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Sycom Property Fund - Unaudited Group Results And Declaration Of The Interim
Distribution For The Six Months Ended 30 September 2005
Sycom Property Fund
JSE Share code: SYC
ISIN: ZAE 000019303
Unaudited group results and declaration of the interim distribution for the six
months ended 30 September 2005
The directors of Sycom Property Fund Managers Limited, the management company of
Sycom Property Fund (Sycom) or (the Fund), submit their report on the unaudited
results of Sycom for the six months ended 30 September 2005
INCOME STATEMENT
Restated Restated
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
30 Sep 2005 30 Sep 2004 31 Mar 2005
(R"000) (R"000) (R"000)
Revenue 155 288 126 993 270 153
Rental income 142 104 112 588 244 549
Straight-line 10 460 9 012 18 054
rental adjustment
Interest received 2 724 5 393 7 550
Expenditure 44 375 40 779 83 118
Operating income 110 913 86 214 187 035
Net revaluation 218 539 2 442 424 076
of investment
property
Realised - (2 255) 8 071
surplus/(deficit)
on disposal of
investment
property
Realised deficit (106) - (1 589)
on disposal of
investment in
fixed property
companies
Unrealised 229 105 13 709 435 648
surplus on
revaluation of
investment
property
Straight-line (10 460) (9 012) (18 054)
rental adjustment
Earnings 329 452 88 656 611 111
EARNINGS AND
DISTRIBUTIONS
Reconciliation of
headline earnings
to distributable
earnings
Headline earnings 110 913 86 214 187 035
(operating
income)
Net revaluation 218 539 2 442 424 076
of investment
property
Earnings 329 452 88 656 611 111
Net transfer (228 661) 10 521 (407 714)
(to)/from
reserves
Transfer (228 661) 2 255 (415 980)
(to)/from non-
distributable
reserve
Transfer from - 8 266 8 266
distributable
reserve
Distributable 100 791 99 177 203 397
earnings
Units in issue 183 356 183 356 183 356
("000)
Earnings per unit 179.49 48.35 333.29
- cents
Headline earnings 60.55 47.14 102.26
per unit - cents
Distributable 54.97 54.09 110.93
earnings per unit
- cents
Distributions
No.39 of 54.09 - 99 177 99 177
cents per unit
No.40 of 56.84 - - 104 220
cents per unit
No.41 of 54.97 100 791 - -
cents per unit
100 791 99 177 203 397
BALANCE SHEET
As at As at As at
30 Sep 2005 30 Sep 2004 31 Mar 2005
Assets
Property portfolio 2 612 387 1 600 211 2 189 495
Investment property 2 206 270 1 197 473 1 752 922
Property under 274 065 290 188 314 981
development
Straight-line rental 132 052 112 550 121 592
adjustment
Current assets 95 843 69 823 119 430
Total assets 2 708 230 1 670 034 2 308 925
Unitholders" funds and
liabilities
Capital and reserves 2 207 914 1 561 018 1 979 253
Interest bearing 365 466 - 178 175
liability
Current liabilities 134 850 109 016 151 497
Total unitholders" funds 2 708 230 1 670 034 2 308 925
and liabilities
Net asset value per unit 1 204 851 1 079
- cents
STATEMENT OF CHANGES IN CAPITAL AND RESERVES
6 months ended 6 months ended 12 months ended
30 Sep 2005 30 Sep 2004 31 Mar 2005
(R"000) (R"000) (R"000)
Balance at 1 979 253 1 571 539 1 571 539
beginning of
the period
Earnings 329 452 88 656 611 111
Distributions (100 791) (99 177) (203 397)
Balance at end 2 207 914 1 561 018 1 979 253
of the period
CASH FLOW STATEMENT
6 months 6 months 12 months
ended ended ended
30 Sep 2005 30 Sep 2004 31 Mar 2005
(R"000) (R"000) (R"000)
Cash generated by 98 500 85 518 161 431
operations
Change in working capital (10 961) (95) (5 516)
Cash generated from 87 539 85 423 155 915
operating activities
Net interest received 2 724 5 393 7 550
Distributions (104 220) (100 039) (199 216)
Capital gains taxation - (5 301) (5 541)
paid
Net cash outflow from (13 957) (14 524) (41 292)
operating activities
Disposal of property 30 900 44 200 68 604
Additions to property (189 470) (161 438) (345 992)
Net cash outflow from (158 570) (117 238) (277 388)
investment and financing
activities
Increase in borrowings 187 291 - 178 175
Net cash inflow from 187 291 - 178 175
financing activities
Increase/(decrease) in 14 764 (131 762) (140 505)
cash resources
Cash resources at 36 666 177 171 177 171
beginning of the period
Cash resources at end of 51 430 45 409 36 666
the period
Notes
1. ACCOUNTING POLICIES
The interim results are prepared for the first time in accordance with
International Financial Reporting Standards - IFRS 1 and IAS 34: Interim
Financial Reporting. The adoption of IFRS has not resulted in any adjustments to
previously reported results. The policies applied are consistent with those used
in the prior period except for the following new ones adopted with effect from 1
April 2005:
(a) IAS 17: Leases, to give effect to the straight-lining of lease rentals. This
has no effect on the distributable earnings.
(b) In terms of IAS 40: Investment property, the straight-line adjustment and
resulting cumulative figure are deducted from the net revaluation of investment
property in the income statement and balance sheet respectively.
(c) Tenant procurement costs are written-off over the period of the applicable
leases. In the current period expenditure totalling Rm4,8 has been deferred.
2. COMPARATIVE FIGURES
The comparative figures have been restated in order to give effect to the
adoption of IAS 17: Leases in respect of the straight-lining of lease rentals.
3. PRIMARY OPERATIONAL SEGMENTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005
Retail Office Fund Total
(R"000) (R"000) (R"000) (R"000)
Rental income 61 870 80 234 - 142 104
Straight-line 1 858 8 602 - 10 460
rental adjustment
Interest 236 230 2 258 2 724
Total revenue 63 964 89 066 2 258 155 288
Expenditure 16 112 20 035 8 228 44 375
Operating income 47 852 69 031 (5 970) 110 913
Net revaluation of 107 970 110 569 - 218 539
investment
property
Earnings 155 822 179 600 (5 970) 329 452
Property portfolio 1 509 340 1 103 047 - 2 612 387
Investment 1 207 250 999 020 - 2 206 270
property
Property under 274 065 - - 274 065
development
Straight-line 28 025 104 027 - 132 052
rental adjustment
Current assets 20 468 16 862 58 513 95 843
Interest bearing - - (365 466) (365 466)
liability
Current (17 924) (8 660) (108 266) (134 850)
liabilities
Net assets 1 511 884 1 111 249 (415 219) 2 207 914
Comments
1. Results
Sycom"s distributable earnings for the six months ended 30 September 2005
amounted to 54,97 cents per unit, which is an improvement of 1,6% over the same
period last year. However, the 54,97 cents per unit represents a decline of 3,3%
on the 56,84 cents per unit distribution for the immediately preceding six-month
period to March 2005.
Nevertheless, growth in earnings for the year to 31 March 2006 is still expected
to be approximately 5%, as detailed in item 6 below. This would represent an
improvement of the order of 9% in the distribution for the six-month period to
March 2006 compared with the abovementioned 56,84 cents per unit for the six
months ended March 2005.
Comparisons of the distributable earnings for the respective periods are
complicated by a number of factors including the impact of high yielding
properties sold and the reversal of the maintenance provision in the prior year
as well as major development undertakings coming on stream.
It is considered that the best indication of overall performance for the current
financial year over the previous year, is the expected outcome of 5% growth in
distributable earnings.
Earnings for the period have recognised the effect of straight-lining lease
rentals as required by IAS 17. Sycom will continue to distribute income based on
contractual income from leases in accordance with its Trust Deed and the
Collective Investments Schemes Control Act. To avoid overstatement of investment
property, this straight-line lease adjustment has been taken into account in the
net revaluation of investment property. The recognition of future rentals in
this manner and the magnitude of this amount (Rm132,1), reflects the quality of
the contractual leases, which are significant in number; value; and duration.
Given recent escalations in property prices, the portfolio was again
independently valued. This resulted in a re-valuation surplus of Rm228,4 with
the value of the Fund"s properties being set at Rbn2,6.
The net asset value of the fund is now 1 204 cents per unit.
It is gratifying to report that Sycom won the Investment Property Databank - IPD
South Africa Top Listed Fund award in the Retail category for its total return
on capital employed. This averaged 30,7% over 3 years against the benchmark of
24,0%.
2. Operations
Retail:
On the back of a buoyant consumer market, the Fund"s retail portfolio continues
to perform well, with Fourways Crossing Retail Centre, Somerset Mall and
Southgate Mall reflecting net income ahead of their budgets and N1 City
achieving budget whilst still undergoing a major refurbishment and enlargement.
Vacancies in this portion of the portfolio are extremely low at 0.6%.
Offices:
The general office market has continued to improve with increasing demand for
office space resulting in improved occupancy levels and early signs of rental
growth. While these positive factors have been evident in the Fund"s office
portfolio, overall performance has been impaired by the delay and increased cost
in completing the Discovery building as well as the unexpected initial vacancy
in the SHG building. While these issues have now been resolved, the effect has
negatively impacted on the Fund"s office portfolio net income, compared to
budget.
With the improvement in the office letting market, the Fund"s office portfolio
vacancy remains low at 6,7%. This includes a 36,3% vacancy in the SHG building
where the balance of the office space has now been let with leases commencing 1
October 2005 and 1 January 2006. The effect of these leases will be to reduce
the overall office portfolio vacancy to about 3,2%.
The Fund"s overall vacancy is currently 4,3%, which should reduce to around 2,2%
once the SHG leases commence.
3. Developments and Refurbishments
As previously reported the Fund is continuing with the strategy of developing
and refurbishing properties in its portfolio and currently the following are in
progress:
Somerset Mall (50% undivided share)
The upgrading of the existing malls and re-configuration of the former cinema
premises were completed on time in July 2005 and currently the relocation of
certain major tenants is taking place, which was enabled by this refurbishment
programme.
N1 City (42% undivided share)
The total cost of the extension and refurbishment of N1 City is anticipated to
be around Rm113 with an initial yield, excluding parking revenues, of 9,6%. The
project is on programme for completion by April 2006 and includes the
construction of an additional 8 500m2 of rentable space, 250 additional parking
bays and the refurbishment of the existing mall.
Paarl Mall (70% undivided share)
This 36 500m2 regional retail centre in which the Fund has a 70% interest has
been completed at a cost of approximately Rm325. The projected initial yield is
now 11,85%, down from the original 12,0%, due to certain scope changes in the
development. The Centre was successfully launched and opened for trading, fully
let, on the 20th October 2005. It has received tremendous support from its
target market and during the first twelve days of trading an average of 31 000
shoppers visited the Centre daily.
Vaal Mall (51% undivided share)
The development of this 48 800m2 centre is progressing well and the project is
on programme for completion by April 2006. The Fund had originally contracted to
acquire 71% of this centre, of which 20% was under option to a BEE consortium.
This option has now been exercised thereby reducing the Fund"s share to 51%.
Total cost is estimated at Rm406 with an initial yield of 11%. Committed leases
total 97,5% of GLA with the balance under negotiation.
Harrowdene Phase 6
This comprises two buildings totalling 6 600m2 at an estimated cost of Rm50,8.
Completion is due in August 2006 and the anticipated initial yield is around
12%.
4. Funding
At 31 March 2005 the Fund"s borrowings amounted to Rm215,1. Capital expenditure
for the six months amounted to Rm184,2 and including the proceeds of Rm30,9 from
the sale of Hurlingham resulted in borrowings of Rm368,4 at 30 September 2005.
Outstanding development commitments and sundry capital expenditure less sales
proceeds amount to Rm239,1, resulting in a projected total funding requirement
of Rm607,5. The loan facility has been increased to Rm650 to cover this
requirement. This will fall within the Fund"s maximum 30% borrowing limit, which
will be around Rm900,0 on completion of the developments.
5. Liquidity
During the past year 72% of the Fund"s units were traded. This is considerably
higher than the average liquidity of the listed property sector and overall JSE
listings, which are 39% and 41% respectively over the same period.
6. Prospects
Over the next twelve months the portfolio has an expiry profile of 35 057m2
(14,2%) by area with a split of 10 929m2 (11,6%) and 24 128m2 (15,8%) for the
retail and office sectors respectively. The retail renewals are not of concern
and an average improvement of 3,0% on expiry rentals is expected. Within the
office portfolio, a strategy of pre-empting lease renewals is being implemented
generally to ensure that the high level of occupancy in the portfolio is
maintained. An average reversion of 13,0% on office expiry rentals is expected,
due to historically high escalation rates, which have pushed contractual rentals
to well above market levels.
As reported previously the Fund is ideally positioned to achieve strong growth
in the future once the new developments are income producing and rental
escalations have taken effect. Growth in earnings for the year to 31 March 2006
is still expected to be approximately 5%, with enhanced prospects thereafter.
The auditors have not reviewed this forecast.
7. Trading Statements
In terms of Section 3, paragraph 3.4 (b) (v) of the Listing Requirements of the
JSE, Sycom, in agreement with the JSE, has adopted distributable earnings per
unit as the financial results measurement for trading statement purposes.
8. Distribution Declaration
Notice is hereby given of the declaration of distribution No. 41 in respect of
the six months to 30 September 2005 of 54.97 cents per unit. The last date to
trade cum distribution will be Friday, 25 November 2005 and the units will trade
ex-distribution from the commencement of business on Monday, 28 November 2005.
The record date is Friday, 2 December 2005 and payment will be made to
unitholders on Monday, 5 December 2005. Unitholders may not dematerialise or
rematerialise their units between Monday, 28 November 2005 and Friday, 2
December 2005, both days inclusive.
By order of the Board
Directors of Sycom Property Fund Managers Limited: T E Sewell* (Chairman), G A
Nelson (MD), F M Berkeley*, J P D Flanagan*, C J V Fleming, L A Meyerowitz*, J M
Ngobeni*, W C Ross* * Non - executive
Registered Office:
1st Floor, Building 2,
Freestone Park,
135 Patricia Road,
Sandown, 2146
P O Box 4795
Rivonia, 2128
Sponsor:
Nedbank Capital
Sponsor Unit
135 Rivonia Road
Sandton
2196
Auditors:
Deloitte & Touche
Deloitte & Touche Place
The Woodlands
Woodlands Drive
Woodmead, Sandton
Transfer Secretaries:
Computershare Investor Services 2004 (Pty) Ltd
70 Marshall Street
Johannesburg, 2004
PO Box 61051
Marshalltown, 2107
9 November 2005
Date: 09/11/2005 05:34:05 PM Produced by the JSE SENS Department
