distributable - home - dipula income fund · 2017-05-17 · 1 dipula income fund unaudited...

UNAUDITED CONDENSED CONSOLIDATED

INTERIM RESULTS FOR THE SIX MONTHS ENDED 28 FEBRUARY 2017

DISTRIBUTABLE EARNINGS

9,5%to R194.2 million

COMBINED DIVIDENDS PER SHARE

6,3%

INTEREST RATE HEDGING IN EXCESS OF

80%

A-SHARE DIVIDEND

5%to 50.64892 cents

per share

B-SHARE DIVIDEND

7,9%to 41.83993 cents

per share

IN PROGRESS

ACQUISITIONS

R500 millionREVAMPS

R200 million

28 NON-CORE DISPOSALS

R400 million including post period

DIPULA INCOME FUND Unaudited Condensed Consolidated Interim Results 20171

COMMENTARY

Introduction

The unaudited condensed consolidated interim results for the six months ended 28 February 2017 (“the period”) highlights Dipula’s continued growth in a challenging environment, with distributable earnings up 9.5%, resulting in an increase in combined dividends per share of 6.3%, in line with management guidance.

This organic growth is the result of effective value extraction and “sweating our assets”.

Profile

Dipula owns a sectorally and geographically diversified portfolio valued at approximately R7 billion, including retail, industrial and offices in all nine provinces of South Africa. Dipula trades under JSE share codes DIA and DIB. The A-shares are entitled to a 5% preferred dividend growth while the B-shares receive the remaining net dividend declared.

Distributable earnings

Distributable earnings increased 9.5% over the prior period to R194.2 million (February 2016: R177.3 million). This translated into a 6.3% growth in dividends per combined share (February 2016: 7.1%).

The dividend attributable to the A-shares increased 5% over the prior period to 50.64892 cents per share (February 2016: 48.23707 cents per share) in line with the dividend policy of the A-share. The dividend attributable to B-shares is 41.83993 cents per share (February 2016: 38.78144 cents per share), which equates to an increase of 7.9% over the prior period.

Property portfolio

At period end Dipula’s portfolio consisted of 193 properties valued at approximately R7 billion with a total gross lettable area (GLA) of 789 753m² (February 2016: 201 properties valued at R6.7 billion with a GLA of 807 229m²).

The net asset value per combined share increased 7% on the prior period to R10.07.

Cost-to-income ratios February 2017 February 2016Property cost to income (gross basis) 35.0% 35.7%Property cost to income (net basis) 18.0% 19.3%Total cost to income (net basis) 22.2% 23.8%

Vacancies

Vacancies remained at 9.2% compared to the prior period. This level of vacancy is due to challenging market conditions particularly in the office sector where vacancies had increased from 11.7% in the prior period to 15.1% at reporting date.

Industrial vacancies reduced significantly to 8.8% from 11.5%. Retail vacancies increased marginally from 7.6% in February 2016 to 7.9% at period end.

Acquisitions

During the period, acquisitions of R21.7 million were concluded. Acquisitions of approximately R500 million at yields ranging between 9% to 10.5% are in progress.

Disposals

During the period eight properties valued at R72.3 million were sold and transferred. Subsequent to the period end, twenty properties worth R325.4 million were sold at an aggregate yield of 10%. These properties are at various stages of transfer.

Refurbishments and redevelopments

A total of R17.6 million was spent on refurbishments during the period. A further R200.8 million will be spent on refurbishments over the next 18 months at income enhancing yields.

DIPULA INCOME FUND Unaudited Condensed Consolidated Interim Results 2017 2

Dipula lease expiry profile

Subsequent to the period end, a further 23% of the leases expiring before 31 August 2017 were renewed.

0

50000

100000

150000

200000

250000

GLA

(m² )

(R)

GLA Average monthly gross rental income

Dipula lease expiry profile

Income

Vacant 31 Aug 20 31 Aug 18 31 Aug 19 After31 Aug 20

31 Aug 170

5 000 000

10 000 000

15 000 000

20 000 000

Segmental and geographic profile

Dipula’s portfolio as at 28 February 2017 is set out below:

Retail 61%Offices 15%Industrial 24%

Sectoral profile by GLA (%)

Retail 70%Offices 16%Industrial 14%

Sectoral profile by revenue (%) Geographic profile by GLA (%)

Eastern Cape 9%

Free State 3% Gauteng 58% Limpopo 14%

Mpumalanga 2%

North West 4%Northern Cape 2%

Western Cape 2%

KwaZulu-Natal 6%

Geographic profile by revenue (%)

Eastern Cape 9% Free State 2%

Gauteng 60% Limpopo 13%

Mpumalanga 2%

North West 4%Northern Cape 1%

Western Cape 2%

KwaZulu-Natal 7%


COMMENTARY continued

Funding

At 28 February 2017, Dipula’s all-in blended rate of interest was 9.06% (2016: 8.73%). The company has total debt facilities of R3.0 billion with R2.9 billion utilised to date. The aggregate period of borrowings and hedges is two years.

Approximately 70.6% of the interest on the debt had been fixed at the end of the period (2016: 48.2%). Subsequently, further swaps were contracted into, improving the hedge to 82.1% of the debt facilities.

Debt maturity and hedging profileFinancial Facility Fixed/Swap Floatingyear-end R’000 % R’000 % R’000 %

2017 125 000 4.1 125 000 4.1 – –2018 1 329 342 43.9 906 123 29.9 423 219 14.02019 821 107 27.1 473 601 15.7 347 506 11.52020 407 156 13.5 631 250 20.9 (224 094) (7.4)2021 343 676 11.4 – – 343 676 11.3

3 026 281 100 2 135 974 70.6 890 307 29.4

Swap maturity profile

Maturity date R’000Nominal rate

%

27 Oct 2017 70 000 6.951 Dec 2017 506 667 7.1016 Jan 2018 85 000 6.4729 Aug 2019 150 000 7.6629 Aug 2019 200 000 8.0528 Oct 2019 150 000 7.6716 Jan 2020 21 250 6.784 Feb 2020 100 000 8.274 Jul 2020 360 000 7.85

1 642 917

Prospects

The current economic environment is one of almost no growth which has a significant impact on the property sector. The ability to lease new space or expand existing tenants is greatly reduced. The board of directors (“the board”) expects the current economic conditions to continue in the short to medium term. Management will continue to focus on extracting the maximum value from the portfolio and reducing the vacancy factor.

Reflecting the challenging environment, the board expects growth in distributions of between 5% and 6.5% for the year ending 31 August 2017. This growth assumes that macroeconomic conditions do not deteriorate further, no major corporate failures occur and that tenants will be able to absorb rising utility and assessment rates costs. Forecast rental income is based on contractual escalations and market-related renewals. This forecast has not been reviewed or reported on by the group’s auditors.

Payment of interim dividend

The board has approved and notice is hereby given of the interim dividend (dividend number 12) for the period 1 September 2016 to 28 February 2017 of 50.64892 cents per A-share and 41.83993 cents per B-share.

Dipula shareholders will be offered an election, in respect of all or part of their shareholding, to re-invest the cash dividend of 50.64892 cents per A-share and 41.83993 cents per B-share in return for A-shares or B-shares, as the case may be (the “re-investment option”). By electing to participate in this re-investment option, shareholders will be able to increase their shareholding in Dipula without incurring dealing costs. In turn, Dipula will benefit from an increase in the amount of shareholders’ funds available to support continued growth.

Further details regarding the re-investment option, including the manner in which the number of shares to which a participating shareholder is entitled will be determined and the action to be taken by A and B shareholders in order to participate in the re-investment option, will be set out in a circular to shareholders to be issued on or about 17 May 2017, and will also be released on SENS.


The dividend is payable to Dipula shareholders in accordance with the timetable set out below:

2017Last day to trade cum dividend Tuesday, 6 JuneShares trade ex-dividend Wednesday, 7 JuneRecord date Friday, 9 JunePayment date Monday, 12 June

Share certificates may not be dematerialised or rematerialised between Wednesday, 7 June 2017 and Friday, 9 June 2017 both days inclusive.

The dividend will be transferred to dematerialised shareholders CSDP accounts/broker accounts on Monday, 12 June 2017. Certificated shareholders’ dividend payments will be paid to certificated shareholders’ bank accounts on or about Monday, 12 June 2017.

An announcement relating to the tax treatment will be released separately on SENS.

On behalf of the board

Zanele Matlala Izak PetersenChairperson CEO

17 May 2017

Directors: ZJ Matlala* (Chairperson), IS Petersen (CEO), BH Azizollahoff*#, R Asmal (FD), NS Gumede, E Links*, Y Waja*, SA Halliday** Independent non-executive # British

There were no changes to the board during this period.


COMMENTARY continued

BASIS OF PREPARATION AND ACCOUNTING POLICIESThese results were prepared by the Financial Director, Mr R Asmal and the Group Financial Manager, Mrs N Kotze.

The unaudited condensed consolidated financial results for the six months ended 28 February 2017 have been prepared in accordance with the JSE Listings Requirements and the requirements of the Companies Act of South Africa. The JSE Listings Requirements require interim reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (“IFRS”) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34 Interim Financial Reporting. The accounting policies applied are consistent with those applied in the previous year’s consolidated annual financial statements.

The interim financial statements have not been reviewed or reported on by Dipula’s independent external auditor.

Subsequent eventsSubsequent to the reporting date, the fund acquired the additional 20% interest that it does not currently own in Jarabilla Investments Proprietary Limited and Lizinex Proprietary Limited (“Moolman transaction”) for R134 million.

Basis of measurementGiven the nature of its business, Dipula uses distribution per share as its key performance measure as it is considered a more relevant performance measurement than earnings or headline earnings per share.

Measurement of fair value

Investment propertyOn an annual basis, properties above R12 million (at the last valuation date) and one-third of properties below R12 million are valued by independent registered valuers.

The remaining two-thirds are valued internally by directors.

The properties are valued using either the discounted cash flow or capitalisation of net income methods by the internal and external valuers. The valuations are done on an open-market basis with consideration given to the future earnings potential and applying an appropriate capitalisation rate to a property. The capitalisation rates used range between 7.75% and 12%. Investment properties held for sale were valued at the net sale price, which is considered to be the fair value.

Financial instrumentsFinancial instruments are measured at fair value including derivatives. The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the reporting date.

Hierarchy levelsThe fair value hierarchy reflects the significance of the inputs used in making fair value measurements. The level within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

The different levels have been defined as follows:

– Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities

– Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly

– Level 3: Inputs for assets or liabilities that are not based on observable market data

Investment properties and derivative financial instruments have been categorised as Level 3 and 2 respectively. There has been no material change between levels during the period.


Fair value measurements for investment properties categorised as Level 3:2017

R’000Balance at beginning of the year 6 963 015Acquisitions/additions 45 293Transferred to non-current assets held for sale (315 122)Tenant installation/lease commission (445)Balance at end of the period 6 692 741

Valuation technique and significant unobservable inputs

Valuation techniqueSignificant unobservable inputs

Inter-relationship between key unobservable inputs and fair value measurement

Discounted cash flows: The valuation model considers the present value of net cash flows to be generated from the property taking into account expected rental and capitalisation rates. The expected net cash flows are discounted using risk-adjusted discount rates. Among other factors, the discount rate estimation considers the quality of the property, its location and lease terms.

Capitalisation model – establishes the market related rental income for the property and applies an appropriate capitalisation rate.

–Expected rental growth varies between 6% to 8% per annum.

–Risk-adjusted discount rates varies between 14% and 16%.

–Capitalisation rates vary between 7.75% to 12%.

The estimated fair value would increase/(decrease) if:

–expected rentals were higher/(lower); and

– risk-adjusted discount rates and capitalisation rates were lower/(higher).

The group’s Audit Committee determines the policies and procedures for recurring fair value measurement.

At each reporting date, management analyses the movements in the values of assets and liabilities which are required to be remeasured or re-assessed as per the group’s accounting policies. For this analysis, management verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to market conditions and other relevant documents.


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Unaudited six months

Unaudited six months Audited

ended ended year ended28 February 29 February 31 August

2017 2016 2016

R’000 R’000 R’000

ASSETS

Non-current assets 6 742 881 6 779 046 7 017 087

Investment property 6 692 741 6 718 299 6 963 015

Fair value of property portfolio 6 541 767 6 587 553 6 822 860

Straight-line rental income accrual 150 974 130 746 140 155

Goodwill 48 482 48 482 48 482

Property, plant and equipment 1 658 1 615 1 374

Derivative financial assets – 10 650 4 216

Current assets 275 398 192 896 206 704

Trade and other receivables 170 632 142 278 147 972

Cash and cash equivalents 104 766 50 618 58 732

Non-current assets held for sale

Investment property held for sale 336 722 27 716 93 850

Total assets 7 355 001 6 999 658 7 317 641

EQUITY AND LIABILITIES

Equity 4 356 792 3 972 851 4 325 604

Stated capital 3 132 915 3 032 696 3 073 687

Fair value reserve 978 810 716 248 992 884

Retained income 115 711 87 984 127 843

Non-controlling interest 129 356 135 923 131 190

Non-current liabilities 1 881 495 2 104 322 2 631 664

Interest-bearing liabilities 1 881 495 2 104 322 2 631 664

Current liabilities 1 116 714 922 485 360 373

Interest-bearing liabilities 979 667 780 864 255 000

Derivative financial liability 9 037 – –

Trade and other payables 128 010 141 621 105 373

Total equity and liabilities 7 355 001 6 999 658 7 317 641


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unauditedsix months

Unauditedsix months Audited


2017 2016 2016

R’000 R’000 R’000

Revenue 537 439 525 302 1 065 387

Contractual rental income 411 367 385 333 797 557

Recoveries and other income 115 253 106 505 225 918


Property expenses (184 434) (175 762) (349 646)

Net property income 353 005 349 540 715 741

Administration and corporate costs (17 559) (17 766) (32 013)

Net operating profit 335 446 331 774 683 728

Net finance cost (125 713) (114 413) (242 002)

Finance income 3 801 5 302 8 540

Finance cost (129 514) (119 715) (250 542)

Net profit after finance cost 209 733 217 361 441 726

Transaction costs on business combination – (2 943) (3 032)

Fair value adjustments (24 893) (23 163) 245 025

Investment properties and held for sale (821) 1 054 284 124

Straight-line rental income accrual (10 819) (33 464) (41 912)

Interest rate swaps (13 253) 9 247 2 813

Profit before taxation 184 840 191 255 683 719

Taxation – – –

Profit for the period after taxation 184 840 191 255 683 719

Other comprehensive income – – –

Total comprehensive income for the period 184 840 191 255 683 719

Total profit and comprehensive income for the period attributable to:

Shareholders of the company 178 474 183 563 666 049

Non-controlling interests 6 366 7 692 17 670

184 840 191 255 683 719

Earnings and diluted earnings per share

A-share (cents) 42.87 45.27 163.18

B-share (cents) 42.87 45.27 163.18


RECONCILIATION BETWEEN PROFIT, EARNINGS AND HEADLINE EARNINGS

Unauditedsix months



2017 2016 2016

R’000 R’000 R’000

Earnings 178 474 183 563 666 049

Adjustments: 11 640 32 410 (242 212)

Fair value – investment properties revaluation 821 (1 054) (284 124)

Fair value – straight-line rental income 10 819 33 464 41 912

Headline earnings 190 114 215 973 423 837

Weighted average number of A-shares in issue* 208 160 748 201 650 386 203 078 454

Weighted average number of B-shares in issue* 208 160 748 203 878 376 205 098 372

Basic earnings per A-share (cents) 42.87 45.27 163.18

Basic earnings per B-share (cents) 42.87 45.27 163.18

Headline earnings per A-share (cents) 45.67 53.26 103.84

Headline earnings per B-share (cents) 45.67 53.26 103.84

Dividend per A-share (cents) 50.64892 48.23707 96.47414

Interim 50.64892 48.23707 48.23707

Final 48.23707

Dividend per B-share (cents) 41.83993 38.78144 89.49361

Interim 41.83993 38.78144 38.78144

Final 50.71217

Combined dividend per share (cents) 92.48885 87.01851 185.96775

Interim 92.48885 87.01851 87.01851

Final 98.94924

Total number of shares in issue* 419 921 746 407 936 286 413 655 926

Number of A-shares in issue 209 960 873 202 154 037 206 827 963

Number of B-shares in issue 209 960 873 205 782 249 206 827 963

Net asset value per A-share (cents) 1 006.72 940.57 1013.99

Net asset value per B-share (cents) 1 006.72 940.57 1013.99

Loan to Value (LTV) 39.2% 42.0% 40.1%

* Net of treasury shares

Basic and headline earnings per share are based on the weighted average number of shares in issue during the period.

The company does not have any dilutionary instruments in issue.


CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Stated capital

Fair value reserve

Retained Income

Non-controlling

interestTotal

equityR’000 R’000 R’000 R’000 R’000

Balance at 31 August 2015 (Audited) 2 799 016 705 947 99 008 – 3 603 971

Total comprehensive incomefor the period – – 183 563 7 692 191 255

Dividends declared – – (184 286) – (184 286)

Issue of shares 233 680 – – – 233 680

Equity contributed by non-controlling shareholders – – – 128 231 128 231

Transfer to fair value reserve – investment properties – 1 054 (1 054) – –

Transfer to fair value reserve – interest rate swaps – 9 247 (9 247) – –

Balance at 29 February 2016 (Unaudited) 3 032 696 716 248 87 984 135 923 3 972 851

Balance at 31 August 2016 (Audited) 3 073 687 992 884 127 843 131 190 4 325 604

Total comprehensive income for the period – – 178 474 6 366 184 840

Dividends declared – – (204 680) (8 200) (212 880)

Issue of shares 59 228 – – – 59 228

Transfer to fair value reserve– investment properties – (821) 821 – –

Transfer to fair value reserve – interest rate swaps – (13 253) 13 253 – –

Balance at 28 February 2017 (Unaudited) 3 132 915 978 810 115 711 129 356 4 356 792


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

Unauditedsix months



2017 2016 2016

R’000 R’000 R’000

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations 329 801 270 093 577 007

Net finance cost (125 713) (114 413) (242 002)

Net cash generated from operating activities 204 088 155 680 335 005

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of investment properties and capital expenditure (50 006) (1 250 255) (1 282 882)

Acquisition of property, plant and equipment (324) (384) (474)

Proceeds on disposal of investment properties 71 430 60 965 60 703

Contribution from non-controlling interest – 128 231 128 212

Net cash generated from/(utilised in) investment activities 21 100 (1 061 443) (1 094 441)

CASH FLOWS FROM FINANCING ACTIVITIES

Issue of shares 59 228 233 680 274 671

Interest-bearing liabilities (repaid)/raised (25 502) 843 941 845 420

Dividend paid (212 880) (184 286) (364 969)

Net cash (utilised in)/generated from financing activities (179 154) 893 335 755 122

Net increase/(decrease) in cash and cash equivalents 46 034 (12 428) (4 314)

Cash and cash equivalents at the beginning of the year 58 732 63 046 63 046

CASH AND CASH EQUIVALENTS AT END OF PERIOD 104 766 50 618 58 732


CONDENSED CONSOLIDATED SEGMENTAL INFORMATION

Retail Offices Industrial Land Segment totalR’000 R’000 R’000 R’000 R’000

SIX MONTHS ENDED 28 FEBRUARY 2017

Revenue from property portfolio* 373 139 83 174 70 307 – 526 620

Property expenses (132 646) (30 774) (21 006) (8) (184 434)

Net property income 240 493 52 400 49 301 (8) 342 186

Investment property at fair value 4 455 800 1 223 936 987 091 25 914 6 692 741

Investment property held for sale 313 022 10 600 11 700 1 400 336 722

4 768 822 1 234 536 998 791 27 314 7 029 463

SIX MONTHS ENDED 29 FEBRUARY 2016

Revenue from property portfolio* 342 015 83 978 65 845 – 491 838

Property expenses (125 477) (28 873) (21 405) (7) (175 762)

Net property income 216 538 55 105 44 440 (7) 316 076

Investment property at fair value 4 569 697 1 188 777 947 075 12 750 6 718 299

Investment property held for sale 1 116 25 200 – 1 400 27 716

4 570 813 1 213 977 947 075 14 150 6 746 015

* Excluding straight-line rental income

The entity has four reportable segments based on the sectorial nature – these are the entity’s strategic business segments. For each strategic business segment, the entity’s executive directors review internal management reports on a monthly basis.

Reconciliation of reportable segment revenues and profit

Unauditedsix months



2017 2016 2016

R’000 R’000 R’000

Revenue

Total revenue for reportable segments 526 620 491 838 1 023 475


Consolidated revenue 537 439 525 302 1 065 387

Profit

Total profit for reportable segments 342 186 316 076 673 829



Net finance cost (125 713) (114 413) (242 002)

Transaction costs on business combination – (2 943) (3 032)

Fair value adjustments (24 893) (23 163) 245 025

Profit before taxation 184 840 191 255 683 719


DISTRIBUTABLE EARNINGS

Unauditedsix months



2017 2016 2016

R’000 R’000 R’000

Reconciliation of profit for the period to distributable earnings

Profit attributable to shareholders of the company 178 474 183 563 666 049

Fair value – investment properties revaluation 821 (1 054) (284 124)

Fair value – straight-line rental income 10 819 33 464 41 912

Fair value – Interest rate swaps 13 253 (9 247) (2 813)

Antecedent dividend 1 642 1 113 2 492

Transaction costs on business combination – 2 943 3 032

Straight-line rental income accrual (10 819) (33 464) (41 912)

Distributable earnings and dividends declared 194 190 177 318 384 636

Dividend statement

Revenue 526 620 491 838 1 023 475

Contractual rental income 411 367 385 333 797 557

Recoveries and other income 115 253 106 505 225 918

Property expenses (184 434) (175 762) (349 646)

Net property income 342 186 316 076 673 829


Net operating profit 324 627 298 310 641 816

Net finance cost (125 713) (114 413) (242 002)

Antecedent dividend 1 642 1 113 2 492

Non-controlling interests (6 366) (7 692) (17 670)

Dividend 194 190 177 318 384 636

DIPULA INCOME FUND LIMITED(Incorporated in the Republic of South Africa)(Registration number 2005/013963/06)JSE share code : DIAISIN: ZAE000203378JSE share code: DIBISIN: ZAE000203394(Approved as a REIT by the JSE)(“Dipula” or “the company” or “the fund”, and together with its subsidiaries, “the group”)

Registered office and business addressBlock B, Dunkeld Park6 North Road, Dunkeld WestJohannesburg, 2196

Independent auditorsDeloitte & TouchePractice number: 902276Registered AuditorsDeloitte PlaceThe Woodlands20 Woodlands DriveWoodmeadSandton

Transfer secretariesLink Market Services South Africa Proprietary Limited(Registration number 2000/007239/07)13th Floor, Rennie House19 Ameshoff StreetBraamfontein, 2001

BankersThe Standard Bank of South Africa Limited(Registration number 1962/000738/06)3rd Floor, East Wing, 30 Baker StreetRosebank, 2196

Corporate advisor and SponsorJava Capital6A Sandown Valley CrescentSandton, 2196

Company secretaryCIS Company Secretaries Proprietary Limited(Registration number 2006/024994/07)Rosebank Towers15 Biermann AvenueRosebank, 2196

CORPORATE INFORMATION


www.dipula.co.za

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