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Results for the six months ended 30 June 2019
SA Corporate Real Estate Limited
(“SA Corporate” or “the Group”)
Incorporated in the Republic of South Africa
Share Code: SAC; ISIN Code: ZAE000203238
(Registration number 2015/015578/06)
REIT status approved
RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2019
Interim distribution
- H1 2019 distribution of 20.38 cps
Capital structure
- R4,7bn debt refinanced
- Effective fixed debt of 72.2%
- LTV of 36.6%
Portfolio activity
- Completed and committed developments of R1 056,4m
- Acquisitions and contracted and unconditional acquisitions of R840,9m
- Contracted and actual disposals of R1 095,4m
Property performance
- Total like-for-like NPI growth of 0.8%
- Afhco like-for-like NPI growth of 4.1%
- Reduction in residential vacancy from 9.4% to 5.1%
- Industrial tenant retention 98.6%
INTRODUCTION
SA Corporate Real Estate Limited is a JSE-listed Real Estate Investment Trust (“REIT”) which owns a diversified portfolio of industrial, retail, commercial and residential buildings located primarily in the major metropolitan areas of South Africa with a secondary node in Zambia.
REVIEW OF FINANCIAL RESULTS AND PORTFOLIO PERFORMANCE
Distribution
SA Corporate's distribution per share for the six months to June amounts to 20.38 cps (June 2018: 21.70 cps). The interim distribution has been substantially impacted by factors in the second half of 2018, particularly negative reversions and the impact of administered costs.
Portfolio Performance
The like-for-like portfolio net property income (“NPI”) increased by 0.8%.
Afhco total NPI grew by 11.2% with the like-for-like portfolio increasing by 4.1%. This is largely as result of improved vacancies, especially in the residential portfolio with vacancies reducing by 4.3% in comparison to June 2018. The Afhco performance was further enhanced by rental residential increases of 4.1%, but negatively impacted by significant increases in rates and utilities.
Retail like-for-like NPI increased by 1.3%, driven by retail escalations of 7.5%, retentions of 78.9%, set-off by negative rental reversions of 4.3% and rates increases, not all of which are recoverable.
Industrial like-for-like NPI retracted by 2.3% resulting from substantial negative reversions relating to historical long leases (H2 2018 - negative reversions of 13.5% in respect of 21.0% of the industrial GLA), double digit increases in leasehold ground rentals at Maydon Wharf and the impact of increased rates and electricity, despite strong tenant retentions and escalations of 98.6% and 7.7% respectively.
Income from the Zambian Joint Ventures (“JV's”) amounted to R36,1m (June 2018: R29,7m) representing an increase of 21.5%. This is attributable to reduced vacancies in the second half of 2018, refinancing of the debt at more favourable rates and weakening of the ZAR/USD average exchange rate from R13.81 to R14.21 to the USD.
Net Finance Cost
Net finance cost, excluding the impact of IFRS 16, increased by 8.2%. This is as a result of an increase in debt of R803m from June 2018, due to increased investment activity at a weighted average marginal rate of 1.95% above the 3-month Jibar. Interest income reduced due to the settlement of loans by certain developers. The increase in net finance cost was offset by favourable interest rate and cross currency swap derivatives.
DISTRIBUTION STATEMENT
6 months 6 months Year
ended ended ended
30.06.2019 30.06.2018 31.12.2018
DISTRIBUTABLE EARNINGS (R’000) Unaudited Unaudited Audited
Rent (excluding straight line rental
adjustment) 838,068 834,188 1,690,835
Net property expenses (137,455) (98,186) (235,312)
Property expenses (428,543) (390,293) (832,529)
Recovery of property expenses 291,088 292,107 597,217
Net property income attributable to
non-controlling interest - (9,591) (26,182)
Net property income 700,613 726,411 1,429,341
Investment in joint ventures 36,127 29,736 61,668
Taxation on distributable earnings - - (136)
Impairment of investment in unlisted
shares 1 (552) - -
Dividends from investments in listed
shares 5,875 6,900 13,954
Net finance cost (206,420) (190,755) (391,958)
Interest income 37,730 47,125 88,816
Interest expense (244,150) (247,780) (508,964)
Interest attributable to
non-controlling interest - 9,900 28,190
Distribution related expenses (19,874) (23,254) (44,653)
Distributable earnings 515,769 549,038 1,068,216
Interim 515,769 549,038 549,038
Final - - 519,178
Shares in issue (000) 2,530,689 2,530,689 2,530,689
Weighted number of shares in
issue (000) 2,530,689 2,530,689 2,530,689
Distribution (cents per share) 20.38 21.70 42.22
Interim 20.38 21.70 21.70
Final - - 20.52
1 Edcon shares, issued in respect of the 40.9% reduced Edcon rental income, are fully impaired.
PROPERTY VALUATIONS
The Group's independently valued property portfolio decreased by R0,1bn (0.6%) to R17,7bn as at June 2019 (December 2018: R17,8bn). The like-for-like portfolio held for the full 6 months to June 2019 remained relatively flat, increasing by R1,1m from December 2018.
The capitalisation and discount rates in the Group's like-for-like portfolio at 30 June 2019 calculated on a weighted average basis were:
Sector Capitalisation Discount rate (%) Growth in like-for
rate (%) -like portfolio (%)
30.06.2019 31.12.2018 30.06.2019 31.12.2018 30.06.2019
Industrial 9.6 9.6 15.6 15.6 (1.4)
Retail 8.9 8.9 14.9 14.9 0.3
Commercial 9.5 9.2 15.5 15.2 (4.0)
Afhco 10.5 10.5 * * 2.1
Weighted average 9.6 9.6 15.3 15.3 0.0
* Afhco properties are not valued on a discounted cash flow basis, but on the basis of capitalisation of the net income earnings, due to the short term nature of residential leases.
The NAV is 501 cps at June 2019 (December 2018: 508 cps). The reduction is attributable to a decrease in property valuations (0.6%), negative movements related to the swap valuations (0.6%) and the foreign exchange adjustments on the investment in the JV's (0.1%), related to a higher 6 month average rate relative to the closing rate as at 30 June 2019.
PROPERTY PORTFOLIO
The portfolio comprised 198 properties (December 2018: 200 and June 2018: 199) which excludes the 3 Zambian properties held as a 50% investment in the JV's. The sectoral and geographic spread by value as at 30 June 2019 are set out below.
Sectoral Spread
Retail
R7,2bn
377,831 m2
39 properties
42%
Industrial
R4,6bn
657,161 m2
76 properties
26%
Afhco
R4,7bn
410,812 m2
64 properties
27%
Commercial
R0,8bn
54,130 m2
11 properties
5%
Geographic Spread
Gauteng
R11,4bn
989,656 m2
137 properties
66%
KwaZulu-Natal
R5,0bn
376,467 m2
43 properties
29%
Western Cape
R0,5bn
48,460 m2
6 properties
3%
Other
R0,4bn
85,351 m2
4 properties
2%
The above excludes:
1. Development bulk across the Traditional and Afhco portfolios measuring 133,833 m2 comprising 8 properties and valued at R0,4bn.
2. Listed investments of R128,2m.
3. Investment in JV's valued at R965,8m.
VACANCIES
Vacancies in terms of rentable area and rental income were as follows:
Sector Vacancy as % of GLA* Vacancy as % of rental income
30.06.2019 31.12.2018 30.06.2018 30.06.2019 31.12.2018 30.06.2018
Traditional
Portfolio:
Industrial 0.2 0.6 1.2 0.2 0.4 0.9
Retail 1 4.4 4.1 3.5 5.2 4.2 3.4
Commercial 10.2 6.2 5.7 10.2 5.5 5.5
Traditional
Portfolio total 2.2 2.1 2.2 3.6 2.9 2.6
Afhco Portfolio:
Residential 2 5.1 13.4 9.4 5.0 16.4 12.1
Retail /
Commercial 4.0 4.8 4.5 2.2 3.3 2.6
Rest of Africa
Portfolio:
Retail 5.7 2.7 2.9 4.9 1.8 1.7
Commercial 2.2 1.1 8.6 2.0 1.0 6.3
Rest of Africa
Portfolio total 5.0 2.3 4.1 4.3 1.6 2.7
* GLA=Gross lettable area.
1 Excludes storage as the table reflects vacancies for significant sectors.
2 Vacancy calculated on number of units and reflects tenanting of newly acquired vacant units.
TENANT RETENTION, RENTAL REVERSIONS AND ESCALATIONS
The table below reflects the Group's retention ratio, rental reversions and escalations per sector for the rolling 6 month period ending June 2019:
Sector Expiries Retention Retention Rental Escalations
(m2) (m2) (%) reversions (%)
(%)
Traditional Portfolio:
Industrial 86,242 85,064 98.6 1.7 7.7
Retail 24,227 19,117 78.9 (4.3) 7.5
Commercial 2,728 2,195 80.5 4.5 7.8
Traditional Portfolio
total 113,197 106,376 94.0 (0.7) 7.6
Afhco Portfolio:
Retail / Commercial 3,931 2,916 74.2 1.0 8.5
No retentions, reversions and escalations have been disclosed for the Residential sector due to the short term nature of their leases.
FINANCIAL PERFORMANCE
Decription 30.06.2019 30.06.2018 % Movement
Revenue (R000) 1,134,937 1,170,441 (3.0%)
Headline earnings per share (cents)* 17.96 21.93 (18.1%)
Earnings per share (cents)* 13.85 30.52 (54.6%)
Distribution per share (cents) 20.38 21.70 (6.1%)
NAV per share (cents) 501.45 526.07 (4.7%)
* The earnings and headline earnings per share exclude non-controlling interest. The decrease is predominately due to the downwards revaluation adjustment of the investment property and swap derivatives.
STRATEGY AND PROSPECTS
The Company's strategy is to achieve sustainable distribution growth from a defensive portfolio focussing on four themes being:
1. Refreshing and re-tenanting its retail shopping centres, concentrating the retail portfolio on food services and convenience.
2. Consolidating a quality industrial property portfolio.
3. Divesting from its remaining commercial properties.
4. Establishing a quality residential rental portfolio.
The Company's 2018 second half and 2019 first half performance has been negatively impacted upon by the substantial negative reversions in the renewal of historic long term industrial leases, the increase in municipal rates and other negative effects in the latter part of 2018. As the negative effects of the aforementioned are already in the 2018 second half year base, the 2019 second half distribution growth over the same period in the prior year is anticipated to be better than that for the first half. The Board's view is that the distribution for the 2019 financial year will be between -2% and -4% in comparison to the prior year.
SHORT-FORM STATEMENT
This short-form announcement is the responsibility of the directors, and is a summary of the information in the full announcement and does not contain full or complete details. The full announcement was released on SENS on 3 September 2019 and can be found on the Company's website at http://www.sacorporatefund.co.za/index.php/investor-relations/results-centre/result-announcements. The full announcement is available for inspection at the Company's registered office or the office of the sponsor, at no charge, during office hours. Copies of the full announcement may also be requested from the Company's registered office or the office of the sponsor. Any reference to future financial performance or prospects included in this announcement has not been reviewed or reported on by the Group's auditors. Any investment decision should be based on the consideration of the full announcement released on SENS and published on the Company's website. The full announcement is also available on the JSE link, https://senspdf.jse.co.za/documents/2019/jse/isse/sace/ie2019.pdf. The detailed tax implications in regard to the distribution will be released in a separate announcement.
DISTRIBUTION TIMETABLE
Last date to trade cum distribution Tuesday, 1 October 2019
Shares will trade ex-distribution Wednesday, 2 October 2019
Record date to participate in the distribution Friday, 4 October 2019
Payment of distribution Monday, 7 October 2019
Share certificates may not be dematerialised or re-materialised between Wednesday, 2 October and Friday, 4 October 2019 both days inclusive.
By order of the Board
SA Corporate Real Estate Limited
3 September 2019
INDUSTRIAL | RETAIL | OFFICE | RESIDENTIAL | REST OF AFRICA
For the full announcement visit: www.sacorporatefund.co.za
Date: 03/09/2019 05:30:00
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