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Growthpoint - Audited Report for the year ended 30 June 2006
Growthpoint Properties Limited
(Registration number 1987/004988/06)
Share code: GRT & ISIN: ZAE000037669
("Growthpoint" or "the company")
AUDITED REPORT FOR THE YEAR ENDED 30 JUNE 2006
HIGHLIGHTS
- Property assets exceed R15 billion
- Market capitalisation today above R10 billion
- 40% increase in net asset value per linked unit
- Distribution increased by 11,1% to 81,3 cents
Condensed Consolidated Income Statement
Audited Audited
2006 2005
R"000 R"000
Revenue excluding straight line
lease income accrual 1 298 549 1 013 939
Straight line lease income accrual 81 623 167 775
Revenue 1 380 172 1 181 714
Property expenses (350 912) (255 434)
Net property income 1 029 260 926 280
Other operating expenses (65 788) (45 649)
Net property income after
other operating expenses 963 472 880 631
Investment income 33 683 58 714
Fair value adjustments (Note 1) (49 438) (107 085)
Operating profit 947 717 832 260
Interest paid (361 369) (298 096)
Non-cash financing charges (9 434) (36 169)
Finance income 49 478 9 240
Net income before debenture interest 626 392 507 235
Debenture interest (602 641) (481 792)
Net income before taxation 23 751 25 443
Taxation (23 148) (24 961)
- Normal and Secondary Tax on Companies (97) (350)
- Capital Gains Taxation (23 051) (24 611)
Net income after taxation 603 482
Calculation of distributable earnings
Net property income after operating expenses 963 472 880 631
Less: accrual of straight line lease income (81 623) (167 775)
Investment income 33 683 58 714
Interest on long-term loans (361 369) (298 096)
Finance income 49 478 9 240
Taxation (excluding capital gains taxation) (97) (350)
Distributable earnings 603 544 482 364
Distribution for the period (603 244) (482 274)
Distribution per linked unit (cents) 81,30 73,20
Six months to December 39,10 35,50
Six months to June 42,20 37,70
Note 1
Fair value adjustments (49 438) (107 085)
Gross investment property revaluation 1 581 837 1 325 018
Less: straight line lease income adjustment (81 623) (167 775)
1 500 214 1 157 243
Listed property investments 33 278 207 227
Interest-bearing borrowings 116 544 (243 969)
Derivatives 160 344 (159 245)
Zero-coupon borrowings 10 729 (17 530)
Debentures (1 870 547) (1 050 811)
Because Growthpoint has chosen to account for all its assets and liabilities at
fair value, any increase in net asset value (excluding debentures) gives rise to
a fair value charge in the income statement as the fair value of debentures is
written up. The increase in net asset value is patently to the benefit of linked
unitholders. As each share is linked to 10 debentures, the calculation of an
earnings per share figure that includes the fair value adjustment to debentures
gives rise to a loss per share that is meaningless as the shareholder and
debentureholder are one and the same person. The disclosure of earnings per
share is given below only because it is obligatory in terms of accounting
standards. The calculation of distributable earnings attributable to linked
unitholders shown above is more meaningful.
Earnings per share 2006 2005
Shares in issue at the end of the year 778 186 044 660 350 676
Weighted average number of shares in issue 705 248 004 655 916 674
Basic earnings per share (cents) 0,09 0,07
Headline (loss) per share (cents) (150,95) (125,92)
Headline (loss) per linked unit (cents) (65,50) (52,47)
Headline earnings is calculated as follows: R"000 R"000
Net income after taxation 603 482
Add back: Fair value adjustment
investment property (1 500 214) (1 157 243)
Less: Taxation applicable thereto 435 062 330 829
Headline loss attributable to shareholders (1 064 549) (825 932)
Add back debenture interest paid 602 641 481 792
Headline (loss)/profit attributable
to linked unitholders (461 908) (344 140)
Condensed Segmental Analysis
Retail Commercial Industrial Total
R"000 R"000 R"000 R"000
2006
Income statement
Revenue excluding
straight line
lease income
accrual 610 104 585 527 102 918 1 298 549
Straight line lease
income accrual 24 543 58 055 (975) 81 623
Revenue 634 647 643 582 101 943 1 380 172
Property expenses (163 192) (157 811) (29 909) (350 912)
Net property income 471 455 485 771 72 034 1 029 260
2005
Income statement
Revenue excluding
straight line
lease income
accrual 515 259 443 552 55 128 1 013 939
Straight line lease
income accrual 45 901 116 035 5 839 167 775
Revenue 561 160 559 587 60 967 1 181 714
Property expenses (148 758) (94 288) (12 388) (255 434)
Net property income 412 402 465 299 48 579 926 280
2006
Balance sheet
Investment property
Opening balance 4 383 016 4 180 471 555 675 9 119 162
Acquisitions 750 926 791 950 2 732 803 4 275 679
Capital expenditure 160 728 76 082 17 186 253 996
Disposals (75 814) (117 120) (21 224) (214 158)
Net fair
value adjustments 818 939 573 571 107 704 1 500 214
Straight line
lease income
accrual 24 543 58 055 (975) 81 623
Closing balance 6 062 338 5 563 009 3 391 169 15 016 516
2005
Balance sheet
Investment property
Opening balance 3 302 541 2 584 306 244 653 6 131 500
Acquisitions 382 645 985 479 258 441 1 626 565
Capital expenditure 114 643 22 901 417 137 961
Disposals (71 900) (29 982) - (101 882)
Net fair value
adjustments 609 186 501 732 46 325 1 157 243
Straight line
lease income
accrual 45 901 116 035 5 839 167 775
Closing balance 4 383 016 4 180 471 555 675 9 119 162
Condensed Consolidated Balance Sheet
Audited Audited
2006 2005
R"000 R"000
ASSETS
Fair value of investment property for
accounting purposes 14 542 771 8 783 264
Straight line lease income accrual 473 745 335 898
Fair value of property assets 15 016 516 9 119 162
Listed investment portfolio - 390 857
Long-term loans 221 501 -
Derivative financial asset 114 865 17 805
Current assets 191 250 132 174
Receivables and other current assets 174 965 86 287
Cash and cash equivalents 16 285 45 887
Total assets 15 544 132 9 659 998
EQUITY AND LIABILITIES
Ordinary share capital 38 910 33 018
Non-current liabilities - debentures 7 943 553 4 834 477
Linked unitholders" interest 7 982 463 4 867 495
Other non-current financial liabilities 5 747 838 3 834 794
Current liabilities 1 813 831 957 709
Trade and other payables 182 407 145 019
Amount owing in respect of property
acquisition 1 250 406 368 528
Current portion of long-term liabilities - 167 955
Taxation payable 23 333 24 747
Linked unitholders for interest and
dividends 357 685 251 460
Total equity and liabilities 15 544 132 9 659 998
Number of linked units in issue 778 186 044 660 350 676
Net asset value per linked unit (cents) 1 026 737
Condensed Consolidated Cash Flow Statement
Audited Audited
2006 2005
R"000 R"000
Cash generated from operations 802 533 716 588
Investment income 33 683 58 714
Net finance costs (311 891) (288 856)
Taxation paid (24 562) (20 684)
Distribution to unitholders (497 019) (449 312)
Cash flow from operating activities 2 744 16 450
Cash flow from investing activities (1 134 787) (909 513)
Cash flow from financing activities 1 102 441 852 648
Net (decrease)/increase in
cash and cash equivalents (29 602) (40 415)
Cash and cash equivalents at
beginning of the period 45 887 86 302
Cash and cash equivalents at end of the
period 16 285 45 887
Condensed Consolidated Statement of Changes in Equity
Ordinary Total share
share capital and
capital Reserves reserves
R"000 R"000 R"000
Balance at 30 June 2004 30 629 - 30 629
Shares issued 2 389 - 2 389
Net income for the year - 482 482
Dividends - (482) (482)
Balance at 30 June 2005 33 018 - 33 018
Shares issued 5 892 - 5 892
Net income for the period - 603 603
Dividends - (603) (603)
Balance at 30 June 2006 38 910 - 38 910
Commentary
Basis of accounting
The financial statements are prepared in accordance with International Financial
Reporting Standards (IFRS), applied consistently with the prior period. KPMG
Inc. has audited the financial information set out in this report. Their
unqualified audit report is available for inspection at the company"s registered
office.
Circular 7 issued in August 2005 by the South African Institute of Chartered
Accountants (SAICA) set out the method of accounting for rental income in terms
of the South African accounting statement AC105 and the International Accounting
Standard IAS17. In terms of that circular, rental income from leases with
escalation clauses should be brought to account on a smoothed, straight line
basis over the period of the relevant leases. Compliance with the circular
results in future rental escalations being included in the current year"s
revenue. However, as investment property is valued by discounting future
expected cash flows, the fair value adjustment for investment property is
reduced by the amount of the straight line lease income adjustment included in
revenue, so as to avoid double counting.
Investment properties are held as long-term income generating assets. Should any
properties no longer meet the company"s investment criteria and be sold, any
profits or losses will be capital in nature and will be taxed at rates
applicable to capital gains. The effect of complying with current accounting
standards on deferred taxation is that deferred taxation is raised at the rate
applicable to income earned from the use of the assets. As the company has
chosen to fair value its debentures, any fair value adjustment to investment
property gives rise to an opposite adjustment to the fair value of debentures
and the tax effects of these two adjustments off-set each other, with the result
that the net deferred taxation is nil.
Financial results
The year was once again a milestone in the history of Growthpoint, with two
major transactions being concluded. On 1 June 2006 the company took transfer of
a diversified, quality portfolio of 24 properties from Tresso Trading 119 (Pty)
Limited ("Tresso"), acquired at a cost of R1,4 billion. Income from these
properties accrued to Growthpoint from 1 June 2006. One of the stated goals of
Growthpoint a year ago was to increase its exposure to industrial properties as
this sector is poised to start showing good growth in rentals as strong demand
for space has seen industrial vacancies across the country decline to levels of
below 2%. This goal was realised when linked unitholders of Metboard Properties
Limited ("Metboard) voted in favour of the scheme of arrangement proposed by
Growthpoint, whereby Metboard linked unitholders other than Growthpoint, on
Monday, 21 August 2006, received 1 new Growthpoint linked unit for every 1.9
Metboard linked units held on the record date, 18 August 2006. All required
conditions for the scheme of arrangement were fulfilled by 30 June 2006, the
effective date, and Metboard"s balance sheet at 30 June 2006 has been
consolidated into the group"s figures. The value of the new Growthpoint linked
units issued on 21 August 2006 has been disclosed as a current liability at 30
June 2006. There has been no income statement effect in the current year.
The year under review has once again seen very good returns to Growthpoint
linked unitholders. Distributions increased by 11,1 % from 73,20 cents to 81,3
cents per linked unit and in addition the market value of Growthpoint linked
units increased by 18,1%, from R9,06 to R10,70 per linked unit. Based on the
linked unit price of R9,06 as at 30 June 2005, the total income return plus
capital appreciation for the year was 27,1%.
Apart from normal rental escalations, the 28% increase in revenue was mainly due
to the acquisition of the R1,1 billion portfolio from Tresso in June 2005.
No income from this portfolio was included in the prior year"s figures, whereas
a full 12 months" income was included in the current year. In the current year,
income from the R1,4 billion second Tresso acquisition accrued from 1 June 2006.
The increase in other operating expenses was largely due to the increase in
asset management fees, which is a function of the increased market
capitalisation and debt following the acquisitions made over the last two years
and the improved trading prices of Growthpoint linked units.
The decrease in investment income was due to the sale of the bulk of the listed
property portfolio in the period from January to June 2005. Subsequent to 30
June 2006, the company sold the balance of its Hyprop linked units, retaining
only its 13,8% shareholding in Metboard, which increased to 17,7% as additional
Metboard linked units were purchased on the market during the year.
The value of investment property increased by R1,6 billion following the
discounted cash flow valuation carried out for the entire portfolio as at 30
June 2006. The increase in overall values is due to projected income increasing
and lower discount rates applied by the valuers.
The revaluation of fixed rate borrowings and interest rate swaps gave rise to a
fair value credit adjustment in the income statement of R287,6 million, mainly
due to the recent increase in market interest rates.
Included in finance income of R49,5 million are two large amounts. R26,1 million
is the recoverable portion of distributions paid on new linked units issued
during the year to the vendors of properties acquired. The recipients of these
new units agreed to divest themselves of the portion of the distribution on the
units that accrued prior to their paying for the units.
R17,8 million is interest charged on a loan to Quick Leap Investments 429 (Pty)
Limited ("Quick Leap"), a company that acquired 100 000 000 Growthpoint
debentures in August 2005 on behalf of Growthpoint"s BEE shareholders.
Growthpoint provided R203,75 million mezzanine funding to Quick Leap at market
related rates. The interest on this loan is payable at the end of 10 years from
31 August 2005.
Acquisitions
As mentioned above, the industrial portfolio has increased substantially as a
result of the Metboard transaction. The Metboard portfolio consists of 163
properties valued at R2,4 billion. The portfolio is split by value between
warehousing (41%), industrial parks and mini-units (24%), manufacturing (13%),
light industrial (14%) and retail warehouse/motor trade (8%). It is expected
that this acquisition will be enhancing to existing Growthpoint linked
unitholders from the first year.
The other major transaction concluded during the year was the purchase of a
portfolio of 24 properties from Tresso for R1,4 billion. All 24 properties
acquired were transferred to Growthpoint on 1 June 2006. 42% of the value was
made up by two retail properties, a 66% share in Lakeside Mall in Benoni and
Hatfield Plaza in Pretoria. There were 14 office properties making up 45% of the
value, including River Park office park in Cape Town, the recently renovated
Fredman Towers in Sandton and Grayston Office Park, also in Sandton.
Eight industrial properties made up the balance of the portfolio. The total
portfolio was acquired at an initial forward yield of slightly over 9%.
A further seven properties were acquired in individual transactions during the
year for R360,2 million. All of these properties are expected to show a combined
yield of slightly over 10% on cost in the year to 30 June 2007.
SEE GRAPH IN PRESS ANNOUNCEMENT
Disposals
Strong demand from purchasers enabled the company to dispose of 15 older
properties which no longer met the criteria of core long-term investments, for a
total consideration of R214,1 million.
A surplus of R24,7 million over the June 2005 book value and R49,4 million over
original cost was realised on all these disposals.
Vacancy levels
SEE GRAPH IN PRESS ANNOUNCEMENT
Including the Metboard industrial portfolio, vacancies as a % of Gross Lettable
Area (GLA) at 30 June 2006 were 2,9% for the entire portfolio. The Metboard
portfolio vacancy level at 30 June 2006 was 1,9%, almost identical to
Growthpoint"s industrial portfolio prior to Metboard of 1,8%. These low vacancy
levels for the industrial sector are reflected in the statistics of other owners
throughout the country and indicate that the shortage of quality industrial
space should lead to real rental increases. Retail vacancies remain low,
particularly at the large regional shopping centres, ending the year at 2,7%.
There has been a marked decline in office vacancies from 7% a year ago to 5,2%
at 30 June 2006. This again, together with the high increases in construction
costs which will limit new supply, points to upward pressure on rentals in the
near future.
Liquidity and tradeability
Growthpoint"s linked units continue to enjoy high levels of liquidity and
tradeability. During the year to 30 June 2006, R4,4 billion of Growthpoint
linked units traded on the JSE Securities Exchange, representing 59% of units in
issue. The monthly average value traded was R366,8 million.
SEE GRAPH IN PRESS ANNOUNCEMENT
Borrowings and cash balances
At 30 June 2006, the fair value of long-term debt amounted to R5 747,8 million,
including R118,7 million of zero-coupon loans. The nominal value of interest-
bearing long-term debt was R5 374,1 million. The loan to value ratio, determined
by dividing the total fair value of all debt (excluding debentures) by the fair
value of property assets was 38,3%. Taking into account a fixed interest rate
contract with a forward starting date of 1 September 2006, 86% of interest-
bearing debt was fixed at a weighted average all-in rate of 9,4%.
At year-end the company had unutilised debt facilities in place of R760,2
million.
SEE GRAPH IN PRESS ANNOUNCEMENT
Securitisation
In November 2005 Growthpoint launched its R5 billion commercial mortgage backed
securitisation ("CMBS") programme with an issue of five-year notes to the value
of R805 millon, the largest issue at the time in South Africa. The issue
attracted strong investor interest and achieved an average margin of 47 points.
In June 2006 the company issued a further R969 million five-year notes at 45
points margin.
The proceeds of these CMBS issues were used mainly to finance the cash portions
of the first and second Tresso acquisitions, with the surplus being used to
repay more expensive debt.
A further R1 billion CMBS issue is planned to take place on 7 September, mainly
to finance the Metboard acquisition. Following that, a R1,5 billion issue is
planned for October to refinance existing more expensive debt, which should
result in annual interest savings of approximately R14 million.
Share and debenture capital
The authorised share capital is R75 000 000 divided into one billion five
hundred thousand ordinary shares of five cents each. Each ordinary share is
linked to ten variable rate debentures of 250 cents each.
The ordinary shares and debentures trade as linked units on the JSE. In terms of
the debenture trust deed, the interest payable on the debenture component of the
linked unit is always 1 000 times greater than the dividend payable per ordinary
share.
In July 2005 the company issued 43 548 387 new linked units to partly finance
the first Tresso portfolio acquisition. In June 2006 a further 74 286 981 new
linked units were issued pursuant to the second Tresso portfolio acquisition.
Events subsequent to balance sheet date
The company has concluded an agreement to acquire a portfolio of eight
properties from the Business Connection group (BCX) for approximately R379
million at a yield of 8,5%. The effective date of the transaction will be on
transfer of the properties, which is expected in the next two months.
Growthpoint issued 121 654 873 new linked units on 21 August 2006 to acquire the
balance of the linked units in Metboard that it did not already own.
Prospects
The Growthpoint board anticipates that, subject to market conditions remaining
stable, Growthpoint"s distributions for the year ending 30 June 2007, should
show similar growth to that experienced in the current year.
Dividend and interest payment
On Wednesday, 26 July Growthpoint announced a final distribution for the six
months ended 30 June 2006 of 42.2 cents per linked unit, bringing the total
distribution for the year ended 30 June 2006 to 81,3 cents per linked unit.
The last date to trade "cum distribution" was Friday, 11 August 2006 and payment
was made on Monday, 21 August 2006.
By order of the board
Growthpoint Properties Limited
22 August 2006
Registered office Transfer secretaries Sponsor
100 Grayston Drive, Computershare Investor Investec Bank Limited
Sandown, Sandton Services 2004 (Pty) Limited 100 Grayston Drive,Sandown
2196 Ground Floor, 70 Marshall Street Sandton, 2196
PO Box 78949 Johannesburg, 2001 PO Box 78949
Sandton, 2146 PO Box 61051, Marshalltown, 2107 Sandton, 2146
Growthpoint Properties Limited
(Registration number 1987/004988/06)
Share code: GRT ISIN: ZAE000037669
Managed by
Investec Property Group
Date: 23/08/2006 11:00:20 AM Supplied by www.sharenet.co.za
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