| Tue 30 Sep 2003, 17:55 | | REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2003, |
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A-Prop - REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2003, RESTRUCTURING
PROPOSAL AND FURTHER CAUTIONARY ANNOUNCEMENT
ARNOLD PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2001/011887/06)
Share code: ARP ISIN: ZAE000031720
("A-Prop" or "the company")
REVIEWED RESULTS FOR THE YEAR ENDED 30 JUNE 2003, RESTRUCTURING PROPOSAL AND
FURTHER CAUTIONARY ANNOUNCEMENT
INCOME STATEMENT
Year ended Ten month period
30 June 2003 30 June 2002
Reviewed Audited
(R"000) (R"000)
Revenue 154 509 125 146
Operating expenses
- property operating and administration
costs (53 332) (32 512)
- management fees (4 239) (3 312)
Net profit from operations before finance
costs 96 938 89 322
Net finance costs (73 234) (58 682)
Net profit before debenture interest 23 704 30 640
Debenture interest paid/payable to
unitholders (23 704) (30 640)
Net profit before taxation and fair
valuation adjustments - -
Unrealised (deficit)/surplus on fair
valuation of investment properties (227 259) 5 505
Fair valuation adjustment of
non-interest bearing liabilities (787) -
Fair valuation adjustment of debentures 64 345 -
Net (loss)/profit before tax (163 701) 5 505
Taxation - deferred 911 (675)
Net (loss)/profit for the year (162 790) 4 830
Number of linked units at the end of
the year 169 516 072 125 399 065
Distribution number 1 - per
linked unit (cents)
- 13 March 2002 - 10,20
Distribution number 2 - per
linked unit (cents)
- 16 September 2002 - 14,20
Distribution number 3 - per
linked unit (cents)
- 31 March 2003 11,00 -
Distribution number 4 - per
linked unit (cents)
- Proposed 3,27 -
Earnings per linked unit
Weighted number of linked units in issue 155 692 292 122 098 499
(Loss)/earnings per linked unit (cents) (1,05) 0,04
Headline earnings per linked unit (cents) 0,41 -
Headline earnings is calculated as follows:
Net earnings for the year (162 790) 4 830
Impairment of investment properties 226 584 (4 830)
Headline earnings 63 794 -
BALANCE SHEET
Assets
Investment properties 711 140 842 065
Current assets 21 198 16 278
Total assets 732 338 858 343
Unitholders" funds and liabilities
Share capital and share premium 31 24
Fair value (loss)/reserve (124 931) 4 830
Debentures at fair value 211 874 238 063
Total unitholders" funds 86 974 242 917
Interest bearing liabilities 606 570 537 130
Other long-term liabilities 2 778 9 382
Deferred taxation liability 559 675
Current liabilities 29 916 50 245
Unitholders for interest distribution 5 541 17 994
Total unitholders" funds and liabilities 732 338 858 343
Net asset value, including debentures, per
linked unit (cents) 51,3 193,7
ABRIDGED CASH FLOW STATEMENT
Cash flow from operating activities 34 963 28 803
Cash flow from investing activities (96 334) (836 560)
Cash flow from financing activities 65 001 811 587
Change in cash and cash equivalents 3 630 3 830
Cash and cash equivalents at the
beginning of year 3 830 -
Cash and cash equivalents at the end of year 7 460 3 830
STATEMENT OF CHANGES IN EQUITY AND UNITHOLDERS" FUNDS
Share
capital Fair Accu-
and value mulated Total Unitholders"
R"000 premium reserve profit equity Debentures funds
GROUP
Issue of share
capital
and debenture
capital 24 553 - - 24 553 225 718 250 271
Listing costs
and promoters"
fees written
off (12 184) - - (12 184) - (12 184)
Net profit
for the period - - 4 830 4 830 - 4 830
Transfer of
Unrealised
surplus on
fair
valuation of
investment
properties - 4 830 (4 830) - - -
Balance at
30 June 2002
as previously
stated 12 369 4 830 - 17 199 225 718 242 917
AC 125
Adjustment
between debt
and equity (12 345) - - (12 345) 12 345 -
Restated
balance at
30 June 2002 24 4 830 - 4 854 238 063 242 917
AC 133
transition
adjustments:
Adjustment for
fair valuation
of interest-free
vendor loans - - 1 854 1 854 - 1 854
Adjustment
for fair
valuation of
debentures - - 31 175 31 175 (31 175) -
Transfer of
AC 133
transition
adjustments - 33 029 (33 029) - - -
Adjusted balance
at 30 June 2002 24 37 859 - 37 883 206 888 244 771
Issue of share
capital and
debentures 7 - - 7 72 161 72 168
Reversal of
acquisition of
Nqutu property - - - - (2 830) (2 830)
Net loss for
the year - - (162 790) (162 790) - (162 790)
AC 133 adjustments:
Transfer of
unrealised loss
on fair
valuation of
investment
properties
net of tax - (226 584) 226 584 - - -
Transfer of
unrealised loss
on fair valuation
of non-interest
bearing
liabilities - (551) 551 - - -
Transfer of
unrealised gain
on fair valuation
of debentures - 64 345 (64 345) - (64 345) (64 345)
Balance at
30 June 2003 31 (124 931) - (124 900) 211 874 86 974
PRIMARY OPERATIONAL SEGMENTS
R"000 Gauteng KwaZulu-Natal Western Cape Other Total
Revenue 62 735 49 756 29 100 12 918 154 509
Operating expenses (21 589) (19 451) (10 604) (5 927) (57 571)
Net profit before
finance costs 41 146 30 305 18 496 6 991 96 938
Investment
properties 268 940 229 195 165 950 47 055 711 140
NOTES
The annual results are prepared in accordance with South African Statements of
Generally Accepted Accounting Practice. 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 2002, except for the following
which the group has adopted in the current year:
AC 125 (Financial Instruments: Disclosure and Presentation) which has resulted
in the restatement of share capital, share premium and debentures
AC 133 (Financial Instruments: Recognition and Measurement)
INTRODUCTION
A-Prop had a difficult year during which conditions in the property market
were far from favourable, the interest distribution by the company fell
substantially and a revaluation to fair market value of the property portfolio
resulted in a material diminution in value. This culminated in the release of
the company"s second trading update published on 13 August 2003.
A restructuring package has been proposed for A-Prop ("the restructuring
proposal"), details of which are provided below. This announcement is premised
upon the successful implementation of the restructuring proposal.
FUND MANAGER
Coronation Capital Property Investments Limited ("Corovest") was appointed
fund manager of A-Prop with effect 1 June 2003. The release of the trading
updates by A-Prop in June and August were as a result of a review of the
company"s financial status undertaken by Corovest in conjunction with the year-
end audit.
RESTRUCTURING PROPOSAL
Corovest and Java Capital have procured from Redefine Income Fund Limited and
Spearhead Property Holdings Limited ("the proposers"), who represent a combined
44,7% of A-Prop linked units, a proposal for the restructuring of A-Prop.
The restructuring proposal involves the injection of R30 million of new
capital into the company for the issue of new A-Prop units at a price to be
determined with reference to fair market value after taking due cognisance of
the material diminution in the A-Prop net asset value and the liquidity issues
facing the company.
The issue of the new linked units will be subject to a claw-back offer to be
extended to all remaining unitholders proportionate to their existing holdings.
The proceeds will enable the company to reach agreement with certain property
vendors for the settlement of the deferred payments due in September, to pay
half of the costs of unwinding all the existing interest rate hedges on the
company"s loan facilities, amounting to approximately R13,5 million, and the
balance to meet A-Prop"s existing commitments and future working capital
requirements.
The balance of the unwind costs, of approximately R13,5 million, will be
capitalised to the total new loan facilities to be entered into with the
company"s financiers.
Implementation of the proposal is subject to:
* the negotiation and execution of formal agreements to give effect to the
restructuring proposal, which agreements need to be executed between A-Prop and
each of:
- the proposers;
- the various vendors in respect of which A-Prop has a deferred payment
liability; and
- A-Prop"s financiers;
* the securing, to the extent necessary, of the approval of the JSE Securities
Exchange South Africa to the implementation of the restructuring proposal;
* the securing from the Securities Regulation Panel on Takeovers and Mergers of
a waiver in favour of the proposers from their obligation to make any mandatory
offer consequent upon any linked units acquired by the proposers by virtue of
their facilitation of the restructuring proposal;
* the securing, to the extent necessary, of the approval of the trustee of the
A-Prop principal debenture trust deed to the conclusion and implementation of
the restructuring proposal; and
* to the extent that the implementation of the restructuring proposal
necessitates an increase in the authorised and issued share capital of
A-Prop, the passing by A-Prop linked unitholders of the requisite resolutions to
give effect to the requisite changes in the share capital of A-Prop.
REVIEW REPORT
The financial statements have been reviewed by Deloitte & Touche. Their
unqualified review report is available for inspection at the company"s
registered office.
RESULTS
The distribution of debenture interest for the year has fallen to
14,27 cents per linked unit from 24,4 cents per linked unit for the prior ten-
month period. The fall in debenture interest is as a consequence of the
following material factors:
* the renewal of numerous existing leases at lower than their expiry rentals due
to weak conditions in the property market;
* an increase in vacancies;
* an increase in bad debts and debtor provisions;
* the higher costs of maintenance in respect of certain properties;
* settlements agreed to in respect of certain vendor warranties on terms less
favourable to the company; and
* the increased level of borrowings and increased number of linked units in
issue to meet deferred payments due to vendors.
Operating and administration costs of the property portfolio are
64% higher as a result of, inter alia, the costs attributable to acquisitions
made during the year, restructuring costs, the increase in bad debts and debtor
provisions and the higher than expected maintenance costs of the portfolio.
Taking account of the lower property valuations, the higher levels of bank
debt and the increased number of linked units in issue, the net asset value of
the company at 30 June 2003 is 51,3 cents per linked unit
(2002: 193,7 cents per linked unit).
PROPERTY PORTFOLIO
A-Prop comprises 64 properties, 954 tenants and a total rentable area of 310
000m2. Vacancies by rentable area at 30 June 2003 totalled 25 000m2, or 8% of
the portfolio. This compares with 17 000m2 or 6% for the prior period. The
portfolio has an expiry profile of 28 % of rentable area for the twelve months
to June 2004.
The segmental analysis of the portfolio by rentable area is given below:
(m2) Gauteng KwaZulu-Natal Western Cape Other Total
Retail 32 000 82 200 7 600 24 100 145 900
Commercial 48 800 17 100 32 100 2 800 100 800
Industrial 47 600 12 300 3 400 - 63 300
Total 128 400 111 600 43 100 26 900 310 000
Acquisitions
During the period seven properties were acquired by the company for a total
consideration of R99,7 million. Details of the acquisitions and the settlement
terms are given below:
Property Total cost of Settled Settled To be settled
(R million) Sector acquisition in cash in units in units
Gauteng
Tokai Centre Retail 11,3 - 11,3 -
Colony Centre Retail 31,1 18,9 9,2 3,0
Linkview Offices 3,9 2,4 1,1 0,4
CBC House Offices 7,0 4,3 2,0 0,7
Sturdee House Offices 8,4 5,1 2,5 0,8
KwaZulu-Natal
Granada Centre Retail 20,0 12,1 5,9 2,0
Universal Print Industrial 18,0 - 18,0 -
Total 99,7 42,8 50,0 6,9
VALUATIONS
A comprehensive, independent valuation of the A-Prop property portfolio was
commissioned by Corovest and undertaken by The Property Partnership in Gauteng,
Mills Fitchet in KwaZulu-Natal and Mills Fitchet Magnus Penny in the Cape. The
properties were valued on an open market basis, using the discounted cash flow
methodology, at R711,1 million. This represents a reduction in value of R227,3
million over the prior period after adjusting for the acquisitions made during
the year.
The discounted cash flow methodology differs fundamentally from that adopted
at listing whereby the expected net income for the first year was calculated and
capitalised at a market rate.
BORROWINGS
At 30 June 2003 A-Prop"s long-term borrowings amounted to R606 million, an
increase of R69,4 million or 12,8%. This is due to the acquisitions made by the
company, of which R55,1 million was settled in cash, and deferred vendor
payments amounting to R14,3 million. Approximately 93% of borrowings are fixed
for periods ranging between one and eight years at an average interest cost of
13,9%. Net borrowings represent 85% of the open market value of the property
portfolio. The existing loan facilities require capital repayments, in addition
to interest repayments, to commence in September 2003.
Subject to the implementation of the restructuring proposal, borrowings will
amount to R602 million (after the sale of Voortrekker Centre referred to below)
and the fixes referred to above will be unwound. On the assumption that new
interest rate fixes are entered into for periods of between one and three years,
the average interest cost should reduce by
2% as a result of recent interest rate cuts. The new loan facilities will
attract interest only repayments for 36 months.
LINKED UNITS IN ISSUE
During the year 44 117 007 additional A-Prop linked units were issued,
equating to an increase of 35% over the previous period. The additional units
were issued to settle the applicable portion of the purchase considerations on
the acquisitions and certain of the deferred vendor payments.
Subject to the implementation of the restructuring proposal and due to the
deferred vendor liabilities to be settled, further linked units will be issued
during 2004.
DEFERRED PAYMENTS
A-Prop remains liable for further deferred payments either in cash or through
the issue of new A-Prop linked units to certain property vendors.
Final deferred cash payments totalling R7,93 million are payable to three vendor
groups in September 2003. Revised payment terms have subsequently been proposed
to the vendors, in accordance with the requirements of the restructuring
proposal.
New A-Prop linked units to the value of R715 040 are to be issued in
settlement of the final balance due in terms of the purchase of Barvic House in
Randburg concluded in May 2001. The units are to be issued at the volume
weighted average price of A-Prop units for the 30 days preceding
31 August 2003.
A further 3 844 388 new A-Prop linked units are to be issued at
180 cents per unit in settlement of the Kirchmann-Hurry portfolio in two equal
tranches in January 2004 and in January 2005 respectively.
SUB-COMMITTEE
The board of directors of A-Prop has resolved to appoint a sub-committee to
investigate and report back to the board upon the circumstances resulting in the
loss of value of the company"s linked units. Representatives of the major
unitholder body and the banks have agreed to support this sub-committee. The sub
committee will be chaired by B H Kent, a non-executive director of the company,
and the key areas of the investigation will be outsourced to specialist
advisors.
PROSPECTS
Subject to the implementation of the restructuring proposal, A-Prop is
positioned to move forward cautiously and the restructuring proposal will bring
much needed financial stability to the company. In addition, a more optimistic
business environment should impact positively in terms of assumptions made with
regard to the renewal of leases and to the reduction in debtor provisions. A net
reduction in vacancies to 6% of the overall portfolio has been budgeted whilst
stringent debtor controls are being implemented through improved property
management policies.
Subsequent to the year-end the Voortrekker Centre in Mokopane has been sold
for R20,5 million in cash which is in line with the current valuation.
Certain strategic initiatives aimed at building long-term value for A-Prop
unitholders are being considered and will be aggressively pursued following the
implementation of the restructuring proposal.
The prospects for A-Prop should result in improved confidence in the company
that will be to the benefit of all stakeholders.
DEBENTURE INTEREST PAYMENT
Unitholders are advised that distribution number 4 in respect of the period 1
January 2003 to 30 June 2003 of 3,27 cents per linked unit has been proposed.
Payment of any distribution, however, is to be deferred pending the
implementation of the restructuring proposal. Interest will accrue on the
proposed distribution amount (i.e. 3,27 cents per linked unit) as from 30
September 2003 to date of payment, calculated on a daily basis at a rate per
annum equal to the published prime rate from time to time of Nedbank Limited.
FURTHER CAUTIONARY ANNOUNCEMENT
Unitholders are advised to continue exercising caution in their dealings in A
Prop linked units until such time as a further announcement is made regarding
the financial effects and implementation of the restructuring proposal, the
consequential dates for the payment of distribution number
4 and the sale of Voortrekker Centre.
By order of the Board
P J A Cunningham M S Aitken
Chairman Director
Registered office
1st floor
African Harvest House
Freestone Park
135 Patricia Road Sandton
Directors
P J A Cunningham, M S Aitken, G Bernstein, R M Kaplan, B H Kent,
G A Nelson, P J Thurling
Corporate advisor and sponsor
JAVACAPITAL
Debenture trustee
WEBBER WWENTZEL BOWENS
Date: 30/09/2003 05:52:12 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
