| Wed 20 Feb 2008, 17:26 | | IFR - iFour - Reviewed Interim Financial Report For The Six Months Ended |
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IFR
IFR
IFR - iFour - Reviewed Interim Financial Report For The Six Months Ended
31 December 2007 and distribution declaration
IFOUR PROPERTIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2001/016118/06)
Share code: IFR & ISIN: ZAE000039236
("iFour" or "the company")
DISTRIBUTION TIMETABLE
Event Date
a. Last date to trade cum distribution Thursday, 13 March 2008
b. Linked units trade ex distribution Friday, 14 March 2008
c. Record date for unitholders to Thursday, 20 March 2008
participate in the distribution
d. Linked unit certificate may not be Friday, 14 March 2008 to
dematerialised or
rematerialised between Thursday, 20 March 2008
(both days inclusive)
e. Payment of distribution to Tuesday, 25 March 2008
unitholders
COMMENTARY ON RESULTS
1. DISTRIBUTION TO UNITHOLDERS
The board has declared an interim distribution of 49,6 cents per linked unit
(December 2006: 45,0 cents, July 2007: 49,0 cents) for the six months ended
31 December 2007. This represents a 10,2% increase in distribution to the
comparative period. This increase is in line with the group`s commitment to
deliver sustainable growth in distributions to linked unitholders.
2. FINANCIAL REVIEW
Revenue increased by 7,1% to R190,3 million compared to that in the previous
interim report. Revenue from the Emerald Fire portfolio, which was sold in
November 2006, is included in the comparative period and was the main reason
for the lower than expected increase in revenue to December 2007.
Interest income increased to R5,7 million for the current period. The company
advanced funds for the development of investment properties, which it will
acquire upon completion, on which it is earning interest.
Interest expenses relating to the investment portfolio, taken into account
when calculating distributable income, increased by 3,5% to R66,6 million. An
increase in the level of borrowings, when compared to the previous period
occasioned by loans to development projects and the high interest rate
relating to variable rate borrowings, accounted for this, despite the fact
that the charge relating to variable rate borrowings is offset by an increase
in interest income on variable rate loans to development projects. The group
benefited from entering into interest rate hedges, refer to "Borrowings" for
details of changes to debt and hedging profiles.
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. The properties have a current fair value of
R221,1 million. In the prior 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 of the original transaction. An
additional R43 million tax levied on Nedbank will be passed onto iFour in
terms of the agreements. R20,1 million was accounted for in the previous
financial year and R3,8 million has been provided for in the current period.
Whilst the directors are of the opinion that, from an operating point of
view, the charge is of a capital nature and therefore should have been
written off against the revaluation surplus in full during the previous year,
IFRS requires that the charge be classified as interest. The balance of R19,1
million will be written off over the remaining 21 months of the agreement.
This charge has not been taken into account in the determination of
investors` distributable earnings.
3. PORTFOLIO REVIEW
PROPERTY PORTFOLIO RECONCILIATION
Number of Value R
properties million
30 June 2007 91 2 810,6
Acquisitions 1 36,9
Capital projects - 4,5
Fair value adjustment - 201,1
31 December 2007 92 3 053,1
OCCUPANCY
Occupancy levels increased from 97,4% at 30 June 2007 to 98,2% at
31 December 2007.
BOTLOKWA PLAZA
During the six months to 31 December 2007, the 6 924 m2 Botlokwa Plaza was
acquired by the company at a cost of R36,9 million. This shopping centre is
situated on the N1 highway between Polokwane and Makado in the centre of the
greater Matoks area. It is anchored by a Cashbuild and a regional franchisee
Score Supermarket.
PALM SPRINGS SHOPPING CENTRE (PHASE 2)
The acquisition of a petrol station at Palm Springs Shopping Centre was
approved by the directors as part of the acquisition of Phase 2. The petrol
station and convenience outlets have been completed and transfer took place
on 1 February 2008 at a cost of R7,7 million.
SIYABUSWA MALL DEVELOPMENT
The company concluded a purchase agreement on 21 June 2007 for a 50%
undivided share of the estimated 17 915 m2 Siyabuswa Mall which is in the
process of being developed. The purchase price will be determined based on
the aggregate of rental and expenses in year one. The estimated purchase
price is R81 million. A yield of 9,5% is expected with national and major
regional tenants comprising more than 70% of total revenue of the centre. The
anchor tenants will be Shoprite, CashBuild and Jetmart.
JEFFREYS BAY DEVELOPMENT
The company entered into a 70/30 development agreement for a site in Jeffreys
Bay, with an existing Builders Express already on the site, which was
acquired by iFour for R26 million. The development will increase GLA to
16,011 sqm of retail space and is expected to be completed by November 2008.
The development agreement contains various covenants relating to the tenant
mix and specifically the percentage of national tenants. The company and
developer are in advanced negotiations with Checkers and First National Bank
as probable tenants. The development agreement also provides for the
developer to contribute 30% of the funding. Total spend to date is R47
million reflected as `Developments` on the balance sheet.
NONGOMA DEVELOPMENT
The development of the 9,538 m2 Nongoma Shopping Centre is expected to be
completed around June 2008. The anticipated cost will be R76 million which
will be funded through a combination of existing and new banking facilities.
An initial yield of 9,5% is projected. Major tenants include Shoprite,
Jetmart and Nedbank. A development facilitation fee of R3,2 million will be
earned on completion of the project.
SALES
Sales agreements for the disposal of UPS Express, Founders Hill and 15
Wellington were concluded by 31 December 2007. These properties were
reclassified as "Investment properties held for sale" on the balance sheet. A
cash profit of R17,3 million is expected to be realised from the sale of
these properties.
CAPITAL PROJECTS
The larger portion of the capital expenditure was the successful expansion of
the Bloemfontein Value Centre which was completed at a cost of R2,4 million
in the current period. The addition provided additional premises for Speedy`s
and a Midas store.
OTHER PROJECTS
The company concluded an in principle agreement for the purchase of an
undivided share of the North Edge Value Centre (Richards Bay) which is in the
early stages of design. The transaction is still subject to various
suspensive conditions outstanding as at 31 December 2007 and presents a
potential investment opportunity of R300 million.
FAIR VALUE OF THE PORTFOLIO
The directors have changed the group`s investment property revaluation policy
from directors` internal valuations being performed at 31 December and 30
June each year (with a third of the portfolio being revalued externally over
a three year period) to an annual external revaluation at 30 June for the
entire portfolio and a fair value assessment at 31 December.
In practice the group will therefore only process revaluation adjustments for
interim reporting when, in the opinion of the board, the fair value of the
properties have increased or decreased materially from the most recent
external valuation. For the period under review a R201 million upward fair
value adjustment was recognised in the income statement.
PROPERTY MANAGEMENT
Following the strategic decision by Pangbourne Properties Limited to
terminate its property management service to associated listed entities, this
function has been outsourced to suitable external property managers.
4. BORROWINGS
The company has had a successful interim period with regard to its
borrowings. The company replaced property finance borrowings of R175 million
with bonds issued by the second securitisation programme (entered into in
July 2007) at an all-in rate of 9,10% NACQ for years 1 - 3 (July 2007 to June
2009) and 10,34% for years 4 and 5 (July 2009 to June 2011).
R330 million of bonds issued under the first securitisation programme
(entered into in November 2004) matured and were repaid in October 2007. The
company issued R470 million of new five year bonds on the Bond Exchange of
South Africa without having to provide additional security as a result of the
appreciation in value of the portfolio subsequent to the original bond issue.
In October 2007, the company replaced a R460 million swap which had a base
rate of 10,62% NACQ (expiring on 1 October 2009) with a new
R460 million swap which has a base rate of 9,36% NACQ (expiring on
1 October 2014). This has already had a positive impact on the company`s cost
of borrowings.
The company took out a R140 million zero cost collar commencing in October
2007 for a five year period with a cap of 10,75% NACQ and a floor of 9,4%
NACQ during the period.
The company`s borrowings are 95,4% hedged as at 31 December 2007 and the
swaps that have been entered into protect the company from material interest
rate fluctuations until 2012.
GEARING RATIO
The board calculates the permanent debt requirement of the group (gearing) by
adjusting actual debt utilisation as at 31 December 2007 with working capital
requirements and unpaid distributions. The current gearing ratio is 41,6%.
5. PROSPECTS
Although business confidence has decreased in recent months and a slow-down
in the economy is being experienced, the company remains well positioned to
continue with its commitment to deliver sustainable growth in distributions
to linked unitholders.
Strategy changes in iFour`s significant unitholder, Pangbourne Properties
Limited, are likely to bring about a reassessment of iFour`s gearing levels
and a review of the suitability of certain properties within the property
portfolio with a view to improving the overall quality of the portfolio and
reducing borrowings over time.
6. DISTRIBUTION DECLARATION PER LINKED UNIT
Notice is hereby given that a distribution of 49,6 cents has been declared
and approved by the board of directors for the period ended 31 December 2007.
Please refer to the "Investors` distributable earnings" insert for the basis
of the calculation of distributable earnings.
On behalf of the board
J M Parratt
Company secretary 20 February 2008
2nd Floor
382 Jan Smuts Avenue, Craighall
Directors: A J W L Richards (Chairman), Dr C P de Leeuw, J B Gibbon, C M
Hutchison, R C Johnson (British), S Y U Mahlangu, K M Mokoape, E P M Moses, M
H Muller*, J L Nunes*, B L Stuhler *Executive
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.
Reviewed Unaudited Audited
Six months Six months Year
ended ended ended
R`000 31 Dec 07 31 Dec 06 30 Jun 07
Net profit for the period 137 752 132 751 340 325
Non-cash flow adjustments:
Revaluation of investment (201 089) (176 834) (456 150)
properties
Net profit on disposal of - (10 211) (9 471)
investment properties
Movement in the fair value (14 913) 267 (38 403)
of derivative financial
instruments
Movement in the fair value - 1 133 1 081
of financial assets at fair
value through profit or
loss
Administration expenses - 555 555 1 110
debenture costs amortised
Interest paid - non cash 1 716 1 716 3 482
amortisation relating to
fair value of derivative
financial instruments
Interest paid - capital 3 811 - 20 150
amortisation of Nedbank
finance lease
Interest paid - SARS 2 140 - -
objection (note 3 financial
statements)
Amortisation of deemed (1 591) (1 591) (3 182)
debenture premium
Debenture interest 74 779 67 844 141 719
distributed to unitholders
Taxation - deferred 63 005 52 640 139 052
Taxation - normal and 8 752 - 2 021
capital gains
Linked unitholders` 74 917 68 270 141 734
distributable earnings
Weighted average linked 150 764 924 150 764 924 150 764 924
units and shares in issue
Linked unitholders` 49,69 45,28 94,01
distributable earnings per
linked unit (cents)
Distribution per linked 49,60 45,00 94,00
unit - declared (cents)
Number of linked units in 150 764 924 150 764 924 150 764 924
issue
CONDENSED GROUP INCOME STATEMENT
Reviewed Unaudited Audited
Six months Six months Year
ended ended ended
R`000 Notes 31 Dec 07 31 Dec 06 30 Jun 07
Revenue 190 269 177 643 352 064
Straight-line operating 1 272 4 407 2 932
lease adjustment
Other income - 2 151 5 520
Net property portfolio (49 192) (45 582) (91 653)
costs
Administrative expenses (7 577) (6 605) (13 023)
Profit from operations 134 772 132 014 255 840
Net revaluation of 199 817 172 427 453 218
investment properties
Attributable to straight- (1 272) (4 407) (2 932)
line operating lease
adjustment
Revaluation of 201 089 176 834 456 150
investment properties
Net profit on disposal - 10 211 9 471
of investment properties
Profit before financing 334 589 314 652 718 529
costs and taxation
Interest received 5 744 2 722 7 684
Interest paid (72 549) (64 330) (144 681)
- Interest paid (66 598) (64 330) (124 531)
- Additional Nedbank (3 811) - (20 150)
finance lease interest
- Interest paid to SARS 3 (2 140) - -
under objection
Movement in the fair 14 913 (267) 38 403
value of derivative
financial instruments
Movement in the fair - (1 133) -
value of financial
assets at fair value
through profit or loss
Amortisation of deemed 1 591 1 591 3 182
debenture premium
Debenture interest (74 779) (67 844) (141 719)
distributed to
unitholders
Profit before taxation 209 509 185 391 481 398
Taxation - deferred (63 005) (52 640) (139 052)
Taxation - normal and 3 (8 752) - (2 021)
capital gains
Profit for the period 137 752 132 751 340 325
Reconciliation between
profit for the period
and headline earnings -
R`000
Profit for the period 137 752 132 751 340 325
Adjustments:
Net revaluation of (141 870) (122 423) (321 785)
investment properties
net of taxation
Net profit on disposal - (8 730) (8 098)
of investment properties
net of taxation
Amortisation of listing, 2 232 2 271 4 592
debenture, mortgage and
securitisation expenses
Headline (loss)/profit (1 886) 3 869 15 034
for shareholders
Debenture interest 74 779 67 844 141 719
distributed to
unitholders
Headline earnings for 72 893 71 713 156 753
linked unitholders
The aggregate tax impact
of the adjustments
between profit for the
period and headline
(loss)/earnings are as
follows:
31 December 2007 - R57,9
million
31 December 2006 - R51,6
million
30 June 2007 - R132,8
million
Basic earnings per 140,97 133,05 319,73
linked unit (cents)
Headline earnings per 48,35 47,57 103,97
linked unit (cents)
Diluted earnings per 140,97 133,05 319,73
linked unit (cents)
Diluted headline
earnings per linked unit
based on
150 764 924 units (2006: 48,35 47,57 103,97
150 764 924 units)
(cents)
Basic earnings per share 91,37 88,05 225,73
(cents)
Diluted earnings per 91,37 88,05 225,73
share
Headline (loss)/earnings (1,25) 2,57 9,97
per share (cents)
Diluted (loss)/headline (1,25) 2,57 9,97
earnings per share based
on 150 764 924 units
(2006: 150 764 924
units) (cents)
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The interim financial report has been prepared in accordance with IAS 34 -
Interim Financial Reporting and the requirements of the Companies Act of
South Africa as well as the JSE listings requirement. The basis of
preparation is consistent with the group`s most recent annual financial
statements.
The directors have changed the group`s investment property revaluation policy
from directors` internal valuations being performed at 31 December and 30
June each year (with a third of the portfolio being revalued externally over
a three year period) to an annual external revaluation at 30 June for the
entire portfolio and a fair value assessment at 31 December.
2. RELATED PARTY TRANSACTIONS
Related party transactions concluded during the reporting period were
concluded at arm`s length terms as would be negotiated between unrelated
willing parties.
3. TAXATION
The South African Revenue Service ("SARS") issued revised assessments for
iFour Properties Limited for the 2003, 2004 and 2005 financial years. In
order to avoid further interest, the company made payment of R10,9 million
which comprised R8,8 million taxation and R2,1 million of interest. The
company has lodged an objection against the revised assessments as it
maintains that this treatment by SARS is contrary to the established basis of
taxing the property loan stock industry. If one was to follow the method that
SARS followed in raising the revised assessments for the 2003, 2004 and 2005
financial years, additional taxation of R4,9 million and R6,5 million might
become payable for the 2006 and 2007 financial years, respectively. This
would reduce the net asset value of the company by 8 cents per linked unit.
In compliance with IFRS, deferred taxation on property revaluations and
adjustments to fair value has been provided at the normal taxation rate of
29% and not at the capital gains taxation rate of 14,5% which will be payable
on disposal. Deferred taxation on investment properties held for sale has
been provided for at 14,5%.
4. CAPITAL COMMITMENTS
Capital commitments amount to R467 million at 31 December 2007 and will be
funded through a combination of existing and new facilities.
Suspensive conditions for the acquisition of North Edge Value Centre and
Siyabuswa Mall which account for R381 million of the capital commitment of
R467 million are still to be met.
5. CRITICAL ESTIMATES AND JUDGEMENTS
The following new critical estimates and judgements were made in the current
period:
(a) Loans for development of investment properties (Nongoma development)
Funds are being advanced in terms of a loan agreement. The loan is being
accounted for in terms of IAS 39. Interest income has been recognised on the
loan. When the development is complete, iFour will pay the purchase price in
terms of the acquisition agreement and the developer will repay the loan
advanced to the company. Management has accounted for the transaction in the
manner which, in its view, is the substance of the transaction.
(b) Developments (Jeffreys Bay development)
Funding will represent construction work in progress as iFour will be the
party exposed to the risks and rewards related to the development of the
property. The land on which the development is taking place was transferred
to iFour on 11 December 2007. Management has accounted for the transaction in
the manner which, in its view, is the substance of the transaction.
6. POST-BALANCE SHEET EVENTS
The group took transfer of the Palm Springs Petrol Station on 1 February 2008
at a cost of R7,7 million.
The property management function performed by Pangbourne has been outsourced
to external property managers including JHI.
7. REVIEW CONCLUSION
PricewaterhouseCoopers Inc. have reviewed the interim financial report for
the period ended 31 December 2007 and their unqualified review report is
available for inspection at the company`s registered office.
CONDENSED GROUP BALANCE SHEET
Reviewed Unaudited Audited
R`000 Notes 31 Dec 07 31 Dec 06 30 Jun 07
ASSETS
Non-current assets
Investment properties 2 933 568 2 408 389 2 729 493
Straight-line operating 82 415 82 618 81 143
lease adjustment
Investment properties 3 015 983 2 491 007 2 810 636
at fair value
Developments 5 47 423 - -
Loans for development 5 44 885 - -
of investment
properties
Long-term trade and 9 935 8 127 9 862
other receivables
Equipment, furniture 85 94 81
and fittings
Loans to participants 12 063 15 328 12 262
of the Unit Purchase
Trust
Derivative financial 9 295 - 7 668
instruments
3 139 669 2 514 556 2 840 509
Current assets
Investment properties 37 100 23 460 -
held for sale
Trade and other 26 362 23 388 20 705
receivables
Cash and cash 43 619 68 985 77 609
equivalents
107 081 115 833 98 314
Total assets 3 246 750 2 630 389 2 938 823
EQUITY
Capital and reserves
Share capital and 15 947 12 765 14 356
premium
Retained earnings 775 599 433 455 639 438
Total equity 791 546 446 220 653 794
LIABILITIES
Non-current liabilities
Debenture capital and 735 774 737 846 736 810
premium
Linked unitholders` 1 527 320 1 184 066 1 390 604
interest
Other non-current
liabilities
Borrowings 1 228 383 749 959 781 947
Derivative financial - 44 288 13 286
instruments
Deferred taxation 3 321 806 172 389 258 801
1 550 189 966 636 1 054 034
Current liabilities
Borrowings 16 103 350 189 351 850
Trade and other 78 137 61 492 66 269
payables
Current income tax - - 2 001
liabilities
Unitholders for 75 001 68 006 74 065
distribution
169 241 479 687 494 185
Total equity and 3 246 750 2 630 389 2 938 823
liabilities
Net asset value per 1 013 785 922
linked unit (cents)
Net asset value per 525 296 434
share (cents)
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
Share Share Retained
R`000 capital premium earnings Total
Balance at 1 July 2006 150 10 669 302 295 313 114
(Restated and audited)
Transfer of amortised - 1 591 (1 591) -
deemed debenture premium
Disposal of treasury units - 355 - 355
held by consolidated
entities
Profit for the period - - 132 751 132 751
after distributions and
taxation
Balance at 31 December 150 12 615 433 455 446 220
2006 (Unaudited)
Transfer of amortised - 1 591 (1 591) -
deemed debenture premium
Profit for the period - - 207 574 207 574
after distributions and
taxation
Balance at 30 June 2007 150 14 206 639 438 653 794
(Audited)
Transfer of amortised - 1 591 (1 591) -
deemed debenture premium
Profit for the period - - 137 752 137 752
after distributions and
taxation
Balance at 31 December 150 15 797 775 599 791 546
2007 (Reviewed)
CONDENSED GROUP CASH FLOW STATEMENT
Reviewed Unaudited Audited
Six months Six months Year
ended ended ended
R`000 31 Dec 07 31 Dec 06 30 Jun 07
Net cash utilised in (2 038) (7 803) (6 936)
operating activities
Net cash (140 964) 86 479 62 888
(utilised)/generated in
investing activities
Net cash 109 012 (63 224) (31 876)
generated/(utilised) from
financing activities
Net (decrease)/increase in (33 990) 15 452 24 076
cash, cash equivalents and
bank overdrafts
Cash and cash equivalents at 77 609 53 533 53 533
the beginning of the period
Cash and cash equivalents at 43 619 68 985 77 609
the end of the period
SEGMENTAL INFORMATION
Primary segment
R`000 Retail Industrial Office Other Corporate Total
Rentals and 79 520 55 901 50 815 4 033 - 190 269
recoveries
received
Straight- 329 277 667 - - 1 272
line
operating
lease
adjustment
Segment
results
Profit 118 648 121 531 81 017 20 969 (7 575) 334 589
before
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.
RETURN TO UNITHOLDERS
12 months 12 months
ended ended
31 Dec 07 31 Dec 06
Opening unit price - 1 January 1 185 1 105
(cents)
Closing unit price - 31 December 1 280 1 185
(cents)
Capital return (cents) 95 80
Income return (cents) 98,6 90,5
Total return (cents) 193,6 170,5
Total return for the period (%) 16,3 15,4
Interim period - high (cents): 1 427 1 225
Interim period - low (cents): 900 940
For more information go to our website: www.ifour.co.za
Date: 20/02/2008 17:26:35 Produced by the JSE SENS Department.
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