To view the PDF file, sign up for a MySharenet subscription.

Emira Property Fund - Reviewed financial results for the year ended

Release Date: 28/08/2006 08:51
Code(s): EMI
Wrap Text

Emira Property Fund - Reviewed financial results for the year ended 30 June 2006 Emira Property Fund (A property fund created under the Emira Property Scheme, registered in terms of the Collective Investment Schemes Control Act) Share code: EMI ISIN: ZAE000050712 ("Emira" or "the Fund") www.emira.co.za Reviewed financial results for the year ended 30 June 2006 - Distributions per PI 74,50c growth of +10,3% - Net asset value per PI 866c an increase of +38,8% - 12-month total return 205c or 28,4% Abridged income statement for the year ended 30 June 2006 Restated Reviewed Audited
Year ended Year ended 30 June 2006 30 June 2005 R"000 R"000 Revenue 451 950 407 088 Property expenses (137 778) (113 292) Management expenses (15 259) (10 590) Administration expenses (13 727) (12 150) Depreciation (7 532) (6 464) Net income from property rental operations 277 654 264 592 Net fair value gains on investment properties 661 154 240 124 Change in fair value as a result of straight-lining lease rental (18 783) (32 669) Change in fair value as a result of amortising upfront lease cost (2 890) (8 017) Change in fair value as a result of property appreciation in value 682 827 280 810 Profit on disposal of investment property 1 459 11 179 Maintenance fund expenses (855) (1 827) Listing costs (128) (104) Operating profit 939 284 513 964 Finance costs (32 365) (45 662) Investment income 1 417 3 554 Net profit for the period 908 336 471 856 Reconciliation between earnings and headline earnings: Net profit for the period 908 336 471 856 Adjusted for: Net fair value gains on investment properties (661 154) (240 124) Profit on sale of investment property (1 459) (11 179) Headline earnings 245 723 220 553 Reconciliation of headline earnings to distribution per participatory interest: Headline earnings 245 723 220 553 Adjusted for: Allowance for future rental escalations (18 783) (32 669) Unamortised upfront lease costs (2 890) (8 017) Unrealised (gain)/loss on interest rate swaps (11 665) 11 757 Maintenance fund expenses 855 1 827 Amortised borrowing costs 437 296 Distribution payable to participatory interest holders 213 677 193 747 Distribution per participatory interest Interim (cents) 36,44 32,63 Final(cents) 38,06 34,92 Total (cents) 74,50 67,55 Abridged balance sheet at 30 June 2006 Restated Reviewed Audited Year ended Year ended 30 June 2006 30 June 2005
R"000 R"000 Assets Non-current assets Investment properties 3 025 871 2 215 059 Allowance for future rental escalations 51 452 32 669 Unamortised upfront lease costs 14 936 12 046 3 092 259 2 259 774 Current assets Accounts receivables and prepayments 11 688 31 757 Cash 652 9 252 12 340 41 009 Total assets 3 104 599 2 300 783 Equity Participatory interest holders" capital 2 483 265 1 788 606 Liabilities Non-current Liabilities Interest-bearing debt 458 330 364 141 Current liabilities Short-term portion of long-term interest-bearing debt 3 224 1 867 Accounts payable 50 531 34 257 Derivative financial instruments 92 11 757 Distributions payable to participatory interest holders 109 157 100 155 163 004 148 036 Total liabilities 621 334 512 177 Total equity and liabilities 3 104 599 2 300 783 Statement of changes in equity for the year ended 30 June 2006 Participatory Fair value Retained interest reserve earnings Total R"000 R"000 R"000 R"000 Balance at 1 July 2004 1 416 344 85 576 (173) 1 501 747 Issue of participatory interest 8 750 - - 8 750 Net profit for the year - - 471 856 471 856 Distribution to PI holders - - (193 747) (193 747) Allowance for future rental escalations - 32 669 (32 669) - Unamortised upfront lease costs - 8 017 (8 017) - Net fair value gains on investment properties - 240 124 (240 124) - Profit on sale of investment property - 11 179 (11 179) - Unrealised loss on interest rate swaps (11 757) 11 757 - Maintenance fund expenses (1 827) 1 827 - Balance at 30 June 2005 1 425 094 363 981 (469) 1 788 606 Balance at 1 July 2005 1 425 094 363 981 (469) 1 788 606 Net profit for the year - - 908 336 908 336 Distribution to PI holders - - (213 677) (213 677) Allowance for future rental escalations - 18 783 (18 783) - Net fair value gains on investment properties - 661 154 (661 154) - Profit on sale of investment property - 1 459 (1 459) - Unamortised upfront lease costs 2 890 (2 890) Unrealised gains/ (loss) on interest rate swaps 11 665 (11 665) - Maintenance fund expenses (855) 855 - Balance at 30 June 2006 1 425 094 1 059 077 (906) 2 483 265 Abridged cash flow statement for the year ended 30 June 2006 Restated Reviewed Audited Year ended Year ended 30 June 2006 30 June 2005
R"000 R"000 Cash generated by rental operations 298 459 196 087 Net interest charge (42 176) (30 351) Distribution to participatory interest holders (204 675) (173 306) Cash flow from operating activities 51 608 (7 570) Acquisition of investment properties (166 656) (104 693) Acquisition of furniture and fittings (6 497) (8 984) Proceeds on sale of investment property 17 399 40 455 Decrease in maintenance fund - 24 104 Net cash utilised in investing - activities (155 754) (49 118) Issue of participatory interest - 8 750 Increase in borrowings 95 546 53 163 Net cash from financing activities 95 546 61 913 Net change in cash and cash equivalents (8 600) 5 225 Cash and cash equivalents at beginning of year 9 252 4 027 Cash and cash equivalents at end of year 652 9 252 Basis of Preparation and Accounting Policies The annual financial results have been prepared in accordance with International Financial Reporting Standard ("IFRS") and in compliance with the Listing Requirements of the JSE Limited ("JSE"). IFRS 1 - First-time adoption of International Financial Reporting Standard has been applied. Due to the fact that the adoption of IFRS had no effect on the comparative amounts, a reconciliation has not been prepared. Change in Accounting Policies Operating Leases Upfront lease expenditure for operating leases is now recognised on a straight-line basis over the lease term of the contract in accordance with IAS 17 (International Accounting Standard 17 - Leases), the comparative figures have been restated accordingly. Segmental information Retail Office Industrial Corporate Total
Sectoral segments R"000 R"000 R"000 R"000 R"000 Revenue 164 706 221 316 65 928 451 950 Revenue 155 159 215 904 62 104 433 167 Allowance for future rental escalation 9 547 5 412 3 824 18 783 Segmental result Net income from property rental operations 105 643 141 569 46 540 (16 098)1 277 654 Depreciation 1 377 5 301 854 7 532 Change in fair value of investment properties 211 706 324 796 124 652 - 661 154 Other information Investment properties 1 023 305 1 545 197 457 369 - 3 025 871 Total assets 1 060 511 1 573 153 469 629 1 3062 3 104 599 Accounts payable 13 033 21 250 4 662 11 5863 50 531 1 Includes asset management fees and other corporate related expenses 2 Other sundry debtors 3 All centralised creditors Geographical segments Revenue - Gauteng 119 168 178 188 36 916 - 334 272 - Western and Eastern Cape 13 273 12 594 10 596 - 36 463 - KwaZulu-Natal 30 534 18 416 - 48 950 - Free State - 26 563 - - 26 563 - North West 5 702 - - - 5 702 164 706 221 316 65 928 - 451 950 Total assets - Gauteng 764 855 1 233 162 271 647 1 306 2 270 970 - Western and Eastern Cape 98 140 111 831 90 279 - 300 250 - KwaZulu-Natal - 228 160 107 703 - 335 863 - Free State 174 121 - - - 174 121 - North West 23 395 - - - 23 395 1 060 511 1 573 153 469 629 1 306 3 104 599 Related parties and related-party transactions Momentum Group ("Momentum") is the majority participatory interest holder. At 30 June 2006, Momentum owned 38,48% of the Fund"s participatory interests and the remaining 61,52% were widely held. The following transactions were carried out with related parties: Restated Reviewed Audited Year ended Year ended 30 June 2006 30 June 2005
R"000 R"000 Strategic Real Estate Managers (Pty) Limited Expenditure comprising: asset management fee 15 259 10 590 Relationship: Associated company of the FirstRand Group Rand Merchant Bank a division of FirstRand Bank Limited Borrowings 304 125 226 125 Net finance cost 30 359 23 166 Relationship: Associated company of the FirstRand Group RMB Properties (Pty) Limited 52 590 90 855 Expenditure comprising: property management fee and letting commissions 23 722 22 683 Development of Gift Acres Shopping Centre 10 000 68 172 Development of Faerie Glen Phase 2 18 868 - The above transactions were carried out on commercial terms and conditions no more favourable than those available in similar arm"s length dealings at market-related rates. Commentary Buoyant market conditions resulted in Emira experiencing a successful twelve months to 30 June 2006. It was a year in which growth was a feature of both Emira"s performance as well as the entire listed property sector: participatory interest (PI) holders benefited from a growing PI price, distribution growth of in excess of 10% was delivered by the Fund, and, subsequent to year-end, PI holders also approved the purchase of a portfolio of assets from Momentum and RMB Properties totalling R844 million. Results The distribution per PI for the year amounted to 74,5 cents, representing year-on-year growth of 10,3%. Excluding the straight-line adjustments from future rental escalations, revenue rose by 15,7% year-on-year. This was the result of growing income from the existing portfolio and the transfer of various properties during the period, which have been detailed below. With property expenses rising at a similar rate to revenue, the ratio of property expenses to revenue remained constant at approximately 32,5%. The substantial increase in Emira"s PI price during the period - reaching a listed property sector - resulted in a 44% rise in asset management fees. Interest costs, excluding unrealised gains or losses on interest rate swaps, rose by 29,9% as a result of the funding of the properties transferred during the period. Emira"s PI price rose from 720 cents in June 2005 to 850 cents as at 30 June 2006, a rise of 18,1% Fund"s. The Fund"s market capitalisation rose from R2,07 billion to R2,44 billion over the same period. Together with the distributions of 74,50 cents, PI holders received a total return of 28,4% over the past twelve months. Net asset value grew from 624 cents to 866 cents, representing growth of 38,8%. This is indicative of the current underlying strength in the commercial property market, where vacancies have been declining and rentals rising. Acquisitions The following properties were transferred to Emira during the financial year: Transferred to Emira in FY06 Sector Location GLA (m2) 100 Armstrong Office La Lucia Ridge 2 880 122 Pybus Road Office Sandton CBD 5 299 Lincolnwood Office Park Office Woodmead 10 991 Century Gate Office Century City 1 369 Gift Acres* Retail Lynnwood Ridge 9 363 Total 29 902 Transferred to Emira in FY06 (continued) Purchase Forward Effective Key price (Rm) yield (%) date Tenants
100 Armstrong 25,00 11,1 11 Jul 05 Imperial Bank, SAP, RMB Asset Management 122 Pybus Road 15,75 11,1 20 Oct 05 Multi-tenanted Lincolnwood Office Park 55,75 12,2 20 Oct 05 SA Rail Commuter Corporation
Century Gate 10,00 10,0 25 Nov 05 Triocon Consulting Engineers (Pty) Limited
FirstRand Bank Limited Gift Acres* 78,68 11,8 22 Jun 06 Woolworths, Mr Price Group
First National Bank Total 185,2 *Note that although the transfer of Gift Acres only took place in June 2006, the development consideration was paid in accordance with the agreement with RMB Properties and income from the centre was accrued to the Fund since opening in May 2005. Emira also reached agreement with RMB Properties to purchase the newly developed Phase 2 of an office park located in Sprite Avenue, Faerie Glen, Pretoria. This was funded by short-term debt, with the income accruing to Emira from 1 June 2006. With the Fund being the legal owner of the land, no transfer was required. Income accruing to Emira in FY06 Sector Location GLA (m2) Faerie Glen Phase 2 Office Faerie Glen 1 937 Income accruing to Emira in FY06 (continued) Purchase Forward Effective Key price (Rm) yield (%) date Tenants Faerie Glen Phase 2 18,9 10,2 1 June 2006 Sanlam, Simeka At the general meeting of PI holders" held on 22 August 2006, Emira received approval to purchase five properties from Momentum and RMB Properties through a combination of debt and equity. Of these five buildings, Newlands Terraces is expected to be transferred to Emira on 1 September 2006. The remaining properties are expected to contribute to the Fund"s income from transfer - in the case of Wonderpark and WesBank House - and the later of practical completion or registration - in the case of WorldWear and RTT. Yet to be transferred to Emira Sector Location GLA (m2) Newlands Terraces Office Newlands, 4 262 Cape Town Wonderpark Shopping Centre Retail Karenpark, 58 109 Pretoria
RTT Warehouse Industrial Bartlett, 44 085 Johannesburg WorldWear Retail Fairlands, 13 284 Johannesburg
WesBank House Office CBD, Cape Town 9 206 Total 128 946 Yet to be transferred to Emira (continued) Purchase Forward Anticipated
price (Rm) yield (%) effective Key date Tenants Newlands Terraces UCS Software, 43,8 9,9 1 Sep 2006 WPRFU
Wonderpark Shopping Centre 406,4 9,0 On transfer Pick "n Pay, Woolworths, Virgin Active
RTT Warehouse 217,1 9,7 1 April Railit Total 2007 Transportation WorldWear 133,1 10,3 1 Nov 2006 Mr Price Home, The Pro Shop,
Seemans WesBank House 44,0 10,9 On transfer Dept of Labour, WesBank
Total 844,4 9,5 Furthermore, Phase 3 of Faerie Glen, which is currently under development, is on target to be completed by 1 December 2006 and is expected to be funded by debt. Income yet to accrue to Emira Sector Location GLA (m2) Faerie Glen Phase 3 Office Faerie Glen 2 594 Income yet to accrue to Emira (continued) Purchase Forward Anticipated Key price (Rm) yield (%) effective date Tenants Faerie Glen Phase 3 26,7 10,2 1 Dec 2006 VIP Disposals In accordance with the strategy of the Fund, certain properties that are underperforming or pose excessive risk to the Fund are earmarked and disposed of. With this strategy in mind, Emira disposed of: Motorola, a mixed office/industrial building in Halfway Gardens; Pilrig, an office building in Parktown, and Grinaker Electronics, an office building in Samrand. Transferred out of Emira in FY06 Valuation June 2005 Sector Location GLA (m2) (R"000) Motorola Office Halfway Gardens 719 3 001 Pilrig Office Parktown 2 027 5 990 Grinaker Electronics Office Samrand 3 261 7 000 Total 6 007 15 991 Transferred out of Emira in FY06 (continued) Sale Price Effective (R"000) Yield (%) date
Motorola 3 001 11,1 11 Aug 05 Pilrig 7 400 8,5 28 Mar 06 Grinaker Electronics 7 000 1,6 01 Jun 06 Total 17 401 Delays in the transfer of Mafikeng Game have resulted in this property still being owned by Emira, although it is expected to be transferred before the end of December 2006. Properties sold during the financial year, but yet to be transferred out of Emira Valuation Sale June 2004 price Building Sector Location GLA (m2) (Rm) (Rm) Yield (%) Mafikeng Game Retail Mafikeng 5 218 20,1 20,7 15,9 Vacancies Vacancies dropped sharply from 6,0% (33 624 m2) in June 2005 to 4,0% in June 2006 (23 262 m2). The largest improvement came within the industrial sector, which saw vacancies decline from 4,7% in June 2005 to 1,8% by end June 2006. Office vacancies declined to 6,7% while vacancies in the retail sector rose slightly from 1,5% to 2,0%. Valuations and Net Asset Value The Fund has elected to have independent valuations of its entire portfolio at least every three years. To achieve this, independent valuers value approximately one-third of the portfolio each year. These valuations are included as part of the Fund"s overall portfolio movement below. As a result of the continued firming in the capitalisation rates, advantageous renewals in a number of properties and rising rentals in the majority of areas, property values improved markedly in all three sectors. Total portfolio movement June 2005 June 2006 (R"000) R/m2 (R"000)
Industrial 337 618 1 948 469 190 Office 1 111 646 4 671 1 572 429 Retail 810 277 5 364 1 050 640 General* 233 - 0 2 259 774 4 018 3 092 259 Adjustment to fair value as per IAS 17/IAS 40 (32 669) (51 452) Unamortised upfront lease cost as per IAS17/IAS40 (12 046) (14 936) As reported 2 215 059 3 025 871 Total portfolio movement (continued) Difference Difference R/m2 (%) (R"000) Industrial 2 691 39,0 131 782 Office 6 124 41,5 460 783 Retail 6 952 29,7 240 363 General* 100 (233) 5 311 36,8 832 485
Adjustment to fair value as per IAS 17/IAS 40 57,5 (18 783) Unamortised upfront lease cost as per IAS17/IAS40 24,0 (2 890) As reported 36,6 810 812 *General relates to costs incurred on Gift Acres and Unilever properties. Debt As at June 2006 Emira had a total debt facility available of R690 million. This was based upon the June 2005 portfolio valuations of R2,23 billion, combined with transfer of Lincolnwood and 122 Pybus Road. Of this total facility, R522 million had been granted, split into five tranches. The majority (79%) of the Fund"s debt had been fixed for periods of between 15 months and in excess of five years, with the remaining portion (21%) at rates linked to prime. Favourable interest rates on certain of these tranches give the Fund an effective weighted average cost of debt of 9,95%. The breakdown is as follows: Rate (%) Term Amount (Rm) % of debt 1 Debt - Floating Prime -2 N/A 107,4 20,6 2 Debt - Fixed 9,76 November 2006 126,1 24,2 3 - Swap 9,24 September 2007 100,0 19,2 4 - Fixed 10,21 November 2008 100,0 19,2 5 - Swap 11,26 October 2009 88,5 17,0 TOTAL 9,95* 522,0 100 *Weighted average cost of debt assuming prime at 11,5%. Emira has entered into additional interest rate swaps to further extend the maturities of the nearest-dated facility 2 above: Rate (%) Term Amount (Rm) % of Debt
2 Debt - Swap 10,6 Nov "06 to 126,1 24,2 Nov "11 Acquisition of Portfolio of Properties and Black Economic Empowerment Transaction At a general meeting of PI holders held on 22 August 2006, Emira received unanimous approval to purchase five properties totalling R844m from Momentum and RMB Properties through a combination of debt and equity. At the same time, the Fund received approval to enter into a transaction that will see 14.2% of the Fund"s PIs being held by historically disadvantaged South Africans. The acquisition of the portfolio is expected to increase the size and quality of the Fund and will reduce Emira"s reliance on office properties and increase the retail component of the asset base. Moreover, the introduction of the new PI holders is expected to yield benefits to Emira through increased new business opportunities in the medium term, as well as help the Fund achieve the objectives set out in the Property Sector Transformation Charter. Prospects Market conditions in the retail property sector remain buoyant, although the rate of growth in retail sales has slowed in recent months. The low vacancies in the industrial sector, coupled with the strong GDP growth and lack land available for development bode well for this sector. National office vacancies have been declining consistently, and this, together with rising building costs, indicates that the real growth in office rentals is likely to continue. The acquisition of the portfolio from Momentum and RMB Properties will reduce Emira"s reliance on office properties and increase the retail component of the Fund"s asset base, such that these two sectors will each comprise slightly in excess of 40% of the Emira portfolio, with the balance of the Emira portfolio consisting of industrial properties, and will enhance the net income growth of the Fund over the medium to long term. As a result of the above factors, management is expecting continued growth in distributions during the coming financial year. Audit Opinion and Independent Review The financial information has been reviewed by PricewaterhouseCoopers Inc. whose unqualified opinion is available for inspection at Emira"s registered address. Distribution Notice is hereby given that a cash distribution of 38,06 cents per participatory interest has been declared to participatory interest holders and is payable on 26 September 2006. Last day to trade Friday, 15 September 2006 PIs trade ex distribution Monday, 18 September 2006 Record date Friday, 22 September 2006 Payment date Tuesday, 26 September 2006 PI certificates may not be dematerialised or rematerialised between Monday, 18 September 2006 and Friday, 22 September 2006, both days inclusive. Notice of Annual General Meeting Notice is hereby given that the third annual general meeting of PI holders of Emira Property Fund will be held at 14:00 on 31 October 2006 at 3 Gwen Lane, Sandton, to transact the business as stated in the annual general meeting notice forming part of the annual financial statements. By order of the Board C Middlemiss Company Secretary Ben van der Ross Chairman James Templeton Chief Executive Officer Sandton 28 August 2006 Property Fund Manager: Strategic Real Estate Managers (Pty) Limited Directors of the Fund manager: BJ van der Ross (Chairman)*, JWA Templeton (Chief Executive Officer), L Barnard*, L Basson*, MSB Neser*, WK Schultze *Non-executive director Registered address: 3 Gwen Lane South, Sandton, 2146 Merchant bank and sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited) Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited 70 Marshall Street, Johannesburg, 2001 Date: 28/08/2006 08:51:50 AM Supplied by www.sharenet.co.za Produced by the JSE SENS Department

Share This Story