| Tue 29 Aug 2006, 16:00 | | Spearhead - Final Audited Results for the year end |
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SPE
SPE
Spearhead - Final Audited Results for the year ended 30 June 2006
SPEARHEAD PROPERTY HOLDINGS LIMITED
Registration number: 1996/005827/06
Share code: SPE
ISIN: ZAE000019162
Final Audited Results for the year ended 30 June 2006
13% rise in distributions matches historic average
26% increase in net asset value per listed unit
41% jump in contractual rental revenue
30% total return to unitholders
R1 billion market capitalisation exceeded
Redefine makes offer for all listed units
Comment
The highlights to this announcement attest to Spearhead having had an eventful
and fruitful year to June 2006. The normal operations of Spearhead yielded
pleasing growth of 41% in contractual rental revenue and 13% in distributions
consistent with our long-term goals and coming off a high base.
Asset growth has continued at a rapid pace and we have passed the milestone of
R1 billion market capitalisation, lifting Spearhead into the mid-cap category.
Unitholders experienced a 20% rise in the value of their units on the JSE
despite the sharp dip in values in April and May 2006. They also received
distributions of 10% based on the value of their units at the start of the
financial year, giving 30% total return as stated in the highlights.
Recognition of Spearhead"s outstanding financial track record over the past
six years and the calibre of its property portfolio came in the form of the
firm offer by Redefine Income Fund for all the linked units of Spearhead,
received just before year-end. If the offer is accepted at the forthcoming
special general meeting, Spearhead unitholders will receive 6.18 Redefine
units, for every Spearhead unit, or take cash for part of their holdings.
A circular to unitholders in September will give full details of the offer.
Movements in the market since the date of the offer indicate that unitholders
would gain substantially by accepting the Redefine offer to exchange their
Spearhead units for Redefine units.
Fundamentals in the property market continue to be good, particularly for the
office and industrial categories. With a proportion of current leases expiring
in each of the next several years and likely to be renewed at higher rental
levels, continued rental growth is assured. Sharp rises in building costs
underpin this growth.
Several strategically important acquisitions were made or completed during the
year. Among them is Pier Place, a prominent office building on the Cape Town
Foreshore, with Vodacom as the major tenant. Another is Stanhope Bridge, a new
mixed-use building on the Claremont Bypass, where transfer was taken on a
turnkey basis.
Good progress was made with three premier development projects. The first
phase of Sable Square, a unique retail complex, and Knowledge Park Extension
II, an A-grade office building, are on the point of completion. Construction
commenced on Convention Tower, adjoining the Cape Town International
Convention Centre (CTICC), which will provide superlative office space.
More details of development projects are given later in this report.
Operations
The renewal rate for expiring leases exceeded 75%, with an average increase in
rental levels of 11% across all categories for the year following expiry.
These are excellent figures for the industry. We are also pleased with the
escalation provisions that have been built into the new lease agreements.
Great success was again achieved in lifting the recovery rate for electricity
costs and other disbursements incurred on behalf of tenants. The recovery rate
for utilities now exceeds 95%.
Acquisitions
In all, seven properties were transferred to Spearhead during the 2006 year.
They include the 15-storey landmark Pier Place referred to above, acquired at
a cost of R153 million on a forward yield of 9.8%. This property accounted for
52% of the total acquisitions of R296 million for the year.
Stanhope Bridge, which forms part of the Claremont Bypass Project, is another
substantial acquisition, accounting for 17% of the acquisition budget. It is
anchored by a BMW showroom and dealership on a 15-year lease. The building was
acquired on a 10.25% yield.
All the other newly-acquired properties are located in Cape Town"s northern
suburbs, Tyger Valley, Bellville, and Parow. They total nearly 50 000 square
metres in lettable area, at a combined average forward yield of 10.25%.
At the year-end the retail, office and industrial categories were represented
in Spearhead"s portfolio as follows:
29% retail
44% office
27% industrial.
Disposals
The company has entered into agreements to dispose of the last two properties
outside of the greater Cape Town area. Transfer of the properties is expected
in September 2006. They were the Lyttelton Shopping Centre in Gauteng, sold
for R47 million, and Delft House, also in Gauteng, was redeveloped and sold
under sectional title for R12 million.
Vacancy levels
At year-end the vacancy level was up from 4.3% in the previous year to 6% of
total space in the portfolio. The vacancies are all concentrated in one of the
properties acquired during the year.
Revaluation
Consistent with market strength and the prevailing level of capital rates, a
comprehensive year-end valuation of the Spearhead portfolio recorded an
increase of R169 million. The valuation was made on the customary discounted
cash flow basis. The newly-recorded values equate to an increase of 26% in net
asset value per linked unit, as indicated above.
Developments
During the past year Spearhead has been particularly active in developments.
Work started or continued on 15 projects, mainly for the company"s rental
portfolio. The balance will comprise stock for trading.
In the rental portfolio is the first phase of Sable Square, which will be
South Africa"s first retail outlet mall, built at a cost of R110 million.
Leases for almost the entire Phase 1 have been concluded.
An extension of 11 000 square metres of office space in the Knowledge Park
complex is now also fully let. It will be completed in December 2006.
The Convention Tower building, to be erected alongside the CTICC at a cost of
R210 million, will be the CBD"s first multi-tenant A-grade office building to
be erected in nearly a decade.
Among the projects completed were the Blue Downs Shopping Centre, the Wembley
Square Commercial precinct in Gardens, and the Old Oak Shopping Centre in
Durbanville.
Work has started on CTX Freight Park, the industrial property alongside the
freight section of the Cape Town International Airport; on the Platinum Park
Phase 2 project, an industrial site in Marconi Beam, and on Berg River Park, a
35 000 square metre industrial site in the Paarl area.
Work continued on the Oasis Luxury Retirement Resort, in the Century City
precinct, which on completion in 2011, will have South Africa"s largest and
most comprehensive frail care facility. Profits on this sectional-title
project, in which Spearhead is a joint-venture partner, will flow from 2007
onwards.
Bonwit Building in Woodstock, a one-time industrial building acquired from the
Seardel clothing and textile group, is being redeveloped to provide a mix of
apartments and office space, and will be renamed Upper East Side. It will be
launched under sectional title in October 2006.
Debt management
The gearing ratio at the year-end was 44%, with total long-term debt standing
at R707 million. Hedging by means of interest rate swap contracts continued,
with 50% of the exposure fixed for periods of up to five years. Loans continue
to be sourced from a variety of banks, with Absa the lead banker among them. A
loan of R100 million at a fixed rate of 8.24% per annum was obtained from the
Sanlam Life Assurance Group to fund the purchase of Pier Place.
Issue of linked units
Vendors of acquired properties were issued with 7 490 000 new Spearhead units
at R22 per unit to settle indebtedness, taking the total number of issued
units to 36 218 856 at year-end.
The Redefine offer
Unitholders will be asked at a general meeting towards the end of September to
vote on the proposed acquisition of their linked units by Redefine in exchange
for Redefine linked units in a ratio of 6.18 Redefine units per Spearhead
unit. As an alternative, unitholders can choose to receive cash of R31 per
unit for a number of units totalling, for all unitholders, 50% of the issued
units. This could lead to some unitholders who wish to exit the company,
receiving cash for more than 50% of their holdings, provided others opt in
aggregate for less than 50% in cash. Full details of the offer will be set out
in the circular to unitholders.
Spearhead"s board considers the offer to be favourable and has unanimously
voted for its acceptance. Some substantial unitholders have also undertaken to
support the offer.
Since the date of the offer, the listed property market has recovered to some
extent from the sharp fall experienced in May 2006, and this recovery enhances
the prospective benefits of acceptance of the offer. Unitholders taking
Redefine units in exchange for Spearhead units can expect a notched increase
in distributions over the next year, and capital growth in their units which
is likely to be enhanced by the growth phase which Redefine is now undergoing.
Prospects
Whether or not the Redefine offer is accepted, Spearhead unitholders can look
forward to increased distributions and capital values for their units.
If Spearhead remains a stand-alone fund, focused on high-quality assets in the
greater Cape Town area, nothing visible on the horizon at this stage endangers
a continuation of the historic average growth rate of 13% in distributions.
While capital values will be more sensitive to the vicissitudes of interest
rates, the long-term trend is powerfully upward.
If Spearhead is absorbed into the Redefine group, unitholders will receive a
boost in the level of distributions as from August 2007, and will also have
wider geographical diversification of the underlying assets and greater
liquidity in trades of their units. There is a wealth of property expertise in
the Redefine Group, backed as it is, by the Madison management team.
Leadership in the industry would be secure.
Distribution declaration no. 14
Notice is hereby given of the declaration of distribution no. 14 in respect of
the six months to 30 June 2006, amounting to 118 cents per linked unit. (2005:
105 cents per unit).
The last date to trade cum distribution is Thursday, 21 September 2006
Linked units will commence
trading ex-distribution on Friday, 22 September 2006
Record date is Friday, 29 September 2006
Payment of distributions takes place on Monday, 2 October 2006
Linked units may not be dematerialised or rematerialised from Friday 22
September 2006 to Friday, 29 September 2006, both days inclusive.
On behalf of the board
M KAPLAN M N FLAX Sponsor: Bridge Capital
Chairman Chief Executive Officer
Cape Town
29 August 2006
View the Spearhead Final Audited Results at
www.spearheadprop.com
Abridged consolidated income statement
Year ended Year ended
30 June 2006 30 June 2005
% Audited Audited
Change R000"s R000"s
Revenue 147 180 111 767
Revenue earned on contractual basis 41% 136 004 96 559
Straight-line rental accrual 11 176 15 208
Net income from developments 17 327 14 668
Development income 98 132 77 260
Development costs (80 805) (62 592)
Total income 164 507 126 435
Operating income 113 743 88 840
Profit on sale of listed securities 284 688
Fair value adjustments of
listed securities (965) 5 184
Profit on sale of
investment properties 4 908 135
117 970 94 847
Less: Depreciation (516) (269)
Interest rate
swaps - marked to market
profit/(loss) 1 668 (6 214)
Interest paid (36 983) (30 165)
Profit from operations 82 139 58 199
Debenture interest (70 705) (44 280)
Profit after debenture interest 11 434 13 919
157 803 149 561
Revaluation of
investment properties 168 979 164 769
Provision against
straight-line rental accrual (11 176) (15 208)
Profit before taxation 169 237 163 480
Income taxation expense (24 559) (18 486)
Net profit for the period 144 678 144 994
Attributable to:
Spearhead Property
Holdings Limited Unitholders 144 032 144 994
Outside shareholders" interest 646 -
Net profit for the period 144 678 144 994
Linked units
in issue (weighted average) 30 984 592 22 093 501
Earnings per linked unit (cents) 695.13 856.70
Headline earnings
per linked unit (cents) 215.30 218.53
Distribution
per linked unit (cents) 13% 226.00 200.00
Abridged consolidated cash flow statement
Year ended Year ended
30 June 2006 30 June 2005
Audited Audited
R000"s R000"s
Cash generated from operations
before working capital changes 95 085 65 138
Working capital changes (62 199) (6 149)
Net finance costs (84 183) (53 302)
Cash flows (to)/from operating activities (51 297) 5 687
Cash flows to investing activities (449 361) (249 557)
Cash flows from financing activities 491 869 243 605
Net decrease in cash and cash equivalents (8 789) (265)
Cash and cash equivalents at beginning of
period 2 738 3 003
Cash and cash equivalents at end of period (6 051) 2 738
Abridged consolidated balance sheet
30 June 2006 30 June 2005
% Audited Audited
Change R000"s R000"s
ASSETS
Non-current assets 1 526 348 939 708
Investment properties 55% 1 287 952 833 521
Property, plant and equipment 200 530 74 208
Lease escalation receivable 42 978 31 685
Provision against lease
escalation receivable (42 978) (31 685)
Loans receivable 29 515 20 977
Tenant installations 2 059 1 833
Deferred tax asset 6 292 9 169
Current assets 236 059 119 663
Trade and other receivables 65 771 21 303
Properties developed for onselling 70 005 55 701
Investment properties held for sale 56 950 -
Tenant installations 1 788 1 692
Short-term portion of loans
receivable 4 768 3 501
Listed securities held for sale 31 014 34 318
Cash and cash equivalents 5 763 3 148
Total assets 1 762 407 1 059 371
Equity and liabilities
Equity and non-current liabilities 1 660 072 977 681
Capital and reserves 540 371 280 257
Debentures 344 379 269 417
Linked unitholders" interest 884 750 549 674
Outside shareholders" interest 646 -
Interest-bearing borrowings 706 888 379 231
Interest rate swap derivative 3 717 8 943
Deferred tax liability 64 071 39 833
Current liabilities 102 335 81 690
Trade and other payables 21 904 30 441
Provisions - 135
Current portion of
interest-bearing borrowings 25 913 24 976
Bank overdraft 11 814 410
Receiver of Revenue 227 72
Unitholders for distribution 42 477 25 656
Total equity and liabilities 1 762 407 1 059 371
Net asset value per
linked unit (rands) 26% 25.18 20.00
Consolidated statement of changes in equity
Year ended Year ended
30 June 2006 30 June 2005
Audited Audited
R000"s R000"s
Capital and reserves
Unitholders" interest as previously stated 297 809 102 029
Prior year adjustment (17 552) (21 130)
Unitholders" interest at beginning of period 280 257 80 899
Net profit for the period 144 678 144 994
Issue of units 92 290 47 972
Outside shareholders" interest (646) -
Transfer from revaluation reserve 6 547 -
Unit issue costs (420) (731)
Units acquired by subsidiary - (2 670)
Revaluation of property, plant and equipment 17 665 9 912
Recoupment of discount on debentures - (119)
Unitholders" interest at end of period 540 371 280 257
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 169 237 (24 559) 144 678
Debenture interest 70 705 - 70 705
239 942 (24 559) 215 383
Basic earnings
per linked unit (cents) 774.39 695.13
Adjusted for:
Revaluation of
investment properties (168 979) 24 502 (144 477)
Profit on disposal of
investment properties (4 908) 712 (4 196)
Headline earnings 66 055 655 66 710
Weighted average
linked units in issue 30 984 592 30 984 592
Headline earnings
per linked unit (cents) 213.18 215.30
Abridged segmental information
Industrial Retail Office Corporate Total
R000"s R000"s R000"s R000"s R000"s
Revenue earned
on contractual
basis 27 398 51 494 57 112 - 136 004
Segmental result 19 254 8 716 50 401 66 307 144 678
Segment revenue and expenses
The primary segments are industrial, retail, 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.
Notes
1. Accounting policies
The financial statements have been prepared in accordance with International
Financial Reporting Standards and the Companies Act of South Africa and are
compiled on the going concern basis. These financial statements are prepared
on the historical cost basis, except where otherwise indicated below. The
principal accounting policies adopted in the preparation of these financial
statements are consistent with those of the prior year unless otherwise
stated.
2. Change in accounting policy and restatement of prior years
The accounting policy with regards to accounting for joint ventures was
changed during the current year from accounting for joint venture on the
equity accounting basis to the proportionate consolidation basis. Prior year
figures have been restated accordingly.
During the prior year the company accounted for leases in terms of IAS 37 for
the first time.
However, the corresponding reduction of the straight-line rental income
accrual, against the fair value adjustment of investment properties, was not
accounted for. Prior year figures have been restated accordingly.
3. Revenue
Revenue earned on contractual basis includes recoveries of expenses.
Audit opinion
These results have been audited by the company"s auditors, PKF (Newlands) Inc.
and their unqualified 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
Date: 29/08/2006 04:00:15 PM Produced by the JSE SENS Department
