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Redefine - Audited Results for the Year Ended 31 August 2006
and declaration of distribution
Redefine Income Fund Limited
(Registration No. 1999/018591/06)
Share Code: RDF ISIN Code: ZAE000023503
("Redefine" or the "company")
AUDITED RESULTS FOR THE YEAR ENDED 31 AUGUST 2006
- Distributions up 16% to 42.70 cents per linked unit
- NAV per linked unit up 33% to R5,66
- Total assets up 53% to R6,1 billion
- Total return of 35% per linked unit
CONSOLIDATED INCOME STATEMENT
Restated
31 Aug 2006 31 Aug 2005
R000 R000
Revenue
Property portfolio 320 753 290 616
Contractual rental income 292 863 262 757
Straight-line rental income accrual 27 890 27 859
Listed security portfolio 207 225 147 983
Total revenue 527 978 438 599
Operating costs - property portfolio (56 063) (61 320)
Administration costs (36 116) (22 827)
Net operating income 435 799 354 452
Changes in fair value of properties
and listed securities 474 193 873 181
Net surplus on disposal of properties
and listed securities 324 890 55 172
Interest rate swap termination costs - (97 784)
Income from operations 1 234 882 1 185 021
Interest received 8 659 4 693
Finance charges (190 483) (150 197)
Income before debenture interest 1 053 058 1 039 517
Debenture interest (226 085) (181 089)
Income before taxation 826 973 858 428
Taxation (161 832) (157 616)
Income attributable to shareholders 665 141 700 812
RECONCILIATION OF HEADLINE EARNINGS
AND DISTRIBUTABLE EARNINGS
Income attributable to shareholders 665 141 700 812
Changes in fair value of properties and
listed securities (474 193) (873 181)
Net surplus on disposal of properties
and listed securities (324 890) (55 172)
Deferred taxation 161 832 185 973
Straight-line rental income accrual (27 890) (27 859)
Headline earnings (loss) attributable
to shareholders - (69 427)
Debenture interest 226 085 181 089
Headline earnings attributable to
linked unitholders 226 085 111 662
Interest rate swap termination costs
(net of taxation) - 69 427
Distributable earnings attributable
to linked unitholders 226 085 181 089
Distributions 226 085 181 089
- First quarter 51 574 39 173
- Second quarter 53 076 44 050
- Third quarter 59 013 46 317
- Fourth quarter 62 422 51 549
Actual number of linked units in
issue (000) 556 726* 500 719*
Weighted number of linked units in
issue (000) 516 186* 489 274*
Earnings per linked unit (cents) 172.66 180.25
Headline earnings per linked unit (cents) 43.80 22.82
Distribution per linked unit (cents) 42.70 36.80
* Excludes 5 876 770 (2005: 5 866 500) treasury units
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Restated
31 Aug 2006 31 Aug 2005
R000 R000
Cash effects from operating activities (61 942) 62 401
Cash generated from operations 335 094 376 364
Net financing costs (181 824) (145 504)
Linked unit distributions paid (215 212) (168 459)
Cash effects of investing activities (1 234 636) (211 726)
Net property acquisitions (33 009) (425 289)
Net listed security (acquisitions)
disposals (1 201 627) 213 563
Cash effects from financing activities 1 253 009 116 447
Linked units issued 349 545 75 420
Net movement in borrowings 903 464 41 027
Net movement in cash and cash equivalents (43 569) (32 878)
Opening cash and cash equivalents 35 096 67 974
Closing cash and cash equivalents (8 473) 35 096
CONSOLIDATED BALANCE SHEET
Restated
1 Aug 2006 31 Aug 2005
R000 R000
ASSETS
Non-current assets 5 961 167 3 884 745
Property portfolio at valuation 2 513 337 2 036 009
Fair value of property portfolio for
accounting purposes 2 413 913 1 910 603
Property under development at cost - 53 872
Straight-line rental income accrual 99 424 71 534
Listed security portfolio 3 447 830 1 848 736
Current assets 141 584 103 293
Trading securities - 492
Trade receivables 7 908 13 881
Listed security income 50 666 -
Properties held for sale 83 000 53 824
Cash and cash equivalents 10 35 096
Total assets 6 102 751 3 988 038
EQUITY AND LIABILITIES
Share capital and reserves 2 151 170 1 237 365
Share capital and premium 461 428 212 762
Non-distributable reserves 1 689 742 1 024 603
Non-current liabilities 3 814 338 2 648 228
Debenture capital 1 002 108 901 294
Interest-bearing liabilities 2 458 339 1 554 875
Deferred taxation 353 891 192 059
Current liabilities 137 243 102 445
Payables 66 338 50 896
Bank overdraft 8 483 -
Linked unitholders for distribution 62 422 51 549
Total equity and liabilities 6 102 751 3 988 038
Net asset value per linked unit (cents) 566.40 427.12
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Restated
31 Aug 2006 31 Aug 2005
R000 R000
Balance at beginning of year 1 237 364 444 794
Issue of linked units 249 449 29 720
Issue expenses written-off (784) (1 125)
Revaluation of interest rate swap - (34 620)
Deferred interest rates hedging loss
removed from equity and reported in
net profit - 97 784
Income attributable to shareholders 665 141 700 812
Total share capital and reserves 2 151 170 1 237 365
Audit opinion - The independent auditors PKF (Jhb) Inc. have audited the
financial statements from which these results have been extracted. Their
unqualified report is available for inspection at the company"s registered
office.
Basis of preparation - The financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") and the Companies Act
of South Africa, 1973. IFRS 1, First time adoption of International Financial
Reporting Standards has been applied.
Deferred taxation on the fair value adjustment of the property portfolio was
previously provided at the capital gains tax rate of 14.5%. In terms of IAS 12
and Circular 1/2006 issued by the South African Institute of Chartered
Accountants, the income tax rate of 29% has been applied to the fair value
adjustment of properties.
Comparative figures in respect of the above changes have been restated. The
changes will have no effect on current or future distributions.
In addition, certain items on the income statement and balance sheet have been
reclassified in order to comply with IFRS. The comparative information has
accordingly been adjusted.
Other than the above, there have been no material changes to the accounting
policies.
The effect of the above changes on prior year earnings and net asset value per
linked unit is as follows:
Year ended 31 Aug 2005
(cents)
Earnings - as previously reported 193.27
IFRS adjustments (13.02)
Earnings - restated 180.25
Net asset value - as previously reported 442.96
IFRS adjustments (15.84)
Net asset value - restated 427.12
COMMENTS
FINANCIAL RESULTS
Redefine increased its total distributions for the year ended 31 August 2006 to
42.7 cents per linked unit. This represents an increase of 16.0% over the
previous year. Total income and capital growth for the year was 41.0%.
The Board has approved an interest distribution of 11.2 cents per linked unit
for the quarter ended 31 August 2006.
Non-current assets at 31 August 2006 have increased by 53.4% to R6,0 billion.
The net asset value (NAV) per linked unit increased by 32.6% to R5.66 (2005:
R4.27). Assuming no deferred taxation the NAV is R6.30 (2005: R4.66).
Operating costs as a percentage of contractual rental income have decreased to
19.1% in 2006 from 23.3% in 2005.
VALUATION OF PROPERTY PORTFOLIO
The entire property portfolio is revalued annually by independent external
valuers. The valuation of the portfolio increased by R448 million during the
year increasing NAV (before accounting for deferred taxation) by 18.8% or 80
cents per linked unit.
Deferred taxation at a rate of 29% amounting to R138 million (2005: R113
million) has been provided in respect of the revaluation surplus.
PROPERTY ACQUISITIONS AND DISPOSALS
During the year under review the company acquired Stand 502, Isando, an
industrial property in Gauteng for R16,1 million and disposed of 8 commercial
properties in Gauteng for R53,8 million.
PROPERTY PORTFOLIO
The property portfolio represents 42.2% (2005: 52.4%) of Redefine"s total non-
current assets.
The net effect of the acquisition and disposals during the year reduced the
number of properties from 73 to 66.
Sectoral spread by revenue comprises 61% offices, 23% retail and 16% industrial.
30 151m2 of vacant space was leased and leases in respect of 37 486m2 were
renewed during the year.
The lease expiry profile has continued to outperform the sector average with
54.6% of leases expiring in 2010 and beyond.
At 31 August 2006 97.3% (2005: 97.2%) of the property portfolio was leased.
LISTED SECURITY PORTFOLIO
Redefine"s listed security portfolio increased by R1,60 billion (86.5%) after
acquisitions of R1,24 billion and disposals of R33,76 million.
In addition Hyprop units valued at R413,7 million were acquired in exchange for
SA Retail units (cost: R294,62 million) and ApexHi units valued at R370,4
million were acquired in exchange for Prima units (cost: R188,43 million).
Redefine invested R111 million for 18.1% of Coronation International Real Estate
Fund, a property investment company listed on the London Stock Exchange"s AIM.
BORROWINGS
In accordance with the strategy to maintain gearing below 45% Redefine"s
borrowings of R2,46 billion represents a gearing ratio of 41.0%.
R871 million of debt was refinanced through a debt capital market finance
arrangement achieving an interest saving of 0.55% per annum.
Redefine"s effective cost of financing is 9.99% (2005: 10.05%). 71.2% of
borrowings are fixed for periods of three, five, seven and ten years.
SHARE AND DEBENTURE CAPITAL
Redefine issued 28,3 million units in terms of a rights issue undertaken on 22
May 2006 and a further 27,8 million units in exchange for 22,7 million units in
Paramount Property Fund Limited.
BLACK ECONOMIC EMPOWERMENT
Redefine is committed to the Property Transformation Charter and Department of
Trade and Industry"s BBBEE Codes of Good Practice. An enterprise development
initiative, Dipula Property Fund (Pty) Ltd ("Dipula"), has been established with
Dijalo Property Services (Pty) Ltd ("Dijalo"). Dipula is owned 51% by Dijalo and
49% by Redefine. The asset management of Dipula is conducted by Dipula Asset
Management Trust, a 50/50 joint venture between Dijalo and Madison Property Fund
Managers Limited.
Redefine will, on fulfilment of all conditions precedent, dispose of 12
properties to Dipula for R153 million at an initial yield of 10.5%. Dijalo will
seek to introduce a portfolio of similar value to establish an initial portfolio
of R300 million. The intention is to focus on skills transfer and to assist
Dipula to reach critical mass and a possible listing in due course.
POST-BALANCE SHEET EVENTS
Motown Central, a motor showroom with mini-industrial units, has been sold for
R65 million and Fontainebleau Village, a retail centre, has been sold for R18
million. Transfer of both properties has been registered.
A 13 500m2 retail centre in Makhado (formerly Louis Trichardt) to open in
November 2006 anchored by Pick `n Pay has been purchased for R95 million at an
initial yield of 10%.
A 1,7 hectare tract of vacant industrial land in Isando has been acquired for
R5,7 million. Development will commence in early 2007.
SPEARHEAD
Redefine has made an offer to all unitholders of Spearhead Property Group
Limited to acquire 100% of Spearhead linked units to be settled by the issue of
6.18 Redefine linked units or R31.00 in cash for each 1 Spearhead linked unit
held provided that in aggregate the cash consideration will be limited to 50% of
the total consideration payable. The effective date is expected to be 1 November
2006 subject to Redefine and Spearhead unitholder and regulatory approvals.
LIQUIDITY
Redefine is one of the most liquid counters in the listed property sector with
66% of its weighted average number of linked units having traded during the year
under review.
PROSPECTS
A forecast of Redefine"s distributable income has been reviewed by Redefine"s
auditors as part of the Spearhead transaction. Based on the reviewed forecast
the Board anticipates that distributions per linked unit for 2007 (before taking
into account the Spearhead transaction) will exceed the distributions for 2006
by at least 10%. Should the Spearhead transaction be concluded, it is
anticipated that this will further enhance earnings.
INTEREST DISTRIBUTION
Unitholders are advised that interest distribution No. 26 in respect of the
period 1 June 2006 to 31 August 2006 of 11.2 cents per linked unit has been
declared.
- The last date to trade cum interest Friday 20 October 2006
- Linked units will trade ex interest Monday 23 October 2006
- Record Date Friday 27 October 2006
- Payment of interest distribution No. 26 Monday 30 October 2006
Unitholders may not dematerialise or re-materialise their linked units between
Monday 23 October 2006 and Friday 27 October 2006, both days inclusive.
Wolf Cesman Brian Azizollahoff
Chairman Chief Executive Officer
Johannesburg
6 October 2006.
REDEFINE INCOME FUND LIMITED
2 Arnold Road, Rosebank, Johannesburg. P O Box 1731, Parklands, 2121, South
Africa.
Telephone +27 11 283 0110 E-mail: mail@redefine.co.za Website:
www.redefine.co.za
Directors: W Cesman* (Chairman), B Azizollahoff+ (CEO), L Barnard*#, C Clarke*#,
E Ellerine*#, D Perton*'#, S Shaw-Taylor*, M Wainer* *non-executive
'British #independent
Company secretary: Probity Business Services (Proprietary) Limited
Date: 06/10/2006 05:56:01 PM Supplied by www.sharenet.co.za
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