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VKE
VKE
VKE - Vukile Property Fund Limited - Audited results and distribution
announcement for the year ended 31
March 2007
VUKILE PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Reg no. 2002/027194/06)
JSE code: VKE
ISIN: ZAE000056370
AUDITED RESULTS AND DISTRIBUTION ANNOUNCEMENT for the year ended 31 March
2007
* Distribution for year increases 12% over previous year (14% higher
than for six months ended 31 March 2006)
* 100% of MICC acquired and delisted
* Further reduction in vacancies to 2.9%
* Quality of portfolio improved by acquisitions and approved
developments of +/-R300 million and disposals of R400 million non-core
properties
ABRIDGED GROUP INCOME STATEMENT for the year ended 31 March 2007
2007 2006
R000 R000
Property revenue 553 480 567 688
Straight-line rental income 22 100 19 144
accrual
Gross property revenue 575 580 586 832
Property expenses (195 751) (201 174)
Net profit from property 379 829 385 658
operations
Administrative expenses (12 032) (21 598)
Investment and other income 12 122 4 355
Operating profit before finance 379 919 368 415
costs
Finance costs (139 022) (144 978)
Net profit before debenture 240 897 223 437
interest
Debenture interest (213 088) (200 632)
Net profit before capital items 27 809 22 805
Capital items
Loss on sale of re-valued (5 878) -
properties
Realised capital profit on 46 196 -
property sales
Less: Prior revaluations of (52 074) -
sold properties
Amortisation of debenture 416
premium
Fair value adjustments 436 068 449 311
Gross change in fair value of 458 168 468 455
investment properties
Straight-line rental income (22 100) (19 144)
adjustment
Net profit before taxation 458 415 472 116
Taxation (137 273) (127 659)
Net profit 321 142 344 457
Attributable to:
Linked unitholders of the 320 639 317 631
company
Minority 503 26 826
321 142 344 457
RECONCILIATION: HEADLINE
EARNINGS AND
DISTRIBUTABLE EARNINGS
Attributable profit after 320 639 317 631
taxation
Adjusted for:
Gross change in fair value of (458 168) (468 455)
investment properties
Deferred taxation on gross
change in fair value adjustment
of investment properties 127 366 120 135
Deferred taxation on straight- 6 561 5 619
line rental accrual
Minority interest in revaluation 535 25 984
surplus net of deferred taxation
Straight-line rental accrual net 15 577 13 370
of minority interest and
deferred taxation
Loss on sale of re-valued 5 878 -
properties
Amortisation of debenture (416)
premium
Debenture interest net of 212 406 184 859
minority interest
Headline earnings of linked 230 378 199 143
units
Adjusted for:
Straight-line rental accrual net (15 577) (13 370)
of minority interest and
deferred taxation
Available for distribution 214 801 185 773
Distribution to unitholders 212 839 185 236
Interest 212 406 184 859
Dividend 433 377
Total number of linked units in 295 551 272 429
issue (000)
Weighted average number of 276 927 268 619
linked units in issue (000)
Headline earnings (cents per 83.19 74.14
linked unit)
Available for distribution 77.56 69.16
(cents per linked unit)
A BRIDGED GROUP BALANCE SHEET
At At
31 Mar 31 Mar
2007 2006
R000 R000
ASSETS
Non-current assets 3 937 807 3 163 675
Investment properties 3 810 296 3 053 773
Investment properties - at 3 876 332 3 094 470
valuation
Straight-line rental income (66 036) (40 697)
adjustment
Other non-current assets 127 511 109 902
Straight-line rental income 51 206 26 405
asset
Furniture, fittings and computer 205 274
equipment
Goodwill 76 100 83 223
Current assets 223 382 113 649
Straight-line rental asset 14 830 14 292
Trade and other receivables 21 541 19 680
Cash and cash equivalents 187 011 79 677
Non-current assets held for sale - 574 256
Investment properties - 566 704
* Investment properties at fair - 574 256
value
* Straight-line rental income - (7 552)
adjustment
Straight-line rental income - 7 552
asset
Total assets 4 161 189 3 851 580
EQUITY AND LIABILITIES
Equity and reserves 836 137 482 739
Share capital 2 956 2 724
Share premium 17 341 13 354
Reserves 815 840 456 188
Minority interest - 10 473
Non-current liabilities 3 079 211 2 995 529
Linked debentures and premium 1 535 971 1 351 708
Other interest bearing 1 127 403 1 315 974
borrowings
Interest rate swap liability 7 720 47 166
Deferred taxation 408 117 280 681
Current liabilities 245 841 373 312
Trade and other payables 93 883 86 686
Short term bank finance 26 529 183 993
Vendor loans - 2 030
Taxation payable 4 253 2 528
Linked unitholders for 121 176 98 075
distribution
Total equity and liabilities 4 161 189 3 851 580
A BRIDGED GROUP CASH FLOW STATEMENT for the year ended 31 March 2007
2007 2006
R000 R000
CASH FLOWS FROM OPERATING 19 276 26 300
ACTIVITIES
Cash generated from operations 349 089 347 929
Finance costs (139 022) (144 978)
Investment and other income 12 122 4 228
Distributions paid (195 469) (179 411)
Taxation paid (7 444) (1 468)
CASH FLOWS GENERATED 236 081 (204 419)
FROM/(UTILISED IN) INVESTING
ACTIVITIES
CASH FLOWS (UTILISED IN)/FROM (148 023) 233 735
FINANCING ACTIVITIES
Net increase in cash and cash 107 334 55 616
equivalents
Cash and cash equivalents at the 79 677 24 061
beginning of the year
Cash and cash equivalents at the 187 011 79 677
end of the year
ABRIDGED STATEMENT OF CHANGES IN EQUITY for the year ended 31 March 2007
Share Non-dis- Retained Minority Total
capital tributable income interest R000
and reserves R000 R000
share R000
premium
R000
Group
Balance at 15 691 160 685 4 853 26 392 207 621
31 March
2005
Linked 387 - - - 387
units
issued in
acquiring
property
Increased - - - (47 111) (47 111)
holding in
business
combination
acquired
previously
Revaluation - (26 604) - - (26 604)
of interest
rate swaps
Net profit - - 317 631 26 826 344 457
for the
year
Change in - 468 455 (468 - -
fair value 455)
of
investment
properties
Deferred - (120 135) 120 135 - -
taxation on
change in
fair value
of
investment
properties
Deferred - (5 619) 5 619 - -
taxation on
straight-
line rental
accrual
Allocation - (25 984) 25 984 - -
of change
in fair
value of
investment
properties
in respect
of
minorities
Minorities` - - - 4 366 4 366
share of
post
acquisition
distributio
n
Dividend (377) (377)
distributio
n
Balance at 16 078 450 798 5 390 10 473 482 739
31 March
2006
Linked 4 219 - - - 4 219
units
issued in
acquiring
property
Revaluation - 39 446 - - 39 446
of interest
rate swaps
Net profit - - 320 639 503 321 142
for the
year
Increased - - - (10 976) (10 976)
holding in
business
combination
acquired
previously
Change in - 458 168 (458 - -
fair value 168)
of
investment
properties
Deferred - (127 366) 127 366 - -
taxation on
change in
fair value
of
investment
properties
Deferred - (6 561) 6 561 - -
taxation on
straight-
line rental
accrual
Allocation (535) 535 - -
of change
in fair
value of
investment
properties
in respect
of
minorities
Transfer - (5 878) 5 878 - -
from non-
distributab
le reserve
Dividend - - (433) - (433)
distributio
n
Balance at 20 297 808 072 7 768 - 836 137
31 March
2007
COMMENTS
1 BASIS OF PREPARATION
The audited financial statements for the year ended 31 March 2007 have
been prepared in terms of International Financial Reporting Standards
(IFRS) and relevant sections of the South African Companies Act 1973, as
amended. The accounting policies applied are consistent with those
applied in the most recent audited financial statements. The statements
have been audited by Grant Thornton, whose unqualified audit report is
available for inspection at the company`s registered office.
2 FINANCIAL RESULTS
The group`s net profit available for distribution amounted to R214.8
million for the year ended 31 March 2007 compared to the R185.8 million
for the previous year, an increase of 15.6%. If acquisitions and
disposals are excluded, on a "like for like" basis, group net property
revenue increased by 8.1% from 2006 to 2007. MICC Property Income Fund
Limited ("MICC") contributed R60.0 million to Vukile`s distributable
earnings for the year ended 31 March 2007 as compared to R48.6 million in
31 March 2006.
The reduction in group corporate administration expenditure from R21.6
million to R12 million was primarily due to a lower long-term incentive
bonus charge to the income statement, R1 million for the year ended 31
March 2007 as compared to R6.5 million in the prior year, and to a
reduction in MICC`s administrative expenses following a rationalisation
exercise.
Group finance costs, net of interest income, have reduced by R13.7
million, from R140.6 million to R126.9 million largely as a result of the
utilisation of the proceeds from property sales to reduce debt, together
with the restructuring of MICC`s long-term debt at lower interest rates.
Whilst part of the R200 million raised through the placing of 23.1
million linked units in January 2007 was utilised to reduce debt, it had
little impact on net interest payable.
SUMMARY OF GROUP FINANCIAL PERFORMANCE
March March
2007 2006
Headline earnings of linked units (Rm) 230 199
Available for distribution (cents per 77.56 69.16
linked unit)
Net asset value attributable to equity 803 670
holders of parent per linked unit
(cents)
Distribution per linked unit (cents) 76.75 68.5
Loan to value ratio 29.9% 41%
The net asset value per linked unit increased by 19.9% from R6.70 per
linked unit as at 31 March 2006 to R8.03 per linked unit as at 31 March
2007.
The board has approved a final distribution of 41.00 cents per linked
unit for the six months 31 March 2007, an increase of 13.9% over the
comparable period.
3 ACQUISITION OF MINORITY INTERESTS IN MICC
In terms of a circular dated 17 February 2006, it was stated that since
more than 90% of MICC unitholders had accepted Vukile`s cash offer of
R8.841 per MICC linked unit ("the Vukile offer"), Vukile would exercise
its rights in terms of Section 440K of the Companies Act, 1973 ("the
Act") to compulsorily acquire all the outstanding MICC linked units which
it did not already own. However, since an individual ("the objector")
lodged an objection against such acquisition at the Johannesburg High
Court ("the High Court"), Vukile did not immediately proceed with such
acquisition.
On 15 February 2007, after hearing counsel for the parties, the High
Court ordered that Vukile could proceed forthwith with the acquisition of
the MICC linked units of the objector and those MICC unitholders he
claimed to represent, whilst other issues in the litigation were referred
to full trial proceedings to be conducted in due course. If the objector
does initiate trial proceedings, he would have to prove that Vukile acted
unlawfully in compulsorily acquiring his shares and be required to prove
damages.
As a result of the High Court Order, Vukile acquired the balance of the
minority interests in MICC on 14 March 2007 and, as a consequence
thereof, now owns 100% of MICC.
MICC`s listings on the JSE and Namibian Stock Exchange were terminated on
Tuesday, 3 April 2007.
4 BORROWINGS
The group`s long-term debt is hedged using interest rate swap agreements
for periods expiring between three and five years hence and via two-year
swaptions to hedge short term debt. Changes in interest rates will,
therefore, have no impact on the group`s cost of debt over the periods
concerned.
The company`s borrowing capacity is, in terms of its articles of
association, not limited. The board policy is to limit gearing to 45%.
The group`s gearing ratio at the end of the financial year was 29.9%,
which creates capacity in excess of R500 million to fund acquisitions,
redevelopment and expansion opportunities. 100% of the group`s long-term
interest bearing debt was fixed at year-end at a weighted average rate of
10.19% per annum.
5 PROPERTY PORTFOLIO
The combined property portfolio currently comprises 71 properties with a
gross lettable area of 898 351mSquared.
For the combined portfolio, the sectoral spread by revenue comprises 30%
commercial, 56% retail and 14% industrial.
During the period under review 210 447mSquared (84%) of expired leases of
250 449mSquared were renewed.
At 31 March 2007, the combined portfolio`s vacancy (measured as a
percentage of gross rentals) was 2.9% compared to 4.4% at 31 March 2006.
The vacancy at Randburg Square office tower has successfully been reduced
from 71.2% at 31 March 2006 to 10% at 31 March 2007.
6 ACQUISITIONS, DEVELOPMENTS AND DISPOSALS
Acquisitions and developments:
* the expansion and upgrades of the Phoenix Plaza and Dobsonville
shopping centres were successfully completed in December 2006 at a cost
of R73.0 million (budget R74.7 million) at an average initial yield of
16.7%;
* purchase of a 50% undivided share in a new value type retail
development in Kings Road Pinetown of 8 450mSquared, for R30 million, at
an initial yield of 9.6%. The development was completed in December 2006
and transfer of the undivided 50% interest to Vukile is expected in May
2007;
* purchase of No. 50, Sixth Road, Hyde Park, an office complex of 4
181mSquared, for R57.2 million, at an initial yield of 9.7%. The
property was transferred in September 2006;
* the development of a 5 650mSquared mini factory and warehousing
complex on undeveloped land at Vukile`s existing Allandale Park mini
factory complex in Midrand at a total capital outlay of R21 million, with
an anticipated net initial yield of 9.4%. It is expected that the
development will be completed in December 2007;
* the development of a 11 280mSquared shopping centre at Moratiwa
Crossing, district Jane Furse, Limpopo Province at a cost of R61.6
million, with a net initial yield of 9.5%. Vukile will hold an 86.5%
share in this centre which is expected to be completed in November 2007;
and
* the acquisition of a 4 369mSquared "A" grade office complex located in
West Street Houghton at a total capital outlay of R33.9 million, with an
initial yield of 9.2%. Transfer is expected in June/July 2007.
Disposals
As part of Vukile`s ongoing process to improve the quality of its
portfolio, the following properties were disposed of during the year:
Building Purchas Director Net Transfer
e s` sales date
price valuatio price
R000 n R000
at
31 March
2006
R000
Phalaborwa OK 22 924 25 215 25 213 30 May 06
Bazaars
Durban West Str 35 660 43 740 43 740 18 Jul 06
OK Bazaars
JHB Market Str 10 902 10 128 7 908 18 Dec 06
Bradlows
JHB Wynberg 2 853 2 851 6 200 12 Feb 07
57 Andries Str
Orkney Shopping 11 743 15 657 13 759 6 Nov 06
Centre
Durban Overport 34 482 45 043 43 729 26 Apr 06
City
Sandton 9 63 875 59 084 60 150 25 Jul 06
Fredman Drive
Middelburg SA # 9 000 7 048 6 942 1 May 06
Police
Middelburg # 24 363 26 000 25 811 1 May 06
Plaza
Witbank Hoskens # 2 336 2 486 2 399 1 May 06
House
Cape Town # 8 350 4 499 4 399 1 May 06
Pinelands WJM
House
Welkom Sanlam # 6 500 11 890 11 766 1 May 06
Park
Randburg # 5 050 3 387 3 293 1 May 06
Strijdom Park
HiTech Mini
Units
Mkuze Plaza # 15 900 21 753 21 581 1 May 06
Taung Forum # 16 800 24 888 24 704 1 May 06
Ermelo Mall # 15 000 34 570 34 319 1 May 06
Pietermaritzbur
g
Heritage House 13 474 10 200 1 563 25 Oct 06
Bethlehem 10 515 9 296 6 203 22 Nov 06
Maluti Square
Randburg 18 509 19 145 18 385 31 Jan 07
Hillview Centre
JHB Denver 5 661 8 761 7 176 14 Dec 06
Relyant
Pinetown
Halifax
Road 20 441 22 289 22 345 29 Nov 06
TOTAL 354 338 407 930 401
585
Luderitz Pep * 3 600 2 347 2 814 6 Apr 06
Stores
TOTAL 357 938 410 277 404
properties sold 399
# Properties sold to ApexHi
* Shares and loan account in the subsidiary company owning this property
was sold
The above properties were considered to be non-core, ie they did not
conform to the longer term investment criteria of Vukile.
7 VALUATION OF PORTFOLIO
The directors have valued the group`s property portfolio at R3.86 billion
as at 31 March 2007. This is R206 million (5.6%) higher than the
valuation at 31 March 2006.
The external valuations by sworn independent appraisors JHI Real Estate
Limited and Old Mutual Property Group (Pty) Limited of 54.3% of the total
portfolio is R0.8 million (0.04%) higher that the directors` valuations
of the same properties.
8 SEGMENTAL ANALYSIS
Indus- Com- Retail Cor- Total
trial mercial R000 porate R000
R000 R000 R000
Group income
for the year
ended 31
March 2007
Rental 86 770 173 952 292 758 - 553 480
income
Straight- 3 283 6 247 12 570 - 22 100
line rental
income
accrual
Property (33 (58 136) (104 - (195
expenses 378) 237) 751)
Net profit 56 675 122 063 201 091 - 379 829
from
property
operations
Group
balance
sheet at 31
March 2007
Non-current
assets
Investment 589 364 1 163 2 056 - 3 810
properties 939 993 296
Other non- 22 195 48 226 57 090 - 127 511
current
assets
Current
assets
Straight- 2 294 4 529 8 007 - 14 830
line rental
income asset
Trade and 4 535 4 567 12 439 - 21 541
other
receivables
Cash and 694 (955) 5 871 181 401 187 011
cash
equivalents
Current
liabilities
Trade and 16 494 23 183 54 206 26 529 120 412
other
payables
Taxation - - - 4 253 4 253
payable
Linked - - - 121 176 121 176
unitholders
Segment assets and liabilities
Segment assets include all operating assets used by a segment and consist
principally of investment properties, receivables and cash. Assets not
directly attributable to a particular segment are allocated to the
corporate segment. Segment liabilities include all operating liabilities
of a segment and consist principally of outstanding accounts. Segment
assets and liabilities do not include deferred taxes.
9 CAPITAL COMMITMENTS
The company is authorised and contracted to develop the Moratiwa Crossing
Shopping Centre at a cost of R61.6 million, acquire an office complex in
Houghton at a cost of R33.9 million, purchase a 50% undivided share in a
value type retail development in Kings Road Pinetown for R30 million and
is authorised to develop a 5 650m2 mini factory and warehousing complex
in Allandale at a cost of R21 million. It is intended that the capital
expenditure will be funded through existing cash resources and bank
facilities.
OTHER COMMITMENTS
Guarantees in lieu of municipal service deposits, amounts to R11.5
million (R7.4 million: 2006)
10 CONTINGENT LIABILITIES
As previously disclosed to linked unitholders, litigation is continuing
with former MICC unitholders ("the objectors") regarding the compulsory
acquisition of their linked units in MICC in terms of Section 440K of the
Companies Act.
On 15 February 2007, the High Court ordered that Vukile could proceed
forthwith with the acquisition of the MICC linked units of the objectors,
whilst other issues in the litigation were referred to full trial
proceedings to be conducted in due course. The objectors will be
required to prove that Vukile acted unlawfully in compulsorily acquiring
their shares and be required to prove their damages claim of R635 000.
The opinion of Vukile`s counsel is that the company has acted lawfully in
acquiring the objectors linked units in MICC in terms of section 440K of
the Companies Act and that the claim for damages should, therefore, be
unsuccessful.
11 RELATED PARTY TRANSACTIONS
The following related party transactions have been entered into:
Related party Amount Amounts Amount Amounts
paid owed to paid owed to
2007 related 2006 related
R000 parties R000 parties
2007 2006
R000 R000
Sanlam
Properties (Pty)
Limited
Sale of Oakhurst - - 34 400 -
property
Sanlam
Properties (Pty)
Limited
Asset 16 259 1 396 11 856 1 525
management,
lease rentals
and other fees
Amount due was
paid in April
2007
Gensec Property
Services (Pty)
Limited
Property 22 241 4 261 20 123 2 477
management and
other fees
Amount due was
paid in April
2007
MCH Properties
(Pty) Limited
Expansion of 73 041 - - -
Phoenix Plaza
and Dobsonville
development
costs
Kuper Legh
Property Group
Property 2 919 671 2 192 217
management and
other fees
Amount due was
paid in April
2007
Sanlam Properties (Proprietary) Limited is a subsidiary of Sanlam Limited
which held 81 421 430 of the issued linked units of Vukile Property Fund
Limited at 31 March 2007. Sanlam Limited also holds a minority
shareholding in Gensec Property Services (Proprietary) Limited. Sanlam
Properties (Proprietary) Limited has a majority shareholding in MCH
Properties (Proprietary) Limited. Kuper Legh Property Group is
controlled by two individuals who are also significant unitholders in
Vukile.
12 PROSPECTS
Property fundamentals remain strong. This is evidenced by low vacancies,
record distribution growth and strong economic growth. We therefore
anticipate that trading conditions will remain strong and we do not
expect the higher interest rate environment to have an adverse effect on
portfolio income in the foreseeable future. This could exert further
upward pressure on rentals which has allowed us to budget for growth in
distribution broadly in line with what has been delivered this year.
13 PAYMENT OF DEBENTURE INTEREST AND DIVIDEND
Notice is hereby given of a distribution amounting to 41 cents per linked
unit, for the year ended 31 March 2007. The distribution comprises
interest on debentures of 40.92 cents per linked unit and a dividend of
.08 cents per linked unit.
Last date to trade cum Friday, 15 June 2007
distribution
Linked units trade ex distribution Monday, 18 June 2007
Record date for unitholders to Friday, 22 June 2007
participate in the distribution
Payment of distribution to Monday, 25 June 2007
unitholders
Linked unit certificates may not be dematerialised or re-materialised
between Monday 18 June 2007 and Friday 22 June 2007, both days inclusive.
On behalf of the board
AD Botha G van Zyl
Chairman Chief executive
Roodepoort
28 May 2007
Website: www.vukileprops.co.za
Sponsor: Bridge Capital Services (Pty) Limited, Woodmead, Johannesburg
Executive directors: G van Zyl (CEO), MJ Potts (Financial Director) Non-
executive directors: AD Botha (Chairman), S Bernic, HSC Bester, PJ Cook,
PS Moyanga, JM Hlongwane and M Serebro
Registered office: 2nd floor Meersig Building, Constantia Boulevard,
Constantia Kloof, 1709
Company Secretary: EL Yates
Transfer secretaries: Computershare Investor Services 2004 (Pty)
Limited, Ground floor, 70 Marshall Street, Johannesburg
Investor and media relations: Contact Helen McKane on vukile@dpapr.com,
or Tel: 011 728-4701
Date: 25/05/2007 12:46:04 Produced by the JSE SENS Department.
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