| Wed 3 May 2006, 17:15 | | SA Retail - Reviewed Results; Distribution and ren |
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SRL
SRL
SA Retail - Reviewed Results; Distribution and renewal of Cautionary
SA Retail Properties Limited
(Reg. No. 1999/025764/06)
Share Code: SRL
ISIN Number: ZAE000034328
Website: www.saretail.co.za
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Reviewed Results and Distribution Announcement for the year ended 31 March 2006
and renewal of Cautionary
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Balance Sheet (R"000)
Reviewed
Reviewed Restated
2006 2005
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ASSETS
Non-current assets
Investment properties 1 788 198 1 394 793
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At valuation 1 846 210 1 454 820
Rental straight line adjustment (62 185) (63 828)
Prepaid letting commission 4 173 3 801
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Rental receivable - straight line adjustment 53 929 61 875
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1 842 127 1 456 668
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Current assets
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Trade and other receivables 39 348 18 070
Trade and other receivables 31 092 16 117
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Rental receivable - straight line adjustment 8 256 1 953
Properties classified as held for sale 33 439 89 600
Cash resources and short-term investments 62 555 62 402
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135 342 170 072
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TOTAL ASSETS 1 977 469 1 626 740
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EQUITY AND LIABILITIES
Capital and reserves
Share capital and reserves 408 789 294 022
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Non-current liabilities
Debentures 1 154 210 1 154 858
Fair value of Put obligation 17 722 12 118
Interest bearing borrowings 129 543 23 494
Deferred taxation 154 542 50 384
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1 456 017 1 240 854
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Current liabilities
Trade and other payables 4 139 9 014
Development expenditure accrual 22 224 -
South African Revenue Services 3 3
Linked unitholders for distribution 86 297 82 847
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112 663 91 864
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TOTAL EQUITY AND LIABILITIES 1 977 469 1 626 740
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Income Statement (R"000)
Reviewed
Reviewed Restated
Notes 2006 2005
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Revenue 229 800 219 502
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Contractual lease revenue 231 443 214 107
Straight line adjustment (1 643) 5 395
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Net rental from properties 149 293 144 884
Interest earned 9 947 3 200
Finance costs - (1 429)
Capital (loss)/profit on disposal of
investment properties (728) 48
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Net profit before fair value adjustments 158 512 146 703
Write up on revaluation of investment properties 226 796 275 947
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As per valuation 225 153 281 342
Adjusted for rental straight line adjustment 1 643 (5 395)
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(Deficit)/surplus on revaluation of Put obligation (5 604) 20 332
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Net profit before debenture interest and taxation 379 704 442 982
Debenture interest (160 727) (150 435)
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Net profit before taxation 218 977 292 547
Taxation (104 165) (41 554)
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Net profit attributable to linked unitholders 114 812 250 993
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Headline earnings per share (cents) 1,45 7,32
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Earnings per share (cents) 50,83 123,42
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Diluted earnings per share (cents) 50,83 123,42
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Distribution per linked unit (cents)
Interest 71,16 69,18
Dividend 0,02 0,02
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Total 71,18 69,20
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Headline earnings per linked unit (cents) 3.2 72,61 81,29
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Earnings per linked unit (cents) 3.2 121,99 197,39
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Cash Flow Statement (R"000)
Reviewed
Reviewed Restated
2006 2005
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OPERATING ACTIVITIES
Cash received from tenants 216 096 206 468
Cash paid to suppliers and employees (63 718) (73 947)
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Cash generated by operating activities 152 378 132 521
Interest earned 9 947 3 200
Distributions to linked unitholders (157 323) (128 201)
Finance costs - (1 429)
Taxation paid (6) (6)
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4 996 6 085
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INVESTING ACTIVITIES
Acquisition of investment properties (29 213) (313 339)
Improvements to investment properties (171 066) (23 456)
Disposal of investment properties 89 475 56 082
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(110 804) (280 713)
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FINANCING ACTIVITIES
Debentures issued and costs (88) 300 110
Increase in interest bearing borrowings 106 049 23 494
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105 961 323 604
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Net increase in cash and cash equivalents 153 48 976
Cash and cash equivalents at beginning of the year 62 402 13 426
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CASH AND CASH EQUIVALENTS AT END OF THE YEAR 62 555 62 402
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Statement of Changes in Equity (R"000)
Share
Capital
& Premium Reserves Total
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Balance at 31 March 2004 33 238 484 33 722
Prepaid distribution received - 9 350 9 350
Net profit - 250 993 250 993
Dividend distributed - (43) (43)
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Balance at 31 March 2005 33 238 260 784 294 022
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Net profit - 114 812 114 812
Dividend distributed - (45) (45)
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Balance at 31 March 2006 33 238 375 551 408 789
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1. Other Information Reviewed
Reviewed Restated
2006 2005
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* Linked units in issue 225 873 826 225 873 826
* Weighted average linked units in issue 225 873 826 203 365 682
* Net asset value (cents per linked unit) 730 678
(including distribution yet to be paid)
* Listed market price (cents per linked unit) 975 875
* Premium to net asset value 33,5% 29,1%
* Vacancy factor (based on lettable area) 2,3% 2,8%
* Interest capitalised during the year (R"000) 7 344 1 753
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2. AUDITORS REVIEW STATEMENT
S A Retail"s auditors, KPMG Inc., have reviewed these preliminary financial
results. The unqualified review report is available at S A Retail"s registered
office.
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3. NOTES TO THE FINANCIAL RESULTS
3.1 Accounting policies
The financial statements have been prepared in accordance with International
Financial Reporting Standards (IFRS) and the South African Companies Act, 1973.
These are the first IFRS financial statements released by S A Retail Properties
Limited ("S A Retail") and IFRS1 - First-time adoption of International
Financial Reporting Standards has been applied. The condensed financial
statements have been prepared in accordance with IAS 34.
No material adjustments were required to the amounts reported previously in the
annual financial statements for the year ended 31 March 2005 and to the opening
IFRS balance sheet at 1 April 2004.
Prepaid letting commission has been reclassified from current assets to
investment properties in terms of IAS 40.
3.2 Earnings, headline earnings per linked unit attributable to linked
unitholders
The earnings, headline earnings per linked unit for the period 1 April 2005 to
31 March 2006 are calculated as follows:
2006 2005
Cents Cents
per linked per linked
unit unit
R"000 R"000 (Weighted)
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Net profit 114 812 50,83 250 993 123,42
Debenture interest 160 727 71,16 150 435 73,97
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Earnings per linked unit 275 539 121,99 401 428 197,39
Net surplus on revaluation of
investment properties (225 153) (99,68) (281 342) (138,34)
Deferred capital gains tax 112 885 49,98 45 289 22,26
Capital (loss)/profit on
disposal of investment property 728 0,32 (48) (0,02)
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Headline earnings per
linked unit 163 999 72,61 165 327 81,29
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Distributable earnings are not impacted by the deficit on revaluation of the Put
obligation (IAS 39 fair value adjustment), which is included in earnings and
headline earnings per linked unit.
3.3 Interest bearing borrowings
The company as at 31 March 2006 had borrowings amounting to R129,5 million.
These borrowings attract interest at a current variable rate of 8,3% per annum
(prime minus 2,2%). Interest borrowings relate to developments in progress.
Interest capitalised during the year under review amounted to R7,3 million
(2005: R1,8 million).
3.4 Segment results
On a primary basis, the Company operates in the following geographical areas of
South Africa:
KwaZulu-Natal, Gauteng and Cape Province.
It is the Company"s investment philosophy to invest only in retail property,
therefore the Company can only report on a primary segment.
Year end
31 March 2006 KwaZulu- Western
Natal Gauteng Cape Corporate Total
R"000 R"000 R"000 R"000 R"000
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Income statement
Revenue (external) 92 315 134 921 2 564 - 229 800
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Contractual lease revenue 107 758 91 345 32 340 - 231 443
Straight line adjustment (15 443) 43 576 (29 776) - (1 643)
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Regional result
Net operating income 60 272 109 351 (7 531) (12 799) 149 293
Interest earned 310 646 567 8 424 9 947
Capital (loss) on disposal
of investment properties - (728) - - (728)
Write up on revaluation
of investment property 134 134 45 969 46 693 - 226 796
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As per valuation 118 691 89 545 16 917 - 225 153
Adjustment for rental
straight line 15 443 (43 576) 29 776 - 1 643
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Revaluation of Put
Obligation - - - (5 604) (5 604)
Debenture interest (76 022) (66 418) (22 812) 4 525 (160 727)
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118 694 88 820 16 917 (5 454) 218 977
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Other information
Investment properties 910 511 631 433 246 254 - 1 788 198
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At valuation 930 970 664 998 250 242 - 1 846 210
Rental straight line
Adjustment (22 038) (35 765) (4 382) - (62 185)
Prepaid letting commission 1 579 2 200 394 - 4 173
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Current and other
long-term assets 41 354 88 103 12 396 47 418 189 271
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Excluding rental straight
line adjustment 19 316 52 338 8 014 47 418 127 086
Rental straight line
Adjustment 22 038 35 765 4 382 - 62 185
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Total assets 951 865 719 536 258 650 47 418 1 977 469
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Debentures - - - 1 154 210 1 154 210
Interest bearing borrowings - - - 129 543 129 543
Fair value of Put obligation - - - 17 722 17 722
Deferred taxation 76 922 63 503 19 022 (4 905) 154 542
Current liabilities 72 095 42 146 13 831 (15 409) 112 663
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Total liabilities 149 017 105 649 32 853 1 281 161 1 568 680
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Acquisition of investment
Property 10 671 - 18 542 - 29 213
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3.5 Commitments
Guarantees
Guarantees in lieu of municipal service deposits amount to R3,0 million (2005:
R2,6 million).
Capital expenditure
Capital expenditure amounting to R153,1 million (2005: R140,5 million) has been
authorised for redevelopment and improvements of existing properties. This
expenditure will be funded by existing cash resources, debt facilities and the
issue of equity to vendors.
3.6 Related party
No further material related parties have been identified in relation to those
disclosed in the 2005 annual report.
3.7 Post balance sheet events
No material post balance sheet events have been identified at the date of this
announcement.
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4. COMMENTARY ON RESULTS
4.1 Results
Distributable income for the year ended 31 March 2006 increased to 71,2 cents
per linked unit
(31 March 2005 : 69,2 cents per linked unit). This represents growth of 3% over
the prior year.
Excluding the costs of the corporate action by Hyprop Investments Limited
("Hyprop") against S A Retail during the year in review, the growth in
distribution for the reporting period would have been greater than 8%. The 5%
reduction in distribution growth, is demonstrated as follows:
1. S A Retail incurred R3,3 million in direct costs as a result of the Hyprop
offer. These costs, including corporate advisory, announcements, legal and
sponsor fees were expensed in the period under review and the consequence of
this has been a 2% reduction in distribution growth.
2. Prior to the declaration by Hyprop on 31 March 2005 of its intention to make
an offer to linked unit holders of S A Retail, the Company was in advanced
negotiations with vendors of property with a value in excess of R300 million. In
terms of the SRP Regulations these negotiations were unable to be transacted.
Given the anticipated need for funding at this time and the demand for S A
Retail linked units, R124 million was successfully raised to pursue the said
acquisitions through the issue of S A Retail linked units as follows:
* 13 882 288 linked units on 8 March 2005 at a price of 680 cents per linked
unit.
* 4 004 118 linked units on 18 March 2005 at a price of 680 cents per linked
unit.
Unfortunately not only has S A Retail been unable to benefit from the higher
property yield on these transactions but the cash raised has generated
comparatively low returns. The dilutionary impact of these has been calculated
at 3%.
4.2 Hyprop offer to unitholders of S A Retail
The Board of Directors of S A Retail were advised on 31 March 2005 of Hyprop"s
firm intention to make an offer to the linked unitholders of S A Retail to
acquire all the linked units in S A Retail not already owned by Hyprop.
The Hyprop offer finally closed almost 6 months later on 9 September 2005.
Hyprop had acquired 7% of
S A Retail linked units in the open market prior to the opening of the offer and
25% from Redefine Income Fund as prior acceptance of the offer. At the close of
the offer Hyprop"s stake in S A Retail stood at 44%, an additional 12%.
Since the closure of the offer, Hyprop has subsequently acquired an additional
1,6% of S A Retail linked units in the open market.
4.3 Property portfolio
4.3.1 Acquisitions and Disposals
Four transactions were unconditional before the offer was made by Hyprop and
were transferred during the period under review. Florida Junction Shopping
Centre was disposed of on 13 July 2005 for R10,8 million, Kyalami Downs and
Cambridge Downs were disposed of on 21 April 2005 for R53,8 million and R25,5
million respectively. Kings Road Value Centre, a development property was
transferred to S A Retail on 13 June 2005 for R10,6 million.
Since the closing of the Hyprop offer in September 2005, allowing S A Retail to
reconsider transactional activity, management have been actively pursuing a
number of acquisition opportunities.
Three transactions were concluded in the 1st quarter of 2006. Rhodesdene
Shopping Centre, a R18,5 million quality convenience shopping centre anchored by
the highest trading Pick n Pay in the S A Retail portfolio, was transferred to S
A Retail on 24 February 2006. The R65,5 million acquisition of Willow Way
Shopping Centre in suburban Pretoria became unconditional on 31 March 2006.
Willow Way is an 8 140m2 convenience shopping centre anchored by a 2 564m2
SuperSpar with a lease to 2014. Transfer is expected in early
May 2006. The sale of Kyalami Crescent for R30,7 million, the only non-retail
property in the portfolio, became unconditional in March 2006 and transfer is
expected in May 2006.
4.3.2 Developments
Before the Hyprop offer was made, in a pro-active undertaking to build yield
rather than to purchase expensive yield in the current market, S A Retail
secured R229 million of development activity. The projected average return on
capital invested in these development projects is 10,75% which compares very
favourably to current acquisition yield of comparable retail property in the
market place of 8,0% - 9,5%. A short overview of each project follows:
Umlazi MegaCity, a 31 000m2 regional shopping centre developed jointly by S A
Retail and Martprop Property Fund at a total cost of R165 million and a
projected initial yield of 11,75% opened on 1 April 2006. This major investment
in Durban will offer Umlazi residents a premier quality shopping centre anchored
by a SuperSpar, Woolworths and many of SA"s leading national tenants. This
investment in Umlazi is trading exceptionally well. With an estimated R400
million annual spend capacity from 610 000 residents in Umlazi the rental growth
prospects and sustainability of the investment are favourable. Construction of
an additional 4 000m2 retail outlet for Hirsch and a 2 500m2 free-standing
outlet for a Nissan dealership will commence shortly.
Construction commenced in November 2005 on the 8 363m2 Kings Road Value Centre
in Pinetown, Durban, in partnership with Vukile Property Fund Limited at an
estimated total capital cost of R55 million and an anticipated initial yield of
11,0%. This investment, adjacent S A Retail"s successful R300 million Pinecrest
shopping centre, is anchored by a 2 500m2 SuperSpar and a number of SA"s leading
national retailers. The centre is scheduled to open in March 2007.
The re-development of Bluff Shopping Centre, incorporating an additional 7 500m2
of bulk at a capital commitment of R77 million, is well advanced with Phase 1
having opened in December 2005. National tenants will occupy approximately 80%
of the area of the new centre and Phase 2, including a new 2 177m2 Woolworths
store, 2 300m2 Edgars store and 1 000 m2 Mr Price store will be opening in the
third quarter of 2006. The centre is currently anchored by a 4 950m2 Shoprite
Checkers.
The re-development of Highlands Mews Shopping Centre in partnership with
Martprop Property Fund, increasing the existing centre from 12 670m2 to 16 676m2
at a capital cost of R41 million, is progressing very satisfactorily. The
project is driven by the requirements of the Foschini Group and Truworths with
deals for eight of their stores totaling 2 073 m2 having been concluded. This
investment will accommodate most of SA"s leading national fashion retailers
including the existing anchor, Woolworths.
Additional significant upgrades and developments that were satisfactorily
completed during the period under review include a R6 million refurbishment of
East Rand Galleria in Boksburg and the completion of Phase 2 at Tokai Junction
in Cape Town at a capital cost of R49 million, the latter also in partnership
with Martprop Property Fund.
4.3.3 Vacancy Factor
The vacancy factor of the portfolio at 31 March 2006 was 2,3% (2005: 2,8%). The
expense to income ratio at year end was 32,1% (2005: 31,8%). These continue to
remain favourable.
4.4 Valuations
In conformity with IFRS the portfolio is valued at each reporting date. CB
Richard Ellis, an independent valuer who is registered with the South African
Council of Valuers valued the portfolio using the discounted cash flow method.
The Board have accepted the independent valuation and approved the portfolio
valuation of R1 846,2 million. A surplus of R225,1 million, net of deferred
capital gains taxation, has been transferred to non-distributable reserve. The
effective forward earnings yield on the portfolio in the valuation is 9,5%.
4.5 Fair value of Put obligation and Call right
In terms of IAS 39 The Accounting Statement on Financial Instruments, the Put
obligation and Call right that exists between S A Retail and Whirlprops 33 (Pty)
Ltd has been fair valued at 31 March 2006.
Put obligation
The fair value of the Put obligation that Whirlprops 33 (Pty) Ltd has on S A
Retail at 31 March 2006 on the assumption that the Put obligation will be
exercised by Whirlprops 33 (Pty) Ltd in November 2011 is a shortfall of R17,7
million (7,85 cents per linked unit). The accounting standard requires the
potential unrealised liability to be recognised on balance sheet.
The fair value of the derivative liability has been increased from R12,1 million
to R17,7 million and this movement has been reflected through the Income
Statement. This increase in the fair value has no impact on the distributable
income.
Call right
It is not the intention of the company to exercise the Call right that it has on
Whirlprops 33 (Pty) Ltd in the immediate future as doing so would result in a
dilution of the company"s earnings and net asset value. This is reviewed on an
ongoing basis.
4.6 Prospects
Management are focusing on enhancing returns and are proactively pursuing
acquisition activity and development work which will enhance the profile and
critical mass of the portfolio and provide opportunities to improve the
unitholder spread of the Company.
Two earnings enhancing acquisitions totalling R85 million have been concluded
and four major development projects are expected to contribute positively to S A
Retail earnings in 2007. The largest of these being Umlazi MegaCity which opened
on 1 April 2006 at a projected initial yield of 11,5% which is considered very
favourable in the current market.
Coupled with the aforementioned earnings enhancing transactional activity, the
company is well positioned to take advantage of continued consumer confidence
and increased tenant trading densities in the portfolio and unitholders can
expect to benefit accordingly.
4.7 Renewal of Cautionary
Unitholders are advised that the Company is still in negotiations which could
have a material effect on the linked unit price of S A Retail, and should
continue to exercise caution in dealing in the linked units of
S A Retail until such time that S A Retail makes a further announcement with
regard to the Cautionary Announcement.
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5. DECLARATION OF DIVIDEND AND INTEREST PAYMENT NUMBER 10
Notice is hereby given that dividend number 10 of 0,01 cents per ordinary share
and interest of 38,22 cents per debenture totaling 38,23 cents per linked unit
have been declared in respect of the income distribution period
1 April 2005 to 31 March 2006.
Last date to trade cum distribution Friday, 19 May 2006
Units will trade ex distribution Monday, 22 May 2006
Record date to participate in the distribution Friday, 26 May 2006
Payment of the dividend and debenture interest Monday, 29 May 2006
Linked unit certificates may not be dematerialised or rematerialised between
Monday, 22 May 2006 and Friday, 26 May 2006, both days inclusive.
BY ORDER OF THE BOARD
S A RETAIL PROPERTIES LIMITED
3 May 2006
Registered Office Transfer secretaries
Marriott at Kingsmead Computershare Investor Services 2004 Limited
Kingsmead Office Park 70 Marshall Street,
Durban, 4001 Johannesburg, 2001
P O Box 207 P O Box 61051
Durban, 4000 Marshalltown, 2107
Tel: (031) 366 1111 Tel: (011) 370 7700
Marriott Corporate Property Exchange Sponsors
Property Asset Managers Sponsor
Date: 03/05/2006 05:16:08 PM Produced by the JSE SENS Department
