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FSP
FSP
FSP - Freestone Property Holdings Limited - Reviewed Financial Results
For The Six Months Ended 31 December 2006
Freestone Property Holdings Limited
("Freestone" or "the company")
Incorporated in the Republic of South Africa
(Registration number 2001/011887/06)
Share code: FSP ISIN code: ZAE000060299
REVIEWED FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2006 ("the
interim period")
HIGHLIGHTS
- Interim distribution up 22% to 33,5 cents per unit
- Debt to assets ratio further reduced to 36%
- Total return for six months of 38%
Introduction
The directors of Freestone are pleased to report continued strong
distribution growth, yielding a 38% total return in the interim period and
exceeding the 30% total return from the SA Listed Property Index. The key
components of this continuing success were savings achieved through the
active management of the company`s properties combined with lower borrowing
costs.
Financial results
The board has declared an interim distribution of 33,5 cents per linked unit
for the six months to 31 December 2006 (2005: 27,5 cents per linked unit).
This represents an increase of 21,8% over the previous comparative period.
Emira Property Fund
As previously advised on 18 December 2006, linked unitholders will shortly be
requested to consider a scheme of arrangement which, if approved, will result
in Emira Property Fund acquiring all the Freestone linked units in issue from
linked unitholders ("the Emira offer"). A circular detailing the transaction
is currently being prepared and will be issued to linked unitholders in due
course.
Following the announcement of the Emira offer, Freestone has benefited from a
positive re-rating, indicating a high level of investor support for the
transaction.
Auditor`s review report
The financial statements set out in this report have been reviewed by
Deloitte & Touche. Their unmodified review report is available for inspection
at the company`s registered office.
Valuation of investment properties
As a result of the Emira offer and in order to provide linked unitholders
with more complete information, a full independent valuation was carried out
in respect of the property portfolio at 31 December 2006. This resulted in a
value of R1,8 billion, an increase of R184,9 million since 30 June 2006. This
surplus was brought to account and resulted in an increase in net asset value
to 847 cents per linked unit (excluding the provision for deferred taxation).
Property portfolio
At 31 December 2006, Freestone`s property portfolio comprised 79 properties,
1 104 tenants and a total rentable area of 460 059m2.
The segmental analysis of the portfolio by rentable area is shown below:
KwaZulu- Western Free
m2 Gauteng Natal Cape State
Retail 44 083 91 068 - -
Offices 115 615 2 140 35 424 21 310
Industrial 118 596 12 559 - -
Total 278 294 105 767 35 424 21 310
% 60,5 23,0 7,7 4,6
Eastern
m2 Cape Total %
Retail 19 264 154 415 33,6
Offices - 174 489 37,9
Industrial - 131 155 28,5
Total 19 264 460 059 100,0
% 4,2 100,0 -
Vacancies by rentable area remained stable at 4,1%, totalling 18 958m2.
During the period leases were concluded over 51 860m2, of which 67% related
to new leases and 33% to renewals. The portfolio lease expiry profile for the
next four years and beyond is detailed below:
Lease expiry 30 June 30 June 30 June
m2 Vacant 2007 2008 2009
Retail 5 014 26 404 24 120 29 969
Offices 13 509 25 896 37 285 33 796
Industrial 435 15 790 31 296 28 670
Total 18 958 68 090 92 701 92 435
% 4,1 14,8 20,1 20,1
Lease expiry 30 June 2011 and
m2 2010 beyond Total
Retail 29 066 39 842 154 415
Offices 19 751 44 252 174 489
Industrial 9 952 45 012 131 155
Total 58 769 129 106 460 059
% 12,8 28,1 100,0
Acquisitions
The following properties were acquired and have been transferred to
Freestone:
Description Province Sector GLA
m2
Tin Roof House Mthatha Eastern Cape Retail 1 278
Boxer Super Store Kokstad KwaZulu-Natal Retail 1 837
Purchase Forward
Description price yield
(R`000) %
Tin Roof House Mthatha 8 500 11,2
Boxer Super Store Kokstad 5 560 10,5
14 060
Sales
The following properties were sold and have been transferred by Freestone:
Valuation
Net at
sale 30 June
Description Province Sector price 2006
R`000 R`000
Ligitprops & Syfrets House KwaZulu- Offices 11 11 050
Natal 050
Centex Office Park Gauteng Offices 5 523 5 523
Carlon Falco Gauteng Offices 6 135 6 050
22 22 623
708
Borrowings
Total borrowings at the end of the interim period amounted to R643,7 million.
The company`s gearing ratio further reduced to 36,2% at 31 December 2006 from
40,7% at 30 June 2006.
The interest rate profile of the facilities is shown below:
Weighted
average
Amount interest % of
Fixed/hedged rate expiry date (Rm) rate total
Included under long-term liabilities:
Fixed to June 2013 500,0 9,20 76,9
Unamortised securitisation costs (6,3)
493,7
Included under current liabilities:
Floating 150,0 10,75* 23,1
Total borrowings 643,7 9,65 100,0
*Based on a prime rate of 12,5% p.a.
The floating rate portion above was repaid in January 2007, out of the
proceeds received from the issuing of three-year redeemable preference shares
to the value of R90 million, at a coupon rate of 64% of prime, which equates
to 9,0% at the current prime rate.
Linked units in issue
The total number of linked units in issue was unchanged at 136 207 895.
Directorate
Mr Ron van der Bos resigned from the company with effect from 6 November
2006.
Post balance sheet event
A 424m2 retail property in Oudtshoorn in the Eastern Cape, was sold for R1,4
million, against a valuation of R1,5 million.
Prospects
The property market is supported by strong demand and rental growth is
expected to remain buoyant in the medium term. Consequently, the prospects
for distribution growth in the listed property sector remain positive.
Freestone is expected to benefit from continued net rental growth from its
property portfolio and borrowing costs, which are substantially fixed for the
foreseeable future. This should enable the company to show strong growth in
distributions for the full year ending June 2007.
Debenture interest payment
Unitholders are advised that distribution number 11 for the six months ended
31 December 2006 of 33,5 cents per linked unit has been declared.
Last date to trade cum interest Friday, 2 March 2007
Date units start trading ex-interest Monday, 5 March 2007
Record date Friday, 9 March 2007
Payment date Monday, 12 March 2007
Unitholders may not dematerialise or rematerialise their units between
Monday, 5 March 2007 and Friday, 9 March 2007, both dates inclusive.
By order of the Board
C B Brayshaw M S Aitken
Chairman Director
14 February 2007
CONDENSED INCOME STATEMENT
Six months Six months Year
ended ended Ended
31 December 31 December 30 June
2006 2005 2006
Reviewed Reviewed Audited
(R`000) (R`000) (R`000)
Rental income and operating 135 996 126 972 256 962
expense recoveries
Amortised lease escalations 2 102 3 165 7 981
Operating expenses
- property rental operations
and administration costs
(56 967) (54 177) (106 685)
- asset management fees (4 214) (3 581) (7 739)
Net profit from property rental 76 917 72 379 150 519
operations before interest
received and interest paid
Interest received 1 080 779 1 892
Interest paid (30 265) (32 536) (61 336)
Net profit before debenture 47 732 40 622 91 075
interest, including
amortisation of lease
escalations
Debenture interest distribution (45 630) (37 457) (83 094)
Interim (45 630) (37 457) (37 457)
Final - - (45 637)
Net profit before taxation, non- 2 102 3 165 7 981
trading items and fair
valuation adjustments,
including amortisation of lease
escalations
Non-trading items
Profit on sale of investment 85 55 425
properties
Fair valuation adjustments (118 282) (197 504) 126 919
Unrealised surplus on fair 184 932 - 352 586
valuation of investment
properties *
Amortisation of lease (2 102) (3 165) (7 981)
escalations
Debentures ** (286 037) (192 398) (244 677)
Interest rate swaps ** (15 075) (1 941) 26 991
Net (loss)/profit before (116 095) (194 284) 135 325
taxation
Taxation - deferred (58 540) - (85 089)
Net (loss)/profit for the (174 635) (194 284) 50 236
period attributable to linked
unitholders
* A full independent valuation of the investment property portfolio was
carried out as at 31 December 2006 and the resulting surplus of R184,9
million brought to account at that date. As reported at 31 December 2005, a
directors` valuation was carried out. However the resulting surplus of R93,7
million was not brought to account.
** IAS39 requires that the company`s debentures and interest rate swap be
revalued to their market value at the end of the period, which has resulted
in book losses of R286,0 million and R15,1 million respectively for the
period.
The adjustment, however, has no effect on the company`s cash flow or its
distribution to unitholders.
Reconciliation between net loss
for the period, headline loss and
debenture interest distribution
Net (loss)/profit for the period (174 635) (194 284) 50 236
attributable to linked unitholders
Adjusted for:
Profit on sale of investment (85) (55) (425)
properties
Unrealised surplus on revaluation (184 932) - (352 586)
of investment properties
Amortisation of lease escalations 2 102 3 165 7 981
Debenture interest 45 630 37 457 83 094
Deferred taxation 58 540 - 85 089
Headline loss for the period (253 380) (153 717) (126 611)
attributable to linked unitholders
Adjusted for:
Fair valuation adjustment - 286 037 192 398 244 677
debentures
- interest rate swap 15 075 1 941 (26 991)
Amortisation of lease escalations (2 102) (3 165) (7 981)
Debenture interest distribution 45 630 37 457 83 094
Earnings per linked unit (weighted
number of linked units in issue)
Weighted number of linked units in 136 207 134 832 135 514
issue 895 983 788
Net (loss)/profit for the period (128,21) (144,09) 37,07
attributable to linked unitholders
(cents)
Headline loss for the period (186,02) (114,01) (93,43)
attributable to linked unitholders
(cents)
Number of linked units in issue 136 207 136 207 136 207
895 895 895
Distribution per linked unit
(cents)
Number 9 - 20 March 2006 27,50 27,50
Number 10 - 11 September 2006 33,50
Number 11 - 12 March 2007 33,50
CONDENSED BALANCE SHEET
31 December 31 30 June
December
2006 2005 2006
Reviewed Reviewed Audited
(R`000) (R`000) (R`000)
Assets
Investment properties - non- 1 770 811 1 261 297 1 594 161
current
- held-for-sale 24 500 - 22 623
Fair value of interest rate swaps 4 020 - 19 095
Deferred taxation - - 2 054
Current assets 92 760 62 896 560 921
Total assets 1 892 091 1 324 193 2 198 854
Unitholders` funds and
liabilities
Share capital reserve 38 659 37 088 38 659
Fair value reserve (212 839) (275 350) (36 016)
Accumulated loss (100) (7 474) (2 288)
Debentures 1 185 009 848 264 898 972
Total unitholders` funds 1 010 729 602 528 899 327
Interest-bearing liabilities 643 663 630 380 1 112 075
Long-term 493 652 218 511 493 835
Short-term 150 011 411 869 618 240
Fair value of interest rate swaps - 9 837 -
Deferred taxation 143 629 - 87 143
Current liabilities 48 440 43 991 54 672
Unitholders for interest 45 630 37 457 45 637
distribution
Total unitholders` funds and 1 892 091 1 324 193 2 198 854
liabilities
The split of debentures between
debt and equity portions does not
represent the legal substance of
the debentures, but has been done
in order to comply with IFRS.
Net asset value including 742,05 442,36 660,26
debentures, per linked unit
(cents)
Net asset value including 847,50 442,36 722,73
debentures, per linked unit
(cents) assuming no deferred
taxation liability
CONDENSED CASH FLOW STATEMENT
Cash flow from -operating 8 348 (4 726) (10 515)
activities
- investing activities 6 405 (442) (2 973)
- financing activities (468 412) 433 491 167
(Decrease)/increase in cash and (453 659) (4 735) 477 679
cash equivalents
Cash and cash equivalents at the 526 965 49 286 49 286
beginning of the period
Cash and cash equivalents at the 73 306 44 551 526 965
end of the period
Related parties and related party transactions
Freestone`s major unitholder is Momentum Group Limited, a company in the
First Rand Group. At 31 December 2006 Momentum owned 37% of the 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 30 June
December
2006 2005 2006
(R000) (R000) (R000)
Freestone Management Company (Pty)
Limited
Expenditure comprising asset 4 214 3 581 7 739
management fees
Relationship: Appointed fund
manager with effect from 1
November 2004.
Associated company of Corovest
Property Group Limited and RMB
Properties (Pty) Limited.
FirstRand Bank Limited group
Fee - - 4 500
Interest paid 20 733 12 665 23 141
Borrowings - 259 511 808 391
Relationship: Associated company
of FirstRand Limited group.
RMB Properties (Pty) Limited
Expenditure comprising property 3 665 3 666 4 839
management and letting fees
Relationship: Associated company
of FirstRand group; Joint
shareholder of management company
with effect from 1 November 2004.
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.
STATEMENT OF CHANGES IN EQUITY AND UNITHOLDERS` FUNDS
Share
capital Fair value Accumulated
(R`000) reserve reserve loss
GROUP
Balance at 30 June 2005 36 897 (77 846) 2 203
Issue of share capital and 191 - -
debentures
Adjustment in respect of - - (12 897)
change in trust deed
Net loss for the period - - (194 284)
Adjustment in respect of - (3 165) 3 165
amortised lease escalations
Transfer to fair value reserve - (194 339) 194 339
(net of taxation)
Balance at 31 December 2005 37 088 (275 350) (7 474)
Issue of share capital and 1 571 - -
debentures
Adjustment in respect of - - -
change in trust deed
Net profit for the period - - 244 520
Adjustment in respect of - (4 816) 4 816
amortised lease escalations
Transfer to fair value reserve - 244 150 (244 150)
(net of taxation)
Balance at 30 June 2006 38 659 (36 016) (2 288)
Net loss for the period - - (174 635)
Adjustment in respect of - (2 102) 2 102
amortised lease escalations
Transfer to fair value reserve - (174 721) 174 721
(net of taxation)
Balance at 31 December 2006 38 659 (212 839) (100)
Total Unitholders`
(R`000) equity Debentures funds
GROUP
Balance at 30 June 2005 (38 746) 625 536 586 790
Issue of share capital and 191 17 433 17 624
debentures
Adjustment in respect of (12 897) 12 897 -
change in trust deed
Net loss for the period (194 284) - (194 284)
Adjustment in respect of - - -
amortised lease escalations
Transfer to fair value reserve - 192 398 192 398
(net of taxation)
Balance at 31 December 2005 (245 736) 848 264 602 528
Issue of share capital and 1 571 (1 571) -
debentures
Adjustment in respect of - (25 794) (25 794)
change in trust deed
Net profit for the period 244 520 - 244 520
Adjustment in respect of - - -
amortised lease escalations
Transfer to fair value reserve - 78 073 78 073
(net of taxation)
Balance at 30 June 2006 355 898 972 899 327
Net loss for the period (174 635) - (174 635)
Adjustment in respect of - - -
amortised lease escalations
Transfer to fair value reserve - 286 037 286 037
(net of taxation)
Balance at 31 December 2006 (174 280) 1 185 009 1 010 729
SEGMENTAL INFORMATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2006
(R`000) Gauteng KwaZulu-Nata Western
l Cape
Revenue 77 961 33 657 13 155
Amortised lease escalations 2 908 (768) (255)
Operating expenses (37 027) (14 621) (5 307)
Net profit from property 43 842 18 268 7 593
rental operations before
finance costs
Investment properties at fair 1 051 180 382 051 220 900
value
(R`000) Eastern Cape Free State Total
Revenue 4 446 6 777 135 996
Amortised lease escalations 227 (10) 2 102
Operating expenses (1 408) (2 818) (61 181)
Net profit from property 3 265 3 949 76 917
rental operations before
finance costs
Investment properties at fair 57 680 83 500 1 795 311
value
SEGMENTAL INFORMATION FOR THE SIX MONTHS ENDED 31 DECEMBER 2005
(R`000) Gauteng KwaZulu-Nat Western
al Cape
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 37 947 18 979 8 338
operations before finance costs
Investment properties at fair 692 087 299 169 170 414
value
(R`000) Eastern Cape Free State Total
Revenue 3 799 6 432 126 972
Amortised lease escalations 35 281 3 165
Operating expenses (948) (2 484) (57 758)
Net profit from property rental 2 886 4 229 72 379
operations before finance costs
Investment properties at fair 38 527 61 100 1 261 297
value
NOTES
The interim financial statements are prepared in accordance with IAS34:
Interim Financial Reporting and the Companies Act, 1973 (as amended). The
accounting policies used in the preparation of these results are consistent
with those used in the annual financial statements for the year ended 30 June
2006.
Directors
C B Brayshaw (Chairman)*^, M S Aitken,
B H Kent*^, P G Kotze*^, W K Schultze,
P J Thurling
* non-executive ^ independent
Freestone Property Holdings Limited
Freestone Park, 135 Patricia Road, Sandton, 2196
Sponsor: Java Capital (Pty) Ltd
Date: 14/02/2007 11:55:11 Produced by the JSE SENS Department.
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