| Fri 31 Oct 2008, 8:00 | | SAT - SA Reit - Audited Consolidated Results For The Year Ended 31 August 2008 |
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SAT - SA Reit - Audited Consolidated Results For The Year Ended 31 August 2008
SA REIT LIMITED
(Incorporated in the Republic of South Africa)
(Company registration number 2000/018084/06)
Share code: SAT ISIN: ZAE000104196
("SA REIT") (the "company")
AUDITED CONSOLIDATED RESULTS FOR THE YEAR ENDED 31 AUGUST 2008
KEY FINANCIAL INDICATORS R`000
Total contractual rental income 28 662
Investment property portfolio 369 610
Development assets 84 229
Borrowings 125 923
Market capitalisation at year end 289 762
Share Trading profits 13 816
Headline Earnings Per Share 1.54 cents
Basic Earnings Per Share 7.47 cents
Net Asset Value Per Share 53.3 cents
COMMENTARY
1. Presentation of Audited Annual Financial Statements
SA REIT is a company domiciled in the Republic of South Africa. The financial
statements were approved and authorised for issue by the board of directors on
29 October 2008. The financial statements have been prepared on the going
concern basis using a combination of the historical cost and fair value basis
of accounting in accordance with International Financial Reporting Standards
(IFRS) including IAS 34, and in the manner required by the Companies Act of
South Africa.
The accounting policies have been applied consistently to all periods presented
in these results. These annual financial statements are presented in South
African Rands, which is the functional currency of the company. The
preparation of financial statements requires management to make judgements,
estimates and assumptions that effect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates. Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised and in any future
periods affected.
KPMG Inc., the company`s auditors, has issued an unqualified audit opinion on
the annual financial statements for the year ended 31 August 2008, which is
available for inspection at the company`s registered office. These financial
statements have been summarised for the purposes of this announcement.
2. Code of Corporate Practice and Conduct
The directors of SA Reit are committed to the principles of sound corporate
governance as contained in the King II Code on Corporate Practices and Conduct
for South African business and other public entities. The directors endorse and
accept responsibility for the application of the principles and intend
complying with King II in both letter and spirit.
Directors are required to observe the highest ethical standards ensuring its
business practices are conducted professionally and beyond reproach.
3. General review of operations
Against the background of double digit growth in capital and income of the
property sector since 2002 to the current environment where we have witnessed
unprecedented volatility in world markets, the property market is certainly
facing challenges and interesting times ahead. The volatility stems from the
credit crunch of the sub-prime crisis, global inflation, rising interest rates
and a weakening Rand, world economic growth slowing and even leading to
recession, local political change and electricity shortages.
South African demand fundamentals for property still remain strong and our
limited zoned land availability, inflationary building costs, high interest
rates and the time lag of new developments are all factors that bode well for
the sector. It`s during these key times that management must keep focused and
have the ability to seek opportunities.
The year ended 31 August 2008 is the first financial year of operations of the
company since it was taken out of provisional liquidation and winding up during
October 2007. At that time the company was recapitalised and a core investment
portfolio was acquired from various vendors totalling R370,75 m. This was
funded largely by new capital raised and a limited amount of borrowings.
The company`s suspension was lifted and trading on the JSE commenced on
8 October 2007.
Being the first year of operations makes it impossible to compare meaningfully
the current year`s results to the prior year`s performance. The contractual
revenue comprising net rental income of R22.4 m was not received for a full
year as many of the properties were only transferred to the company during the
course of the year.
The initial focus was on bedding down the core portfolio and on sweating the
assets to ensure they are well placed to deliver quality earnings in the
future. Each property had been acquired with specific value add opportunities
that will be unlocked in the years to come.
The company`s focus is not only to build investment income. Management is also
driven to deliver trading profits from both direct property and listed
property. The underlying asset will always remain property based. During this
maiden year share trading profits of R13,8 m were made. This resulted from the
sale of ApexHi A and B units owned by the company at an average price of R18.98
per unit. The proceeds of these sales were applied to acquiring new investment
properties.
Another core focus of the company is to establish suitable Joint Venture
partners. During the period under review two such relationships were
established. These JV arrangements bring additional skills to the company and
broaden our access to enable better deal making opportunities. The first such
JV was established with Madison Property Fund Managers and Redefine Income Fund
on the Dock Road Development, (detailed below) and the second with the Melrose
Trust on the Virgin Active Building acquired during January 2008. Both of these
buildings stand to become significant assets as they are more fully developed
into the future.
Other strategic relationships with Trematon Capital Investments Limited, The
Rabie Property Group, Nedbank and Absa are key to the success of the company.
The skills base of these parties, through active participation with management,
provides SA Reit with a unique knowledge base and network.
The portfolio and business is sound and well poised for the future.
4. Portfolio Activities
22 LONG STREET AND 33 WATERKANT STREET
The upgrade of these two buildings commenced in March 2008 and was completed
during August 2008. The extent of the refurbishment entailed remodelling the
facades of the buildings and an extensive renovation to the common areas and
ablutions of the buildings. The total capital spent on this project amounted to
R11million. All the vacant floors of 22 Long which were previously covered by a
rental guarantee from the vendor have been let barring 1 559 sqm which remains
vacant. Similarly 33 Waterkant which was acquired vacant has been let with only
84 sqm remaining vacant at the year end. The upgrade has enabled us to achieve
significant upward revisions in gross rentals with the resultant expected
initial return on the complex of 11%.
REEDS, MASTER TYRE AND AFRICAN WHOLESALERS
This significant grouping of properties situated in the heart of Culemborg in
the Cape Town Foreshore region has in total 21 000 sqm of additional bulk for
future development. This remains a strategic site and opportunity to develop
going forward. Management has begun to investigate various opportunities for
this site.
1 DOCK ROAD (formerly known as the Curry and CMH Buildings)
Formal planning applications were made to the City of Cape Town during the
period. Due to certain departures being applied for and the public
participation required as a result of the proposed development taking place in
an urban conservation zone , commencement of this scheme is only likely to
begin during the 2009 financial year. 50 % of the development was sold to
Outward Investments, a wholly owned subsidiary of Redefine Income Fund Ltd.
This was done in order to reduce risk and furthermore to attract the skills
base of a strong joint venture party.
The total proposed development will comprise approximately 25 000sqm of gross
lettable area and a total capital investment of over R650m. The development
will take over two years to complete and is set to become one of Cape Town`s
landmark buildings.
ACQUISITIONS
During the year under review further strategic acquisitions were made growing
the portfolio by R71,5m. Details of the 3 properties acquired during the period
are:
VIRGIN ACTIVE - LONG STREET
This property is one of the last remaining older generation properties situated
in the heart of the rejuvenated Cape Town International Convention Centre node.
It is 100% occupied by Virgin Active on a fully repairing basis. The building
was acquired due to its strategic position and future development potential as
evidenced by the 16 000 sqm of available development bulk.
ERF 38746 BELLVILLE
One of the last remaining development sites in the heart of Tygervalley
situated in the Northern Suburbs of Cape Town. The site measures 7 916sqm in
extent and has available development bulk of 11 000sqm. Formal site
development plans have been submitted to Council. Expected total development
costs of this project are in the region of R200m. This scheme will only
commence once suitable tenants have been secured to occupy the building.
COIN SECURITY BUILDING
An industrial building comprising 2 664sqm of lettable area situated in Airport
Industria, Cape Town.
This property is highly visible and enjoys frontage onto the main road
approaching Cape Town International Airport.
BORROWINGS
The company achieved an average borrowing cost of 13,2% for the year. As at 31
August 2008, 100% of the borrowings remain floating. Total borrowings at year
end amounted to R125,9 m. The company has unutilised facilities of R117,1m.
The company`s gearing ratio is 27,5% at year end. This is low considering the
relatively high value of development assets in the portfolio.
The subsequent events item, covered in the detailed annual financial
statements, relating to the acquisition of the Santam building will result in
the gearing ratio of the company increasing to 45%. On transfer of the said
property, anticipated to be 31 October 2008, it is intended to hedge an
appropriate portion of the borrowings.
PORTFOLIO INFORMATION
VACANCIES
Vacancies amount to 3.7% of the total GLA of the portfolio, and fall within the
office category. This vacancy is primarily due to the redevelopment of 22 Long
Street. The refurbishment of the office space has now come to an end which will
ensure the take up of the vacant space shortly.
No significant vacancies are anticipated in the forthcoming financial year.
LEASE EXPIRY PROFILE
The lease expiry in the first year equates to 12.4% of the total GLA of the
portfolio, and is equally divided between the industrial and retail sectors.
The industrial tenant expiry in 2009 is vacating at the end of their lease and
the property is currently being extensively marketed. The retail leases are
spread evenly across different locations and re -letting of such space should
not be a problem.
COST TO INCOME RATIOS
Gross expenses ratio of 16% is reflected as a percentage of gross income
including recoveries. The net cost ratio of 10% is what the Company carries as
a landlord. These ratios are within acceptable norms for the industry.
SECTORAL SPREAD OF THE PORTFOLIO
In all instances, the concentration of the portfolio is in the office sector.
This sector is seen to be the one where superior growth opportunities are
expected in the future.
GEOGRAPHICAL SPREAD OF THE PORTFOLIO
The concentration of the portfolio is in the Western Cape region. This is in
line with the company`s strategy to remain focussed within this region.
5. Subsequent events
ACQUISITION
The company entered into an offer to purchase a building, situated between
Sportica Crescent and Carl Cronje Drive, Tygervalley, Bellville known as the
Santam Corporate Office Complex for a total consideration of R177 500 000. The
property is tenanted by Santam Limited on a triple net basis for an initial
period of 10 years. The purchase price is to be settled in cash and will be
funded through borrowings. Transfer of the property to the company is expected
on or about 31 October 2008. Full details of this transaction were communicated
to shareholders in a circular posted to shareholders dated 8 October 2008.
COMPANY NAME CHANGE
In a detailed circular posted to shareholders dated 8 October 2008 a special
resolution proposing that the company name be changed to Ingenuity Property
Investments Limited was tabled. The resolution was passed at the meeting of
shareholders held on 30 October 2008.
Following discussions held between the company and the Property Loan Stock
Association of South Africa ("PLSA"), it was agreed to change the name. The
PLSA and the company believe that the reference to "Reit" in the company`s name
could or may become confusing in light of impending legislation around the
establishment of Reit structures in South Africa. The name change has been
reserved with the Registrar of Companies and will be effective on the JSE from
the commencement of business on Monday 24 November 2008.
6. Prospects
The company`s management is focused on creating a leading Cape based
development and investment property company. Despite current uncertain economic
times and a depressed consumer environment, management remain confident that
they will continue to enhance shareholder wealth through increases in earnings
and net asset growth.
For and on behalf of the Board
ARNOLD AARON MARESKY
Chief Executive Officer
Cape Town
30 October 2008
Directors: M Kaplan (Chairman)*, J Bielich, L H Cohen*, D B Fabian*, A Groll*,
A A Maresky (CEO), R S Schur*, A J Shapiro*, A Varachhia*,
M Wagenheim *non-executive
Company secretary: M Wagenheim
Registered office: Suite 102, INTABA, 25 Protea Road, Claremont,
Cape Town. 7708.
Postal address: Suite 102, INTABA, 25 Protea Road, Claremont, Cape Town. 7708.
Contact details: tel: 021 674 5170. fax: 021 674 5135.
e-mail: info@sareitltd.com
Transfer secretaries: Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg . 2001 (PO Box 61051,
Mars halltown. 2107)
Bank: ABSA Bank Ltd, 1st Floor Tijgerpark IV Building,
Willie van Schoor Drive, Tyger
Valley, Bellville. 7530. (PO Box 4453, Tyger Valley, 7536)
Investment bank and Sponsor: Nedbank Capital, a division of Nedbank Ltd
3rd Floor, Corporate Place, Nedbank Sandton,
135 Rivonia Road, Sandton. 2196.
(PO Box 1144, Johannesburg . 2000)
Auditors: KPMG Inc., 1 Mediterranean Street, Foreshore, Cape Town. 8001.
(PO Box 4609, Cape Town. 8000)
Attorneys: Edward Nathan Sonnenbergs Inc., 1 North Wharf Square, Loop Street,
Cape Town. 8001. (PO Box 2293, Cape Town. 8000)
Balance sheet
at 31 August 2008 Group
2008 2007
Assets R`000 R`000
Non-current assets 464 007 20 604
Investment properties 369 610 -
Operating lease receivable 3 243 -
Investment properties under
development 84 229 -
Equipment 116 91
Investments - 20 513
Loans receivable 6 809 -
Current assets 24 993 14 173
Trade and other receivables 3 220 1 492
Cash and cash equivalents 21 773 12 681
Total assets 489 000 34 777
Equity and liabilities
Shareholders interest 345 984 29 800
Share capital 6 585 721
Share premium 281 824 559
Fair value reserve - 10 104
Non-distributable reserve 23 071 -
Treasury shares (12 878) -
Minority interest 6 719 -
Share option reserve 863 -
Retained earnings 39 800 18 416
Non-current liabilities 133 810 1 714
Financial liabilities 125 923 -
Deferred tax 7 887 1 714
Current liabilities 9 206 3 263
Loan payable - 1 509
Trade and other payables 4 590 30
Taxation 4 616 1 724
Total equity and liabilities 489 000 34 777
Income statement
for the year ended 31 August 2008 Group
2008 2007
R`000 R`000
Revenue 31 905 5 868
- Contractual 28 662 -
- Straight lining 3 243 -
Profit on disposal of investments 13 816 -
Other income 86 -
Net operating expenses (15 326) (3 687)
Profit before fair value adjustments 30 481 2 181
Fair value adjustments to investment
properties 30 086 -
Profit before interest and taxation 60 567 2 181
Interest received 2 308 2 533
Interest paid (5 143) (9)
Profit before taxation 57 732 4 705
Taxation (12 739) (732)
Profit for the year 44 993 3 973
Attributable to:
Equity holders of the parent 44 455 3 973
Minority interest- Melrose Trust 538 -
44 993 3 973
Cents Cents
Basic and diluted earnings per share 7.47 5.51
Headline earnings per share 1.54 1.35
The calculation of earnings per share is based on a weighted number of 595 033
434 (2007: 72 114 720) shares in issue during the year. Headline earnings are
calculated as follows:
R`000 R`000
Earnings attributable to equity holders 44 455 3 973
Fair value adjustment of investment properties (30 086) -
Deferred tax on fair value adjustment 6 675 -
Profit on disposal of investments (13 816) (3 335)
Tax on realised profit 1 934 334
Statements of changes in equity
Share
Share Share option
for the year ended 31 August 2008 capital premium reserve
R`000 R`000 R`000
Group
Balance at 1 September 2006 721 559 -
Profit for the year - - -
Fair value gain on available -for -sale
investments - - -
Balance at 31 August 2007 721 559 -
Balance at 1 September 2007 721 559 -
Issue of 643 000 000 shares 5 709 279 734 -
Listing costs written off - (6 126) -
Repurchase of 1 450 000 shares (15) (673 ) -
Issue of 17 000 000 shares 170 8 330 -
Transfer of fair value reserve to the income
statement - - -
Cost and subsequent expenditure on Virgin
Active building - - -
Profit for the year - - -
Share option expense - - 863
Purchase of 9 837 419 treasury shares - - -
Transfer to non-distributable reserve - - -
Balance at 31 August 2008 6 585 281 824 863
Non-
distributable Treasury Fair value
for the year ended 31 August 2008 reserve shares reserve
R`000 R`000 R`000
Group
Balance at 1 September 2006 - - 8 287
Profit for the year - - -
Fair value gain on available -for
-sale
investments - - 1 817
Balance at 31 August 2007 - - 10 104
Balance at 1 September 2007 - - 10 104
Issue of 643 000 000 shares - - -
Listing costs written off - - -
Repurchase of 1 450 000 shares - - -
Issue of 17 000 000 shares - (8 500) -
Transfer of fair value reserve to
the income
statement - - (10 104)
Cost and subsequent expenditure
on Virgin
Active building - - -
Profit for the year - - -
Share option expense - - -
Purchase of 9 837 419 treasury
shares - (4 378) -
Transfer to non-distributable
reserve 23 071 - -
Balance at 31 August 2008 23 071 (12 878) -
Retained Minority Total
for the year ended 31 August 2008 earnings interest equity
R`000 R`000 R`000
Group
Balance at 1 September 2006 14 443 - 24 010
Profit for the year 3 973 - 3 973
Fair value gain on available -for -sale
investments - - 1 817
Balance at 31 August 2007 18 416 29 800
Balance at 1 September 2007 18 416 - 29 800
Issue of 643 000 000 shares - - 285 443
Listing costs written off - - (6 126)
Repurchase of 1 450 000 shares - - (688 )
Issue of 17 000 000 shares - - -
Transfer of fair value reserve to the
income
statement - - (10 104)
Cost and subsequent expenditure on Virgin
Active building - 6 181 6 181
Profit for the year 44 455 538 44 993
Share option expense - - 863
Purchase of 9 837 419 treasury shares - - (4 378)
Transfer to non-distributable reserve (23 071) - -
Balance at 31 August 2008 39 800 6 719 345 984
Cash flow statement
for the year ended 31 August 2008 Group
2008 2007
R`000 R`000
Cash flows from operating activities
Cash generated from/(utilised in) operations 17 334 (2 785)
Interest received 1 680 2 533
Interest paid (3 797) (20)
Taxation paid (1 960) -
Net cash inflow/(outflow) from operating
activities 13 257 (272)
Cash flows from investing activities
Additions to equipment (63) (91)
Acquisition of investment properties (339 703) -
Interest capitalised to investment properties (13 209) -
Acquisition of investment properties under
development (124 683) -
Proceeds on disposal of investments 22 511 3 335
Proceeds on sale of investment property for
development 53 663 -
Increase in financial assets (6 181) -
Net cash (outflow)/inflow from investing
activities (407 665) 3 244
Cash flows from financing activities
Proceeds from the issue of shares 279 317 -
Treasury shares purchased (4 378) -
Share repurchase (688) -
Financial liabilities raised 124 577 -
Financial liabilities (repaid)/raised (1 509) 1 509
Increase in minority interests 6 181 -
Net cash inflow from financing activities 403 500 1 509
Net increase in cash and cash equivalents 9 092 4 481
Cash and cash equivalents at beginning of
year 12 681 8 200
Cash and cash equivalents at end of year 21 773 12 681
Cape Town
31 October 2008
Sponsor
Nedbank Capital
Date: 31/10/2008 08:00:05 Produced by the JSE SENS Department.
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