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PMM - Premium Properties Limited and its subsidiaries - Reviewed preliminary
results of the group for the year ended 28 February 2011
PREMIUM PROPERTIES LIMITED and its subsidiaries
(Incorporated in the Republic of South Africa)
(Registration number 1994/003601/06)
Share code: PMM ISIN: ZAE000009254
("Premium" or "the Group" or "the Company")
REVIEWED PRELIMINARY RESULTS OF THE GROUP
FOR THE YEAR ENDED 28 FEBRUARY 2011
Distribution up by 5,2% to 116,90 cents per linked unit
Investment assets exceed R3,8 billion
Increase in net asset value by 5,5% to 1 542 cents per linked unit
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Reviewed Audited Audited
Year to Year to Year to
28 February 28 February 28 February
% 2011 2010 2009
R`000 Change (restated) (restated)
Revenue 452 575 407 720 344 743
earned on a contractual 10,5 452 075 409 128 348 603
basis
straight line lease 500 (1 408) (3 860)
adjustment
Operating costs (180 947) (168 042) (133 879)
Net rental income from 271 628 239 678 210 864
properties
earned on a contractual 12,5 271 128 241 086 214 724
basis
straight line lease 500 (1 408) (3 860)
adjustment
Administrative costs (20 474) (17 147) (15 530)
Depreciation (2 215) (2 050) (1 631)
Operating profit 12,9 248 939 220 481 193 703
Profit on sale of 14 629 - -
investment properties
Fair value adjustments 119 420 193 333 191 801
of investment
properties
Investment income 28 114 58 820 40 182
Interest received 1 316 1 885 2 815
Associate
share of after tax 5 606 7 756 (490)
profit/(loss)
fair value 14 218 39 941 24 207
adjustment/capital
reserves
interest 6 974 9 238 13 650
Profit before finance (13,1) 411 102 473 134 425 686
costs
Finance costs 7,7 (103 569) (96 188) (89 706)
Interest on borrowings (122 535) (102 654) (92 856)
Interest capitalised 12 161 6 466 3 150
Fair value adjustments 6 805 - -
on financial
instruments
Profit before (18,4) 307 533 376 946 335 980
amortisation of
debenture premium
Amortisation of 9 611 9 611 10 286
debenture premium
Profit before debenture 317 144 386 557 346 266
interest
Debenture interest 5,0 (151 050) (143 833) (123 120)
Profit before taxation 166 094 242 724 223 146
Taxation charge (20 124) (23 062) (26 289)
Total comprehensive (33,5) 145 970 219 662 196 857
income for the year
attributable to equity
holders
Weighted linked units 130 106 130 106 130 106
in issue (`000)
Linked units in issue 156 773 130 106 130 106
(`000)
Basic earnings per (33,5) 112,2 168,8 151,3
share (cents)
Diluted earnings per (44,9) 93,1 168,8 151,3
share (cents)
Basic earnings per (18,3) 228,3 279,4 245,9
linked unit (cents)
Diluted earnings per (32,2) 189,5 279,4 245,9
linked unit (cents)
Distribution per linked
unit (cents)
Dividends 0,58 0,55 0,47
Interest 116,32 110,55 94,63
Total 5,2 116,90 111,10 95,10
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reviewed Audited Audited
28 February 28 February 28 February
2011 2010 2009
R`000 (restated) (restated)
ASSETS
Non-current assets 3 830 602 3 327 808 2 844 085
Investment properties 3 533 075 3 005 380 2 573 846
Property, plant and equipment 24 889 36 812 29 621
Operating lease assets 24 883 24 383 25 791
Investment in associate 247 755 261 233 214 827
Current assets 432 552 26 667 23 425
Total assets 4 263 154 3 354 475 2 867 510
EQUITY AND LIABILITIES
Share capital and reserves 1 650 294 1 502 737 1 283 791
Share capital and premium 4 472 2 507 2 507
Non-distributable reserve 1 600 915 1 469 126 1 253 513
Retained earnings 44 907 31 104 27 771
Non-current liabilities 2 247 851 1 329 270 1 284 289
Debentures and premium 767 766 398 069 407 680
Interest bearing borrowings 1 257 495 728 733 697 203
Deferred taxation 222 590 202 468 179 406
Current liabilities 365 009 522 468 299 430
Interest bearing 182 602 371 474 157 213
Non-interest bearing 91 619 73 971 78 074
Linked unitholders for 90 788 77 023 64 143
distribution
Total equity and liabilities 4 263 154 3 354 475 2 867 510
Linked units in issue (`000) 156 773 130 106 130 106
Net asset value per linked unit 1 542 1 461 1 300
(cents)
Net asset value per linked unit 1 684 1 617 1 438
(cents) - before providing for
deferred tax
Loan to investment value ratio 37,6 33,1 30,0
(%)
CONSOLIDATED STATEMENT OF CASH FLOWS
Reviewed Audited Audited
Year to Year to Year to
28 February 28 February 28 February
2011 2010 2009
R`000 (restated) (restated)
CASH FLOW FROM OPERATING
ACTIVITIES
Net rental income from 248 439 221 889 197 563
properties
Adjustment for:
Depreciation 2 215 2 050 1 631
Fair value of financial 6 805 - -
instruments
Working capital changes (89 219) 8 672 (5 664)
Cash generated from operations 168 240 232 611 193 530
Investment income 8 290 11 123 16 465
Finance costs (110 374) (96 188) (89 706)
Distribution to linked unit (137 662) (131 668) (116 836)
holders paid
Net cash (outflow)/inflow from (70 506) 15 878 3 453
operating activities
CASH FLOW FROM INVESTING
ACTIVITIES
Investing activities (383 337) (245 651) (89 969)
Disposal of investment property 32 700 - -
Net cash outflow used in (350 637) (245 651) (89 969)
investing activities
CASH FLOW FROM FINANCING
ACTIVITIES
Issue of new units 381 273 - -
Increase in interest bearing 354 202 230 422 88 474
borrowings
Net cash generated from 735 475 230 422 88 474
financing activities
NET INCREASE IN CASH AND CASH 314 332 649 1 958
EQUIVALENTS
Cash and cash equivalents at (15 253) (15 902) (17 860)
beginning of year
Cash and cash equivalents at 298 079 (15 253) (15 902)
end of year
DISTRIBUTABLE EARNINGS
The following additional information is provided and is aimed at disclosing to
the users the basis on which the distributions are calculated.
Reviewed Audited Audited
Year to Year to Year to
28 February 28 February 28 February
% 2011 2010 2009
R`000 Change (restated) (restated)
Revenue
earned on contractual 10,5 452 075 409 128 348 603
basis
Operating costs (180 947) (168 042) (133 879)
Net rental income from 12,5 271 128 241 086 214 724
properties
Administrative costs (20 474) (17 147) (15 530)
Depreciation (2 215) (2 050) (1 631)
Operating profit 12,0 248 439 221 889 197 563
Investment income
Interest received 1 316 1 885 2 815
Investment income - 12 580 16 994 13 160
associate
Distributable profit 9,0 262 335 240 768 213 538
before finance costs
Finance costs 14,7 (110 375) (96 188) (89 706)
Unit holders 5,2 151 960 144 580 123 832
distributable earnings
Weighted linked units 130 106 130 106 130 106
in issue (`000)
Distributable earnings 5,2 116,9 111,1 95,1
per linked unit
(cents)
Distribution per 5,2 116,9 111,1 95,1
linked unit (cents)
RECONCILIATION - EARNINGS TO DISTRIBUTABLE EARNINGS
Reviewed Audited Audited
Year to Year to Year to
28 February 28 February 28 February
% 2011 2010 2009
R`000 Change (restated) (restated)
Earnings attributable 145 970 219 662 196 857
to equity holders
Amortisation of deemed (9 611) (9 611) (10 286)
debenture premium
Sale of investment (14 629) - -
property
Fair value adjustments
associate, net of (14 218) (39 941) (24 207)
deferred tax
investment properties, (102 701) (167 147) (165 072)
net of deferred tax
Headline 4 811 2 963 (2 708)
earnings/(loss) before
debenture interest
Debenture interest 151 050 143 833 123 120
Headline earnings 155 861 146 796 120 412
attributable to linked
unit holders
Straight-line lease (359) 1 086 2 779
adjustment
Fair value adjustment (4 900) - -
on interest rate
derivatives, net of
deferred tax
Deferred taxation 1 358 (3 302) 641
adjustments
Distributable earnings 151 960 144 580 123 832
Headline earnings per 5,2 119,5 113,7 94,7
linked unit (cents)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share Capital Fair value
R`000 capital reserve reserve
Balance at 1 March 2008 2 507 26 149 896 816
Prior year adjustments 133 762
Restated balance at 1 March 2 507 26 149 1 030 578
2008
Total comprehensive income for
the year
Transfer to capital - deemed 10 286
debenture premium
Dividends paid
Transfer to fair value reserves
Investment properties, net of 162 293
deferred tax
associate, net of deferred tax 24 207
Balance at 28 February 2009 2 507 36 435 1 217 078
(restated)
Total comprehensive income for
the year
Transfer to capital - deemed 9 611
debenture premium
Dividends paid
Transfer to fair value reserves
Investment properties, net of 166 061
deferred tax
associate, net of deferred tax 39 941
Balance at 28 February 2010 2 507 46 046 1 423 080
(restated)
Total comprehensive income for
the year
Issue of new units 1 965
Transfer to capital - deemed 9 611
debenture premium
Dividends paid
Transfer to fair value reserves
Investment properties, net of 103 060
deferred tax
associate, net of deferred tax 14 218
Interest rate derivatives, net 4 900
of deferred tax
Balances at 28 February 2011 4 472 55 657 1 545 258
Retained
R`000 earnings Total
Balance at 1 March 2008 28 312 953 784
Prior year adjustments 133 762
Restated balance at 1 March 28 312 1 087 546
2008
Total comprehensive income for 196 857 196 857
the year
Transfer to capital - deemed (10 286) -
debenture premium
Dividends paid (612) (612)
Transfer to fair value reserves
Investment properties, net of (162 293) -
deferred tax
associate, net of deferred tax (24 207) -
Balance at 28 February 2009 27 771 1 283 791
(restated)
Total comprehensive income for 219 662 219 662
the year
Transfer to capital - deemed (9 611) -
debenture premium
Dividends paid (716) (716)
Transfer to fair value reserves
Investment properties, net of (166 061) -
deferred tax
associate, net of deferred tax (39 941) -
Balance at 28 February 2010 31 104 1 502 737
(restated)
Total comprehensive income for 145 970 145 970
the year
Issue of new units 1 965
Transfer to capital - deemed (9 611) -
debenture premium
Dividends paid (378) (378)
Transfer to fair value reserves
Investment properties, net of (103 060) -
deferred tax
associate, net of deferred tax (14 218) -
Interest rate derivatives, net (4 900) -
of deferred tax
Balances at 28 February 2011 44 907 1 650 294
NOTES TO THE FINANCIAL STATEMENTS
The condensed consolidated financial statements have been prepared and presented
in accordance with International Financial Reporting Standards IAS34, the
Listings Requirements of the JSE Limited and the requirements of the Companies
Act 61 of 1973, as amended. The accounting policies adopted are consistent with
those applied at 28 February 2010 except for the recognition of deferred tax.
Premium has early-adopted the amendment to IAS12 relating to income tax and
which requires entities to apply the Capital Gains Tax ("CGT") rate at which
deferred tax is recognised specifically on the fair value movements on
Investment property. Previously a blended tax rate was used with the land
component attracting the CGT rate of 14% and buildings attracting the income tax
rate of 28%. The effect of this change in the accounting policy is as follows:
2010 2009
R`000 R`000
Decrease in deferred tax liabilities 170 342 144 730
Increase in reserves (170 342) (144 730)
Net asset value - previously reported 1 313 1 176
Net asset value - restated 1 461 1 300
Related party: City Property Administration (Proprietary) Limited is responsible
for the property and asset management of the Group.
Contingent liability: Premium has issued guarantees of R1,6 million in favour of
City of Tshwane Metropolitan Municipality for the provision of services to its
subsidiaries. Premium has provided a suretyship to Nedbank Property Finance,
which at 28 February 2011 amounted to R224,2 million, in favour of its associate
company, IPS Investments (Proprietary) Limited ("IPS").
DIRECTORS` COMMENTARY
Review of results
Premium has delivered growth in distributions for the year ended 28 February
2011 of 5,2% compared to the prior year. The interim distribution was 58,70
cents per linked unit with a final distribution of 58,20 cents per linked unit.
This was achieved in a difficult trading environment with tenants` total cost of
occupation increasing as utility costs and assessment rates increased
significantly. Whilst our commercial leases do provide for the recovery of the
cost of utilities and rates and taxes, these increased costs impact negatively
on new rentals on expiry of leases. Our residential leases do not provide for
the recovery of rates and taxes.
Rental income and net rental income increased by 10,5% and 12,5% respectively,
compared with the comparable period. The core portfolio, representing those
properties held for twelve comparable months and with no major development
activity, reflects rental income growth of 5,3%. The residential portfolio,
which represents 29,0% of the portfolio by rental income, achieved growth of
6,0%, underpinned by low vacancies and strong demand for affordable and secure
accommodation. Property expenses decreased to 40,0% (2010: 41,1%), with bad
debts decreasing during the period.
Arrears and doubtful debt provisions remain at acceptable levels and no
significant deterioration is anticipated. A saving in finance costs was achieved
due to the decreases in the prime lending rate. This was partially offset by the
increased costs of funding as a result of interest rate swaps entered into at a
premium to the weighted average cost of floating interest rates, in order to fix
interest rates in a low interest rate environment.
Property and investment portfolio
Management continued to focus on the redevelopment and upgrade of properties to
improve the quality of its properties to attract new tenants at higher rentals.
Phase II of the Hatfield mixed-use development was completed during the period.
This includes a four level parking facility, 6 262 m2 of "A" grade offices and 2
224 m2 of retail space. The total cost of the project should not exceed R256,1
million.
The 7 006 m2 City Centre office block was redeveloped at a cost of R29,0
million.
The distribution growth was negatively impacted as the City Centre and The
Fields office blocks are vacant. The retail component of The Fields Phase II is
also largely vacant. Management is optimistic that progress will be made in the
near future in the letting of these properties.
The conversion of Lara`s Place into residential units, situated in the
Johannesburg CBD was completed in July 2010 at a yield of 10,0%. This property
is now fully let.
As anticipated the performance of IPS was negatively impacted by the phased take
up of its mixed use developments. An increase in income from IPS is forecast for
the next financial year. Details of some of these IPS developments are:
Effective Vacancy
shareholding Date Total (%) at
interest of cost 28 February
Property (%) completion Location Rm 2011
Kempton Place 20 October Kempton
(mixed use) 2010 Park R282,5 48,4
Ricci`s Place 40 November Johannesburg
(mixed use) 2009 CBD R96,9 7,3
Tali`s Place 40 July Johannesburg
(mixed use) 2010 CBD R106,0 55,9
Beatrix Place 40 July Arcadia, Not yet
(residential) 2011 Pretoria R45,9 completed
Details of the Premium Portfolio`s vacancies as at 28 February 2011 are as
follows:
28 February 28 February
2011 2010
Offices (%) 15,2 13,5
Retail (%) 3,9 3,6
Commercial (%) 1,5 1,4
Industrial (%) 2,6 2,9
Residential (%) 0,4 0,3
TOTAL (%) 23,6 21,7
Most of the properties remained fully let, however a number of properties under
development or those which were recently upgraded had high vacancies. In recent
years certain properties were acquired by Premium with large vacancies and for
little or no consideration for the vacant space and that offered redevelopment
activity. As the opportunities arise the potential of these vacancies is being
realised.
During the year five properties were acquired and transferred for a total
purchase price of R188,1 million. These include the Shoprite building in the
Pretoria CBD, for a total consideration of R132,8 million and Lister building
situated in the Johannesburg CBD for a total purchase consideration of R44,5
million. The initial yields on these purchases are 7,1% and 10,5% respectively.
Gilboa in Arcadia Pretoria and Landjack in Kirkney were disposed of and
transferred during the period at a profit of R13,9 million and R0,7 million
respectively.
Rights issue
Premium successfully concluded a rights issue on 28 February 2011 for an amount
of R400 million. 26 666 667 new linked units were issued at R15,00 each. An
amount of R15,73 million of the rights issue proceeds was credited to debenture
interest in respect of the period 1 September 2010 to 28 February 2011 in order
to ensure that the pre-rights issue linked unitholders were not diluted.
Debt
Premium`s gearing at 28 February 2011 was 37,6% of the total value of the
portfolio against 33,1% at 28 February 2010. The proceeds of the rights issue
were received after year end and are reflected in the balance sheet under
current assets. Subsequent to year end these proceeds were temporarily applied
to repay debt, reducing the gearing to a relatively low level of 27,2%. Premium
has entered into various swap interest rate agreements as set out below. As a
result the interest rates on 45,3% of debt have been fixed (after taking the
rights issue proceeds into account - 62,8%) for periods of between two years and
seven years. As at 28 February 2011, the annual weighted cost of debt was 9,0%.
Gearing
Nominal Interest
R`000 amount rate %
Fixed rate borrowings expiry
May 2013 142 118 12,80
May 2018 160 000 12,15
302 118 12,46
Swap maturity
May 2017 50 000 9,47
June 2017 50 000 9,32
July 2017 50 000 8,94
August 2017 100 000 8,70
September 2017 50 000 9,31
January 2018 50 000 9,43
350 000 9,12
Total hedged borrowings 652 118 10,67
Variable rate borrowings 786 925 8,10
Total gearing 1 439 043 9,00
Revaluation of the property portfolio
It is the Group`s policy to perform directors` valuations of all the properties
on a six monthly basis and at year end. At the year end one third of the
properties are valued by external valuers.
The increase in the directors` valuation of the portfolio by R119,4 million to
R3,58 billion represents an increase of 3,5%.
This valuation includes a revaluation of R14,8 million on leasehold property
which is stated as Investment property. It was previously classified as
Property, plant and equipment.
Prospects
The upgrading of the Group`s properties will continue to be the major driver for
the Group and this should provide investors with improved distribution growth in
the medium to longer term.
It is anticipated that the growth in the economy will remain subdued in the
short term. Notwithstanding this environment, and barring unforeseen events,
Premium anticipates that the distributable income of the current year should be
maintained in the forthcoming year.
Unitholders are advised that the abovementioned information has not been
reviewed nor reported on by the company`s auditors.
Independent review by external auditors: These condensed consolidated financial
statements have been reviewed by our auditors Grant Thornton, whose unmodified
review report is available for inspection at the company`s registered office.
DECLARATION OF DIVIDEND 34 AND INTEREST PAYMENT ("the distribution")
Notice is hereby given that dividend number 34 of 0,29 cents (2010: 0,29 cents)
per ordinary share together with interest of 57,91 cents per debenture (2010:
58,91 cents) has been declared for the period 1 September 2010 to 28 February
2011, payable to linked unitholders recorded in the register on Friday, 20 May
2011. The last date to trade cum distribution is Thursday, 12 May 2011. The
units will commence trading ex distribution on Friday, 13 May 2011. The payment
date will be Monday, 23 May 2011.
No dematerialisation or rematerialisation of linked unit certificates may take
place between Friday, 13 May 2011 and Friday, 20 May 2011, both days inclusive.
By order of the Board
A Wapnick JP Wapnick
(Chairman) (Managing Director)
21 April 2011
Directors
A Wapnick* (Chairman)
JP Wapnick* (Managing)
AK Stein* (Financial)
MJ Holmes#
MZ Pollack#
S Wapnick+
DP Cohen#
* Executive Director
# Independent Non-executive Director
+ Non-executive Director
Registered Office
CPA House
101 Du Toit Street, Pretoria, 0002
PO Box 15, Pretoria, 0001
Tel: (012) 319 8811
Fax: (012) 319 8812
Transfer Secretaries
Computershare Investor Services (Pty) Limited
(Reg. No: 2000/006082/06)
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Tel: (011) 370 7700
Fax: (011) 688 7712
Property Asset Manager
email address: propworld@cityprop.co.za
website address: www.premiumproperties.co.za
Date: 26/04/2011 14:00:09 Supplied by www.sharenet.co.za
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