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EMI
EMI
EMI - Emira - Unaudited interim financial results: six months ended 31 Dec 2006
Emira Property Fund
(A property fund created under the Emira Property Scheme, registered in terms of
the Collective Investment Schemes Control Act)
ISIN: ZAE000050712
Share code: EMI
("Emira")
Unaudited interim financial results for the six months ended 31 December 2006
Distributions per PI 40,1 cents representing year-on-year growth of +10%
Net asset value per PI 922 cents, a 6-month increase of 6,5%
6-month total return 185,1 cents or 21,8%
Commentary
The Board of directors of Strategic Real Estate Managers (Pty) Limited ("STREM")
is pleased to announce a distribution of 40,10 cents per Emira participatory
interest (PI) for the six months to 31 December 2006. This represents growth in
distributions of 10,0% on the previous comparable period.
Emira PI holders enjoyed a healthy total return of 21,8% during the six months
to 31 December 2006, comprising capital appreciation of 17,1% and an income
return of 4,7%. The percentage of total PIs in issue that traded in the period
equated to 40% on an annualised basis.
The three months from May to July 2006 were exceptionally volatile for the
listed property sector as a result of the unexpected rise in prime interest
rates that became effective in June. Fortunately, confidence has subsequently
returned to the long-term interest rate market and the listed property sector,
with bond yields having recovered to levels below 8%. The rise in short-term
interest rates has done little to dampen the strength of the commercial property
market, with demand for space remaining strong and rentals continuing to show
real growth.
During the period under review, four of the five properties acquired from RMB
Properties and Momentum for R844 million - Wonderpark, WesBank House, Newlands
Terraces and WorldWear - were either transferred or became income producing for
Emira. The remaining new development - RTT Warehouse - is on track for
completion by mid-April. Moreover, the 51,2 million new PIs to be issued to BEE
parties in partial consideration for the abovementioned purchases were listed
during the period, resulting in these BEE parties currently holding 14,25% of
Emira`s issued PIs.
On 18 December 2006 Emira PI holders and Freestone linked unitholders were
advised that STREM had submitted, to the Board of directors of Freestone,
Emira`s firm intention to make an offer to Freestone linked unitholders to
acquire all the issued linked units of Freestone ("the Freestone acquisition").
The Freestone acquisition is progressing according to plan and it is expected
that a circular will be posted to Emira PI holders within the next two weeks,
with a meeting of Emira PI holders likely to take place by approximately mid-
March.
Results
Revenue, excluding straight-line adjustments, grew by 19,1% on the back of
inherent growth in the existing portfolio, the acquisitions made during the
period, as well as the contribution for the full period from acquisitions
concluded in the previous financial year. Like-for-like revenue growth is
estimated at 9,3%, driven by the office portfolio, which benefited from
declining vacancies and rising rentals.
Recoverable and non-recoverable costs were well contained during the six months,
rising at levels in line with the prevailing CPI on a like-for-like basis. This
good operational performance is evidenced by the reducing property expense-to-
revenue ratio (excluding straight-line adjustments) during the period.
The fund`s weighted average interest rate rose slightly during the period as a
result of the rise in prime interest rates, although with in excess of 80% of
the debt fixed for periods from seven months to close to five years, this did
not have a significant impact.
Administration and management fees once again showed the largest variance,
rising by 21% on the comparable period as a result of the higher PI price,
increased PIs in issue and the new acquisitions.
Abridged income statement
Six months Six months Year
ended ended ended
31 Dec 2006 31 Dec 2005 30 June 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Revenue 255 801 217 415 451 950
Property expenses (77 619) (67 395) (137 778)
Administration and (16 345) (13 534) (28 986)
management expenses
Depreciation (4 162) (3 517) (7 532)
Net income from property 157 675 132 969 277 654
rental operations
Fair value adjustments 231 220 (9 195) 661 154
Change in fair value of 239 436 - 682 827
investment properties*
Change in fair value as a (1 742) (1 060) (2 890)
result of deferring
upfront lease costs
Change in fair value as a (6 474) (8 135) (18 783)
result of future
escalations
Profit on sale of - 5 1 459
investment property
Maintenance fund expenses (974) (577) (855)
Discount on BEE units (21 173) - -
issued
IFRS 2 adjustments** (67 526) - -
Listing costs - - (128)
Operating profit 299 222 123 202 939 284
Financing costs (25 378) (22 877) (32 365)
Interest received 2 092 847 1 417
Net profit for the period 275 936 101 172 908 336
Reconciliation between
earnings and headline
earnings:
Net profit for the period 275 936 101 172 908 336
Adjusted for:
Change in fair value of (239 436) - (682 827)
investment properties
Change in fair value as a 1 742 1 060 2 890
result of deferring
upfront lease costs
Change in fair value as a 6 474 8 135 18 783
result of future
escalations
Profit on sale of - (5) (1 459)
investment property
Headline earnings 44 716 110 362 245 723
Headline earnings per 13,93 38,48 85,67
participatory interest
(cents)
Reconciliation of headline
earnings to distribution
per participatory
interest:
Headline earnings 44 716 110 362 245 723
Adjusted for:
Allowance for future (6 474) (8 135) (18 783)
rental escalations
Change in fair value as a (1 742) (1 060) (2 890)
result of deferring
upfront lease costs
Unrealised loss/(gain) on 2 325 2 560 (11 665)
interest rate swaps
Maintenance fund expenses 974 577 855
Discount on BEE 21 173 - -
participatory interests
issued
IFRS 2 adjustments 67 526 - -
Amortised borrowing costs 219 219 437
Distribution payable to 128 717 104 523 213 677
participatory interest
holders
Distribution per 40,10 36,44 74,50
participatory interest
(cents)
* A directors` valuation of the investment property portfolio was carried out
as at 31 December 2006, resulting in a surplus of R239.4 million, brought
to account at that date. As at 31 December 2005, no directors` valuation
was carried out and therefore no surplus/deficit was brought to account.
** IFRS adjustments arose as a result of the properties which were acquired by
an equity-based payment method (participatory interests issued to the
seller in exchange for properties). The amount disclosed is the difference
between the value of the participatory interests at the issue price and the
value of the participatory interests based on the closing price of the
participatory interests on the date of the participatory interest holders`
approval being 22 August 2006
Abridged balance sheet
Six months Six months Year
at 31 December 2006 ended ended ended
31 Dec 2006 31 Dec 2005 30 June 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Assets
Non-current assets
Investment properties 3 910 119 2 332 302 3 025 871
Allowance for future 57 926 40 834 51 452
rental escalations
Unamortised upfront lease 16 678 13 105 14 936
costs
3 984 723 2 386 241 3 092 259
Current assets
Accounts receivable 8 314 75 11 688
Cash 7 012 4 220 652
15 326 4 295 12 340
Total assets 4 000 049 2 390 536 3 104 599
Equity and liabilities
Participatory interest 3 310 591 1 785 255 2 483 265
holders` capital
Non-current liabilities
Interest-bearing debt 495 216 444 273 458 330
Current liabilities
Short-term portion of long- - 1 950 3 224
term interest-bearing debt
Accounts payable 63 109 40 218 50 531
Derivative liabilities 2 416 14 317 92
Provision for 128 717 104 523 109 157
distributions to
participatory interest
holders
194 242 161 008 163 004
Total equity and 4 000 049 2 390 536 3 104 599
liabilities
Statement of changes in equity
Participatory Revaluation Retained
for the six months ended interest reserve earnings Total
31 December 2006
R`000 R`000 R`000 R`000
Balance at 1 July 2006 1 425 094 1 059 077 (906) 2 483 265
Net profit for the period - - 275 936 275 936
Distribution to PI holders - - (128 717) (128 717)
Issue of participatory 680 107 - - 680 107
interest
Net fair value gains on - 231 220 (231 220) -
investment properties
Allowance for future - 6 474 (6 474) -
rental escalations
Deferring of upfront lease - 1 742 (1 742) -
premiums
Discount on BEE - (21 173) 21 173 -
articipatory interests
issued
IFRS 2 adjustments - (67 526) 67 256 -
Unrealised loss on - (2 325) 2 325 -
interest rate swaps
Transfer of maintenance - (974) 974 -
fund expenses to
revaluation reserve
Balance at 31 December 2 105 201 1 206 515 (1 125) 3 310 591
2006
Abridged cash flow statement
Six months Six months Year
ended ended ended
31 Dec 2006 31 Dec 2005 30 June 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Cash generated by rental 168 379 164 357 298 459
operations
Net interest cost (20 742) (19 470) (42 176)
Distribution to (109 157) (100 155) (204 675)
participatory interest
holders
Cash flow from operating 38 480 44 732 51 608
activities
Additions to/purchase of (657 190) (132 985) (173 153)
investment properties
Proceeds on disposal of - 3 006 17 399
investment property
Net cash utilised in (657 190) (129 979) (155 754)
investing activities
Issue of participatory 591 408 - -
interest
Cash raised from 33 662 80 215 95 546
borrowings
Net cash from financing 625 070 80 215 95 546
activities
Net change in cash and 6 360 (5 032) (8 600)
cash equivalents
Cash and cash equivalents 652 9 252 9 252
at beginning of period
Net change in cash and 7 012 4 220 652
cash equivalents
Basis of preparation
The financial statements have been prepared in accordance with International
Financial Reporting Standard ("IFRS") IAS 34 (Interim Financial Reporting) and
in compliance with the Listing Requirements of the JSE Limited. The accounting
policies comply with IFRS.
Segmental information
Retail Office Industrial Corporate Total
Primary segment R`000 R`000 R`000 R`000 R`000
Revenue 96 396 125 485 33 920 - 255 801
Revenue 93 956 122 309 33 062 - 249 327
Allowance for 2 440 3 176 858 - 6 474
future rental
escalations
Segmental result
Net income from 59 845 82 740 22 891 (7 801) 157 675
property rental
operations
Income from 59 215 81 869 22 650 (7 801) 155 933
property operations
Amortisation of 630 871 241 - 1 742
upfront lease costs
Depreciation 729 3 008 425 - 4 162
Other information
Investment 1 653 030 1 828 083 503 610 - 3 984 723
properties
Total assets 1 684 469 1 810 170 505 410 - 4 000 049
Accounts payable 17 617 24 633 5 635 15 224 63 109
Retail Office Industrial Other Total
Geographical R`000 R`000 R`000 R`000 R`000
segments
Revenue
- Gauteng 74 278 96 503 18 970 - 189 751
- Western and 6 491 10 315 5 389 - 22 195
Eastern Cape
- KwaZulu-Natal - 15 491 8 703 - 24 194
- Free State 13 187 - - - 13 187
93 956 122 309 33 062 - 249 327
Allowance for 2 440 3 176 858 - 6 474
future rental
escalations
96 396 125 485 33 920 - 255 801
Total assets
- Gauteng 1 388 597 1 356 801 288 559 - 3 033 957
- Western and 108 531 207 276 104 149 - 419 956
Eastern Cape
- KwaZulu-Natal - 246 093 112 702 - 358 795
- Free State 187 341 - - - 187 341
1 684 469 1 810 170 505 410 - 4 000 049
Related parties and related-party transactions
Momentum Group is the majority participatory interest holder. At 31 December
2006, Momentum owned 37% of the fund`s participatory interests and the remaining
63% were widely held. The following transactions were carried out with related
parties:
Six months Six months Year
ended ended ended
31 Dec 2006 31 Dec 2005 30 June 2006
Unaudited Unaudited Audited
R`000 R`000 R`000
Strategic Real Estate
Managers (Pty) Limited
Expenditure comprising: 8 236 6 867 15 238
asset management fee
Relationship: Associated
company of the FirstRand
Group
Rand Merchant Bank, a
division of
FirstRand Bank Limited
Borrowings 236 125 226 125 226 125
Net finance cost 14 442 11 469 30 359
Relationship: Associated
company of the FirstRand
Group
RMB Properties (Pty)
Limited
Expenditure comprising: 12 370 12 078 23 722
property management fee
and letting commissions
Development
consideration:
Faerie Glen 16 533 - 18 868
Purchase consideration:
Gift Acres - - 10 000
Newlands Terraces 43 750 - -
WorldWear 133 090 - -
Relationship: Associated
company of the FirstRand
Group
Momentum Limited
Property acquisitions
Wonderpark 406 400 - -
WesBank 44 000 - -
Relationship: Associated company of the FirstRand Group
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.
Acquisitions
Four of the five properties acquired from RMB Properties and Momentum are now
income producing for Emira, with RTT expected to be completed by mid-April. One
additional property in a prime location on Umhlanga Ridge with Discovery Health
as the single tenant was acquired for R26,5 million during the period.
Properties transferred to Emira during the six months to December 2006
GLA Purchase
Property Sector Location (m2) price (R`000)
WesBank House Office Cape Town CBD 9 206 44 000
Wonderpark
Shopping Retail Akasia, 58 109 406 400
Centre Pretoria
Forward Effective
Property Sector Location yield (%) date Tenants
WesBank Office Cape Town 10,9 13 Oct Department
House CBD 2006 of Labour,
WesBank
Wonderpark
Shopping Retail Akasia, 9,0 19 Oct Pick `n
Centre Pretoria 2006 Pay, Game,
Virgin
Active
Properties that became income-producing during the six months to December 2006
but are yet to be transferred to Emira
GLA Purchase
Property Sector Location (m2) price (R`000)
Newlands Terraces Office Newlands 4 262 43 750
WorldWear
Shopping Centre Retail Fairlands 13 284 133 090
Forward Effective
Property Sector Location yield (%) date Tenants
Newlands Office Newlands 9,9 1 Sept WPRFU, UCS
Terraces 2006 Software
WorldWear
Shopping Retail Fairlands 10,3 1 Nov 2006 Mr Price
Centre Home, The
Pro Shop
Properties purchased but yet to be transferred to Emira
GLA Purchase
Property Sector Location (m2) price
(R`000)
RTT Industrial Bartlett 44 085 217 117
Warehouse
Discovery Office Umhlanga 2 312 26 500
Health Ridge
Forward Anticipated
Property Sector Location yield (%) date Tenants
RTT Industrial Bartlett 9,7 Mid-April Railit Total
Warehouse 2007 Transportation
(RTT)
Discovery Office Umhlanga 9,1 Mid-March Discovery
Health Ridge 2007 Health
Disposals
After significant delays in the legal process, Mafikeng Game, which was sold in
2004, was eventually transferred to the purchaser as at 20 November 2006.
Properties transferred out of Emira during the six months to December 2006
GLA Valuation at
Property Sector Location (m2) June `04 (Rm)
Mafikeng Game Retail Mafikeng 5 218 20,1
Sale price Forward Effective
Property Sector Location (Rm) yield (%) date
Mafikeng Retail Mafikeng 20,7 16,3 20 Nov 2006
Game
Subsequent to the end of the period in question and subject to the fulfilment of
certain suspensive conditions, Emira has recently agreed to dispose of the
property known as Fourways Game to Fourways Precinct (Pty) Limited for R120
million. The proceeds of this disposal will be reinvested in the RTT Warehouse
development, which is expected to be yield enhancing for the fund.
The process of improving the sustainable income for the portfolio is continuing
through the ongoing disposal of non-core properties.
Vacancies
Vacancies remained at 4,0% during the period.
June `06 Vacancy Dec `06 Vacancy
GLA Jun 2006 % GLA Dec 2006 %
Office 254 156 16 986 6,7 267 590 17 323 6,5
Retail 151 057 3 079 2,0 218 825 3 834 1,8
Industrial 174 286 3 198 1,8 174 286 5 516 3,2
579 499 23 263 4,0 660 702 26 672 4,0
Valuations and net asset value
One third of Emira`s portfolio is valued by independent valuers at the end of
every financial year, while at the interim stage directors` valuations are used.
Total portfolio movement
June 2006 Dec 2006 Difference Difference
(R`000) Rm2 (R`000) Rm2 (%) (R`000)
Office 1 572 429 6 124 1 828 083 6 825 16,3 255 654
Retail 1 050 640 6 952 1 653 030 7 554 57,3 602 390
Industrial 469 190 2 691 503 610 2 888 7,3 34 420
3 092 259 5 311 3 984 723 6 028 28,9 892 464
Adjustment (51 452) (57 926)
to fair
value as
per IAS
17/IAS 40
Unamortised
upfront
lease costs
as
per IAS (14 936) (16 678)
17/IAS 40
As reported 3 025 871 3 910 119
Debt
Emira`s accessed debt facilities (assuming the access facility of R207 million
is fully drawn down) stood at R532 million at December 2006. The purchase of
WorldWear during the period was funded out of the access facility and a further
drawdown of R10 million from existing facilities with FirstRand Bank Limited.
The weighted average cost of debt stood at 10,35%.
Emira has engaged FirstRand Bank Limited to assist the fund in accessing the
debt capital markets, which is expected to reduce the overall cost of funding.
Rate (%) Term Amount % of debt
1. Debt - Prime - 2% N/A 70,6 14,3%
Floating
2. - Floating 3 million N/A 10,0 2,0%
JIBAR +
1,25%
3. Debt - Fixed 9,24% September 100,0 20,2%
2007
4. - Fixed 10,21% November 100,0 20,2%
2008
5. - Fixed 11,26% October 2009 88,5 17,9%
6. - Fixed 10,60% November 126,1 25,5%
2011
TOTAL 10,35%* 495,2 100,0%
*Weighted average cost of debt assuming prime at 12,5% and 3-month JIBAR at
9,35%.
Prospects
The unbudgeted extension of two major leases within the portfolio, as well as
the potential beneficial earnings impact of the disposal of Fourways Game, bode
well for the remaining six months of FY07. This is expected to largely offset
the dilutionary impact of the portfolio acquisition and BEE transaction that was
concluded in the first half of the financial year.
Assuming a stable economic and property market and excluding the positive impact
of the Freestone acquisition, the STREM Board believes that the year-on-year
growth in distributions delivered in the six months to 31 December 2006 could be
replicated for the twelve months to 30 June 2007. This forecast has not been
audited by Emira Property Funds` auditors.
Distribution
Notice is hereby given that a cash distribution of 40,10 cents per PI has been
declared payable to PI holders payable on 12 March 2007.
Last day to trade cum distribution: Friday, 2 March 2006
PI trade ex distribution: Monday, 5 March 2007
Record date: Friday, 9 March 2007
Payment date: Monday, 12 March 2007
By order of the Board
C Middlemiss Ben van der Ross James Templeton
Company Secretary Chairman Chief Executive Officer
Sandton, 14 February 2007
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*, NE Makiwane*, MSB Neser*, WK Schultze, NL Sowazi*
*Non-executive director
Registered address:
3 Gwen Lane, 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: 16/02/2007 12:03:01 Produced by the JSE SENS Department.
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