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EMI
EMI
EMI - Emira - Unaudited Interim Financial Results for the Six Months Ended 31
December 2008 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" or "the Fund")
Unaudited interim financial results for the six months ended 31 December 2008
and income distribution declaration
- Distributions per PI 48,79 cents representing like-on-like growth
of 10,0%
- 6-month total return 293,7 cents or 35,9%
- Available debt facilities of R664m
Condensed balance sheet
Unaudited Unaudited Audited
31 Dec 2008 31 Dec 2007 30 June 2008
R`000 R`000 R`000
Assets
Non-current assets
Investment properties 7 525 631 7 516 063 7 305 166
Allowance for future rental 142 869 119 038 130 004
escalations
Unamortised upfront lease costs 44 423 24 483 37 631
7 712 923 7 659 584 7 472 801
Current assets
Accounts receivable and 35 641 56 975 41 673
prepayments
Derivative financial - 45 868 189 953
instruments
Cash and cash equivalents 46 676 38 610 68 825
82 317 141 453 300 451
Non-current assets held for 47 329 - 18 635
sale
Total assets 7 842 569 7 801 037 7 791 887
Equity
Participatory interest holders` 5 647 167 5 905 068 5 761 040
capital and reserves
Non-current liabilities
Redeemable preference shares 200 000 90 000 90 000
Interest-bearing debt 1 138 775 1 137 522 1 137 204
Deferred taxation 295 040 306 767 312 672
1 633 815 1 534 289 1 539 876
Current liabilities
Short-term portion of long-term 100 000 - 100 000
interest-bearing debt
Accounts payable 163 974 144 301 155 896
Derivative financial 57 167 - -
instruments
Distributions payable to 240 446 217 379 235 075
participatory interest holders
561 587 361 680 490 971
Total liabilities 2 195 402 1 895 969 2 030 847
Total equity and liabilities 7 842 569 7 801 037 7 791 887
Condensed income statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 Dec 2008 31 Dec 2007 30 Jun 2008
R`000 R`000 R`000
Revenue 531 901 460 559 944 198
Operating lease rental
income and tenant recoveries 519 036 452 109 924 783
Allowance for future rental 12 865 8 450 19 415
escalations
Property expenses (172 746) (134 645) (271 632)
Management expenses (15 590) (17 723) (33 431)
Administration expenses (18 313) (15 418) (32 976)
Depreciation (5 392) (7 555) (9 902)
Profit from property rental 319 860 285 218 596 257
operations
Net fair value 95 957 295 673 (10 580)
gain/(deficit) on investment
properties
Change in fair value as a (12 865) (8 450) (19 415)
result of straight-lining
lease rentals
Change in fair value as a (6 792) (417) (13 565)
result of amortising upfront
lease costs
Change in fair value as a 115 614 304 540 22 400
result of property
appreciation in value
Maintenance fund expenses - (3 971) (3 977)
IFRS 2 adjustments in - (5 914) (5 914)
respect of PI-based payments
Profit before finance costs 415 817 571 006 575 786
Finance (costs)/income - net (312 215) (56 728) 27 606
Interest paid and amortised (57 931) (58 891) (115 273)
borrowing costs
Interest capitalised to cost 886 2 791 7 635
of developments
Preference share dividends (8 050) - (8 213)
paid*
Unrealised (loss)/gain on (247 120) (628) 143 457
interest rate swaps
Investment income 6 143 1 503 5 864
Profit for the period before 109 745 515 781 609 256
taxation
Deferred taxation 17 633 (47 284) (53 189)
STC on preference share (805) (397) (821)
dividends paid
Net profit for the period 126 573 468 100 555 246
*In 2008 preference share dividends paid have been included in finance
costs. In 2007 the preference share dividend paid amounted to
R3 978 000 and was included in the statement of changes in equity and not
expensed in the income statement.
Reconciliation between
earnings and headline
earnings and distributions
payable
Net profit for the period 126 573 468 100 555 246
Adjusted for:
Net fair value (95 957) (295 673) 10 580
(gain)/deficit on investment
properties
Deferred taxation on (420) 47 284 34 049
revaluation of investment
properties
Headline earnings 30 196 219 711 599 875
Adjusted for:
Allowance for future rental (12 865) (8 450) (19 415)
escalations
Amortised upfront lease (6 792) (417) (13 565)
costs
Unrealised loss/(gain) on 247 120 628 (143 457)
interest rate swaps
IFRS 2 adjustments in - 5 914 5 914
respect of PI-based payments
Maintenance fund expenses - 3 971 3 977
Deferred taxation - other (17 213) - 19 140
Preference share dividends - (3 978) -
paid
Distribution payable to 240 446 217 379 452 469
participatory interest
holders
Distribution per
participatory interest
Interim (cents) 48,79 44,34 44,34
Final (cents) - - 47,70
48,79 44,34 92,04
Number of PIs in issue at 492 818 989 492 818 989 492 818 989
the end of the period
Weighted average number of 492 818 989 489 641 031 491 221 327
PIs in issue
Earnings per participatory 25,68 95,60 113,03
interest (cents)
The calculation of earnings per participatory interest is based on net
profit for the period of R126,6 million (2007: R468,1 million), divided
by the weighted average number of participatory interests in issue during
the period of 492 818 989 (2007: 489 641 031).
Headline earnings per 6,13 44,87 122,12
participatory interest
(cents)
The calculation of headline earnings per participatory interest is based
on net profit for the period, adjusted for the non-trading items, of
R30,2 million (2007: R219,7 million), divided by the weighted average
number of participatory interests in issue during the period of 492 818
989 (2007: 489 641 031).
Headline earnings for 2007 have been adjusted to comply with SAICA
circular 8/2007 which is applicable for financial periods ending on or
after 31 August 2007.
Condensed cash flow statement
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 Dec 2008 31 Dec 2007 30 Jun 2008
R`000 R`000 R`000
Cash generated from 324 129 261 609 574 925
operations
Investment income 6 143 1 503 5 864
Interest paid (57 931) (58 891) (115 273)
Taxation paid (805) (397) (764)
Preference share dividends (8 050) (3 978) (8 213)
paid
Distribution to participatory (235 075) (103 959) (321 353)
interest holders
Cash flows from operating 28 411 95 887 135 186
activities
Acquisition of, and additions
to, investment properties and
furniture
and equipment (179 193) (218 357) (327 061)
Proceeds on sale of 18 633 170 500 170 500
investment properties and
furniture and equipment
Cash flows from investing (160 560) (47 857) (156 561)
activities
Issue of participatory - 45 460 45 398
interests
Preference shares issued 110 000 - -
Increase/(decrease) in - (68 766) 30 916
interest-bearing debt
Cash flows from financing 110 000 (23 306) 76 314
activities
Net (decrease)/increase in (22 149) 24 724 54 939
cash and cash equivalents
Cash and cash equivalents at 68 825 13 886 13 886
the beginning of the period
Cash and cash equivalents at 46 676 38 610 68 825
the end of the period
Basis of preparation and accounting policies
The annual 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 2008.
Condensed statement of changes in equity
Fair value
Participatory and other Retained
interest reserves earnings Total
R`000 R`000 R`000 R`000
Balance at 1 3 512 323 2 095 973 (1 345) 5 606 951
July 2007
Net profit for - - 468 100 468 100
the period
Distribution to - - (217 379) (217 379)
participatory
interest holders
Issue of 45 460 - - 45 460
participatory
interests
IFRS 2 5 914 (5 914) 5 914 5 914
adjustment in
respect of PI-
based payments
Transfer to fair - 252 657 (252 657) -
value reserve
(net of deferred
taxation)
Preference share - - (3 978) (3 978)
dividends paid
Balance at 31 3 563 697 2 342 716 (1 345) 5 905 068
December 2007
Balance at 1 3 563 635 2 198 750 (1 345) 5 761 040
July 2008
Net profit for - - 126 573 126 573
the period
Distribution to - - (240 446) (240 446)
participatory
interest holders
Transfer to fair - (113 873) 113 873 -
value reserve
(net of deferred
taxation)
Balance at 31 3 563 635 2 084 877 (1 345) 5 647 167
December 2008
Related parties and related party transactions
Momentum Group ("Momentum") is the major participatory interest holder. At 31
December 2008, Momentum owned 36,2% 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 51,4% were widely held.
The following transactions were carried out with related parties:
Unaudited Unaudited Audited
Six months Six months Year
ended ended ended
31 Dec 2008 31 Dec 2007 30 Jun 2008
R`000 R`000 R`000
Strategic Real Estate Managers
(Proprietary) Limited
Expenditure comprising asset 15 590 17 723 33 431
management fees
Relationship: Associated
company of the FirstRand Group
Rand Merchant Bank, a division
of FirstRand Bank Limited
Long-term interest-bearing debt 750 000 644 625 750 000
Net finance cost in respect of 34 990 34 980 68 324
long-term interest-bearing debt
Cash on call 16 000 - 39 589
Finance income on cash on call 3 856 - 1 214
Relationship: Associated
company of the FirstRand Group
Eris Property Group 141 301 198 195 248 098
(Proprietary) Limited/RMB
Properties (Proprietary)
Limited
Expenditure comprising property 31 203 22 044 48 097
management fee and letting
commissions
Purchase consideration of TIS 90 100 - -
Corporate Park
Purchase consideration of - 29 598 29 897
Faerie Glen Phase 4
Purchase consideration of RTT - 25 875 25 875
Acsa Park
Development expenditure 19 998 120 678 144 229
Relationship: Associated
company of the FirstRand Group
Momentum Limited
Purchase consideration of - - 26 259
Builders Express
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.
Segmental information
Retail Office Industrial
Sectoral segments R`000 R`000 R`000
Revenue 208 724 242 387 80 790
Revenue 203 719 236 535 78 782
Allowance for future rental 5 005 5 852 2 008
escalations
Segmental result
Net income from property 127 480 152 919 56 942
rental operations
Investment properties 2 734 651 3 643 111 1 382 490
Geographical segments
Revenue
- Gauteng 138 843 176 798 59 680
- Western and Eastern Cape 17 113 29 793 6 131
- KwaZulu-Natal 31 344 20 658 12 966
- Free State 16 418 9 292 -
203 718 236 541 78 777
Investment properties
- Gauteng 1 873 886 2 695 629 1 079 130
- Western and Eastern Cape 243 640 545 782 134 700
- KwaZulu-Natal 417 705 292 800 168 660
- Free State 199 420 108 900 -
2 734 651 3 643 111 1 382 490
Segmental information (continued)
Adminis-
trative and
corporate Total
Sectoral segments R`000 R`000
Revenue - 531 901
Revenue - 519 036
Allowance for future rental - 12 865
escalations
Segmental result -
Net income from property rental (17 481) 319 860
operations
Investment properties - 7 760 252
Geographical segments
Revenue
- Gauteng - 375 321
- Western and Eastern Cape - 53 037
- KwaZulu-Natal - 64 968
- Free State - 25 710
- 519 036
Investment properties
- Gauteng - 5 648 645
- Western and Eastern Cape - 924 122
- KwaZulu-Natal - 879 165
- Free State - 308 320
- 7 760 252
Acquisitions
Properties purchased and transferred to Emira during the six months to 31
December 2008
Purchase
Property Sector Location GLA (m2) price (Rm)
TIS Corporate Park Industrial Midrand 15 184 90,1
Kosmos Flats Residential Bloemfontein 1 841 8,8
Properties purchased and transferred to Emira during the six months to 31
December 2008 continued
Forward Effective Key
Property yield (%) date tenants
TIS Corporate Park 8,0 19 Nov 08 TIS
Kosmos Flats 6,1 24 Oct 08 Multi-tenanted
TIS Corporate Park is a newly developed, prime industrial warehouse located in
Corporate Park North, Midrand. Technology Integrated Solutions (Proprietary)
Limited (TIS), which is a subsidiary of Aberdare Cables (Proprietary) Limited,
has signed a 5-year lease over approximately 6,500m2. The balance of the vacant
space is covered in terms of a gross rental warranty from Eris Property Group
for a period of eighteen months from completion.
The Kosmos flats are located immediately west of Brandwag Shopping Centre, also
owned by Emira, which together have excellent exposure to Nelson Mandela Drive
in Bloemfontein and are earmarked for future redevelopment by the Fund.
Property acquisitions approved by the Board, subject to Competition Commission,
not yet transferred to Emira:
Purchase
Property Sector Location GLA (m2) price (Rm)
Discovery Office Highveld Technopark, 4 055 41,7
Centurion
Spoor & Fisher Office Highveld Technopark, 3 910 38,5
Centurion
Properties purchased but yet to be transferred to Emira continued
Forward Anticipated
Property Yield (%) effective date Key tenants
Discovery 10,5 On transfer Discovery
Spoor & Fisher 10,3 On transfer Spoor & Fisher
Both the Discovery and Spoor & Fisher buildings are modern, well located, and
have long-term leases - four and six-years respectively - with blue-chip
tenants.
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.
Properties transferred out of Emira during the six months to 31 December
2008
Property Sector Location GLA Valuation
(m2) Jun `08
(Rm)
Kuehne & Office Durban 2 140 8,8
Nagel House
Georgian Office Kelvin 521 2,4
Place
(portion of
sectionalised
offices/wareh
ouse)
Barvic House Office Randburg 3 322 9,9
Properties transferred out of Emira during the six months to 31 December 2008
continued
Property Sale Exit Effective
Price Yield Date
(Rm) (%)
Kuehne & 8,8 10,5 15 July 2008
Nagel House
Georgian 2,4 7,8 29 Sept 2008
Place
(portion of
sectionalised
offices/wareh
ouse)
Barvic House 9,9 6,4 30 Sept 2008
Vacancies
The portfolio vacancy at the end of December 2008 was 6,1%, a significant
improvement from 6,8% in June 2008. This drop in vacancy is attributable to
lettings at Lake Buena Vista (6 894 m2),
Barracuda (1 354 m2), Hurlingham Office Park (1 000 m2), Epsom Downs Office Park
(950 m2) and Market Square (800 m2).
GLA (m2) Jun 08 Vacancy Jun 08 %
Office 442 074 47 211 10,7
Retail 378 303 16 626 4,4
Industrial 367 648 16 628 4,6
Total 1 188 025 80 465 6,8
Vacancies (continued)
Dec 08 Vacancy Dec 08 %
Office 439 839 42 626 9,7
Retail 378 059 16 469 4,4
Industrial 380 839 14 013 3,7
Total 1 198 737 73 108 6,1
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
Jun 2008 Dec 2008
Sector (R`000) R/m2 (R`000)
Office 3 467 316 7 843 3 643 111
Retail 2 695 890 7 126 2 734 651
Industrial 1 328 230 3 613 1 382 490
Total 7 491 436 7 760 252
Valuations (continued)
Total portfolio movement
continued
Difference Difference
Sector R/m2 (%) (R`000)
Office 8 283 5,1 175 795
Retail 7 233 1,4 38 761
Industrial 3 630 4,1 54 260
Total 268 816
Debt
Emira`s balance sheet is relatively lowly geared (18,4% debt to total assets),
with available debt facilities at attractive margins which will enable the Fund
to acquire good quality properties with sustainable income streams.
As at 31 December 2008 Emira had a total debt facility (including preference
shares) available of R1,6 billion, of which R1,45 billion had been accessed.
Subsequent to the end of the period, Emira has agreed to a further loan facility
from FirstRand Bank Limited of R664 million, taking the Fund`s granted
facilities to R2,26 billion.
During the period Emira engaged in swap agreements which reduced the interest
rate payable on the preference shares (R200 million) from a floating rate to a
more favourable fixed rate. Subsequent
to year-end, these two short-term swaps have been forward fixed for a further 10
years. As a result, all of the Fund`s debt has been fixed for periods of between
four and 12 years. As at 31 December 2008, the weighted average cost of debt
equated to 9,59%.
Rate % Term
1. Debt - Swap 10,28 January 2010
- Extended 9,87 January 2020
2. Debt - Swap 9,69 September 2011
- Extended 9,79 September 2021
3. Debt - Swap 9,78 April 2013
4. Debt - Swap 9,20 June 2013
5. Debt - Swap 9,66 December 2014
Total 9,59
Debt (continued)
Amount % of debt
(Rm)
1. Debt - Swap 90,0 6,2
- Extended
2. Debt - Swap 110,0 7,6
- Extended
3. Debt - Swap 650,0 44,8
4. Debt - Swap 500,0 34,5
5. Debt - Swap 100,0 6,9
Total 1 450,0 100,0
Less: Costs (11,2)
capitalised not yet
amortised
Per balance sheet 1 438,8
Commentary
The Board of directors of Strategic Real Estate Managers (Proprietary) Limited
("STREM") is pleased to announce a distribution of 48,79 cents per Emira
participatory interest (PI) for the six months to 31 December 2008. This
represents growth in distributions of 10,04% on the previous comparable period.
Emira PI holders enjoyed a healthy total return of 35,9% during the six months
to 31 December 2008, comprising capital appreciation of 30,0% and an income
return of 5,9%, which represents the distribution paid out for the six months to
30 June 2008. This robust performance in Emira`s PI price was ahead of the SA
Listed Property Index, which benefitted from a sharp 350bp downward movement in
long bond yields during the period. The percentage of weighted average PIs in
issue that traded in the six-month period equated to 16,8%.
Emira`s portfolio performed well during the period, with vacancies declining and
double-digit upward rental reversions on new leases and renewals. Despite this
good performance, operating conditions in the commercial property market as a
whole deteriorated towards the end of 2008, as the impact of rising municipal
rates and electricity charges, as well as slower economic growth filtered
through to tenants. This has resulted in rising arrears, a reluctance on the
part of tenants to take on new space, and rental growth becoming more subdued.
After an active financial year to June 2008 in which numerous capital projects
were completed, the pipeline of activity within the portfolio slowed during the
period under review as a result of higher required returns, continually rising
building costs and slowing demand from potential tenants.
The project pipeline comprised:
- Five extensions and refurbishments of R28 million were completed during the
period, the largest of which were: the construction of a new Pick `n Pay Daily
Store at WorldWear (R10,1 million) and general upgrades at Woodmead Office Park
(R6,6 million);
- One new development - TIS Corporate Park (R90,1 million) - was acquired
during the period;
- Three projects worth approximately R60 million are still underway, which
include the refurbishment of Granada Centre in Umhlanga Rocks (R40 million) and
a general upgrade of Wesbank House in the Cape Town CBD (R11 million).
Results
Excluding the straight-line adjustments from future rental escalations, revenue
rose by 14,8% over the comparable period. This was the result of lower vacancies
during the period, the inclusion of the acquired properties from the effective
dates, as well as the conclusion of several capital projects in the previous
financial year which contributed for the full period under review.
Property expenses, when adjusted for amortised upfront lease costs, rose by
32,9%, as a result of increased municipal charges across the bulk of the
portfolio and a higher provision for legal arrears.
The lower PI price during the period resulted in management and administration
fees showing a 2,3% rise over the six months to December 2007. Net interest
costs excluding unrealised gains or losses on interest rate swaps rose by 1,3%
as a result of lower debt costs on funds raised on the debt capital markets in
March 2008, favourable funding through the issue of preference shares, as well
as the benefit of higher interest rates earned on cash on deposit.
Net asset value declined marginally (-2,0%) in the six months from 1 169 cents
(1 232 cents excluding the deferred tax provision) to 1 146 cents (1 206 cents),
largely as a result of a reduction in the fair value of derivative financial
instruments. After two years of achieving unrealised gains in respect of the
revaluation of derivative financial instruments, the recent sharp reduction in
long term interest rates has resulted in an unrealised loss on interest rate
swaps of R247,1m. This has no impact on the distribution payable by the Fund.
Directorate
Mr W McCurrie was appointed to the Board on 11 December 2008 as a non-executive
director.
Prospects
The tougher trading environment across the South African commercial property
market is expected to prevail for the balance of 2009. Maintaining occupancy
levels and collecting rental income due to the Fund will therefore be even more
important than normal during this period.
Nonetheless, with a growing income stream from the Fund`s existing portfolio,
the benefit of the earnings enhancing capital expenditure programmes over the
past two years and favourable interest rates on its debt, the STREM Board
believes that the Fund will show similar growth in distributions for the year
ending 30 June 2009. This profit forecast has not been reviewed or reported on
by the Fund`s auditors.
Income Distribution Declaration
Notice is hereby given that an interim cash distribution of 48,79 cents (2007:
44,34 cents) per participatory interest has been declared payable to
participatory interest holders, payable on 16 March 2009.
Last day to trade cum distribution Friday, 6 March 2009
Participatory interest trade ex distribution Monday, 9 March 2009
Record date Friday, 13 March 2009
Payment date Monday, 16 March 2009
PI certificates may not be dematerialised or rematerialised between Monday, 9
March 2009 and Friday, 13 March 2009, both days inclusive.
By order of the STREM Board
Desiree Isserow Ben van der Ross James Templeton
Company secretary Chairman Chief executive officer
Sandton
17 February 2009
Fund Manager: Strategic Real Estate Managers (Proprietary) Limited
Directors of the fund manager: BJ van der Ross (Chairman)*,
JWA Templeton (Chief executive officer), MS Aitken*, LS Barnard*,
BH Kent*, NE Makiwane*, W McCurrie*, MSB Neser*, WK Schultze, NL Sowazi*, PJ
Thurling *Non-executive director
Registered address: 3 Gwen Lane, Sandton, 2146
Sponsor: Rand Merchant Bank (a division of FirstRand Bank Limited)
Transfer secretaries: Computershare Investor Services (Proprietary) Limited, 70
Marshall Street, Johannesburg, 2001
www.emira.co.za
Date: 17/02/2009 16:15:02 Produced by the JSE SENS Department.
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