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FSP
FSP
Freestone - Reviewed Financial Results For The Six Months Ended 31 December 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")
REVIEWED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
("the interim period")
HIGHLIGHTS
* Interim distribution of 27,5 cents per unit
* Forecast annual distribution growth of at least 11%
* Total return for six months of 28,5%
COMMENTS
Financial results
Freestone"s 17% growth in the interim distribution per linked unit over the
comparative period was driven by acquisitions made during the previous
financial year, organic growth and reduced interest rates. This has resulted in
a distribution to unitholders of 27,5 cents per linked unit for the interim
period. The company is now set to exceed its forecast growth in total
distributions of 9% for the year ending 30 June 2006.
Valuation of investment properties
For accounting purposes, the policy of the company is to independently value
the property portfolio at year-end.
However, for the purposes of inclusion in the Investment Property Databank
South Africa ("IPD") index, an interim valuation of the portfolio was
undertaken at 31 December 2005 by RMB Properties and independent valuers. The
interim valuation of the portfolio reflects an increase of 8% to R1,36 billion,
net of sales and acquisitions at that date.
Property portfolio
At 31 December 2005 Freestone"s property portfolio comprised 84 properties and
1 117 tenants with a total rentable area of 468 902m2.
The segmental analysis of the portfolio by rentable area is shown below:
KwaZulu- Western Free
m2 Gauteng Natal Cape State
Retail 44 740 84 641 - -
Offices 124 578 10 037 39 100 21 311
Industrial 114 693 12 559 - -
Total 284 011 107 237 39 100 21 311
% 60,6 22,9 8,3 4,5
Eastern
m2 Cape Total %
Retail 17 243 146 624 31,3
Offices - 195 026 41,6
Industrial - 127 252 27,1
Total 17 243 468 902 100,0
% 3,7 100,0
Vacancies by rentable area were 28 841m2, representing 6,2% of the portfolio.
During the period under review leases were concluded over 104 116m2, of which
36% were new leases and 64% were renewals. The portfolio has a lease expiry
profile of 15,1% to June 2006, 21,9% to June 2007, 14,7% to June 2008, 16,3% to
June 2009 and approximately 25,8% to June 2010 and beyond.
Acquisitions and sales
The following property was acquired during the period and has been transferred
to Freestone:
Purchase Forward
GLA price yield
Description Province Sector m2 R"000 %
Montana Value Centre Gauteng Retail 9 717 29 500 11,5
The following properties were sold during the interim period and transfers
completed:
Net sale Valuation at
price 30 June 2005
Description Province Sector R"000 R"000
Cuthberts Building Free State Offices 7 250 7 250
1 Morris Street Gauteng Offices 4 700 4 700
Belle Ombre Plaza Gauteng Retail 15 430 15 500
Fidelity House KwaZulu-Natal Offices 3 000 2 875
Total 30 380 30 325
Borrowings
Based on the interim valuation noted above, the company"s gearing ratio has
been reduced to 46%. Total interest-bearing liabilities amount to R630,4
million which continue to attract interest-only payments. The interest rate
profile of the borrowing facilities at 31 December 2005 is shown below:
Weighted
average
Amount interest % of
Fixed/hedged rate expiry date (Rm) rate total
Floating 165,8 8,9* 26,3
November 2006 178,8 10,6 28,4
February 2008 50,0 9,5 7,9
July 2009 50,0 10,3 7,9
May 2010 125,8 10,5 20,0
July 2010 60,0 10,5 9,5
Total 630,4 10,0* 100,0
* Assuming a prime rate of 10,5% p.a.
Strong capital markets and continued lower interest rates, combined with a
buoyant property market, have presented listed property companies with the
opportunity to fix their cost of borrowings at very attractive levels.
Therefore, following the appointment of RMB to report on the merits of
Freestone accessing the commercial mortgaged-backed securities ("CMBS") market,
it has been decided to securitise approximately R500 million of the company"s
borrowings in this manner. It is anticipated that the new funding structure
will be implemented in May 2006 which will replace the amount due to be repaid
in November 2006 of R411,9 million.
Linked units in issue
During the interim period the total number of linked units in issue increased
to 136 207 895.
Post balance sheet events
The following properties have been acquired since the end of the interim period:
Purchase Forward
GLA price yield
Description Province Sector m2 R"000 %
8 Grader Road, Spartan Gauteng Industrial 3 260 5 725 11,6
Mkhize Plaza, Nqutu KwaZulu-Natal Retail 3 893 12 500 12,3
The following properties have been sold and transferred:
Net selling Valuation at
price 30 June 2005
Description Province Sector R"000 R"000
DNS House KwaZulu-Natal Offices 2 910 2 540
Sterling Place Western Cape Offices 17 000 17 000
Further sales of non-core properties are under negotiation.
PROSPECTS
Freestone is expected to increase its total distribution per linked unit for
the year ending 30 June 2006 by at least 11%, exceeding its forecast growth of
9%. This forecast excludes any potential savings that might accrue from the
implementation of the CMBS structure during the current financial year. This
forecast has not been reviewed by Freestone"s auditors.
DEBENTURE INTEREST PAYMENT
Unitholders are advised that distribution number 9 for the six months ended 31
December 2005 of 27,5 cents per linked unit has been declared.
Last date to trade cum interest Friday, 10 March 2006
Date units start trading ex-interest Monday, 13 March 2006
Record date Friday, 17 March 2006
Payment date Monday, 20 March 2006
Unitholders may not dematerialise or rematerialise their units between Monday,
13 March 2006 and Friday, 17 March 2006, both dates inclusive.
AUDITORS" REVIEW REPORT
The interim financial statements set out in this report have been reviewed by
Deloitte & Touche. Their unqualified review report is available for inspection
at the company"s registered office.
By order of the Board
C B Brayshaw M S Aitken
Chairman Director
22 February 2006
STATEMENT OF CHANGES IN EQUITY AND UNITHOLDERS" FUNDS
Share Capital and Fair Value Accumulated
Share Capital Reserve Reserve Loss
(R"000)
Balance at 30 June 2004 3 031 (17 815) (30 916)
Adjustment in respect
of amortised lease
escalations
at 30 June 2004 - (22 119) 22 119
Restated balance at 30
June 2004 3 031 (39 934) (8 797)
Issue of share capital
and debentures 346 - -
Net loss for the period - - (49 584)
Units to be issued - - -
Transfer of unrealised
loss on fair valuation
of non interest-
bearing liabilities - (165) 165
Taxation adjustment - 50 (50)
Transfer of unrealised
loss on fair valuation
of debentures - (49 268) 49 268
Balance at 31 December
2004 3 377 (89 317) (8 998)
Issue of share capital
and debentures 33 520 - -
Net loss for the period - - 22 672
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 debentures - (112 695) 112 695
Transfer of unrealised
loss on fair valuation
of interest rate swaps - (7 896) 7 896
Balance at 30 June 2005 36 897 (77 846) 2 203
Issue of share capital
and debentures 190 - -
Adjustment in respect
of change in trust
deed (30 277) - (12 897)
Net loss for the period - - (194 284)
Adjustment in respect
of amortised lease
escalations - (3 165) 3 165
Transfer of unrealised
loss on fair valuation
of debentures - (192 398) 192 398
Transfer of unrealised
loss on fair valuation
of interest rate swaps - (1 941) 1 941
Balance at 31 December 2005 6 810 (275 350) (7 474)
Total Debentures Unitholders"
Equity Funds
(R"000)
Balance at 30 June 2004 (45 700) 158 782 113 082
Adjustment in respect of
amortised lease escalations
at 30 June 2004 - - -
Restated balance at 30 June 2004 (45 700) 158 782 113 082
Issue of share capital and
debentures 346 2 603 2 949
Net loss for the period (49 584) - (49 584)
Units to be issued - 315 897 315 897
Transfer of unrealised loss on
fair valuation of non interest-
bearing liabilities - - -
Taxation adjustment - - -
Transfer of unrealised loss on
fair valuation of debentures - 49 268 49 268
Balance at 31 December 2004 (94 938) 526 550 431 612
Issue of share capital and
debentures 33 520 (13 709) 19 811
Net loss for the period 22 672 - 22 672
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 debentures - 112 695 112 695
Transfer of unrealised loss on
fair valuation of interest rate
swaps - - -
Balance at 30 June 2005 (38 746) 625 536 586 790
Issue of share capital and
debentures 190 17 433 17 623
Adjustment in respect of change
in trust deed (43 174) 43 174 -
Net loss for the period (194 284) - (194 284)
Adjustment in respect of
amortised lease escalations - - -
Transfer of unrealised loss on
fair valuation of debentures - 192 398 192 398
Transfer of unrealised loss on
fair valuation of interest rate
swaps - - -
Balance at 31 December 2005 (276 014) 878 541 602 527
SEGMENTAL INFORMATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
(R"000) Gauteng KwaZulu-Natal Western Cape
Primary segment
Revenue 72 197 30 421 14 123
Amortised lease escalations (505) 1 940 1 414
Operating expenses (33 745) (13 382) (7 199)
Net profit from property
rental operations before
finance costs 37 947 18 979 8 338
Investment properties 692 087 299 169 170 414
(R"000) Free State Eastern Cape Total
Primary segment
Revenue 6 432 3 799 126 972
Amortised lease escalations 281 35 3 165
Operating expenses (2 484) (948) (57 758)
Net profit from property
rental operations before
finance costs 4 229 2 886 72 379
Investment properties 61 100 38 527 1 261 297
NOTE
The interim financial statements are prepared in accordance with International
Financial Reporting Standards ("IFRS") and South African Statements of
Generally Accepted Accounting Practice ("GAAP") applicable to interim
financial reporting. These are the company"s first IFRS compliant abridged
interim financial statements. The accounting policies applied in the
preparation of these abridged interim financial statements are consistent
with those applied in the annual financial statements for the year ended
30 June 2005.
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 2004 2005
Reviewed Reviewed Audited
INCOME STATEMENT (R"000) (R"000) (R"000)
Rental income and
operating expense
recoveries 126 972 90 061 208 226
Amortised lease
escalations 3 165 2 457 9 068
Operating expenses
- property rental
operations and
administration costs (54 177) (39 418) (85 204)
- asset management fees (3 581) (2 329) (5 404)
Net profit from property
rental operations before
interest received and
interest paid 72 379 50 771 126 686
Interest received 779 559 1 710
Interest paid (32 536) (31 378) (62 545)
Net profit before
debenture interest,
including
amortisation of lease
escalations 40 622 19 952 65 851
Refund on linked units
issued cum dividend - 11 048 11 035
Debenture interest
distribution (37 457) (28 543) (67 818)
Interim (37 457) (28 543) (28 543)
Final - - (39 275)
Net profit before
taxation, non-trading
items and
fair valuation
adjustments, including
amortisation of lease
escalations 3 165 2 457 9 068
Non-trading items
Profit/(loss) on sale of
investment properties 55 (201) 1 932
Fair value adjustments (197 504) (51 890) (37 962)
Unrealised surplus on
fair valuation
of investment properties -* -* 141 130*
Amortisation of lease
escalations (3 165) (2 457) (9 068)
Debentures (192 398)# (49 268)# (161 963)#
Interest rate swaps (1 941) - (7 896)
Non interest-bearing
liabilities - (165) (165)
Net loss before taxation (194 284) (49 634) (26 962)
Taxation - 50 50
Net loss for the period
attributable
to linked unitholders (194 284) (49 584) (26 912)
* It is the policy of the company to bring to account, the revaluation of its
properties only at year-end.# IAS39 requires that the company"s debentures be
revalued to their market value at the end of the period, which has resulted in a
book loss of R192,4m for the period. The adjustment, however, has no effect on
the company"s cashflow or its distribution to unitholders.
Reconciliation between net loss
for the period, headline loss and
debenture interest distribution
Net loss for the period attributable
to linked unitholders (194 284) (49 584) (26 912)
Adjusted for:
(Profit)/loss on sale of
investment properties (55) 201 (1 932)
Unrealised surplus on
revaluation of
investment properties - - (141 130)
Debenture interest 37 457 28 543 67 818
Headline loss for the
period attributable to
linked unitholders (156 882) (20 840) (102 156)
Adjusted for:
Fair valuation adjustment
for debentures 192 398 49 268 161 963
1 941 - 7 896
Fair valuation adjustment
for interest rate swaps
Non interest-bearing
liabilities - 165 165
Taxation - (50) (50)
Debenture interest
distribution 37 457 28 543 67 818
Earnings per linked unit
(weighted average
number of linked units in
issue)
Weighted average number
of linked units
in issue 134 832 983 71 239 771 100 521 740
Net loss for the period
attributable to
linked unitholders (cents) (144,09) (69,60) (26,77)
Headline loss for the
period attributable to
linked unitholders (cents) (116,35) (29,25) (101,63)
Number of linked units in
issue 136 207 895 46 811 817 132 388 492
Distribution per linked
unit (cents)
Number 7 - 22 March 2005 - 23,50 23,50
Number 8 - 12 September 2005 - - 29,50
Number 9 - 20 March 2006 27,50 - -
31 December 31 December 30 June
2005 2004 2005
Reviewed Reviewed Audited
ABRIDGED BALANCE SHEET (R"000) (R"000) (R"000)
Assets
Investment properties 1 261 297 1 071 206 1 260 800
Current assets 62 896 28 373 64 200
Total assets 1 324 193 1 099 579 1 325 000
Unitholders" funds and liabilities
Share capital and Share capital
reserve 6 810 3 377 36 897
Fair value reserve (275 350) (89 317) (77 846)
(Accumulated loss)/retained income (7 474) (8 998) 2 203
Debentures 878 541 526 550 625 536
Total unitholders" funds 602 527 431 612 586 790
Interest-bearing liabilities 630 380 623 484 644 697
Long-term 218 511 - -
Short-term 411 869 - -
Fair value of interest rate swaps 9 837 - 7 896
Current liabilities 43 992 26 988 46 342
Unitholders for interest
distribution 37 457 17 495 39 275
Total unitholders" funds and
liabilities 1 324 193 1 099 579 1 325 000
Net asset value, including
debentures,
per linked unit (cents) 442,36 336,76 443,23
Net asset value, including
debentures and the
interim revaluation of investment
properties,
per linked unit (cents) 514,82 - -
ABRIDGED CASH FLOW STATEMENT
Cash (outflow)/inflow from
operating activities (4 726) (1 297) 38 810
Cash (outflow)/inflow from
investing activities (442) 5 732 (385 365)
Cash inflow/(outflow) from
financing activities 433 (2 580) 384 262
Change in cash and cash
equivalents (4 735) 1 855 37 707
Cash and cash equivalents at the
beginning of the period 49 286 11 579 11 579
Cash and cash equivalents at the
end of the period 44 551 13 434 49 286
Related parties and related party transactions
Freestone"s major unitholder is Momentum Group Limited, a company in the
FirstRand group. At 31 December 2005 Momentum owned approximately 37% of the
Freestone units in issue with the remaining 63% being widely held.
The following transactions were carried out with related parties:
Six months Six months Year
ended ended ended
31 December 31 December 30 June
2005 2004 2005
(R"000) (R"000) (R"000)
Freestone Management Company (Pty)
Limited
Expenditure comprising asset
management fees 3 581 976 4 051
Relationship: Appointed fund
manager with
effect from 1 November 2004.
Associated company of Corovest
Property
Group Limited and RMB Properties
(Pty) Limited.
Corovest Property Group Limited
Expenditure comprising asset
management fees - 1 353 1 353
Relationship: Joint shareholder of
management
company with effect from 1 November
2004.
Total asset management fees 3 581 2 329 5 404
FirstRand Bank Limited
Interest paid 2 135 - 2 103
Borrowings 41 000 - 41 000
Relationship: Associated company of
FirstRand Limited group.
Rand Merchant Bank
(a division of FirstRand Limited
group)
Fee - - 474
Interest paid 10 530 - 6 675
Borrowings 218 511 - 184 681
Relationship: Associated company of
FirstRand Limited group.
RMB Properties (Pty) Limited
Expenditure comprising property
management
and letting fees 3 666 483 3 324
Relationship: Associated company of
FirstRand group; Joint shareholder
of management
company with effect from 1 November
2004.
Hyprop Investments Limited
Acquisition of investment properties - 57 000 57 000
Relationship: M S Aitken and P J Thurling are
directors of both Freestone and
Hyprop Investments Limited.
The above transactions were carried out on commercial terms and conditions no
more favourable than those available in similar arms-length dealings at
market-related rates.
Registered office
1st Floor, Vunani House, Freestone Park,
135 Patricia Road, Sandton, 2196.
Freestone Property Holdings Limited
Incorporated in the Republic of South Africa
Registration number 2001/011887/06
Share code FSP | ISIN ZAE000060299
("Freestone" or "the company")
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
www.fsprops.co.za
Date: 22/02/2006 03:45:19 PM Produced by the JSE SENS Department
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