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

Revenue consists of:

  1. Rental and other lease income – governed by IFRS 16: Leases
  2. 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 amount of the consideration to which the Group expects to be entitled (i.e. transaction price).

Rental and other lease income comprises contractual rental income, operating cost recoveries, income from marketing and promotions and parking income. Contractual rental income (including tenant parking income and contractual fixed operating cost recoveries) 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 represents 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   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 
  June 2020 
R'000
 
  June 2019 
R'000
 
  June 2020 
R'000
 
  June 2019 
R'000
 
  
Rental and other lease income
(recorded in accordance with IFRS 16: Leases)
2 261 122    2 567 150    2 078 213    2 372 402    
Gross contractual rental income  2 148 074    2 123 044    1 974 859    1 958 379    
Covid-19 rent relief (2)  (265 114)   –    (242 425)   –    
Contractual rental income  1 882 960    2 123 044    1 732 434    1 958 379    
Turnover rent  14 102    40 610    14 102    40 610    
Operating cost recoveries (1)  225 318    236 973    199 788    214 862    
Casual parking income  76 311    102 389    74 577    99 976    
Marketing and promotions income  62 431    64 134    57 312    58 575    
Straight-line rental income accrual  118 286    (87 887)   125 927    (81 399)   
Lease income  2 379 408    2 479 263    2 204 140    2 291 003    
Recoveries
(non-lease income recorded in accordance with IFRS 15: Revenue from contracts with customers)
 
722 934    738 585    686 080    712 844    
Municipal recoveries  686 585    720 434    661 595    696 444    
Other recoveries  36 349    18 151    24 485    16 400    
Revenue  3 102 342    3 217 848    2 890 220    3 003 847    
(1) Operating cost recoveries comprise mainly fixed contractual amounts recovered from tenants in terms of the lease agreements. These are categorised as "lease income " in terms of IFRS 16: Leases. Comparative amounts have been reallocated accordingly.
(2) Rental discounts and deferrals granted to tenants due to Covid-19 lockdowns/restrictions.

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
June 2020
R'000
  June 2019
R'000
 
The minimum lease payments receivable from tenants have been classified into the following time periods:
– Short-term (up to one year) 1 990 697   2 104 186  
– Medium-term (greater than one year and up to five years) 4 014 611   4 163 614  
– Long-term (greater than five years) 1 416 007   1 284 452  
Total minimum lease payments receivable 7 421 315   7 552 252  
 

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

D2. PROPERTY EXPENSES AND OTHER OPERATING EXPENSES
      Group  Company 
    Note  June 2020 
R'000
 
  June 2019 
R'000
 
  June 2020 
R'000
 
  June 2019 
R'000
 
 
D2.1 Property expenses comprise:    1 139 721    1 132 002    1 069 565    1 068 708   
   Municipal expenses    708 454    722 734    694 457    707 874   
   Other utilities    45 067    35 063    26 535    15 494   
   Security    58 575    55 081    56 371    52 975   
   Cleaning    46 962    44 421    45 402    43 025   
   Marketing    41 866    44 333    40 320    42 577   
   Maintenance    36 428    38 491    29 756    35 054   
   Air-conditioning    18 010    17 003    16 058    15 581   
   Depreciation    44 441    41 809    43 043    40 123   
   Legal fees    1 601    3 544    1 332    3 049   
   Salaries and staff-related expenses    70 229    73 753    64 290    69 022   
   Audit fees – external  D2.3  2 220    1 991    1 664    1 581   
   Audit fees – internal    350    789    350    789   
   Insurance    7 646    8 248    6 044    6 747   
   Professional fees    4 546    3 486    4 077    2 795   
   Computer expenses and licences    3 695    3 117    3 689    3 112   
   Net foreign exchange losses    7 316    2 974    –    –   
   Other property costs    42 315    35 165    36 177    28 910   
                       
D2.2 Net Other operating expenses                   
D2.2.1 Other operating expenses    89 130    72 428    87 923    71 354   
   Salaries and staff-related expenses    48 728    37 519    48 728    37 519   
   Share-based payment expense    11 795    10 365    11 795    10 365   
   Non-executive directors' remuneration    4 747    4 319    4 747    4 319   
   Audit fees - external  D2.3  2 326    2 937    2 020    2 708   
   Audit fees - internal    511    850    511    850   
   Insurance    388    306    388    306   
   Professional fees    3 864    1 748    3 755    1 675   
   Computer expenses and licences    1 482    1 770    1 482    1 770   
   Legal fees    3 571    1 178    3 571    1 178   
   Corporate social investment    768    1 925    883    –   
   Depreciation    1 419    400    1 419    400   
   Investor relations and related costs    2 647    2 457    2 647    2 457   
   Ratings and regulatory fees    2 427    1 835    2 426    1 835   
   Other    4 457    4 819    3 551    5 972   
         
D2.2.2 Other operating income (1)    (20 871)   (30 828)   (28 677)   (30 828)  
   Asset management fees    (18 783)   (27 715)   (18 783)   (27 715)  
   Foreign exchange gains    (2 088)   (3 113)   (9 894)   (3 113)  
   Net other operating expenses    68 259    41 600    59 246    40 526   
  (1) Reclassification from Other operating expenses to Other operating income:
Asset management fees earned and net foreign exchange gains have been included in Other operating income. Comparative amounts have been reallocated accordingly.

D2.3 Audit fees
  Included in expenses are the following amounts:
  Paid to the external auditors for the attest function(KPMG and Ernst & Young Nigeria) 4 546 4 928 3 684 4 289
  Paid to the external auditors for other approved services(KPMG Services) 242 271 242 271
  Paid to KPMG Nigeria for other approved services 469 204

D3 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
June 2020
R'000
June 2019
R'000
June 2020
R'000
June 2019
R'000
 
Short-term (up to one year) 10 286 1 826 10 286 1 826  
Total 10 286 1 826 10 286 1 826  
 

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.

D4 INTEREST
D4.1 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 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 costs capitalised. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use are complete.

 
  Group  Company 
  June 2020 
R'000
 
  June 2019 
R'000
 
  June 2020 
R'000
 
  June 2019 
R'000
 
  
Interest income  88 997    156 043    58 751    77 152    
Positive bank balances  54 805    72 969    54 419    72 920    
Loans receivable  34 192    83 074    4 332    4 232    
Interest expense  (637 392)   (617 198)   (412 133)   (313 257)   
Borrowings  (607 063)   (570 118)   (412 722)   (313 257)   
Capitalised  589    –    589    –    
Non-controlling shareholder loan  (30 918)   (27 675)   –    –    
Fair value adjustment on non-controlling shareholder loan  –    (19 405)   –    –    
Net interest  (548 395)   (461 155)   (353 382)   (236 105)   

D5 DIVIDENDS RECEIVED
D5.1 Accounting policy
  Dividend income is recognised in the statement of profit or loss and other comprehensive income when the dividend has been declared.
 
Group Company
June 2020
R'000
June 2019
R'000
June 2020
R'000
June 2019
R'000
 
Dividends received from:
Hystead
120 630 221 190 120 630 221 190  
Total 120 630 221 190 120 630 221 190  

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 in respect of prior 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, a qualifying distribution 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 Key judgements and estimations
 

Taxation

 

The Group is subject to income tax in numerous jurisdictions. Significant judgement is required in determining the provision for tax as there are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.

A deferred taxation asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilised. Deferred taxation assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related taxation benefit will be realised.

The Group recognises liabilities for anticipated tax obligations based on estimates of the taxes that are likely to become due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred
tax provisions.

The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. For this purpose, the carrying amount of investment property measured at fair value is presumed to be recovered through sale, and the Group has not rebutted this presumption.


D6.3 Taxation expense
      Group  Company 
    Note  June 2020 
R'000
 
  June 2019 
R'000
 
  June 2020 
R'000
 
  June 2019 
R'000
 
  
   Major components of the taxation expense                   
   Normal taxation    (487)   427            
   Current year    (487)   427    –    –    
   Deferred taxation    7 637    (93 455)   7 637    1 730    
   Current year    7 637    (93 800)   7 637    1 385    
   Prior year    –    345    –    345    
   Total taxation expense    7 150    (93 028)   7 637    1 730    
                     
D6.4  Reconciliation of taxation expense                   
   Loss / profit before tax    (3 515 876)   18 508    (3 099 383)   322 092    
   Notional taxation at 28%    (984 446)   5 182    (867 827)   90 186    
   Adjusted for:    991 596    (98 210)   875 464    (88 456)   
   REIT qualifying distribution    (339 768)   (508 258)   (339 768)   (508 258)   
   Exempt income and non-deductible expenses  D6.5  1 296 109    392 834    1 215 232    390 750    
   Prior year tax adjustments:Deferred taxation    –    345    –    345    
   Imputed income from Hyprop Mauritius and Hystead    –    28 707    –    28 707    
   Deferred tax asset not recognised    24 023    –    –    –    
   Adjustment in respect of foreign tax rates    11 232    (11 838)           
   Total taxation expense / (credit)   7 150    (93 028)   7 637    1 730    

D6.5 Exempt income and non-deductible expenses
 
  Group  Company 
  June 2020 
R'000
 
  June 2019 
R'000
 
  June 2020 
R'000
 
  June 2019 
R'000
 
  
Exempt income and non-deductible expenses comprise the following:                 
Changes in fair value:                 
Investment property  1 307 157    44 473    1 197 600    44 473    
Financial guarantee  4 666    –    (15 259)   –    
Derivative instruments  61 936    12 908    61 161    10 526    
Financial asset  (88 068)   23 864    (88 068)   23 864    
Convertible loan  –    (16 300)   –    –    
Derecognition of financial guarantees  –    (51 992)   –    (61 258)   
Straight-line rental income accrual  (33 120)   22 792    (35 260)   22 792    
Profit on disposal of assets  –    (791)   –    (791)   
Non-taxable dividend received  (33 776)   (61 933)   (33 776)   (61 933)   
Impairment of loan to joint venture / intercompany loan  81 193    427 642    12 493    415 909    
Impairment in investment in subsidiary  –    –    111 446    4 562    
Reversal of wear and tear allowances on asset sales  –    (8 510)   –    (8 510)   
Other  (3 879)   681    4 895    1 116    
Total income exempt from tax and non-tax deductible expenses  1 296 109    392 834    1 215 232    390 750    
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)