| Mon 29 Aug 2005, 17:02 | | Spearhead Final Audited Results For The Year Ended |
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Spearhead Final Audited Results For The Year Ended 30 June 2005
SPEARHEAD PROPERTY HOLDINGS LIMITED
Registration number: 1996/005827/06
Share code: SPE ISIN: ZAE000019162
SPEARHEAD FINAL AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2005
* 25% increase in distributions
* 30% increase in contractual revenue
* 35% increase in net asset value per unit
* 35% gearing level, reduced from 44%
* 67% total unitholder return for the year
A year of exceptional achievement
High points
The year to 30 June 2005 closed on a high note, with Spearhead achieving record
increases in revenue, distributions, and total returns to unitholders. Solid
progress was made in building the company`s core portfolio of investment
buildings, with handsome contributions also coming from development and trading
activities. Economic conditions continue to favour property as an asset class,
and with our special focus on the greater Cape Town area, where property values
have risen steeply in recent times, we remain well placed to continue along the
high-growth trajectory.
The performance of our core portfolio has been particularly pleasing. This
portfolio comprised 27 buildings with a value of R436 m at the start of the
year, and at year-end had grown to 38 buildings with a value of R808 m. The mix
of contributions from retail, commercial, and industrial attained the
proportions of 39%, 33%, and 28%, representing solid progress towards our
desired levels of diversification across property categories.
Transactions were concluded to bring the total BEE unitholding to more than
25%, thus exceeding the requirements for the draft charter for the property
industry. The draft is still under discussion but is approaching finalisation.
We are now, by a considerable margin, the most empowered listed company in the
property sector in South Africa.
Our achievements in the calendar year 2004 led to Spearhead being ranked the
top-performing JSE-listed property company in terms of total return to
unitholders in that year, this return being 67%. We were likewise the top
performer over three years, and the second-ranking company over five years.
We have a full programme of activities for the year now in swing, including
developments on vacant land acquired in past years and also new acquisitions
resulting from recent transactions.
Financial results
Property companies have been legally obliged to incorporate a controversial
method of accounting for future lease income necessitated by South Africa
adopting International Accounting Standards in the form of amortised lease
escalations. This has necessitated the addition of R9 m of unrealised income to
our stated income, and unitholders who analyse our financial statements must be
cautioned that this has a distortionary effect on stated profit. The effect is
however balanced to the extent of R6.2 million by an unrealised loss
representing a repricing charge on interest rate swaps. For practical purposes
we recommend focusing on our reported distributions as they reflect core
earnings regardless of unrealised profits and losses.
Our core portfolio of buildings produced results which were in line with budget
as regards rental income and expenses, but our municipal recoveries reached a
more equitable level of 91%, as against 83% in the previous year, resulting in
a modest boost to overall income.
The number of issued linked units increased by 4.4 m as a result of vendor
placements, and a further 3.94 m units were issued for cash in the course of
the transactions which led to our attainment of full BEE status. This brought
the company`s market capitalisation to R670 m at the year-end.
JSE returns
Spearhead`s linked units produced a healthy total return of 67% to unitholders
during the year under review, of which capital growth accounted for 54% and
distributions 13%.
Equity trading
Trading in other listed property stocks again produced positive results in the
form of R6 m in realised profits. Since the year-end this activity has produced
another R4 m of realised profit.
Income from joint venture property development
The South Seas apartment building in Mouille Point was completed during the
year and transfers of units commenced, contributing R7 m to profits.
Portfolio activity
A total of 12 new properties were added to the portfolio. Four of them, named
Bloemhof, Omni Park, Manhattan Plaza and Sterling Place, are adjacent mixed-
use buildings in the Tyger Valley area. Transfer of all except Sterling Place
has taken place. Spearhead`s total investment in the Tyger Valley area is now
R75 m.
Five of the other newly-acquired properties are in Epping. One is Viking Park, a
mixed-use retail and industrial park. Others are the Coricraft, Meditec,
Premquip and Nampak factories. The total value of these five properties is
R90 m.
Three of the newly-acquired properties are in the Southern Suburbs: Edgars
(Wynberg), Maynard Plaza, and Grotto Mews. Their total value is R22 m.
Following the end of the financial year the company has entered into an
agreement to acquire a landmark office block on the Foreshore, Pier Place, at a
cost of R153 m.
Vacancy levels
Vacancy levels were reduced in the year under review from 7% to 4%, and further
reductions are expected. They are being driven by the current upturn in
economic activity and by energetic leasing efforts.
Revaluations and net asset value
Spearhead has external valuations performed of its properties on a rotating
basis over a three-year cycle, and supplements the external valuations with
annual valuations made by the directors. This year the valuations resulted in an
increase of R153 m, 66% of which was valued by Douglas Valuers, a Cape Town
valuation consultancy, and was based on hardening capitalisation rates and
increased demand for investment properties.
Net asset value per linked unit rose to R20.63, an increase of 35% over the
previous year. It is expected that by the end of December 2005 Spearhead will
be a fund based entirely on properties in the greater Cape Town area.
Developments
Spearhead is set apart from its peers in the property sector by undertaking its
own development of blue-chip properties. The year under review was an
exceptionally active one in this sphere, with the company managing no fewer
than 15 projects in various stages of development. They include greenfield as
well as brownfield properties. The additions to the long-term portfolio will
be:
* Sable Square, a 25 000 m2 Outlet Retail mall near Century City;
* An extension of 11 000 m2 to Knowledge Park in Century City;
* CTX Freight Park, adjacent to the Cape Town International Airport;
* A new shopping centre in Blue Downs;
* Refurbishment of the Old Oak shopping centre in Bellville;
* Refurbishment of the Hypermarket Centre in Ottery.
In the industrial category a new development, Golf Park, is being undertaken
near the Cape Town International Airport. Likewise, Platinum Park is being
constructed in Milnerton, and a turnkey retail and office development is being
undertaken at Stanhope Bridge in Claremont.
Properties for trading
Apart from completion of South Seas, mentioned above, near-completion was
reached of the Wembley Square apartment block in Gardens, where all apartments
have been sold. A start was also made on construction of the adjacent retail
and commercial block, to be held on a long-term basis in a joint venture with
Faircape.
The Oasis luxury retirement village is under construction in Century City in a
joint venture with Harries Projects, and sales on a sectional title basis have
started. Work will also commence shortly on a sectional title portion of
Spearhead Business Park, in Montague Gardens, amounting to 8 050 m2 of mini
business units.
It is expected that these projects will contribute handsomely to revenue over
the next five years, while the investment component of the new developments
will have a long-term role in building the company`s annuity income stream.
Spearhead is well resourced with the personnel to manage these projects
successfully to finality for the benefit of unitholders.
Debt management
The company`s gearing level dropped in the course of the year from 44% to 35%,
and total debt at the year-end was R308 m. The company`s strategy is to hedge
at least 60% of the risk and a variety of interest rate swap contracts were in
place at the year-end, having maturities of two to five years. The company has
a spread of bank loans and is investigating other innovative debt instruments
in order to continue reducing the average cost of finance. These activities
enhance the bottom line, and the newly-attained gearing level provides a ready
springboard for future expansion.
Post balance sheet events
Acquisitions
Spearhead has entered into separate agreements to purchase the following
investment properties:
* Pier Place: Purchase price R153 m - transfer expected in November 2005
* Sterling Place: Purchase price R17 m - transfer expected in September 2005
* HK Property: Purchase price R11 m - transfer expected in September 2005
Disposal
A section of Centurion Building has been sold for R5.7 m. Transfer is expected
in September 2005.
BEE status
Spearhead`s attainment of full empowerment in terms of the draft property
charter was announced to unitholders earlier this year. Our new directors,
Lance Manala and Abu Varachhia, have assumed their places and are contributing
actively at board level. We are confident that our interaction with
communities previously poorly served by the property industry will bring to
light significant development opportunities, and that our transactions with
official bodies where BEE credentials are a sine qua non will also benefit.
Prospects
The year now in progress has started favourably, with interest rates on a
stable footing in a generally benign economic framework. Deal flow has been
excellent and considerable growth in the value and rental delivery of the core
portfolio is expected, along with continued success in achieving sales and
letting in other projects. Strategic partnerships with other leading property
organisations will again be the key to the latter type of development, and are
being actively cultivated. Our goal of maintaining steady growth in
distributions to unitholders looks well within sight, at a level in the low
double digits for the 2006 year. Due to the fundamentals and a strong stream of
development income in the pipeline, this level of growth should be sustainable
for several years.
Directorate
Lance Manala and Abu Varachhia were appointed as non-executive directors of
Spearhead during the year.
Distribution declaration no.12
Notice is hereby given of the declaration of distribution no. 12 in respect of
the six months to 30 June 2005, which amounts to 105 cents per unit.
The last date to trade cum distribution will be Friday, 23 September 2005
The units will commence trading ex distribution
from Monday, 26 September 2005
The record date being Friday, 30 September 2005
Payment will be effected on Monday, 3 October 2005
Unit certificates may not be dematerialised or rematerialised from Monday, 26
September 2005 to Friday, 30 September 2005, both days inclusive.
On behalf of the board
M KAPLAN M N FLAX Sponsor:
Chairman Chief Executive Officer Bridge Capital
Cape Town
29 August 2005
View the results at: www.spearheadprop.com
Ranked first in 2004 for total returns in sector
Most Black-empowered listed Real Estate stock
abridged consolidated income statement
Year ended Year ended
30 June 2005 30 June 2004
% Audited Audited
Change R000`s R000`s
REVENUE 112 319 89 137
Revenue earned on contractual basis 30 103 442 79 550
Amortisation of lease escalations 8 877 9 587
Operating income 76 044 66 383
Surplus on sale of listed property
securities 6 155 279
Fair value adjustments of listed
property securities 4 077 (988)
Profit on sale of investment
properties 135 1 858
86 411 67 532
Less: Depreciation (269) (143)
Interest rate swaps - marked to
market (loss)/profit (6 214) 2 771
Share option costs expensed - (2 823)
Interest paid (28 072) (24 920)
Profit before debenture interest 51 856 42 417
Debenture interest 44 280 30 170
Profit after debenture interest 7 576 12 247
Revaluation of investment
properties 153 316 58 274
Profit before taxation 160 892 70 521
Income taxation expense 19 476 10 177
Net profit for the period 141 416 60 344
Linked units in issue (weighted
average) 22 093 501 18 979 416
Basic earnings per linked unit
(cents) 76.24 840.50 476.92
Headline earnings per linked unit
(cents) 18.21 242.94 205.52
Distribution per linked unit
(cents) 25.00 200.00 160.00
abridged consolidated balance sheet
As at As at
30 June 2005 30 June 2004
% Audited Audited
Change R000`s R000`s
Non-current assets 897 493 464 744
Investment properties 807 698 436 717
Property, plant and equipment 42 302 12 891
Loans receivable 45 660 13 483
Tenant installations 1 833 1 653
Current assets 99 538 111 056
Trade and other receivables 51 725 39 453
Tenant installations 1 692 1 464
Short-term portion of loans
receivable 10 760 13 707
Listed property securities held
for trading 34 318 52 781
Cash and cash equivalents 1 043 3 651
Total assets 997 031 575 800
Equity and liabilities
Equity and non-current liabilities 924 566 533 406
Capital and reserves 297 809 102 029
Debentures 269 417 182 930
Linked unitholders` interest 567 226 284 959
Interest-bearing borrowings 307 723 226 199
Interest rate swap derivative 8 943 2 729
Deferred taxation 40 674 19 519
Current liabilities 72 465 42 394
Trade and other payables 21 769 11 628
Provisions 2 610 -
Current portion of long-term
borrowings 21 957 14 243
Bank overdraft 391 648
Receiver of revenue 80 80
Unitholders for distribution 25 658 15 795
Total equity and liabilities 997 031 575 800
Net asset value per linked unit
(rands) 35.10 20.63 15.27
abridged consolidated cash flow statement
Year ended Year ended
30 June 2005 30 June 2004
Audited Audited
R000`s R000`s
Cash generated from operations
before working capital changes 63 382 44 389
Working capital changes 480 11 148
Net finance costs (49 828) (44 813)
Cash flows from operating activities 14 034 10 724
Cash flows from investing activities (236 562) (82 817)
Cash flows from financing activities 220 177 33 504
Net decrease in cash and cash equivalents (2 351) (38 589)
Cash and cash equivalents at beginning of
period 3 003 41 592
Cash and cash equivalents at end of period 652 3 003
consolidated statement of changes in equity
Year ended Year ended
30 June 2005 30 June 2004
Audited Audited
R000`s R000`s
Capital and reserves
Unitholders` interest as previously stated 80 899 29 704
Adjustment in respect of amortised lease
escalations 21 130 14 419
Unitholders` interest at beginning of period
restated 102 029 44 123
Net profit for the period 141 416 60 344
Issue of shares 47 976 -
Share issue costs (731) (5)
Shares acquired by subsidiary/share trust (2 674) (4)
Revaluation of property, plant and equipment 9 912 -
Recoupment of discount on debentures (119) (2 429)
Unitholders` interest at end of period 297 809 102 029
reconciliation of basic earnings to headline earnings per linked unit
Profit before Taxation Profit after
taxation taxation
R000`s R000`s R000`s
Earnings for the period 160 892 19 476 141 416
Debenture interest 44 280 - 44 280
205 172 19 476 185 696
Basic earnings per linked unit
(cents) 928.67 840.50
Adjusted for:
Revaluation of investment
properties (153 316) (21 320) (131 996)
Profit on disposal of
investment properties (135) (19) (116)
Impairment of goodwill 87 - 87
Headline earnings 51 808 (1 863) 53 671
Weighted average linked units
in issue 22 093 501 22 093 501
Headline earnings per linked
unit (cents) 234.50 242.94
abridged segmental information
Industrial Retail Office Corporate Total
R000`s R000`s R000`s R000`s R000`s
Revenue-contractual basis 18 972 38 810 36 576 9 084 103 442
Amortisation of lease escalations 1 661 6 958 258 - 8 877
Segmental result 13 343 25 741 25 282 (76 266) (11 900)
Revaluation of investment
properties 44 369 54 224 54 723 - 153 316
Net profit for the period 57 712 79 965 80 005 (76 266) 141 416
Segment revenue and expenses:
During the year the group changed its policy in accounting for segmental
reporting. The primary segments are retail, industrial, office and corporate.
Revenue and expenses that are directly attributable to a segment are allocated
to those segments. Expenses and income not directly attributable to a segment
are allocated to the corporate segment. The corporate segment includes
debentures interest, finance charges, taxation charges and other administrative
expenses.
notes
Accounting Policies
1. The financial statements have been prepared in accordance with International
Financial Reporting Standards. The principal accounting policies adopted in
the preparation of these financial statements are consistent with those of
the prior year except for the effect of the first time adoption of
International Financial Reporting Standards. In order to comply with IAS17 -
Leases, total revenue reflects rental income recognised on the straight-line
basis. The effect of the adjustment is to increase trade and other receiv-
ables and the deferred tax liability. The comparative figures have been
adjusted accordingly.
2. Revenue earned on contractual basis represents rental income, recoveries and
development income.
Year ended Year ended
30 June 2005 30 June 2004
Audited Audited
R000`s R000`s
Revenue represents
Rental Income 79 298 62 005
Recoveries 15 060 11 156
Development Income 9 084 6 389
103 442 79 550
Audit report
These results have been audited by PKF (Newlands) Inc and their unqualified
audit report is available for inspection at the company`s registered office.
SPEARHEAD PROPERTY HOLDINGS LIMITED:
Registered Office: 3rd Floor
The Spearhead
42 Hans Strijdom Avenue
Foreshore
Cape Town, 8001
Registration number: 1996/005827/06 Share code: SPE ISIN: ZAE000019162
Directors: M Kaplan* (Chairman), M N Flax (Chief Executive Officer),
J E Allie, D M Wilder, A Groll*, L Hoffman, K L Manala*,
A Varachhia*, H Schreuders*, F van Hoogstraten*, D B Fabian*
*Non-executive
Transfer Secretaries: Computershare Investor Services 2004 (Pty) Limited,
Ground Floor
70 Marshall Street
Johannesburg, 2001
PO Box 61051
Marshalltown, 2107
