Tower ProPerTy Fund LimiTed

T o w e r P r o P e r T y F u n d L i m i T e d

A N N U A L F I N A N C I A L S T A T E M E N T S

Tower aims to generate competitive investment performance by adding value

through property asset management and the cost effective greening

of properties in the portfolio

"

"

The reports and statements set out below comprise the annual

financial statements presented to the shareholders: Index

Independent auditor’s report 2Directors’ responsibilities and approval 4

Certificate of company secretary 5Directors’ report 6

Statement of financial position 7Statement of Comprehensive Income 8

Statement of Changes in Equity 9Statement of cash flows 10

Accounting policies 11Notes to the annual financial statements 17

Property Portfolio Information 26Audit and risk committee report 29

General information 31

The annual financial statements have been audited in compliance with the Companies Act. Preparer: Jason Swartz CA (SA). Under the supervision of Fred Jenkings CA (SA), Financial Director.

Published: 29 August 2014

2 Tower ProPerTy Fund LimiTed annuaL FinanciaL sTaTemenTs 2014

ANNUAL FINANCIAL STATEMENTSfor the year ended 31 May 2014

I N D E P E N D E N T A U D I T O R ’ S R E P O R T

To the shareholders of Tower Property Fund Limited

We have audited the annual financial statements of Tower Property Fund Limited set out on pages 7 to 28, which comprise the statement of financial position as at 31 May 2014, and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the annual financial statements, comprising a summary of significant accounting policies and other explanatory information.

Directors' responsibility for the financial statements

The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the annual financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the annual financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the annual financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

3


Tower ProPerTy Fund LimiTed annuaL FinanciaL sTaTemenTs 2014

I N D E P E N D E N T A U D I T O R ' S R E P O R T ( C o n t i n u e d )

opinion

In our opinion, these financial statements present fairly, in all material respects, the financial position of Tower Property Fund Limited at 31 May 2014, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Companies Act of South Africa.

other reports required by the Companies Act

As part of our audit of the financial statements for the year ended 31 May 2014, we have read the Directors’ Report, the Audit and Risk Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between the report and the audited group annual financial statements. The reports are the responsibility of the respective preparers. Based on our reading of the reports we have not identified any material inconsistencies between the report and the audited financial statements. However, we have not audited the report and accordingly do not express an opinion on the report.

Mazars Inc.Registered AuditorDirector: Duncan Dollman Registered Auditor Chartered Accountant (SA)

22 August 2014Cape Town



DIRECTORS’ RESPONSIBILITIES AND APPROVAL

The directors are required by the South African Companies Act to maintain adequate accounting records and are responsible for the content and integrity of the annual financial statements and related financial information included in this report. It is their responsibility to ensure that the annual financial statements satisfy International Financial Reporting Standards as to form and content and present fairly the and separate statement of financial position, results of operations and business of the Group, and explain the transactions and financial position of the business of the Group at the end of the financial year. The annual financial statements are based upon appropriate accounting policies consistently applied throughout the Group and supported by reasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by the company and place considerable importance on maintaining a strong control environment. To enable the directors to meet these responsibilities, the board sets standards for internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughout the Group and all employees are required to maintain the highest ethical standards in ensuring the Group’s business is conducted in a manner that in all reasonable circumstances is above reproach.

The focus of risk management in the Group is on identifying, assessing, managing and monitoring all known forms of risk across the Group. While operating risk cannot be fully eliminated, the Group endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

The directors are of the opinion, based on the information and explanations given by management and the external auditors, that the system of internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute, assurance against material misstatement or loss. The going-concern basis has been adopted in preparing the financial statements. Based on forecasts and available cash resources the directors have no reason to believe that the Group will not be a going concern in the foreseeable future. The financial statements support the viability of the Group.

The financial statements have been audited by the independent auditing firm, Mazars Inc., who have been given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors and committees of the board. The directors believe that all representations made to the independent auditor during the audit were valid and appropriate. The external auditors’ unqualified audit report is presented on pages 2 to 3.

The annual financial statements as set out on pages 7 to 30 were approved by the board on 22 August 2014 and were signed on their behalf by:

A Dalling M EdwardsIndependent, Non-Executive Chairman Chief Executive Officer

5



C E R T I F I C A T E B Y T H E C O M P A N Y S E C R E T A R Y

In terms of section 88(2) (e) of the Companies Act. 71 of 2008 (as amended). I certify that, to the best of my knowledge and belief, Ovland Management Services Proprietary Limited has lodged with the Commissioner all such returns and notices as are required by the Companies Act of South Africa (as amended), and that all such returns and notices are true, correct and up to date.

for Ovland Management Services Proprietary LimitedCompany Secretary

CAPE TOWN22 August 2014



D I R E C T O R S ’ R E P O R T

The directors present their report for the year ended 31 May 2014.

1. review of activitiesmain business and operations

The principal activity of the Group is a property investment company

and there were no major changes herein during the year.

The operating results and statement of financial position of the

Group are fully set out in the attached financial statements and do

not in our opinion require any further comment.

2. Going concernThe annual financial statements have been prepared on the

basis of accounting policies applicable to a going concern. This

basis presumes that funds will be available to finance future

operations and that the realisation of assets and settlement of

liabilities, contingent obligations and commitments will occur in

the ordinary course of business.

3. events after reporting dateAll events subsequent to the date of the annual financial

statements and for which the applicable financial reporting

framework require adjustment or disclosure have been

adjusted or disclosed.

The directors are not aware of any matter or circumstance

arising since the end of the financial year to the date of this

report that could have a material effect of the financial position

of the company.

4. Authorised and issued share capitalNo changes were approved or made to the authorised share

capital of the company during the year under review. During

the current financial year 136 007 896 ordinary shares were

issued. Of the shares issued, 17 610 063 were issued for cash

in terms of a general authority granted to the directors. The

balance of the shares issued were to vendors for properties

purchased.

5. Borrowing limitationsIn terms of the Memorandum of Incorporation of the company,

the directors may exercise all the powers of the company to

borrow money, as they consider appropriate.

6. dividendsDividends of R96 836 300 were declared to shareholders during the year.

7. directorsThe directors of the company during the year and to the date of this report are as follows:1. A Dalling2. M Edwards 3. J Bester4. K Craddock5. M Evans6. F Jenkings7. B Kerswill8. A Magwentshu9. N Milne10. R Naidoo

8. SecretaryThe Group’s designated secretary is Ovland Management Services Proprietary Limited.

9. directors' shareholdingAs at the reporting date the following shares were held by directors of the company:

Directbeneficial

Indirectbeneficial

Non-beneficial

J Bester − 40 000 −

K Craddock 138 500 − −

A Dalling 500 − 1 500

M Edwards 140 000 − −

M Evans 41 363 2 752 564 −

F Jenkings 20 000 − −

B Kerswill 138 500 − −

Since 31 May 2014 Mr F Jenkings has acquired a further 10 000 shares in the company and Mr M. Edwards a further 5 000 shares

10. AuditorsMazars Inc. will continue in office in accordance with section 90 of the Companies Act.

7Tower ProPerTy Fund LimiTed annuaL FinanciaL sTaTemenTs 2014


STATEMENT OF FINANCIAL POSITION Group

Figures in R'000 Notes 2014

Assets

Investment property 5 2 043 745

Straight-line lease accrual 5 17 102

2 060 847

Current assets

Trade and other receivables 6 36 882

Cash and cash equivalents 7 38 171

75 053

Total assets 2 135 900

Equity and liabilities

Equity

Issued capital 8 1 251 034

Retained earnings (10 204)

1 240 830

Non-current liabilities

Borrowings 9 769 518

769 518

Current liabilities

Trade and other payables 10 68 635

Shareholders for dividend 56 917

125 552

Total equity and liabilities 2 135 900



STATEMENT OF COMPREHENSIVE INCOME Group

Figures in R’000 Notes 2014

Revenue 11

Contractual rental income 174 168

Straight line rental income accrual 17 102

191 270

Net property operating expenses (19 785)

Net property income 171 485

Administration expenses (10 273)

Other income 480

Net operating profit 12 161 692

Fair value adjustments on investment properties (11 740)

Fair value adjustment on interest rate swaps (1 442)

Profit from operations 148 510

Finance income 3 066

Finance costs 13 (53 456)

Capital raising expenses (11 487)

Profit before taxation 86 633

Taxation 14 -

Total comprehensive income for the year 86 633

Basic and fully diluted earnings per share − weighted average shares in issue (cents) 82.0

9



STATEMENT OF CHANGES IN EqUITy Stated CapitalRetained

Income TotalR'000 R'000 R'000

Balance at 1 march 2012 -Shares issued during the period 8 8Loss for the period ended 31 May 2013 (1) (1)Balance at 31 May 2013 8 (1 ) 7 Shares issued during the year 1 267 168 1 267 168 Share issue expenses (16 142) (16 142) Total comprehensive income for the year 86 633 86 633 Dividends paid and declared (96 836) (96 836) Balance at 31 may 2014 1 251 034 (10 204) 1 240 830 Note 8



STATEMENT OF CASH FLOWS Group

Figures in R'000 Note 2014

Profit for the year 86 633

Adjustments for:

Finance costs 53 188

Investment income (3 066)

Change in fair value of investment property 11 740

Change in fair value of interest rate derivative 1 442

Straight-line lease accrual (17 102)

Operating cash flow before working capital changes 132 835

Working capital changes

Increase in trade and other receivables (36 873)

Increase in trade and other payables 68 635

Cash generated by operating activities 164 597

Investment income 3 066

Finance costs (53 456)

Net cash from operating activities 114 207

Cash flows from investing activities

Investment property acquired (1 228 082)

Net cash generated by investing activities (1 228 082)

Cash flows from financing activities

Capital issued 440 031

Capital raising costs (16 142)

Loans raised 768 076

Dividends paid (39 919)

Net cash utilised in financing activities 1 152 046

Increase in cash and cash equivalents 38 171

Cash and cash equivalents at beginning of the year −

Cash and cash equivalents at end of the year 7 38 171

11



ACCOUNTING POLICIES

1. General informationThe annual financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (IFRS), which includes all applicable IFRSs, International Accounting Standards (IASs) and Interpretations issued by the IFRS Interpretations Committee. A summary of significant accounting policies are set out in note 3.

2. Basis of preparationThe audited annual financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and the interpretations adopted by the International Accounting Standards Board (‘‘IASB’’), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council and the requirements of the South African Companies Act and the JSE Listings Requirements.

The annual financial statements were approved by the board of directors on 22 August 2014.

The annual financial statements are prepared on the historical cost basis, except for investment properties, derivative financial instruments and certain financial instruments which are measured at fair value.

3. Summary of significant accounting policiesThe principal accounting policies applied in the preparation of these and separate annual financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

3.1 Changes in accounting policies and disclosures (Adoption of new and revised pronouncements)In the current year, the Group has adopted all new and revised IFRSs as issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee that is relevant to its operations and effective for annual reporting periods beginning on 1 June 2013. The adoption of these new and revised IFRSs has resulted in changes to the Group's accounting policies.

At the reporting date, the following IFRSs were adopted: The adoption of these statements has not had a material impact on the financial statements as this is the group's first year of trading.

IFRS/IFRIC Title and details EffectiveIAS 1 (Amendment) Presentation of items of other comprehensive

incomeAnnual periods commencing on or after 1 July 2012

IAS 1 (Amendment) Presentation of financial statements (Annual Improvements to IFRSs 2009−2011 Cycle)

Annual periods commencing on or after 1 January 2013

IAS 16 (Amendment) Property, plant and equipment (Annual Improvements to IFRSs 2009−2011 Cycle)

Annual periods commencing on or after 1 July 2014.

IFRS 13 Fair value Measurement Annual periods commencing on or after 1 January 2013IFRS 7 (Amendment) Disclosures - offsetting financial assets and

financial liabilitiesAnnual periods commencing on or after 1 January 2013

IFRS 10, IFRS 11, IFRS 12 Consolidated financial statements, joint arrangements and disclosure of interests in other entities


IAS 19 (as revised in 2011) Employee benefits Annual periods commencing on or after 1 January 2013IAS 27 (as revised in 2011) Separate financial statements Annual periods commencing on or after 1 January 2013IAS 28 (as revised in 2011) Investments in associates and joint ventures Annual periods commencing on or after 1 January 2013



new standards and interpretations not yet adoptedThe Group has not applied the following new, revised or amended pronouncements that have been issued by the IASB as they are not yet effective for the financial year beginning 1 June 2013 (the list does not include information about new requirements that affect interim financial reporting or first-time adopters of IFRS since they are not relevant to the Group). The Board anticipates that the new standards, amendments and interpretations will be adopted in the Group's consolidated financial statements when they become effective. Management is still in the process of assessing the impact of all these new standards.

IFRS/IFRIC Title and details Effective

IFRS 9 Financial instruments Annual periods commencing on or after 1 January 2018IFRS 15 Revenue from contracts with customers Annual periods commencing on or after 1 January 2017IAS 32 (Amendment) Offsetting financial assets and financial

liabilitiesAnnual periods commencing on or after 1 January 2014

IAS 36 (Amendment) Recoverable amount, disclosures of non-financial assets


IAS 39 (Amendment) Novation of derivatives and continuation of hedge accounting


IFRS 10, IFRS 12, IAS 27 (Amendments)

Investment entities Annual periods commencing on or after 1 January 2014

IFRIC 21 Levies Annual periods commencing on or after 1 January 2014

3.2 Critical accounting judgements and key sources of uncertaintyThe preparation of annual financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only effects that period, or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgement or complexity or areas where assumptions and estimates are significant to the consolidated annual financial statements are disclosed in the notes.

ACCOUNTING POLICIES (Continued)

13



3.3 ConsolidationA business combination is a transaction or other event in which an acquirer obtains control of one or more businesses. Transactions sometimes referred to as ‘true mergers’ or ‘mergers of equals’ are also business combinations as that term is used in this IFRS.

In circumstances where the company acquires the entire issued share capital and claims against a company, the acquisition is not considered a business combination if at the date of acquisition the integrated activities deemed necessary to generate a business are not present. In these circumstances the acquisition is accounted for as the acquisition of investment property.

3.4 investment propertyInvestment property is recognised as an asset when, and only when, it is probable that the future economic benefits associated with the investment property will flow to the enterprise, and the cost of the investment property can be reliably measured.

Investment property is initially recognised at cost, including transaction costs.

Costs include initial and subsequent costs incurred to add to, or replace a part of, or service a property. If a replacement part is recognised in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised.

Fair valueSubsequent to initial measurement investment property is measured at fair value.

A gain or loss arising from a change in fair value is included in net profit or loss for the period in which it arises.

An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values approximately one third of the properties every year, the balance being valued by the directors. The fair value is based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows then is applied to the net annual cash flows to arrive at the property valuation.

The property valuation reflects, when appropriate: the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accomodation, and the market's general perception of their creditworthiness; the allocation of maintenance and insurance responsibilities between the company and the lessee; and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices, and when appropriate counter-notices, have been served validly and within the appropriate time.




3.5 LeasesPayments made under operating leases are charged to the profit or loss on a straight-line basis over the period of the lease after taking into account any fixed escalation clauses.

3.6 derivative financial instrumentsDerivative financial instruments are initially recognised at fair value and the fair value is re-measured at each balance sheet date. Derivative Financial instruments comprise interest rate swaps, which are classified as other financial liabilities. Gain or loss on the fair value changes are recognised in surplus or loss.

3.7 Financial assetsClassificationThe Group classifies its financial assets as loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Loans and receivables are initially measured at fair value and, after initial recognition, at amortised cost using the effective interest method.

Trade and other receivablesTrade and other receivables are initially measured at fair value and, after initial recognition, at amortised cost less impairment losses for bad and doubtful debts, if any, except for the following receivables:

− Short-term receivables with no stated interest rate and the effect of discounting being immaterial, that are measured at their original invoice amount less impairment losses for bad and doubtful debt, if any.

Cash and cash equivalentsCash and cash equivalents comprises cash on hand and at bank and demand deposits with bank. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

impairment of financial assetsA financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine whether there us objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, an that loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter into bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for security.

The Group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective level. All individually significant assets are assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by Grouping together assets with similar risk characteristics.

In assessing collective impairment, the Group uses historical trends if the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management's judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated cash flows discounted at the assets original effective interest rate. Deficits are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investment securities. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

15



Financial liabilitiesTrade and other payablesTrade payables are classified as liabilities at amortised cost. They are initially measured at fair value and, after initial recognition, at amortised cost using the effective interest method.

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

BorrowingsBorrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method.

3.8 Share capitalOrdinary sharesOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

3.9 income taxation

Income taxation for the year includes current taxation and deferred taxation. Current taxation and deferred taxation are recognised in profit or loss, except to the extent that the taxation arises from a transaction or event which is recognised directly in equity. In the case if the taxation relates to items that are recognised directly to equity, current taxation and deferred taxation are also recognised directly to equity.

Current taxation liabilities and assets are measured at the amount expected to be paid to or recovered from the taxation authorities, using the taxation rates and taxation laws that have been enacted or substantively enacted by the balance sheet date. Current taxation is the amount of income taxation payable or recoverable in respect of the taxable profit or loss for a period.

Deferred taxation assets and liabilities arise from deductible and taxable temporary differences respectively. Temporary differences are the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their taxation bases. Deferred taxation assets also arise from unused taxation losses and unused taxation credits.

A deferred taxation liability is recognised for all taxable temporary differences, except to the extent that the deferred taxation liability arises from the initial recognition of an asset or liability in a transaction which is not a business combination; and at the time of the transaction, affects neither accounting profit nor taxable profit (taxation loss).

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 difference can be utilised, unless the deferred taxation asset arises from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit (taxation loss).

At each balance sheet date, the company reviews and assesses the recognised and unrecognised deferred taxation assets and the future taxable profit to determine whether any recognised deferred taxation assets should be derecognised and any unrecognised deferred taxation assets should be recognised.

Deferred taxation assets and liabilities are measured at the taxation rates that are expected to apply to the period when the asset is realised or the liability is settled, based on taxation rates and taxation laws that have been enacted or substantively enacted by the balance sheet date. Deferred taxation assets and liabilities are not discounted.

3.10 revenue recognition

Revenue comprises rental income and recovery of expenses where appropriate, excluding Value Added Tax (VAT). Rental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.




3.11 interest income

Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables is recognised using the original effective interest rate.

3.12 Borrowing costs

General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

3.13 Capital raising expenses

Expenses incurred in the raising of capital are written off against equity if directly related to the equity raised. Indirect expenses relating to the raising of equity are expenses through profit and loss.

3.14 distributions

The company having achieved a REIT status will distribute at least 75% of its total distributable profits as a distribution to its shareholders subject to the relevant solvency and liquidity test as required by the South African Companies Act.

Distributable profit in respect of a financial year is defined as gross income (as defined in terms of the Income Tax Act) less deductions and allowances that are permitted to be deducted by a REIT in terms of the Income Tax Act.

4. Critical accounting judgements and key sources of estimation uncertaintyThe Group's management makes assumptions, estimates and judgements in the process of applying the Group's accounting policies that affect the assets, liabilities, income and expenses in the annual financial statements prepared in accordance with IFRSs. The assumptions, estimates and judgements are based on historical experience and other factors that are believed to be reasonable under the circumstances. While the management reviews their judgements, estimates and assumptions continuously, the actual results will seldom be equal to the estimates.

The estimates and the underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision policy affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Investment PropertyJudgements are made in the valuation of investment properties’ fair value. Management make use of the capitalisation of net income valuation method and discounted cash flow analysis and changes in market conditions may result in capitalisation rates being revised and the fair value of the investment properties being adjusted significantly. Judgements are made on a per property basis and independent valuers are used in determining the fair value of the investment properties. refer notes 5 and 19.

DerivativesThe fair value of interest rate swaps are determined based on judgements, estimates and assumptions made by the management of the company.

Trade receivablesTrade receivables are initially recognised at fair value and subsequently measured at amortised cost. An estimate is made for credit losses based on a review of all outstanding amounts at year end.

ConsolidationThe company determines whether a transaction involving the acquisition of shares and/or loan accounts is a business combination, or if the assets acquired do not constitute a business, the company accounts for the transaction as an asset acquisition. The decision as to what constitutes a business requires significant judgements.

17



NOTES TO THE FINANCIAL STATEMENTS

Figures in R'0002014

5. investment propertyAcquisitions at cost 2 054 415Tenant installations 1 070Fair value adjustment (11 740)Straight-line lease accrual 17 102Fair value 2 060 847

Movement in investment propertiesOpening balance −Acquisitions 2 054 415Tenant installations 1 070Fair value adjustment (11 740)Straight-line lease accrual 17 102Fair value 2 060 847

Operating Lease ReceivablesNon-cancellable operating rentals are receivable as follows:Less than one year 194 602 Between one and five years 377 887 More than five years 100 658

673 147 Less straight-line portion (656 045) Straight lining asset 17 102

Approximately one third, by value, of investment property was valued by Magnus Penny, the balance being valued by the directors. The valuation process makes use of the income method which assumes a rental stream into perpetuity and uses the capitalisation rate to account for the risk of projected market, business and financial volatility and to adjust for the sustainability of the cash flow going forward into perpetuity. Once the capitalisation value has been calculated further adjustments are made to the valuations relating to projected costs and values. Appropriate capitalisation rates have been used.


6. Trade and other receivablesTrade receivables 5 420Sundry receivables 13 034Prepaid expenses 1 978Deposits 3 141Electricity recoveries 5 320Accrued rental income 7 989

36 882

Sundry receivables include adjustment accounts and other recoverable expenses from vendors.



NOTES TO THE FINANCIAL STATEMENTS (Continued)


The carrying amount of trade and other receivables approximates their fair value.

Trade and other receivables past due but not impairedTrade and other receivables are not considered to be impaired until objective legal advice indicates that the debt will not be recovered.

The ageing of amounts past due but not impaired is as follows:1 month past due 2 7992 months past due 1 0373 months and more past due 771more than 3 months past due 813

Trade and other receivables impairedAs of 31 May 2014, trade and other receivables of R1 304 607 were impaired and provided for.

Ageing of debtor past due and impairedGreater than 120 days 1 305

reconciliation of provision for impairment of trade and other receivablesOpening balance −Provision for impairment 1 305Reversal of impairment −Balance written off −

1 305

Credit riskThe maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The fair value of the trade and other receivables is the carrying amount due to the short-term nature of the asset. The company does not hold any collateral as security.

7. Cash and cash equivalentsFavourable cash balancesCash on hand 2Bank balances 38 169

38 171

Credit quality of cash and cash equivalentsBank balances and short-term deposits are held with reputable financial institutes of high credit standing.

8. Share capitalAuthorised500 000 000 ordinary no par value

issued100 ordinary no par value shares at 31 May 2013 - 845 000 ordinary no par value shares issued at 31 May 2013 8

8 Issue of 42 031 330 shares effective 1 June 2013 420 313 Issue of 36 348 892 shares effective 19 July 2013 318 661 Issue of 15 613 052 shares effective 15 August 2013 156 131 Issue of 14 770 615 shares effective 27 August 2013 147 706 Issue of 2 333 589 shares effective 1 September 2013 23 336 Issue of 1 149 425 shares effective 31 October 2013 10 000 Issue of 1 303 960 shares effective 24 December 2013 10 771 Issue of 17 610 063 shares effective 10 March 2014 140 000 Issue of 4 846 970 shares effective 15 April 2014 40 250 share issue expense (16 142)

1 251 026 136 852 996 ordinary no par value shares in issue at 31 May 2014 1 251 034

The unissued shares are under the control of the directors until the next annual general meeting.

19




9. Borrowingsinvestec Bank Limited 345 533Loan 1One month Jibar linked interest (7.45% p.a. at 31 May 2014), interest payments only until July 2016. Secured over investment property with a fair value of R880 300.

Loan 2One month Jibar linked interest (8.2% p.a. at 31 May 2014), interest payments only until August 2016. Secured over investment property with a fair value of R322 600.

124 928

Standard Bank LimitedLoan 1 152 024Three month Jibar linked interest (7.605% p.a. at 31 May 2014), interest payments only until August 2016. Secured over investment property with a fair value of R531 447.

Loan 2 44 004Three month Jibar linked interest (7.575% p.a. at 31 May 2014), interest payments only until April 2017. Secured over investment property with a fair value of R75 500.

Loan 3 89 797Three month Jibar linked interest (7.575% p.a. at 31 May 2014), interest payments only until April 2017. Secured over investment property with a fair value of R226 283.

Nedbank LimitedInterest at 0.7% below prime (8.3% p.a at 31 May 2014), interest payments only until December 2018. Secured over investment property with a fair value of R25 000.

11 790

At fair value through profit or lossInterest rate swaps 1 442

769 518

At 31 May 2014, 72% of the Group's interest rate exposure was managed with interest rate swaps with expiry dates ranging from July 2015 to April 2017.The weighted average cost of borrowings at 31 May 2014 was 8.2%.

interest rate swapsThe interest rate has been fixed via interest rate swaps on R600 million of borrowings fixed at various rates.

Financial covenantsThe following covenants apply to the borrowings:

− Maximum loan to value ratio not to exceed 50%

− The ratio of EBITDA to gross interest payable shall not be less than 2 times

− The ratio of available cash flow before debt service to all the debt service payments shall not be less than 2 times.



NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)


10. Trade and other payablesAccrued liabilities 12 667Trade payables 31 486Tenant deposits 14 038Interest accrual 5 737Accrued rental payable 3 320Value Added Tax 1 387

68 635

Fair value of trade and other payablesTrade and other payables are carried at amortised cost, with the fair value being the approximated carrying value.

11. revenueConsists of the following:Rent received 174 168Straight-line rental income accrual 17 102

191 270

12. operating profitOperating profit is arrived at after taking into account the following items:

Directors' emolumentsNon-executive− Services as directors 960Executive directors are remunerated by the group's asset managers.

13. Finance costsBorrowings 53 358Other 98

53 456

14. income taxation expenseReconciliation of rate of taxation %South African normal taxation rate 28.00Adjusted for:Permanent differences ( 28.00)Assessed loss utilised −Net reduction ( 28.00)Effective rate of taxation 0.00

The company is not liable for income tax as it qualifies as a REIT in terms of the appropriate tax legislation and all its profits are distributed as dividends.

21




15. directors' emoluments

Name

Fees paidto directorsfor services

Fees paid foracceptance of

office Salary

Bonuses andperformance

relatedpayments

A Dalling 180 − − −J Bester 180 − − −M Evans 150 − − −A Magwentshu 150 − − −N Milne 150 − − −R Naidoo 150 − − −

960 − − −

Executive directors are remunerated from fees paid to Tower Asset Managers (Pty) Ltd.

M Edwards 1 325F Jenkings 960K Craddock 360B Kerswill 360

directors’ shareholdingsDirectors’ interests are as listed in the directors’ report.

16. related party transactionsRelationshipsSubsidiaries The Cape quarter Property Company (Pty) Ltd

Parch Property 30 (Pty) LtdCity Square Trading 522 (Pty) LtdLucky Bean Property Investments (Pty) LtdTurquoise Moon Trading 258 (Pty) LtdDe Ville Shopping Centre (Pty) LtdN1B 69 Share Block 69 (Pty) Ltd

OtherTower Asset Managers (Pty) Ltd − Fees as asset managers 8 353Spire Property Management (Pty) Ltd − Fees as property managers 6 400

17. Financial instrumentsThe Group has classified its financial assets in the following categories:

Fair valuethrough profit

and loss(held for trading)

Held-to- maturity

investmentsLoans and

receivablesTrade and other receivables − − 34 904Cash and cash equivalents − − 38 171

The Group has classified its financial liabilities in the following categories:

2014

Fair valuethrough profit

and loss(held for trading)

Financialliabilities

at amortisedcost

Trade and other payables − 67 248Shareholders for dividend − 56 917Borrowings − 768 076Interest rate swaps 1 442 −





18. risk management

18.1 Capital risk managementThe Group's objectives when managing capital are to safeguard the group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure of the group consists of debt, which includes the borrowings excluding derivative financial liabilities, cash and cash equivalents, and equity as disclosed in the statement of financial position.

Externally imposed capital requirements:Debt - see note 9

To maintain the Group's REIT status the Group must:

a) Distribute at least 75% of its income

b) Maintain a borrowing ratio of not more than 60% of the value of its investment property

c) Derive at least 75% of its income from properties or property related investments

18.2 Credit riskCredit risk consists mainly of cash and cash equivalents, and trade and other receivables. The group only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party.

Summary quantitative data

Trade and other receivables 34 904Deposits with banks 38 169At 31 May 2014, the Group has no concentration of risk and the maximum exposure to credit risk is represented by the carrying amount of each financial asset.

An analysis of the age of financial assets that are past due as at the reporting date but not impaired:Past due up to:− 30 days 2 799− 31 to 60 days 1 037− 61 to 90 days 771− 91 to 120 days 606− Over 120 days 207

18.3 Liquidity riskThe Group is exposed to liquidity risk on financial liabilities. It manages its funds conservatively by maintaining a comfortable level of cash and cash equivalents in order to meet continuous operational need. Various banking facilities and credit lines have also been arranged with different banks in order to fund any emergency liquidity requirements.

Summary quantitative data

Less than1 year

Between 1and 5 years

2014Trade and other payables 67 248 −Shareholders for dividend 56 917 −Other financial liabilities 58 662 848 298

23




18.4 interest rate riskThe Group adopts a policy of managing its exposure to movements in interest rates on borrowings. Interest rate swaps have been entered into to achieve an appropriate mix of fixed and floating rate exposure. The interest rate swaps mature at different dates as reflected below. The total cash payments relating to interest rate swaps for the year amounted to R4 123 000.

At the reporting date the Group had entered into interest rate swaps in respect of the following borrowings: MaturityContract 1: 6.04% maturing 20 July 2015 344 000Contract 2: 7.41% maturing 2 April 2017 126 000Contract 3: 7.20% maturing 6 April 2017 130 000

600 000

Sensitivity analysisInterest rate risks are presented by way of sensitivity analyses in accordance with IFRS 7. These show the effect of changes in the market interest rates on the interest payments, interest income and expenses, other income components and, if appropriate, shareholders’ equity.

The group measures sensitivity to interest rates as the effect of a change in the Reserve Bank repo rate on the profit after tax based on the group’s exposure at 30 May 2014.

The group regards a 50 basis points change in the Reserve Bank repo rate as being reasonably possible at the reporting dates.

2014Movement in

basis pointsEffect on profit

after taxCash and cash equivalents 50 137

(50) (137)

Long Term borrowings 50 (2 765)(50) 2 765

19. Fair value measurementFair value measurement of financial instrumentsFair value of financial instruments recognised in the statement of financial position.

The group measures fair values using the fair value hierarchy that reflects the significance of the inputs used in making the measurements.

■■ Level 1: quoted prices (unadjusted) in an active market for an identical instrument.

■■ Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

■■ Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category also includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The valuation of interest rate swaps uses only observable market data and requires little management judgement and estimation. The availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with the determination of fair values. The interest rate swaps are valued using the mark-to-market valuations, excluding transactions costs. Interest rate swaps are classified as level 2 financial instruments and the fair value of the interest rate swap liability at 31 May 2014 is equal to R1 441 787.

Fair value hierarchy The following table presents financial assets and liabilities measured at fair value in the statement of financial position in accordance with the fair value hierarchy.





The level within which the financial asset or liability is classified is determined based on the lowest level of significant input to the fair value measured.

The financial assets and liabilities measured at fair value in the statement of financial position are grouped into the fair value hierarchy as follows:

Level 1 Level 2 TotalLiABiLiTieSDerivative financial instruments - 1 422 1 422 Total - 1 422 1 422

There have been no transfers between levels 1, 2 and 3 in the reporting period under review.

Fair value measurement of non-financial assets (investment properties) The group’s property portfolio is valued at R2.06 billion as at 31 May 2014.

Approximately one third, by value, of investment property was valued by Magnus Penny, the balance being valued by the directors.

The fair value of buildings are estimated using an income approach which capitalises the estimated rental income stream, net of projected operating costs, using a discount rate derived from market yields.

The estimated rental stream takes into account current occupancy levels, estimates of future vacancy levels, the terms of in-place leases and expectations of rentals from future leases into perpetuity.

The most significant inputs, all of which are unobservable, are the estimated rental value, assumptions regarding vacancy levels, the discount rate and the reversionary capitalisation rate.

The estimated fair value increases if the estimated rental increases, vacancy levels decline or if discount rate (market yields) and reversionary capitalisation rate decline.

The overall valuations are sensitive to all four assumptions. Management considers the range of reasonable possible alternative assumptions is greatest for reversionary capitalisation rate rental values and vacancy levels and that there is also an interrelationship between these inputs.

The inputs used in the valuations at 31 March 2014 were:

■■ The range of the reversionary capitalisation rates applied to the portfolio are between 8.50% and 10.50% with the weighted average being 9.32%.

■■ The discount rates applied range between 13.25% and 15.00% with the weighted average being 13.72%.

■■ Changes in discount rates attributable to changes in market conditions can have a significant impact on property valuations.

A 25 basis points increase in the discount rate will decrease the value of the investment property by R36.9 million (1.79%).

A 25 basis points decrease in the capitalisation rate will increase the value of investment property by R37.5 million (1.82%).

In determining future cash flows for valuation purposes, vacancies are forecast for each property based on estimated demand.

The following table reflects the levels within the hierarchy of non-financial assets measured at fair value at 31 March 2014:

Level 3ASSETSInvestment properties 2 060 847 Total 2 060 847

25




20. Capital commitmentsAt 31 May 2014 the group had no capital commitments that are not accounted for in the financial statements.

21. Segment informationOffice Retail Industrial Total

Property assets 1 478 492 557 355 25 000 2 060 847Segment liabilities 512 073 245 655 11 790 769 518

Revenue (excluding straight-line lease adjustments) 125 856 47 302 1 010 174 168Net operating costs (14 229) (5 480) (76) (19 785)Segment profit 111 627 41 822 934 154 383Straight-line lease adjustment 17 102Non-property related expenses (10 273)Other income 480Net operating profit 161 692

22. reconciliation of earnings and distributable earningsReconciliation of earnings: R' 000Total comprehensive income for the period 86 633 Adjusted for:Change in fair value of investment properties 11 740 Headline earnings 98 373 Adjusted for:Straight line rental income accrual (17 102) Change in fair value of interest rate swaps 1 442 Distributable profit 82 713 Adjusted for:Capital raising expenses 11 487 Amortisation of debt raising fees 2 636 Distributable earnings 96 836

Basic and fully diluted headline earnings per share - weighted average shares in issue (cents) 93,1 Distributable earnings per share - weighted average shares in issue (cents) 91,6

Weighted average number of shares in issue ('000) 105 710 Total number of shares in issue at period end ('000) 136 853

23. Comparative figuresNo comparative figures are disclosed as this is the company’s first period of operation. It was dormant in the prior year.



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D I R E C T O R S ’ R E S P O N S I B I L I T y S T A T E M E N TPROPERTy PORTFOLIO INFORMATION - GRAPHICAL

Vacancy profile by sector by GLA

Geographic Profile by GLA

38.8%

8.2%

53.0%

Gauteng

Western Cape

KwaZulu-Natal

Sectoral profile by revenue

Retail

Office

Industrial

Sectoral Profile by GLA

2.9%

68.7%

28.4%

Lease Expiry Profile by GLA per Sector

Geographic profile by revenue

51.4%

6.5%

42.1%

Gauteng

Western Cape

KwaZulu-Natal

Regional Spread by GLA

38.8%

8.2%

53.0%

Gauteng

Western Cape

KwaZulu-Natal


51.4%

6.5%

42.1%

Gauteng

Western Cape

KwaZulu-Natal

Retail

Office

Industrial

Sectoral spread by GLA

2.9%

68.7%

28.4%

Tenant Profile (GLA)

Post listing

Listing

10 000

20 000

30 000

40 000

50 000

60 000

70 000

A B C

Tenant Grading A. Large national tenants, large listed tenants, government and

major franchises. ‘Large’ refers to top tier nationals and listed tenants ‘Major’ refers to top tier franchises recognised as industry leaders

B. National Tenants, listed tenants, franchises, medium to large professional firms. ‘Medium to Large’ refers to industry leaders in their respective fields (law, accounting, advertising etc)

C. Other - Number of tenants in this category - 281


0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

Office Retail Industrial

10,00%


Industrial

Office

Retail

0,00%

20,00%

40,00%

30,00%

50,00%

60,00%

70,00%

80,00%

Monthly May 15 May 16 May 17 May 18 May 19 May 20 >May 20Vacant


51.4%

6.5%

42.1%

Gauteng

Western Cape

KwaZulu-Natal

Retail

Office

Industrial


1.2%

63.7%

35.1%


38.8%

8.2%

53.0%

Gauteng

Western Cape

KwaZulu-Natal


38.8%

8.2%

53.0%

Gauteng

Western Cape

KwaZulu-Natal


51.4%

6.5%

42.1%

Gauteng

Western Cape

KwaZulu-Natal

Retail

Office

Industrial


2.9%

68.7%

28.4%


Post listing

Listing

10 000

20 000

30 000

40 000

50 000

60 000

70 000

A B C






0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%


10,00%


Industrial

Office

Retail

0,00%

20,00%

40,00%

30,00%

50,00%

60,00%

70,00%

80,00%



51.4%

6.5%

42.1%

Gauteng

Western Cape

KwaZulu-Natal

Retail

Office

Industrial


1.2%

63.7%

35.1%


38.8%

8.2%

53.0%

Gauteng

Western Cape

KwaZulu-Natal


38.8%

8.2%

53.0%

Gauteng

Western Cape

KwaZulu-Natal


51.4%

6.5%

42.1%

Gauteng

Western Cape

KwaZulu-Natal

Retail

Office

Industrial


2.9%

68.7%

28.4%


Post listing

Listing

10 000

20 000

30 000

40 000

50 000

60 000

70 000

A B C






0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%


10,00%


Industrial

Office

Retail

0,00%

20,00%

40,00%

30,00%

50,00%

60,00%

70,00%

80,00%



51.4%

6.5%

42.1%

Gauteng

Western Cape

KwaZulu-Natal

Retail

Office

Industrial


1.2%

63.7%

35.1%


38.8%

8.2%

53.0%

Gauteng

Western Cape

KwaZulu-Natal


38.8%

8.2%

53.0%

Gauteng

Western Cape

KwaZulu-Natal


51.4%

6.5%

42.1%

Gauteng

Western Cape

KwaZulu-Natal

Retail

Office

Industrial


2.9%

68.7%

28.4%


Post listing

Listing

10 000

20 000

30 000

40 000

50 000

60 000

70 000

A B C






0,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%


10,00%


Industrial

Office

Retail

0,00%

20,00%

40,00%

30,00%

50,00%

60,00%

70,00%

80,00%



51.4%

6.5%

42.1%

Gauteng

Western Cape

KwaZulu-Natal

Retail

Office

Industrial


1.2%

63.7%

35.1%


38.8%

8.2%

53.0%

Gauteng

Western Cape

KwaZulu-Natal



A U D I T A N D R I S K C O M M I T T E E R E P O R T

introduction

The Tower Property Fund audit and risk committee (the committee) is a statutory committee in terms of the Companies Act and also has an independent role with accountability to both the board and to shareholders.

The committee operates within a documented charter which complies with all relevant legislation, regulation and governance codes.

This report is presented to shareholders in compliance with the Companies Act and the King Code of Governance Principles (King lll).

role of the committee

The committee seeks to provide the board with additional assurance regarding the efficacy and reliability of the financial information used by the directors, and to assist them in the discharge of their duties.

In conducting its business the committee is authorised by the board to investigate any activity within its terms of reference, seek any information that it requires from any employee and obtain external legal or professional advice.

The responsibilities of the committee are summarised as follows:

■■ Ensure that management has created and maintained an effective financial and operational control environment in the group.

■■ Ensure that business, financial and other risks have been identified and are being suitably managed.

■■ Monitor standards of governance, reporting and compliance.

■■ Oversee integrated reporting and ensure the integrity of the integrated annual report.

■■ Review and comment on the financial statements and the disclosure of sustainability issues included in the integrated report.

■■ Review the content of the interim results.

■■ Maintain oversight of sustainability issues.

Composition of the committee

The committee comprises three suitably skilled independent non-executive directors. The chairman of the board may not serve on the committee. The committee is elected by shareholders at the annual general meeting while the board appoints the chairman of the committee.

The following directors served on the committee during the year under review and to the date of this report:

John Bester (chairman) B Com (Hons), CTA, CA(SA), CMS (Oxon)Raven Naidoo B Sc (Hons), M Sc, PhD, M ScNicola Milne B Com, PGDA

Details of the committee members appear on pages 9 to 11 of the integrated report and the fees paid to the committee members are disclosed in note 15 of the annual financial statements.

Management and the external audit partners and staff attend meetings at the invitation of the committee. The committee also meets separately with the external auditors without executive management being present.

external audit

The committee has assessed the independence, expertise and objectivity of Mazars Inc. as the external auditor, as well as approving the fees paid to Mazars Inc. The committee has received confirmation from the external auditor that the partners and staff responsible for the audit comply with all legal and professional requirements with regard to rotation and independence, including the stipulation that they should not own shares in Tower Property Fund.

The committee is satisfied with the external auditor and recommends Mazars Inc. for reappointment as Group auditors and Mr D Dollman as the registered auditor responsible for the audit.

non-audit services

The group has a formal policy on non-audit services which can be provided by the appointed auditor or by other auditing firms. The total fee earned for non-audit services may not exceed 35% of the total annual fees for audit services without the approval of the board. The policy requires Mazars Inc. to satisfy the committee that the delivery of non-audit services does not compromise their independence.

During the year under review Mazars Inc. received R353 684 for non-audit services relating to reporting accountant responsibilities on listing of the company, equating to 83.8% of the total fees paid to Mazars Inc. The committee have satisfied themselves about the independence of Mazars Inc. and the board has considered and approved the payment of these fees.

internal audit

Internal audit provides an independent, objective appraisal and assurance function and forms a core part of the group’s corporate governance structures. The internal audit function reports to the committee and has the support of the board and management.

internal control

Systems of internal control are designed to manage the risk of failure to achieve business objectives and to provide reasonable, but not absolute, assurance against misstatement or loss.

No material matter has come to the attention of the board that has caused the directors to believe that the company’s system of internal controls and risk management is not effective and that the internal financial controls do not form a sound basis for the preparation of reliable financial statements.

30



Activities of the committee

The committee is required to meet at least three times each year, with meetings coinciding with the key dates in the financial reporting and audit cycle.

Minutes of the meetings of the committee are circulated to all directors and supplemented by an update from the committee chairman at each board meeting.

The chairman of the committee is required to attend all statutory shareholder meetings to answer any questions on the committee’s activities.

The committee confirms that it has performed the following activities during the year under review:

■■ Recommended to the board and shareholders the appointment of the external auditors, approved their terms of engagement and remuneration, and monitored their independence, objectivity and effectiveness.

■■ Determined the nature and extent of any non-audit services provided by the external auditor or other auditing firms.

■■ Reviewed the group’s internal financial control and financial risk management systems.

■■ Monitored and reviewed the effectiveness of the group’s internal audit functions.

■■ Reviewed and recommended to the board for approval the integrated annual report and annual financial statements.

evaluation of the chief financial officer

The committee satisfied itself as to the appropriateness of the expertise and experience of the group’s financial director and chief financial officer, Fred Jenkings. This is based on the qualifications, levels of experience, continuing professional development education and the board’s assessment of the financial knowledge of the chief financial officer.

The committee also satisfied itself as to the expertise, resources and experience of the group’s finance function.

Approval of the committee report

The committee confirms that it has functioned in accordance with its terms of reference for the 2014 financial year and that its report to shareholders has been approved by the board.

John BesterChairmanAudit and risk committee

22 August 2014


COUNTRY OF INCORPORATION AND DOMICILE South Africa

NATURE OF BUSINESS AND PRINCIPAL ACTIVITIES Property investment companyJSE Listed company with REIT status

DIRECTORS A Dalling

M Edwards

J Bester

K Craddock

M Evans

F Jenkings

B Kerswill

A Magwentshu

N Milne

R Naidoo

REGISTERED OFFICE 2nd Floor, Spire House

Tannery Park

23 Belmont Road

Rondebosch 7700

AUDITORS Mazars Inc.

COMPANY SECRETARY Ovland Management Services Proprietary Limited

BANKERS First National Bank

SPONSOR Java Capital

TRANSFER SECRETARIES Link Market Services South Africa Proprietary Limited

COMPANY REGISTRATION NUMBER 2012/066457/06

LEVEL OF ASSURANCE These Annual Financial Statements have been audited in compliance with the applicable requirements of the Companies Act of South Africa

PUBLISHED 29 August 2014

GENERAL INFORMATION

Documents

Tower ProPerTy Fund LimiTed