Interim Results September 2011
1. REVIEW OF RESULTS AND OPERATIONS
Acucap’s board is pleased to report a distribution of 145 cents per unit (cpu) for the six months ended 30 September 2011, 6.03% higher than the same six month period last year.
Particularly pleasing was the high level of leasing activity that took place in the current period. Nearly 74,000m² of leases expired and were renewed or re-let during the six months to 30 September 2011, with the result that over 50% of Acucap’s contractual revenue is attributable to the period from March 2015 onwards.
At the retail level, leases for 53,049m² expired, and there were renewals and new leases signed for 53,914m², the positive difference representing a decline in vacancies. At R97/m² on average, renewal rentals were 10% lower than expiring rentals, but excluding the effects of the Checkers Hyper lease at Festival Mall, which expired after a 20 year lease term, renewal rentals were R105/m² on average, 12% higher than expiring rentals.
Leases for 24,427m² of retail space are due to expire in the next 6 months of the 2012 financial year, at average rentals of R132/m², and are expected to be renewed at an average of R146/m². Vacancy rates remained low across Acucap’s retail portfolio, ending the period at 2.4% of retail GLA.
Acucap’s high quality office portfolio performed well in the period under review. Of the 20,907m² that expired during the six months to 30 September 2011, 19,858m² was renewed or re-let. Average renewal rentals of R119/m² net reflect a negative reversion of 8%, with only a marginal increase in vacancy to 4% at the end of September 2011.
The last development profits from Helderberg Village came through in the six months to 30 September 2011 with the sale of the final two units, and there will be no further income from this source.
The declining trend in bad debt write-offs continued. Bad debts written off across Acucap’s portfolio amounted to R468,000 (0.15% of revenue), compared to R562,000 in the comparative period, (0.2% of revenue).
There were no acquisitions in the period under review, and capital expenditure of R25m has been incurred on the expansion and refurbishment of Bayside Mall which is now complete and showing strong growth in turnovers.
On the basis of individual assets and asset segments, Acucap’s net income is attributable as follows:
| Contractual rental income R'000 | % of total | Net property income R'000 | % of total | |
|---|---|---|---|---|
| Festival | 55 489 | 17.8% | 49 300 | 17.7% |
| Key West | 30 938 | 9.9% | 28 032 | 10.1% |
| Bayside Center | 31 813 | 10.2% | 27 595 | 9.9% |
| Gardens Center | 18 390 | 5.9% | 16 377 | 5.9% |
| Other Retail | 75 126 | 24.1% | 63 256 | 22.8% |
| Retail | 211 756 | 67.9% | 184 560 | 66.4% |
| Offices | 91 965 | 29.5% | 86 363 | 31.1% |
| Industrial | 8 333 | 2.6% | 7 024 | 2.5% |
| TOTAL | 312 054 | 100% | 277 947 | 100% |
2. SIMPLIFIED FINANCIAL INFORMATION
Simplified financial information is presented to eliminate the effects of IFRS and accounting adjustments that do not form part of Acucap’s distribution.
Simplified distribution income statement for the six months ended 30 September 2011
| 6 months to 30 September 2011 R'000 | year to 31 March 2011 R'000 | |
|---|---|---|
| Revenue | 312 054 | 608 738 |
| Net operating expenses | (39 414) | (73 951) |
| Profit before interest and taxation | 272 640 | 534 787 |
| Income from investment in Sycom Property Fund Managers | 20 654 | 28 587 |
| Development profits | 7 183 | 8 937 |
| Interest received | 5 771 | 18 636 |
| Income from Listed Investments | 34 695 | 61 046 |
| Interest received on Unit Purchase Trust | 12 726 | 21 884 |
| Notional Interest received on units issued | 347 | 11 308 |
| Interest Paid | (104 769) | (218 571) |
| Profit for the period | 249 247 | 466 614 |
| Distribution per unit | 145.00 | 275.63 |
| Interim | 145.00 | 136.75 |
| Final | - | 138.88 |
Simplified Balance Sheet at 30 September 2011
| 30-Sep-11 R'000 | 31-Mar-11 R'000 | |
|---|---|---|
| ASSETS | ||
| Property assets | 6 770 216 | 6 717 378 |
| Listed property investments | 905 003 | 868 186 |
| Investment in Sycom Fund Managers | 295 272 | 308 052 |
| Other non-current assets | 388 056 | 392 620 |
| Current assets | 298 787 | 285 288 |
| Total assets | 8 657 334 | 8 571 524 |
| EQUITY AND LIABILITIES | ||
| Shareholder's interest | 5 196 928 | 5 242 769 |
| Deferred Tax | 269 256 | 272 770 |
| Non-current liabilities | 2 817 353 | 2 691 258 |
| Current liabilities | 373 797 | 364 727 |
| Total equity and liabilities | 8 657 334 | 8 571 524 |
| NAV | 30.23 | 30.54 |
3. PORTFOLIO PERFORMANCE
Retail portfolio
The chart below shows the segmental contribution to turnover within Acucap’s retail portfolio.
As in prior years, over 60% of turnover at Acucap’s centres is generated by the food and fashion
majors.
The growth in contribution from Acucap’s major retail segments is reflected below. For the six months to 30 September 2011, the discount, electronics and food service segments showed strong growth of between 7.1% and 8.8% over the prior year. The home segment showed a resurgence in the last quarter to 5% growth over the same quarter in the prior year. The health and beauty and apparel segments gave steady turnover growth of between 4.3% and 5%, but once again supermarket spend remained relatively flat.
The segmental movements in rent-to-turnover ratios are reflected below. The rent to turnover ratios for all segments remain within market norms, and rental levels can be comfortably sustained by tenant turnovers across all segments in the Acucap retail portfolio.
Leases totalling 20,907m² expired during the year at an average net rental of R129,52/m², and were renewed or re-let at an average of R118.87/m², as weakness in the office cycle persists. Leases for only 5,906m² are due to expire in the remainder of the 2012 financial year at an average rental of R137.17/m², and all are expected to be renewed, so that the vacancy rate is likely to remain around its current level of 3 to 4%.
SycomDistributions received from Acucap’s investment in Sycom Property Fund were 5% up on the same period last year at 81.05 cents per unit. With the office vacancy fully in the base, this pleasing turn-around in distribution growth reflects the solid performance of Sycom’s high quality portfolio. The office vacancy has started to reverse more quickly than expected, and Sycom’s growth is expected to accelerate accordingly both in the second half of the current period and into the 2013 financial year.
Sycom's retail portfolio showed turnover growth for the six months of 5.9%. The malls remain well-let, with low arrears. During the period under review, Sycom reached agreement with its coowners at Paarl Mall to acquire their 30% stake of the property at a yield of 8%.
Dividends from Sycom’s investment in the Stenham European Shopping Centre Fund (‘SESCF’) were higher in the second half of the financial year, with the result that total dividends received for the six months to 30 September 2011 were 14% higher in Rand terms than the previous six months.
4. HELDERBERG VILLAGE
Acucap sold the last 2 remaining units in the period under review and the development activities at Helderberg are now complete. Net development profits for the six months were R7.1m, compared to R8.9m in the prior period, and income growth from Sycom should more than compensate for the absence of development profits from Helderberg.
5. BORROWINGS
The company has total borrowings of R2.78 billion (excluding BEE funding). Interest rates are hedged on 40% of total borrowings, at a weighted average rate of 10.4% and a weighted average maturity of 5 years. Acucap’s gearing ratio at 30 September 2011 was 36%, up from 34% at the end of March 2011.
A new 5 year facility of R700m has been granted by Nedbank at an interest rate of prime less 1.7%. This takes Acucap’s total long term facilities up to R3.426 billion, on terms as shown below:
| Facility | Amount | Rate | Expiry |
|---|---|---|---|
| Nedbank A | R719m | Prime less 2.3% | 31 May 2016 |
| Nedbank B | R791m | Prime less 2.3% | 30 April 2013 |
| Nedbank C | R260m | Prime less 1.65% | 31 May 2016 |
| Nedbank D | R700m | Primes less 1.7% | 31 May 2016 |
| Standard Bank | R746m | Jibar plus 1.65% | 30 November 2012 |
| Omsfin | R210m | Jibar plus 1.75% | 30 June 2014 |
| Total long term facilities | R3 426m | ||
| Omsfin overnight facility | R300m |
6. HISTORICAL LEASE EXPIRIES OVER THE LAST 6 MONTHS
The table below shows a summary of all leasing activity in the Acucap portfolio over the last six months.| Expiries and terminations (m2) | Average through rent at expiry (Rm2) | Average escalation rate at expiry | New leases and renewals (m2) | Average through rent for new leases (Rm2) | Average escalation for new leases | |
|---|---|---|---|---|---|---|
| Regional retail | 45 203 | 108.15 | 8.3% | 45 566 | 93.28 | 7.0% |
| Other retail | 7 846 | 105.70 | 8.4% | 8 348 | 117.51 | 8.4% |
| Offices | 20 907 | 129.52 | 8.1% | 19 858 | 118.87 | 8.8% |
| Storage | 2 357 | 84.48 | 3 091 | 84.58 |
Acucap successfully renegotiated over 80% of expiring leases during the year, a high retention ratio that indicates the quality of the portfolio. Retail leases were renewed at a weighted average net rental that was 10% lower than the expiring rental, but excluding the effects of the Checkers Hyper renewal at Festival Mall, retail renewals showed an increase of 12% on renewal. Office leases were renewed with a negative reversion of just over 8%.
7. FORWARD LEASE EXPIRES
Over the next 6 months to the end of the 2012 financial year, leases for 30,333m² will expire,
representing 6.8% of the portfolio GLA. For offices, there is an expected negative reversion of
7%, and for retail, an increase of 11%.
| Area terminating to 31-3-2012 m² | Net rental R/m² at expiry date | Net rental/R/m² on renewal | |
|---|---|---|---|
| Offices | 5 906 | 137.17 | 127.40 |
| Retail | 24 427 | 135.45 | 146.90 |
Acucap’s successful leasing activities have maintained its long-dated lease expiry profile, and the high level of contractual revenue will continue to underpin distribution growth.
| Total | vacancy | Mar-12 | Mar-13 | Mar-14 | Mar-15 | Mar-16 | thereafter | |
|---|---|---|---|---|---|---|---|---|
| Retail | 68.4% | 2.2% | 6.7% | 12.4% | 10.6% | 14.4% | 8.0% | 14.1% |
| Office | 29.0% | 0.8% | 1.7% | 4.4% | 8.0% | 6.7% | 2.9% | 4.5% |
| Industrial | 2.6% | 0.5% | 0.7% | 0.0% | 0.2% | 0.2% | 0.6% | 0.4% |
| Total | 100.0% | 3.5% | 9.1% | 16.8% | 18.8% | 21.3% | 11.5% | 19.0% |
8. VACANCIES
Total vacancies by rental area have reduced from 3.6% at the end of March 2011 to 3.3% at the end of September 2011.
The table below shows the vacancy attributable to each segment of the Acucap portfolio by GLA:
Vacany profile by sector by GL| % of Total GLA | |
|---|---|
| Industrial vacancy | 1.7% |
| Office vacancy | 1.0% |
| Retail vacancy | 0.6% |
| GLA let | 96.7% |
9. COST TO INCOME
Acucap has derived meaningful scale benefits from managing both the Acucap and Sycom portfolios off a common administrative platform. As a result, the cost to income ratio has remained low, with minimal cost drag on distribution growth.
| 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | |
|---|---|---|---|---|---|---|
| Net cost to income | 11.8% | 11.6% | 11.5% | 11.1% | 14.2% | 12.6% |
7. UNIT HOLDER SUMMARY
A summary of Acucap’s unit holder profile is set out below. Annualised trade in Acucap’s linked units was 22.2% of the total number of units in issue, and in June 2011 the JSE marked Acucap’s free float up from 75% to 100%, leading to an up-weighting of Acucap in the J256 index.
| Sept-11 | Mar-11 | |
|---|---|---|
| Government Employees Pension Fund | 13.2% | 13.3% |
| Investec | 10.6% | 9.3% |
| Directors and Employees | 9.2% | 9.2% |
| Investec | 10.7% | 11.5% |
| Stanlib | 7.9% | 9.1% |
| Coronation | 6.7% | 7.9% |
| Old Mutual | 7.0% | 6.6% |
| Nedbank | 6.1% | 6.1% |
| Thesele Group (Pty) Limited | 4.9% | 4.9% |
| 65.6% | 66.4% | |
| Other Shareholders | 34.4% | 33.6% |
| 100.0% | 100.0% | |
| Number of unitholders | 3 750 | 3 282 |
| Weighted average units | 171 859 277 | 165 250 787 |
| Units traded | 19 105 776 | 41 989 078 |
| Annualised liquidity | 22.2% | 25.4% |
11. PROSPECTS
The Acucap property portfolio has demonstrated its defensive strength and quality in adverse conditions, and it remains well-positioned to continue delivering real distribution growth. The board expects full year distribution growth to come in marginally ahead of that achieved for the half year.
The above information has not been reviewed or reported on by Acucap’s auditors.
12. PAYMENT OF DEBENTURE INTEREST
Notice is hereby given that a interim distribution number 22 of 145 cents per linked unit has been approved in respect of the six month period ended 30 September 2011. The last date to trade the linked units cum distribution is Friday 2 December 2011 and the record date will be Friday 9 December 2011. The linked units will start trading ex-distribution from Monday 5 December 2011. Distributions will be made to unit holders on Monday 12 December 2011.
Linked unit certificates may not be dematerialised or rematerialised between Monday 5 December and Friday 9 December 2011 both days inclusive.