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EMI
EMI
EMI - Emira Property Fund - Unaudited interim financial results for the six
months ended 31 December 2007 and income distribution declaration
EMIRA PROPERTY FUND
(A property fund created under the Emira Property Scheme, registered in terms
of the Collective Investment Schemes Control Act)
Share code: EMI & ISIN: ZAE000050712
("Emira")
- Distributions per PI 44,34 cents representing like-on-like growth of
+10,6%
- Net asset value per PI 1 198 cents, a 6-month increase of 4,4%
- 6-month total return 134,5 cents or 12,4%
UNAUDITED INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2007
AND INCOME DISTRIBUTION DECLARATION
CONDENSED INCOME STATEMENT
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 Dec 2007 31 Dec 2006 30 June 2007
R`000 R`000 R`000
Revenue 460 559 255 801 631 000
Operating lease rental income 452 109 249 327 613 134
and tenant recoveries
Allowance for future rental 8 450 6 474 17 866
escalations
Property expenses (134 645) (77 619) (177 971)
Management expenses (17 723) (8 214) (21 949)
Administration expenses (15 418) (8 131) (22 641)
Depreciation (7 555) (4 162) (9 966)
Net income from property rental 285 218 157 675 398 473
operations
Net fair value gains on 295 673 231 220 1 506 339
investment properties
Change in fair value as a (8 450) (6 474) (17 866)
result of straight-lining lease
rentals
Change in fair value as a (417) (1 742) (9 130)
result of amortising upfront
lease costs
Change in fair value as a 304 540 239 436 1 533 335
result of property appreciation
in value
Maintenance fund expenses (3 971) (974) (2 018)
Impairment of goodwill - - (328 364)
IFRS 2 adjustments in respect (5 914) (88 699) (92 348)
of PI-based payments
Discount on the issue of PIs to (5 914) (21 173) (24 822)
BEE partners
Acquisition of fixed property - (67 526) (67 526)
in exchange for the issue of
PIs
Operating profit 571 006 299 222 1 482 082
Finance costs (56 728) (25 378) (23 457)
Interest paid and amortised (58 891) (23 053) (65 901)
borrowing costs
Interest capitalised to cost of 2 791 - -
developments
Unrealised (loss)/gain on (628) (2 325) 42 444
interest rate swaps
Investment income 1 503 2 092 4 495
Net profit for the period 515 781 275 936 1 463 120
before taxation
Deferred taxation and STC (47 681) - (116 520)
Net profit for the period 468 100 275 936 1 346 600
Reconciliation between earnings
and headline earnings and
distribution:
Net profit for the period 468 100 275 936 1 346 600
Adjusted for:
Net fair value gains on (248 389) (231 220) (1 390 185)
investment properties, net of
deferred taxation
Impairment of goodwill - - 328 364
Headline earnings 219 711 44 716 284 779
Adjusted for:
Allowance for future rental (8 450) (6 474) (17 866)
escalations
Amortised upfront lease costs (417) (1 742) (9 130)
Unrealised loss/(gain) on 628 2 325 (42 444)
interest rate swaps
IFRS 2 adjustments in respect 5 914 88 699 92 348
of PI-based payments
Maintenance fund expenses 3 971 974 2 018
Amortised borrowing costs - 219 438
Preference share dividend (3 978) - (2 934)
Distribution payable to 217 379 128 717 307 209
participatory interest holders
Distribution per participatory
interest
Interim (cents) 44,34 40,10 40,10
Special (cents) - - 20,75
Final (cents) - - 21,50
Total (cents) 44,34 40,10 82,35
Number of PIs in issue at the 492 818 989 359 220 920 488 514 461
end of the period
Weighted average number of PIs 489 641 031 320 991 450 370 939 438
in issue
Earnings per PI (cents) 95,60 85,96 363,02
The calculation of earnings per PI is based on the net profit for the period
of R468,100 million (2006: R275,936 million) divided by the weighted average
number of PIs in issue during the period of 489 641 031 (2006: 320 991 450).
Headline earnings per PI 44,87 13,93 76,77
(cents)
The calculation of headline earnings per participatory interest is based on
the net profit for the period adjusted for non-trading items, of R219,711
million (2006: R44,716 million), divided by the weighted average number of PIs
in issue during the period of 489 641 031 (2006:
320 991 450).
CONDENSED BALANCE SHEET
at 31 December 2007 Unaudited Unaudited Audited
31 Dec 2007 31 Dec 2006 30 June 2007
R`000 R`000 R`000
Assets
Non-current assets
Investment properties 7 516 063 3 910 119 7 009 587
Allowance for future rental 119 038 57 926 110 589
escalations
Unamortised upfront lease 24 483 16 678 24 066
costs
7 659 584 3 984 723 7 144 242
Current assets
Investment properties held - - 170 500
for sale
Accounts receivable and 56 975 8 314 35 422
prepayments
Derivative financial 45 868 - 46 496
instruments
Cash and cash equivalents 38 610 7 012 13 886
141 453 15 326 266 304
Total assets 7 801 037 4 000 049 7 410 546
Equity and liabilities
Participatory interest 5 905 068 3 310 591 5 606 951
holders` capital and reserves
Non-current liabilities
Redeemable preference shares 90 000 - 90 000
Interest-bearing debt 1 137 522 495 216 1 197 050
Deferred taxation 306 767 - 259 483
1 534 289 495 216 1 546 523
Current liabilities
Short-term portion of long- - - 9 238
term interest-bearing debt
Accounts payable 144 301 63 109 143 865
Derivative financial - 2 416 -
instruments
Distributions to 217 379 128 717 103 959
participatory interest
holders
361 680 194 242 257 062
Total equity and liabilities 7 801 037 4 000 049 7 410 546
CONDENSED CASH FLOW STATEMENT
for the six months ended 31 December 2007
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 Dec 2007 31 Dec 2006 30 June 2007
R`000 R`000 R`000
Cash generated from 258 818 168 379 449 025
operations
Net interest cost (54 597) (20 742) (60 968)
Preference dividend and STC (4 375) - (3 301)
paid
Distribution to participatory (103 959) (109 157) (312 407)
interest holders
Cash flows from operating 95 887 38 480 72 349
activities
Additions to/purchase of
investment properties and
furniture
and equipment (218 357) (657 190) (924 233)
Proceeds on disposal of 170 500 - 20 101
investment property
Acquisition of Freestone - - (1 360 477)
Property Holdings Limited
Cash flows from investing (47 857) (657 190) (2 264 609)
activities
Issue of participatory 45 460 591 408 1 994 881
interests
(Decrease)/increase in (68 766) 33 662 210 613
interest-bearing debt
Cash flows from financing (23 306) 625 070 2 205 494
activities
Net increase in cash and cash 24 724 6 360 13 234
equivalents
Cash and cash equivalents at 13 886 652 652
the beginning of the period
Cash and cash equivalents at 38 610 7 012 13 886
the end of the period
SEGMENTAL INFORMATION
Retail Office Industrial Total
Sectoral segments R`000 R`000 R`000 R`000
Revenue 183 464 208 660 68 435 460 559
Revenue 179 915 205 193 67 001 452 109
Allowance for future rental 3 549 3 467 1 434 8 450
escalations
Segmental result
Net income from property 109 811 129 319 46 088 285 218
rental operations
Investment properties 2 814 287 3 520 123 1 325 174 7 659 584
Geographical segments
Revenue
- Gauteng 119 319 149 607 49 133 318 092
- Western and Eastern 12 106 28 979 5 994 47 079
Cape
- KwaZulu-Natal 33 666 19 433 11 841 64 940
- Free State 14 824 7 174 - 21 998
179 915 205 193 67 001 452 109
Allowance for future rental 3 549 3 467 1 434 8 450
escalations
183 464 208 660 68 435 460 559
Investment properties
- Gauteng 1 915 644 2 550 768 1 017 274 5 483 686
- Western and Eastern 181 550 557 000 130 700 869 250
Cape
- KwaZulu-Natal 484 343 311 420 177 200 972 963
- Free State 232 750 100 935 - 333 685
2 814 287 3 520 123 1 325 174 7 659 584
STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 December 2007
Revaluation
Participatory and other Retained
interest reserves earnings Total
R`000 R`000 R`000 R`000
Balance at 1 July 2006 1 425 094 1 059 077 (906) 2 483 265
Net profit for the - - 275 936 275 936
period
Distribution to PI - - (128 717) (128 717)
holders
Issue of participatory 680 107 - - 680 107
interests
Net fair value gains - 231 220 (231 220) -
on investment
properties
Allowance for future - 6 474 (6 474) -
rental escalations
Deferring of upfront - 1 742 (1 742) -
lease premiums
IFRS 2 adjustments in - (88 699) 88 699 -
respect of PI-based
payments
Unrealised loss on - (2 325) 2 325 -
interest rate swaps
Transfer of - (974) 974 -
maintenance fund
expenses to
revaluation reserve
Balance at 31 December 2 105 201 1 206 515 (1 125) 3 310 591
2006
Balance at 1 July 2007 3 512 323 2 095 973 (1 345) 5 606 951
Net profit for the - - 515 781 515 781
period before taxation
Distribution to PI - - (217 379) (217 379)
holders
Issue of participatory 45 460 - - 45 460
interests
Net fair value gains - 295 673 (295 673) -
on investment
properties
Allowance for future - 8 450 (8 450) -
rental escalations
Deferring of upfront - 417 (417) -
lease premiums
IFRS 2 adjustments in 5 914 (5 914) 5 914 5 914
respect of PI-based
payments
Unrealised loss on - (628) 628 -
interest rate swaps
Transfer of - (3 971) 3 971 -
maintenance fund
expenses to
revaluation reserve
Taxation adjustment - (47 284) (397) (47 681)
Preference dividend - - (3 978) (3 978)
Balance at 31 December 3 563 697 2 342 716 (1 345) 5 905 068
2007
BASIS OF PREPARATION AND ACCOUNTING POLICIES
The interim financial statements have been prepared in accordance with
International Financial Reporting Standards ("IFRS") including IAS 34 and the
Companies Act of South Africa, Act 61 of 1973 as amended. The accounting
policies used in the preparation of these results are consistent with those
used in the annual financial statements for the year ended 30 June 2007.
COMMENTARY
The board of directors of Strategic Real Estate Managers (Pty) Limited
("STREM") is pleased to announce a distribution of 44,34 cents per Emira
participatory interest (PI) for the six months to 31 December 2007. This
represents growth in distributions of 10,57% on the previous comparable
period.
Emira PI holders enjoyed a healthy total return of 12,4% during the six months
to 31 December 2007, comprising capital appreciation of 10,4% and an income
return of 2%, which represents the dividend for the three months to 30 June
2007. The percentage of weighted average PIs in issue that traded in the six-
month period equated to 12,2%.
The period under review was characterised by the completion of certain new
developments, as well as the ongoing refurbishment and extension of numerous
properties in the portfolio. A total of 19 projects totalling R490 million
have been approved by the STREM Board, of which seven were completed during
the period under review.
Those projects that were completed were: extensions to the existing Fuel Group
facility near the O.R. Tambo International Airport (R20,5 million), the
development of a further new distribution facility for the Fuel Group (R41
million), the purchase of Phase 4 of Faerie Glen Office Park (R29,6 million),
the refurbishment of Fleetway House (R5,0 million) and Wonderpark Caltex
service station (R6,8 million), as well as extensions to Lynnridge Mall (R18,4
million) and The Tramshed (R9,0 million).
12 projects remain, the largest of which by value include: extensions to
Quagga Shopping Centre (R93 million), the acquisition of TIS Corporate Park
(R90,1 million) and the refurbishment of Granada Centre (R40 million) and Lake
Buena Vista (R34,3 million).
RESULTS
Excluding the straight-line adjustments from future rental escalations,
revenue rose by 81,3% like-on-like for the 6 months. This was largely as a
result of the inclusion of the Freestone portfolio, which was acquired with
effect from 1 April 2007, for the full six months. Property expenses, when
adjusted for amortised upfront lease costs, rose by 70,2%.
The substantial increase in Emira`s PI price during the period, reaching a
closing high of 1 330 cents in November 2007, as well as the increased PIs in
issue after the Freestone acquisition, resulted in a 102,8% rise in
administration and management fees. Interest costs excluding unrealised gains
or losses on interest rate swaps rose by 148,4% as a result of the assumption
of Freestone`s debt.
Net asset value grew from 1 148 cents to 1 198 cents (1 260 cents excluding
the deferred tax provision), representing growth of 4,4% in the six months.
This is mainly the result of the strong growth in the commercial property
rentals, as well as declining vacancies.
RELATED PARTIES AND RELATED PARTY TRANSACTIONS
Momentum Group is the major participatory interest holder. At 31 December 2007
Momentum owned 36,7% of the fund`s participatory interests and the fund`s BEE
partners - the Tiso Group, The Shalamuka Foundation, Avuka Investments, The
RMBP Broad Based Empowerment Trust and Mr B van der Ross - held 12,4%. The
remaining 50,9% was widely held.
The following transactions were carried out with related parties:
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 Dec 2007 31 Dec 2006 30 June
2007
R`000 R`000 R`000
Strategic Real Estate Managers (Pty)
Limited
Expenditure comprising: Asset 17 723 8 236 21 949
management fees
Relationship: Associated company of
the FirstRand Group
Rand Merchant Bank, a division of
FirstRand Bank Limited
Long-term interest-bearing debt 644 625 236 125 705 625
Net finance cost in respect of long- 34 980 14 442 38 217
term interest
Relationship: Associated company of
the FirstRand Group
RMB Properties (Pty) Limited
Expenditure comprising: Property 22 044 12 370 55 111
management fee and letting commissions
Purchase consideration - 43 650 43 650
- Newlands Terraces
- RTT Acsa Park 25 875 - 215 617
- WorldWear Fashion Mall - 133 090 132 889
- Faerie Glen Phase 4 29 598 - -
Development expenditure - Quagga 60 139 - 8 197
Centre
- Faerie Glen Phase 3 - 16 533 27 635
- Lynnridge Mall 11 984 - -
- RTT Continental 41 000 - -
- Wonderpark 7 555 - -
Relationship: Associated company of
the FirstRand Group
Momentum Limited
Purchase consideration - Wonderpark - 406 400 406 400
Shopping Centre
Purchase consideration - Wesbank House - 44 000 44 000
Relationship: Associated company of the FirstRand Group
The above transactions were carried out on commercial terms and conditions no
more favourable than those available in similar arm`s length dealings at
market-related rates.
ACQUISITIONS
In an announcement dated Wednesday, 19 December 2007, Emira`s PI holders were
advised that Emira has entered into agreements with RMB Properties (Pty)
Limited in respect of the acquisition of two letting enterprises set out
below.
Properties that became income producing during the six months to December 2007
but are yet to be transferred to Emira
Property Sector Location GLA(m2)
Faerie Glen Office Faerie Glen, 2 046
Phase 4 Pretoria
Properties purchased but yet to be transferred to Emira
Property Sector Location GLA(m2)
TIS Corporate Industrial Midrand 15 184
Park
Purchase Forward Effective
price
Property (R`m) yield (%) date Tenants
Faerie Glen 29,6 10,1 1 Dec 07 VIP
Phase 4
Properties purchased but yet to be transferred to Emira
Purchase Forward Anticipated
Property price (R`m) yield (%) date Tenants
TIS Corporate 90,1 8,0 1 Sep 08 TIS
Park
Disposals
In accordance with the strategy of the fund, certain properties that are
underperforming or pose excessive risk to the fund are earmarked and disposed
of. Three non-core properties - Inspectorate, 11 Park Lane and Contact Centre
- were sold at a premium to book value during the period, while two investment
properties - Wierda Gables and Fourways Game - were sold at substantial
premiums to book value.
Properties transferred out of Emira during the six months to December 2007
Property Sector Location GLA
Fourways Retail Fourways, 8 000
Game Sandton
Inspectorate Offices Ormonde, 2 704
Johannesburg
11 Park Lane Offices Parktown, 3 676
Johannesburg
Contact Offices Parktown, 1 184
Centre Johannesburg
Wierda Offices Sandown, 2 007
Gables Sandton
Properties transferred out of Emira during the six months to December 2007
Valuation
Dec `06 Sale price Forward Effective
Property (Rm)* (Rm) yield (%) date
Fourways Game 58,1 119,7 6,0 1 Oct 07
Inspectorate 6,2 7,3 9,3 18 Oct 07
11 Park Lane 16,4 20,5 7,4 16 Oct 07
Contact Centre 6,9 9,0 6,4 28 Nov 07
Wierda Gables 11,9 14,0 8,0 21 Aug 07
- The valuations as at December 2006 have been used to reflect the premium to
book value realised by the fund on disposal. Valuations as at June 2007
reflected the disposal prices and therefore no premium to book value would
have been evident.
VACANCIES
Vacancies declined from 5,9% at June 2007 to 5,5% in December 2007. Vacancies
declined in both the office and industrial portfolios, but increased in the
retail portfolio. The decline in the office portfolio vacancy was largely
attributable to the take up of space at Dorbyl, Parktown (2 326 m2) and
Fleetway House (2 118 m2), while the letting of space at Cambridge Park (2 433
m2) and Industrial Village Kya Sands (1 139 m2) contributed to the decline in
industrial vacancies. Retail vacancies increased due to the ongoing
refurbishment and extensions at Quagga Shopping Centre (4 848 m2) and the
intended refurbishment of Cresta Corner (1 548 m2).
June `07 Vacancy % Dec `07 Vacancy %
GLA Jun 07 GLA Dec 07
Office 447 784 43 649 9,8 440 986 39 870 9,0
Retail 374 613 11 565 3,1 367 795 14 814 4,0
Industrial 355 181 14 202 4,0 365 398 9 532 2,6
Total 1 177 577 69 416 5,9 1 174 178 64 217 5,5
VALUATIONS
One-third of Emira`s portfolio is valued by independent valuers at the end of
every financial year, while at the interim stage directors` valuations are
used.
Total portfolio movement
June December Difference Difference
2007 2007
Sector (R`000) R/m2 (R`000) R/m2 (%) (R`000)
Office 3 317 664 7 409 3 520 123 7 982 6,1 202 459
Retail 2 784 378 7 433 2 814 287 7 652 1,1 29 909
Industrial 1 212 700 3 414 1 325 174 3 627 9,3 112 474
7 314 742 7 659 584 344 842
Adjustment (110 588) (119 038) (7,6) (8 450)
to fair
value as
per IAS
17/IAS 40
Unamortised (24 066) (24 483) (1,7) (417)
upfront
lease costs
as per IAS
17/IAS 40
As 7 180 088 7 516 063 335 975
reported
DEBT
Emira has engaged FirstRand Bank Limited to assist the fund in managing its
overall cost of funding.
Rate Term Amount % of Debt
1. Debt - Prime - 2,25% N/A 60,0 4,9
Floating
2. Debt - 10,21% November 2008 100,0 8,1
Fixed
3. Debt - Cap 10,75% November 2008 170,0 13,8
4. Preference 64% of prime January 2010 90,0 7,3
shares - plus STC
Floating
5. Debt - Swap 9,20% June 2013 500,0 40,4
6. Debt - Swap 9,91% October 2013 88,5 7,2
7. Debt - Swap 10,06% November 2015 126,1 10,2
8. Debt - Swap 9,43% September 2016 100,0 8,1
TOTAL 9,87%* 1 234,6
*Weighted average cost of debt assuming prime at 14,5%.
In addition to the above, the fund has entered into swaps for 10 years, in
respect of R250,0 million, starting on 1 March 2008, at an average rate of
10,4% per annum.
PROSPECTS
Like-on-like growth in respect of the portfolio remains strong. The
refurbishments currently underway are expected to contribute positively on
completion, but may slightly impact distributions in the short term.
Taking the above into account and assuming a stable economic and property
market the STREM board believes that growth in distributions delivered in the
six months to 31 December 2007 should be replicated for the 12 months to 30
June 2008.
INCOME DISTRIBUTION DECLARATION
Notice is hereby given that an interim cash distribution of 44,34 cents (2006:
40,10 cents) per participatory interest has been declared payable to
participatory interest holders, payable on 10 March 2008.
Last day to trade cum distribution Friday, 29 February 2008
Participatory interest trade ex distribution Monday, 3 March 2008
Record date Friday, 7 March 2008
Payment date Monday, 10 March 2008
Share certificates may not be dematerialised or rematerialised between Monday,
3 March 2008 and Friday, 7 March 2008, both dates inclusive.
By order of the board
Desiree Isserow Ben van der Ross James Templeton
Company secretary Chairman Chief executive officer
Sandton
14 February 2008
Fund Manager: Strategic Real Estate Managers (Pty) Limited
Directors of the fund manager: BJ van der Ross (Chairman)*, JWA Templeton
(Chief executive officer), MS Aitken*, L Barnard*, BH Kent*, NE Makiwane*, MSB
Neser*, WK Schultze, NL Sowazi*, PJ Thurling
*Non-executive director
Registered address: 3 Gwen Lane, Sandton, 2146
Merchant bank and sponsor: Rand Merchant Bank (a division of FirstRand Bank
Limited)
Transfer secretaries: Computershare Investor Services 2004 (Pty) Limited, 70
Marshall Street, Johannesburg, 2001
www.emira.co.za
Date: 14/02/2008 16:04:20 Produced by the JSE SENS Department.
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