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EMI
EMI
Emira Property Fund - Reviewed financial results for the year ended
30 June 2006
Emira Property Fund
(A property fund created under the Emira Property Scheme, registered in
terms of the Collective Investment Schemes Control Act)
Share code: EMI
ISIN: ZAE000050712
("Emira" or "the Fund")
www.emira.co.za
Reviewed financial results for the year ended 30 June 2006
- Distributions per PI 74,50c growth of +10,3%
- Net asset value per PI 866c an increase of +38,8%
- 12-month total return 205c or 28,4%
Abridged income statement for the year ended 30 June 2006
Restated
Reviewed Audited
Year ended Year ended
30 June 2006 30 June 2005
R"000 R"000
Revenue 451 950 407 088
Property expenses (137 778) (113 292)
Management expenses (15 259) (10 590)
Administration expenses (13 727) (12 150)
Depreciation (7 532) (6 464)
Net income from property rental
operations 277 654 264 592
Net fair value gains on investment
properties 661 154 240 124
Change in fair value as a result of
straight-lining lease rental (18 783) (32 669)
Change in fair value as a result of
amortising upfront lease cost (2 890) (8 017)
Change in fair value as a result of
property appreciation in value 682 827 280 810
Profit on disposal of investment
property 1 459 11 179
Maintenance fund expenses (855) (1 827)
Listing costs (128) (104)
Operating profit 939 284 513 964
Finance costs (32 365) (45 662)
Investment income 1 417 3 554
Net profit for the period 908 336 471 856
Reconciliation between earnings
and headline earnings:
Net profit for the period 908 336 471 856
Adjusted for:
Net fair value gains on investment
properties (661 154) (240 124)
Profit on sale of investment property (1 459) (11 179)
Headline earnings 245 723 220 553
Reconciliation of headline earnings
to distribution per participatory
interest:
Headline earnings 245 723 220 553
Adjusted for:
Allowance for future rental
escalations (18 783) (32 669)
Unamortised upfront lease costs (2 890) (8 017)
Unrealised (gain)/loss on interest
rate swaps (11 665) 11 757
Maintenance fund expenses 855 1 827
Amortised borrowing costs 437 296
Distribution payable to participatory
interest holders 213 677 193 747
Distribution per participatory interest
Interim (cents) 36,44 32,63
Final(cents) 38,06 34,92
Total (cents) 74,50 67,55
Abridged balance sheet at 30 June 2006 Restated
Reviewed Audited
Year ended Year ended
30 June 2006 30 June 2005
R"000 R"000
Assets
Non-current assets
Investment properties 3 025 871 2 215 059
Allowance for future rental escalations 51 452 32 669
Unamortised upfront lease costs 14 936 12 046
3 092 259 2 259 774
Current assets
Accounts receivables and prepayments 11 688 31 757
Cash 652 9 252
12 340 41 009
Total assets 3 104 599 2 300 783
Equity
Participatory interest holders" capital 2 483 265 1 788 606
Liabilities
Non-current Liabilities
Interest-bearing debt 458 330 364 141
Current liabilities
Short-term portion of long-term
interest-bearing debt 3 224 1 867
Accounts payable 50 531 34 257
Derivative financial instruments 92 11 757
Distributions payable to participatory
interest holders 109 157 100 155
163 004 148 036
Total liabilities 621 334 512 177
Total equity and liabilities 3 104 599 2 300 783
Statement of changes in equity for the year ended 30 June 2006
Participatory Fair value Retained
interest reserve earnings Total
R"000 R"000 R"000 R"000
Balance at
1 July 2004 1 416 344 85 576 (173) 1 501 747
Issue of
participatory
interest 8 750 - - 8 750
Net profit for
the year - - 471 856 471 856
Distribution to
PI holders - - (193 747) (193 747)
Allowance for
future rental
escalations - 32 669 (32 669) -
Unamortised upfront
lease costs - 8 017 (8 017) -
Net fair value gains
on investment
properties - 240 124 (240 124) -
Profit on sale of
investment property - 11 179 (11 179) -
Unrealised loss on
interest rate swaps (11 757) 11 757 -
Maintenance fund
expenses (1 827) 1 827 -
Balance at
30 June 2005 1 425 094 363 981 (469) 1 788 606
Balance at
1 July 2005 1 425 094 363 981 (469) 1 788 606
Net profit for
the year - - 908 336 908 336
Distribution to
PI holders - - (213 677) (213 677)
Allowance
for future rental
escalations - 18 783 (18 783) -
Net fair value gains
on investment
properties - 661 154 (661 154) -
Profit on sale of
investment property - 1 459 (1 459) -
Unamortised upfront
lease costs 2 890 (2 890)
Unrealised gains/
(loss) on interest
rate swaps 11 665 (11 665) -
Maintenance fund
expenses (855) 855 -
Balance at
30 June 2006 1 425 094 1 059 077 (906) 2 483 265
Abridged cash flow statement for the year ended 30 June 2006
Restated
Reviewed Audited
Year ended Year ended
30 June 2006 30 June 2005
R"000 R"000
Cash generated by rental operations 298 459 196 087
Net interest charge (42 176) (30 351)
Distribution to participatory
interest holders (204 675) (173 306)
Cash flow from operating activities 51 608 (7 570)
Acquisition of investment properties (166 656) (104 693)
Acquisition of furniture and fittings (6 497) (8 984)
Proceeds on sale of investment property 17 399 40 455
Decrease in maintenance fund - 24 104
Net cash utilised in investing -
activities (155 754) (49 118)
Issue of participatory interest - 8 750
Increase in borrowings 95 546 53 163
Net cash from financing activities 95 546 61 913
Net change in cash and cash
equivalents (8 600) 5 225
Cash and cash equivalents
at beginning of year 9 252 4 027
Cash and cash equivalents
at end of year 652 9 252
Basis of Preparation and Accounting Policies
The annual financial results have been prepared in accordance with
International Financial Reporting Standard ("IFRS") and in compliance with
the Listing Requirements of the JSE Limited ("JSE"). IFRS 1 - First-time
adoption of International Financial Reporting Standard has been applied.
Due to the fact that the adoption of IFRS had no effect on the comparative
amounts, a reconciliation has not been prepared.
Change in Accounting Policies
Operating Leases
Upfront lease expenditure for operating leases is now recognised on a
straight-line basis over the lease term of the contract in accordance with
IAS 17 (International Accounting Standard 17 - Leases), the comparative
figures have been restated accordingly.
Segmental information
Retail Office Industrial Corporate Total
Sectoral
segments R"000 R"000 R"000 R"000 R"000
Revenue 164 706 221 316 65 928 451 950
Revenue 155 159 215 904 62 104 433 167
Allowance for
future rental
escalation 9 547 5 412 3 824 18 783
Segmental result
Net income from
property rental
operations 105 643 141 569 46 540 (16 098)1 277 654
Depreciation 1 377 5 301 854 7 532
Change in fair
value of
investment
properties 211 706 324 796 124 652 - 661 154
Other information
Investment
properties 1 023 305 1 545 197 457 369 - 3 025 871
Total assets 1 060 511 1 573 153 469 629 1 3062 3 104 599
Accounts
payable 13 033 21 250 4 662 11 5863 50 531
1 Includes asset management fees and other corporate related expenses
2 Other sundry debtors
3 All centralised creditors
Geographical
segments
Revenue
- Gauteng 119 168 178 188 36 916 - 334 272
- Western and
Eastern Cape 13 273 12 594 10 596 - 36 463
- KwaZulu-Natal 30 534 18 416 - 48 950
- Free State - 26 563 - - 26 563
- North West 5 702 - - - 5 702
164 706 221 316 65 928 - 451 950
Total assets
- Gauteng 764 855 1 233 162 271 647 1 306 2 270 970
- Western and
Eastern Cape 98 140 111 831 90 279 - 300 250
- KwaZulu-Natal - 228 160 107 703 - 335 863
- Free State 174 121 - - - 174 121
- North West 23 395 - - - 23 395
1 060 511 1 573 153 469 629 1 306 3 104 599
Related parties and related-party transactions
Momentum Group ("Momentum") is the majority participatory interest holder.
At 30 June 2006, Momentum owned 38,48% of the Fund"s participatory
interests and the remaining 61,52% were widely held.
The following transactions were carried out with related parties:
Restated
Reviewed Audited
Year ended Year ended
30 June 2006 30 June 2005
R"000 R"000
Strategic Real Estate Managers
(Pty) Limited
Expenditure comprising: asset
management fee 15 259 10 590
Relationship: Associated company
of the FirstRand Group
Rand Merchant Bank a division of
FirstRand Bank Limited
Borrowings 304 125 226 125
Net finance cost 30 359 23 166
Relationship: Associated company
of the FirstRand Group
RMB Properties (Pty) Limited 52 590 90 855
Expenditure comprising: property
management fee and letting commissions 23 722 22 683
Development of Gift Acres
Shopping Centre 10 000 68 172
Development of Faerie Glen Phase 2 18 868 -
The above transactions were carried out on commercial terms and conditions
no more favourable than those available in similar arm"s length dealings at
market-related rates.
Commentary
Buoyant market conditions resulted in Emira experiencing a successful
twelve months to 30 June 2006. It was a year in which growth was a feature
of both Emira"s performance as well as the entire listed property sector:
participatory interest (PI) holders benefited from a growing PI price,
distribution growth of in excess of 10% was delivered by the Fund, and,
subsequent to year-end, PI holders also approved the purchase of a
portfolio of assets from Momentum and RMB Properties totalling R844
million.
Results
The distribution per PI for the year amounted to 74,5 cents, representing
year-on-year growth of 10,3%.
Excluding the straight-line adjustments from future rental escalations,
revenue rose by 15,7% year-on-year. This was the result of growing income
from the existing portfolio and the transfer of various properties during
the period, which have been detailed below. With property expenses rising
at a similar rate to revenue, the ratio of property expenses to revenue
remained constant at approximately 32,5%.
The substantial increase in Emira"s PI price during the period - reaching a
listed property sector - resulted in a 44% rise in asset management fees.
Interest costs, excluding unrealised gains or losses on interest rate
swaps, rose by 29,9% as a result of the funding of the properties
transferred during the period.
Emira"s PI price rose from 720 cents in June 2005 to 850 cents as at 30
June 2006, a rise of 18,1% Fund"s. The Fund"s market capitalisation rose
from R2,07 billion to R2,44 billion over the same period. Together with
the distributions of 74,50 cents,
PI holders received a total return of 28,4% over the past twelve months.
Net asset value grew from 624 cents to 866 cents, representing growth of
38,8%. This is indicative of the current underlying strength in the
commercial property market, where vacancies have been declining and rentals
rising.
Acquisitions
The following properties were transferred to Emira during the financial
year:
Transferred to
Emira in FY06 Sector Location GLA (m2)
100 Armstrong Office La Lucia Ridge 2 880
122 Pybus Road Office Sandton CBD 5 299
Lincolnwood Office Park Office Woodmead 10 991
Century Gate Office Century City 1 369
Gift Acres* Retail Lynnwood Ridge 9 363
Total 29 902
Transferred to Emira in FY06 (continued)
Purchase Forward Effective Key
price (Rm) yield (%) date Tenants
100 Armstrong 25,00 11,1 11 Jul 05 Imperial Bank,
SAP, RMB Asset
Management
122 Pybus Road 15,75 11,1 20 Oct 05 Multi-tenanted
Lincolnwood
Office Park 55,75 12,2 20 Oct 05 SA Rail
Commuter
Corporation
Century Gate 10,00 10,0 25 Nov 05 Triocon
Consulting
Engineers (Pty)
Limited
FirstRand Bank
Limited
Gift Acres* 78,68 11,8 22 Jun 06 Woolworths,
Mr Price Group
First National
Bank
Total 185,2
*Note that although the transfer of Gift Acres only took place in June
2006, the development consideration was paid in accordance with the
agreement with RMB Properties and income from the centre was accrued to the
Fund since opening in May 2005.
Emira also reached agreement with RMB Properties to purchase the newly
developed Phase 2 of an office park located in Sprite Avenue, Faerie Glen,
Pretoria. This was funded by short-term debt, with the income accruing to
Emira from 1 June 2006. With the Fund being the legal owner of the land, no
transfer was required.
Income accruing to Emira in FY06
Sector Location GLA (m2)
Faerie Glen Phase 2 Office Faerie Glen 1 937
Income accruing to Emira in FY06 (continued)
Purchase Forward Effective Key
price (Rm) yield (%) date Tenants
Faerie Glen
Phase 2 18,9 10,2 1 June 2006 Sanlam,
Simeka
At the general meeting of PI holders" held on 22 August 2006, Emira
received approval to purchase five properties from Momentum and RMB
Properties through a combination of debt and equity. Of these five
buildings, Newlands Terraces is expected to be transferred to Emira on 1
September 2006. The remaining properties are expected to contribute to the
Fund"s income from transfer - in the case of Wonderpark and WesBank House
- and the later of practical completion or registration - in the case of
WorldWear and RTT.
Yet to be transferred to Emira
Sector Location GLA (m2)
Newlands Terraces Office Newlands, 4 262
Cape Town
Wonderpark Shopping
Centre Retail Karenpark, 58 109
Pretoria
RTT Warehouse Industrial Bartlett, 44 085
Johannesburg
WorldWear Retail Fairlands, 13 284
Johannesburg
WesBank House Office CBD, Cape Town 9 206
Total 128 946
Yet to be transferred to Emira (continued)
Purchase Forward Anticipated
price (Rm) yield (%) effective Key
date Tenants
Newlands Terraces UCS Software,
43,8 9,9 1 Sep 2006 WPRFU
Wonderpark
Shopping Centre 406,4 9,0 On transfer Pick "n Pay,
Woolworths,
Virgin Active
RTT Warehouse 217,1 9,7 1 April Railit Total
2007 Transportation
WorldWear 133,1 10,3 1 Nov 2006 Mr Price Home,
The Pro Shop,
Seemans
WesBank House 44,0 10,9 On transfer Dept of
Labour,
WesBank
Total 844,4 9,5
Furthermore, Phase 3 of Faerie Glen, which is currently under development,
is on target to be completed by 1 December 2006 and is expected to be
funded by debt.
Income yet to accrue to Emira
Sector Location GLA (m2)
Faerie Glen Phase 3 Office Faerie Glen 2 594
Income yet to accrue to Emira (continued)
Purchase Forward Anticipated Key
price (Rm) yield (%) effective date Tenants
Faerie Glen
Phase 3 26,7 10,2 1 Dec 2006 VIP
Disposals
In accordance with the strategy of the Fund, certain properties that are
underperforming or pose excessive risk to the Fund are earmarked and
disposed of. With this strategy in mind, Emira disposed of: Motorola, a
mixed office/industrial building in Halfway Gardens; Pilrig, an office
building in Parktown, and Grinaker Electronics, an office building in
Samrand.
Transferred out of Emira in FY06
Valuation
June 2005
Sector Location GLA (m2) (R"000)
Motorola Office Halfway Gardens 719 3 001
Pilrig Office Parktown 2 027 5 990
Grinaker
Electronics Office Samrand 3 261 7 000
Total 6 007 15 991
Transferred out of Emira in FY06 (continued)
Sale
Price Effective
(R"000) Yield (%) date
Motorola 3 001 11,1 11 Aug 05
Pilrig 7 400 8,5 28 Mar 06
Grinaker Electronics 7 000 1,6 01 Jun 06
Total 17 401
Delays in the transfer of Mafikeng Game have resulted in this property
still being owned by Emira, although it is expected to be transferred
before the end of December 2006.
Properties sold during the financial year, but yet to be transferred out of
Emira
Valuation Sale
June 2004 price
Building Sector Location GLA (m2) (Rm) (Rm) Yield (%)
Mafikeng
Game Retail Mafikeng 5 218 20,1 20,7 15,9
Vacancies
Vacancies dropped sharply from 6,0% (33 624 m2) in June 2005 to 4,0% in
June 2006 (23 262 m2).
The largest improvement came within the industrial sector, which saw
vacancies decline from 4,7% in June 2005 to 1,8% by end June 2006. Office
vacancies declined to 6,7% while vacancies in the retail sector rose
slightly from 1,5% to 2,0%.
Valuations and Net Asset Value
The Fund has elected to have independent valuations of its entire portfolio
at least every three years. To achieve this, independent valuers value
approximately one-third of the portfolio each year. These valuations are
included as part of the Fund"s overall portfolio movement below.
As a result of the continued firming in the capitalisation rates,
advantageous renewals in a number of properties and rising rentals in the
majority of areas, property values improved markedly in all three sectors.
Total portfolio movement
June 2005 June 2006
(R"000) R/m2 (R"000)
Industrial 337 618 1 948 469 190
Office 1 111 646 4 671 1 572 429
Retail 810 277 5 364 1 050 640
General* 233 - 0
2 259 774 4 018 3 092 259
Adjustment to fair
value as per
IAS 17/IAS 40 (32 669) (51 452)
Unamortised upfront
lease cost as per
IAS17/IAS40 (12 046) (14 936)
As reported 2 215 059 3 025 871
Total portfolio movement (continued)
Difference Difference
R/m2 (%) (R"000)
Industrial 2 691 39,0 131 782
Office 6 124 41,5 460 783
Retail 6 952 29,7 240 363
General* 100 (233)
5 311 36,8 832 485
Adjustment to fair
value as per IAS 17/IAS 40 57,5 (18 783)
Unamortised upfront
lease cost as per
IAS17/IAS40 24,0 (2 890)
As reported 36,6 810 812
*General relates to costs incurred on Gift Acres and Unilever properties.
Debt
As at June 2006 Emira had a total debt facility available of R690 million.
This was based upon the June 2005 portfolio valuations of R2,23 billion,
combined with transfer of Lincolnwood and 122 Pybus Road. Of this total
facility, R522 million had been granted, split into five tranches.
The majority (79%) of the Fund"s debt had been fixed for periods of between
15 months and in excess of five years, with the remaining portion (21%) at
rates linked to prime. Favourable interest rates on certain of these
tranches give the Fund an effective weighted average cost of debt of 9,95%.
The breakdown is as follows:
Rate (%) Term Amount (Rm) % of debt
1 Debt - Floating Prime -2 N/A 107,4 20,6
2 Debt - Fixed 9,76 November 2006 126,1 24,2
3 - Swap 9,24 September 2007 100,0 19,2
4 - Fixed 10,21 November 2008 100,0 19,2
5 - Swap 11,26 October 2009 88,5 17,0
TOTAL 9,95* 522,0 100
*Weighted average cost of debt assuming prime at 11,5%.
Emira has entered into additional interest rate swaps to further extend the
maturities of the nearest-dated facility 2 above:
Rate (%) Term Amount (Rm) % of Debt
2 Debt - Swap 10,6 Nov "06 to 126,1 24,2
Nov "11
Acquisition of Portfolio of Properties and Black Economic Empowerment
Transaction
At a general meeting of PI holders held on 22 August 2006, Emira received
unanimous approval to purchase five properties totalling R844m from
Momentum and RMB Properties through a combination of debt and equity. At
the same time, the Fund received approval to enter into a transaction that
will see 14.2% of the Fund"s PIs being held by historically disadvantaged
South Africans.
The acquisition of the portfolio is expected to increase the size and
quality of the Fund and will reduce Emira"s reliance on office properties
and increase the retail component of the asset base. Moreover, the
introduction of the new PI holders is expected to yield benefits to Emira
through increased new business opportunities in the medium term, as well as
help the Fund achieve the objectives set out in the Property Sector
Transformation Charter.
Prospects
Market conditions in the retail property sector remain buoyant, although
the rate of growth in retail sales has slowed in recent months. The low
vacancies in the industrial sector, coupled with the strong GDP growth and
lack land available for development bode well for this sector. National
office vacancies have been declining consistently, and this, together with
rising building costs, indicates that the real growth in office rentals is
likely to continue.
The acquisition of the portfolio from Momentum and RMB Properties will
reduce Emira"s reliance on office properties and increase the retail
component of the Fund"s asset base, such that these two sectors will each
comprise slightly in excess of 40% of the Emira portfolio, with the balance
of the Emira portfolio consisting of industrial properties, and will
enhance the net income growth of the Fund over the medium to long term.
As a result of the above factors, management is expecting continued growth
in distributions during the coming financial year.
Audit Opinion and Independent Review
The financial information has been reviewed by PricewaterhouseCoopers Inc.
whose unqualified opinion is available for inspection at Emira"s
registered address.
Distribution
Notice is hereby given that a cash distribution of 38,06 cents per
participatory interest has been declared to participatory interest holders
and is payable on 26 September 2006.
Last day to trade Friday, 15 September 2006
PIs trade ex distribution Monday, 18 September 2006
Record date Friday, 22 September 2006
Payment date Tuesday, 26 September 2006
PI certificates may not be dematerialised or rematerialised between Monday,
18 September 2006 and Friday, 22 September 2006, both days inclusive.
Notice of Annual General Meeting
Notice is hereby given that the third annual general meeting of PI holders
of Emira Property Fund will be held at 14:00 on 31 October 2006 at 3 Gwen
Lane, Sandton, to transact the business as stated in the annual general
meeting notice forming part of the annual financial statements.
By order of the Board
C Middlemiss
Company Secretary
Ben van der Ross
Chairman
James Templeton
Chief Executive Officer
Sandton
28 August 2006
Property Fund Manager:
Strategic Real Estate Managers (Pty) Limited
Directors of the Fund manager: BJ van der Ross (Chairman)*, JWA Templeton
(Chief Executive Officer), L Barnard*, L Basson*, MSB Neser*, WK Schultze
*Non-executive director
Registered address:
3 Gwen Lane South,
Sandton,
2146
Merchant bank and sponsor:
Rand Merchant Bank (A division of FirstRand Bank Limited)
Transfer secretaries:
Computershare Investor Services 2004 (Pty) Limited
70 Marshall Street,
Johannesburg,
2001
Date: 28/08/2006 08:51:50 AM Produced by the JSE SENS Department
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