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Freestone Property Holdings Limited - Reviewed Group Financial Results For The
Six Months Ended 31 December 2004
FREESTONE PROPERTY HOLDINGS LIMITED
(Previously Arnold Property Fund Limited)
(Incorporated in the Republic of South Africa)
(Registration number 2001/011887/06)
Share code: FSP ISIN: ZAE000060299
(`Freestone` or `the company`)
HIGHLIGHTS
* Interim distribution to unitholders of 23,5 cents per linked unit
* Property portfolio valued at R1,1 billion
* Gearing ratio reduced from 81% to 58%
* Total return over 12 months of 47%
REVIEWED GROUP FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2004
INCOME STATEMENT
Six months Six months Year
ended ended ended
31 December 2004 31 December 2003 30 June 2004
Reviewed Reviewed Audited
(R`000) (R`000) (R`000)
Revenue 90 061 81 548 161 689
Operating expenses
- property rental
operations and
administration costs (39 418) (31 481) (62 914)
- asset management fees (2 329) (1 861) (3 828)
Net profit from
property rental
operations before
finance costs 48 314 48 206 94 947
Net finance costs (30 819) (40 457) (70 951)
Net profit before
debenture interest,
available for
distribution
to unitholders 17 495 7 749 23 996
Refund on linked
units issued cum
interest 11 048 - -
Debenture interest
payable/paid to
unitholders (28 543) (7 749) (23 996)
Net profit before
taxation, non-trading
items and
fair valuation
adjustments - - -
Non-trading items (201) (43 724) (43 813)
(Loss)/Profit on sale
of investment
property (201) 276 1 358
Costs in respect of
unwind of interest
rate fixes - (44 000) (44 011)
Costs in respect of
claw-back offer - - (1 160)
Fair valuation
adjustments (49 433) 83 866 106 607
Unrealised surplus on
fair valuation of
investment properties - - 36 934
Non interest-bearing
borrowings (165) (1 358) (1 697)
Fair valuation of
debenture capital (49 268)* 85 224 71 370
Net (loss)/profit
before taxation (49 634) 40 142 62 794
Taxation - deferred 50 408 509
Net (loss)/profit for
the period (49 584) 40 550 63 303
* AC 133 requires that the
company`s debentures be
revalued to their market
value at the end of the
period, which has resulted
in a book loss of R49
million in the period.
The adjustment, however, has
no effect on the company`s
cashflow or its distribution
to unitholders.
Number of linked
units at the end of
the period 46 811 817 34 427 378** 46 427 378**
Distribution number 5
- per linked unit
(cents) - 15 March 2004 22.50** 22.50**
Distribution number 6
- per linked unit
(cents) - 20 September 2004 35.00**
Distribution number 7
- per linked unit
(cents) - 22 March 2005 23.50
Earnings and headline
earnings
Reconciliation
between net
(loss)/profit for the
period and headline
earnings
Net (loss)/profit
after taxation (49 584) 40 550 63 303
Adjusted for:
Loss/(Profit) on sale
of investment
property 201 (276) (1 358)
Unrealised surplus on
fair valuation of
investment properties - - (36 934)
Debenture interest 28 543 7 749 23 996
Headline
(loss)/earnings
attributable to
linked unitholders (20 840) 48 023 49 007
Earnings per linked
unit (weighted number
of linked units in
issue)
Weighted number of
linked units in issue 71 239 771 33 946 895** 36 347 848**
(Loss)/Earnings per
linked unit (cents) (69.60) 119.45** 174.15**
Headline
(loss)/earnings per
linked unit (cents) (29.25) 248.25** 134.85**
ABRIDGED BALANCE SHEET
31 December 31 December 30 June
2004 2003 2004
Reviewed Reviewed Audited
(R`000) (R`000) (R`000)
Assets
Investment properties 1 071 206 693 920 734 305
Current assets 28 373 29 241 16 108
Total assets 1 099 579 723 161 750 413
Unitholders` funds and liabilities
Share capital 3 377 31 3 031
Fair value reserve (67198) (40 657) (17 815)
Accumulated loss (31 117) (43 724) (30 916)
Debentures at fair value 210653 130 824 158 782
Claw-back offer - 30 000 -
Units to be issued to Momentum and
Hyprop 315 897 - -
Total unitholders` funds 431 612 76 474 113 082
Interest-bearing borrowings 623 484 613 952 597 564
Deferred taxation liability - 151 50
Current liabilities 26 988 24 835 23 467
Unitholders for interest
distribution 17 495 7 749 16 250
Total unitholders` funds and
liabilities 1 099 579 723 161 750 413
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) 336,76*** 164,70** 243,55**
** Comparative figures have been
restated to incorporate the unit
consolidation on a 1 for 5 basis,
which took place in December 2004.
*** Based on 128 166 270 units in
issue, ie. including 74 648 571
units issued in January 2005
to Momentum and 6 705 882 units to
be issued to Hyprop
ABRIDGED CASH FLOW STATEMENT
Cash inflow from operating
activities 14 953 75 34 383
Cash inflow from investing
activities 5 732 17 496 13 769
Cash outflow from financing
activities (18 830) (9 396) (44 033)
Change in cash and cash equivalents 1 855 8 175 4 119
Cash and cash equivalents at the
beginning of the period 11 579 7 460 7 460
Cash and cash equivalents at the
end of the period 13 434 15 635 11 579
STATEMENT OF CHANGES IN EQUITY AND UNITHOLDERS` FUNDS
Fair Accu-
Share value mulated
(R`000) capital reserve loss
Balance at 30 June 2003 31 (124 931) -
Issue of share capital and debentures - - -
Proposed claw-back offer - - -
Net profit for the period - - 40 550
Transfer of unrealised loss
on fair valuation of investment
properties net of tax - (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)
Issue of share capital and debentures 3 000 - -
Claw-back offer - - -
Adjustment between debt and equity - - 12 897
Net profit for the period - - 22 753
Transfer of unrealised loss on fair
valuation
of investment properties net of tax - 37 884 (37 884)
Transfer of unrealised loss on fair
valuation
of non interest-bearing liabilities - (1 697) 1 697
Taxation adjustment - 509 (509)
Transfer of unrealised loss on fair
valuation of
debenture capital - (13 854) 13 854
Balance at 30 June 2004 3 031 (17 815) (30 916)
Issue of share capital and debentures 346 - -
Units to be issued to Momentum and Hyprop - - -
Net loss for the period - - (49 584)
Transfer of unrealised loss on fair
valuation
of non interest-bearing liabilities - (165) 165
Taxation adjustment - 50 (50)
Transfer of unrealised loss on fair
valuation of debenture capital - (49 268) 49 268
Balance at 31 December 2004 3 377 (67 198) (31 117)
Total Unitholders`
(R`000) equity Debentures funds
Balance at 30 June 2003 (124 900) 211 874 86 974
Issue of share capital and
debentures - 4 174 4 174
Proposed claw-back offer - - 30 000
Net profit for the period 40 550 - 40 550
Transfer of unrealised loss
on fair valuation of investment
properties net of tax - - -
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
Issue of share capital and
debentures 3 000 27 001 30 001
Claw-back offer - - (30 000)
Adjustment between debt and equity 12 897 (12 897) -
Net profit for the period 22 753 - 22 753
Transfer of unrealised loss on
fair valuation
of investment properties net of
tax - - -
Transfer of unrealised loss on
fair valuation
of non interest-bearing
liabilities - - -
Taxation adjustment - - -
Transfer of unrealised loss on
fair valuation of
debenture capital - 13 854 13 854
Balance at 30 June 2004 (45 700) 158 782 113 082
Issue of share capital and
debentures 346 2 603 2 949
Units to be issued to Momentum
and Hyprop - 315 897 315 897
Net loss for the period (49 584) - (49 584)
Transfer of unrealised loss on
fair valuation of non interest-
bearing liabilities - - -
Taxation adjustment - - -
Transfer of unrealised loss on
fair valuation of
debenture capital - 49 268 49 268
Balance at 31 December 2004 (94 938) 526 550 431 612
PRIMARY OPERATIONAL SEGMENTS FOR THE PERIOD ENDED 31 DECEMBER 2004
Gauteng KwaZulu-Natal Western Cape
(R`000) (R`000) (R`000)
Revenue 41 530 13 776 29 273
Operating expenses (19 489) (6 727) (13 513)
Net profit from property rental
operations before finance costs 22 041 7 049 15 760
Investment properties at fair
value 580 387 239 225 167 990
Other Total
(R`000) (R`000)
Revenue 5 482 90 061
Operating expenses (2 018) (41 747)
Net profit from property rental operations before
finance costs 3 464 48 314
Investment properties at fair value 83 604 1 071 206
RELATED PARTIES AND RELATED PARTY TRANSACTIONS
Freestone`s major unitholder is Momentum Group Ltd, a company in the FirstRand
Group. On 6 January 2005, when the units in consideration of the Momentum
acquisition were issued, Momentum Group Ltd owned 49% of the units in
issue. The remaining 51% of the units are widely held.
The following transactions were carried out with related parties:
December December June
2004 2003 2004
(R`000) (R`000) (R`000)
Freestone Management Company (Pty) Ltd
Expenditure comprising asset management
fees 976 - -
Relationship: Associated company of
Corovest
Property Group Ltd and RMB Properties
(Pty) Ltd
Corovest Property Group Ltd
Expenditure comprising asset management
fees 1 353 1 861 3 828
Relationship: Joint shareholder of
management company
Total asset management fees 2 329 1 861 3 828
RMB Properties (Pty) Ltd
Expenditure comprising property
management fees 483 - -
Relationship: Associated company of
FirstRand Group,
joint shareholder of management company
Hyprop Investments Ltd
Acquisition of investment properties 57 000 - -
Relationship: MS Aitken and PJ Thurling are directors of both the company and
Hyprop Investments Ltd.
The above transactions were carried out on commercial terms and conditions, no
more favourable than those available in similar arms-length dealings at market
related rates.
NOTE:
The interim financial statements are 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
results are consistent with those used in the annual financial statements for
the year ended 30 June 2004.
OVERVIEW
The successful acquisition of a portfolio of properties from Momentum Group
Ltd in consideration for the issue of new Freestone units (`the Momentum
acquisition`) has reduced the gearing ratio of the company from 81% to 58% and
increased its market capitalisation from R234 million to R607 million at
31 December 2004, achieving the board`s strategic aim of repositioning the
company. It is also pleasing to note that the rebranding of the company as
Freestone Property Holdings Ltd and the consolidation of the company`s
linked units have impacted positively on the company`s profile in the listed
property sector.
FINANCIAL RESULTS
The interim distribution of 23,5 cents per linked unit for the six months ended
31 December 2004 is in line with the profit forecast for the 12 months ending
30 June 2005, included in the circular to unitholders dated 2 November 2004.
The results include the earnings from the Momentum acquisition with effect from
1 November 2004. The settlement units for the Momentum acquisition were issued
on 6 January 2005 and will effectively rank for two months distribution from
1 November 2004 to 31 December 2004.
The interim financial results of the group have been reviewed by Deloitte &
Touche. Their unqualified review report is available for inspection at the
company`s registered office.
PROPERTY PORTFOLIO
At a special general meeting held on 24 November 2004, unitholders approved the
Momentum acquisition effective from 1 November 2004. This transaction was
approved by the Competition Tribunal on 17 November 2004. At the date of this
announcement all the properties totalling in aggregate R287,4 million, other
than Highway Business Park, have been transferred to Freestone.
The transfer of Link Park, sold in June 2004, was registered on 8 November
2004. Columbine Crossing, a neighbourhood retail centre in Mondeor, Gauteng,
was sold for R11,7 million reflecting a surplus to its carrying value of
R9,1 million. Transfer was registered on 17 February 2005.
It was announced on 10 January 2005 that Freestone had concluded an agreement
with Hyprop Investments Ltd for the purchase of an office building
portfolio located in Hyde Park, Wierda Valley and Midrand at an average initial
yield before gearing of 11,2% (`the Hyprop acquisition`). The acquisition,
effective from 31 December 2004, was approved by the Competition Commission on
27 January 2005 and the properties are in the process of being transferred to
the company. The purchase price of R57 million is to be settled by the issue of
6 705 882 new linked units at 425 cents per unit and R28,5 million in cash.
Freestone`s property portfolio at 31 December 2004, including the Momentum and
Hyprop acquisitions, comprised 93 properties valued at R1,071 billion,
1 142 tenants and a total rentable area of 457 108m2.
The segmental analysis of the portfolio by rentable area is shown below:
m2 Gauteng KwaZulu-Natal Western Cape Other Total
Retail 45 700 85 162 - 12 056 142 918
Offices 105 879 13 036 38 777 26 158 183 850
Industrial 117 781 12 559 - - 130 340
Total 269 360 110 757 38 777 38 214 457 108
Vacancies by rentable area were 34 222m at 31 December 2004, representing
7,5% of the portfolio. The portfolio has a lease expiry profile of 17,2% for the
remainder of the financial year ending 30 June 2005, 23,2% for 2006, 16,5% for
2007, 9,0% for 2008 and approximately 26,6% for 2009 and beyond.
FINANCIAL POSITION
The Momentum acquisition has enabled the board to effectively restructure the
company`s long-term borrowings with its existing bankers by repaying the loans
that matured in November 2004 as well as a portion of its floating facilities,
and to enter into favourable new interest rate hedges arranged by Rand Merchant
Bank.
The company has interest-bearing borrowings of R623,5 million, of which
R557,4 million is fixed for periods as set out below;
Expiry date Amount Weighted average %
(R`m) interest rate of total
November 2005 198,7 10,10 33,4
November 2006 198,7 10,70 33,4
June 2005 110,0 8,95 18,5
- portion rolled over to July 2009 50,0 10,36
- portion rolled over to July 2010 60,0 10,51
February 2008 50,0 9,5-10,87* 8,4
Total fixed facilities 557,4 93,7
Net floating facilities 37,6 6,3
Gross floating facilities 54,6 9,50
Less: cash on deposit in floating
facilities (17,0)
595,0 100,0
Hyprop vendors 28,5 11,00
Total 623,5
* comprising floor and collar rates
LINKED UNITS IN ISSUE
The total number of linked units in issue is 128 166 270, including the new
linked units issued for the Momentum acquisition, the units to be issued for
the Hyprop acquisition, the settlement of the last of the deferred units in
respect of prior acquisitions and the consolidation of Freestone`s linked units
on a one-for-five basis.
The promoters` fee of R2 873 970 in respect of the Momentum acquisition, due to
Corovest Property Group Ltd and RMB Properties (Pty) Ltd, will be settled
through the issue of 746 486 new linked units following the record date for the
interim distribution.
Subsequent to the Momentum acquisition, the Momentum Group shareholding in the
company has reduced to 49% from 62%.
SUB-COMMITTEE
The company`s attorneys have reported further possible claims against certain
vendors and the promoters relating to the loss in value of Arnold Property Fund
Ltd (`A-Prop`). In consequence, the promoters have agreed to make available
certain documents relating to the initial procurement of the portfolio and the
company`s advisers are engaged in assessing various transactions. The board
anticipates that further legal actions will be instituted in the near future. A
complaint has been lodged with the South African Institute of Valuers regarding
the `independent valuation` given at the time of A-Prop`s listing.
MANAGEMENT AGREEMENT
In accordance with the terms of the Momentum acquisition, the management of
Freestone is being undertaken by Freestone Management Company (Pty) Ltd, an
equally held joint venture company between Corovest Property Group Ltd and RMB
Properties (Pty) Ltd.
The agreement is for an initial period of five years that commenced on
1 November 2004.
DIRECTORATE
At the company`s annual general meeting held on 24 November 2004, non-executive
Chairman P J A Cunningham retired and G A Nelson resigned as a non-executive
director. C B Brayshaw was appointed non-executive Chairman and P G Kotze was
appointed a non-executive director. W K Schultze and R P S van der Bos were
appointed executive directors of the company representing RMB Properties. The
board thanks Messrs Cunningham and Nelson for their contributions during the
restructuring of the company and their commitment to ensuring the company`s
ongoing success.
PROSPECTS
The board is committed to further improving the company`s performance and
profitability. The current positive outlook for property combined with the
company`s favourable interest rate exposure will enable the board to optimise
net income growth from the Freestone portfolio. The company is expected to meet
the forecast distribution of 52,5 cents per linked unit for the year ending
30 June 2005.
DEBENTURE INTEREST PAYMENT
Unitholders are advised that distribution number 7 in respect of the period
1 July 2004 to 31 December 2004 of 23,5 cents per linked unit has been
declared.
Last date to trade cum interest Friday 11 March 2005
Date units start trading ex interest Monday 14 March 2005
Record date Friday 18 March 2005
Payment date Tuesday 22 March 2005
Unitholders may not dematerialise or rematerialise their units between Monday
14 March 2005 and Friday 18 March 2005, both dates inclusive.
By order of the Board.
C B Brayshaw M S Aitken
Chairman Director
23 February 2005
Registered office
1st Floor,
African Harvest House,
Freestone Park,
135 Patricia Road,
Sandton, 2196.
Directors
C B Brayshaw (Chairman), M S Aitken, B H Kent, P G Kotze, W K Schultze,
P J Thurling, R P S van der Bos
www.fsprops.co.za
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