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GRT - Growthpoint - Unaudited Interim Results: Six months ended 31 December 2006
Growthpoint Properties Limited
("Growthpoint" or "the company")
(Registration number 1987/004988/06)
Share code: GRT & ISIN: ZAE000037669
Unaudited interim results for the six months ended 31 December 2006
Distribution growth of 15,1% to 45 cents
Total assets exceed R20 billion
Market capitalisation exceeds R15 billion
Acquired Paramount portfolio - R3,2 billion
Annualised total return to unit holders of 39,2%
Condensed Consolidated Income Statement
Unaudited Unaudited Audited
6 months 6 months 12 months
31 Dec 31 Dec 30 June
2006 2005 2006
Note R`000 R`000 R`000
Revenue excluding 952 429 628 627 1 298 549
straight line lease
income adjustment
Straight line lease 78 579 58 600 81 623
income adjustment
Revenue 1 031 008 687 227 1 380 172
Property expenses (255 424) (170 784) (350 912)
Net property income 775 584 516 443 1 029 260
Other operating expenses (47 630) (30 202) (65 788)
Net property income after 727 954 486 241 963 472
other operating expenses
Investment income 29 609 16 259 33 683
Fair value adjustments 1 (63 968) (35 483) (49 438)
Operating profit 693 595 467 017 947 717
Finance costs (265 117) (177 939) (361 369)
Non-cash financing (8 007) (4 961) (9 434)
charges
Finance income 21 866 9 102 49 478
Net income before 442 337 293 219 626 392
debenture interest
Debenture interest (435 012) (274 574) (602 641)
Profit before taxation 7 325 18 645 23 751
Taxation (6 890) (18 370) (23 148)
- normal and secondary
tax
on companies (36) (184) (97)
- capital gains (6 854) (18 186) (23 051)
taxation
Profit after taxation 435 275 603
Note 1
Fair value adjustments (63 968) (35 483) (49 438)
Gross investment property 544 741 466 741 1 581 837
fair value adjustment
Less: straight line lease (78 579) (58 600) (81 623)
income adjustment
Net investment property 466 162 408 141 1 500 214
fair value adjustment
Listed property 5 581 39 433 33 278
investments
Borrowings and (282 730) (94 851) 287 617
derivatives
Debentures (252 981) (388 206) (1 870 547)
Debentures are adjusted
to fair value which
represents the net asset
value attributable to
debenture holders.
The adjustment consists
of:
Fair value adjustments
for other assets and
liabilities excluding
fair
value adjustment on (189 013) (352 723) (1 821 109)
debentures
Straight line lease (78 579) (58 600) (81 623)
income adjustment
Capital gains taxation 6 854 18 186 23 051
Non-cash financing 8 007 4 961 9 434
charges
Distributable earnings (250) (30) (300)
retained
Debenture fair value (252 981) (388 206) (1 870 547)
adjustment
Calculation of
distributable earnings
Net property income after 727 954 486 241 963 472
operating expenses
Less: straight line lease (78 579) (58 600) (81 623)
income adjustment
Investment income 29 609 16 259 33 683
Finance costs (265 117) (177 939) (361 369)
Finance income 21 866 9 102 49 478
Taxation (excluding (36) (184) (97)
capital gains taxation)
Distributable earnings 435 697 274 879 603 544
Total distribution (435 447) (274 849) (603 244)
- Debenture interest (435 012) (274 574) (602 641)
- Ordinary dividend (435) (275) (603)
Retained distributable 250 30 300
earnings
Linked Linked Linked
units units units
Linked units in issue at 968 304 090 702 938 618 778 186 044
the end of the period
Weighted number of linked 964 114 740 702 938 618 702 938 618
units in issue - interim
- 2nd half - - 778 186 044
Distributable earnings
per
linked unit (cents) cents cents cents
- Interim 2 45,19 39,10 39,10
- 2nd half - 42,23
Distribution per linked 45,00 39,10 81,30
unit (cents)
Six months to 31 December 45,00 39,10 39,10
- Period to 31 October 30,00 - -
- Period to 31 December 15,00 39,10 39,10
Six months to 30 June - - 42,20
Basic earnings per share 3 0,05 0,04 0,09
(cents)
Headline profit/(loss) 10,8 (2,1) (65,1)
per linked unit (cents)
R`000 R`000 R`000
Basic earnings are
reconciled to headline
earnings as follows:
Profit after taxation 435 275 603
Add back - fair value
adjustment
- investment property (466 162) (408 141) (1 500 214)
Less - Taxation 135 187 118 361 435 062
applicable thereto
Headline loss (330 540) (289 505) (1 064 549)
attributable to
shareholders
Add back - debenture 435 012 274 574 602 641
interest paid
Headline profit/(loss) 104 472 (14 931) (461 908)
attributable to linked
unitholders
Note 2
The calculation of distributable earnings per linked unit is a more
meaningful calculation than the EPS calculation (refer note 3).
Note 3
The disclosure of earnings per share, while obligatory in terms of
accounting standards, is not meaningful to investors as the shares are
traded as part of a linked unit and practically all of the revenue earnings
are distributed in the form of debenture interest plus dividend in the ratio
of 1 000 to 1. In addition, headline earnings include profit on the sale of
listed property investments, fair value adjustments for listed property
investments, fair value adjustments for interest-bearing and zero-coupon
borrowings and debentures as well as notional interest on non-interest
bearing long-term loans, which do not affect distributable earnings.
Condensed Consolidated Cash Flow Statement
Unaudited Unaudited Audited
6 months 6 months 12 months
31 Dec 31 Dec 30 June
2006 2005 2006
R`000 R`000 R`000
Cash generated from operations 713 534 459 666 802 533
Investment income 29 609 16 259 33 683
Net finance costs (243 251) (168 837) (311 891)
Taxation paid (21 139) (23 021) (24 562)
Distribution to unitholders (644 216) (248 987) (497 019)
Cash flow from operating (165 463) 35 080 2 744
activities
Cash flow from investing (363 799) (618 768) (1 134 787)
activities
Cash flow from financing 631 117 554 331 1 102 441
activities
Net increase/(decrease) in cash 101 855 (29 357) (29 602)
and cash equivalents
Cash and cash equivalents at 16 285 45 887 45 887
beginning of the period
Cash and cash equivalents at 118 140 16 530 16 285
end of the period
Condensed Consolidated Balance Sheet
Unaudited Unaudited Audited
31 Dec 31 Dec 30 June
2006 2005 2006
R`000 R`000 R`000
ASSETS
Fair value of investment 18 934 592 9 478 388 14 597 444
property for accounting
purposes
Straight line lease income 497 651 394 498 419 072
accrual
Fair value of property assets 19 432 243 9 872 886 15 016 516
Listed property investments 8 615 182 889 -
Long-term loans 290 818 210 657 221 501
Gain on fair value of 37 987 - 114 865
derivatives
Receivables and other current 277 153 117 843 174 965
assets
Cash and cash equivalents 118 140 16 530 16 285
Total assets 20 164 956 10 400 805 15 544 132
EQUITY AND LIABILITIES
Ordinary share capital 48 416 35 148 38 910
Non-current liabilities - 10 171 133 5 587 083 7 943 553
debentures
Linked unitholders` interest 10 219 549 5 622 231 7 982 463
Other non-current financial 8 294 695 4 111 333 5 747 838
liabilities
Current liabilities 1 650 712 647 145 1 813 831
Liability for the acquisition 1 074 456 - 1 250 406
of properties
Linked unitholders for interest 211 382 277 322 357 685
and dividends
Other liabilities 364 874 369 823 205 740
Total equity and liabilities 20 164 956 10 400 805 15 544 132
Number of linked units in issue 968 304 090 702 938 618 778 186 044
Net asset value per linked unit 1 055 800 1 026
(cents)
Condensed Consolidated Statement of Changes in Equity
Ordinary Total share
share capital and
capital Reserves reserves
R`000 R`000 R`000
Audited balance at 30 June 2005 33 018 - 33 018
Shares issued 5 892 - 5 892
Profit for the period - 603 603
Dividend - (603) (603)
Audited balance at 30 June 2006 38 910 - 38 910
Shares issued 9 506 - 9 506
Profit for the period - 435 435
Dividend - (435) (435)
Unaudited balance at 31 48 416 - 48 416
December 2006
Segmental Analysis
INCOME STATEMENT
EXTRACTS
Retail Office Industrial Total
R`000 R`000 R`000 R`000
6 months ended 31
December 2006
Revenue excluding 364 353 349 298 238 778 952 429
straight line lease
income adjustment
Straight line lease 12 317 40 952 25 310 78 579
income adjustment
Revenue 376 670 390 250 264 088 1 031 008
Property expenses (103 333) (92 728) (59 363) (255 424)
Net property income 273 337 297 522 204 725 775 584
Fair value
adjustment:
- investment 299 488 197 182 48 071 544 741
property
12 months ended 30
June 2006
Revenue excluding 610 104 585 527 102 918 1 298 549
straight line lease
income adjustment
Straight line lease 24 543 58 055 (975) 81 623
income adjustment
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
Fair value
adjustment:
- investment 818 939 573 571 107 704 1 500 214
property
BALANCE SHEET
EXTRACTS
At 31 December 2006
Non-current assets
- Investment
property
- Opening balance -
30 June 2006 6 062 338 5 563 009 3 391 169 15 016 516
- Acquisition - 1 361 968 1 262 570 619 857 3 244 395
Paramount
- Acquisitions - 138 153 355 597 - 493 750
other
- Capital 51 698 131 996 35 897 219 591
expenditure
- Reclassification - (150 009) 150 009 -
- Disposals (45 000) (8 500) (33 250) (86 750)
- Fair value 299 488 197 182 48 071 544 741
adjustment
- Fair value of
property assets -
31 December 2006 7 868 645 7 351 845 4 211 753 19 432 243
At 30 June 2006
Non-current assets
- Investment
property
- Opening balance - 4 383 016 4 180 471 555 675 9 119 162
30 June 2005
- Reclassification - (58 986) 58 986 -
- Acquisitions 750 926 850 936 2 673 817 4 275 679
- Capital 160 728 76 082 17 186 253 996
expenditure
- Disposals (75 814) (117 120) (21 224) (214 158)
- Fair value 843 482 631 626 106 729 1 581 837
adjustment
- Fair value of 6 062 338 5 563 009 3 391 169 15 016 516
property assets -
30 June 2006
Commentary
Introduction
Growthpoint Properties Limited is the largest listed property company operating
in South Africa, with assets in excess of R20 billion and a market
capitalisation at the date of this report of over R15 billion.
Growthpoint owns a diversified portfolio of quality retail, office and
industrial properties well located in the major economic regions of South
Africa.
In August 2001 Growthpoint appointed Investec Property Group Limited ("IPG") as
asset managers and property managers and embarked on a strategy of growth
through strategic acquisitions of quality portfolios that met the company`s
long-term investment criteria.
The accompanying graph shows the growth in assets and market capitalisation over
this period.
Growthpoint`s market capitalisation increased from R12,0 billion at 31 December
2006 to R15,3 billion at the date of this report following the issue of an
additional 98 203 135 linked units in January 2007 in respect of the
Paramount Properties Limited ("Paramount") transaction (refer below) as well
as the increase in market value from R12,35 at 31 December 2006 to R14,32
per linked unit.
Favourable economic conditions over the last few years resulted in increased
demand for retail, office and industrial space and vacancy levels have
declined across all sectors. Demand for physical properties has seen yields
decline substantially as lower interest rates pushed up prices.
Investors in listed property have likewise seen exceptional capital appreciation
as well as strong growth in distributions, particularly over the past two
years.
Strategy
Growthpoint`s mission is to be the point of reference for listed property
investments in South Africa, offering investors a highly liquid, tradeable
instrument producing consistently growing income returns and long-term
capital appreciation.
Growthpoint will continue to pursue acquisition and development opportunities in
line with its strategic objectives.
In keeping with the terms of its debenture trust deed, Growthpoint does not
distribute capital profits. Where properties no longer meet the investment
criteria and are sold, the proceeds are reinvested or used to settle debt.
Financial results of the company
The Growthpoint property portfolio has continued its strong performance and has
delivered growth in distributions per unit for the six month period ended 31
December 2006 of 15,1% compared to the comparable prior year period.
The growth in distributions is based on sustainable earnings derived from
property net rental income and investment income.
The increase in the Growthpoint linked unit price from R10,70 at 30 June 2006 to
R12,35 at 31 December 2006 together with the 45 cents per linked unit
distribution announced for the 6 months ended 31 December 2006, amounted to
a 19,6% return for the 6 month period, equivalent to an annualised return of
39,2% p.a.
Apart from normal rental escalations, the large increase in revenue and property
expenses was mainly due to the inclusion from 30 June 2006 of income from
the 163 properties acquired in terms of the Metboard Properties Limited
("Metboard") transaction and income from 25 properties acquired from Tresso
Trading 119 (Pty) Limited on 1 June 2006.
The strong performance of Growthpoint`s linked unit price saw the company`s
market capitalisation increase to R12,0 billion at the end of December 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 18
months and the higher prices at which Growthpoint linked units traded in the
six months to 31 December 2006.
The balance sheet at 31 December 2006 reflects the acquisition of 77 properties
valued at R3,2 billion in terms of the Paramount transaction, with
corresponding debt of R1,4 billion.
Basis of accounting
These interim results have been prepared in accordance with International
Financial Reporting Standards (IFRS). The company`s accounting policies as
set out in the audited financial statements for the year ended 30 June 2006
have been consistently applied.
In terms of current accounting standards, 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 accounting
standard 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, in order to avoid double counting.
Investment property comprises land and buildings held to generate rental income
over the long term. 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. Deferred
taxation on revaluation of Investment property is off-set against the
deferred taxation asset that arises on the revaluation of the company`s
issued debentures.
Vacancy levels
Including the Paramount portfolio, vacancies as a % of Gross Lettable Area (GLA)
at 31 December 2006 were 2,8% of the entire portfolio.
Paramount acquisition
On 29 September 2006, Growthpoint acquired 37,3 million Paramount linked units
for a cash consideration of approximately R244 million. On 17 October 2006
Growthpoint acquired a further 65,5 million Paramount linked units in
exchange for 45,5 million new Growthpoint linked units. As this resulted in
Growthpoint owning more than 35% of the issued shares in Paramount, an offer
was extended to all remaining Paramount linked unitholders to acquire their
Paramount linked units in exchange for cash or 1 new Growthpoint linked unit
for every 1,44 Paramount linked units.
By 26 January 2007, the closing date for the offer, Growthpoint had received
acceptances from more than 90% of Paramount linked unitholders and has
therefore invoked section 440K of the Companies Act in order to compulsorily
acquire the remaining Paramount linked units.
At the date of this report Growthpoint owns 98,7% of the issued Paramount linked
units.
The assets and liabilities of Paramount at 31 December 2006 have been included
in the consolidated balance sheet of Growthpoint, with the liability for new
Growthpoint linked units to be issued to acquire the Paramount linked units
not owned at 31 December 2006 reflected as a current liability.
The Paramount portfolio at 31 December 2006 consisted of 77 properties valued at
approximately R3,2 billion made up of 42% Retail, 39% Office and 19%
Industrial. By value, 44% were located in the Western Cape, 26% in KwaZulu
Natal, 25% in Gauteng and the remaining 5% in Pretoria, Witbank and Eastern
Cape.
Acquisitions and developments
At the end of November 2006, Growthpoint took transfer of 7 office properties
acquired from the Business Connexion group ("BXC") for R325,6 million at an
average yield of 8,5%. The acquisition was financed by issuing 22 million
linked units at R11.50 and R72,6 million in cash. The balance of Longbeach
Mall not owned by Growthpoint (49,9%) was acquired in December 2006 for
R138,1 million, paid in cash, at a yield of 8,0%. Another office property,
Ditsela, was acquired in August 2006 for R29,1 million in cash, at a yield
of 10,0%.
During the period under review, R168,7 million was spent on new developments,
refurbishing and upgrading the property portfolio at yield enhancing
returns. Major projects included:
Expenditure Initial yield
Property R million %
Waterfall Mall Value Centre (new centre) 48,7 10,0
Sandton Close 1 (redevelopment) 27,9 11,0
Constantia Office Park (new buildings) 42,6 11,7
Central Park (new building and upgrade) 24,1 11,0
Acquisitions and developments in progress
At 31 December 2006 Growthpoint had entered into agreements to acquire a number
of properties in various transactions totalling over R600 million. In
addition, over R600 million of developments are in progress.
Acquisitions in progress are as follows and Cost Initial yield
will be funded by existing debt facilities:
Property R million %
BCX - Faerie Glen (Office) 53,5 8,5
Lakeside Mall (additional 20,7%) 120,4 7,5
Gustav Voigts (Windhoek) 190,4 9,0
TA Bank, Rosebank 73,0 11,5
ABSA Fosterley 46,5 8,5
Value Logistics, Durban (Industrial) 72,3 9,5
Century City (office development for 2008) 90,0 9,8
TOTAL 646,1
Major developments include: Cost
Property R million
Constantia Office Park Phase 5 165,0
Autopage, Midrand (Office) 40.0
African Tubes (Industrial) 27,0
Middestad Mall (Bellville) 73.0
Paramount Towers (Claremont) 331,7
J Walter Thomson (Office) 18,8
TOTAL 655,5
Disposals
As a result of attractive offers received, Growthpoint disposed of seven
properties which no longer met its investment criteria for R85,6 million.
Liquidity and tradeability
Growthpoint`s linked units continue to enjoy high levels of liquidity and
tradeability. During the six months to 31 December 2006, R2,4 billion of
Growthpoint linked units traded on the JSE Securities Exchange, representing
an annualised 46,0 % of units in issue.
Borrowings and cash balances
At 31 December 2006, the loan to value ratio, determined by dividing the total
fair value of all debt (excluding debentures) by the sum of investment
property and listed property investments was 42,7%. The interest cover ratio
was 2,8 times.
79% of interest-bearing debt was fixed at a weighted average rate of 9,3% at 31
December 2006.
Share and debenture capital
The authorised share capital is R75 000 000 divided into 1,5 billion 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 1000 times greater than the dividend
payable per ordinary share.
In August 2006 the company issued 121 654 873 new linked units to acquire the
balance of the linked units in Metboard that it did not already own.
In October 2006, the company issued 45 493 586 new linked units in exchange for
65 510 763 Paramount linked units. In December 2006 a further 965 946 new
linked units were issued to Paramount linked unit holders who had accepted
the Growthpoint offer to acquire their Paramount linked units.
In December 2006, 22 million linked units were issued to partly finance the BCX
acquisitions.
BEE transaction
During December 2006, 22 million linked units, being 2,3% of Growthpoint`s
issued linked units at the time of the transaction, were acquired by
Phatsima Properties (Pty) Limited ("Phatsima") in terms of a BEE
transaction. Mr HSP Mashaba, a non-executive director of Growthpoint, has an
indirect beneficial interest in Phatsima. Should the "once empowered always
empowered" principle be applied, Growthpoint`s empowerment shareholding
amounts to 16,5%.
Events subsequent to balance sheet date
In January 2007, Growthpoint issued 98 203 135 new linked units in exchange for
Paramount linked units and now effectively has a 98,7% interest in
Paramount. The total number of linked units in issue at the date of this
report is 1 066 507 225. A further 2 922 735 units will be issued when
Growthpoint exercises its entitlement to compulsorily acquire the remaining
Paramount linked units and B debentures it does not already own in terms of
section 440K of the Companies Act 1973.
Prospects
The Growthpoint board anticipates that, subject to market conditions remaining
stable, Growthpoint`s distributions for the full year ending 30 June 2007,
should show similar growth to that experienced in the first half.
This profit forecast has not been reviewed or reported on by Growthpoint`s
auditors.
Dividend and interest payment
On 2 January 2007 Growthpoint paid a special interim distribution of 30,0 cents
per linked unit for the four months ended 31 October 2006. This was a
special distribution in order to bring the distribution dates of Growthpoint
and Paramount in line for the period during which the offer to acquire
Paramount linked units was open.
Growthpoint is now declaring a second interim distribution, for the two months
ended 31 December 2006. Hereafter the company will revert to six monthly
distributions.
Notice is hereby given of interim dividend declaration number 41 of 0,015 cents
and debenture interest payment number 41 of 14,985 cents per linked unit,
totalling 15,0 cents per linked unit for the period 1 November 2006 to 31
December 2006.
Timetable for second interim distribution:
2007
Last day to trade "cum" the second interim Friday, 9 March
distribution
Linked units commence trading "ex" the second Monday, 12 March
interim distribution
Record date to participate in the second interim Friday, 16 March
distribution
Payment date of the second interim distribution Monday, 19 March
No dematerialisation or rematerialisation of Growthpoint linked unit
certificates may take place between Monday, 12 March 2007 and Friday, 16
March 2007, both days inclusive.
By order of the board
Growthpoint Properties Limited
22 February 2007
Directors
S Hackner (Chairman), JF Marais (Deputy chairman), LN Sasse* (Chief Executive
Officer), MG Diliza, PH Fechter, JC Hayward, HS Herman, SR Leon, HSP
Mashaba,
R Moonsamy, BT Ngcuka, CG Steyn, JHN Strydom, FJ Visser
* Executive
Registered office
100 Grayston Drive, Sandown, Sandton, 2196
PO Box 78949, Sandton, 2146
www.growthpoint.co.za
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited
(Registration number 1958/003546/06)
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsor
Investec Bank Limited
100 Grayston Drive, Sandown, Sandton, 2196
PO Box 78949, Sandton, 2146
Date: 22/02/2007 14:00:01 Supplied by www.sharenet.co.za
Produced by the JSE SENS Department.
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