| Tue 21 Aug 2007, 15:45 | | IFR - iFour - Reviewed Financial Results for the y |
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IFR
IFR
IFR - iFour - Reviewed Financial Results for the year ended 30 June 2007
iFour Properties Limited
(Incorporated in the Republic of South Africa)
(Registration number 2001/016118/06)
Share code: IFR
ISIN: ZAE000039236
("iFour" or "the company")
FINANCIAL RESULTS FOR?THE?YEAR?ENDED 30 JUNE 2007
FINANCIAL HIGHLIGHTS
- 32,2% increase in NET ASSET VALUE per linked unit
- Total RETURN to unitholders of 37,3%
- Distribution INCREASED by 8%
- Portfolio value increased to R2,8 billion
- Occupancy level at 97,4%
- Acquisitions approved - R492 million
- Acquisitions under negotiation - R400 million
The year in brief
Your company has experienced a successful year in laying the foundations for the
future by actively pursuing our core strategy of increasing investment in
decentralised and rural shopping centres and value centres. We see this as a
major opportunity to follow the changes in retail market trends. Acquisitions of
those centres amounting to R492 million have been concluded and further
acquisitions in the amount of R400 million are currently being negotiated. At
the same time a total return to unitholders of 37% was achieved. This included
an increase in distribution of 8% which is above the inflation rate and reflects
our commitment to deliver sustainable returns to our unitholders. It also
continues the steady improvement in distribution growth achieved over the past
four years.
Fourteen buildings to the value of R115,1 million which no longer met the
company`s investment criteria were sold, realising a cash profit of R25.3
million.
Occupancy levels were maintained at 97,4%.
The value of the portfolio has increased to R2.8 billion.
Progress has been made in concluding agreements with two BBBEE organisations to
purchase up to 20% of the company`s equity. An important consideration was to
identify business partners who could add value.
In keeping with our wish to integrate our activities with the community,
particularly where we are invested, our relationship with Lifeline has grown and
a further two counselling centres are due to be opened in our shopping centres.
At 40,3% the company`s gearing is well within its mandate of 55% which provides
opportunities for further expansion. The high level of hedging together with a
new securitisation of R470 million planned for October are intended to minimise
the costs and volatility of borrowing rates.
Financial Review
We are pleased to report an increase of 8% in distributable earnings to 94 cents
(2006: 87 cents) per linked unit for the financial year under review. This
increase is in line with the group`s strategic commitment to deliver sustainable
growth in distributions to linked unitholders.
The sale of properties not meeting the company`s investment criteria impacted
negatively on rental income but this was more than compensated by new
acquisitions and increasing rentals. Overall an 8,5% increase in rental revenues
was recorded.
Other income consists of R4,5 million received from Pangbourne Properties
Limited for the right to utilise the securitisation vehicle "Props" established
by iFour. In addition, R2 million cash profit was realised on the sale of the
remaining Paramount Properties units.
Anticipated bad debts in respect of 3 major tenants and also the increase in the
retail component of the portfolio which has a higher cost structure were the
primary causes for the increase in the ratio of net property costs to revenue
from 23,5% to 26%.
Cash held in lieu of properties that have been sold that formed part of the
company`s securitisation resulted in the increase in interest income by 61% to
R7,6 million. A new securitisation issue is planned to take place in October
2007 after which the cash currently held as security will be released.
Interest paid on borrowings increased to R124,5 million representing a 5,7%
increase compared to the previous year. This is in line with expectations due
to the timing of acquisitions and disposals in both the current and prior year.
In June 2002 on the listing of iFour the company acquired three properties for
R89,5 million at a discount to fair value through a structured finance
transaction arranged by Nedbank. During the current year Nedbank informed iFour
that SARS intended to assess the transaction in a manner contrary to the
assurances and professional opinions obtained at the time the original
transaction was entered into. An additional R43 million tax levied on Nedbank
will be passed on to iFour in terms of the agreements.
Whilst the directors are of the opinion that from an operating point of view the
charge is of a capital nature and therefore should be written off against
revaluation surplus in full during the current year (the properties in question
have a current valuation of R199,6 m), IFRS requires that the charge be
classified as interest and R20,3 million be written off in 2007 and the balance
of R23 million over the remaining 27 months of the agreements. This charge has
not been taken into account in the determination of investors` distributable
earnings.
The taxation charge of R141 million relates mostly to deferred tax on the
revaluation of investment properties. This has been provided at 29% in
accordance with International Financial Reporting Standards even though the
actual rate that will be incurred on the eventual disposals will only be 14,5%.
This understates the net asset value of the company by R129 million or 86 cents
per linked unit.
The company has hedged 89% of its borrowings thus the increased interest rate
environment did not significantly impact on the interest charged to the company.
As already stated the gearing of the company was reduced to 40% from 49% in the
previous year. This is well within the company`s mandate of 55%.
Portfolio review
Property portfolio reconciliation
No. of Value Area
Properties
Rm m2
1 July 2006 104 2 398,0 544 053
Acquisitions and expansions 1 63,5 9 216
Disposals (14) (115,1) (43 316)
Capital Projects 8,1 1 445
Revaluation 456,1
30 June 2007 91 2 810,6 511 398
Acquisitions
This includes the 7,076 square metre mini unit complex in Longmeadow Business
Estate (acquired at a cost of R30,7 million effective 1 January 2007) and the
second phase of Palm Springs Mall which was acquired in December 2006 at a cost
of R26,9 million.
Disposals
The company continued to maintain the quality of its property portfolio by
disposing of 14 buildings for R124,6 million, which no longer met the company`s
long term investment criteria. A book profit of R9,4 million was generated on
these disposals. Of more significance was the cash profit of R25,3 million
achieved on the above mentioned sales.
Capital Projects
Further investments were made to improve the quality of the portfolio. The
refurbishment of Grand Central Shopping Centre in Eerste Rivier in the Western
Cape to accommodate Jet at a cost of R1,8 million was completed. The Morone Mall
in Burgersfort was upgraded at a cost of R1,1 million. The refurbishment of 308
Kent Avenue (an office block) was completed during the current year at a total
cost of R8 million. This enabled the company to secure a ten year lease with an
international call centre group.
Revaluation
The upward pressure on rentals, combined with the continued market demand for
investment property has resulted in the appreciation of the property portfolio
by R456,1 million. This represents a 19,8% increase in value.
Acquisition Agreements Concluded
Botlokwa Plaza
This 6,900 square metre shopping centre situated on the N1 highway between
Polokwane and Makado in the centre of the greater Matoks area at a cost of R36,9
million was transferred on 6 August 2007. The centre is anchored by a Score
Supermarket and a Cashbuild. The centre has 78% nationals and major franchisees
by rental value. An expansion of the centre is being investigated to accommodate
the demand from national tenants.
Total Petrol Station - Palm Springs
The expansion of the Palm Springs shopping complex with the completion of a
Total Petrol Station and convenience outlets has been completed with transfer
expected in September 2007 at an acquisition cost of R7,7 million.
North Edge Value Centre
The company has concluded an agreement in principle, subject to various
suspensive conditions, including finalisation of the acquisition price to
acquire an undivided share in the North Edge Value Centre.
This is a planned development measuring approximately 45,000 square metres,
which is to be developed by Pambili Developments. The total cost is estimated
to be approximately R500 million. This mixed usage development with a value
centre will be situated in the northern corner of the Richards Bay CBD. The
centre will complement the existing shopping malls in the area. The current
letting profile indicates national and major franchise tenants in excess of 80%
on rental income. It is the intention that iFour will acquire a 60% co-
ownership with the developer in the centre.
Siyabuswa Mall
The company has entered into an agreement to acquire a half share in the
Siyabuswa Mall, a retail centre measuring 17,900 square metres in Siyabuswa,
Mpumalanga. The site is well situated being adjacent to the local authorities`
offices of the Dr JS Moroka Municipality. The centre is due to open in
September 2008 with Shoprite, Cashbuild and Jetmart being the main anchors. The
current tenant mix indicates that nationals and major franchisees will exceed
70% based on rental income. The estimated cost to iFour is currently R71,5
million.
Nongoma Shopping Centre
This is a new development which is situated in Nongoma, KwaZulu-Natal. Nongoma
is approximately 130 km from Richards Bay. This shopping centre is designed to
service the densely populated rural village in which there is limited retail
infrastructure.
The centre, measuring approximately 9,500 square metres is expected to be
completed in March 2008. The centre will be anchored by Checkers. The centre
has been tenanted with national tenants who will generate income well in excess
of 70% of the total income of the shopping centre. The demand for space by the
major tenants for this centre has been beyond our expectations. iFour is
partnering with the developer in this development which is expected to cost
approximately R76 million.
Acquisition agreements under negotiation
In addition to the above iFour is close to finalising agreements for the
acquisition of a further three shopping centres with a total value of
approximately R400 million.
Lease expiry profile
The lease expiry profile of the group is favourable with 28% of leases expire
beyond June 2011 and no more than 20% of leases expire in any earlier year in
line with the group`s strategy.
Prospects
The retail property market is likely to remain buoyant with the increase in
consumerism, particularly in the rural areas. iFour is actively increasing its
positioning to take advantage of this growth in partnership with developers.
Growth in earnings in iFour`s high quality industrial and office properties can
also be anticipated with the general improvement in rentals being experienced in
the property industry. Given the continuation of the current favourable economic
environment there is reason to believe that your company will continue to
deliver an increase in distribution during the forthcoming year.
Declaration of debenture interest payment number 11
Notice was given of the declaration of a final debenture interest payment of 49
cents (2006: 45,5 cents) per linked unit for the year ended 30 June 2007 in an
announcement dated 26 June 2007. Linked unitholders are also referred to the
announcement dated 21 February 2007 in which the interim debenture interest
payment of 45 cents (2006: 41,5 cents) per unit for the six months ended 31
December 2006 was announced. The aggregate debenture interest payment for the
financial year ending 30 June 2007 is therefore 94 cents per linked unit (2006:
87,00 cents).
On behalf of the board
JJ Groenewald: 2nd Floor
Secretary: 382 Jan Smuts Avenue, Craighall
20 August 2007
DISTRIBUTION TIMETABLE
Event Date
a. Last date to trade cum distribution. Friday, 28 September 2007
b. Linked units trade ex distribution. Monday, 1 October 2007
c. Record date for unitholders to Friday, 5 October 2007
participate in the distribution.
d. Linked unit certificate may not be Monday, 1 October 2007
dematerialised or rematerialised between to Friday, 5 October 2007
(Both days inclusive)
e. Payment of distribution to unitholders. 8 October 2007
INVESTORS`?DISTRIBUTABLE?EARNINGS
This investor information is aimed at disclosing the basis on which the
distribution was calculated.
A reconciliation has been included to illustrate the accounting adjustments
which were not taken into account in calculating the distribution.
Year ended Year ended
R`000 30-Jun-07 30-Jun-06
Net profit for the year 340 325 210 935
Non cash flow adjustments:
Revaluation of investment properties (456 150) (248 748)
Net (profit)/loss on disposal of (9 471) 487
investment properties
Movement in the fair value of derivative (38 403) (43 821)
financial instruments
Movement in the fair value of financial 1 081 (201)
assets at fair value through profit or
loss - realised
Administration expenses - debenture 4 592 4 543
costs amortised
Interest paid - Additional Nedbank 20 150 -
finance lease interest
Amortisation of deemed debenture premium (3 182) (3 182)
Debenture interest distributed to 141 719 131 178
unitholders
Taxation - deferred 139 052 78 975
Taxation - normal and capital gains 2 021 1 012
Linked unitholders distributable 141 734 131 178
earnings
Weighted average linked units and shares 150 764 924 150 764 828
in issue
Linked unitholders distributable
earnings per
linked unit (cents) 94,01 87,01
Distribution per linked unit - declared 94,00 87,00
(cents)
Number of linked units in issue 150 764 924 150 729 924
RETURN TO UNITHOLDERS
Year ended Year ended
30-Jun-07 30-Jun-06
Opening unit price (cents) 1 015 910
Closing unit price (cents) 1 300 1 015
Capital return (cents) 285 105
Distribution for the year (cents) 94 87
Total return (cents) 379 192
Total return for the year (%) 37,3% 21%
Period high (cents) 1 427 1 335
Period low (cents) 900 900
CONDENSED GROUP INCOME STATEMENT
Year Year
ended ended
R`000 30-Jun-07 30-Jun-06
Revenue 352 064 324 474
Straight-line operating lease adjustment 2 932 9 743
Other income 5 520 2 116
Net property portfolio costs (91 653) (76 338)
Administrative expenses (13 023) (11 496)
Operating profit 255 840 248 499
Net revaluation of investment properties 453 218 239 005
Attributable to straight-line operating (2 932) (9 743)
lease adjustment
Revaluation of investment properties 456 150 248 748
Net profit/(loss) on disposal of investment 9 471 (487)
properties
Profit before financing costs and taxation 718 529 487 017
Interest received 7 684 4 773
Interest paid (144 (117
681) 774)
- Interest paid (124 (117
531) 774)
- Additional Nedbank finance lease interest (20 150) -
Movement in the fair value of derivative
financial
instruments 38 403 43 821
Movement in the fair value of financial
assets at fair value through profit or loss - 1 081
Amortisation of deemed debenture premium 3 182 3 182
Debenture interest distributed to (141 (131
unitholders 719) 178)
Profit before taxation 481 398 290 922
Taxation - deferred (139 (78 975)
052)
Taxation - normal and capital gains (2 021) (1 012)
Profit for the year 340 325 210 935
Reconciliation between profit and headline
earnings
R`000
Profit for the year 340 325 210 935
Adjusted for:
Net revaluation of investment properties (321 (169
net of taxation 785) 694)
Net (profit)/loss on disposal of investment
properties net
of taxation (8 098) 416
Amortisation of listing, debenture,
mortgage and
securitisation expenses 4 592 4 543
Headline profit for shareholders 15 034 46 200
Debenture interest distributed to 141 719 131 178
unitholders
Headline earnings for linked unitholders 156 753 177 378
Earnings per linked unit (cents) 319,73 226,92
Headline earnings per linked unit (cents) 103,97 117,65
Diluted earnings per linked unit (cents) 319,73 226,92
Diluted headline earnings per linked unit
based on
150 764 924 units (2006: 150 764 924 units) 103,97 117,65
(cents)
Earnings per share (cents) 225,73 139,91
Diluted earnings per share 225,73 139,91
Headline earnings per share (cents) 9,97 30,64
Diluted headline earnings/(loss) per share 9,97 30,64
based on 150 764 924 units (2006: 150 764
924 units) (cents)
CONDENSED GROUP BALANCE SHEET
R`000 30-Jun-07 30-Jun-06
ASSETS
Non-current assets
Investment properties 2 729 493 2 212 548
Straight-line operating lease asset 81 143 78 211
Investment properties at fair value 2 810 636 2 290 759
Long-term trade and other receivables 9 862 10 088
Equipment furniture and fittings 81 77
Loans to unit purchase trust participants 12 262 16 160
Derivative financial instruments 7 668 -
Current assets
Investment properties held for sale - 107 273
Financial assets at fair value through profit or - 5 102
loss
Trade and other receivables 20 705 24 468
Cash and cash equivalents 77 609 53 533
Total assets 2 938 823 2 507 460
EQUITY
Capital and reserves
Share capital and premium 14 356 10 819
Retained earnings 639 438 302 295
Total equity 653 794 313 114
LIABILITIES
Non-current liabilities
Debenture capital and premium 736 810 738 882
Linked unitholders interest 1 390 604 1 051 996
Other non-current liabilites
Borrowings 781 947 1 104 503
Derivative financial instruments 13 286 44 021
Deferred income tax liabilities 258 801 119 749
1 054 034 1 268 273
Current liabilities
Borrowings 351 850 57 508
Trade and other payables 66 269 59 946
Current income tax liabilities 2 001 1 012
Unitholders for distribution 74 065 68 725
494 185 187 191
Total equity and liabilities 2 938 823 2 507 460
Net asset value per linked unit (cents) 922 698
Net asset value per share (cents) 434 208
CONDENSED GROUP CASH FLOW STATEMENT
Year Year
ended ended
R`000 30-Jun-07 30-Jun-06
Net cash utilised from operating activities (6 936) (12 407)
Net cash generated/(utilised) in investing 62 888 (173
activities 669)
Net cash (utilised)/generated from (31 876) 183 531
financing activities
Net inflow/(outflow) of cash and cash 24 076 (2 545)
equivalents
Cash and cash equivalents at the beginning 53 533 56 078
of the year
Cash and cash equivalents at the end of the 77 609 53 533
year
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Share Share Retained Total
R`000 capital premium earnings
Balance at 1 July 2005 150 7 842 94 542 102 534
Treasury units held by - (355) - (355)
consolidated entities
Transfer of amortisation of - 3 182 (3 182) -
deemed debenture premium
Profit for the year after - - 210 935 210 935
distributions and taxation
Balance at 30 June 2006 150 10 669 302 295 313 114
Treasury units held by - 355 - 355
consolidated entities
Transfer of amortisation of - 3 182 (3 182) -
deemed debenture premium
Profit for the year after - - 340 325 340 325
distributions and taxation
Balance at 30 June 2007 150 14 206 639 438 653 794
SEGMENTAL INFORMATION
Primary Industria Office Retail Other Corporat Total
segment l e
R`000
Revenue 101 998 97 879 145 178 7 009 - 352 064
Straight- (3 129) 1 843 4 248 (30) - 2 932
line
operating
lease
adjustmen
t
Segment
results
Profit 197 673 196 924 316 338 15 (7 503) 718 529
before 097
financing
costs and
taxation
Segment revenue and expenses
Revenue and expenses that are directly attributable to a segment are allocated
to those segments.
Items not directly attributable to a segment are allocated to the corporate
segment.
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The condensed group financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") and in accordance
with the requirements of the Companies Act, 1973. The basis of preparation
is consistent with the group`s most recent annual financial statements.
2. Deferred taxation
In compliance with IFRS, deferred taxation on the property revaluations has
been provided at the normal taxation rate of 29% and not at the capital
gains taxation rate of 14,5% that will actually be paid.
3. Contingency note
SARS has indicated that they intend raising revised assessments up to 2005
on the difference between interest received by the company and interest
paid to debenture holders which would involve a cash outflow of some R8,6
million. No provision has been made for this amount as assessments would be
contrary to the established basis on taxing the property loan stock
industry
4. Post balance sheet events
(a) PROPS Series 2
On 4 July 2007, a new PROPS series 2 preference share of 1 cent was issued
to Pangbourne Properties Limited. This was done in order to facilitate a
new series of segregated notes to be issued on the Bond Exchange. PROPS
Series 2 is a multi borrower commercial mortgage securitisation series. The
overall PROPS programme limit was increased from R2 billion to R5 billion.
Series 2 is completely separate from iFour`s PROPS Series 1 having its own
pool of assets held as security for the notes to be issued. Rand Merchant
Bank is the series Programme Manager. The subsidiaries of iFour Properties
Limited, Pangbourne Properties Limited, Siyathenga Property Fund and
Monyetla Property Fund are all borrowers from PROPS in series 2. All the
transaction documents for series 2 have been signed and bonds of
R1,56 billion in total for all the borrowers were issued on 4 July 2007.
Sipan 1 (Pty) Limited will repay borrowings from Absa Bank of R175 million
and has replaced them with a loan from PROPS through the issuance of bonds
on the Bond Exchange
(b) Nongoma Shopping Centre
Further to the agreement signed for the purchase of Nongoma Shopping
Centre, an agreement was signed on 19 July 2007 whereby iFour Properties
Limited has agreed to participate in the development of Nongoma Shopping
Centre. A maximum of R61,1 million will be made available for the
development which will be funded out of iFour`s existing and new
facilities.
(c) Botlokwa Plaza
The property was transferred to Sipan 1 (Pty) Ltd on 6 August 2007.
5. Review report
PricewaterhouseCoopers Inc. have reviewed the results for the year ended 30
June 2007 and their report is available for inspection at the company`s
registered office.
Directors: AJWL Richards (Chairman), JL Nunes (Managing)*, Dr CP de Leeuw, JB
Gibbon, CM Hutchison, RC Johnson (British), KM Mokoape, EPM Moses, UJ van der
Walt
* Executive
For more information go to our website www.ifour.co.za
Date: 21/08/2007 15:45:01 Produced by the JSE SENS Department.
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