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ACP
ACP
ACP - Acucap - Audited Final Results For The Year Ended 31 March 2007 and
payment of debentures interest
ACUCAP PROPERTIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2001/021725/06)
Share code: ACP ISIN: ZAE000037651
("Acucap")
AUDITED FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2007
Annual distributions up 13.5%
Property portfolio value up from R2.4 billion to R2.9 billion
Net asset value up 13.2% from R21.67 to R24.53
Balance sheet
at 31 March 2007
2007 2006
Restated
R`000 R`000
Assets
Property assets 2 883 409 2 369 706
Investment properties 2 726 424 2 303 302
Long term receivable 64 909 60 961
Short term receivable 6 323 3 152
Investment properties and related receivables 2 797 656 2 367 415
Investment properties under development 85 425 -
Other property assets 328 2 291
Non-current assets 579 514 94 095
Loans in respect of unit purchase scheme 159 290 93 284
Equipment 540 452
Listed investments 412 619 -
Financial instruments 7 065 -
Deferred tax assets - 359
Current assets 41 440 18 059
Trade and other receivables 35 665 17 377
Cash and cash equivalents 5 775 682
Total assets 3 504 363 2 481 860
Equity and liabilities
Shareholders` interest 1 300 725 801 231
Share capital and share premium 442 257 86 712
Non-distributable reserve 959 239 742 125
Accumulated loss (100 771) (27 606)
Non-current liabilities 2 088 324 1 593 427
Debentures 934 740 685 203
Financial liabilities 784 710 651 936
BEE instrument 70 577 -
Financial instruments - 3 496
Deferred tax liabilities 298 297 252 792
Current liabilities 115 314 87 202
Trade and other payables 23 000 14 135
Financial liabilities - 10 000
Tax payable - 2 506
Debenture interest payable 92 314 60 561
Total equity and liabilities 3 504 363 2 481 860
Income statement
for the year ended 31 March 2007
2007 2006
Restated
R`000 R`000
Revenue 245 107 213 045
- Contractual 237 988 195 695
- Straight lining 7 119 17 350
Net operating expenses (26 887) (21 621)
Profit before fair value adjustments, interest 218 220 191 424
and taxation
Fair value adjustment to investment properties 177 204 575 705
Fair value adjustment to BEE instrument (70 577) -
Profit before interest and taxation 324 847 767 129
Interest received 28 506 7 542
Interest paid
- debentures (159 447) (113 807)
- other (80 908) (65 677)
Profit before taxation 112 998 595 187
Taxation (35 550) (158 932)
Profit for the year 77 448 436 255
Cents Cents
Headline earnings per linked unit 115.49 189.87
Basic and diluted earnings per share 97.74 646.66
Interest distribution per linked unit
- interim 91.26 79.03
- final 98.66 88.29
Distribution per linked unit 189.92 167.32
Abridged cash flow statement
for the year ended 31 March 2007
2007 2006
R`000 R`000
Cash flows from operating activities
Cash generated from operations 210 132 169 473
Income tax paid (1 678) (3 083)
Interest received 21 598 7 367
Interest paid (208 602) (170 369)
Net cash inflow from operating activities 21 450 3 388
Net cash outflow from investing activities (744 213) (93 303)
Net cash inflow from financing activities 727 856 68 874
Net cash inflow/ (outflow) for the year 5 093 (21 041)
Cash and cash equivalents at beginning of year 682 21 723
Cash and cash equivalents at end of year 5 775 682
Effects of BEE transaction
The effect on the group results
of the BEE transaction not
being accounted for as an issue
for value is as follows:
Amounts as Effect of Accounted
reported BEE as issue
transaction for value
R`000 R`000 R`000
Income statement
Net operating expenses (26 887) 120 (26 767)
Interest received 28 506 10 693 39 199
Interest paid
- debentures (159 447) (21 991) (181 438)
- other (80 908) 14 089 (66 819)
2 911
Fair value adjustment to BEE (70 577) 70 577 -
instrument
Balance sheet
Loan to CShell 299(Pty) Ltd - 20 149 20 149
Financial instruments 7 065 (406) 6 659
Trade and other receivables 35 665 (680) 34 985
Share capital and share (442 257) (109 530) (551 787)
premium
Non-distributable reserve (959 239) 406 (958 833)
Debentures (934 740) (84 126) (1 018 866)
Financial liabilities (784 710) 183 736 (600 974)
BEE instrument (70 577) 70 577 -
Trade and other payables (23 000) 1 670 (21 330)
Debenture interest payable (92 314) (8 308) (100 622)
Statement of changes in equity
for the year ended 31 March 2007
Share Share Non- Accumula Total
capital premium distribut ted loss
able
reserve
R`000 R`000 R`000 R`000 R`000
Balance at 31 March 67 66 550 297 458 (29 169) 334 906
2005 (as previously
stated)
Restatement of - - 14 336 - 14 336
deferred tax **
Restated balance at 31 67 66 550 311 794 (29 169) 349 242
March 2005
Issue of 800 000 1 5 967 - - 5 968
shares in June 2005
Issue of 860 000 1 10 225 - - 10 226
shares in December
2005
Issue of 350 000 - 4 630 - - 4 630
shares in March 2006
Expenses recognised - (729) (4 361) - (5 090)
directly in equity
Share issue costs * - (729) - - (729)
Net change in fair - - (4 361) - (4 361)
value of cash flow
hedge recognised
directly in equity *
Profit for the year - - - 436 255 436 255
Restated transfer to - - 434 692 (434 -
non-distributable 692)
reserve **
Restated balance at 31 69 86 643 742 125 (27 606) 801 231
March 2006
Issue of 500 000 1 5 335 - - 5 336
shares in July 2006
Issue of 4 046 000 4 44 927 - - 44 931
shares in August 2006
Issue of 426 440 - 5 441 - - 5 441
shares in August 2006
Issue of 12 455 606 12 182 960 - - 182 972
shares in November
2006
Issue of 5 561 600 6 81 694 - - 81 700
shares in November
2006
Issue of 1 989 000 2 36 377 - - 36 379
shares in February
2007
Income/ (expenses) - (1 214) 66 501 - 65 287
recognised directly in
equity
Share issue costs * - (1 214) - - (1 214)
Net change in fair - - 55 940 - 55 940
value of listed
investments *
Net change in fair - - 10 561 - 10 561
value of cash flow
hedge recognised
directly in equity *
Profit for the year - - - 77 448 77 448
Transfer to non- - - 150 613 (150 -
distributable reserve 613)
Balance at 31 March 94 442 163 959 239 (100 1 300 725
2007 771)
* total income recognised directly in equity R 65 286 915 (2006:
R 5 090 213 expenses) and total income for period (including
profit or loss for period as well as income or expenses recognised
directly in equity) is R 142 734 827 (2006: R 431 164 931)
COMMENTS
1. REVIEW OF RESULTS AND OPERATIONS
The South African commercial property market produced another strong performance
in the year to December 2006 with a total return of 26.7% as reported by the IPD
South Africa Property Index. This is marginally down from last year`s total
return of 30.1%, but still the second best performance from this asset class in
the last decade. For the third year in succession, capital growth has been the
main component of the total return on all property surveyed by IPD, not only for
commercial property as a whole, but for each of the sectors surveyed, namely
retail, office and industrial.
Underpinned by strong property fundamentals and the prospects of continued
rental growth, the SAPY listed property index has continued to surge ahead,
helped by historically low inflation, low interest rates, and higher risk
tolerance amongst investors with surplus liquidity to invest.
Unit holders in Acucap have benefited from these positive conditions, with a
total return for the year to March 2007 of just over 23%. Distributions for the
year increased by 13.5% over the prior year, and this was fully attributable to
the growth in net rental income, since Acucap does not include any fee income,
development profits, trading profits or capital profits in its distributions.
These results are consistent with the guidance that the company has provided to
the market during the year.
2. DISTRIBUTION
The Board has approved a final distribution of 98.66 cents per linked unit for
the period from 1 October 2006 to 31 March 2007.
3. ACQUISITIONS
3.1 34.99% of Atlas Properties Limited (`Atlas`)
During November 2006, Acucap acquired 22,320,644 linked units in Atlas,
representing 34.99% of the units in issue. On 2 May 2007, Acucap announced its
firm intention to make an offer to acquire all of the Atlas linked units that it
does not already own. The relevant documentation will be sent to Acucap and
Atlas linked unit holders in early June, and should both groups of unit holders
vote in favour of the offer, Atlas will become a wholly-owned subsidiary of
Acucap. Over time, the board expects the acquisition of Atlas to enhance growth
in distributions to Acucap unit holders as synergies emerge from the
complementary property portfolios.
3.2 Industrial Strategy
In March last year, Acucap announced a shift in its industrial strategy towards
investment in modern, distribution-orientated industrial parks, offering
critical mass in good locations. As part of this strategic shift, the board has
resolved to dispose of Acucap`s three existing industrial properties, none of
which is core to the re-aligned strategy.
Subsequent to the year end, Acucap has entered into agreements to dispose of its
City Deep mini units and its Epping Industrial property. The terms of these
agreements are as follows :
City Deep Mini Units
Purchaser Absa Bank Limited as trustee for Capital Property Fund
(`Capital`)
Description Erf 160, City Deep Extension 7
Consideration R46,000,000 (forty six million rand) payable in cash
Carrying value at R42,000,000 (forty two million rand)
31 March 2007
Effective date Date of transfer
Effect on The disposal will enhance distributions by approximately 0.64
distributions cents per linked unit for the year to 31 March 2008
Suspensive None
conditions
Epping Industrial
Purchaser Blend Property One (Pty) Ltd
Description Erf 32480, Cape Town
Consideration R54,000,000 (fifty four million rand) payable in cash
Carrying value at R54,000,000 (fifty four million rand)
31 March 2007
Effective date Date of transfer
Effect on The disposal will enhance distributions by approximately 0.3
distributions cents per linked unit for the year to 31 March 2008
Suspensive Purchaser confirming finance by end May 2007
conditions
4. BORROWINGS
Excluding the loan relating to the BEE transaction, the group achieved an
average borrowing cost of 10.24% (2006: 10.67%) for the year. At 31 March 2007,
92.35% (2006: 77%) of borrowings were subject to fixed interest rates, with a
weighted average fixed interest rate expiry of approximately 3.6 years (2006: 4
years). The group`s borrowing capacity amounts to R1.533 billion (2006: R1.299
billion), being 55% of the valuation of the investment properties. As at 31
March 2007, group facilities amounted to R1.051 billion (2006: R1.001 billion),
and facilities utilised at year end amounted to R601 million (2006: R652
million), resulting in a gearing ratio of 22% (2006: 28%).
5. VACANCIES
Vacancies amount to 2.8% of the portfolio by gross rental income, and 2.6% by
gross lettable area. None of this vacancy is `hard core` in nature, and most
occurs where Acucap is engaged in redevelopment or refurbishment activities on
specific properties.
6. LEASE EXPIRY PROFILE
The lease expiry profile reflected below shows an average expiry of 3.7
years, with more than 48% of all leases expiring beyond March 2010.
to Mar- to Mar- to Mar- to Mar- to Mar-12
08 09 10 11 +
Industrial 1.5% 1.1% 3.4% 0.0% 1.1%
Offices 2.4% 3.2% 4.9% 1.0% 9.7%
Retail 12.5% 8.7% 14.3% 8.9% 27.5%
Total 16.4% 12.9% 22.5% 9.9% 38.3%
COST TO INCOME
Gross and net cost to income ratios
Gross Net
2004 32.9% 12.6%
2005 27.2% 12.2%
2006 28.4% 12.7%
2007 19.6% 11.7%
Acucap has been able to sustain a low net cost to income ratio since listing,
even with significant changes in the size and composition of the portfolio and
the broadening of the asset management team. The company expects to maintain
this ratio at below 13% going forward. Gross costs include all such operating
costs as are contractually recovered from tenants, whilst these are excluded
from the calculation of net costs.
8. PROPERTY PORTFOLIO REVALUATION
Acucap`s entire property portfolio was revalued by its independent valuers at 31
March 2007, using either the capitalisation of net income method, or the
discounted cash flow method, or a combination of these where appropriate.
Independent peer review valuations were also undertaken for selected properties.
The portfolio increased in value from 2.4 billion at the end of March 2006 to
R2.9 billion at the end of the current year. The increase in the portfolio
value, together with the effects of acquisitions made during the year, resulted
in a 13.2% growth in the NAV per linked unit from R21.67 at 31 March 2006 to
R24.53 at 31 March 2007.
Rand
Industrial
2,563
Offices
11,375
Retail
9,368
Average
8,354
9. AVERAGE SECTORAL NET RENTALS
Rand
Industrial
22.69
Offices
82.99
Retail
67.52
Total
62.27
The average net office rental per m2 includes income from parking, and the
Acucap office portfolio has approximately 4 parking bays per 100m2 of gross
lettable area. Average office rentals are therefore considered to be in line
with current market rentals for comparable properties. Retail rentals, however,
are considered to be lagging the market, with strong upward reversion potential
as leases are re-negotiated on expiry.
AVERAGE SECTORAL ESCALATION RATES
Sectoral escalation profile weighted by rental income
Industrial 9.5%
Offices 9.7%
Retail 8.1%
Total 8.4%
Contractual escalation rates are generally considered to be in line with current
market escalation rates for comparable properties, and on their own, escalation
rate differentials are therefore unlikely to affect the existing relationship
between Acucap`s actual through rentals and market rentals going forward.
11. AVERAGE VALUATION PER M2
Rand
Industrial
2,563
Offices
11,375
Retail
9,368
Total
8,354
The average valuation per square metre is significantly below replacement cost
across all sectors, and this strengthens the expectation that Acucap`s portfolio
has the potential for meaningful upward rental reversions as the cost of new
developments drives up competing rentals over time.
12. PROSPECTS
The South African economic outlook remains positive for property, with the key
driver of economic growth having shifted from consumer to infrastructural
spending. An expected GDP growth rate in the order of 5% will continue to ensure
firm demand for space across all three commercial sectors.
Going forward, the board expects Acucap to continue showing solid annual
distribution growth.
13. PAYMENT OF DEBENTURE INTEREST
Notice is hereby given that a final distribution of 98.66 (ninety eight comma
six six) cents per linked unit has been approved in respect of the six month
period ended 31 March 2007. The last date to trade the linked units cum
distribution is Friday, 1 June 2007 and the record date will be Friday, 8 June
2007. The linked units will start trading ex-distribution from Monday, 4 June
2007. Distributions will be made to unit holders on Monday 11 June 2007.
Linked unit certificates may not be dematerialised or rematerialised between
Monday 4 June and Friday 8 June 2007 both days inclusive.
14. BASIS OF PREPARATION AND REVIEW OPINION
The financial statements are prepared in accordance with International Financial
Reporting Standards (IFRS), as well as the requirements of the Companies Act in
South Africa, and on a basis consistent with the company`s most recent annual
financial statements.
KPMG Inc. has audited the financial information set out in this report. Their
unqualified audit report is available for inspection at the company`s registered
office.
On behalf of the Board
BS KANTOR PA THEODOSIOU
(Chairman) (Managing Director)
17 May 2007
Registered Office
Suite A11 Westlake Square
Westlake Drive
Westlake
CAPE TOWN
Transfer secretaries:
Computershare Investor Services 2004 (Proprietary) Limited
70 Marshall Street
JOHANNESBURG
http://www.acucap.co.za
info@acucap.co.za
Directors: Prof BS Kantor (Chairman), PA Theodosiou* (Managing Director), FM
Berkeley, RC Frolich, MJ Lindeque, M S Moloko, JH Rens*, B Stevens, NDC Whale
* Executive
Date: 17/05/2007 07:05:01 Produced by the JSE SENS Department.
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