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Emira - Audited financial results for the year ended 30 June 2005
EMIRA PROPERTY FUND
(A property fund created under the Emira Property Scheme, registered in terms of
the Collective Investment Schemes Control Act)
Share code: EMI ISIN: ZAE000050712
(`Emira`)
* Distributions per PI 67,55c
* Annualised growth of +15,9%
* Net asset value per Pi 624c increase of +18,6%
* Twelve month total return 268c or 51,1%
AUDITED FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2005
Abridged income statement
Audited Audited
results results
30 June 30 June
2005 2004*
for the year ended 30 June 2005 R`000 R`000
Revenue 407 088 179 669
Property expenses (121 309) (60 843)
Administration and management expenses (22 740) (10 940)
Depreciation (6 464) (3 004)
Net income from property rental
operations 256 575 104 882
Fair value adjustments 248 141 86 906
Change in fair value of investment
properties 280 810 86 906
Change in fair value of investment
properties as a result of future
rental escalations (32 669) -
Profit on disposal of investment property 11 179 -
Maintenance fund expenses (1 827) (1 330)
Listing costs (104) (345)
Operating profit 513 964 190 113
Financing costs (45 662) (20 669)
Interest received 3 554 8 046
Net profit for the period 471 856 177 490
*Seven months
Reconciliation between earnings and
headline earnings:
Net profit for the period 471 856 177 490
Adjusted for:
Change in fair value of investment
properties (280 810) (86 906)
Change in fair value of investment
properties as a result of future
rental escalations 32 669 -
Profit on sale of investment property (11 179) -
Headline earnings 212 536 90 584
Reconciliation of headline earnings to
distribution per participatory interest:
Headline earnings 212 536 90 584
Adjusted for:
Allowance for future rental escalations (32 669) -
Fair value of interest rate swaps 11 757 -
Maintenance fund expenses 1 827 1 330
Amortised borrowing costs 296 173
Distribution payable to participatory
interst holders 193 747 92 087
One month ended 31 December 2003 (cents) - 4,72
Six months ended 30 June 2004 (cents) - 29,29
Six months ended 31 December 2004 (cents) 32,63 -
Six months ended 30 June 2004 (cents) 34,92 -
Total 67,55 34,01
Abridged balance sheet
at 30 June 2005
Audited Audited
results results
30 June 30 June
2005 2004
R`000 R`000
Assets
Non-current assets
Investment properties 2 227 105 1 901 027
Allowance for future rental escalations 32 669 -
2 259 774 1 901 027
Current assets
Accounts receivables and prepayments 31 757 4 269
Investments - 24 104
Cash 9 252 4 027
41 009 32 400
Total assets 2 300 783 1 933 427
Equity and liabilities
Participatory interest holders` capital 1 788 606 1 501 747
Non-current liabilities
Interest-bearing debt 364 141 310 978
Current liabilities
Short-term portion of long-term
interest-bearing debt 1 867 1 867
Accounts payable 34 257 39 121
Derivative liabilities 11 757 -
Distributions payable to
participatory interest holders 100 155 79 714
148 036 120 702
Total equity and liabilities 2 300 783 1 933 427
Statement of changes in equity
for the year ended 30 June 2005
Partici- Non-
patory distributable Retained
interest reserve earnings Total
R`000 R`000 R`000 R`000
Issue of participatory
interest 1 426 468 - - 1 426 468
Participatory issue
cost (10 124) - - (10 124)
Net profit for the
period - - 177 490 177 490
Distribution to
PI holders - - (92 087) (92 087)
Maintenance fund
expenses - (1 330) 1 330 -
Fair value
adjustments - 86 906 (86 906) -
Balance at
30 June 2004 1 416 344 85 576 (173) 1 501 747
Balance at
1 July 2004 1 416 344 85 576 (173) 1 501 747
Issue of participatory
interest 8 750 - - 8 750
Net profit for the
year - - 471 856 471 856
Distribution to
PI holders - - (193 747) (193 747)
Transfer of allowance
for future rental
escalations to
non-distributable
reserve - 32 669 (32 669) -
Fair value
adjustments - 248 141 (248 141) -
Profit on sale of
investment property - 11 179 (11 179) -
Unrealised loss on
interest rate swaps - (11 757) 11 757 -
Maintenance fund
expenses (1 827) 1 827 -
Balance at
30 June 2005 1 425 094 363 981 (469) 1 788 606
Abridged cash flow statement
for the year ended 30 June 2005
Audited Audited
results results
30 June 30 June
2005 2004
R`000 R`000
Cash generated by rental operations 196 087 141 063
Net finance cost (30 351) (12 623)
Distribution to participatory interest
holders (173 306) (12 373)
Cash flow from operating activities (7 570) 116 067
Purchase of investment properties (104 693) (1 779 893)
Purchase of furniture and fittings (8 984) (37 232)
Proceeds on sale of investment property 40 455 -
(Decrease)/increase in maintenance fund 24 104 (24 104)
Net cash utilised in investing activities (49 118) (1 841 229)
Issue of participatory interest 8 750 1 426 468
Cash utilised for listing costs - (10 124)
Cash raised from borrowings 53 163 310 978
Increase in short-term
portion of borrowings - 1 867
Net cash from financing activities 61 913 1 729 189
Net change in cash and cash equivalents 5 225 4 027
Cash and cash equivalents at
beginning of year 4 027 -
Cash and cash equivalents at
end of year 9 252 4 027
Segmental information
Retail Office Industrial
Primary segment R`000 R`000 R`000
Revenue 141 458 202 024 63 606
Revenue 129 259 187 613 57 547
Allowance for future rental
escalations 12 199 14 411 6 059
Segmental result
Net income from property rental
operations 88 651 134 295 45 356
Depreciation 1 188 4 466 810
Change in fair value of
investment property 83 212 152 984 44 614
Other information
Investment properties 804 218 1 097 235 325 419
Total assets 813 889 1 114 207 337 958
Accounts payable 11 387 13 619 4 176
Capital expenditure 82 416 30 226 2 794
Geographical segments
Revenue
- Gauteng 98 980 164 582 36 956
- Western and Eastern Cape 13 365 15 249 9 380
- KwaZulu-Natal - 22 193 17 270
- Free State 24 643 - -
- North West 4 470 - -
141 458 202 024 63 606
Total assets
- Gauteng 587 273 888 425 195 365
- Western and Eastern Cape 78 467 67 581 55 957
- KwaZulu-Natal - 158 201 86 636
- Free State 128 049 - -
- North West 20 100 - -
813 889 1 114 207 337 958
Segmental information (continued)
Other Total
Primary segment R`000 R`000
Revenue - 407 088
Revenue - 374 419
Allowance for future rental escalations - 32 669
Segmental result
Net income from property rental operations (11 727) 256 575
Depreciation - 6 464
Change in fair value of
investment property - 280 810
Other information
Investment properties 233 2 227 105
Total assets 34 729 2 300 783
Accounts payable 5 075 34 257
Capital expenditure (1 759) 113 677
Geographical segments
Revenue
- Gauteng 300 518
- Western and Eastern Cape - 37 994
- KwaZulu-Natal 39 463
- Free State - 24 643
- North West - 4 470
- 407 088
Total assets
- Gauteng 32 499 1 703 562
- Western and Eastern Cape 1 251 203 256
- KwaZulu-Natal 403 245 240
- Free State 576 128 625
- North West - 20 100
34 729 2 300 783
Accounting policies
The accounting policies comply in all material aspects with South African
Statements of Generally Accepted Accounting Practice.
These accounting policies are consistent with those applied at
30 June 2004.
Emira has calculated the effect of the new interpretation of AC105/IAS17 and
found that the impact of AC105/IAS17 on the 30 June 2004 is immaterial, but
significant on the 30 June 2005 results. The board elected to process the full
adjustment in the financial year pertaining to 2005.
Accordingly, the statements below have been adjusted to comply with the new
interpretation.
The fund has distributed income in accordance with its interpretation of the
trust deed and the Collective Investment Schemes Control Act. This results in
the distribution to participatory interest holders being unaffected by the
change in interpretation of AC 105/IAS 17 and continuing to effectively
distribute cash earnings.
Commentary
The financial year to June 2005 was an extremely successful one for Emira, with
healthy growth in distributions and total returns being delivered to
unitholders, the portfolio being bedded down post-listing, numerous enhancing
acquisitions being made and the fund`s debt profile being restructured.
Results
Distributions for the year amounted to 67,55 cents per PI. If this is compared
to an annualised distribution for the seven months to 30 June 2004 (34,01 cents
for the seven months, or 58,3 cents on an annualised basis) this represents
exceptional growth of 15,9% year on year.
Moreover, six-month on six-month growth (34,92 cents to 30 June 2005 compared to
32,63 cents to December 2004) is 7%.
Emira`s PI price rose from 520 cents in June 2004 to 720 cents as at 30 June
2005, a rise of 38,5%, and the fund`s market capitalisation rose from R1,48
billion to R2,07 billion over the same period. Together with the distribution
for the year of 67,55 cents, PI holders therefore received a total return of
51,5% over the past twelve months.
Related parties and related party transactions
Momentum Group is the majority participatory interest holder. At 30 June 2005,
Momentum owned 45,6 % of the fund`s participatory interests and the remaining
54,4 % were widely held.
The following transactions were carried out with related parties:
Audited Audited
results results
30 June 2005 30 June 2004
R`000 R`000
Strategic Real Estate
Managers (Pty) Limited
Expenditure comprising:
asset management fee 10 590 5 240
Relationship: Associated company of the
FirstRand Group
Rand Merchant Bank a division of
FirstRand Bank Limited
Expenditure comprising: advisory fee - 1 500
Borrowings 226 125 312 044
Net finance cost 23 166 12 450
Relationship: Associated company of the
FirstRand Group
RMB Properties (Pty) Limited 90 855 13 762
Expenditure comprising: property
management fee and letting commissions 22 683 9 762
Promoter`s fee - 4 000
Development of Gift Acres
Shopping Centre 68 172 -
Relationship: Associated company
of the FirstRand Group
Momentum Group Limited
Purchase of properties at listing - 43 208
Purchase of Boundary Terraces - 56 100
Relationship: Major PI holder
Hawley Road Developments (Pty) Limited
Purchase of properties at listing - 57 347
Relationship: Associated company of
the FirstRand Group
Momentum Property Investments
(Pty) Limited
Purchase of properties at listing - 769 620
Purchase of Strathmore Park - 16 300
Purchase of Safecash Technologies - 1 500
Relationship: Associated company of the FirstRand Group
The above transactions were carried out on commercial terms and conditions no
more favourable than those available in similar arm`s length dealings at market-
related rates.
Acquisitions
Properties transferred to Emira during the financial year
GLA Purchase Forward
Building Sector Location (m2) price (Rm) Yield (%)
Nimas House Office Westway
Office Park 1 372 9,8 12,6
Westville
Derby Downs Office Derby Downs
Office Park
Westville 2 205 12,5 12,7
Total 3 577 22,3 12,7
Properties transferred to Emira during the financial year
Effective
Building Sector Location date Tenants
Nimas House Office Westway 11 Oct 2004 National Independent
Office Park Medical Aid Society
Westville
Derby Downs Office Derby Downs 28 Feb 2005 Lafarge, Ivory
Office Park Systems
Westville
Properties transferred to Emira subsequent to the end of the financial year
GLA Purchase Forward
Building Sector Location (m2) price (Rm) Yield (%)
100 Office Armstrong Drive 2 880 25,0 11,1
Armstrong La Lucia
Total 2 880 25,0 11,1
Effective
Properties transferred to Emira subsequent to the end of the financial year
Building Sector Location date Tenants
100 Office Armstrong Drive 11 Jul 2005 Imperial
Armstrong La Lucia Bank, SAP,
RMB Asset
Management
Properties yet to be transferred to Emira
Purchase Forward Tenants
Building Sector Location price (Rm) yield (%) Woolworths,
Gift Acres* Retail Lynnwood 78,68 11,8 Mr Price Group,
Ridge First National
Pretoria Bank
East
122 Pybus Office
Road Office Sandton 15,75 11,1
CBD
Lincolnwood Office Woodmead, Office SA Rail
Office Park Sandton 55,75 12,2 Commuter
Corporation
Total 150,18
*Note that although Emira is still awaiting the transfer of Gift Acres, the
development consideration has been paid according to the agreement with RMB
Properties and income from the centre has been accruing to the fund since
opening on 1 May 2005.
Disposals
Properties sold and transferred out of Emira during the financial year
GLA Valuation Sale
Building Sector Location (m2) at June `04 price
Electron Place Industrial Isando 9 221 5,2 6,9
Waterford Place Office Century 3 880 24,1 35,0
City
Total 13 021 29,3 41,9
Building Sector Location Yield Effective
Electron Place Industrial Isando (%) date
Waterford Place Office Century City 2,6 2 December 2004
8,9 7 June 2005
Properties sold during the financial year and transferred subsequent to year-end
GLA Valuation at Sale price
Building Sector Location (m2) June `04 (Rm) (Rm)
Motorola Office Midrand 719 2,4 3,0
Total 719 2,4 3,0
Properties sold during the financial year and transferred subsequent to year-end
Yield Effective
Building Sector Location (%) date
Motorola Office Midrand 11,1 11 August 2005
Properties sold during the financial year, but yet to be transferred out of
Emira
GLA Valuation at Sale price
Building Sector Location (m2) June `04 (Rm) Rm)
Mafikeng Retail Mafikeng 5 218 20,1 20,7
Game
Grinaker Office Samrand
Electronics 3 261 3,8 7,0
Total 8 479 23,9 27,7
Properties sold during the financial year, but yet to be transferred out of
Emira
Yield
Building Sector Location (%)
Mafikeng Retail Mafikeng 15,9
Game
Grinaker Office Samrand
Electronics 1,6
Vacancies
Over the past year vacancies have shifted down slightly, moving from 6,1% in
June 2004 to 6,0% (33 624 m2) in June 2005.
Within the overall figure the largest improvement has come within the industrial
sector, which declined from 7,7% in June 2004 to 4,7% by June 2005. Retail
vacancies also declined from 2,8% to 1,5%. The underperforming sector was the
office portfolio, which saw a rise in vacancies from 6,9% to 9,7%.
It is important to note that although the vacancy rate was 6,0% at June 2005,
Emira has sold Grinaker Electronics (deposits have already been received), which
accounted for 1 851 m2 of the total vacancies in the fund. Furthermore, at
Epping Warehouse (WGA) a new lease has been concluded whereby all of the vacant
space (4 307 m2) will be occupied by September 2005. Taking the aforesaid in
account, vacancies in the fund would decline to 4,9%.
Lease expiry profile
Emira`s lease expiry is shown above. Approximately 50% of the fund`s leases
expire within the next two years, the majority of which are within the office
portfolio. The improving fundamentals in the office market offers the fund the
opportunity to obtain rentals in excess of those budgeted.
Valuations and net asset value
Four external companies were selected to undertake the valuations of
approximately one-third of Emira`s portfolio, which equated to 26 properties as
at 30 June 2005: Mills Fitchet, Old Mutual Properties, The Property Partnership
and Motseng Marriott.
The portfolio valuation of R2 260 million has given rise to a change in fair
value in the income statement totalling R280,8 million. The net asset value of
the fund at 30 June 2005 was 624 cents per participatory interest. The fund`s
listed price at the same date was 720 cents per participatory interest, which
reflects a 15,4 % premium to net asset value.
Total portfolio movement
June 2004 June 2005 Difference Difference
(R`000) (R`000) (%) (R`000)
Office 956 891 1 111 646 16,2 154 755
Retail 645 918 810 277 25,4 164 359
Industrial 296 206 337 618 14,0 41 412
General 2 012 233 (88,4) (1 779)
Portfolio
value 1 901 027 2 259 774 18,9 358 747
Adjustment to
fair value on
IAS 17/IAS 40 - (32 669) - (32 669)
As reported 1 901 027 2 227 105 17,2 326 078
Debt
During the year Emira entered into certain swap arrangements, which resulted in
the fund`s debt being restructured. Whereas at 30 June 2004 Emira had
approximately half of its debt at floating rates, by 30 June 2005 the fixed
component had increased to approximately 80%, with staggered maturity dates
ranging from October 2007 to November 2011. This has significantly reduced the
interest rate risk to PI holders.
The breakdown is as follows:
Rate (%) Term Amount % of debt
1 Debt - Floating Prime-2 N/A 107,4 20,6
2 Debt - Fixed 9,35 September 2005 100,0 19,2
3 - Fixed 9,76 November 2006 126,1 24,2
4 - Fixed 10,21 November 2008 100,0 19,2
5 - Fixed 11,26 October 2009 88,5 17,0
TOTAL 9,76* 522,0 100
*Weighted average cost of debt assuming prime at 10,5%
Emira has engaged in additional interest rate swaps to further extend the
maturities of the nearest-dated facilities 2 and 3 above:
Term Amount Old rate New amount New term New rate
(%) (%)
Sep 2005 100,0 9,35 100,0 8 Sep - 10 Sep 9,24
2005 2007
Nov 2006 126,1 9,76 63,0 30 Nov - 30 Nov 10,76
2006 2011
63,1 30 Nov - 30 Nov 10,41
2006 2011
Prospects
Assuming a stable economic outlook, market conditions in the retail and
industrial property sectors are expected to remain healthy, with vacancies being
maintained at low levels. There is continued demand for space from retailers,
while healthy economic growth is benefiting the industrial sector. Vacancies in
the office market should continue their downward trend if the economy continues
to grow at the current robust levels and the supply of new office space remains
moderate.
Under the above market conditions, the South African listed property sector is
expected to continue to show solid returns over the next twelve months. Certain
commentators believe that growth from the listed sector could average between 5%
and 7%. Management is targeting market-related growth in distributions in the
coming year.
Audit opinion and independent review
The financial information has been audited by PricewaterhouseCoopers Inc. whose
unqualified audit opinion is available for inspection at Emira`s registered
address.
Distribution
Notice is hereby given that a cash distribution of 34,92 cents per participatory
interest has been declared payable to participatory interest holders payable on
19 September 2005.
Last day to trade cum distribution Friday, 9 September 2005
Participatory interest trade ex
distribution Monday, 12 September 2005
Record date Friday, 16 September 2005
Payment date Monday, 19 September 2005
By order of the Board
C Middlemiss Ben van der Ross James Templeton
Company Secretary Chairman Chief Executive Officer
Sandton
24 August 2005
Property Fund Manager, Strategic Real Estate Managers (Pty) Limited
Directors of the fund manager
BJ van der Ross (Chairman)*, JWA Templeton (Chief Executive Officer), L
Barnard*, L Basson*, MSB Neser*, WK Schultze *Non-executive director
Merchant bank and sponsor:
Rand Merchant Bank (A division of FirstRand Bank Limited)
Date: 23/08/2005 04:54:21 PM
Produced by the JSE SENS Department
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