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DIV
DIV
DIV - Diversified - Audited abridged financial report: year ended 30 June 2007
Diversified Property Fund Limited
Registration number 2005/029685/06
(Incorporated in the Republic of South Africa)
("Diversified" or the "group")
JSE code: DIV ISIN: ZAE000072369
AUDITED ABRIDGED FINANCIAL REPORT FOR THE YEAR ENDED 30 JUNE 2007
CONSOLIDATED INCOME STATEMENTS
Audited Audited
Year ended 9 months ended
30 June 2007 30 June 2006
R`000 R`000
Net rental and related income 103 631 61 530
Recoveries and contractual rental 138 084 78 803
income
Straight-lining of rental income 10 536 5 954
adjustment
Rental income 148 620 84 757
Property operating expenses (44 989) (23 227)
Distributable income from investments 3 067 1 712
Profit on disposal of investments and 43 347 679
investment property
Profit on disposal of investment 34 867 -
property
Profit on disposal of investments 8 480 679
Fair value gains on investments and
investment property 223 362 185 226
Fair value gain on investment property 209 499 191 229
Adjustment resulting from straight-
lining
of rental income (10 536) (5 954)
Fair value gain/(loss) on investments 24 399 (49)
Other income 3 806 208
Administrative expenses (5 317) (1 524)
Asset management fee (6 289) (3 462)
Other expenses (8 266) (1 918)
Listing costs - (1 365)
Profit before net finance costs 357 341 241 086
Net finance costs (83 950) (50 026)
Finance income
?Interest from the purchase trust 7 376 3 621
?Fair value adjustment on interest rate 4 285 2 513
swaps
Interest on linked units issued cum 4 640 3 236
distribution
Finance costs
?Interest on borrowings (11 261) (14 025)
Interest to linked debenture holders
- interim (43 224) (12 492)
- final (45 766) (32 879)
Profit before income tax 273 391 191 060
Income tax expense (47 257) (55 194)
Profit for the period attributable to 226 134 135 866
equity holders
Basic earnings per share (cents) 157,84 129,46
Basic earnings per linked unit (cents) 219,96 172,69
Diluted earnings per share (cents) 157,84 129,46
Diluted earnings per linked unit 219,96 172,69
(cents)
CONSOLIDATED BALANCE SHEETS
Audited Audited
30 June 2007 30 June 2006
R`000 R`000
ASSETS
Non-current assets 1 434 543 1 039 493
Investment property 979 816 895 351
Straight-lining of rental income 13 810 5 744
adjustment
Investment property under development 73 617 47 634
Investments 249 182 25 553
Intangible assets 26 422 -
Loans 91 696 65 211
Current assets 182 653 47 342
Investment property held for sale 142 817 35 738
Straight-lining of rental income 2 470 210
adjustment
Trade and other receivables 37 201 11 316
Cash and cash equivalents 165 78
Total assets 1 617 196 1 086 835
EQUITY AND LIABILITIES
Total equity attributable to equity 477 194 191 354
holders
Share capital 1 469 1 215
Share premium 113 672 54 279
Treasury shares - (3)
Non-distributable reserves 362 053 135 863
Retained earnings - -
Total liabilities 1 140 002 895 481
Non-current liabilities 1 029 151 849 397
Linked debentures 705 221 583 010
Treasury debentures - (72)
Interest-bearing borrowings 224 045 207 088
Deferred tax 99 885 59 371
Current liabilities 110 851 46 084
Trade and other payables 54 003 13 325
Linked debenture interest payable 45 766 32 885
Income tax payable 10 173 (337)
Interest-bearing borrowings 903 211
Bank overdraft 6 -
Total equity and liabilities 1 617 196 1 086 835
ABRIDGED CONSOLIDATED STATEMENTS OF CASH FLOWS
Audited Audited
Year ended 9 months ended
30 June 2007 30 June 2006
R`000 R`000
Cash inflows from operating activities 30 793 44 207
Cash outflows from investing activities (230 294) (822 199)
Cash inflows from financing activities 199 582 778 070
Increases in cash and cash equivalents 81 78
Cash and cash equivalents at beginning 78 -
?of period
Cash and cash equivalents at end of 159 78
period
Cash and cash equivalents consist of:
Current accounts 165 78
Bank overdraft (6) -
159 78
RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS AND DISTRIBUTABLE
INCOME
Audited Audited
Year ended 9 months ended
30 June 2007 30 June 2006
R`000 R`000
Basic earnings (share) 226 134 135 866
Interest to linked debenture holders 88 990 45 371
Basic earnings (linked unit) 315 124 181 237
Adjusted for: (226 401) (134 402)
?- fair value gain on investment (209 499) (191 229)
property
?- fair value (gain)/loss on (24 399) 49
investments
?- profit on disposal of investment (34 867) -
property
?- profit on disposal of investments (8 480) (679)
?- impairment of goodwill 3 587 1 918
?- income tax effect 47 257 55 539
Headline earnings 88 723 46 835
Fair value adjustment on interest rate (4 285) (2 513)
swaps
Listing costs - 1 365
Other 4 552 (316)
Distributable income 88 990 45 371
Less: Distribution declared (88 990) (45 371)
Income not distributed - -
Headline earnings per linked unit amounts to 61,93 cents (2006:
44,63 cents).
Basic earnings per share, basic earnings per linked unit and
headline earnings per linked unit are based on the weighted average
of 143 266 165 (2006: 104 949 441) linked units in issue during the
period.
Diluted earnings per share and diluted headline earnings per share
are the same as earnings per share and headline earnings per share
as there are no dilutory instruments in issue.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Non-
Distri-
Share Share Treasur butable Retained
y
capita premiu shares reserve earnings Total
l m s
R`000 R`000 R`000 R`000 R`000 R`000
Balance at 1 October
2005
Issue of units
- Issue of 88 559 007 886 16 571 17 457
units on 6 October
2005
- Issue of 7 407 500 74 3 998 4 072
units on 4 November
2005
- Issue of 795 000 8 429 437
units on 15 November
2005
- Issue of 22 380 000 224 25 777 26 001
units on 22 March
2006
- Issue of 2 319 000 23 2 922 2 945
units on 7 April 2006
Share premium 4 582 4 582
discount to be
accounted for as
share-based payment
expense
Units acquired by The (3) (3)
Diversified Unit
Purchase Trust
Loss on units issued (3) (3)
by The Diversified
Unit Purchase Trust
to employees
Total recognised
income and expense
- profit for the 135 866 135 866
period
Transfer to reserves 135 866 (135 -
866)
Balance at 30 June 1 215 54 279 (3) 135 863 - 191 354
2006
Issue of units
- Issue of 14 705 882 147 26 564 26 711
units on 17 October
2006
- Issue of 3 445 000 34 5 658 5 692
units on 16 November
2006
- Issue of 5 882 352 59 20 846 20 905
units on 20 March
2007
- Issue of 1 427 200 14 6 325 6 339
units on 8 May 2007
Issue of units held 3 3
by The Diversified
Unit Purchase Trust
Profit on units 56 56
issued by The
Diversified Unit
Purchase Trust to
employees
Total recognised
income and expense
- profit for the 226 134 226 134
period
Transfer to reserves 226 134 (226 -
134)
Balance at 30 June 1 469 113 - 362 053 - 477 194
2007 672
Non-distributable reserves comprise those profits and losses that
are not distributable to unitholders and are made up of mainly
revaluation adjustments on investment assets, profits or losses on
the disposal of investments and profits and losses resulting from
activities other than the group`s investment in properties and
investments.
NOTES
1. PREPARATION AND AUDIT OPINION
This abridged report has been prepared in accordance with International
Financial Reporting Standards (IFRS) and the requirements of the Companies Act
(Act 61 of 1973). KPMG Inc. has audited the financial information set out in
this abridged report. The accounting policies adopted are consistent with those
of the prior period. The unqualified audit opinion is available for inspection
at the group`s registered address.
2. SUMMARY OF FINANCIAL PERFORMANCE
30 Jun 2007 31 Dec 2006 30 Jun 2006 31 Dec 2005
Distribution
per linked
unit (cents) 31,15 30,96 27,07 12,91
Units in issue 146 920 941 139 611 389 121 460 507 96 761 507
Net asset
value R8,05 R6,61 R6,38 R4,99
Gearing ratio* 11,3% 21,1% 23,9% 34,9%
*The gearing ratio is calculated by dividing the total gearing by
the investment in non-current assets excluding loans to the
purchase trust.
3 GEARING
Amount Interest % of
Expiry R`million rate borrowings
October 2008 50,0 9,28% 32,9%
August 2009 50,0 10,09% 32,9%
October 2010 50,0 9,56% 32,9%
September 2012 50,0 10,36% 32,9%
Hedged borrowings 200,0 9,82% 131,6%
Prime linked borrowings* (47,9) 11,00% (31,6%)
Total gearing** 152,1 9,45% 100,0%
*Based on the current prime lending rate of 13,00%.
**Total gearing comprises the level of external interest-bearing
borrowings should current liabilities be liquidated and current
assets be realised.
Gearing is calculated as follows: R`million
- Interest-bearing borrowings 224,9
- Current liabilities 109,9
- Current assets (182,7)
Total gearing 152,1
4. LEASE EXPIRY PROFILE AND SEGMENTAL ANALYSIS
Lease expiry (based on contractual rental income)
Vacant 2,7%
Jun `08 16,1%
Jun `09 21,8%
Jun `10 24,4%
Jun `11 10,9%
Jun `12 13,5%
>Jun `12 10,6%
Rental Profit before
Geographical area income net finance costs
R`000 R`000
Eastern Cape 23 862 34 753
Gauteng 100 264 248 731
KwaZulu-Natal 11 070 28 625
Limpopo 8 769 13 284
Mpumalanga 3 466 7 956
Northern Cape 1 189 4 112
Corporate - 19 880
Total 148 620 357 341
5. PAYMENT OF FINAL DISTRIBUTION
The board has approved and notice is hereby given of a final distribution
(distribution no 4) of 31,15 cents per linked unit for the six months ended 30
June 2007.
The last date to trade linked units cum distribution will be Friday, 24 August
2007 and trading will commence ex distribution on Monday, 27 August 2007. The
record date to participate in the distribution will be Friday, 31 August 2007.
Linked unit certificates may not be dematerialised or rematerialised between
Monday, 27 August 2007 and Friday, 31 August 2007, both days inclusive.
Payment of the distribution will be made to linked unitholders on Monday, 3
September 2007. In respect of dematerialised linked unitholders, the
distribution will be transferred to the Central Securities Depository
Participant accounts/broker accounts on Monday, 3 September 2007. Certificated
linked unitholders` distribution payments will be posted on or about Monday, 3
September 2007.
DIRECTORS` COMMENTARY
Distributions for the year ended 30 June 2007 increased by 16,51% compared with
the annualised distribution for the nine months ended 30 June 2006. Diversified
continues to focus on the acquisition of retail centres and retail development
opportunities, particularly in rural areas. The financial year was characterised
by significant changes to Diversified`s investment portfolio and a number of new
initiatives being launched which provide a sound platform for strong
distribution growth in the future.
Market conditions in all sectors of the South African property market remain
favourable. The industrial market was characterised by a shortage of space that
supported rising rentals. This would normally result in an increase in supply of
industrial premises, however a shortage of serviced industrial land and rising
building costs have limited additional supply. These dynamics are expected to
continue to support further increases in rentals in the industrial market.
Despite the increases in interest rates, the retail centres in rural areas
continue to perform well due to substantial increases in social spending and the
development of new mines. National retailers have resisted an increase in
rentals and rising building costs have put pressure on the viability of new
developments. This will limit new investment opportunities but will underpin
existing investments.
Although the oversupply in the office market has finally been absorbed, in
excess of 80 000 m2 of new office developments are in progress or are being
planned for the northern suburbs of Johannesburg. Even though many of the
planned developments will probably not be built, the current situation
underscores the cyclical nature and risks associated with the office market.
Diversified has a limited exposure to the Gauteng market with the office tower
component of Rivonia Village.
1. ACQUISITIONS AND DEVELOPMENTS
Evaton and Nquthu Plaza
Subsequent to the financial year-end, Diversified acquired a 50% interest in
Evaton Plaza and Nquthu Plaza for R81,9 million and R45,8 million respectively.
Evaton Plaza was acquired at a forward yield of 9,75% and Nquthu Plaza on a
forward yield of 10%.
Isando Business Park
The Allied building was redeveloped extensively and was let to Maxiprest Tyres
in terms of a seven-year lease that commenced in December 2006. To take
advantage of available land, a divisible warehouse measuring 4 330 m2 is being
developed.
Market Square, Grahamstown
Construction of a 2 150 m2 GLA extension let to Jet Stores, Sheet Street, Pep
Stores, Clear Vision and a Kentucky Fried Chicken outlet is scheduled for
completion in September 2007. The existing centre is being refurbished.
Montague Business Park
Diversified acquired a 25% stake in this 61,6 ha site in partnership with
Improvon Properties and Acucap Properties. Transfer of the land was effected in
December 2006. Plans for the layout of an industrial park have been finalised
and submitted to council for approval. In view of the excellent location and
visibility of the site, consideration is being given to utilise a portion of the
land for value retail.
New Redruth Village
This 11 400 m2 GLA convenience and value centre was acquired at a commencement
yield of 9,5%. The anchor tenants, Pick `n Pay and Woolworths, have advised that
their stores are trading ahead of budget. Application has been made to the local
authority for additional rights for a small extension to the centre.
Sterkspruit Plaza
A 68% interest in this 8,7 ha site was acquired at a cost of R4,3 million.
Retail rights for the site have been approved. Tenant demand is strong and
leases are being negotiated for a retail shopping centre with a GLA of 18 000
m2. Construction is scheduled to commence in October 2007 with completion in
November 2008.
Wessels Road, Rivonia
This 3 635 m2 property is situated adjacent to Rivonia Village (owned by
Diversified) and was acquired at a cost of R13,5 million. The intention is to
demolish the existing office block and link a new development to Rivonia
Village.
2. PROPERTIES SOLD
The following properties were sold and transferred during the financial year:
Book value Net sale
price
Property description R`million R`million
Director Road, Aeroport 22,6 29,3
Jet Park, Mini Factories 19,8 28,7
Burry Koen Street, Jet Park 16,4 25,4
Citrus Street, Laser Park 18,7 24,2
Cranberry Street, Laser Park 16,4 18,8
McCarthy Isando 11,0 12,5
Ingwe Road, Sebenza 6,5 9,5
Crown Mini Factories 7,7 9,4
Erf 114 of Steel Road,Spartan 3,6 5,6
Total 122,7 163,4
The following properties were sold shortly after year-end:
Book value Net sale
price
Property description R`million R`million
Pick `n Pay, Newton Park 25,9 29,7
Shoprite, Wierda Park 19,0 21,1
Shoprite, Mdantsane 17,3 16,8
Carolina Shopping Centre 12,3 15,7
Erven 106,108 and 112 of Steel Road, 8,3 14,9
Spartan
Kyalami Crest 9,6 11,4
Truworths, Kimberley 5,7 8,9
Belfast Shopping Centre 6,2 8,0
Edendale Road, Eastleigh 5,0 6,9
Forge Road, Spartan 4,5 5,9
Bradlows, Queenstown 2,3 2,8
Total 116,1 142,1
3. CAPITAL PROPERTY FUND
Six industrial properties were sold to Capital Property Fund for R138,9 million
in exchange for 26 711 539 units in Capital. These units will be retained as a
long-term strategic investment. Property Fund Managers Limited, the management
company of Capital Property Fund, was acquired at a cost of R30 million.
4. FORTRESS ASSET MANAGERS
Collective Investment Schemes
Fortress, the wholly-owned subsidiary of Diversified, obtained Financial
Services Board (FSB) approval to manage an international unit trust, the
Fortress REIT Fund. The unit trust has performed well and has attracted
investments of R118 million, including a R20 million investment from
Diversified.
A complementary fund to the Fortress REIT Fund will be introduced shortly. Known
as the Special Opportunities Fund, this fund will also invest in global real
estate securities, but will focus on securities that provide the potential
primarily for capital growth, in addition to income growth. The Special
Opportunities Fund will have the capacity to invest in other types of listed
real estate securities, in addition to REITs on a global scale. Fortress also
intends to list a FSB-approved offshore fund that will mirror the Fortress REIT
Fund and be domiciled offshore.
Hedge Funds
Two hedge funds were launched in December 2006 and immediately attracted R35
million in investments. Although there is strong investor demand for this
product, it will not be marketed to the general public at this stage.
Exchange Traded Fund (ETF)
Diversified and Madison Property Fund Managers have received approval from the
JSE Limited and the FSB for the listing of a property-based ETF to be listed on
the JSE Limited. Listing is expected during September 2007.
5. PROSPECTS
The strategy of disposing of smaller properties and industrial properties and
investing in new retail developments will continue in the new financial year.
Despite increases in interest rates, retailers in Diversified`s retail centres,
particularly in the rural areas, continue to trade well and we anticipate a
strong performance from these properties in the new financial year. Diversified
remains well positioned for strong growth in distributions in the future.
By order of the board
David Lewis Jacques van Wyk
Managing director Financial director
Johannesburg
8 August 2007
Directors: Mike Tshishonga* (Chairman of the board);
Hayden Bamford; Des de Beer; Craig Hallowes;
David Lewis; Holden Marshall*; Gugu
Mazibuko*;
Marius Muller; David Savage*; Manosagaran
Subramanien* (Chairman of the Investment
Committee);Nomatembo Tambo*; Andrew Teixeira;
Jacques van Wyk; Djurk Venter* (Chairman of
the Audit Committee)
*Independent non-executive
Company secretary: A A Bornman
Registered address: 4th Floor?Rivonia Village?Rivonia
Boulevard?Rivonia 2191
Transfer office: Link Market Services South Africa (Pty) Ltd
11 Diagonal Street Johannesburg 2001
Date: 08/08/2007 16:20:27 Produced by the JSE SENS Department.
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