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SAC
SAC
SAC - SA Corporate Real Estate Fund - Reviewed Final Results And Distribution
Declaration 31 December 2007
SA Corporate Real Estate Fund
(Incorporated in the Republic of South Africa)
Share Code: SAC & ISIN Code: ZAE000083614
A Collective Investment Scheme in property registered in terms of the Collective
Investment Schemes Control Act, No.45 of 2002 and managed by SA Corporate Real
Estate Fund Managers Limited
("SA Corporate Fund Managers"}
(Registration number 1994/009895/06)
www.sacorp.co.za
REVIEWED FINAL RESULTS AND DISTRIBUTION DECLARATION 31 DECEMBER 2007
Distribution
- 32 cents per unit
- 19% increase on 2006 annualised
- circular forecast of 31.55 cents per unit exceeded
Property portfolio expansion
- R4,7 billion of properties acquired
- R0,7 billion contractual investment pipeline
Market capitalisation
- R8,4 billion
- 3rd largest listed property fund
- Value traded- R2.1 billion
BEE transaction
- R658 million equity deal concluded
- 9% equity ownership of Fund
1. Introduction
SA Corporate Real Estate Fund Managers Limited, the management company of SA
Corporate Real Estate Fund (SA Corporate), report on the reviewed results of the
SA Corporate group for the year ended 31 December 2007. The past year has been a
period of substantial change for the Fund in line with the revised strategy
which the board approved. This strategy was underpinned by the following four
tangible strategic objectives:
- To deliver superior investment performance
- To expand the portfolio to R10bn by 2012 and to remain one of the three
largest SA listed funds in terms of market capitalisation
- To enhance the profile of the Fund and improve investor relations
- To address the requirements of the Property Charter
Notable progress has been made in each of the above areas during the year under
review. The specific achievements are dealt with in more detail below.
During the second half of 2007 there were signs of a weakening economy,
investment and property market, particularly in the retail sector, and although
these changing conditions have had a limited impact on the Fund`s 2007 results,
there is sufficient evidence that a tougher trading and investment environment
in 2008 is going to present challenges. Specifically, a tightening of consumer
spend was reflected in retail trading figures and SA listed property has not
escaped the softening in investment markets worldwide.
2. Results and Fund investment performance
The industrial component of the SA Corporate portfolio has performed well and
continues to be buoyed by the shrinking supply of rental space and rising market
rentals which has impacted positively on property earnings. Office rentals,
similarly, have shown healthy growth, particularly in the secondary market,
which has benefited from the slowing delivery of new office space and increasing
tenant demand.
The retail portfolio has not been immune to the impact of the successive
interest rate increases and other factors which have curtailed consumer spending
and this has been evidenced in turnovers of the major retailers. The level of
rentals being achieved on renewals and new leases and the take-up of vacant
retail space has lagged management`s expectations. This has tempered the
performance of this component of the Fund`s portfolio.
The total distribution of 32 cents per unit for the 12 months under review is an
increase of 19% over the comparable annualised period in 2006. It is also ahead
of the 31,55 cents forecast contained in the Circular to unitholders dated 28
March 2007.
As previously disclosed in the Circular and in the interim announcement, the
acquisition of SA Retail resulted in the interim distribution of 17 cents per
unit incorporating a once-off contribution of 2,4 cents per unit, which did not
recur in the second half of the year. The distribution growth, excluding this
one-off amount, is 10% compared with the annualised 2006 period. This
distribution growth should also be assessed in the context of the SA Retail
acquisition which brought with it an element of dilution, given the exchange
ratio at which new SA Corporate units were issued to SA Retail unitholders. This
was fully disclosed in the Circular and was integral to the success of
transaction.
The breakdown of distributable earnings is set out below:
12 months to 17 months to
31/12/2007 31/12/2006
(Reviewed) (Audited)
R`000 R`000
Rent (excluding straight line adjustment) 576,832 385,086
Net property expenses (51,595) (40,199)
Property expenses (187,834) (119,078)
Recovery of property expenses 136,239 78,879
Net property income 525,237 344,887
Interest income from associate company 6,310 -
Net funding cost (64,895) (43,227)
Interest 12,725 6,900
Interest paid (77,620) (50,127)
Fund expenses (38,880) (26,413)
Distribution contributions 191,606 323
Unclaimed distributions written back - 323
Pre-acquisition dividend received
(SA Retail pre acquisition earnings) 124,476 -
Prepaid distribution received in
advance on unit issues 67,130 -
Distributable earnings 619,378 275,570
Units in issue at 31 December 2,089,335,506 725,183,770
Distribution (cents per unit) 32.00 38.00
- 1st Interim 14.60 12.50
- 1st Interim SA Retail once off contribution 2.40 -
- 2nd Interim - 13.50
- Final 15.00 12.00
Although SA Corporate`s unit price reflected some relative weakness during the
second half of the year compared to the sector , the Fund still produced a
total return of 26,53% for 2007, marginally above the South African listed
property index (J253) and above the PUT index (J255) at 22,68%. This shows
meaningful improvement over recent years and was one of management`s key
strategic objectives.
3. Revaluation
The portfolio was independently valued at 31 December 2007 at R8,5 billion,
resulting in an upward fair value adjustment of R744 million. The standing SA
Corporate and SA Retail portfolios have seen an average 18% increase in capital
value on a year on year basis. The greatest relative increase in value in
respect of the comparable properties has been seen in the industrial portfolio,
where higher market rental levels have been the major driver. Weaker rental and
investment fundamentals have inhibited valuation upside in the retail
properties.
The forward yields and internal rates of return (IRR`s) of the three property
types in the Fund`s portfolio, calculated on a weighted basis, and as at 31
December 2007, are as follows:
Property type Initial (forward) yield IRR
Retail 8.9% 13.6%
Offices 8.5% 15.5%
Industrial 8.0% 15.1%
Total 8.6% 14.2%
This valuation gives rise to a net tangible asset value (NTAV) of 370 cents per
unit, inclusive of the distribution to be paid (2006: 340 cents per unit). At
the closing price of 400 cents per unit on 31 December 2007, the units were
trading at a premium to NTAV of 8%, although current trading prices now
approximate NTAV.
4. Portfolio investment activity
Adding to the acquisition of SA Retail and the Sharemax portfolio in the first
six months, SA Corporate also made a substantial R964 million investment in a
portfolio of properties in the second half of the year under review. The
portfolio, known as the Buffcol portfolio, was acquired on a forward yield of
8,15%. It comprises 40 properties, the bulk of which are single tenanted, high
quality industrial buildings. The acquisition was funded through the issue of
new SA Corporate units, issued at a capital price of 395 cents per unit.
Transfers commenced on 1 October 2007, with the final transfer in February 2008.
In addition, a further R87 million was invested in a shopping centre located in
Elim, Limpopo Province, which is anchored by an industry-leading Spar
supermarket, at an initial yield of 9,5%. Transfer of this property took place
in October 2007.
The Fund has disposed of six properties in the six months to December, with a
total book value of R234 million. The most significant of these sales was that
of Eikestad Mall, which was sold for R146 million pursuant to a ruling made by
the Competition authorities in their approving the acquisition of SA Retail by
SA Corporate. This brings total disposals for the year to R326 million.
In line with the Fund`s investment policy to diversify up to 5% of its asset
base in property investments elsewhere in Africa, SA Corporate has acquired a
strategic 25% holding in Oryx Properties Limited, a Namibian listed property
loan stock company. The major asset in Oryx is Maerua Mall, the dominant and
very successful regional shopping centre in Windhoek, which constitutes some 60%
of Oryx`s assets and which is 80% tenanted by South African national retailers.
The Oryx investment in the amount of R169 million was funded through the issue
of SA Corporate equity at a price of 390 cents per unit.
Industrial 33%
R2,8b
111 props
722 614m2
Retail 59%
R5,0b
54 props
583 751m2
Offices and other 8%
R0,7b
27 props
79 949m2
Western Cape 10%
R0,9b
24 props
137 751m2
KwaZulu Natal 44%
R3,7b
90 props
579 555m2
Other 4%
R0,3b
3 props
37 342m2
Gauteng 42%
R3,6b
75 props
631 666m2
Post year-end, the acquisition of a R115million A Grade office block in La Lucia
Ridge Office Estate, KZN, was approved. The initial yield on this acquisition
will be 11.1%, underpinned by a rental guarantee from the vendor, with the
second year yield dropping to 8.7%.
The Fund has also committed to a number of developments during the reporting
period and these are set out in the table below.
Expected Property Total Cost Yield Sector Region
completion R`000
date
June 2008 Philani Valley Centre*# 110 000 9.0% Retail KZN
August 2008 Renbro Centre* 106 200 9.5% Retail Other
June 2008 Fuel Group-Jet Park 45 300 9.25% Industrial Gauteng
October 2008 Bell Equipment- Jet Park 142 000 9.5% Industrial Gauteng
August 2008 Unipark Bloemfontein 55 000 9.5% Office Other
May 2008 Paarden Eiland 66 300 9.5% Industrial Western Cape
March 2008 Nzehlele Shopping Centre* 43 000 9.5% Retail Other
Total 567 800
* Denotes investments into previously disadvantaged areas
# Commenced during 2007
The Fund`s investment portfolio, inclusive of contracted commitments, amounts to
R9.1 billion and, in line with the board`s strategy for the Fund, reflects a
substantially larger and more diversified portfolio to that which existed at the
beginning of the year under review.
5. Lease expiries and vacancies
The lease expiry of the respective components of the property portfolio by area
is as follows:
Property type Vacancies 2008 2009 2010 2011 Thereafter
Retail 4.0% 20.8% 16.6% 11.0% 11.3% 36.3%
Offices 10.5% 8.9% 10.5% 24.4% 23.2% 22.5%
Industrial 0.1% 16.6% 11.2% 27.3% 14.1% 30.7%
Total 2.7% 17.2% 13.5% 20.2% 13.4% 33.0%
The potential upside in expiring leases and rental reviews in the portfolio is
the highest in the industrial component, where the current rentals being
achieved in the market are some 20% higher than the average Fund rental of
R27,50/ m2. The office component also offers attractive upside, but constitutes
a relatively small portion of the portfolio. Retail rentals, which form the bulk
of the Fund`s earnings, have come under pressure from slower trading conditions
and management forecasts little upside in rentals as new leases or renewals are
concluded in this environment.
The Fund`s occupancy levels have been influenced by the take-on of the two
significant retail portfolios. The overall vacancy factor is 2,7% of lettable
space or 3,9% of total income (2006: 1.0% and 1.6% respectively) and is set out
in detail below:
Property type % of area % of total rental
Retail 4.0 2.9
Offices 10.5 0.9
Industrial 0.1 0.1
Total 2.7 3.9
6. Borrowings
During the year management renegotiated the Fund`s borrowing arrangements
resulting in a favourable reduction in both variable and fixed debt margins. The
revised margin for fixed debt is 100 basis points, all inclusive, with variable
debt being 260 basis points below the prime rate. An increased facility was also
concluded and accordingly, the Fund is well positioned to take advantage of
viable investment opportunities as and when they are available.
The total debt amounts to R668m of which R100m is fixed until September 2013 at
a cost of 10.57% nacm, R500 million is fixed at 10.82% nacq until December 2012,
with the balance at a current variable rate of 11.90%. The weighted average cost
of debt is 10.82%. The total debt level, at 8% of the total property portfolio
value, is low relative to industry norms and the high proportion of fixing means
that there is little interest rate exposure in the short to medium term. It has
been managements` intention to increase the debt level to 20% in the medium
term, but the relative cost of debt to equity funding has resulted in preference
for equity issuance to fund SA Corporate`s expansion activity during the past
year.
7. Units issued and liquidity
1 364 151 734 new units were issued during the year under review to fund the SA
Retail, Sharemax, Buffcol, Hubyeni, Forest Road, Hebbard Road, Cullinan Jewel
Shopping Centre and Oryx acquisitions. A further 12 905 464 units were issued in
January 2008 and 8 684 921 units will be issued in late
February 2008 for the last Buffcol transfers.
SA Corporate remains one of the most traded funds, in both percentage of units
traded and absolute terms, with R2.1 billion trading in the year to 31 December
2007.
At year end SA Corporate`s market capitalisation value was R8.4 billion making
it the 3rd largest listed property fund on the JSE in terms of this measure.
8. BEE & Transformation
During the year, SA Corporate concluded a Relationship Agreement with Wipken
Trust (an equal partnership between WIP Capital and Kensani Properties). Wipken
have acquired and currently own 196 384 846 units in SA Corporate, which
constituted 9,4% of the Fund`s equity at year end. No financial support in terms
of financial guarantees or the issue of units at a discount was provided by SA
Corporate in terms of this transaction and consequently there has been no
dilution for existing unitholders in the Fund.
The board and management continue to be committed to transformation for the long
term benefit of SA Corporate and its unitholders. During the year there have
been changes to the board to improve its balance and diversity. In addition, as
referred to above, the Fund has made a number of investments in retail
developments in previously disadvantaged areas which, apart from being
commercially attractive, have meaningfully enhanced the retail offering in these
areas where there had been an underprovision of such facilities.
9. Prospects
The industrial component is expected to perform well as positive upward
reversions are likely when leases expire during the year ahead. The current
economic environment including increased interest rates are, however, likely to
impact on the retail sector and SA Corporate`s cost of funding.
Notwithstanding the above, management continue to support the distribution
forecast for 2008 as per the Circular dated 28 March 2007.
REVIEW BY INDERPENDENT AUDITORS
SA Corporate`s auditors, Deloitte & Touch, have reviewed the financial results
of the group for the year ended 31 December 2007. Their unmodified report is
available for inspection from the group`s secretary.
CONSOLIDATED BALANCE SHEET (R000)
31.12.2007 31.12.2006
(Reviewed) (Audited)
Assets
Non-current assets
Investment property 8,241,267 2,959,851
As per valuation 8,401,198 3,026,564
Straight line rental adjustment (159,931) (66,713)
Property under development 50,067 -
Investment in associate 168,954 -
Goodwill 1,009,094 -
Rental receivable - straight line adjustment 121,853 55,199
Current assets
Properties classified as held for disposal 18,000 76,410
Trade receivables and accrued interest 123,615 43,649
Rental receivable - straight line adjustment 38,078 11,514
Cash resources and short term investments 64,880 22,096
Total assets 9,835,808 3,168,719
Unitholders` funds and liabilities
Unitholders` funds 8,433,253 2,375,610
Non-current liabilities 982,505 677,149
Interest bearing borrowings 667,960 652,665
Deferred capital gains taxation 314,545 24,484
Current liabilities 420,050 115,960
Trade and other payables 90,945 28,415
Capital gains taxation and secondary
taxation on companies 15,033 64
Unclaimed distributions 767 485
Distributions payable 313,305 86,996
Total unitholders` funds and liabilities 9,835,808 3,168,719
12 months to 17 months to
31/12/07 31/12/06
CONSOLIDATED INCOME STATEMENT (R000) (Reviewed) (Audited)
Revenue 735,371 472,080
Income 754,406 478,980
Rent 576,832 385,086
Straight line rental adjustment 22,300 8,115
Recovery of property expenses 136,239 78,879
Interest income from associate company 6,310 -
Interest 12,725 6,900
Expenses 304,334 194,016
Accounting and secretarial fees 7,934 5,848
Audit fees 1,109 1,198
Administrative fees 2,958 3,087
Interest paid 77,620 50,127
Property administrative fees 21,360 13,485
Property expenses 166,474 105,593
Service fees 26,879 16,280
Surplus on revaluation of
interest rate swap derivative - (1,602)
Deferred taxation of straight line
rental adjustment (17,006) (496)
Headline earnings 433,066 284,468
Capital deficit on disposal of
investment property (5,388) (2,091)
Write up on revaluation of investment property 721,624 606,220
Revaluations 743,924 614,335
Straight line rental adjustment valuation (22,300) (8,115)
Taxation on property revaluation (60,659) (12,665)
On capital transactions (77,665) (13,161)
Straight line rental adjustment 17,006 496
Net profit attributable to unitholders 1,088,643 875,932
Units in issue (000) 2,089,336 725,184
Weighted units in issue (000) 1,457,525 725,184
Cents Cents
Distribution per unit 32.00 38.00
Net profit per unit 52.10 120.79
Weighted net profit per unit 74.69 120.79
12 months to 17 months to
CONSOLIDATED STATEMENT OF CHANGES 31/12/07 31/12/06
IN UNITHOLDERS` FUNDS (R000) (Reviewed) (Audited)
Unitholders` funds at beginning of period 2,375,610 1,774,925
Capital movements 6,057,643 600,685
Write-up on revaluation of
investment properties 721,624 606,220
Capital deficit on disposal of
investment properties (5,388) (2,091)
Taxation (60,659) (12,665)
Surplus on revaluation of
interest rate swap derivative - 1,602
Straight line rental adjustment
net of taxation 5,294 7,619
1 364 151 734 units issued at prices
ranging between 304.50 cpu to 427.80 cpu 5,593,725 -
Unit issue costs (5,347) -
Transfer to revenue of pre-acquisition
distribution received (124,476) -
Transfer to revenue of
distribution prepaid received in advance (67,130) -
Revenue movements - -
Net profit for the period 1,088,643 875,932
Transfers to capital (660,871) (600,685)
Unclaimed distributions written back - 323
Pre-acquisition dividend received 124,476 -
Transfer to revenue of
distribution prepaid received in advance 67,130 -
Available for distribution 619,378 275,570
Distribution attributable to unitholders (619,378) (275,570)
Unitholders` funds at end of period 8,433,253 2,375,610
12 months to 17 months to
ABRIDGED CONSOLIDATED 31/12/07 31/12/06
CASH FLOW STATEMENT (R000) (Reviewed) (Audited)
Net cash flow from operating activities 17,264 (12,150)
Net cash flows from investing activities (5,578,153) (529,948)
Net cash flows from financing activities 5,603,673 497,665
Net increase/(decrease) in cash resources 42,784 (44,433)
Cash resources at beginning of year 22,096 66,529
Cash resources at end of period 64,880 22,096
12 months to 17 months to
31/12/07 31/12/06
OTHER INFORMATION (R000) (Reviewed) (Audited)
Debt funding facility
Loan and guarantee facilities 2,840,339 750,000
Difference between facility and
funding capacity (300,000) 181,000
Total debt funding capacity 2,540,339 931,000
Less: Facility utilised
(debt and guarantees issued) (705,799) (652,665)
Loan capacity available at end of period 1,834,540 278,335
Adjusted for future capital
commitments and proceeds on disposal (714,365) (64,451)
Debt funded capital commitments (732,365) (140,861)
Expected proceeds on disposal 18,000 76,410
Anticipated available loan facility 1,120,175 213,884
Vacancy factor (based on gross lettable area) 2.7% 1.0%
Valuation analysis (cents per unit)
Net asset value (including
distribution yet to be paid) 419 340
Net tangible asset value (including
distribution yet to be paid) 370 340
Listed market price 400 340
Capital commitments (R000) 732,365 140,861
Capitalised interest (R000) 16,384 5,853
NOTES TO THE FINANCIAL STATEMENTS
These condensed financial statements have been prepared in accordance with IAS
34 and the JSE requirements. The policies and methods of computation applied are
consistent with those used in the prior period. All new and effective accounting
standards and guidelines have been adopted and have not had an impact on the
results of the group.
1. Headline earnings and distribution attributable to unitholders
12 months to 17 months to
31/12/07 31/12/06
(Reviewed) (Audited)
R 000 CPU R 000 CPU
Net profit (earnings) 1,088,643 52.10 875,932 120.79
Adjustments for:
Capital deficit on disposal of
investment properties 5,388 2,091
Write-up on revaluation of
investment properties (721,624) (606,220)
Taxation thereon 60,659 12,665
Headline earnings 433,066 20.73 284,468 39.23
Surplus on revaluation of
interest rate swap derivative - (1,602)
Unclaimed distributions
written back - 323
Straight line rental adjustment (22,300) (8,115)
Taxation thereon 17,006 496
Pre-acquisition distribution
received 124,476 -
Distribution prepaid received
in advance 67,130 -
Distributable income 619,378 32.00 275,570 38.00
Distribution attributable
to unitholders 619,378 275,570
1st interim 262,863 14.60 90,648 12.50
1st interim SA Retail once off
contribution 43,210 2.40 - -
2nd interim - - 97,926 13.50
Final 313,305 15.00 86,996 12.00
Weighted headline earnings 29.71 39.23
2. Acquisition of SA Retail Properties Limited
12 months to
31/12/2007
(Reviewed)
R000
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 SA Corporate units
on a ratio of 3.05 units for every SA Retail share 3,404,512
Settled by cash 398
Transaction costs 26,594
3,431,504
Net assets acquired
Investment property 3,594,780
Other assets 104,955
Other liabilities (1,277,325)
Net assets 2,422,410
Goodwill 1,009,094
Had the Fund owned SA Retail for the full year under review
the revenue would have been R 861 million and the net profit
would have been R 1 278 million
3. Primary operational segments (R000)
Business segment Industrial Office Retail Group
Extract from income statement
Rental Income 206,761 47,654 322,417 576,832
Straight line rental adjustment 12,365 4,513 5,422 22,300
219,126 52,167 327,839 599,132
Net property income 15,142 7,921 28,532 51,595
Segment result 203,984 44,246 299,307 547,537
Write-up on revaluation of
investment properties
excluding straight line
adjustment, net of taxation 331,490 95,014 239,755 666,259
Other information
Properties 2,859,930 620,760 4,828,644 8,309,334
As per valuations 2,914,985 630,962 4,923,318 8,469,265
Straight line rental adjustment (55,055) (10,202) (94,674) (159,931)
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice is hereby given of the declaration of distribution no. 26 in respect of
the income distribution period 1 July 2007 to 31 December 2007. The distribution
amounts to 15,00 cents per unit.
Last date to trade cum distribution Thursday, 13 March 2008
Units will trade ex-distribution Friday, 14 March 2008
Record date to participate in the distribution Thursday, 20 March 2008
Payment of distribution Tuesday, 25 March 2008
Unit certificates may not be dematerialised or re-materialised
between Friday, 14 March and Thursday, 20 March 2008 both days inclusive.
OLD MUTUAL INVESTMENT GROUP PROPERTY INVESTMENTS (PTY) LTD
SECRETARIES
22 February 2008
SA Corporate Real Estate Fund Managers Limited
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
PO Box 207 PO Box 61051
Durban 4000 Marshalltown 2107
Tel: (031) 366 - 1111
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: A Beattie, N Corbishley, GP Mthethwa, P Zagaretos
Date: 25/02/2008 07:01:25 Produced by the JSE SENS Department.
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