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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
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