3 277 983
Industrial 926 265 862 094 908 208
Corporate 116 978 133 577 86 684
5 211 411 5 418 566 5 323 727
* See note 5 for details.
Summary of financial performance
Unaudited Restated*
for the Audited for the Audited
six months for the six months for the
ended year ended ended year ended
31 Dec 2018 30 Jun 2018 31 Dec 2017 30 Jun 2017
Shares in issue and
used for dividend
calculation ('000) 349 395 349 395 349 395 350 328
Weighted average number
of shares in
issue ('000) 349 395 349 812 350 223 351 633
Net asset value per
share (cents) 826,79 657,48 717,35 777,67
Net tangible asset
value less deferred
tax per share (cents) 829,08 659,57 720,25 781,93
Basic and diluted
earnings/(loss)
per share (cents) 22,77 (33,36) 1,63 82,76
Headline and diluted
earnings per share
(cents) 24,46 26,80 1,67 114,70
Dividend per share
(cents) 36,18 89,31 47,95 102,80
Share price (cents) 479,00 605,00 640,00 790,00
Loan-to-value ratio(%) 40,3 55,4 50,9 53,1
Loan-to-value ratio
excluding PIC Put
Option (%) 40,3 42,7 41,8 40,1
IFRS
Gross property cost-
to-income ratio (%) 35,0 29,6 29,9 25,7
Net property cost-to-
income ratio (%) 20,5 14,6 13,4 9,1
Gross total cost-to-
income ratio (%) 38,8 36,3 38,0 28,4
Net total cost-to-
income ratio (%) 27,1 22,7 23,4 15,7
Management accounts
(unaudited)
Gross property cost-
to-income ratio (%) 35,3 28,9 29,9 26,9
Net property cost-to-
income ratio (%) 22,0 15,0 14,6 11,9
Gross total cost-to-
income ratio (%) 38,8 35,1 37,3 34,7
Net total cost-to-
income ratio (%) 26,7 22,4 23,7 21,5
* See note 5 for details.
Corporate information
Physical and registered address
Block C, Investment Place
10th Road, Hyde Park 2196
PO Box 653129, Benmore 2010
Board of directors
M Golding@ (Non-executive Chairman)
MH Muller$* (Chief Executive Officer)
IF Pick* (Chief Financial Officer)
A Hannington^ (Independent Non-executive)
JR Macey (Lead Independent)
S Thomas# (Independent Non-executive)
* Executive director
@ Appointed as Chairman of the Board on 27 November 2018
$ Appointed as Chief Executive Officer on 27 November 2018
^ Appointed as Non-executive Director on 11 October 2018
# Appointed as Non-executive Director on 29 October 2018
Company secretary
Motif Capital Partners
Suite 11, 2nd Floor
Melrose Boulevard
Melrose Arch 2193
Auditor
SizweNtsalobaGobodo Grant Thornton Inc.
20 Morris Street East
Woodmead 2191
Sponsor
Merchantec Capital
2nd Floor North Block
Hyde Park Office Tower
Cnr 6th Road and Jan Smuts Avenue
Hyde Park 2196
PO Box 41480, Craighall 2024
Transfer secretary
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue
Rosebank 2196
PO Box 61051, Marshalltown 2107
Investor relations
Catchwords
Block B, 2 Davidson Street, Rynfield
Benoni 1501
Date: 05/03/2019 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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