| Fri 6 Feb 2004, 17:40 | | Financial Report Of The Group For The 13 Months |
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Resilient - Audited Abridged Financial Report Of The Group For The 13 Months
Ended 31 December 2003
Resilient Property Income Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/016851/06)
Share code: RES ISIN: ZAE000043642
AUDITED ABRIDGED FINANCIAL REPORT OF THE GROUP FOR THE 13 MONTHS ENDED 31
DECEMBER 2003
CHAIRMAN"S STATEMENT
Resilient has had a very successful first year since it was listed on the JSE
Securities Exchange South Africa ("JSE") in December 2002. In the prospectus it
was projected that earnings would be 86,6 cents per linked unit. That projection
has been exceeded by 1,1 cents.
From the beginning, Resilient"s board of directors took a decision to pitch the
standard of corporate governance at the highest possible level. The majority of
directors on the board (including myself as chairman) are independent. Audit,
investment and remuneration sub-committees have been established by the board.
On every one of these committees the majority consists of independent directors.
The 2003 financial year was characterised by lower interest rates and a re-
rating of the listed property sector, with greater recognition given to property
as a separate asset class. The increased levels of activity in the commercial
property market encouraged management to increase Resilient"s focus on
industrial parks in transport nodes and non-metropolitan retail centres.
Seventeen properties were sold and eight properties were acquired. Management"s
considerable property skills were applied to the existing portfolio and an
extensive program of refurbishment, extensions and tenancy upgrades was
implemented; all of which bode well for the future. The focusing of the
portfolio and the excellent performance provided by most of the properties has
allowed for a shift in bias to include growth in addition to sustainable income.
Rising bond yields have indicated that the interest rate cycle has turned and
this may impact on the rating of the listed property sector.
Subsequent to the financial year-end, the asset management company was acquired
by a wholly owned subsidiary of the listed company to ensure alignment of
interest between the executives, management and unit holders and to ensure
complete transparency.
I wish to express my appreciation to my fellow directors for their commitment to
both board and committee meetings. Thanks are also due to management and staff
for their dedication and hard work in what proved to be a busy year.
Resilient has established a sound foundation and we look forward to another
solid performance in the 2004 financial year.
DIRECTORS" REPORT
Resilient was listed on the JSE on 6 December 2002. The listing prospectus
mentioned a number of prospects and objectives including the disposal of smaller
properties, acquisition of additional industrial properties and further
development of existing properties. As a result of an active market for
commercial properties, progress in all of these areas were achieved beyond the
board"s initial expectations.
HIGHLIGHTS OF THE 2003 FINANCIAL YEAR
Private placing on listing
Application was received for 11 300 000 units against the 8 000 000 units
offered, amounting to an over subscription of 41,25%. The additional units
applied for were sourced from private property vendors.
Shops for Africa
During March 2003 Resilient acquired a 25,66% interest in JSE listed Shops for
Africa Limited. The holding was subsequently increased to 31,48% of Shops"
issued share capital. Resilient sold this interest to Redefine Income Fund
Limited in terms of an unsolicited cash offer resulting in a pre-tax capital
profit of R2,6 million.
Acquisitions
The Bridge, Port Elizabeth
A 17,8% interest was acquired in the Bridge at a cost of R20,6 million. The
centre is anchored by Shoprite and includes entertainment and fashion
components. The Bridge is adjacent and linked to Greenacres, Checkers Mall and
Woolworths and together they provide the largest retail offering in the Eastern
Cape. Resilient wishes to increase the stake over time and together with other
owners, has a pre-emptive right on any interest sold.
Shoprite Rustenburg
This retail centre in the Rustenburg CBD has a Shoprite Checkers headlease
expiring in March 2009. The centre was acquired at a cost of R11,9 million.
The property is currently let at R12,77/mSquared net against a market rate of
around R28/mSquared net, providing substantial upside on expiry of the lease.
Chemserve Spartan
This industrial property is let to a single tenant, Nalco Chemserve; a
subsidiary of JSE listed AECI Limited with a lease expiring in March 2009. An
additional attraction of the property is the 6 239 mSquared of vacant, zoned and
serviced industrial land included in the purchase price of R5,3 million.
Isando Industrial Park
One of Resilient"s key strategies is to acquire industrial parks in major
transport nodes. This industrial park with a GLA of 45 659 mSquared is built to
a high specification including coverage of less than 32% and good warehouse
height to eaves. The market for industrial premises in the area is firm and an
increase in rentals is anticipated in 2004. The property was acquired at a cost
of R70,3 million.
Nelspruit Plaza
This 12 500 mSquared shopping centre situated in the Nelspruit CBD was acquired
at a cost of R52,5 million. As a result of its strategic position between the
taxi rank, train station and Nelspruit CBD, the centre trades strongly. Over
90% of the space is let to national tenants.
The Crossing, Mokopane
This 10 000 mSquared retail centre is situated on the main axis of the Mokopane
(formerly Potgietersrust) CBD, with Shoprite and Woolworths as anchor tenants.
The centre has historically been neglected and we are planning an expansion and
refurbishment program to accommodate further national clothing retailers.
Mokopane is experiencing significant growth as a result of the development of
nearby platinum mines.
Tzaneng Mall
This 32 600 mSquared regional shopping centre dominates the Tzaneen CBD and was
acquired at a cost of R83,8 million. The centre is anchored by Pick `n Pay,
Game, Woolworths and Edgars and includes a full suite of national retailers.
Good trading conditions have been reported and we anticipate changes in the
centre to accommodate the expansion plans of a number of these retailers.
Limpopo Mall and Taxi Centre
The Sasol Pension Fund"s 18,75% share in Limpopo Mall and Taxi Centre was
acquired at a cost of R14,6 million and Resilient now owns 100% of the property.
Disposal of properties
The board approved the sale of twenty-three properties during the financial
year. Six of these properties are still on the company"s asset register with
transfer anticipated by the end of February 2004.
The reason for the sales is that the properties were small and/or situated in
remote locations making it difficult to apply Resilient"s intensive management
approach. An exception is the eThekwini Municipality building in the Durban CBD
which did not meet any of Resilient"s long-term objectives.
Developments
A new Boxer Superstore was constructed at the Polokwane Taxi Centre. Boxer is a
subsidiary of Pick `n Pay and has entered into a 10-year lease with options to
renew.
Tenant driven extensions are at various stages of planning and approval at Pick
`n Pay Centre Rustenburg, Pick `n Pay Hypermarket Klerksdorp, Tzaneen Crossing,
Vryheid Plaza and Nelspruit Plaza. In all cases, as Resilient already owns the
land, the extensions will be earnings enhancing.
An extensive refurbishment of the Limpopo Mall in Polokwane is currently in
progress.
Acquisition of the asset management company
The independent directors of Resilient exercised the company"s right to acquire
the entire share capital of the asset management company (Resilient Property
Management (Pty) Ltd) for R7,1 million from the following shareholders, with
effect from 1 January 2004:
Nedbank Limited - 37,5%
Kagiso Property Holdings (Pty) Ltd - 25,0%
Des de Beer - 10,0%
Jeffrey Zidel - 10,0%
Barry Stuhler - 10,0%
David Lewis - 5,0%
Jacques van Wyk - 2,5%
100,0%
The asset management company was acquired to ensure alignment between the
interests of management and unitholders and to provide full disclosure in all
activities within the company. Prior to the option being exercised all major
unitholders were contacted to gauge their opinion on the matter. Support for
the acquisition was overwhelming. The purchase price of R7,1 million was paid
from existing cash resources.
The acquisition does have negative consequences as Resilient"s link to Nedbank
and Kagiso has been reduced. Nedbank remains a significant unitholder in the
company, however, and the board will, in the new year, examine methods of
retaining a link to Kagiso.
Gearing and interest rate policy
Resilient"s policy is to fix interest rates on a substantial portion of
borrowings, leaving sufficient prime linked borrowings to absorb cash inflows
between distribution cycles. To ensure stability in the cost of borrowing,
Resilient"s policy is to obtain a spread of interest rates even when longer term
fixed rates are at a premium to short term fixed rates as is the position at
present. It is also Resilient"s policy to fix rates forward once a property has
been acquired rather than on drawdown of the loan. Again this may result in
slightly higher costs but reduces interest rate risks.
The gearing ratio at the end of the financial year was 47,2%. Board policy
remains to keep gearing between 40% and 50%. However consideration would be
given to an increase of up to 55% to take advantage of an exceptional
opportunity.
Resilient"s interest rate profile is as follows:
Fixed rate Borrowings Interest rate % of
expiry (R"million) Borrowings
December 2005 30,0 14,15% 7,1%
February 2007 21,0 11,37% 4,9%
December 2007 140,0 14,30% 32,9%
September 50,0 11,44% 11,8%
2008
December 2009 60,0 13,90% 14,1%
Total fixed 301,0 13,53% 70,8%
gearing
Prime linked 124,1 prime less 29,2%
1,50%
Total 425,1 *11,37% 100,0%
portfolio
gearing
*Based on a prime rate of 11,5%
Prospects
At the time of listing, Resilient"s focus was to provide an attractive and
sustainable yield. Most of Resilient"s major properties are located in areas of
high economic growth. In addition, intensive management, refurbishment and
extensions to a number of the properties will further enhance growth. This is
reduced in the short term by the effect of selling high yielding properties with
lower growth potential and replacing them with lower yielding properties with
better long-term prospects. Notwithstanding the above, the board is confident
that Resilient will achieve growth in distributions in the coming financial
year.
Distribution
The board has approved and notice is hereby given of a final distribution of
42,60 cents per linked unit for the period 1 July 2003 to 31 December 2003.
The last day to trade link units cum distribution will be Friday 20 February
2004, and trading will commence ex-distribution on Monday 23 February 2004.
Friday 27 February 2004, is the record date to participate in the distribution.
Payment of the distribution will be made on Monday 1 March 2004. In respect of
dematerialised linked unitholders the distribution will be transferred to the
Central Securities Depository Participant accounts/broker accounts on 1 March
2004. Certificated linked unitholders distribution payments will be posted on 1
March 2004.
Linked unit certificates may not be dematerialised or rematerialised between
Monday 23 February 2004 and Friday 27 February 2004, both days included.
RESILIENT PROPERTY INCOME FUND LIMITED
Abridged consolidated balance sheet at 31 December 2003
Assets Audited
R"000
Non-current assets 900 294
Investment properties 883 285
Listed property securities 17 009
Current assets 83 520
Accounts receivable 35 660
Cash and cash equivalents 47 860
983 814
Equity and liabilities
Unitholders" capital
Share capital and premium 27 479
Non-distributable reserve 36 389
Distributable reserve 4
63 872
Linked debenture liabilities 429 221
Linked unitholders" capital 493 093
Non-current liabilities 435 905
Interest bearing borrowings 425 091
Deferred tax liability 10 814
Current liabilities 54 816
Accounts payable 14 271
Income tax payable 2 452
Linked debenture interest payable 38 093
983 814
Net asset value (R"000) 493 093
Net asset value per unit (cent) 551
Total debt facilities as a % of 47,2%
the investment portfolio (gearing)
RESILIENT PROPERTY INCOME FUND LIMITED
Abridged consolidated income statement for the 13 months ended 31 December 2003
Audited
R"000
Revenue 147 373
Net operating expenses (39 208)
Operating profit 108 165
Investment property portfolio 48 408
net profit on disposal 11 211
revaluation adjustment 37 197
Investment in listed property 8 338
securities
investment income 3 734
net profit on disposal 3 552
revaluation adjustment 1 052
Costs associated with listing (3 370)
Net operating profit before 161 541
interest and tax
Interest on loans (41 991)
Interest on units issued cum- 3 704
distribution
Interest to linked debenture (73 595)
holders
interim (35 502)
final (38 093)
Net profit before taxation 49 659
Taxation (13 266)
income tax (665)
capital gains tax (1 787)
deferred tax (10 814)
Net profit for the period 36 393
Reconciliation of headline Per unit Audited
earnings per unit (cent) R"000
Earnings 46,9 36 393
Adjusted for: 47,9 37 205
interest to linked debenture 94,8 73 595
holders
net capital profit on (62,4) (48 408)
investment properties
net capital profit on (5,9) (4 604)
investments in listed
property securities
capital costs associated with 4,3 3 370
listing
taxation effect 17,1 13 252
Headline earnings 94,8 73 598
June 2003 December
2003
Units in issue 78 718 89 420
453 953
Weighted average units in issue 75 065 77 619
122 292
7 Months 6 Months Total
to to
June 2003 December
2003
Distribution per unit 45,10 42,60 87,70
(cents)
Forecast to December 86,60
2003 per prospectus
(cents)
RESILIENT PROPERTY INCOME FUND LIMITED
Abridged consolidated statement of changes in equity for the 13 months ended 31
December 2003
Audited Share Share Non- Distributable Total
capital premium distributable reserve
reserve
R"000 R"000 R"000 R"000 R"000
Issue of units 894 26 585 27 479
Transfer of after- 9 497 (9 497) -
tax net capital
profit on disposal
of investment
properties
Transfer of after- 2 624 (2 624) -
tax net capital
profit on disposal
of listed property
securities
Transfer of after- 26 038 (26 038) -
tax revaluation
adjustment on
investment
properties
Transfer of after- 895 (895) -
tax revaluation
adjustment on
listed property
securities
Transfer of after- (2 665) 2 665 -
tax costs
associated with
listing
Net profit for the 36 393 36 393
period
Balance as at 31 894 26 585 36 389 4 63 872
December 2003
RESILIENT PROPERTY INCOME FUND LIMITED
Abridged consolidated statement of cash flows for the 13 months ended 31
December 2003
Audited
R"000
Cash inflows from operating 42 360
activities
Generated by operations 116 148
Net interest paid (73 788)
Taxation paid -
Cash flow results from investment (876 291)
activities
Investments acquired (995 071)
Proceeds on disposal 118 780
Cash flow results from financing 881 791
activities
Net raising of loan financing 425 091
Raising of unit capital 456 700
Cash and cash equivalents 47 860
Preparation and audit opinion
The abridged financial report has been prepared in accordance with the company"s
accounting policies as set out in the financial report, South African Statements
of Generally Accepted Accounting Practice and the requirements of the Companies
Act (Act 61 of 1973).
KPMG Inc. has audited the financial information set out in the abridged report.
The unqualified audit opinion is available for inspection at the group"s
registered office.
Comparative figures
As this is the first year of operation, no comparative figures are available.
By order of the Board
AS Nkonyeni D de Beer
Chairman Managing Director
Johannesburg
6 February 2004
Registered office Transfer secretaries
57 6th Road Computershare Limited
Hyde Park 70 Marshall Street
2196 Johannesburg
2001
Sponsor
Nedbank Corporate
A division of Nedbank Limited
DIRECTORS:
Dr AS Nkonyeni (Chairman)#, JJG da Costa#, D de Beer*, MP Greyling, JG
Kirchner#, DJ Lewis*, MJN Njeke, BL Stuhler*, PA Theodosiou#, R Turner#, BD van
Wyk#, JN Zidel*
MH Muller (alternate director)
JJ van Wyk (company secretary)
* Executive
# Independent non-executive
Date: 06/02/2004 05:37:17 PM
Produced by the JSE SENS Department
