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PAP - Pangbourne Properties Limited - Condensed reviewed consolidated interim

Release Date: 17/02/2011 17:08
Code(s): PAP
Wrap Text

PAP - Pangbourne Properties Limited - Condensed reviewed consolidated interim financial statements for the six months ended 31 December 2010 PANGBOURNE PROPERTIES LIMITED Incorporated in the Republic of South Africa Registration no 1987/002352/06 Share code: PAP ISIN: ZAE000005252 ("Pangbourne" or "the company" or "the group") CONDENSED REVIEWED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2010 DIRECTORS` COMMENTARY RESULTS Pangbourne`s interim distribution for the six months to 31 December 2010 amounted to 74,04 cents per linked unit. This is an increase of 5,47% over the 70,20 cents per linked unit distributed in the previous comparable period. REVIEW While Pangbourne`s leases allow for the recovery of utilities and increases in rates and taxes, the tenants` total cost of occupation has increased substantially which in turn has limited Pangbourne`s ability to increase rentals on renewal. Vacancies have increased from 6,6% at 30 June 2010 to 10,8% at 31 December 2010. The vacancy in the portfolio at 31 December 2010 consisted of commercial 12,6% (Jun 2010: 10,9%), retail 4,2% (Jun 2010: 4,0%), industrial 12,5% (Jun 2010: 6,7%) and other 4,7% (Jun 2010: 3,4%). The manufacturing sector has been badly affected by the strong rand, labour action and the recession. Two large manufacturing tenants namely Africa Glass SA Holdings (Proprietary) Limited ("AGI") (33 925m2) and Cullinan Holdings Limited (28 890m2) went into liquidation. The vacancy at 31 December 2010 does not include AGI as the liquidator had occupation of the property at year end. Management has taken advantage of the downturn to undertake refurbishment and renovation of a number of properties to attract new tenants and upgrade the quality of the portfolio. The refurbishment of the Thrupps Centre in Illovo was completed. Following the renewal of the lease with the anchor tenant at Oxford Manor in Illovo, phase two of the refurbishment has commenced. Various projects at Boardwalk Inkwazi, the regional mall in Richards Bay, including tenant relocations and remedial work, are nearing completion. Fruit & Veg City Food Lover`s Market has commenced trading at N1 Value Centre in Cape Town. Work is progressing at Raceway Industrial Park and proposals have been submitted to potential tenants for developments. Despite the difficult economic environment, arrears only increased marginally due to firm credit control and an improvement in both tenant profile and the quality of the property portfolio. DISPOSALS The following properties were disposed of: Book Sale value price Effective Property R`000 R`000 date Willowbridge 283 000 283 000 1 Nov 2010 Royal Ascot 20 000 32 287 30 Sep 2010 Shoprite Mowbray 21 000 23 850 18 Aug 2010 Raceway (portion 16 of Erf 59 Gosforth Park Ext 4) 1 957 6 200 12 Nov 2010 Total 325 957 345 337 ACQUISITIONS A 1 487mSquared office block at Fourways Office Park, known as Summer Cottage, was acquired for R14,8 million at a forward yield of 10%. Pangbourne now owns all the buildings in this office park which has enabled it to secure cost savings. LISTED INVESTMENTS The investment in Fortress Income Fund Limited was reduced by 2 890 000 A units and 5 400 000 B units. The proceeds were utilised to reduce borrowings. The intention is to sell the remaining holdings over time. CAPITAL STRUCTURE Pangbourne successfully restructured the PROPS 2 securitisation vehicle. The R941 million of variable rate notes were repaid and 74 properties were released from the scheme. Pangbourne`s pro rata portion of the cost and fees of approximately R29 million in restructuring this vehicle and unwinding interest rate swaps will be capitalised. This restructuring will enable management to progress with the disposal of non-core assets and has facilitated a significant improvement and balancing of Pangbourne`s interest rate swap profile. Pangbourne renewed R800 million of its Absa facility for a further period of two years and accepted new facilities of R240 million from Standard Bank and R500 million from RMB. PROPOSED MERGER Capital Property Fund ("Capital") has made an offer to acquire all of the Pangbourne linked units in issue that are not already held by it, pursuant to a scheme of arrangement. The offer is primarily on the basis of an all-unit consideration which would entail Pangbourne unitholders swapping their linked units in Pangbourne for units in Capital at a swap ratio of 2,38 Capital units for each Pangbourne unit. Following implementation of the scheme, Capital will be one of the largest property funds in South Africa, by market capitalisation, differentiated by its industrial and commercial focus. The enlarged Capital may attract interest from a wider group of investors, enhancing the liquidity of its units. Increased market capitalisation and enhanced liquidity may result in Capital`s inclusion in a number of stock exchange and property indices and, over time, may result in a re-rating of Capital. The potential re-rating and lower yield would position Capital to make further revenue enhancing acquisitions and its increased size, together with its moderate debt and secure cash flows, should enhance Capital`s access to capital markets. As part of, and subject to the implementation of the scheme, it has been agreed that, with effect from 1 January 2011, the asset management fee charged by Property Fund Managers Limited in respect of Capital will be reduced from 0,5% to 0,4% of the market capitalisation and borrowings of Capital. Linked unitholders are referred to the circulars dated and posted on or about 3 February 2011 for full details of the transaction. PROSPECTS Although the economy has emerged from the recession, market conditions remain difficult and vacancies are projected to increase further from the current levels. Pangbourne will, however, enjoy the benefit of lower interest rates through the restructured interest rate swap profile and the board remains confident that the projected growth in distributions for the full financial year of between 6% and 8% will be achieved. The growth is based on the assumptions that a stable macro-economic environment will prevail, no major corporate failures will occur and that tenants will be able to absorb the recovery of rising utility costs. Budgeted rental income was based on contractual escalations and market related renewals. This forecast has not been reviewed or reported on by Pangbourne`s auditors. By order of the board Barry Stuhler Jacques van Wyk Managing director Financial director Johannesburg 16 February 2011 CONSOLIDATED STATEMENT OF FINANCIAL POSITION Reviewed Restated Restated Dec 2010 Jun 2010 Dec 2009 R`000 R`000 R`000
ASSETS Non-current assets 11 857 607 11 709 169 11 703 486 Investment property 10 640 141 10 555 103 10 301 044 Straight-lining of rental revenue adjustment 200 971 193 518 202 591 Investment property under development 279 191 248 068 252 443 Investments 356 721 338 511 - Investment in and loans to associates - 75 529 561 277 Loans 380 583 298 440 386 131
Current assets 479 444 502 291 294 819 Investment property held for sale - 283 000 - Loans 283 298 43 161 - Trade and other receivables 146 281 108 497 229 281 Cash and cash equivalents 49 865 67 633 65 538 Total assets 12 337 051 12 211 460 11 998 305 EQUITY AND LIABILITIES Total equity attributable to equity holders 5 027 800 5 060 811 4 660 874 Share capital 4 055 4 055 4 034 Share premium 2 206 732 2 206 732 2 181 285 Non-distributable reserves 2 817 013 2 850 024 2 475 555 Retained earnings - - - Total liabilities 7 309 251 7 150 649 7 337 431 Non-current liabilities 6 405 168 5 687 764 5 618 231 Linked debentures 1 824 821 1 824 821 1 815 011 Interest-bearing borrowings 3 926 484 3 286 043 3 387 841 BEE instrument 185 503 122 192 - Deferred tax 468 360 454 708 415 379 Current liabilities 904 083 1 462 885 1 719 200 Trade and other payables 427 441 425 363 423 629 Linked debenture interest payable 300 245 311 761 283 141 Income tax payable 431 1 832 62 465 Interest-bearing borrowings 175 966 723 929 949 965 Total equity and liabilities 12 337 051 12 211 460 11 998 305 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Reviewed Restated
for the Restated for the six months for the six months ended year ended ended Dec 2010 Jun 2010 Dec 2009
R`000 R`000 R`000 Net rental and related revenue 485 848 1 009 084 507 091 Recoveries and contractual rental revenue 717 525 1 409 560 709 721 Straight-lining of rental revenue adjustment 7 453 50 743 28 487 Rental revenue 724 978 1 460 303 738 208 Property operating expenses (239 130) (451 219) (231 117) Distributable income from investments 13 904 10 706 8 478 Fair value gain on investment property and investments 47 241 607 141 49 035 Fair value (loss)/gain on investment property (9 565) 519 600 22 238 Adjustment resulting from straight- lining of rental revenue (7 453) (50 743) (28 487) Fair value gain on investments 64 259 138 284 55 284 Fair value loss on BEE instrument (63 311) (122 192) - Administrative expenses (19 293) (39 242) (19 575) Net recognition of goodwill - 9 238 9 907 Income from associates - 33 462 12 529 Profit before net finance costs 464 389 1 508 197 567 465 Net finance costs (482 372) (1 043 451) (493 776) Finance income 19 792 54 374 28 321 Interest from loans 19 792 53 655 28 321 Interest on linked units issued cum distribution - 719 - Finance costs (502 164) (1 097 825) (522 097) Interest paid on borrowings (205 852) (447 493) (237 684) Capitalised interest 15 656 26 294 12 873 Fair value adjustment on interest rate swaps (11 723) (81 724) (14 145) Interest to linked debenture holders - interim (300 245) (283 141) (283 141) - final (311 761) (Loss)/profit before income tax expense (17 983) 464 746 73 689 Income tax expense (15 028) (43 460) (26 872) (Loss)/profit for the period attributable to equity holders (33 011) 421 286 46 817 Total comprehensive (loss)/profit for the period (33 011) 421 286 46 817 Basic earnings per share (cents) (8,14) 104,17 11,61 Basic earnings per linked unit (cents) 65,90 251,27 81,81 Diluted earnings per share (cents) (8,14) 95,60 10,65 Diluted earnings per linked unit (cents) 60,49 230,61 75,06 RECONCILIATION OF (LOSS)/PROFIT FOR THE PERIOD TO HEADLINE EARNINGS AND DISTRIBUTABLE INCOME Reviewed Restated for the Restated for the six for the six
months year months ended ended ended Dec 2010 Jun 2010 Dec 2009 R`000 R`000 R`000
Basic earnings (shares) - (loss)/profit for the period attributable to equity holders (33 011) 421 286 46 817 - interest to linked debenture holders 300 245 594 902 283 141 Basic earnings (linked units) 267 234 1 016 188 329 958 Adjusted for: 37 288 (429 528) 41 291 - fair value loss/(gain) on investment property 17 018 (468 857) 6 249 - net recognition of goodwill - (9 238) (9 907) - income tax effect 20 270 48 567 44 949
Headline earnings per linked unit 304 522 586 660 371 249 Fair value loss on BEE instrument 63 311 122 192 - Adjustment resulting from straight- lining of rental revenue (7 453) (50 743) (28 487) Fair value gain on investments (64 259) (138 284) (55 284) Fair value adjustment on interest rate swaps 11 723 81 724 14 145 Consolidation adjustment for BEE (2 357) (2 877) (1 619) Post-acquisition reserves from associate companies - 1 337 1 207 Other - - 7 Income tax effect (5 242) (5 107) (18 077) Distributable income 300 245 594 902 283 141 Less: distribution declared (300 245) (594 902) (283 141) Income not distributed - - - Headline earnings per share (cents) 1,05 (2,04) 21,84 Headline earnings per linked unit (cents) 75,09 145,06 92,04 Diluted headline earnings per share (cents) 0,97 (2,04) 20,04 Diluted headline earnings per linked unit (cents) 68,94 133,13 84,46 Basic earnings per share, basic earnings per linked unit, headline earnings per share and headline earnings per linked unit are based on the weighted average of 405 516 028 (Jun 2010: 404 426 028; Dec 2009: 403 336 028) shares/linked units in issue during the period. Diluted earnings per share, diluted earnings per linked unit, diluted headline earnings per share and diluted headline earnings per linked unit are based on the weighted average of 441 745 837 (Jun 2010: 440 655 837; Dec 2009: 439 565 837) shares/linked units in issue during the period. ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS Reviewed Unaudited
for the Audited for for the six months the year six months ended ended ended Dec 2010 Jun 2010 Dec 2009
R`000 R`000 R`000 Cash outflow from operating activities (75 021) (39 199) (42 116) Cash (outflow)/inflow from investing activities (35 225) 1 149 988 858 254 Cash inflow/(outflow) from financing activities 92 478 (1 122 701) (830 145) Decrease in cash and cash equivalents (17 768) (11 912) (14 007) Cash and cash equivalents at the beginning of the period 67 633 79 545 79 545 Cash and cash equivalents at the end of the period 49 865 67 633 65 538 Cash and cash equivalents consist of: Cash on call in respect of securitisation 25 716 62 994 60 990 Current accounts 24 149 4 639 4 548 49 865 67 633 65 538 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the group Non- distribu- Share Share table Retained
capital premium reserves earnings Total Restated R`000 R`000 R`000 R`000 R`000 Balance at 30 June 2009 previously reported 4 034 2 181 285 2 166 199 - 4 351 518 Change in accounting policy 262 539 262 539 Balance at 30 June 2009 restated 4 034 2 181 285 2 428 738 - 4 614 057 Total comprehensive income for the period 46 817 46 817 Transfer to non- distributable reserves 77 946 (77 946) - Change in accounting policy (31 129) 31 129 - Balance at 31 December 2009 restated 4 034 2 181 285 2 475 555 - 4 660 874 Issue of linked units 21 25 447 25 468 Total comprehensive income for the period 374 469 374 469 Transfer to non- distributable reserves 282 804 (282 804) - Change in accounting policy 91 665 (91 665) - Balance at 30 June 2010 restated 4 055 2 206 732 2 850 024 - 5 060 811 Total comprehensive loss for the period (33 011) (33 011) Transfer to non- distributable reserves (33 011) 33 011 - Balance at 31 December 2010 4 055 2 206 732 2 817 013 - 5 027 800 NOTES 1 PREPARATION AND REVIEW OPINION The condensed reviewed consolidated interim financial statements have been prepared in accordance with the measurement and recognition requirements of IFRS, the AC500 standards, IAS34: Interim Financial Reporting, the JSE Listings Requirements and the requirements of the South African Companies Act. The accounting policies adopted are consistent with those applied in the prior periods except for the recognition of deferred tax. In December 2010 the IASB released amendments to IAS 12 effective from 1 January 2012. These amendments impact on the rate at which deferred tax is recognised specifically on the fair value movement of the building component of investment property as it establishes a presumption that it will be recovered through disposal and hence will attract deferred tax at the capital gains tax rate. Pangbourne has elected the early adoption of these amendments and applied them retrospectively as required by IAS 8. It is the view of the board that the adoption of this policy results in more accurate and meaningful information. The early adoption had the following effect on the results: deferred tax balance Jun 2009: R262,5 million decrease; Dec 2009: R231,4 million decrease; Jun 2010: R323,1 million decrease cumulative; income tax expense Dec 2009: R31,1 million increase; Jun 2010: R60,5 million decrease; basic earnings per share and per linked unit Dec 2009: 7,72 cents decrease; Jun 2010: 14,97 cents increase; diluted earnings per share and per linked unit Dec 2009: 7,08 cents decrease; Jun 2010: 13,74 cents increase and no effect on headline and diluted headline earnings per share and per linked unit. Deloitte & Touche has reviewed the financial information set out in this report. The review was conducted in accordance with ISRE 2410 `Review of Interim Financial Information performed by the Independent Auditor of the Entity`. Their unmodified review report is available for inspection at the group`s registered address. 2 SUMMARY OF FINANCIAL PERFORMANCE Reviewed Restated Restated Restated Dec 2010 Jun 2010 Dec 2009 Jun 2009 Distribution per linked unit (cents) 74,04 76,88 70,20 70,15 Units in issue 441 745 837 441 745 837 439 565 837 439 565 837 Property operations Net asset value* R17,02 R16,95 R15,83 R15,73 Gearing ratio** 29,2% 28,8% 32,0% 34,0% Units in issue 441 745 837 441 745 837 439 565 837 439 565 837 Consolidated Net asset value* R16,90 R16,98 R16,06 R15,94 Gearing ratio** 33,3% 32,8% 36,2% 38,1% Units in issue 405 516 028 405 516 028 403 336 028 403 336 028 *Net asset value includes total equity attributable to equity holders and linked debentures. **The gearing ratio is calculated by dividing interest-bearing borrowings by total assets. 2.1 To comply with financial reporting requirements the group will account for entities that do not form part of its operations, do not operate under its operating policies and whose businesses, risk profiles and debt levels are not comparable to that of its own. Disclosure under "Property operations" excludes Panya Investments (Pty) Ltd, Meago Siyam Investments (Pty) Ltd and Tokoloho Investments (Pty) Ltd ("BEE partners"). 2.2 In total 36 229 809 linked units were issued to BEE partners and Pangbourne is standing surety for the funding obligations of BEE partners in acquiring these units. In terms of IFRS the issue did not take place and the essence of the transaction was that the BEE shareholders received a right/option to acquire linked units in Pangbourne at a future date at a predetermined price. As a consequence, the issue of linked units has been eliminated in the preparation of these financial statements. The right/option the BEE shareholders have acquired has a value of R185 503 000 (Jun 2010: R122 192 000; Dec 2009: Rnil). The value of this right/option will be considered on an ongoing basis and changes in its fair value are accounted for through profit and loss. The following table indicates the effect of consolidating BEE partners into the group financial statements (the column "Property operations" indicates Pangbourne`s results had the BEE partners not been consolidated): BEE Property Consolidated partners operations Dec 2010 R`000 R`000 R`000 Statement of comprehensive income Fair value loss on BEE instrument (63 311) 63 311 Finance costs - interest paid on borrowings (205 852) 24 467 (181 385) - interest to linked debenture holders (300 245) (26 824) (327 069) Statement of financial position Total equity attributable to equity holders Share capital 4 055 362 4 417 Share premium 2 206 732 309 379 2 516 111 Non-distributable reserves 2 817 013 191 632 3 008 645 Non-current liabilities Linked debentures 1 824 821 163 035 1 987 856 Interest-bearing borrowings (non-current and current) 4 102 450 (494 122) 3 608 328 BEE instrument 185 503 (185 503) - Current liabilities Trade and other payables 427 441 (11 607) 415 834 Linked debenture interest payable 300 245 26 824 327 069 3 HEDGED BORROWINGS Amount % of Expiry R`million Rate borrowings Interest rate swaps August 2011 100,0 7,35% 2,8% December 2011 200,0 8,55% 5,5% October 2012 10,0 8,22% 0,3% August 2013 100,0 8,05% 2,8% September 2013 400,0 9,85% 11,1% May 2014 200,0 8,27% 5,5% October 2014 460,0 9,36% 12,7% April 2015 300,0 8,26% 8,3% September 2015 200,0 9,61% 5,5% August 2016 200,0 8,51% 5,5% September 2016 400,0 8,42% 11,1% March 2017 300,0 8,60% 8,3% November 2017 200,0 7,91% 5,5% January 2018 200,0 7,55% 5,5%
Securitised loan July 2012 621,0 9,98% 17,2% The securitised loan is shown as nominal annual compounded semi- annually and is inclusive of lending margin. Hedged borrowings 3 891,0 107,6% Variable rate borrowings (282,7) (7,6%) Total hedged borrowings* 3 608,3 100,0% *Total hedged borrowings comprises the level of external interest-bearing borrowings, excluding those of BEE partners. 4 LEASE EXPIRY PROFILE Based on Based on contractual Rentable Rental Lease expiry area income Vacant 10,8% Jun 2011 16,0% 17,0% Jun 2012 18,8% 20,2% Jun 2013 21,6% 24,5% Jun 2014 10,0% 11,9% Jun 2015 8,0% 9,7% >Jun 2015 14,8% 16,7% Total 100,0% 100,0% 5 SEGMENTAL ANALYSIS Dec 2010 Jun 2010 Dec 2009 Rental revenue R`000 R`000 R`000 Commercial 156 940 298 021 145 415 Industrial 324 099 633 123 324 771 Retail 221 065 487 374 248 062 Other 22 874 41 785 19 960 Total 724 978 1 460 303 738 208 Dec 2010 Jun 2010 Dec 2009 Profit before net finance costs R`000 R`000 R`000 Commercial 111 421 370 920 122 495 Industrial 194 817 775 888 226 359 Retail 146 757 270 753 135 907 Other 15 830 60 380 16 082 Corporate (4 436) 30 256 66 622 Total 464 389 1 508 197 567 465 6 PAYMENT OF INTERIM DISTRIBUTION The board has approved and notice is hereby given of an interim interest distribution (distribution no 49) of 74,04 cents per linked unit for the six months ended 31 December 2010. The last date to trade linked units cum distribution will be Friday, 4 March 2011 and trading will commence ex distribution on Monday, 7 March 2011. The record date to participate in the distribution will be Friday, 11 March 2011. Linked unit certificates may not be dematerialised or rematerialised between Monday, 7 March 2011 and Friday, 11 March 2011, both days inclusive. Payment of the distribution will be made to linked unitholders on Monday, 14 March 2011. In respect of dematerialised linked unitholders, the distribution will be transferred to the Central Securities Depository Participant accounts/broker accounts on Monday, 14 March 2011. Certificated linked unitholders` distribution payments will be posted on or about Monday, 14 March 2011. Directors Dr Iraj Abedian (chairman) Barry Stuhler* (managing director) Des de Beer (alternate: Vuso Majija) Gerard de Rauville Ryan Falkenberg Craig Hallowes* Bryan Hopkins Annalese Manickum Dave Savage Thando Sishuba Jacques van Wyk* Trurman Zuma (*Executive) Company secretary Wiko Serfontein Registered address 3rd Floor Rivonia Village Rivonia Boulevard Rivonia 2191 (PO Box 4392 Rivonia 2128) Transfer secretaries Link Market Services South Africa (Proprietary) Limited 11 Diagonal Street Johannesburg 2001 Sponsor Java Capital 17 February 2011 Date: 17/02/2011 17:08:00 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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