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ARNOLD PROPERTY FUND LIMITED - REVIEWED RESULTS FOR THE SIX MONTHS ENDED
31 DECEMBER 2003
ARNOLD PROPERTY FUND LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2001/011887/06)
JSE Share code: ARP
ISIN: ZAE000031720
("A-Prop" or "the company")
REVIEWED RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2003
INCOME STATEMENT
Six months ended Six months ended Year ended
31 December 31 December 30 June
2003 2002 2003
Reviewed Unaudited Audited
(R"000) (R"000) (R"000)
Revenue 81 548 76 307 154 509
Operating expenses:
property operating
and administration
costs (31 481) (21 319) (53 332)
management fees (1 861) (2 001) (4 239)
Net profit from
operations before
finance costs 48 206 52 987 96 938
Net finance costs (40 457) (34 433) (73 234)
Net profit before
debenture interest 7 749 18 554 23 704
Debenture interest
paid/payable
to unitholders (7 749) (18 554) (23 704)
Net profit before
taxation, abnormal
items and fair
valuation adjustments
Abnormal items (43 724)
Profit on sale of
investment property 276
Costs in respect of
unwind of interest
rate fixes (44 000)
Fair valuation
adjustments 83 866 (163 701)
Unrealised deficit on
fair valuation
of investment
properties (227 259)
Non-interest bearing
liabilities (1 358) (787)
Debenture capital 85 224 64 345
Net profit/(loss)
before tax 40 142 (163 701)
Taxation deferred 408 911
Net profit/(loss) for
period 40 550 (162 790)
Number of linked units
at end of period 172 136 888 168 626 123 169 516 072
Distribution number 3
per linked unit (cents)
- 31 March 2003 11,00 11,00
Distribution number 4
per linked unit (cents)
- 29 December 2003 3,27
Distribution number 5
per linked unit (cents)
- 15 March 2004 4,50
Earnings per linked unit
Weighted number of
linked units in issue 169 734 473 168 626 123 155 692 292
Earnings/(Loss) per
linked unit (cents) 23,89 (104,56)
Headline earnings per
linked unit (cents) 49,65 40,97
Fully diluted
earnings per linked
unit (cents) 17,65
(R"000) (R"000) (R"000)
Headline earnings are
calculated as
follows:
Net earnings/(loss)
for period 40 550 (162 790)
Impairment of
investment properties 226 584
Profit on sale of
investment property (276)
Costs in respect of
unwind of interest
rate fixes 44 000
Headline earnings 84 274 63 794
BALANCE SHEET
Assets
Investment properties 693 920 932 653 711 140
Current assets 29 241 32 875 21 198
Total assets 723 161 965 528 732 338
Unitholders" funds
and liabilities
Share capital and
share premium 31 31 31
Fair value
(loss)/reserve (40 657) 37 859 (124 931)
Reserve for unwind
costs (43 724)
Claw-back offer 30 000
Debentures at fair
value 130 824 274 714 211 874
Total unitholders"
funds 76 474 312 604 86 974
Interest bearing
liabilities 613 952 602 761 606 570
Other long-term
liabilities 14 448 2 778
Deferred taxation
liability 151 559
Current liabilities 24 835 17 161 29 916
Unitholders for
interest distribution 7 749 18 554 5 541
Total unitholders"
funds and liabilities 723 161 965 528 732 338
Net asset value,
including debentures,
per linked unit
(cents) 32,9* 185,40 51,30
* Based on 232 136 888 debentures in issue, i.e. including 60 000 000 linked
units to be issued in terms of the proposed claw-back offer.
ABRIDGED CASH FLOW STATEMENT
Cash flow from
operating activities 75 (23 940) 34 963
Cash flow from
investing activities 17 496 (90 588) (96 334)
Cash flow from
financing activities (9 396) 121 715 65 001
Change in cash and
cash equivalents 8 175 7 187 3 630
Cash and cash equivalents
at beginning of period 7 460 3 830 3 830
Cash and cash equivalents
at end of period 15 635 11 017 7 460
STATEMENT OF CHANGES IN EQUITY AND UNITHOLDERS" FUNDS
Share Fair Accu- Reserve for
capital value mulated unwind
R"000 and premium reserve profit costs
Balance at
30 June 2002 24 37 859
Issue of share
capital and
debentures 7
Reversal of
acquisition of
Nqutu property
Balance at
31 December 2002 31 37 859
Issue of share
capital and
debentures
AC 133 adjustments:
Transfer of
unrealised
loss on fair
valuation
of investment
properties (227 259)
Taxation adjustment 675
Transfer of
unrealised
loss on fair
valuation
of non-interest
bearing
liabilities (787)
Taxation adjustment 236
Transfer of
unrealised
gain on fair
valuation
of debenture capital 64 345
Balance at 30 June
2003 31 (124 931)
Issue of share
capital
and debentures
claw-back offer
Net profit for period 40 550
Costs in respect of
unwind
of interest rate
fixes 44 000 (44 000)
Profit on sale of
investment
property (276) 276
AC 133 adjustments:
Transfer of
unrealised loss
on fair valuation of
investment properties (1 358) 1 358
Taxation adjustment 408 (408)
Transfer of
unrealised
gain on fair
valuation of
debenture capital 85 224 (85 224)
Balance at 31
December 2003 31 (40 657) (43 724)
Total Unitholders"
R"000 equity Debentures funds
Balance at
30 June 2002 37 883 206 888 244 771
Issue of share
capital and
debentures 7 70 656 70 663
Reversal of
acquisition of
Nqutu property (2 830) (2 830)
Balance at
31 December 2002 37 890 274 714 312 604
Issue of share
capital and debentures 1 505 1 505
AC 133 adjustments:
Transfer of unrealised
loss on fair valuation
of investment properties (227 259) (227 259)
Taxation adjustment 675 675
Transfer of unrealised
loss on fair valuation
of non-interest bearing
liabilities (787) (787)
Taxation adjustment 236 236
Transfer of unrealised
gain on fair valuation
of debenture capital 64 345 (64 345)
Balance at 30 June 2003 (124 900) 211 874 86 974
Issue of share capital
and debentures 4 174 4 174
claw-back offer 30 000
Net profit for period 40 550 40 550
Costs in respect of unwind
of interest rate fixes
Profit on sale of investment
property
AC 133 adjustments:
Transfer of unrealised loss
on fair valuation of
investment properties
Taxation adjustment
Transfer of unrealised
gain on fair valuation of
debenture capital (85 224) (85 224)
Balance at 31 December 2003 (84 350) 130 824 76 474
PRIMARY OPERATIONAL SEGMENTS FOR THE PERIOD ENDED 31 DECEMBER 2003
Gauteng KwaZulu-Natal Western Cape Other Total
(R"000) (R"000) (R"000) (R"000) (R"000)
Revenue 33 281 27 774 14 920 5 573 81 548
Operating
expenses (13 507) (11 127) (6 504) (2 204) (33 342)
Net profit before
finance costs 19 774 16 647 8 416 3 369 48 206
Investment
properties
at fair value 269 183 230 570 165 997 28 170 693 920
NOTES:
1. The annual financial statements 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 2003.
These results comply with the South African Statements of Generally
Accepted Accounting Practice applicable to Interim Financial Reporting.
2. Costs of unwinding interest rate fixes have been recognised in the income
statement. They have been transferred to a reserve in the Statement of
Changes in Equity and Unitholders" Funds, which will be reduced by future
profits on sales of investment properties.
3. Proceeds of the claw-back offer of R30 million, as detailed in the press
release dated 18 November 2003, have been included in Unitholders" Funds.
INTRODUCTION
The directors of A-Prop are pleased to report that, following the successful
implementation of the restructuring plan; the company is now positioned to
deliver an improved performance. The interim results to 31 December 2003,
however, do not reflect the full benefit of the lower average cost of the
company"s borrowings, which were restructured in late November 2003. Further,
the company"s new debt structure is expected to positively impact on the
earnings for the second half of the year.
RESULTS
The distribution of debenture interest amounts to 4,5 cents per linked unit for
the six months ended 31 December 2003. This result is not comparable with the
six months ended 31 December 2002 as explained in previously published
announcements. The distribution is, nevertheless, considered to be satisfactory,
given the company"s poor performance to 30 June 2003.
PROPERTY PORTFOLIO
During the period under review the sale of Voortrekker Centre in Mokopane was
concluded and transfer registered on 24 October 2003. The proceeds of the sale,
amounting to R19,2 million, were used to reduce the company"s borrowings. No new
property acquisitions were made during the period.
A-Prop"s portfolio at 31 December 2003 comprised 64 properties, 897 tenants and
a total rentable area of 298 426 m2. Vacancies by rentable area were
approximately 21 000 m2, representing 7% of the portfolio, compared with 8% at
30 June 2003. A further 19% of the portfolio is currently under renegotiation
with existing tenants. The portfolio has a lease expiry profile of 24% for the
financial year ending 30 June 2005, 14% for 2006, 11% for 2007 and approximately
25% for 2008 and beyond.
An independent valuation of the total portfolio will be undertaken for the year
ending 30 June 2004.
FINANCIAL POSITION
The restructuring of A-Prop resulted in R30 million of new capital being
injected into the company in November 2003 by A-Prop"s major unitholders,
supported by the company"s bankers, in return for 60 million new linked units
anticipated to be issued during April 2004 in terms of the claw-back offer to
all A-Prop unitholders.
This capital injection immediately enabled A-Prop to settle deferred payments
due to certain property vendors, amounting to R3,97 million, and to pay R22,5
million to the company"s bankers, in part settlement of the cost of unwinding
the company"s interest rate fixes on its loan facilities.
The balance of R21,5 million unwind cost has been capitalised to the new loan
facilities extended to the company. New interest rate fixes have been entered
into for periods ranging between one and three years, which has reduced the
average interest cost to 10,65% from 13,90%, resulting in an overall saving to
the company of approximately R18 million over twelve months. Total borrowings
are R614 million and the new loan facilities attract interest-only payments for
36 months.
The directors are cognisant of the company"s high level of borrowings and intend
to reduce this to more prudent levels.
LINKED UNITS IN ISSUE
The total number of linked units in issue is 172 136 888. The listing of 2 620
816 A-Prop linked units in respect of the deferred balance of the purchase price
due to Barvic Properties (Pty) Ltd and the second of three installments due to K
H Property Holdings (Pty) Ltd was approved in December 2003.
The company has been informed by a vendor that it has purportedly exercised a
put option for 2 362 454 A-Prop linked units at R1,70 per linked unit. The
company is currently taking advice in this regard.
Following the announcement of the claw-back offer to unit holders, to be
implemented during April 2004, an additional 60 million new A-Prop linked units
will be issued.
Further announcements in this regard will be made on SENS during March 2004.
DEFERRED PAYMENTS
The remaining A-Prop vendor creditors, amounting to R7,4 million, due for
settlement either in cash or through the issue of new A-Prop linked units, have
been budgeted for in the company"s projected cash flow.
SUB-COMMITTEE
Unitholders are referred to the publication on SENS on 9 February 2004 of a
summary of the conclusions made by the sub-committee as to the loss in value of
A-Prop linked units since listing as well as a summary of the recommendations
made by the sub- committee to the A-Prop board. The sub-committee"s report was
accepted without amendment by the A-Prop board.
The sub-committee has, inter alia, identified a number of potential causes of
action, which the company may pursue. Consultations are being held with the
company"s attorneys in order to assess any potential claims.
Unitholders are reminded of a meeting to be held on Thursday, 26 February 2004
at Grant Thornton, 137 Daisy Street, cnr Grayston Drive, Sandown at which the
sub- committee report will be presented in greater detail.
DIRECTORATE
Messrs G Bernstein and R M Kaplan retired at the company"s 2003 Annual General
Meeting and did not offer themselves for re-election.
PROSPECTS AND PROFIT FORECAST
The reduction in the company"s debt is fundamental to the long-term prospects
for A-Prop. The company"s initiatives will be directed towards increasing the
value of the portfolio whilst reducing the current level of borrowings. The
distribution for the six months ending 30 June 2004 is expected to increase to
at least 7 cents per linked unit, taking account of the additional 60 million
claw-back units to be issued.
Deloitte & Touche has undertaken an examination of the company"s forecast
earnings for the six-month period to 30 June 2004. Their report is available for
inspection at the company"s registered office.
REVIEW REPORT
The interim financial statements have been reviewed by Deloitte & Touche. Their
unqualified review report is available for inspection at the company"s
registered office.
DEBENTURE INTEREST PAYMENT
Unitholders are advised that distribution number 5 in respect of the period
1 July 2003 to 31 December 2003 of 4,5 cents per linked unit has been declared.
Last date to trade cum interest Friday, 5 March 2004
Date units start trading ex-interest Monday, 8 March 2004
Record date Friday, 12 March 2004
Payment date Monday, 15 March 2004
Unitholders may not dematerialise or rematerialise their linked units between
Monday, 8 March and Friday, 12 March 2004, both dates inclusive.
By order of the board
P J A Cunningham M S Aitken
Chairman Director
18 February 2004
Registered office:
1st Floor,
African Harvest House,
Freestone Park,
135 Patricia Road,
Sandton
Directors:
P J A Cunningham (Chairman) (Irish), M S Aitken, B H Kent, G A Nelson,
P J Thurling.
Date: 18/02/2004 05:44:12 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
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