D. PROFIT OR LOSS
D1 REVENUE AND MINIMUM LEASE PAYMENTS
D1.1 Revenue
D1.1.1 Accounting policy
 

Revenue consists of:

a. Rental and other lease income – governed by IAS 17: Leases

b. Recoveries – governed by IFRS 15: Revenue from contracts with customers.

Rental and other lease income

Rental and other lease income represents the amounts receivable for services provided, net of value added tax, and is measured at the fair value of the consideration received or receivable.

Rental and other lease income comprise contractual rental income, income from marketing and promotions and parking income. Contractual rental income (including tenant parking income) is recognised on a straight-line basis over the term of the lease. Income from marketing, promotions and parking is recognised when the service is rendered.

Contingent rentals/turnover rentals (variable rentals based on the turnover achieved by a tenant) are included in revenue when the amounts can be reliably measured.

Recoveries

Recoveries income represent the transaction price, i.e. the amount of the consideration which the entity expects to receive for services provided, net of value added tax. The group retains primary responsibility for the provision of the services, and considers itself the principal supplier of such services in this respect.

Recoveries are recognised on an accruals basis in line with the service being provided. Accordingly the group maintains its recording of service charge income on a gross basis.

Performance obligations related to recovery income

a. When the entity typically satisfies its performance obligations  
  • Services are rendered during the month. Revenue is recognised at a point in time (the end of the month in which the service is rendered).
b. The significant payment terms  
  • Payment from tenants is due on the 1st of each month.
c. Variability of the consideration payable  
  • Recoveries are typically fixed for cleaning, security and marketing contributions based on contracted expenses for a period
  • Utility recoveries are charged either at a flat rate per unit or at a variable rate per unit depending on time of use.
d. The nature of the goods or services that the entity has undertaken/agreed to transfer  
  • Services rendered include the provision of utilities, cleaning, security and marketing services for a calendar month.
D1.1.2 Profile
 
  GROUP     COMPANY  
  30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
Rental and other lease income (recorded in accordance with IAS 17: Leases)   2 330 177    2 244 650          2 157 540    2 071 763    
   Contractual rental income  2 123 044  2 030 287        1 958 379  1 865 546    
   Turnover rent  40 610  46 246        40 610  46 246    
   Parking income  102 389  103 876        99 976  101 846    
   Marketing and promotions recovery  64 134  64 241        58 575  58 125    
Straight-line rental income accrual  (87 887) (3 847)       (81 399) (4 696)   
Lease income  2 242 290  2 240 803        2 076 141  2 067 067    
Recoveries (non-lease income recorded in accordance with IFRS 15) 975 558  872 910        927 706  822 068    
   Municipal cost recoveries  720 434  630 536        696 444  606 431    
   Operating cost recoveries  236 973  226 752        214 862  200 715    
   Other recoveries  18 151  15 622        16 400  14 922    
Revenue  3 217 848  3 113 713        3 003 847  2 889 135    
D1.2 Minimum lease payments receivable
 

Minimum lease payments comprise contractual rental income and operating costs recoverable from tenants in terms of existing lease agreements.

  GROUP AND COMPANY  
  30 June 2019
R000
30 June 2018
R000
 
The minimum lease payments receivable from tenants have been classified into the following time periods:      
– Short term (up to one year) 2 104 186 1 992 472  
– Medium term (greater than one year and up to five years) 4 163 614 3 876 110  
– Long term (greater than five years) 1 284 452 1 138 838  
Total minimum lease payments receivable 7 552 252 7 007 420  

Minimum lease payment disclosures exclude held-for-sale properties.

D2 PROPERTY EXPENSES AND OTHER OPERATING COSTS
        GROUP     COMPANY  
    Note   30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
D2.1 Property expenses comprise:        1 132 002  1 018 803        1 068 708  943 321    
      Municipal expenses        722 734  624 528        707 874  609 455    
      Other utilities        35 063  29 959        15 494  11 967    
      Security        55 081  51 570        52 975  49 720    
      Cleaning        44 421  42 159        43 025  40 907    
      Marketing        44 333  42 059        42 577  40 063    
      Maintenance        38 491  36 564        35 054  33 424    
      Air-conditioning        17 003  17 010        15 581  15 244    
      Depreciation        41 809  37 773        40 123  36 021    
      Legal fees        3 544  1 435        3 049  509    
      Salaries and staff-related expenses        73 753  66 722        69 022  61 746    
      Audit fees – external  D2.3     1 991  2 790        1 581  1 478    
      Audit fees – internal        789  567        789  567    
      Insurance        8 248  7 762        6 747  6 380    
      Professional fees        3 486  2 702        2 795  2 282    
      Computer expenses and licences        3 117  3 223        3 112  3 204    
      Net foreign exchange losses        2 974  16 943        –  –    
      Other property costs        35 165  35 037        28 910  30 354    
D2.2  Other operating expenses comprise:        41 600  55 778        40 526  54 586    
      Salaries and staff-related expenses        37 519  55 265        37 519  55 265    
      Share-based payment expense        10 365  11 174        10 365  11 174    
      Non-executive directors' remuneration        4 319  3 646        4 319  3 646    
      Audit fees – external  D2.3     2 937  1 168        2 708  916    
      Audit fees – internal        850  521        850  521    
      Insurance        306  193        306  193    
      Professional fees        1 748  598        1 675  522    
      Computer expenses and licences        1 770  1 464        1 770  1 464    
      Legal fees        1 178  1 175        1 178  1 175    
      Corporate social investment        1 925  1 884        –  –    
      Depreciation        400  376        400  376    
      Hystead asset management and accounting fees received        (27 715) (17 338)       (27 715) (17 338)   
      Net foreign exchange gains        (3 113) (10 699)       (3 113) (10 699)   
      Investor relations and related costs        2 457  2 091        2 457  2 091    
      Ratings and regulatory fees        1 835  1 564        1 835  1 564    
      Other        4 819  2 696        5 972  3 716    
D2.3 Audit fees
 
  GROUP     COMPANY  
  30 June 2019
R000
30 June 2018
R000
    30 June 2019
R000
30 June 2018
R000
 
Included in expenses are the following amounts:              
Paid to the external auditors for the attest function (KPMG and Ernst & Young Nigeria) 4 928 2 646     4 289 2 394  
Paid to the external auditors for the other approved services (KPMG Services) 271     271  
Paid to KPMG Nigeria for the other approved services 204 420      
D3 INTEREST
D3.1 Accounting policy
 

Interest income – Interest earned on cash invested at financial institutions is recognised on an accrual basis using the effective interest rate method. Interest earned on loans receivable is recognised on an accrual basis using the effective interest rate method, other than loans which are credit impaired (stage 3 loans) where interest is only accrued on the net balance (i.e. the outstanding balance less credit impairments).

Interest expense – Interest expense is calculated on the effective interest rate method. Borrowing costs, except those capitalised to a qualifying asset, are recognised as an expense in the period in which they are incurred.

Capitalised interest expense – Interest costs that are directly attributable to the acquisition or construction of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is substantially ready for its intended use. Qualifying assets are those that necessarily take a substantial period of time to prepare for their intended use.

The amount of borrowing costs eligible for capitalisation is the actual borrowing costs incurred on funds specifically borrowed in respect of the qualifying asset. Investment income earned on the temporary investment of borrowed funds pending their expenditure on qualifying assets is deducted from the borrowing cost capitalised. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use are complete.

  GROUP     COMPANY  
  30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
Interest income  156 043  312 550        77 152  70 511    
   Positive bank balances  72 969  90 412        72 920  69 941    
   Loans receivable  83 074  222 138        4 232  570    
Interest expense  (617 198) (594 823)       (313 257) (351 357)   
   Borrowings  (570 118) (580 353)       (313 257) (358 022)   
   Capitalised  –  6 665        –  6 665    
   Non-controlling shareholder loan  (27 675) (39 671)       –  –    
   Fair value adjustment on non-controlling shareholder loan  (19 404) 18 536        –  –    
Net interest (461 155) (282 273)     (236 105) (280 846)  
D4 DIVIDENDS RECEIVED
D4.1 Accounting policy
 
  GROUP     COMPANY  
  30 June 2019
R000
30 June 2018
R000
    30 June 2019
R000
30 June 2018
R000
 
Dividend income is recognised in the statement of profit or loss and other comprehensive income when the dividend has been declared.              
Hystead 221 190 180 525     221 190 180 525  
Hyprop share scheme     3 491  
Word4Word 2 253     2 253  
Hyprop Mauritius     55 403  
Total 221 190 182 778     221 190 241 672  
D5 OPERATING COMMITMENTS
 

Hyprop has entered into various service contracts for the cleaning, upkeep and general maintenance of its investment property portfolio. Operating expense commitments payable under existing service contracts to service providers in future years have been classified as follows:

  GROUP     COMPANY  
  30 June 2019
R000
30 June 2018
R000
    30 June 2019
R000
30 June 2018
R000
 
Short term (up to one year) 1 826 2 768     1 826 1 909  
Total 1 826 2 768     1 826 1 909  

The operating commitments disclosures exclude held-for-sale properties.

Contracts which can be terminated on one month’s notice have been included for one month only.

D6 TAXATION
D6.1 Accounting policy
 

Normal and deferred taxes are recognised as income or an expense and included in profit or loss for the year.

The charge for normal taxation includes expected tax payable or receivable on the taxable income or loss for the year and any adjustment for taxation payable or receivable for previous years.

Normal taxation liabilities/(assets) for the current and prior periods are measured at the amount expected to be paid to/(recovered from) the taxation authorities, using the taxation rates and taxation laws that have been enacted or substantively enacted by the reporting date.

Hyprop is a REIT (Real Estate Investment Trust) in terms of the South African Income Tax Act (the Act) and in terms of the JSE Listings Requirements. In terms of section 25BB of the Act, the biannual dividend declared to Hyprop shareholders is deductible against Hyprop’s taxable income. As a consequence of this deduction (which historically has exceeded the company’s taxable income) South African taxable income and income taxation is usually reduced to zero.

D6.2 Taxation expense
 
      GROUP     COMPANY  
  Note   30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
Major components of the taxation expense                  
Normal taxation          427    4 381          –    –    
   Current year        427  3 583        –  –    
   Prior year        –  798        –  –    
Deferred taxation        (93 455) 35 105        1 730  11 838    
   Current year        (93 800) 32 178        1 385  11 820    
   Prior year        345  2 927        345  18    
Total taxation expense        (93 028) 39 486        1 730  11 838    
D6.3 Reconciliation of taxation charge
 
      GROUP     COMPANY  
  Note   30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
Profit before tax        18 508  2 560 409        322 092  2 254 988    
Notional taxation at 28%        5 182  716 915        90 186  631 397    
Adjusted for:        (98 210) (677 429)       (88 456) (619 559)   
REIT dividend        (508 258) (485 752)       (508 258) (485 752)   
Income exempt from tax and non-tax deductible expenses  D6.4     392 834  (184 731)       390 750  (164 257)   
Prior year tax adjustments: Normal taxation        –  798        –  –    
Prior year tax adjustments: Deferred taxation        345  2 927        345  18    
Imputed income from Hyprop Mauritius and Hystead        28 707  30 433        28 707  30 432    
Adjustment in respect of foreign tax rates        (11 838) (41 103)       –  –    
Total taxation expense        (93 028) 39 486        1 730  11 838    
D6.4 Income exempt from tax and non-tax deductible expenses
 
  GROUP     COMPANY  
  30 June 2019 
R000 
30 June 2018 
R000 
    30 June 2019 
R000 
30 June 2018 
R000 
 
Income exempt from tax and non-tax deductible expenses comprises the following: Changes in fair value:              
   Investment property  44 473  (182 436)       44 473  (182 436)   
   Derivative instruments  12 908  (8 144)       10 526  (4 133)   
   Financial asset  23 864  (24 573)       23 864  (24 573)   
   Convertible loan – Gruppo  (16 300) 20 760        –  –    
Derecognition of financial guarantees  (51 992) (3 356)       (61 258) (21 635)   
Straight-line rental income accrual  22 792  1 315        22 792  1 315    
Profit on disposal of assets  (791) (755)       (791) (755)   
Non-taxable dividend received  (61 933) (50 547)       (61 933) (66 060)   
Impairment of joint venture  –  2 829        –  –    
Impairment of loan to joint venture/intercompany loan  427 642  46 603        415 909  –    
Impairment in investment in subsidiary  –  –        4 562  130 188    
Reversal of wear and tear allowances on asset sales  (8 510) (265)       (8 510) (264)   
Other  681  13 837        1 116  4 096    
Total income exempt from tax and non-tax deductible expenses  392 834  (184 732)       390 750  (164 257)   
Net unrecognised tax losses  –  –        –  –    
   Assessed tax losses available for utilisation against future taxable income    279 008    279 008          279 008    279 008    
   Applied to reduce deferred taxation liability  (279 008) (279 008)       (279 008) (279 008)