| Fri 19 Feb 2010, 16:00 | | SAC - SA Corporate Real Estate Fund - Reviewed Final Results And Distribution |
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SAC
SAC
SAC - SA Corporate Real Estate Fund - Reviewed Final Results And Distribution
Declaration For The Year Ended 31 December 2009
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)
("SA Corporate" or "the Fund")
REVIEWED FINAL RESULTS AND DISTRIBUTION DECLARATION FOR THE YEAR ENDED
31 DECEMBER 2009
INTRODUCTION
SA Corporate Real Estate Fund is a JSE listed Property Unit Trust which owns a
portfolio of retail, industrial and office buildings located primarily in the
major metropolitan areas of South Africa.
FINANCIAL RESULTS AND PORTFOLIO PERFORMANCE
Distributions for the twelve months amounted to 27,69cpu, 6.9% less than the
distribution for 2008 of 29,75cpu. The final distribution of 13,24cpu was
13.2% lower than the 15,25cpu in the corresponding period in 2008.
Growth of 6.5% in revenue was offset by an in increase of 23.5% in property
expenses. The change in Municipal valuation policy, largely implemented by
June 2009, caused rates to increase by 21%, while a more conservative policy
coupled with difficult market conditions resulted in bad debt provisions
increasing by 250%. Together these two expenses accounted for 56% of the total
increase in property expenses. The combined effect resulted in the marginal
decline in net property income (-0.2%). Due to the stepped rate interest
structure and higher level of debt for the full year, distributable income was
negatively impacted by the higher interest expenses (45.7%).
Although small, the holding in Oryx (2.5% of distributions) produced an
excellent 15.2% increase in income without any change in the Fund`s holding.
The investment in Oryx was however impaired by R46,6m (2008:nil).
The arrears stabilised in the second half of 2009, with arrears as a
percentage of revenue totaling 5.7% (2008: 4.9%). However, the Fund`s more
conservative approach to bad debt provisions during difficult trading
conditions in retail centres resulted in provisions increasing to R48m (2008:
R16m). This equates to 4.3% of revenue and 87% of debtors (2008: 1.8% of
revenue and 41% of debtors).
The Fund`s retail portfolio is dominated by smaller retail centres.
Challenging retail conditions have influenced the demand for space, causing an
increase in and slower take up of vacancies curtailing market rental growth.
The rental levels achieved on renewals were up 12.8% on average on closing
rentals.
The industrial portfolio enjoyed good occupancy levels despite a relatively
weak industrial market with rental levels under pressure. A number of
noteworthy lettings have been concluded, including Paarden Eiland, Table View.
This 16 000m2 property was 100% vacant in January 2009, with only one unit of
3 439m2 remaining vacant at year end. Average gross rentals of leases renewed
during the year in respect of the industrial sector were 13.6% higher than the
closing rentals.
Gross rentals in leases renewed in the office portfolio grew by an average of
10.1%.
The positive rental growth from escalations and lease reversions has been
diluted by the increase in vacancies, and an increase in the provision for
bad debts.
The breakdown of distributable earnings is set out below:
Year ended Year ended
31/12/2009 31/12/2008
DISTRIBUTABLE EARNINGS (R000) Reviewed Audited
Rent (excluding straight line adjustment) 845,927 798,164
Net property expenses (113,416) (63,920)
Property expenses (351,336) (284,498)
Recovery of property expenses 237,920 220,578
Net property income 732,511 734,244
Interest income from associate company (Oryx) 14,412 12,511
Net funding cost (128,696) (75,385)
Interest received 39,140 39,821
Interest paid (167,836) (115,206)
Fund expenses (45,229) (44,516)
Distribution contributions 3,447 162
Prepaid distribution received in advance on
unit issues - 162
Lapsed distribution on units bought back 3,447 -
Distributable earnings 576,445 627,016
Units in issue (millions) 2,082 2,104
Distribution (cents per unit) 27,69 29,75
- Interim 14,45 14,50
- Final 13,24 15,25
REVALUATION
The value of the Fund`s property portfolio at 31 December was R8,3b (2008:
R8,8b). The portfolio, excluding Northpark Mall, contracted and unconditional
sale properties, was independently valued by CBRE on a discounted cash flow
basis.
The standing portfolio, representing properties held for the full 12 months in
both 2008 and 2009, decreased in value from 31 December 2008 by 5.1%. The
industrial portfolio decreased by 2% and both the office and retail portfolios
decreased by 7%. The decline in property values is an indication of the
current market pressures with higher capitalisation rates and higher risk
premiums in discount rates as well as market rental decreases being evident in
the valuations.
The average capitalisation and discount rates of the three property types in
the Fund`s standing portfolio at 31 December 2009, calculated on a weighted
basis, are as follows:
Property type Capitalisation rate (%) Discount rate (%)
2009 2008 2009 2008
Retail 9.6 9.2 15.0 14.7
Industrial 10.1 9.7 15.4 15.6
Offices 9.8 9.5 15.1 15.0
Portfolio total 9.8 9.4 15.2 15.0
The portfolio valuation gives rise to a NAV of 326cpu (2008: 345cpu). At the
closing price of 261 cents per unit on 31 December 2009, the units were
trading at a 20% discount to NAV (2008: 30%).
PORTFOLIO INVESTMENT ACTIVITY
The portfolio comprises 179 properties. The sectoral and geographic weightings
by value are set out below:
Sectoral Spread
Retail
55%
R4,6b
51 props
592 371m2
Industrial
35%
R2,9b
97 props
705 193m2
Offices and Other 10%
R0,8b
31 props
92 864m2
Geographic Split
Gauteng
43%
R3,6b
73 props
624 291m2
KwaZulu Natal
42%
R3,5b
77 props
567 566m2
Western Cape
9%
R0,7b
17 props
123 384m2
Other
6%
R0,5b
12 props
75 188m2
The table below sets out the acquisition and development activity during the
year under review.
Cost of Acquisition/ Yield Sector Region
acquisition/ completion forecast 1st
development (Rm) date 12 months (%)
Renbro Shopping Centre 106,2 04/2009 9.1 Retail Gauteng
Northpark Mall* 80,3** 04/2010 7.5 Retail Gauteng
Shoprite Kempton Park 43,3 09/2009 7.7 Retail Gauteng
Unipark Offices 55,0 07/2009 10.9 Offices Free
State
*Assuming 30% vacant for the first year
** R26m to be incurred during 2010
Renbro Shopping Centre, in Hammanskraal near Pretoria, transferred to the Fund
in April 2009. This R106,2m turnkey development has a 9.1% guaranteed yield.
In December 2009, the Fund entered into an agreement to purchase a warehouse
in Hughes Industrial Township, Gauteng. The warehouse is adjacent to four
other properties owned by the Fund and leased to the same tenant. The total
purchase price is R208,5m, at an initial yield of 9.7%, with transfer expected
in the first quarter of 2010.
Disposals and unconditional sales
Transfer/ Proceeds/ Carring Exit yield
effective contracted value at on sale
date sale price date of price (%)
(Rm) sale
(Rm)
Cnr Chancery Lane & Crompton 03/2009 4,3 4,1 0.0*
Street, Pinetown
24 Chancery Lane, Pinetown 03/2009 25,9 25,9 8.5
20 Commercial Street, Strydom 03/2009 23,0 19,5 0.0*
Park
54 Main Road, Fish Hoek 05/2009 21,9 21,6 10.7
16 Nourse Avenue, Cape Town 05/2009 7,8 7,6 10.2
Widah Bird Investments (Pty) Ltd 05/2009 1,5 1,5 15.0
15 Tedstone Road, Wadeville 05/2009 22,0 21,8 8.5
Forktailed Drongo Investments 05/2009 3,5 3,5 17.0
(Pty) Ltd
73 Cavaleros Drive, Germiston 07/2009 27,0 26,3 9.9
1 Circuit Road, Westmead 09/2009 9,6 9,5 7.1
Queensburgh Shopping Centre 09/2009 91,0 89,9 9.3
Knowles Centre 10/2009 57,5 57,6 8.4
Total Disposals 295,0 288,8 8.4
The Colony 2010 22,9 22,9 9.6
5 Bofors Circle, Cape Town 2010 22,5 22,5 11.5
20 Quality Street, Isando 2010 8,9 8,8 9.8
Umlazi Mega City (25%) 2010 51,8 51,8 9.5
Total Unconditional Sales 106,1 106,0 10.0
* Vacant possession
** SA Corporate together with the National Empowerment Fund facilitated a
major Broad Based Black Economic Empowerment transaction in terms which the
Fund sold 25% of Umlazi Mega City to the local community represented by the
Sizovuna Trust.
There are a further fifteen properties included in properties held for
disposal to the value of R362m which are contracted but subject to suspensive
conditions. In terms of the Fund`s ongoing disposal strategy, a further R1b of
property has been identified for sale and the marketing thereof is underway.
LEASE EXPIRIES AND VACANCIES
The vacant retail space in the Fund`s portfolio is largely attributable to
smaller line shops but also includes vacant space in Northpark Mall which is
under refurbishment and the cinema space in St Georges Square which is being
converted to big box retail.
The lease expiry profile and vacancies are set out below:
Property Vacant (%) Expiring (%)
type Rental GLA Monthly 2010 2011 2012 2013 Thereafter
Retail 9.7 9.3 8.5 12.9 14.2 14.7 9.4 31.0
Industrial 5.6 6.1 1.2 33.0 15.9 21.8 9.7 12.4
Commercial 12.3 13.1 5.9 27.5 18.1 11.3 0.9 23.1
Total 8.6 8.0 4.6 24.4 15.4 18.0 8.8 20.9
Of the 13% retail expiries in 2010, approximately 53% of this space is in
respect of units greater than 500m2 and the balance, being smaller shops,
carries greater risk both in terms of renewal and achievement of asking
rentals.
Good progress has already been made in respect of 56% of the renewals of
industrial leases expiring in 2010.
BORROWINGS
Debt levels have remained low at 19% of the total investment portfolio value
at 31 December 2009. There are no liabilities maturing which would require
refinancing in the short term, with the first maturity being R500m in December
2012. The debt profile is detailed below:
Type Maturity Step Fix Quantum Current
date escalation expiry (Rm) Rate
%pa (%)
Fixed - straight 31/10/2015 N/A 13/09/2013 100 10.57
Fixed - straight 31/12/2012 N/A 31/12/2012 500 10.82
Fixed - stepped 18/09/2014 6 30/04/2013 300 11.20
Fixed - stepped 18/09/2014 6 05/06/2013 400 11.64
Variable 13/08/2013 N/A N/A 270 8.83
Variable 13/08/2013 N/A N/A 30 9.98
Total 1,600 10.73
The Fund is currently negotiating an additional floating facility.
DEBT RESTRUCTURING
A major strategic initiative of the Fund was to exit the stepped debt rate
structure in place with OMSFIN and ABSA. The OMSFIN restructure was finalised
in December, with the ABSA restructure to be completed by the end of February
2010. The combined weighted interest rate before the debt restructuring
equated to 11.6% and the indicative weighted interest rate for the
restructured debt equates to 9.7%. This is based on the total restructured
debt of R970m, plus the estimated total breakage costs of R113m of which
R33,5m has already been expensed.
PROSPECTS
Disposals, the unit buy back programme and the refurbishment of properties is
expected to yield encouraging results in the medium term in line with the
Fund`s strategy of improving the sustainability and quality of property
earnings.
The Fund is expected to show sustainable positive distribution growth from
2010 onwards, however the first six months to June 2010 are likely to reflect
the effects of a challenging market with a more distinct improvement in the
second half of 2010.
REVIEW BY INDEPENDENT AUDITORS
SA Corporate`s auditors, Deloitte & Touche, have reviewed the financial
results for the year ended 31 December 2009. Their unmodified report is
available for inspection from the Fund`s secretary.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (R000)
31/12/2009 31/12/2008
(Reviewed) (Audited)
Assets
Non-current assets
Investment property 6,854,779 6,797,155
As per valuation 7,001,900 6,932,003
Straight line rental adjustment (147,121) (134,848)
Property under development 155,000 38,570
Investment in associate 133,321 173,150
Rental receivable - straight line adjustment 117,594 112,123
Current assets 1,745,435 2,502,697
Properties classified as held for disposal 1,166,516 1,861,110
Trade receivables 13,596 34,217
Other receivables and accrued interest 107,745 141,665
Rental receivable - straight line adjustment 29,527 22,726
Cash resources and short term investments 428,051 442,979
Total assets 9,006,129 9,623,695
Unitholders` funds and liabilities
Unitholders` funds 6,788,128 7,260,893
Non-current liabilities
Interest bearing borrowings 1,600,000 1,571,283
- At nominal value 1,600,000 1,570,000
- Effective interest rate adjustment on
stepped debt - 1,283
Interest rate swap derivative 79,396 93,652
Deferred taxation 162,131 238,201
Current liabilities 376,474 459,666
Trade and other payables 80,724 123,026
Capital gains taxation and secondary taxation
on companies 18,795 14,529
Unclaimed distributions 1,319 1,179
Distributions payable 275,636 320,932
Total unitholders` funds and liabilities 9,006,129 9,623,695
NAV cpu 326 345
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (R000)
Year ended Year ended
31/12/2009 31/12/2008
(Reviewed) (Audited)
Revenue 1,091,201 1,024,261
Income 1,151,566 1,080,789
Rent 845,927 798,164
Straight line rental adjustment 7,354 5,519
Recovery of property expenses 237,920 220,578
Income from associate company
- Interest Income 14,412 12,511
- Share of post acquisition reserves 6,813 4,196
Interest 39,140 39,821
Expenses (596,607) (445,503)
Accounting and secretarial fees (9,966) (9,227)
Audit fees (1,465) (1,116)
Administrative fees (5,761) (4,675)
Debt restructure costs (33,489) -
Interest paid (167,836) (115,206)
Effective interest rate adjustment 1,283 (1,283)
Property expenses (351,336) (284,498)
Service fees (28,037) (29,498)
Deferred taxation of straight line rental
adjustment (3,595) (668)
Headline earnings 551,364 634,618
Capital profit on disposal of investment
property 2,554 3,589
Revaluation of investment properties (435,617) (229,401)
Revaluations (428,263) (223,882)
Straight line rental adjustment (7,354) (5,519)
Goodwill impairment - (1,009,094)
Impairment of investment in associate (46,642) -
Taxation 74,261 77,517
Secondary tax on companies - (1,137)
On capital transactions and revaluations 70,666 77,986
Straight line rental adjustment 3,595 668
Net profit/(loss) attributable to unitholders 145,920 (522,771)
Revaluation of interest rate swap 14,256 (93,652)
Total comprehensive income attributable to
unitholders` 160,176 (616,423)
Units in issue (000) 2,081,869 2,104,469
Weighted units in issue (000) 2,087,441 2,108,051
Cents Cents
Distribution per unit 27,69 29,75
Net profit/(loss) per unit 6,99 (24,80)
Headline earnings per unit 26,41 30,10
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN UNITHOLDERS` FUNDS (R000)
Unitholders` funds at beginning of year 7,260,893 8,433,253
Total comprehensive income for the year 160,176 (616,423)
Net profit/(loss) for the year 145,920 (522,771)
Revaluation of interest rate swap 14,256 (93,652)
Revaluation of investment properties/investments - (229,401)
Goodwill impairment - (1,009,094)
Capital profit on disposal of investment
properties/investments - 3,589
Taxation on property revaluation, disposals
and dividends - 77,517
Straight line rental adjustment net of taxation - 4,851
Share of associate company`s post acquisition
reserves - 4,196
Effective interest rate adjustment - (1,283)
2008: 21 590 385 units issued at prices ranging
between 409,26cpu and 414,06cpu 85,444
Unit issue costs - (63)
22 600 000 units bought back at 264,97cpu (59,883) -
2008: 6 457 279 units bought back at prices
ranging between 195,37 cpu and 240,94 cpu (14,246)
Unit buy back costs (60) (56)
Lapsed distribution on units bought back 3 447 -
Transfers to capital - 1,149,625
7,364,573 7,887,909
Distribution attributable to unitholders (576,445) (627,016)
Unitholders` funds at end of year 6,788,128 7,260,893
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (R000)
Net cash flows from operating activities (70,991) (12,310)
Net cash flows from investing activities 82,559 (497,491)
Net cash flows from financing activities (26,496) 887,900
Net (decrease)/increase in cash resources (14,928) 378,099
Cash resources at beginning of year 442,979 64,880
Cash resources at end of year 428,051 442,979
OTHER INFORMATION (R000)
Capital commitments 265,560 251,752
Capitalised interest 5,567 17,293
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 these results.
1 Segment growth rates Industrial Office Retail Group
Rental income (excluding straight
line rental adjustment) 11.9% 6.0% 2.7% 6.0%
Property expenses 14.5% 4.8% 27.7% 23.5%
Recovery of property expenses 8.9% 53.1%* 5.0% 7.9%
Net property income 10.8% 13.2% (8.6%) (0.2%)
Vacancy 2008 (% of total income) 0.2% 0.6% 4.9% 5.6%
Vacancy 2009 (% of total income) 1.9% 1.2% 5.5% 8.6%
*Due to the restructuring of leases from gross rentals to rentals plus fixed
operating costs
2 Headline earnings and distribution attributable to unitholders
31/12/2009 31/12/2008
(Reviewed) (Audited)
R 000 CPU R 000 CPU
Net profit/(loss) for the year 145,920 7.01 (522,771) (24.84)
Adjustments for:
Capital profit on disposal of
investment properties (2,554) (3,589)
Revaluation of investment
properties 435,617 229,401
Goodwill impairment - 1,009,094
Impairment of investment in
associate 46,642 -
Taxation thereon (74,261) (77,517)
Headline earnings 551,364 26.48 634,618 30.16
Straight line rental adjustment (7,354) (5,519)
Taxation thereon 3,595 668
Share of associate company`s
after tax profit (6,813) (4,196)
Debt restructure costs 33,489 -
Effective interest rate adjustment
on stepped debt (1,283) 1,283
Distribution prepaid received in
advance - 162
Lapsed distribution on units
bought back 3,447 -
Distributable income 576,445 627,016
Distribution attributable to
unitholders 576,445 27.69 627,016 29.75
Interim 300,808 14.45 306,084 14.50
Final 275,637 13.24 320,932 15.25
Weighted headline earnings per unit 26.41 30.10
3 Primary operational segments (R000)
Business segment Industrial Office Retail Group
Extract from income statement
Total Revenue 332,526 97,521 661,154 1,091,201
Rental income (excluding straight
line rental adjustment) 288,869 81,929 475,129 845,927
Net property expenditure (22,208) (5,835) (85,373) (113,416)
Property expenses (65,447) (20,722) (265,167) (351,336)
Recovery of property expenses 43,239 14,887 179,794 237,920
Net property income 266,661 76,094 389,756 732,511
Straight line rental adjustment 418 705 6,231 7,354
Interest income from associate 14,412
Net interest paid (128,696)
Effective interest rate adjustment
on stepped debt 1,283
Debt restructure costs (33,489)
Group expenses (45,229)
Share of associate company`s after
tax profit 6,813
Deferred taxation on straight line
rental adjustment (84) (114) (3,397) (3,595)
Headline earnings 551,364
Other information
Properties 2,879,063 785,976 4,511,256 8,176,295
At valuation 2,633,500 647,400 3,721,000 7,001,900
Classified as held for disposal 301,750 151,800 712,966 1,166,516
Property under development - - 155,000 155,000
Straight line rental adjustment (56,187) (13,224) (77,710) (147,121)
Impairment of investment properties
excluding straight line adjustment,
net of taxation (19,917) (41,908) (290,368) (352,193)
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice is hereby given of the declaration of distribution no. 30 in respect of
the income distribution period 1 July 2009 to 31 December 2009. The
distribution amounts to 13.24 cents per unit.
Last date to trade cum distribution Thursday, 18 March 2010
Units will trade ex-distribution Friday, 19 March 2010
Record date to participate in the distribution Friday, 26 March 2010
Payment of distribution Monday, 29 March 2010
Unit certificates may not be dematerialised or re-materialised between Friday,
19 March and Friday, 26 March 2010 both days inclusive.
SA Corporate Real Estate Fund Managers Limited
Registered office
Mutual Park,
Jan Smuts Drive
5th Floor Pinelands
7405
PO Box 333
Mutual Park 7451
Tel: (021) 530-4500
Auditors
Deloitte & Touche
2 Pencarrow Crescent
Pencarrow Park
La Lucia Ridge Office Estate
La Lucia 4051
Transfer secretaries
Computershare Investor Services
2004 (Pty) Ltd
Ground Floor, 70 Marshall Street
Johannesburg 2001
PO Box 61051
Marshalltown 2107
Sponsor
Nedbank Capital
A division of Nedbank
Limited
135 Rivonia Road
Sandton
2196
Directors: BM Kodisang (Chairman), LB van Niekerk (Managing)*, Z Adams*, KJ
Forbes, IM Groves, SH Mia, IN Mkhari, LM Mojela, MM Ngcobo, KM Roman, ES
Seedat, WJ Swain, WC van der Vent
*Executive
Alternates: A Beattie, N Corbishley, GP Dingaan, P Zagaretos
OLD MUTUAL INVESTMENT GROUP PROPERTY INVESTMENTS (PTY) LTD
SECRETARIES
19 February 2010
Date: 19/02/2010 16:00:02 Produced by the JSE SENS Department.
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