Wrap Text
Unaudited Consolidated Interim Results For Six Months Ended 31 August 2017
SPEAR REIT LIMITED
(previously Arrow 2 Investments Proprietary Limited)
Incorporated in the Republic of South Africa
Registration number 2015/407237/06
Share code: SEA
ISIN: ZAE000228995
(Approved as a REIT by the JSE)
('Spear' or 'the Group' or 'the Company')
HIGHLIGHTS
¥ Only regionally specialised REIT on JSE
¥ In excess of R1.14 billion of new acquisitions added to the
Spear portfolio
¥ Portfolio fair value R2.71 billion as at 31 August 2017
¥ Tangible net asset value per share up 4.6% during the six months
ended 31 August 2017
¥ Fund loan-to-value ratio 37.23%
¥ On target to meet revised full-year distribution guidance
NATURE OF THE BUSINESS
Spear REIT Limited listed as a Real Estate Investment Trust ('REIT') on the AltX of
the Johannesburg Stock Exchange ('JSE') on 11 November 2016 and moved to the main
board of the JSE on 22 May 2017. Its main business is investing in high-quality
income-generating real estate across all sectors within the Western Cape,
predominantly in the Cape Town region.
The Company conducts its business directly and through a number of subsidiaries,
collectively referred to as the Group.
The Group's property and asset management functions are internally and directly managed
by the Spear
executive management team.
UNAUDITED CONSOLIDATED INTERIM RESULTS
FOR SIX MONTHS ENDED 31 AUGUST 2017
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Group Group
Unaudited Audited
31 August 2017 28 February 2017
R'000 R'000
ASSETS
Non-current assets
Investment property (including straight-line accrual) 2 713 264 1 445 715
Property, plant and equipment 284 128
Deferred taxation 6 533 6 533
2 720 081 1 452 376
Current assets
Trade and other receivables 8 720 8 092
Cash and cash equivalents 10 675 12 632
Other financial assets 62 822 1 714
Taxation receivable - 11
Insurance claim receivable 5 178 18 687
87 395 41 136
TOTAL ASSETS 2 807 476 1 493 512
EQUITY AND LIABILITIES
Shareholders' interest
Stated capital 1 531 702 917 538
Share-based payment reserve 4 332 3 939
Accumulated income 175 256 65 331
Total attributable to owners 1 711 290 986 808
Non-controlling interest 55 217 -
1 766 507 986 808
Liabilities
Non-current liabilities 1 010 144 478 453
Financial liabilities 1 010 144 478 453
Current liabilities
Other financial liabilities 6 485 -
Loans from related parties 444 3 881
Finance lease - 113
Trade and other payables 22 779 21 554
Deferred revenue 1 117 2 703
30 825 28 251
TOTAL LIABILITIES 1 040 969 506 704
TOTAL EQUITY AND LIABILITIES 2 807 476 1 493 512
Number of ordinary shares in issue 162 515 859 98 226 952
Treasury shares (211 573) (464 591)
Net ordinary shares in issue 162 304 286 97 762 361
Gearing ratio (%) 37.23 33.09
Net asset value per share (cents) 1 053 1 009
Tangible net asset value per share (cents) 1 049 1 003
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Group Group
Unaudited Audited
6 months ended 4 months ended
31 August 2017 28 February 2017
R'000 R'000
Property portfolio
- Contractual rental income 90 405 51 916
- Tenant recoveries 16 979 9 905
- Straight-line rental income accrual 8 662 (2 647)
116 046 59 174
Other income 4 703 2 088
Total revenue 120 749 61 262
Property operating and management expenses (29 717) (16 294)
Net property-related income 91 032 44 968
Administrative expenses (7 203) (4 558)
Net operating profit 83 829 40 410
Fair value adjustment - investment properties 80 141 40 553
Depreciation (44) (4)
Formation and listing cost - (1 873)
Share-based payment expense (392) (3 939)
Profit from operations 163 534 75 147
Net interest (29 502) (16 662)
- Finance costs (31 535) (20 487)
- Finance income 2 033 3 825
Profit before taxation 134 032 58 485
Taxation - 6 846
Profit for the period 134 032 65 331
Other comprehensive income - -
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 134 032 65 331
Equity owners of parent 132 971 65 331
Non-controlling interest 1 061 -
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 134 032 65 331
Basic earnings per share (cents) 111.37 254.83
Diluted earnings per share (cents) 111.37 254.83
Distribution per share (cents) 36.95 23.51
Interest cover ratio (times) 2.55 2.58
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Group
Total Non-
Accumu- attrib- con-
Share lated Equity utable trolling Total
capital profit reserve to parent interest equity
R'000 R'000 R'000 R'000 R'000 R'000
Balance as at
1 November 2016 0.1 - - 0.1 - 0.1
Changes in equity: - - - - - -
Profit for the period - 65 331 - 65 331 - 65 331
Shares repurchased
from founders (0.1) - - (0.1) - (0.1)
Issue of shares 921 888 - - 921 888 - 921 888
Acquisition of
treasury shares (4 350) - - (4 350) - (4 350)
Share-based payment
expense - - 3 939 3 939 - 3 939
Balance as at
28 February 2017 917 538 65 331 3 939 986 808 - 986 808
Changes in equity:
Sale of investment
in subsidiary - - - - 54 155 54 155
Profit for the period - 132 971 - 132 971 1 061 134 032
Shares repurchased from
founders - - - - - -
Issue of shares 614 164 - - 614 164 - 614 164
Acquisition of
treasury shares - - - - - -
Distributions to
shareholders - (23 046) - (23 046) - (23 046)
Share-based payment
expense - - 392 392 - 392
Balance as at
31 August 2017 1 531 702 175 256 4 331 1 711 289 55 216 1 766 505
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Group Group
Unaudited Audited
6 months ended 4 months ended
31 August 2017 28 February 2017
R'000 R'000
Cash generated from operations
Profit before tax 134 032 58 485
Adjustments for:
Straight-line revenue accrual (8 662) 2 647
Fair value adjustments - investment property (80 141) (40 553)
Depreciation 44 4
Finance income (2 033) (3 825)
Finance cost 31 535 20 487
Formation and listing cost - 1 873
Rental loss credits (1 586) (1 101)
Share-based payment reserve 392 3 939
Changes in working capital
Trade and other receivables (628) (8 092)
Trade and other payables 1 224 21 554
Cash generated from operating activities 74 177 55 418
Finance income 2 033 3 825
Finance cost (31 535) (20 487)
Distribution paid (23 046) -
Taxation paid 11 (11)
Net cash generated from operation activities 21 640 38 745
Cash flows from investing activities
Acquisition of investment property (363 050) (20 459)
Investment property cost capitalised - (1 009)
Acquisition of property, plant and equipment (199) (132)
Movement in other financial assets (9 532) (1 714)
Proceeds from insurance receivable 13 509 10 000
Net cash used in investing activities (359 272) (13 314)
Cash flow from financing activities
Proceeds on share issue 457 407 354 350
Repayment of financial liabilities (127 248) (366 531)
Loan to related party (3 437) (4 758)
Loan from related party - 8 639
Repayment of finance lease (112) (148)
Proceeds from other financial liabilities 6 485 -
Purchase of treasury shares (395) (5 310)
Proceeds from sale of treasury shares 2 975 959
Net cash generated from financing activities 335 675 (12 799)
Total cash movement for the period (1 957) 12 632
Cash at the beginning of the period 12 632 -
Cash at the end of the period 10 675 12 632
SUMMARISED OPERATING SEGMENT INFORMATION
UNAUDITED FOR THE PERIOD ENDED 31 AUGUST 2017
Total Profit from Total
revenue operations assets
R'000 R'000 R'000
Industrial 19 073 25 740 708 322
Commercial 38 224 44 152 890 471
Retail 29 209 68 609 458 439
Hospitality 18 984 16 320 626 385
Residential 3 578 4 283 86 656
Non-property 3 019 (4 232) 31 188
Straight-line of leases 8 662 8 662 6 015
Total 120 749 163 534 2 807 476
SELECTED EXPLANATORY NOTES TO THE RESULTS
1. Earnings per share
This note provides the obligatory information in terms of IAS 33 Earnings Per Share and
SAICA Circular 2/2015 for the Group and should be read in conjunction with note 2, where
earnings are reconciled to distributable earnings. Distributable earnings determine the
distribution declared to shareholders, which is a meaningful metric for a stakeholder
in a REIT.
Group Group
Unaudited Audited
6 months ended 4 months ended
31 August 2017 28 February 2017
R'000 R'000
1.1 Basic earnings per share
Shares in issue
Number of shares in issue at end of year 162 304 286 97 762 361
Weighted average number of shares in issue 119 392 694 25 636 517
Diluted weighted average number of shares in issue 119 392 694 25 636 517
Basic earnings per share
Earnings (profit attributable to owners of
the parent) (R'000) 132 971 65 331
Basic earnings per share (cents) 111.37 254.83
Diluted earnings per share (cents) 111.37 254.83
1.2 Headline earnings per share
Reconciliation between basic earnings and
headline earnings
Earnings (profit attributable to owners of
the parent) (R'000) 132 971 65 331
Adjusted for:
Fair value adjustments to investment
properties (gross) (80 141) (40 553)
(tax) - -
Headline earnings (R'000) 52 830 24 778
Headline earnings per share (cents) 44.25 96.65
Diluted headline earnings per share (cents) 44.25 96.65
Group Group
Unaudited Audited
6 months ended 4 months ended
31 August 2017 28 February 2017
R'000 R'000
2. Reconciliation between earnings and
distributable earnings
2.1 Distributable earnings
Earnings (profit attributable to owners of the parent) 132 971 65 331
Adjusted for:
Fair value adjustments to investment properties (80 141) (40 553)
Headline earnings 52 830 24 778
Adjusted for:
Straight-lining of leases adjustment (8 662) 2 647
Depreciation - 4
Formation and listing costs - 1 873
Equity-settled share-based payment reserve 392 3 939
Deferred tax realisation - (6 846)
Less: profit not distributed - (5 970)
Antecedent dividend * 15 489 2 562
Distributable profit 60 049 22 987
Number of shares in issue at period end 162 515 859
Less: Treasury shares (211 573)
Number of shares participating in distribution 162 304 286
* In the determination of distributable earnings, the Group elects to make an adjustment
for the antecedent distribution arising as a result of the capital raise on 12 June
and 7 July 2017, respectively, as well is the private placement in the acquisition of
Mega Park during the period for which the Company did not have full access to the cash
flow from such issues.
DISTRIBUTION DECLARED AND DISTRIBUTION PER SHARE
Distributable earnings (cents per share) FY2018 FY2017
Distribution declared and paid (distribution number 1) - 23.51
Interim distribution recommended by the board and approved
on 19 October 2017 (distribution number 2) 36.95 -
Forecast final distribution (distribution number 3)* 40.05 -
Total distributions for the period 77.00 -
* Forecast based on revised guidance as set out in the 2017 integrated report.
PROPERTY PROFILE
Spear's current property portfolio consists of 31 high-quality Western Cape assets with
an average value per asset of R87.5 million.
The portfolio's income stream is underpinned by average contractual escalations of 8%.
Portfolio vacancies remain at levels well below national averages for commercial,
industrial, retail, residential and hospitality assets.
Top 10 properties by value
Gross % of
lettable total Valuation
Property Value Sector area (m2) value (R/m2)
2 Long Street,
Cape Town 391 570 172 Commercial 24 818 14.45 15 777
Mega Park,
Bellville 383 094 513 Industrial 85 980 14.14 4 456
Sable Square
Shopping Centre 310 586 560 Retail 29 184 11.46 10 642
15 on Orange,
Cape Town 299 679 406 Hospitality 16 726 11.06 17 917
UES Hotel,
DoubleTree by Hilton 213 717 536 Hospitality 11 339 7.89 18 848
Blackheath Warehouse 87 188 776 Industrial 22 315 3.22 3 907
UESH Commercial,
retail and residential section 84 031 629 Commercial 7 182 3.10 11 700
1 Beacon Way,
Beaconvale, Parow 82 901 334 Industrial 16 170 3.06 5 127
Pembury Lodge,
Melrose 80 632 661 Residential 8 000 2.98 10 079
Viking Business Park,
Epping 76 759 665 Retail 9 308 2.83 8 247
2 010 162 252 231 022 74
VACANCY PROFILE
Gross
Number of Value lettable Vacant Valuation
properties R'000 area (m2) area (m2) (%)
Industrial 7 704 035 152 399 70 0.05
Commercial 15 883 986 65 014 2 905 4.47
Retail 5 441 747 55 081 829 1.51
Hospitality 2 597 428 28 066 568 2.02
Residential 2 86 068 8 400 - 0.00
31 2 713 264 308 960 4 372 1.42
SECTORAL PERFORMANCE
Industrial
The industrial sector has performed in line with management's expectations during the
interim period with no major tenant movements or lease expiries during the reporting period.
The industrial portfolio (152 399m2) occupancy was at 99.95% for the reporting period.
Spear's industrial assets are well located within desirable industrial nodes in the greater
Cape Metropole, offer excellent efficiencies and are let at market related rentals. The
asset and property management team engages tenants on a regular basis to ensure their
needs are catered for and their long-term tenure is secured with Spear.
Commercial
The commercial sector performed to management's expectations and vacancies have remained
at low levels of 4.47% during the interim period, translating to 2 905m2 of GLA. Office
sector lease renewals continue to be concluded successfully with upward rental reversions
seen in the majority of renewals concluded for the period. The commercial portfolio
(65 014m2) occupancy was at 95.53% for the reporting period.
With the addition of 2 Long Street and the office additions at Sable Square, management
will continue along a very aggressive and targeted letting campaign to fill office vacancies
in the abovementioned assets. Both assets generated satisfactory interest from the market
which should lead to a high conversion rate in both properties.
Retail
Spear's retail portfolio predominantly comprises convenience retail assets that offer
ultra-convenience retail experiences with ample parking. During the interim period 36%
(20 036m2) of retail GLA (55 081m2) was occupied by national retail tenants, which despite
tough trading conditions continue to attract loyal clientele and turnover. The retail
portfolio occupancy was at 98.49% for the reporting period.
Spear's retail assets continued to perform well and vacancies have seldom come up in this
sector despite the retail sector coming off the boil in 2017. Management believes that its
decision to only expose the business to the convenience retail sector has shielded Spear
from the retail slowdown experienced in larger retail assets across the country.
Residential
Spear's residential portfolio for the interim period continued to perform to the
satisfaction of management with 100% occupancy rates for the reporting period. Currently
only 3% of the total GLA is exposed to the residential sector and it is management's
stated intention to increase the residential holdings closer to 15% of GLA in the
medium term, through the development of approximately 200 residential units at Sable
Square.
Hospitality
The current performance of the domestic economy will always present challenges to parts of
the hospitality sector as both transient and group business become more cost conscious.
The hospitality sector over the interim period has come under pressure by the contracting
economy and the large dependence on the domestic travel market during off-peak seasons.
DoubleTree by Hilton, despite challenging economic conditions throughout South Africa, has
shown an 8% relative share penetration on its competitor set. Management controllable profit
('MCP') is up 29% year on year with confirmed reservation prospects during the coming season
to help claw back any underperformance.
15 on Orange, operated and leased by Marriott International, has been part of the Spear
portfolio for three months. Management has been working closely with Marriott to improve
the hospitality experience at the hotel and seek innovative interventions to reduce the
carbon footprint of the hotel. Income forecasts for the interim period have been met at
rental level and management is confident that the full-year income forecast is in line
with guidance. The first 12 months of ownership is underpinned by a rental income
guarantee.
TENANT GRADING
Gross Gross Number Number
lettable lettable of of
area (m2) area (%) tenants tenants (%)
A - Large nationals, large listed and government 199 983 64.73 99 27
B - Smaller international and national tenants 69 743 22.57 155 42
C - Other local tenants and sole proprietors 27 736 8.98 113 31
Parking and storage 5 555 1.80
Vacant 5 942 1.92
308 959 100 367 100
LETTING ACTIVITY
Spear began the period with an opening vacancy of 1 584m2 or 0.92%; with 20 659m2 expiring
in the interim period. Spear renewed or relet 19 461m2 of the GLA that became available in
the interim period. An additional 30 052m2 of GLA becomes available during the remainder of
the year. Spear's closing vacancy amounts to 4 372m2 or 1.42%.
Gross Gross
Expiries and expiry Renewals/ new Rental Average
cancellations rental new lets rental reversion escalation
YTD GLA (m2) (R/m2) GLA (m2) (R/m2) (%) (%)
Office 2 751 91.72 2 376 94.32 2.8311 8.25
Industrial 13 685 33.43 13 453 33.86 1.28 8.67
Retail 4 153 121.09 3 797 124.92 3.1611 8.33
Residential 70 107.14 70 125.00 16.6711 10.00
20 659 19 696 5.9922
1 Positive rental reversion across the portfolio.
2 Average.
Spear's lease expiry profile remains defensive with a weighted average lease expiry ('WALE')
of 33 months. In the next 12-month period 98% of income is contractual. Spear's asset and
property management team has a hands-on approach to tenant retention and actions tenant
engagements well in advance of expiry to ensure business continuity and risk management for
the business.
LEASE EXPIRY PROFILE
Lease expiry profile
based on gross
lettable area
Percentage Industrial Commercial Retail Hospitality Residential Total
Vacant 0 4 2 2 0 1
Monthly 0 1 4 1 0 1
Expiry in the period ending
31 August 2018 45 18 7 0 3 27
Expiry in the period ending
31 August 2019 10 22 15 2 2 13
Expiry in the period ending
31 August 2020 27 34 12 0 0 23
Expiry in the period ending
31 August 2021 11 9 17 1 0 11
Thereafter 7 12 43 94 95 24
100 100 100 100 100 100
Lease expiry profile
based on revenue
Percentage Industrial Commercial Retail Hospitality Residential Total
Monthly 1 1 6 1 0 2
Expiry in the period ending
31 August 2018 43 21 12 0 4 23
Expiry in the period ending
31 August 2019 12 16 13 10 2 14
Expiry in the period ending
31 August 2020 29 41 13 0 0 28
Expiry in the period ending
31 August 2021 11 11 19 2 0 12
Thereafter 4 10 37 87 94 21
100 100 100 100 100 100
Weighted average escalations
Percentage Escalation
Industrial 7
Commercial 8
Retail 8
Residential 9
Hospitality Note 1 and 2
1. DoubleTree by Hilton Cape Town has a lease with a third party operator which is
based on a fixed (60% of budgeted EBITDA) and a variable (95% of actual EBITDA less fixed
rental) lease.
2. 15 on Orange, African Pride, has a full variable lease based on monthly hotel turnover.
COMMENTARY
Nature of the Business
Spear REIT Limited listed as a Real Estate Investment Trust ('REIT') on the AltX of the
Johannesburg Stock Exchange ('JSE') on 11 November 2016 and moved to the main board of the
JSE on 22 May 2017. Its main business is investing in high-quality income-generating real
estate across all sectors within the Western Cape, predominantly in the Cape Town region.
The Company conducts its business directly and through a number of subsidiaries,
collectively referred to as the Group. The Group's property and asset management functions
are internally and directly managed by the Spear executive management team.
Spear is the only South African REIT with a regionally focused investment strategy. The
current portfolio comprises 31 properties in the Western Cape with a total gross lettable
area ('GLA') of 308 960m2 valued at R2.71 billion (February 2017: R1.44 billion).
Spear's primary focus is to consistently grow its distribution per share by acquiring yield
enhancing assets and focusing its energy on hands-on asset, financial and property
management. Management's proximity to assets remains excellent and its acute understanding
of the Western Cape real estate market truly makes Spear a regional specialist with access
to excellent investment pipelines and development opportunities to further enhance an
already high-quality real estate portfolio.
The year to date has been a period of exceptional asset growth for Spear with new
acquisitions in excess of R1.14 billion in the Western Cape. The effect of the above
transactions resulted in Spear close on doubling its asset base and market cap from
R942 million (February 2017) to R1.66 billion at the end of August 2017.
Spear's focus over the interim period has been to incorporate the newly acquired assets
into the property and asset management platforms with assets transferring as late
as 8 August 2017. Management has worked diligently to ensure that the assets slot in
seamlessly into the synchronised property management system and are managed to the
same standard as the underlying portfolio.
Growing cash flows and continual distribution growth will remain a primary Spear
objective, which management believes clearly displays management and shareholder
alignment.
Financial results
The board of directors are pleased to announce an interim dividend of 36.95 cents
per share for the interim period ended 31 August 2017.
Spear's results are in line with revised guidance as disclosed on SENS on 17 May 2017
and is testament to Spear's focus, active asset and property management along with
prudent financial management of the going concern.
All new acquisitions closed during the interim period are performing to the satisfaction
of management and in line with budget. Property portfolio revenue for the period
contributed 98% of total revenue, while other income from development management services
represented 2%.
Acquisitions
The Group acquired the following properties during the six-month period ended 31 August 2017:
Acquisition Debt Acquisition
Transfer value funding yield
date R'000 R'000 (%)
142 Edward Street, Tygervalley 1 March 2017 41 200 23 200 9.70
Selective House, Tygervalley 14 March 2017 13 200 13 200 9.92
15 on Orange, Cape Town 12 June 2017 298 000 175 000 9.55
2 Long Street, Cape Town 22 June 2017 389 000 220 000 9.32
Mega Park, Bellville 28 July 2017 379 157 224 000 9.30
Virgin Active George, George 8 August 2017 22 000 12 000 9.22
1 142 557 667 400 9.50
In process of transfer
Tyger Manor Convenience Centre
The property with a gross lettable area ('GLA') of 3 748m2 is located on Durban Road
opposite Tygervalley Shopping Centre. The property fits into the Spear investment strategy
of increasing its exposure to high-quality assets within the Western Cape. Management has
set its focus on the acquisition of convenience retail investments as opposed to super
regional retail investments given the stronger performance of convenience retail assets in
the current economic environment. Tyger Manor offers Spear an opportunity to increase its
holdings in the Tygervalley node, along with Spear's seven other commercial properties in
the immediate area. Management considers the Tygervalley node as a benefactor of the
positive effects of semigration and the increase in demand for office and retail premises
in the area.
The two largest tenants in the property are Spar Grocer, Tops Liquor Store and McDonald's
South Africa. On a percentage of GLA basis the two anchor tenants take up 46% of the
lettable GLA on the property, which provides a strong income underpin on the asset. The
asset has been acquired for R59.6 million at an acquisition yield of 9.31% with asset WALE
of 29 months.
Capital expenditure and redevelopment
Sable Square
Sable Square is a retail centre located in the Century City node of Cape Town. Sable Square
offers an excellent mix of convenience retail, well placed commercial office space and
self-storage facilitates, all in one easy-to-find location. Sable Square offers a high-
quality tenant mix consisting among others of PNP, Clicks, Tekkie Town, Adidas, Baby City,
Spur, Zone Fitness, Storesmart and many more. Parking at Sable Square is in abundance
and the centre is easy to access off Ratanga Road and Bosmansdam Road. Sable Square is
situated on the MyCiti bus route, with a bus station situated directly opposite the
entrance to Sable Square.
Spear commenced with a capital expenditure programme at Sable Square to unlock the approved
and undeveloped bulk of 27 000m2. The first phase of the project (4 200m2) includes the
development of 2 900m2 of new GLA consisting of a 1 600m2 Zone Fitness Gym, 1 300m2 of new
A grade office space and the redevelopment of an existing 1 300m2 into A grade office space.
Phase one is progressing in line with both the delivery timelines and project budget with
70% of the new additions already pre-let at asking rentals. Capital costs associated with
phase one will have a value of R70 million and Spear's development yield on this phase will
exceed 9.6% in year one.
Footfall and turnover growth in the centre has been constantly increasing and management
continues to improve both the tenant mix and the customer experience at Sable Square. In a
bid to further enhance the quality of the asset, management has commenced the planning
of phase two of the capital expenditure programme that would see the introduction of a
residential component to Sable Square. This will comprise between 100 and 200 residential
units on a rental only basis transforming the asset into a true mixed-use precinct offering
a live, work and play lifestyle in a secure location. Capital costs associated with phase
two will be in the region of R400 million and is expected to commence once local authority
approvals have been obtained and a feasible scheme has been approved by the Investment
Committee.
Recycling capital and capital allocation
Four assets (two residential, one retail and one office) with a GLA of 10 894m2 and a book
value of R120 million have been identified as assets that management wishes to dispose of.
The residential asset situated in Melrose, Johannesburg is the only assets Spear owns outside
of the Western Cape and is in the process of being disposed.
Management has made it clear that Spear only wishes to own assets within the Western Cape.
A further two sales of the assets earmarked for disposal have become unconditional and will
be sold for an aggregate consideration of R16.4 million at an average yield of 8%.
Management will, on an ongoing basis, identify assets within the portfolio that no longer
fit management's growth and portfolio strategy and will be disposed of with the proceeds
recycled into larger Cape-based assets.
Management has set a target to increase the average asset value to above R100 million and
will therefore recycle assets that fall outside of this target in the medium term at the
right disposal value and yield.
Distributable earnings
The board approved and declared distribution number 2 of 36.95 cents per share on
19 October 2017. The distribution declared is an increase of 0.5% over the revised interim
forecasted distribution of 36.77 cents per share and the Company is on target to achieve its
revised forecast distribution of 77 cents per share for the financial year ending
28 February 2018.
The forecast distribution was revised upwards by 4% from what was disclosed in the
Pre-listing Statement ('PLS') dated 21 October 2016 for the financial year ending
28 February 2018.
The revised forecast is the sole responsibility of the directors and has not been reviewed
or reported on by the Company's auditors.
31 August 2017
(cents per share)
Distribution 1 - Declared 17 May 2017 23.51
Distribution 2 - Interim 36.95
Tangible net asset value
The tangible net asset value per share increased 4.61% from R10.03 per share to R10.49
per share.
Tangible net asset value Rands Growth %
21 October 2016 (as per PLS) 9.37
28 February 2017 10.03 7.01
31 August 2017 10.49 4.61
Borrowings and funding
The Group obtained funding for property acquisitions through two capital raises and
increasing bank borrowings as disclosed under acquisitions.
Number of Price Value
Capital raise date shares (million) Rands R million
12 June 2017 29.4 9.50 279
7 July 2017 19.2 9.50 182
The Group's gearing level at 31 August 2017 was 37.23%, an increase of 12.50% from 33.09% as
at 28 February 2017, and had fixed borrowings of 71% of total borrowings at an average fixed
rate of 9.51%
Amount
R'000
Variable borrowings 288 191
Fixed borrowings* 721 953
Total borrowings 1 010 144
* Percentage fixed: 71%
Debt expiry R'000 %
FY2019 217 509 22
FY2020 323 073 32
FY2021 435 866 43
FY2024 33 696 3
1 010 144 100
Sustainability
Spear is committed to creating a safe and healthy workplace and continually seeks to reduce
its carbon footprint. Management acknowledges that real estate is a long-term investment
that requires the availability of natural resources to service the needs of its tenants.
Management endeavours to seek out ways to preserve scarce resources on a day-to-day basis
through sustainable energy projects and water saving initiatives.
Spear has commenced the implementation of solar PV solutions across its portfolio where solar
viabilities have been concluded in a bid to reduce its reliance on mainstream energy
providers and further reduce its carbon footprint given South Africa's reliance on coal
and nuclear-powered electricity production plants.
The Western Cape has been hard hit by a severe drought due to insufficient rainfalls in 2016
and 2017. Various water saving initiatives have been implemented across the Spear portfolio
in addition to the installation of well points on assets where such installations were
possible so as to reduce the demand on the municipal water supply of the Cape Metropole.
Management will continue to operate the business in an environmentally sustainable manner
and will seek innovative ways in both the current real estate portfolio along with
brownfield and greenfield development projects to implement environmentally-focused best
practice principles when briefing our development teams and ensure that such principles
are incorporated into the final product on delivery.
Board appointments
Following the acquisition of Mega Park Industrial Estate in July 2017 shareholders were
advised that Cormack Sean McCarthy had been appointed as a non-executive director with
effect from 28 June 2017, which was approved by shareholders at the AGM on 11 August 2017.
Sean was also appointed to the Investment Committee.
Sean has 30 years' experience in the real estate industry. Having developed a substantial
number of residential, commercial and industrial projects, he has a wide array of
knowledge in the property development field. Sean's specialty has been identifying
and developing opportunities where substantial value was unlocked and given his
practical and hands-on approach Sean has tackled complex projects, which are less
attractive to the broader market, but offer higher returns.
Prospects and guidance
As at 17 May 2017 management had, in light of recent acquisitions, improved cost of
debt, and other operational efficiencies within the Company. Management has also
issued revised guidance for the full-year distribution per share for the year ending
28 February 2018 to be 77 cents premised upon the following assumptions:
¥ a stable macro-economic environment will prevail;
¥ lease renewals are concluded as per the Company forecast;
¥ no major tenant failures take place;
¥ tenants absorb rising tenancy costs; and
¥ all new acquisitions successfully transfer to Spear.
The interim distribution of 36,95 cents per share is in line with management's
guidance set out for the period ending 31 August 2017.
The information and opinions contained above are recorded and expressed in good
faith and are based upon reliable information provided to management. No
representation, warranty, undertaking or guarantee of whatsoever nature is made or
given with regard to the accuracy and/or completeness of such information and/or
the correctness of such opinions.
Subsequent events
The directors are not aware of any events, other than those listed below, that have
occurred since the end of the financial period, which have a material impact on the
results and disclosures in these unaudited consolidated interim financial results.
As announced on SENS on 19 September 2017, Spear REIT Limited concluded an agreement
with MWProp (Pty) Ltd in terms of which Spear REIT Limited acquired the single tenant
property occupied by blue-chip tenant, MWEB (owned by Internet Solutions, a wholly
owned subsidiary of Dimension Data). MWEB was founded in 1997 and is today South
Africa's largest Internet service provider ('ISP'). MWEB offers a range of Internet
access offerings, differentiated tools and services to approximately 320 000
customers. The Company's main division, MWEB Connect, is focused on the residential
and small business market. The asset houses state-of-the-art data centres along with
various support services for Internet Solutions and Dimension Data.
The property is located on Fairway Close opposite the N1 City retail and commercial
precinct. The property is well positioned on the N1 highway that links the Cape Town
CBD and Northern Suburbs of Cape Town, providing convenient access and egress to and
from the property. The acquisition is in line with Spear's investment strategy of
increasing its exposure to high-quality assets within the Western Cape.
The asset has been acquired for R145 million at an acquisition yield of 9.6%.
MWEB has a lease in place over the asset for a further 30 months and occupies the entire
GLA of 11 195m2.
Basis of preparation
The unaudited consolidated interim results for the six months ended 31 August 2017
are prepared in accordance with the JSE Listings Requirements for provisional reports
and the requirements of the Companies Act of South Africa. The JSE Listings Requirements
require provisional reports to be prepared in accordance with the framework concepts and
the measurement and recognition requirements of International Financial Reporting Standards
('IFRS'), the SAICA Financial Reporting Guides as issued by the Accounting Practices
Committee and Financial Reporting 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. Except for the adoption of revised and new standards that
became effective during the year, all accounting policies applied in the preparation of
these unaudited consolidated interim financial statements are in terms of IFRS and are
consistent with those applied in the previous consolidated financial statements. There was
no material impact on the annual financial statements as a result of the adoption of
these standards.
Christiaan Barnard (CA) SA, in his capacity as Financial Director, was responsible for the
preparation of the unaudited consolidated interim results for the six months ended 31 August 2017.
These consolidated interim results have not been reviewed or reported on by the Company's
auditors. Any reference to future performance included in this announcement has not been
reviewed or reported on by the Company's auditors.
Interim distribution for the six months ended 31 August 2017
Notice is hereby given of the declaration of interim distribution number 2 of 36.95008
cents per share, from income reserves.
As Spear is a REIT, the distribution meets the definition of a 'qualifying
distribution' for the purposes of section 25BB of the Income Tax Act (Act No. 58 of 1962)
('Income Tax Act'). Qualifying distributions received by South African tax residents will
form part of their gross income in terms of section 10(1)(k)(i)(aa) of the Income Tax Act.
Consequently, these distributions are treated as income in the hands of shareholders and
are not subject to dividends withholding tax. The exemption from dividends withholding tax
is not applicable to non-resident shareholders, but they may qualify for relief under
a tax treaty.
South African tax residents
The dividend received by or accrued to South African tax residents must be included
in the gross income of such shareholders and will not be exempt from income tax (in
terms of the exclusion to the general dividend exception, contained in paragraph (aa) of section
10(1)(k)(i) of the Income Tax Act) because it is a dividend distributed by a REIT. The
dividend is exempt from dividend withholding tax in the hands of South African tax resident
shareholders, provided that the South African resident shareholders provide the following
forms to the Central Securities Depository Participant ('CSDP') or broker in respect of
uncertificated shares, or to the Company, in respect of certificated shares:
¥ a declaration that the dividend is exempt from dividend tax; and
¥ a written undertaking to inform the CSDP, broker or the Company, should the circumstances
affecting the exemption change or the beneficial owner cease to be the beneficial owner,
both in the form prescribed by the Commissioner for the South African Revenue Service.
Shareholders are advised to contact their CSDP, broker or the Company to arrange for the
above-mentioned documents to be submitted prior to payment of the dividend, if such
documents have not already been submitted.
Non-residents shareholders
Dividends received by non-resident shareholders will not be taxable as income and
instead will be treated as an ordinary dividend which is exempt from income tax in
terms of the general dividend exemption in section 10(1)(k)(i) of the Income Tax Act.
It should be noted that up to 31 December 2013, dividends received by non-residents from
a REIT were not subject to dividend withholding tax. Since 1 January 2014, any dividend
received by a non-resident from a REIT will be subject to dividend withholding tax at
20%, unless the rate is reduced in terms of any applicable agreement for the avoidance
of double taxation between South Africa and the country of residence of the shareholder
concerned. Assuming dividend withholding tax will be withheld at a rate of 20%, the net
dividend amount due to non-resident shareholders is 29.56006 cents per share. A reduced
dividend withholding rate in terms of the applicable Double Taxation Agreement ('DTA')
may only be relied on if the non-resident shareholder has provided the following form to
their CSDP or broker in respect of uncertificated shares, or the Company, in respect of
certificated shares:
¥ a declaration that the dividend is subject to a reduced rate as a result of the
application of the DTA; and
¥ a written undertaking to inform their CSDP, broker or the Company, should the circumstances
affecting the reduced rate change or the beneficial owner cease to be the beneficial owner,
both in the form prescribed by the Commissioner for the South African Revenue Service.
Non-resident shareholders are advised to contact their CSDP, broker or the Company to
arrange for the above-mentioned documents to be submitted prior to payment of the dividend,
if such documents have not already been submitted.
The number of ordinary shares in issue on declaration date is 162 515 859.
The Company's tax reference number is 9068437236.
Holders of uncertificated shares have to ensure that they have verified their residence
status with their CSDP or broker. Holders of certificated shares will be asked to
complete a declaration to the Company. The distribution is payable to shareholders
in accordance with the timetable set out below:
Last day to trade cum dividend distribution Tuesday, 7 November 2017
Shares trade ex dividend distribution Wednesday, 8 November 2017
Record date Friday, 10 November 2017
Payment date Monday, 13 November 2017
Share certificates may not be dematerialised or rematerialised between Wednesday,
8 November 2017 and Friday, 10 November 2017, both days inclusive.
In respect of dematerialised shareholders, the distributions will be transferred to
the CSDP account/broker account on Monday, 13 November 2017. Certificated shareholders'
distribution payments will be paid to certificated shareholders' bank accounts on Monday,
13 November 2017.
On behalf of the board
Spear REIT Limited
Cape Town
19 October 2017
Mike Flax Quintin Rossi Christiaan Barnard Abu Varachhia
Chief Executive Officer Managing Director Financial Director Non-executive Chairman
Directorate and Administration
Directors
Abubaker Varachhia* (Non-executive Chairman)
Michael Naftali Flax (Chief Executive Officer)
Quintin Michael Rossi (Managing Director)
Christiaan Barnard (Financial Director)
Brian Leon Goldberg*#
Jalaloodien Ebrahim Allie*# (Lead independent director)
Niclas Kjellstršm-Matseke*#
Cormack Sean McCarthy* (appointed 28 June 2017)
* Non-executive
# Independent
Registered office
5th Floor
DoubleTree by Hilton
Upper Eastside, 31 Brickfield Road
Woodstock
Cape Town, 8010
(PO Box 50, Observatory, 7935)
Contact details
info@spearprop.co.za
www.spearprop.co.za
Company Secretary
Rene Cheryl Stober
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
(PO Box 61051, Marshalltown, 2107)
Independent reporting accountants and auditors
Grant Thornton Cape
6th Floor, 123 Hertzog Boulevard, Foreshore, Cape Town, 8001
(PO Box 2275, Cape Town, 8000)
Sponsor
PSG Capital Proprietary Limited
1st Floor, Ou Kollege Building, 35 Kerk Street, Stellenbosch, 7600
(PO Box 7403, Stellenbosch, 7599)
Legal adviser
Cliffe Dekker Hofmeyr
11 Buitengracht Street, Cape Town, 8001
(PO Box 695, Cape Town, 8000)
Bankers
Nedbank Limited
Investec Limited
Standard Bank
Date: 19/10/2017 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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