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A-Prop - Audited Results For The Year Ended 30 June 2004 And Further Cautionary
ARNOLD PROPERTY FUND LIMITED
(`A-Prop` or ` the company`)
(Registration number 2001/011887/06)
Share code: ARP ISIN code: ZAE000031720
Reviewed results for the year ended 30 June 2004 and further cautionary
announcement
Year ended Year ended
30 June 2004 30 June 2003
Reviewed Audited
(R`000) (R`000)
INCOME STATEMENT
Revenue 161,689 154,509
Operating expenses
- property operating and
administration costs (62,914) (53,332)
- management fees (3,828) (4,239)
Net profit from operations before finance
costs 94,947 96,938
Net finance costs (70,951) (73,234)
Net profit before debenture interest 23,996 23,704
Debenture interest paid / payable to
unitholders (23,996) (23,704)
Net profit before taxation , abnormal items
and fair valuation adjustments - -
Abnormal items (43,813) -
Profit on sale of investment property 1,358 -
Costs in respect of unwind of interest rate
fixes (44,011) -
Costs in respect of claw-back offer (1,160) -
Fair valuation adjustments 106,607 (163,701)
Unrealised surplus / (deficit) on fair
valuation of investment properties 36,934 (227,259)
Non interest bearing liabilities (1,697) (787)
Fair valuation of debenture capital 71,370 64,345
Net profit / (loss) before taxation 62,794 (163,701)
Taxation - deferred 509 911
Net profit / (loss) for the year
attributable to linked unitholders 63,303 (162,790)
Number of linked units at the end of the year 232,136,888 169,516,072
Distribution number 3 - per linked unit
(cents) - 31 March 2003 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
Distribution number 6 - per linked unit
(cents) - Proposed 7.00
Earnings and headline earnings
Reconciliation between net profit / (loss)
for the year and headline
earnings
Net profit / (loss) after taxation 63,303 (162,790)
Adjusted for:
Profit on sale of investment property (1,358) -
Unrealised (surplus) / deficit on fair
valuation of investment properties (36,934) 226,584
Headline earnings - shares 25,011 63,794
Debenture interest 23,996 23,704
Headline earnings - linked units 49,007 87,498
Earnings per linked unit(weighted number of linked units in issue)
Weighted number of linked units in issue 181,739,241 155,692,292
Earnings / (loss) per linked unit (cents) 34.83 (104.56)
Headline earnings per linked unit (cents) 26.97 56.20
BALANCE SHEET
Assets
Investment properties 734,305 711,140
Current assets 16,108 21,198
Total Assets 750,413 732,338
Unitholders` Funds and Liabilities
Share capital 3,031 31
Fair value reserve (17,815) (124,931)
Accumulated loss (30,916) -
Debentures at fair value 158,782 211,874
Total unitholders` funds 113,082 86,974
Interest bearing liabilities 597,564 606,570
Other long term liabilities - 2,778
Deferred taxation liability 50 559
Current liabilities 23,467 29,916
Unitholders for interest distribution 16,250 5,541
Total Unitholders` Funds and Liabilities 750,413 732,338
The split of debentures between debt and
equity portions does not represent the
legal substance of the debentures, but has
been done in order to comply with GAAP
Net asset value, including debentures, per
linked unit (cents) 48.7 51.3
ABRIDGED CASH FLOW STATEMENT
Cash flow from operating activities 34,383 34,963
Cash flow from investing activities 13,769 (96,334)
Cash flow from financing activities (44,033) 65,001
Increase in cash and cash equivalents 4,119 3,630
Cash and cash equivalents at the beginning of
the year 7,460 3,830
Cash and cash equivalents at the end of the
year 11,579 7,460
An amount of R16 million has been deposited in
the floating facility granted by Nedbank Limited
and is not included in the balance above.
STATEMENT OF CHANGES IN EQUITY AND UNITHOLDERS` FUNDS
Share Fair Value
Capital Reserve
R`000
GROUP
Balance at 30 June 2002 24 37,859
Issue of share capital and
debentures 7 -
Reversal of acquisition of Nqutu
property - -
Net loss for the year - -
AC 133 adjustments:
Transfer of unrealised loss on
fair valuation of investment
properties net of tax - (226,584)
Transfer of unrealised loss on
fair valuation of non-interest
bearing liabilities - (551)
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 3,000
AC 133 adjustment between debt
and equity
Net profit for the year
AC 133 adjustments:
Transfer of unrealised gain on
fair valuation of investment
properties 36,934
Transfer of unrealised loss on
fair valuation of non-interest
bearing liabilities (1,697)
Taxation adjustment 509
Transfer of unrealised gain on
fair valuation of debenture
capital 71,370
Balance at 30 June 2004 3,031 (17,815)
STATEMENT OF CHANGES IN EQUITY AND UNITHOLDERS` FUNDS
Accumulated Total Debentures Unitholders`
Loss Equity Funds
R`000
GROUP
Balance at 30
June 2002 - 37,883 206,888 244,771
Issue of share
capital and
debentures - 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 - -
Transfer of
unrealised loss
on fair valuation
of non-interest
bearing
liabilities 551 - -
Transfer of
unrealised gain
on fair valuation
of debenture
capital (64,345) - (64,345) (64,345)
Balance at 30
June 2003 - (124,900) 211,874 86,974
Issue of share
capital and
debentures 3,000 31,175 34,175
AC 133 adjustment
between debt and
equity 12,897 12,897 (12,897) -
Net profit for
the year 63,303 63,303 63,303
AC 133
adjustments:
Transfer of
unrealised gain
on fair valuation
of investment
properties (36,934) - -
Transfer of
unrealised loss
on fair valuation
of non-interest
bearing
liabilities 1,697 - -
Taxation
adjustment (509) - -
Transfer of
unrealised gain
on fair valuation
of debenture
capital (71,370) - (71,370) (71,370)
Balance at 30
June 2004 (30,916) (45,700) 158,782 113,082
PRIMARY OPERATIONAL SEGMENTS FOR THE YEAR ENDED 30 JUNE 2004
Gauteng KwaZulu-Natal Western Cape
(R`000) (R`000) (R`000)
Revenue 67,552 55,528 29,414
Operating expenses (28,399) (22,362) (12,723)
Net profit before finance costs 39,153 33,166 16,691
Investment properties at fair
value 287,740 239,225 175,200
Other Total
(R`000) (R`000)
Revenue 9,195 161,689
Operating expenses (3,258) (66,742)
Net profit before finance costs 5,937 94,947
Investment properties at fair value 32,140 734,305
Report of the Independent Auditors
The annual financial statements have been reviewed by Deloitte & Touche and
their unqualified review opinion is available for inspection at the company`s
registered office. The annual financial statements have been prepared in
accordance with South African Statements of Generally Accepted Accounting
Practice applicable to interim financial reporting. The accounting policies used
in the preparation of these annual financial statements are consistent with
those used in the annual financial statements for the year ended 30 June 2003.
COMMENTS
INTRODUCTION
The directors of A-Prop are pleased to report continued improvement in the
group`s performance in the second six months to year-end 30 June 2004.
Following the successful restructuring of the group, A-Prop has started to
realise the benefits of a lower cost of debt. The performance of the property
portfolio was aided by a more positive property market during the second half of
the year, as reflected in the group`s high tenant retention rate and new letting
activity.
RESULTS
Earnings for the second half of the year met the profit forecast in the interim
results announcement, resulting in a distribution for the second six months of
7,0 cents per linked unit. This equates to a total distribution for the year of
11,5 cents per linked unit.
PROPERTY PORTFOLIO
During the year the sale of Voortrekker Centre in Mokopane was concluded with
transfer registered on 24 October 2003. The net proceeds from the sale of R19,2
million were used towards reducing the group`s borrowings. No new acquisitions
were made during the year.
A-Prop`s portfolio at 30 June 2004 comprised 63 properties, a total rentable
area of 299 203m2 and 884 tenants.
The segmental analysis of the portfolio by rentable area is shown below:
(m2) Gauteng KwaZulu-Natal Western Cape Other Total
Retail 32 361 80 505 7 588 13 924 134 378
Offices 49 596 17 284 31 414 2 924 101 218
Industrial 47 640 12 559 3 408 - 63 607
Total 129 597 110 348 42 410 16 848 299 203
At 30 June 2004 vacancies by rentable area totalled 22 766m2, representing 7,6%
of the portfolio. During the year leases were concluded over 78 757m2, of which
29% were new leases and 71% were renewals. The portfolio has a lease expiry
profile of 27,6% for the financial year ahead ending 30 June 2005 with the
majority of leases already under re-negotiation. The lease expiry profile is
17,8% for 2006, 16,0% for 2007 and approximately 31,0% for 2007 and beyond.
VALUATIONS
In line with policy an independent valuation of the group`s property portfolio
was undertaken at 30 June 2004 by external registered valuers, The Property
Partnership and Mills Fitchet. The valuation of the portfolio at R734,3 million
resulted in a valuation surplus of R36,9 million. This equates to an increase of
5,3% over the previous year, after adjusting for sales and new capital
expenditure.
FINANCIAL POSITION
The restructuring of A-Prop resulted in R30 million of new capital being
injected into the group in November 2003 by A-Prop`s major unitholders, in
return for 60 million new linked units. These were issued on 26 April 2004 as
part of the claw-back offer to all A-Prop unitholders.
The group has total borrowings of R597,5 million which will attract
interest-only payments for a period of two years. The interest rate profile of
the facilities at 30 June 2004 is shown below:
Fixed rate expiry Amount Weighted average % of total
Rm interest rate
November 2004 158,3 9,85 26,4
November 2005 198,7 10,42 33,3
November 2006 198,7 11,02 33,3
Net floating facilities 41,8 10,93 7,0
Gross floating facilities 57,8
Less: Cash on deposit in
floating facilities (16,0)
LINKED UNITS IN ISSUE
The total number of linked units in issue at year-end was 232 136 888, taking
account of the listing of the 60 million new linked units and 2 620 818
deferred linked units in respect of prior acquisitions.
SUB-COMMITTEE
The sub-committee appointed by the board last year to investigate the loss in
value of A-Prop linked units and the subsequent decline in the group`s net asset
value prior to 30 June 2003, presented its detailed findings to A-Prop
stakeholders at a meeting held on 26 February 2004.
Pursuant to the sub-committee`s recommendations, consultations were held with
the group`s attorneys and it is pleasing to report that claims against certain
vendors have been resolved in favour of the group. Every effort is being made to
resolve all remaining potential claims in the interests of unitholders.
DEFERRED PAYMENTS
A total of R3,9 million was paid to deferred vendor creditors in terms of an
agreement reached in November 2003 as part of the restructuring. There remains
one outstanding vendor creditor due for settlement in December 2004 in the
amount of R3,5 million, to be settled in A-Prop linked units at an issue price
of R1,80 per linked unit.
POST BALANCE SHEET EVENTS
Link Park, an industrial facility in Montague Gardens in the Western Cape, has
been sold for R7,3 million in line with the valuation at 30 June 2004. The
property is in the process of transfer.
FURTHER CAUTIONARY ANNOUNCEMENT
As announced on 14 July 2004 the group is in negotiations with Momentum Property
Investments (Pty) Ltd to acquire a portfolio of properties in consideration for
the issue of new A-Prop linked units (`the proposed Momentum acquisition`). This
initiative forms part of the ongoing strategy to enhance both the size of the
portfolio and quality of earnings of the group.
Reciprocal due diligence exercises and independent valuations of the respective
property portfolios are expected to be completed during September 2004.
Accordingly, linked unitholders are advised to continue to exercise caution when
dealing in A-Prop linked units until a full announcement in this respect is
made.
PROSPECTS
The directors anticipate that the group will deliver similar returns to
unitholders in the year ahead. The implementation of the proposed Momentum
acquisition is expected to both significantly improve the gearing ratio of the
group and increase its market capitalisation. This will result in a sustained
improvement in the performance of the group and should contribute to a potential
positive re-rating of A-Prop linked units.
DEBENTURE INTEREST PAYMENT
Unitholders are advised that distribution number 6 in respect of the period 1
January 2004 to 30 June 2004 of 7,0 cents per linked unit has been declared.
Last date to trade cum interest Friday, 10 September 2004
Date units start trading ex-interest Monday, 13 September 2004
Record date Friday, 17 September 2004
Payment date Monday, 20 September 2004
Unitholders may not dematerialise or rematerialise their units between Monday,
13 September 2004 and Friday, 17 September 2004, both dates inclusive.
By order of the Board
PJA Cunningham MS Aitken
Chairman Director
26 August 2004
Registered office
1st Floor, African Harvest House, Freestone Park, 135 Patricia Road, Sandton,
2196 (PO Box 4795 Rivonia 2128)
Directors
PJA Cunningham (Chairman)*, MS Aitken, BH Kent*, GA Nelson, PJ Thurling
*Independent non-executive directors
Transfer Secretaries
Computershare Investor Services 2004 (Pty) Ltd
Ground Floor 70 Marshall Street Johannesburg 2001 (PO Box 61051 Marshalltown
2107)
Sponsor
Java Capital (Pty) Ltd
2 Arnold Road Rosebank 2196 (PO Box 2087 Parklands 2121)
Date: 26/08/2004 03:26:03 PM Produced by the JSE SENS Department
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