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Freestone - Audited Results For The Year Ended 30 June 2005
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`)
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2005
* Total distribution for the year of 53 cents per unit
* Net asset value up by 82%
* Gearing ratio reduced to 51%
* Total return for the year of 52%
Introduction
2005 was both an active and successful year for Freestone boosted by the
finalisation of the portfolio acquisition from the Momentum group (`Momentum`)
and favourable market conditions. Freestone`s market capitalisation grew almost
fourfold and it now has a strengthened balance sheet and renewed investor
interest in its linked units. Notably, Freestone has exceeded its profit
forecast for the year and further increased the size of the portfolio with the
acquisition of additional properties.
Financial results
The board has declared a final distribution of 29.5 cents per linked unit for
the six months to 30 June 2005, amounting to a total distribution for the year
of 53 cents per linked unit. This is 1% higher than the forecast issued in
November 2004.
The total return for the financial year was 52.1%, comprising an income return
of 13.9% and capital growth of 38.2%*.
*I-Net Bridge/Catalyst Securities
Audit Report
The annual financial statements have been audited by Deloitte & Touche and
their unqualified audit report is available for inspection at the company`s
registered office. These results have been compiled in terms of South African
Statements of Generally Accepted Accounting Practice applicable to Interim
Financial Reporting and the Companies Act. The accounting policies used in the
preparation of the annual financial statements are consistent with those used
in the annual financial statements for the year ended 30 June 2004, except for
the adoption of the amortisation of lease escalations in terms of AC105-Leases.
Prior year adjustments were made to the income statement and the balance sheet.
On the balance sheet the fair value of investment properties takes into
account accumulated amortised lease escalations.
Valuation of investment properties
An independent valuation of the property portfolio was undertaken at year-end.
The value of the portfolio increased to R1.26 billion, resulting in a
revaluation surplus of R141.1 million. The company`s net asset value
accordingly increased by 82% to 443.2 cents per linked unit.
Property portfolio
At 30 June 2005 Freestone`s property portfolio comprised 87 properties,
1 182 tenants and a total rentable area of 474 790m2.
The segmental analysis of the portfolio by rentable area is shown below:
m2 Gauteng KwaZulu- Western
Natal Cape
Retail 42 614 84 858 -
Offices 123 080 13 036 38 710
Industrial 117 531 12 560 -
Total 283 225 110 454 38 710
m2 Eastern Free Total
Cape State
Retail 16 080 - 143 552
Offices 424 25 897 201 147
Industrial - - 130 091
Total 16 504 25 897 474 790
Vacancies amounted to 33 021m2, representing 7.0% of the portfolio. During the
year leases were concluded over 115 417m2 of which 44% were new leases and the
balance renewals. The portfolio has a lease expiry profile of 29.8% for
financial year 2006, 19.2% for financial year 2007 and approximately 44.0% for
financial year 2008 and beyond.
Acquisitions
The following properties were acquired during the year and have been
transferred to Freestone:
Description Province Sector Rentable
area
(m2)
Momentum portfolio Gauteng/ office/ 147 956
Free State industrial/
retail
Hyprop portfolio Gauteng office 14 286
Hurlingham Office Park Gauteng office 16 030
Central Square Idutywa Eastern Cape retail 4 024
Description Purchase Yield
price before
gearing
R`000 %
Momentum portfolio 287 400 13.3
Hyprop portfolio 57 000 11.2
Hurlingham Office Park 29 750 10.6
Central Square Idutywa 10 200 14.6
Disposals
Link Park, Cape Town was sold for R7.1 million at an exit yield of 11.8%.
Transfer of the property to the purchaser was registered on 8 November 2004.
Columbine Crossing, Gauteng was sold for R11.6 million at an exit yield of
8.4%.Transfer of the property to the purchaser was registered on
17 February 2005.
Borrowings
The company`s gearing ratio has reduced to 51.1%. Total borrowings at year-end
amounted to R644.7 million, which will attract interest-only payments. The
interest rate profile of the facilities at 30 June 2005 is shown below:
Fixed / hedged Amount Weighted %
rate expiry (Rm) average of total
interest rate
November 2005 53.1 10.1 8.2
November 2006 178.8 10.7 27.7
February 2008 50.0 10.2 7.8
July 2009 50.0 10.3 7.8
May 2010 125.7 10.5 19.5
July 2010 60.0 10.5 9.3
517.6 80.3
Floating 127.1 9.0 19.7
Total 644.7 100.0
The borrowings are repayable on dates ranging between 27 November 2006 and 7
January 2010. It is the company`s intention to roll-over the borrowings when
they fall due.
The board has appointed Rand Merchant Bank to report on the viability of
accessing debt finance through the commercial mortgaged-backed securitisation
(CMBS) market. If found to be appropriate it is anticipated that such a
structure may be implemented in March 2006.
Linked units in issue
Following unitholder approval at a general meeting held on 24 November 2004,
linked units were consolidated on a 1:5 basis. Linked units which previously
comprised 1 ordinary share of 1 cent each and one unsecured variable rate
debenture of 180 cents each, now comprise one ordinary share of 5 cents and
five unsecured variable rate debentures of 180 cents each.
During the year the total number of consolidated linked units in
issue increased to 132 388 492. At year-end there were no further deferred
units to be issued to property vendors. However 746 486 linked units are still
to be issued for the promoter`s fee in respect of the Momentum acquisition.
Directorate
During the year former Chairman PJA Cunningham retired and GA Nelson resigned
from the board. C B Brayshaw was subsequently appointed to the board as
independent non-executive Chairman, while PG Kotze was appointed as an
independent non-executive director and WK Schultze and RPS van der Bos as
executive directors.
Post balance sheet events
Montana Value Centre, a 9 717m2 shopping centre in Zambezi Drive, Tshwane, has
been purchased for R29.5 million at an anticipated yield of 11.5%. Transfer to
the company was registered on 2 August 2005.
Cuthberts Building in Bloemfontein has been sold for R7.25 million and 1 Morris
Street in Woodmead for R4.7 million. Transfer of the properties took place in
August 2005.
Sterling Place in Bellville has been sold for R17.0 million. Transfer of the
property is expected to take place in September 2005.
Prospects
Freestone`s rentals from its property portfolio are expected to benefit from
continuing demand for commercial and industrial premises. For the 2006
financial year its earnings should enable the company to show growth in total
distributions to unitholders of approximately 9%. This forecast has not been
reviewed by the company`s auditors.
Debenture interest payment
Unitholders are advised that distribution number 8
for the six months ended 30 June 2005 of 29.5 cents per
linked unit has been declared:
Last date to trade cum interest Friday, 2 September 2005
Date units start trading ex-interest Monday, 5 September 2005
Record date Friday, 9 September 2005
Payment date Monday, 12 September 2005
Unitholders may not dematerialise or rematerialise their units between
Monday 5 September 2005 and Friday 9 September 2005, both dates inclusive.
By order of the Board
C B Brayshaw M S Aitken
Chairman Director
18 August 2005
INCOME STATEMENT
Audited Audited
Year ended Year ended
30 June 2005 30 June 2004
restated
(R`000) (R`000)
Rental income and operating expense recoveries 208 226 161 689
Amortised lease escalations 9 068 6 341
Operating expenses - property rental
operations and administration costs (85 204) (62 914)
- asset management fees (5 404) (3 828)
Net profit from property rental
operations before finance costs 126 686 101 288
Net finance costs (60 835) (70 951)
Net profit before debenture interest,
including amortisation of
lease escalations 65 851 30 337
Refund on linked units issued cum interest 11 035 -
Debenture interest distribution (67 818) (23 996)
Interim (28 543) (7 746)
Final (39 275) (16 250)
Net profit before taxation,
non-trading items and fair valuation
adjustments, including
amortisation of lease escalations 9 068 6 341
Non-trading items 1 932 (43 813)
Profit on sale of investment properties 1 932 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 (37 962) 100 266
Unrealised surplus on fair
valuation of investment properties 141 130 36 934
Amortisation of lease escalations (9 068) (6 341)
Debentures * (161 963) 71 370
Interest rate swaps * (7 896) -
Non interest-bearing liabilities (165) (1 697)
Net (loss)/profit before taxation (26 962) 62 794
Taxation - deferred 50 509
Net (loss)/profit for the year
attributable to linked unitholders (26 912) 63 303
*AC 133 requires that the company`s
debentures and interest rate
swaps be revalued to their market
value at the end of the year, which
has resulted in book losses of
R162,0 million and R7,9 million
respectively for the year.
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 year 132 388 492 46 427 378**
(2004 - 232 136 888 units pre-consolidation)
Distribution number 5 - per linked unit
(cents) - 15 March 2004 22,50**
(2004 - 4,50 cents per linked
unit pre-consolidation)
Distribution number 6 - per linked unit
(cents) - 20 September 2004 35,00**
(2004 - 7,00 cents per linked
unit pre-consolidation)
Distribution number 7 - per linked unit
(cents) - 22 March 2005 23,50
Distribution number 8 - per linked unit
(cents) - 12 September 2005 29,50
Reconciliation between net
(loss)/profit for the year,
headline earnings and debenture
interest distribution
Net (loss)/profit for the year
attributable to linked unitholders (26 912) 63 303
Adjusted for:
Profit on sale of investment properties (1 932) (1 358)
Unrealised surplus on fair
valuation of investment properties (141 130) (36 934)
Debenture interest distribution 67 818 23 996
Headline (loss)/earnings for the
year attributable to linked unitholders (102 156) 49 007
Adjusted for:
Costs in respect of unwind of interest rate
fixes - 44 011
Costs in respect of claw-back offer - 1 160
Fair valuation adjustment for debentures 161 963 (71 370)
Fair valuation adjustment for interest rate
swaps 7 896 -
Fair valuation of non interest-bearing
liabilities 165 1 697
Taxation - deferred (50) (509)
Debenture interest distribution 67 818 23 996
Earnings per linked unit (weighted number
of linked units in issue)
Weighted number of linked units in issue 100 521 740 36 347 848**
(2004 - 181 739 241 linked units
pre-consolidation)
Net (loss)/profit for the year
attributable to linked unitholders (cents) (26,77) 174,15**
(2004 - 34,83 cents per linked
unit pre-consolidation)
Headline (loss)/earnings for the
year attributable to linked
unitholders (cents) (101,63) 134,85**
(2004 - 26,97 cents per linked unit pre-consolidation)
STATEMENT OF CHANGES IN EQUITY AND UNITHOLDERS` FUNDS
Share Fair Value Retained
Capital Reserve Income
R`000
GROUP
Balance at 30 June 2003 as
previously stated 31 (124 931) -
Adjustment in respect of
amortised lease
escalations at 30 June 2003 - (15 778) 15 778
Restated balance at 30 June 2003 31 (140 709) 15 778
Issue of share
capital and debentures 3 000 - -
AC 133 adjustment
between debt and equity - - 12 897
Net profit for the year - - 63 303
AC 133 adjustments:
Transfer of unrealised gain
on fair valuation of
investment properties - 36 934 (36 934)
Adjustment in respect of
amortised lease escalations - (6 341) 6 341
Transfer of unrealised gain
on fair valuation
of debenture capital - 71 370 (71 370)
Transfer of unrealised loss on
fair valuation of
non-interest bearing liabilities - (1 697) 1 697
Taxation adjustment - 509 (509)
Balance at 30 June 2004 3 031 (39 934) (8 797)
Issue of share
capital and debentures 33 866 - -
Net loss for the year - - (26 912)
AC 133 adjustments:
Transfer of unrealised gain
on fair valuation of
investment properties - 141 130 (141 130)
Adjustment in respect of
amortised lease escalations - (9 068) 9 068
Transfer of unrealised loss
on fair valuation
of debenture capital - (161 963) 161 963
Transfer of unrealised loss
on fair valuation
of interest rate swaps - (7 896) 7 896
Transfer of unrealised loss
on fair valuation
of non-interest
bearing liabilities - (165) 165
Taxation adjustment - 50 (50)
Balance at 30 June 2005 36 897 (77 846) 2 203
Total Debentures Unitholders`
Equity Funds
R`000
GROUP
Balance at 30 June 2003 as
previously stated (124 900) 211 874 86 974
Adjustment in respect of
amortised lease
escalations at 30 June 2003 - - -
Restated 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) -
Net profit for the year 63 303 - 63 303
AC 133 adjustments:
Transfer of unrealised gain
on fair valuation of
investment properties - - -
Adjustment in respect of
amortised lease escalations - - -
Transfer of unrealised gain
on fair valuation
of debenture capital - (71 370) (71 370)
Transfer of unrealised loss on
fair valuation of
non-interest bearing liabilities - - -
Taxation adjustment - - -
Balance at 30 June 2004 (45 700) 158 782 113 082
Issue of share
capital and debentures 33 866 304 791 338 657
Net loss for the year (26 912) - (26 912)
AC 133 adjustments:
Transfer of unrealised gain
on fair valuation of
investment properties - - -
Adjustment in respect of
amortised lease escalations - - -
Transfer of unrealised loss
on fair valuation
of debenture capital - 161 963 161 963
Transfer of unrealised loss
on fair valuation
of interest rate swaps - - -
Transfer of unrealised loss
on fair valuation
of non-interest
bearing liabilities - - -
Taxation adjustment - - -
Balance at 30 June 2005 (38 746) 625 536 586 790
PRIMARY OPERATIONAL SEGMENTS FOR THE YEAR ENDED 30 June 2005
Gauteng KwaZulu-Natal Western Cape
(R`000) (R`000) (R`000)
Rental income and
operating expense recoveries 107 334 58 242 27 451
Amortised lease escalations 6 657 1 194 713
Operating expenses (48 146) (24 701) (12 210)
Net profit from property
rental operations before
finance costs 65 845 34 735 15 954
Investment properties
at fair value 682 310 301 775 170 300
Freestate Eastern Cape Total
(R`000) (R`000) (R`000)
Rental income and
operating expense recoveries 9 561 5 638 208 226
Amortised lease escalations 304 200 9 068
Operating expenses (4 084) (1 467) (90 608)
Net profit from property
rental operations before
finance costs 5 781 4 371 126 686
Investment properties
at fair value 68 000 38 415 1 260 800
BALANCE SHEET
Audited Audited
30 June 2005 30 June 2004
restated
(R`000) (R`000)
Assets
Investment properties 1 260 800 734 305
Current assets 64 200 16 108
Cash and cash equivalents 49 286 11 579
Trade and other receivables 14 914 4 529
Total Assets 1 325 000 750 413
Unitholders` Funds and Liabilities
Share capital 36 897 3 031
Fair value reserve (77 846) (39 934)
Retained income/(accumulated loss) 2 203 (8 797)
Debentures at fair value 625 536 158 782
Total unitholders` funds 586 790 113 082
Interest-bearing liabilities 644 697 597 564
Fair value of interest rate swaps 7 896 -
Deferred taxation liability - 50
Current liabilities 46 342 23 467
Unitholders for interest distribution 39 275 16 250
Total Unitholders` Funds and Liabilities 1 325 000 750 413
Net asset value, including
debentures, per linked unit (cents) 443,23 243,55**
(2004 - 48,71 cents per linked unit pre-consolidation)
** Comparative figures have been restated to incorporate the unit
consolidation on a 1-for-5 basis, which took place in December 2004
ABRIDGED CASH FLOW STATEMENT
Audited Audited
Year ended Year ended
30 June 2005 30 June 2004
restated
(R`000) (R`000)
Cash flow from operating activities 72 568 34 383
Cash flow from investing activities (385 365) 13 769
Cash flow from financing activities 350 504 (44 033)
Increase in cash and cash equivalents 37 707 4 119
Cash and cash equivalents
at the beginning of the year 11 579 7 460
Cash and cash equivalents
at the end of the year 49 286 11 579
Registered office
1st Floor, Vunani 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
* non-executive independent
Sponsor
Java Capital (Proprietary) Limited
Date: 18/08/2005 03:21:26 PM
Produced by the JSE SENS Department
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