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SAC
SAC
SAC - SA Corporate Real Estate Fund - Unaudited interim results and distribution
declaration
SA CORPORATE REAL ESTATE FUND
Share code: SAC & ISIN code: ZAE000083614
www.sacorp.co.za
UNAUDITED INTERIM RESULTS AND DISTRIBUTION DECLARATION
* Distribution
- 17 cents per unit
- 26% increase on comparable period
* Property portfolio expansion
- R3,6 billion of properties acquired
- R1,4 billion contractual investment pipeline
* Market capitalisation
- R6,3 billion
- Now 3rd largest listed property fund
* BEE transaction
- R658 million equity deal concluded
- 12% equity ownership of fund
The directors of SA Corporate Real Estate Fund Managers Limited (formerly
Marriott Property Fund Managers Limited), management company of SA Corporate
Real Estate Fund (SA Corporate) (formerly Martprop Property Fund), submit their
report on the unaudited results of the SA Corporate group for the six months
ended 30 June 2007.
COMMENTS
1. SA Corporate Strategy
Prior to commencement of the financial year SA Corporate`s board had approved a
strategy for the fund which was underpinned by the following strategic
cornerstones, namely,
* To enhance the profile of the fund and improve investor communications
* To substantially increase the size of the property portfolio and
market capitalisation of the fund with the objective of being one of
the 3 largest real estate investment trusts listed on the JSE
* To deliver superior investment returns underpinned by sustainable
earnings growth
* To address the requirements of the Property Charter and the BEE
transformation of the fund
The Board is very pleased that meaningful progress has been achieved by
management in respect of each of these strategic objectives, as reflected in the
highlights above and which are more fully described below.
2. Results
SA Corporate has performed well and produced sound results for the first half.
The distribution of 17 cents per unit reflects growth of 26% over the 6 months
to 31 July 2006, the most comparable period. This distribution includes
approximately 2 cents which is a once off distribution that has arisen from the
SA Retail acquisition and will not recur in the second half of the year. SA
Corporate does not distribute capital or trading profits on the realization of
properties and the remainder of the distribution growth is as a result of
underlying net rental growth and property investment activity.
The underlying property portfolio has performed well and has continued to enjoy
excellent occupancy levels. The overall vacancy factor is 2% of lettable space,
well below industry norms.
The portfolio was revalued at 30 June 2007, resulting in a fair value adjustment
of R328 million. The bulk of the increase in value has been seen in the
industrial portfolio reflecting the demand for such property and increased
market rental levels. This valuation gives rise to a net tangible asset value
(NTAV) of SA Corporate of 343 cents per unit, inclusive of the distribution to
be paid. At the closing price of 390 cents per unit on 30 June 2007, the units
were trading at a premium to NTAV of 14%.
The improved performance of the underlying property portfolio is evidenced in
the IPD performance analysis of the portfolio for the 2006 calendar year. The
SA Retail portfolio achieved the number 1 ranking amongst the 14 listed funds
measured by IPD with SA Corporate being placed 4th. The total return of the
combined portfolio of SA Corporate and SA Retail, calculated by IPD on a
hypothetical basis, reflected being placed 2nd with a 37% total return.
3. Portfolio investment activity
In line with the strategic objective of substantially expanding the property
portfolio SA Corporate has undergone significant portfolio investment activity
in the 6 months to date. SA Corporate acquired SA Retail, a R3,4 billion
property loan stock company, including the R1 billion Sharemax portfolio, which
adds significant value opportunities to SA Corporate. In addition 4 other
investments were made at a total acquisition cost of R208 million. Acquisitions
are summarized below:
Acquisition Property Purchase price Yield Sector Region
date R`000
08/02/2007 Forest Road Design
& Decor Centre 103,000 9.41% Retail GTG
11/04/2007 293 Hebbard Road 17,500 11.46% Industrial GTG
30/04/2007 Cullinan Jewel Shopping
Centre 45,200 9.21% Retail GTG
19/04/2007 SA Retail Portfolio 3,431,171 8.81% Retail National
22/06/2007 The Ridge 42,500 9.20% Retail GTG
Total 3,639,371
In addition, as at 30th June agreements were in place, subject only to
Competition Commission approval, to acquire the portfolio known as the Buffcol
portfolio for R965 million. The portfolio comprises 40 properties, mainly
industrial (62% by value) with equal components of retail and offices. Given the
relative cost of debt and equity funding available at the time it was
appropriate to fund the acquisition by way of new equity. Management has
secured irrevocable commitments at a clean capital price of 395 cents. At a
property yield of 8.15% the acquisition will be marginally earnings enhancing in
the short term but offers excellent medium to long term benefits due to the
locality, quality and tenancy of the properties. The properties are expected to
be transferred and the units issued in settlement before 30 September 2007.
In line with SA Corporate`s strategy to actively dispose of properties which do
not meet the fund`s investment criteria, 13 properties have been disposed of in
the year to date for R213m with an average exit yield of 8.1%. These disposals
are generally small properties and in most cases have been sold to end users or
private investors at very favourable exit yields to the fund. A detailed list of
these disposals is available on SA Corporate`s website.
In addition to the properties classified as held for disposal a further 7
properties with an approximate disposal value of R55 million remain on the sale
list. These disposals largely brings to an end the strategic disposal activity
which has seen 27 properties with a total value of R281 million being realized
over the last 2 years in an aggressive effort to improve the overall quality of
the portfolio and its earnings growth potential.
The property portfolio (post the Buffcol acquisition) will comprise 197
properties with a total value of R8bn.
Western Cape Gauteng KwaZulu Natal
13% 44% 43%
R1.0b R3.6b R3.5b
25 props 79 props 93 props
166 820m2 666 981m2 598 319m2
Retail Industrial Offices Other
59% 33% 7% 1%
R4.8b R2.7b R0.5b R0.1b
53 props 115 props 27 props 2 props
596 779m2 746 489m2 81 587m2 7 265m2
Some 10% of space in the industrial sector was renewed during the 6 month period
under review with particularly strong growth in rental levels being achieved.
By comparison, there has been relatively low renewal of space in the retail and
office portfolios.
Sector Area renewed Average expiry Average rental % increase
rental achieved
Retail 2,116 R90 R95 5%
Industrial 62,840 R23 R29 25%
Offices 523 R65 R71 7%
The demand for quality space across all sectors and the evidence of the impact
of positive reversionary rental adjustments augurs well for SA Corporate going
forward.
4. Borrowings
The total debt amounts to R742m of which R100m is fixed until 13 September 2013
at a cost of 10.57%, with the balance at a variable rate of prime less 2.3%. The
total debt level, at 10% of the total property portfolio value at 30 June 2007
and 9% post the Buffcol acquisition, is low relative to industry norms. It is
managements` intention to increase the debt level to 20% as a minimum level.
However, the cost of debt relative to equity funding has made this target
inappropriate to achieve in the short term. Management is currently finalizing
documentation with funders which will result in increased debt facilities and a
meaningful improvement in the current variable rate as well as the margin on
future fixes.
5. Units issued and liquidity
900 214 840 new units were issued during the period under review to fund the SA
Retail, Sharemax, Forest Road, Hebbard Road and Cullinan Jewel Shopping Centre
acquisitions. A further 419 214 302 units will be issued in terms of contractual
obligations in respect of remaining Sharemax property transfers and the Buffcol
acquisition. At a current price of 374 cents per unit this translates to a
market capitalization value of R7,7bn, up some 308% on the R2,5bn market
capitalization of SA Corporate at the beginning of the period. SA Corporate
currently ranks as the 3rd largest listed property fund in terms of market
capitalization value.
SA Corporate remains one of the most traded funds, in both percentage of units
traded and absolute terms, with 20% of the market capitalization traded in the 6
months to 30 June proving the funds liquidity.
6. BEE deal
During the year, WIPKEN Trust (an equal partnership between WIP Capital and
Kensani Properties) acquired 196 384 846 units in SA Corporate for R658m. The
transaction did not require any financial support from SA Corporate and
consequently no risk of distribution dilution for existing unitholders in the
fund. At 30 June 2007 WIPKEN held 12% of SA Corporate. The strength of the BEE
partners is expected to provide significant benefits to SA Corporate.
7. Prospects
The fundamentals of SA Corporate`s property portfolio remain strong and the
growth in market rental levels is encouraging. Accordingly the property
portfolio is expected to generate sound growth in earnings in the short to
medium term. SA Corporate offers a comparatively higher yield, a lower premium
to net tangible asset value and lower debt levels than many of its peers. On
the basis that there is no material deterioration in the general economic
conditions and business confidence from current levels, management is confident
of exceeding the forecast distribution of 31,55 cents per unit for the 2007
financial year.
30.06.2007 31.07.2006 31.12.2006
CONSOLIDATED BALANCE SHEET (R000) Unaudited Unaudited Audited
Assets
Non-current assets
Investment property 6,524,782 2,438,160 3,036,261
As per valuation 6,677,855 2,500,164 3,102,974
Straight line rental adjustment -153,073 -62,004 -66,713
Property under development 6,857 61,976 -
Goodwill 1,008,761 - -
Rental receivable - straight line adjustment 135,656 50,433 55,199
Current assets
Properties classified as held for disposal 448,950 42,304 -
Trade receivables and accrued interest 118,949 35,368 43,649
Rental receivable - straight line adjustment 17,417 11,571 11,514
Cash resources 200,557 17,715 22,096
Total assets 8,461,929 2,657,527 3,168,719
Unitholders` funds and liabilities
Unitholders funds 6,309,784 1,985,443 2,375,610
Non-current liabilities
Interest bearing borrowings 742,096 538,000 652,665
Deferred capital gains taxation 280,396 9,728 24,484
Current liabilities
Trade and other payables 853,270 25,704 28,900
Capital gains taxation and secondary
taxation on companies 65 726 64
Distribution payable 276,318 97,926 86,996
Total unitholders` funds and liabilities 8,461,929 2,657,527 3,168,719
6 months 6 months 17 months
30.06.2007 31.07.2006 31.12.2006
CONSOLIDATED INCOME STATEMENT (R000) Unaudited Unaudited Audited
Income 277,473 153,846 478,980
Rent 210,227 133,240 385,086
Straight line rental adjustment 15,442 -10,346 8,115
Recovery of property expenses 48,500 28,061 78,879
Interest 3,304 2,891 6,900
Expenses 120,531 65,800 194,016
Accounting and secretarial fees 2,276 2,014 5,848
Audit fees 800 -250 1,198
Administrative fees 1,104 681 3,087
Interest paid 37,642 16,175 50,127
Property administrative fees 7,774 4,740 13,485
Property expenses 59,924 36,964 105,593
Service fees 11,011 5,942 16,280
Surplus on revaluation of interest
rate swap derivative - -466 -1,602
Deferred taxation on straight line
rental adjustment -346 -45 -496
Headline earnings 156,596 88,001 284,468
Capital (deficit)/surplus on disposal
of investment properties -987 1,228 -2,091
Write-up on revaluation of investment
properties 312,286 105,802 606,220
Revaluations 327,728 95,456 614,335
Straight line rental adjustment valuation -15,442 10,346 -8,115
Taxation on property revaluation -27,938 4,219 -12,665
On capital transactions -28,284 4,174 -13,161
Straight line rental adjustment 346 45 496
Net profit attributable to unitholders 439,957 199,250 875,932
Weighted units in issue (000) 1,040,744 725,184 725,184
Units in issue (000) 1,625,399 725,184 725,184
Cents Cents Cents
Distribution per unit 17.00 13.50 38.00
Weighted net profit per unit 42.27 27.48 120.79
Net profit per unit 27.07 27.48 120.79
Weighted headline earnings per unit 15.05 12.13 39.23
Headline earnings per unit 9.63 12.13 39.23
6 months 6 months 17 months
CONSOLIDATED STATEMENT OF CHANGES 30.06.2007 31.07.2006 31.12.2006
IN UNITHOLDERS` FUNDS (R000) Unaudited Unaudited Audited
Unitholders` funds at beginning of period 2,375,610 1,884,119 1,774,925
Capital movements 3,934,174 101,324 600,685
Write-up on revaluation of investment
properties 312,285 105,802 606,220
Capital (deficit)/surplus on disposal of
investment properties -987 1,228 -2,091
Taxation -27,938 4,219 -12,665
Surplus on revaluation of interest rate
swap derivative - 466 1,602
Straight line rental adjustment net of
taxation 15,097 -10,391 7,619
900 214 840 units issued at prices ranging
between 304.5 cpu to 427.8 cpu 3,770,828 - -
Unit issue costs -293 - -
Transfer to revenue of pre-acquisition
distribution received -124,476 - -
Transfer to revenue of distribution
prepaid received in advance -10,342 - -
Revenue movements - - -
Net profit for the period 439,957 199,250 875,932
Transfers to capital -298,457 -101,324 -600,685
Unclaimed distributions written back - - 323
Pre-acquisition dividend received 124,476 - -
Transfer from revenue of distribution
prepaid received in advance 10,342 - -
Available for distribution 276,318 97,926 275,570
Distribution attributable to unitholders -276,318 -97,926 -275,570
Unitholders` funds at end of period 6,309,784 1,985,443 2,375,610
6 months 6 months 17 months
30.06.2007 31.07.2006 31.12.2006
CONSOLIDATED CASH FLOW STATEMENT (R000) Unaudited Unaudited Audited
Cash flows from operating activities
Net profit for the period 439,957 199,250 875,932
Adjustments for:
Interest received -3,304 -2,891 -6,900
Interest paid 37,642 16,175 50,127
Write-up on revaluation of investment
properties before straight line rental
adjustment and net of taxation -299,790 -99,675 -601,670
Taxation on straight line rental adjustment 346 45 496
Capital deficit/(surplus) on disposal of
investment properties 987 -1,228 2,091
Surplus on revaluation of interest rate
swap derivative - -466 -1,602
Unclaimed distributions written back - - 323
Operating profit before working capital
changes 175,838 111,210 318,797
Working capital changes 749,070 -2,607 -573
(Increase)/decrease in trade and other
receivables -75,300 8,399 -3,735
Increase/(decrease) in trade and other
payables 824,370 -11,006 3,162
Cash generated from operations 924,908 108,603 318,224
Interest received 3,304 2,891 6,900
Interest paid -37,642 -16,175 -50,127
Taxation paid 1 -409 -4,281
Distributions paid -86,996 -90,648 -282,866
Net cash flows from operating activities 803,575 4,262 -12,150
Net cash flows from investing activities -4,485,080 -251,940 -529,948
-3,681,505 -247,678 -542,098
Net cash flows from financing activities 3,859,966 200,400 497,665
Issue of units 3,770,535 - -
Increase in interest bearing borrowings 89,431 200,400 497,665
Net increase/(decrease) in cash resources 178,461 -47,278 -44,433
Cash resources at beginning of year 22,096 64,993 66,529
Cash resources at end of period 200,557 17,715 22,096
30.06.2007 31.07.2006 31.12.2006
OTHER INFORMATION (R000) Unaudited Unaudited Audited
Debt funding facility
Loan facility 1,102,500 750,000 750,000
Additional debt funding capacity 1,038,000 31,000 181,000
2,140,500 781,000 931,000
Less: Facility utilised -742,096 -538,000 -652,665
Loan capacity available at end of period 1,398,404 243,000 278,335
Adjusted for future capital commitments
and proceeds on disposal 24,958 -44,766 -64,451
Cash funded capital commitments -423,992 -85,340 -140,861
Expected proceeds on disposal 448,950 40,574 76,410
Anticipated available loan capacity 1,423,362 198,234 213,884
Vacancy factor (based on gross lettable
area) 2.0% 1.5% 1.0%
Valuation analysis (cents per unit)
Net asset value (including distribution
yet to be paid) 405 287 340
Net tangible asset value (including
distribution yet to be paid) 343 287 340
Listed market price 390 280 340
Capital commitments (R000) 1,388,506 85,340 140,861
Capitalised interest (R000) 10,645 1,601 5,853
NOTES TO THE FINANCIAL STATEMENTS
The group`s results have been prepared in accordance with International
Financial Reporting Standards (IFRS). These condensed financial statements have
been prepared in accordance with IAS 34. The policies applied are consistent
with those used in the prior period.
1 Headline earnings and distribution attributable to unitholders
6 months 6 months 17 months
30.06.2007 31.07.2006 31.12.2006
R000 CPU R000 CPU R000 CPU
Net profit (earnings) 439,957 27.07 199,250 27.48 875,932 120.79
Adjustments for:
Capital (deficit)/surplus on
disposal of investment properties 987 -1,228 2,091
Write-up on revaluation of
investment
properties net of taxation -284,348 -110,021 -593,555
Headline earnings 156,596 9.63 88,001 12.13 284,468 39.23
Surplus on revaluation of
interest rate swap derivative - -466 -1,602
Unclaimed distributions written
back - - 323
Straight line rental adjustment
net of taxation -15,096 10,391 -7,619
Pre-acquisition distribution
received 124,476 - -
Distribution prepaid received in
advance 10,342 - -
Distributable income 276,318 17.00 97,926 13.50 275,570 38.00
2 Acquisition of SA Retail Properties Limited R(000)
During the year the group acquired 100% of the issued share capital of SA Retail
Properties Limited, a property owning company.
The effective date of the acquisition was 19 April 2007, the date on which all
the suspensive conditions relating to the acquisition were fulfilled.
Cost of acquisition
Settled by issue of 795,8 million SAC units on a ratio of
3.05 units for every SA Retail share 3,404,512
Settled by cash 398
Transaction costs 26,261
3,431,171
Net assets acquired
Investment property 3,594,780
Other assets 104,955
Other liabilities -1,277,325
Net assets 2,422,410
Goodwill 1,008,761
3 Primary operational segments (R000)
Industrial Office Retail Corporate Group
Rental Income 94,449 21,063 94,715 - 210,227
Straight line rental
adjustment 6,837 3,251 5,354 - 15,442
101,286 24,314 100,069 - 225,669
Net property expenditure 5,022 4,206 9,970 - 19,198
Net property income 96,264 20,108 90,099 - 206,471
Interest received - - - 3,304 3,304
Interest paid - - - -37,642 -37,642
Fund expenses - - - -15,191 -15,191
Deferred taxation on
straight line rental
adjustment -187 15 -174 - -346
Capital deficit on disposal
of investment properties/
investments -356 -488 -143 - -987
Write-up on revaluation of
investment properties net
of taxation 151,450 62,182 70,716 - 284,348
247,171 81,817 160,498 -49,529 439,957
Other information
Property 2,071,672 401,983 4,506,934 - 6,980,589
As per valuations 2,121,229 410,776 4,601,657 - 7,133,662
Straight line rental
adjustment -49,557 -8,793 -94,723 - -153,073
Other assets 85,686 17,073 210,806 1,167,775 1,481,340
Excluding rental straight
line adjustment 36,129 8,280 116,083 1,167,775 1,328,267
Rental straight line
adjustment 49,557 8,793 94,723 - 153,073
Total assets 2,157,358 419,056 4,717,740 1,167 775 8,461,929
Interest bearing borrowings - - - 742,096 742,096
Current liabilities 10,083 3,707 871,676 -32 196 853,270
Taxation 35,522 941 243,998 - 280,461
Distribution payable - - - 276,318 276,318
Total liabilities 45,605 4,648 1,115,674 986,218 2,152,145
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice is hereby given of the declaration of distribution no. 25 in respect of
the income distribution period 1 January 2007 to 30 June 2007. The distribution
amounts to 17,00 cents per unit.
Last date to trade cum distribution Friday, 14 September 2007
Units will trade ex-distribution Monday, 17 September 2007
Record date to participate in the distribution Friday, 21 September 2007
Payment of distribution Tuesday, 25 September 2007
Unit certificates may not be dematerialised or re-materialised between Monday,
17 September 2007 and Friday, 21 September 2007 both days inclusive.
OLD MUTUAL INVESTMENT GROUP PROPERTY INVESTMENTS (PTY) LIMITED
SECRETARIES
23 August 2007
Registered office Transfer secretaries
Marriott at Kingsmead Computershare Investor Services
Kingsmead Office Park 2004 (Pty) Ltd
Durban Ground Floor, 70 Marshall Street
4001 Johannesburg 2001
P O Box 207 PO Box 61051
Durban 4000 Marshalltown 2107
Tel: (031) 366 - 1111 Tel: (011) 370 - 5000
Auditors Sponsor
Deloitte & Touche Nedbank Capital
2 Pencarrow Crescent A division of Nedbank Limited
Pencarrow Park 135 Rivonia Road
La Lucia Ridge Office Estate Sandton
La Lucia 4051 2196
Directors: BM Kodisang (Chairman), CJ Ewin*, KJ Forbes, IM Groves,
IN Mkhari, LM Mojela, MM Ngcobo, RR Perkin*, ES Seedat,
APW Sparks*, WJ Swain, LC Tapping*, WC van der Vent.
*Executive
Alternates: MJR Anderson, GP Mthethwa, P Zagaretos
Date: 23/08/2007 16:00:03 Produced by the JSE SENS Department.
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