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Marriott Property Fund - Reviewed Results And Distribution Declaration
Marriott Property Fund Managers Limited
Share code: MTP ISIN code: ZAE000037271
REVIEWED RESULTS AND DISTRIBUTION DECLARATION
The directors of Marriott Property Fund Managers Limited, the management company
of Martprop Property Fund (`Martprop` or `Fund`) submit their report on the
reviewed financial results of the Martprop group for the year ended 31 July
2005.
31.07.2005 31.07.2004
CONSOLIDATED BALANCE SHEET (R000) Note (Reviewed) (Audited)
Assets
Non-current assets
Investment properties 1 902 184 1 390 143
- At valuation 1 960 782 1 447 185
- Straight line rental adjustment 1.1 (58 598) (57 042)
Rental receivable - straight line 46 085 44 050
adjustment 1.1
Current assets
Trade and other receivables 52 427 34 192
- Trade and other receivables 39 914 21 200
- Rental receivable - straight line 12 513 12 992
adjustment 1.1
Cash resources and short-term investments 66 529 78 159
Total Assets 2 067 225 1 546 544
Unitholders` funds and liabilities
Unitholders` funds 1 754 492 1 395 250
- Before rental straight line adjustment 1 774 925 1 415 139
- Rental straight line adjustment 1.1 (20 433) (19 889)
Non-current liabilities
Interest bearing borrowings 155 000 -
Interest rate swap derivative 1 602 2 116
Deferred capital gains taxation 9 583 (44)
Deferred taxation on rental straight line
adjustment 1.1 22 613 22 012
Current liabilities
Trade and other payables 25 162 29 212
Capital gains taxation and secondary 3 905 6 945
taxation on companies
Distributions payable 94 868 91 053
Total Unitholders` funds and liabilities 2 067 225 1 546 544
Year to Year to
CONSOLIDATED INCOME STATEMENT (R000) 31.07.2005 31.07.2004
Note % (Reviewed) (Audited)
Change
Revenue (rental income) 240 642 215 837
- Cash flows inherent in leases 12% 239 086 212 948
- Straight line adjustment 1.1 1 556 2 889
Net property expenditure (35 591) (36 024)
Net property income 205 051 179 813
Interest received 4 440 5 711
Interest paid (15 805) (4 662)
Surplus on revaluation of interest rate 514 584
swap derivative
Fund expenses (9 242) (8 439)
Taxation on rental straight line (601) (1 082)
adjustment 1.1
Headline earnings 2 7% 184 357 171 925
(725)
Capital surplus/(deficit) on disposal of
investment 1 154 (2 800)
properties/investments
Write-up on revaluation of investment
Properties 369 534 59 779
- As per valuation 371 090 62 668
- Adjusted for rental straight line (1 556) (2 889)
adjustment 1.1
Taxation (10 881) (2 907)
- On capital transactions (10 938) (3 101)
- Adjustment for rental straight line 57 194
adjustment 1.1
Net profit for the year 544 164 225 997
Units in issue (000) 725 184 725 184
Units in issue - weighted* (000) 2 725 184 697 128
Net headline earnings - weighted* (cents
per unit)
- On headline earnings excluding rental 25.29 24.40*
adjustment
- Adjustment for rental straight line
adjustment 0.13 0.26*
net of taxation 1.1
- Net 25.42 24.66*
Net profit - weighted* (cents per unit) 2
- On profit excluding rental adjustment 75.11 32.55*
- Adjustment for rental straight line
adjustment (0.07) (0.13)*
net of taxation 1.1
- Net 75.04 32.42*
Net distributable income (cents per unit) 25.50 24.75
2 3%
CONSOLIDATED STATEMENT OF CHANGES IN Year to Year to
UNITHOLDERS` FUNDS (R000) 31.07.2005 31.07.2004
(Reviewed) (Audited)
Unitholders` funds at beginning of year 1 395 250 1 178 277
1.1
Prior year rental straight line adjustment - (19 001)
Restated balance at beginning of year 1 395 250 1 159 276
Capital movements 361 276 238 318
Write-up on revaluation of investment 369 534 59 779
properties
Capital surplus/(deficit) on disposal of
investment properties/investments 1 154 (2 800)
Taxation (10 881) (2 907)
Surplus on revaluation of interest rate 514 584
swap derivative
Loss in investment property companies - (930)
carried forward
84 167 903 units issued - 189 518
Rental straight line adjustment net of 955 1 807
taxation 1.1*
Transfer to revenue of distribution - (6 733)
prepaid received on units issued
Maintenance reserves
Net transfers from maintenance reserves (2 034) (2 344)
Revenue movements - -
Net profit for the year 544 164 225 997
Transfers to capital (361 276) (55 533)
Net transfers from maintenance reserves 2 034 2 344
Unclaimed distributions written-back - (58)
repaid
Transfer from capital of distribution - 6 733
prepaid received
on units issued
Available for distribution 184 922 179 483
Distribution attributable to unitholders (184 922) (179 483)
Unitholders` funds at end of the year 1 754 492 1 395 250
Year to Year to
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT 31.07.2005 31.07.2004
(R000) (Reviewed) (Audited)
Cash inflows from operating activities
Net profit for the year 544 164 225 997
1.1
Adjustment for:
Interest received (4 440) (5 711)
Interest paid 15 805 4 662
Write-up on revaluation of investment
properties (358 653) (56 872)
net of taxation
Taxation on rental straight line 601 1 082
adjustment 1.1
Capital (surplus) /deficit on disposal of (1 154) 2 800
investment properties
Surplus on revaluation of interest rate (514) (584)
swap derivative
Operating profit before working capital 195 809 171 374
changes
Working capital changes 1.1 (24 320) 7 031
Cash generated from operations 171 489 178 405
Interest received 4 440 5 711
Interest paid (15 805) (4 662)
Taxation paid (4 294) (370)
Distributions paid (181 107) (165 749)
Net cash (outflow)/inflow from operating (25 277) 13 335
activities
Net cash outflow from investing activities (141 353) (68 124)
Net cash inflow from financing activities - -
Increase/(decrease) in interest bearing 155 000 (65 644)
borrowings
Units issued - 182 785
Distribution pre-payments received - 6 733
Net (decrease)/increase in cash (11 630) 69 085
Cash resources at beginning of year 78 159 9 074
Cash resources at end of year 66 529 78 159
Year to Year to
31.07.2005 31.07.2004
OTHER INFORMATION (Reviewed) (Audited)
Debt Funding Facility (R000) 350 000 350 000
Available capacity 238 000 84 000
Less: Facility utilised (155 000) -
Drawdown on facility (197 500) (17 500)
Facility repaid, available for re- 42 500 17 500
advance
Facility available at end of period 433 000 434 000
Adjusted for future capital commitments (348 853) (173 101)
and proceeds on disposal
Capital commitments (382 968) (223 277)
Proceeds on disposal 34 115 50 176
Anticipated available loan capacity 84 147 260 899
Capital cash (R 000) 33 533 8 846
Vacancy factor (based on lettable area) 2% 4%
Valuation analysis (cents per unit)
Net asset value (including final 255 205
distribution yet to be paid)
Listed market price 291 225
Premium to net asset value 14% 10%
Capitalised interest (R000) 311 2 998
NOTES TO THE FINANCIAL STATEMENTS
The group results have been prepared using accounting policies which are in
accordance with South African Statements of Generally Accepted Accounting
Practice and are consistent with those applied in preparation of the audited
financial statements for the prior year except as stated below
1.1. Rental income is recognised on the straight line basis in accordance with
the requirements of AC 105 (Leases), where it was previously recognised in terms
of the cash flows inherent in the leases. This adjustment has reduced
unitholder funds by the tax on the rental adjustment for properties owned by the
Fund. It has also decreased the carrying value of investment property,
increased the current and long term receivables and created a deferred tax
liability. The impact of this change has been disclosed separately on the face
of the income statement and balance sheet. Rental income will continue to be
distributed based on the actual cash flows in terms of the leases in accordance
with the Trust Deed and normal prudent business practice.
2. Distributable income reconciliation
Year to Year to
31.07.2005 31.07.2004
(Reviewed) (Audited)
R000 CPU R000 CPU
Net profit (earnings) 544 164 75,04 225 997 32,42*
Adjustments for:
Capital (surplus)/deficit on 0
disposal of investment (1 154) 2 800
properties/investments
Write-up on revaluation of
investment properties net of (358 653) (56 872)
taxation
Headline earnings 184 357 25,42 171 925 24,66*
Surplus on revaluation of (514) (584)
interest rate swap derivative
Net transfers from 2 034 2 344
maintenance reserves
Unclaimed distributions - (58)
written-back repaid
Adjustment for rental
straight line adjustment (955) (1 807)
net of taxation
Losses in fixed property - 930
companies carried forward
Distributable income 184 922 172 750
Distribution pre-payment - 6 733
received
Distributions attributable to 184 922 25,50 179 483 24,75
unitholders**
*Weighted earnings and weighted headline earnings per unit were based on a
weighted number of units of 697 127 804 units for the year ended 31 July 2004.
**Distribution per unit is based on 725 183 772 units in issue.
3. Primary Operational Segments for the year ended 31 July 2005
Business Industria Office Retail Fund Group
Segment l
R 000 R 000 R 000 R 000 R 000
Income
statement
Revenue 149 777 23 894 66 971 - 240 642
- Cash 150 943 24 255 63 888 - 239 086
flows
inherent in
leases
- Straight (1 166) (361) 3 083 - 1 556
line
adjustment
Net (18 530) (7 508) (9 553) - (35 591)
property
expenditure
Net 131 247 16 386 57 418 - 205 051
property
income
Interest 2 079 390 293 1 678 4 440
received
Interest - - - (15 805) (15 805)
paid
Fund - - - (9 242) (9 242)
expenses
Surplus on - 0 - - 514 514
revaluation
of interest
rate swap
derivative
Net capital
surplus on 2 776 (121) (901) (600) 1 154
disposal of
investment
properties/
investments
Write-up on
revaluation 291 719 25 364 52 451 - 369 534
of
investment
properties
- As per 290 553 25 003 55 534 - 371 090
valuations
- Adjusted
for rental
straight
line 1 166 361 (3 083) - (1 556)
adjustment
Taxation on
rental 497 135 (1 233) - (601)
straight (10 059) (279) (543) - (10 881)
line
adjustment
Taxation on
property
revaluation
Net profit 418 259 41 875 107 485 (23 455) 544 164
for the
year
Balance
Sheet
Investment 1 226 950 149 656 525 578 - 1 902 184
properties
- As per 1 270 710 155 365 534 707 - 1 960 782
valuations
- Straight (43 760) (5 709) (9 129) - (58 598)
line rental
adjustment
Current and 70 320 12 522 17 859 64 340 165 041
other long
term assets
-
Excluding 26 560 6 813 8 730 64 340 106 443
rental
straight
line
adjustment
- Rental 43 760 5 709 9 129 - 58 598
straight
line
adjustment
Total 1 297 270 162 178 543 437 64 340 2 067 225
assets
Interest - - - 155 000 155 000
bearing
borrowings
Interest - - - 1 602 1 602
rate swap
derivative
Trade and 1 553 2 929 2 443 18 237 25 162
other
payables
Taxation 29 072 2 581 4 448 - 36 101
-
Excluding 14 451 420 797 - 15 668
rental
straight
line
adjustment
- Rental 14 621 2 161 3 651 - 20 433
straight
line
adjustment
Distributio - - - 94 868 94 868
n payable
Total 30 625 5 510 6 891 269 707 312 733
liabilities
REVIEW BY INDEPENDENT AUDITORS
Martprop`s auditors, Deloitte & Touche and PKF David Strachan and Tayler have
reviewed the preliminary financial results of the group for the year ended 31
July 2005. Their unqualified report is available for inspection from the
group`s secretary.
COMMENTS
Results
Martprop`s distributable earnings for the financial year ended 31 July 2005
amount to 25,50 cents per unit. This represents growth of 3,0% over the
distribution of 24,75 cents per unit for last year. A final distribution of
13,00 cents per unit has been announced, which is 4,0% higher than the
corresponding distribution in 2004.
This translates to an income return of 11,33% on the opening unit price of 225
cents per unit at 1 August 2004 and a total return of 40,66%, given the 29,33%
capital appreciation of Martprop units during the financial year.
Management`s strategy to realign the Fund which began three years ago has seen
the exposure to retail properties increase to 27% in pursuit of a more
diversified portfolio. At the same time, the Fund has disinvested from higher
yielding small industrial and underperforming properties in order to secure more
reliable income streams. These 2005 financial results incorporate the
acquisition of an undivided half share in Musgrave Centre, Durban, the
development of two retail centres in the Western Cape, the development of a
warehousing facility in Gauteng and the disposal of twenty properties, which are
referred to in more detail below.
The net asset value of the Fund as at 31 July 2005 amounts to 255 cents per unit
which is an increase of 24% over last year. This increase is directly
attributable to the revised property portfolio valuation which reflects the
strong demand for investment properties and the continued decline in
capitalisation rates.
The changes to the interpretation of the accounting statement dealing with
leases has resulted in prior year adjustments as referred to in note 1.1 above.
The effect of this change is to reduce the Group`s net asset value by R20
million (3,00 cents per unit), being the deferred taxation adjustments on
properties owned by the Fund. This liability will never be payable.
Property portfolio
The performance of the Fund`s property portfolio in the past year has been
characterised by an overall improvement in rental growth, reflecting the strong
fundamentals of the property market. This general improvement has been limited
by the reversion to market rentals of five long leases which expired or were
reviewed during the year.
The industrial portfolio continued to perform well, in line with the sustained
demand for high quality distribution and warehousing space. Industrial
vacancies at year end comprised less than 1% of lettable area, which is
indicative of the healthy state of the industrial property market and the
quality of Martprop`s assets. Rental growth across the bulk of the industrial
portfolio has been in line with this trend, but this upside has been diluted by
market reviews in certain large leases. Thirteen industrial properties have
been sold during the year for a total of R43,0 million, in line with the Fund`s
ongoing policy of disposing underperforming assets. A vacant industrial site
was also disposed of for R10,75 million. In September 2004 the Fund completed a
12 000m2 distribution warehouse for the Fuel Group in Centurion at a cost of
R24,3 million at a commencing yield of 12,5% on a seven year lease.
The retail portfolio has been bolstered by the acquisition of an undivided half
share in Musgrave Centre in Durban and the completion of the developments at
Stellenbosch and Tokai. The high level of consumer spending that has been
experienced in recent years looks set to continue and this will have a positive
impact on the performance of the new assets. Trading levels since the opening
of Stellenbosch Square have been below management`s expectations and this has
partly offset some of the stronger rental growth that has come through on the
balance of the retail portfolio. It is expected that the performance of this
investment will improve during the next year.
Four retail properties were disposed of, realising a total of R43,5 million.
The centres sold were located in areas which no longer hold sustainable growth
opportunities and were threatened by regional competition.
The small office portfolio has performed in line with expectations. Two office
buildings were sold during the year for R8,9 million in total.
Management has largely completed the process of selling underperforming assets
and, while properties which do not meet with the Fund`s investment focus will
still be identified for disposal, it is expected that the sales activity will
reduce significantly in the coming years. The core portfolio represents assets
which are well positioned to generate steady long-term income growth for the
benefit of unitholders.
Acquisitions and developments subsequent to year end
Martprop has concluded the acquisition of three industrial properties in Gauteng
for a total of R104,5 million at an average initial yield of 10,25%. These
properties are leased to listed industrial and logistics companies on leases
that range between five and seven years. Agreement has also been reached for
the development of a distribution park for various divisions of the Fuel Group
in Cape Town at a cost of R50 million. This is expected to be completed by
April 2006 at an initial yield of 10,5%.
The Fund is undertaking the development of Umlazi Megacity in Durban in
conjunction with S A Retail Properties Limited. This exciting R150 million
scheme is substantially let to national retailers and is extremely well
positioned to bring quality retail facilities to the doorstep of a large
community with substantial spending power. The minimum initial yield on this
development will be 11,25%. Agreement has also been reached for the acquisition
of two community centres in Gauteng in the amount of R32,0 million and R36,7
million respectively, both of which will yield in excess of 10,75% on
commencement.
With the office market showing signs of sustainable recovery, management has
identified the value of acquiring well located, A grade offices leased at market
rentals. The Fund has reached agreement to acquire two office buildings in
Sandton and Midrand, both let to single blue chip tenants on long leases, for a
total of R59,8 million. These acquisitions will commence at a yield of 9,75% on
transfer.
Funding
Drawdowns from the loan facility at year end amount to R197,5 million, with
outstanding capital commitments of R383,0 million.
The debt has been drawn down from the existing loan facility that is in place
with Nedbank Limited. Due to the low debt levels relative to the Fund`s asset
value at 10% and the strong cash flows generated by the portfolio, management
has left the borrowings at a variable interest rate, which is currently 9% per
annum. As the above acquisitions and developments are brought on stream and the
debt exposure increased, management will consider the fixing of interest rates
on appropriate levels of debt to prudently manage interest rate risk.
Prospects
There has been a strong upward trend in rental growth throughout the portfolio.
Following long periods of high escalation rates, however, two substantial leases
in the Fund`s portfolio have been favourably renewed, albeit at lower market
rentals and these will have an adverse impact on the growth in distributable
income for the 2006 financial year. The 425 West Street, Durban lease which was
negotiated effective 1 June 2005 has a further ten years to run. The lease over
27 Jet Park Road, Jet Park has been renewed for five years at market related
levels. Notwithstanding that these two reversions will reduce property income
growth by approximately 4% next year, investors can expect similar growth in
distributions as in the year ended 31 July 2005.
An analysis of the current lease profile confirms that the Fund is no longer
exposed to leases that are significantly above market related rental levels and
therefore the portfolio is expected to deliver stronger earnings growth in the
year commencing 1 August 2006.
DISTRIBUTION DECLARATION AND IMPORTANT DATES
Notice is hereby given of the declaration of distribution number 21 in respect
of the income distribution period 1 February 2005 to 31 July 2005. The
distribution amounts to 13,00 cents per unit.
Last date to trade cum distribution Friday, 16 September 2005
Units will trade ex-distribution Monday, 19 September 2005
Record date to participate in the
distribution Friday, 23 September 2005
Payment of distribution Monday, 26 September 2005
Unit certificates may not be dematerialised or re-materialised between Monday,
19 September 2005 and Friday, 23 September 2005 both days inclusive.
MARRIOTT PROPERTY SERVICES (PTY) LIMITED
SECRETARIES
26 August 2005
Registered office
Marriott at Kingsmead
Kingsmead Office Park
Durban 4001
P O Box 207
Durban 4000
Transfer secretaries
Computershare Investor Services 2004 (Pty) Limited
9th Floor, 70 Marshall Street
Johannesburg
2001
PO Box 61051
Marshalltown
2107
Tel: (011) 370 - 5000
Auditors
Deloitte & Touche
2 Pencarrow Crescent, Pencarrow Park
La Lucia Ridge Office Estate
La Lucia, 4051
PKF David Strachan & Tayler
19th Floor, 320 West Street
Durban
4001
Sponsor
Exchange Sponsors (Pty) Ltd
39 First Avenue
Hyde Park
2196
Date: 25/08/2005 05:05:34 PM
Produced by the JSE SENS Department
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