16th Feb 2009 07:00
SOUTH AFRICAN PROPERTY OPPORTUNITIES PLC
('SAPRO' or the 'Group')
Interim results for the six months ended 31 December 2008
South African Property Opportunities plc (AIM: SAPO), an investment company established to invest in real estate opportunities in South Africa, announces its unaudited interim results for the six months ended 31 December 2008.
Financial highlights (as at 31 December 2008):
- Adjusted Net Asset Value of £79.0 million (126.9 pence per ordinary share)1, up 15.8% since 30 June 2008 (£68.2 million (109.5 pence per ordinary share))1
- IFRS Net Asset Value of £63.4 million (101.8 pence per ordinary share), up 8.6% since 30 June 2008 (£58.4 million (93.8 pence per ordinary share))2
- Excellent progress in underlying portfolio, with up to £72.9 million committed to 15 projects
- Strong balance sheet and minimal gearing
Valuations update
- Strong underlying portfolio performance, due to site selection and progress on planning permission
- CB Richard Ellis valuation attributes a R217.3 million uplift (38.0%) on SAPRO's share of the portfolio's base cost and post acquisition capex, of which R63.6 million is attributable to the period since 30 June 2008
Average project length approximately 13.53 months
Currency
- Strong recovery in the period of the Rand against Sterling, ending at 13.7 against 15.9 at 30 June 2008, added £7.9 million (12.7 pence per ordinary share) to the balance sheet during the period
- The Company took advantage of extreme weakness in the Rand in October and realised a one-off currency gain of approximately £1.4 million
Operational highlights:
- SAPRO is now one of the largest developers by size in the Johannesburg region
Fully invested with up to £72.9 million committed to 15 projects ahead of schedule
Portfolio spread across commercial (44%), residential (26%), industrial (20%) and retail (10%) sectors
Strategy:
- Strategic Review announced on 2 February 2009, which the independent non-executive directors hope to conclude in the near future
- Actively manage existing development portfolio, with the aim of providing capital returns
- Focus on unlocking value in existing projects
Planning rights achieved on 7 out of 15 projects4
Looking at opportunities to realise value from sites pre-development to lock in valuation uplifts
- Richard Currie and Keith Wolstenholme, Chief Investment Officer and Chief Operating Officer respectively of the Johannesburg office of the Proteus Property group awarded significant stake in the Proteus Property group
Outlook:
- Economic slowdown expected in South Africa, potentially offset by falling inflation and lower interest rates
- South African banks relatively unaffected by the global banking crisis
- Continued strong growth in affordable house prices experienced in third quarter of 2008
- Government's £54 billion infrastructure spend programme planned for the next three years (currently the third largest in the world after China and the US) expected to add support to real estate sector.
Commenting on the results, Quentin Spicer, Chairman, stated:
"I am pleased to report extremely strong growth in the value of the property portfolio over its original capital cost and expenditure to date. This growth continues to outstrip returns in the local and global property sectors and highlights the quality of SAPRO's investment management team. Progress has been good on the projects, with planning being granted on seven of the 15 projects to date. Given the consequent increases in value, we are continuously assessing whether to realise value pre-development on our sites.
The Group has a strong balance sheet, with minimal gearing at present. This, combined with the shortage of real estate development over the last thirty years and the significant government infrastructure spend means that the Group is well placed despite a weaker global economy.
I am also delighted that Richard Currie and Keith Wolstenholme have been given a significant stake in the Proteus Property group, which incentivises them strongly to continue their sterling efforts on the ground in South Africa."
SAPRO Richard Tice, Director +44 7785 900 300
Matrix Corporate Capital Paul Fincham +44 20 3206 7175
Bell Pottinger Dan de Belder +44 20 7861 3232
A copy of the results announcement will be available on the Company's website at www.sapro.com
Notes:
1 IFRS Net Asset Value adjusted for the increases in valuation attributed by CB Richard Ellis, in accordance with guidelines produced by the European Public Real Estate Association (EPRA)
2 Excludes the open market CB Richard Ellis revaluations. The disclosed NAV is lower than the one set out in SAPRO's market announcement of 5 February 2009, as the auditors require that an accrual is made for the potential performance fee payable to the Investment Manager, on the basis that as at 31 December 2008, the performance fee test, applied on a straight line basis, would have been passed. However, no amount is payable under the investment management agreement unless the test is passed at 30 June 2009, being the first date for the application of the performance fee test under that agreement. In the event the test is not passed, the accrual will be reversed. Further details of the calculation is set out in note 3 to the accounts.
3 Average project length from land transfer to 31 December 2008 4 Planning rights have been achieved on the north eastern corner of the Longmeadow site, where the hotel will be located. The balance of the site is still subject to a planning application.
Note to Editors:
- South African Property Opportunities plc (SAPRO) is a company investing in the South African property market. Its shares were admitted to AIM in October 2006 raising an initial £30 million (before placing expenses). In May 2007 a further £34.2 million (before placing expenses) was raised from new and existing investors.
- SAPRO was established to invest in the South African property market with a view to generating attractive returns, principally through capital growth. It is targeting opportunities arising from the increasing wealth that has been generated from greater urbanisation and economic growth in South Africa coupled with the rapid emergence of a cross cultural middle class. SAPRO is currently focused on investments in brownfield and greenfield development opportunities.
- The Investment Manager is Proteus Property Partners Limited and the Investment Adviser is Proteus Property Advisors (Pty) Limited. The Investment Manager and Investment Adviser are responsible for identifying new investment opportunities.
Chairman's Statement
Introduction
I am pleased to report South African Property Opportunities plc's ("SAPRO's" or "the Company's") unaudited interim results for the six months ended 31 December 2008, which show outstanding progress in the development portfolio.
The focus of the Group (SAPRO and its subsidiaries) has been on advancing existing projects. The Group has committed up to £72.9 million in 15 projects, which, if completed, would have aggregate expected development costs of £813.8 million. This commits the Group fully and was achieved ahead of the Board's expected timeframe. The key highlight since inception has been the significant uplift in value of the Group's committed projects with higher net asset values for the Group than at 30 June 2008. Given the significant falls in property values worldwide, I believe this to be a creditable performance.
SAPRO is now one of the largest development companies in the Johannesburg region of South Africa and it is creating a respected franchise, which has enabled it to join forces with strong development partners. The Group has a healthy balance sheet and minimal gearing which places it in a good position.
Investments and Valuations
The portfolio is currently split as to commercial (44%), residential (26%), industrial (20%) and retail (10%) based on bulk square metres to be developed. CB Richard Ellis conducted an open market valuation of the portfolio as at 31 December 2008, which values SAPRO's share of the portfolio at R790.5 million (£57.5 million). This represents an uplift of R217.3 million (38.0%) over the R573.2 million base costs and post acquisition capitalised expenditure of the portfolio. Of this aggregate R217.3 million uplift, R63.6 million is attributable to the six months ended 31 December 2008. This is a worthy performance especially in view of the average holding period for each project from receipt of land transfer to 31 December 2008 being only 13.5 months.
The most significant uplifts in Rand terms have been achieved on Longmeadow (R68.6m, 109%), African Renaissance (R40m, 105%), Gosforth Business Estate (R34.9m, 40%) and Imbonini Services Park (Phase 2) (R24.8m, 84%), with other smaller investments such as Clayville (95%) and Waltloo (75%) also showing impressive percentage uplifts. These valuations highlight the value created by good site selection followed by the obtaining of planning permissions and installation of basic services at certain projects. As at 31 December 2008, the Group had been granted planning rights over seven projects (including planning over part of the Longmeadow Development).
Financial Results
At the end of the six months under review, the net asset value of the Group calculated in accordance with International Financial Reporting Standards (IFRS) stood at £63.4 million, or 101.8 pence per ordinary share at the period end, up 8.6% from £58.4 million (93.8 pence per ordinary share) at 30 June 2008.
However, IFRS does not permit the recognition of increases in land values of certain types of property that are held for development and accordingly the properties are carried in the Group's balance sheet at their cost in the IFRS net asset value calculation (NAV).
The Board, in line with its normal practice, is also publishing an adjusted NAV which incorporates open market property valuations in accordance with guidelines produced by the European Public Real Estate Association (EPRA). The EPRA NAV at the period end was £79.0 million (126.9 pence per ordinary share), up 15.8% from £68.2 million (109.5 pence per ordinary share) as at 30 June 2008 and the EPRA Triple Net NAV (which includes a simple assumption with respect to taxation) was £74.7 million (119.9 pence per ordinary share), up 14.0% from £65.5 million (105.1 pence per ordinary share) as at 30 June 2008.
The disclosed NAVs are lower than those set out in SAPRO's market announcement of 5 February 2009, as the auditors require that an accrual is made for the potential performance fee payable to the Investment Manager, on the basis that as at 31 December 2008, the performance fee test, applied on a straight line basis, would have been passed. However, no amount is payable under the investment management agreement unless the test is passed at 30 June 2009, being the first date for the application of the performance fee test under that agreement. In the event the test is not passed, the accrual will be reversed. Further details of the calculation is set out in note 3 to the accounts.
At the period end, the Group held £15.5 million in cash and cash equivalents, approximately 80% of which was held in Sterling. In our report for the year ended 30 June 2008, we commented that approximately 90% of the Company's uninvested cash at that point had recently been converted into Rand, taking advantage of the weakness in the currency that was observed in the midst of the global financial crisis. I am pleased to report that shortly afterwards there was a strong recovery in the Rand and the Company converted three quarters of the position back into Sterling, realising a currency gain of approximately £1.4 million.
To finance the development portfolio, a total of R737.7 million has been purchased from inception at an average Rand/GBP exchange rate of 14.8431, equating to £49.7 million. Deposit interest earned averaged approximately 3.9% per annum on Sterling balances and 11.1% per annum on Rand balances, generating £0.9 million of finance income in the six month period. After management, administration fees, other expenses and revising the Rand up from the 30 June 2008 rate, the profit after tax for the six months was £2.3 million.
At the period end, the Gosforth Business Estate and Kindlewood developments had senior debt facilities in place of R63.6 million (£4.6 million) and R62.0 million (£4.5 million) respectively but of these amounts only R22.4 million (£1.6 million) had been drawn down. In addition, the Imbonini Services Park (Phase 1) development had borrowings of R28.6 million (£2.1 million), but the Group's 50% share of this is equity accounted. The Group will continue to gear up on its other projects as necessary once required planning permissions are obtained. However, it is conscious of the current global economic environment and will always review its strategy and potential debt exposure across the portfolio before undertaking gearing, including assessing the right levels of pre-sales before undertaking major development works. In line with its current dividend policy, the Board is not proposing a dividend. However, payment of dividends will be covered in the Strategic Review I refer to below.
Executive Management
We are pleased to announce that the Proteus Property group and its shareholders, Principle Capital and Masazane Capital, have agreed to grant the interests of Richard Currie and Keith Wolstenholme a significant equity interest in the Proteus Property group in recognition of their contribution.
Outlook and Strategic Review
The report of the Investment Manager goes into greater detail on the macro economic environment in South Africa. Given the financial crises affecting the global economy, it is encouraging to see continued and strong uplifts in value in the investment portfolio, a significant achievement for any property company in the past year. The South African banking system remains strong and whilst there will undoubtedly be a slowdown in the South African economy, as inflation falls it has significant scope to cut its very high interest rates which fell by 50 basis points in December 2008 and a further 100 basis points in February 2009. In addition, the government's £54 billion infrastructure programme planned for the next three years (currently the third largest in the world after China and the US) and continued development of the emerging middle class in South Africa leaves the original investment thesis firmly intact. 2009 will be an interesting year in South Africa. The elections due in April will undoubtedly bring change, although the leading candidates have all continued to embrace the current government's economic policies. And towards the end of the year, the focus of the world will start turning to South Africa and the FIFA World Cup in 2010.
During the period under review, turmoil in global economies and stock markets has led to a complete re-rating of equities. Property based stocks have been marked down very substantially and the Company has inevitably been affected by the wider malaise. The Board has noted with great concern the increasingly wide discount to net asset value at which the Company's shares have traded. Accordingly, on 2 February, 2009, the Board announced a strategic review. An initial round of discussions with shareholders has provided constructive feedback and a broad consensus has emerged on a number of issues which we are looking to address. We hope to conclude the review in the near future and will report back to shareholders shortly thereafter.
Quentin Spicer
Chairman
13 February 2009
Report of the Investment Manager
SAPRO's investment policy remains the achievement of primarily capital growth from an opportunistic portfolio of real estate assets across the commercial, industrial and residential sectors in South Africa. The Group's strategy is to take sizeable real estate development positions that will benefit from active management and from the drivers behind South Africa's continued economic growth.
Portfolio overview
No further property acquisitions or disposals have been concluded since the 30 June 2008 results were announced. The Group's focus has been on developing its current investments and progressing its planning applications. At 31 December 2008, the Group had committed up to £72.9 million in 15 projects, which would have, if completed, aggregate expected development costs of £813.8 million. Of this £72.9 million, £47.3 million has been committed to acquiring the Group's share of physical properties in the portfolio with the balance of £25.6 million invested or to be invested by way of mezzanine finance. The current portfolio is spread across commercial (44%), residential (26%), industrial (20%) and retail (10%) developments. We believe that this provides the Group with diversification benefits across the various real estate asset classes, and we have focused the investments on the areas of the market where we see appropriate levels of demand arising in line with the development timetable. The group always takes a cautious approach to commencing development activities and, given the significant uplifts in value in certain of the projects, we are also actively reviewing opportunities to realise profits earlier than originally planned by selling off selected assets pre-development.
The bulk of the investments have been made in Gauteng, South Africa's main economic and political centre, with four developments in KwaZulu Natal. The following table sets out the constituents of the current portfolio:
|
Project Name and Sector |
SAPRO Interest |
SAPRO Expected Investment Commitment |
Total Project Expected Development Cost |
Projected Exit Year |
|
(£ million) |
(£ million) |
(June Y/E) |
||
|
Residential |
||||
|
African Renaissance |
65% |
6.3 |
251.3 |
2019 |
|
Driefontein Residential |
92.5% |
2.1 |
36.5 |
2016 |
|
Kindlewood Nature Estate |
89% |
3.1 |
13.2 |
2011 |
|
Kyalami Residential Estate |
55% |
2.0 |
23.9 |
2014 |
|
Mixed Use |
||||
|
Brakpan |
50% |
2.1 |
23.0 |
2019 |
|
Emberton |
80% |
4.8 |
35.5 |
2013 |
|
Lenasia |
100% |
4.7 |
48.0 |
2018 |
|
Longmeadow |
49% |
5.9 |
211.4 |
2020 |
|
Sandton |
79% |
27.4 |
81.3 |
2013 |
|
Industrial |
||||
|
Clayville Industrial Park |
100% |
0.5 |
8.6 |
2013 |
|
Gosforth Business Estate |
75% |
6.1 |
46.5 |
2017 |
|
Hughes Industrial Park |
30% |
0.7 |
5.6 |
2011 |
|
Imbonini Services Park (Phase 1) |
50% |
1.5 |
3.3 |
2011 |
|
Acacia Park * |
50% |
0.2 |
2.9 |
2010 |
|
Imbonini Services Park (Phase 2) |
50% |
4.9 |
14.9 |
2013 |
|
Waltloo Industrial Park |
50% |
0.6 |
7.9 |
2012 |
|
Total |
72.9 |
813.8 |
||
|
£1 =ZAR13.70445 (31 December 2008 rate) |
||||
|
* Acacia Park is a mini unit industrial park that has been developed on the Imbonini Park (Phase 1) land. |
||||
Of the above list of 15 projects, title had transferred in all cases at the period end, and all are reflected within the Group's balance sheet.
We are pleased to report the encouraging results of the valuation of the portfolio as performed by the Group's independent valuers, CB Richard Ellis. The following table covers the entire portfolio as at 31 December 2008 and demonstrates an overall 38% increase over cost, as follows:
|
Project Name |
SAPRO Interest |
SAPRO Share of Land Cost (R million) |
SAPRO Share of Land Value (R million) |
SAPRO Share of Uplift (R million) |
SAPRO Share of Uplift over Cost |
|
Residential |
|||||
|
African Renaissance |
65% |
38.0 |
78.0 |
40.0 |
105% |
|
Driefontein Residential |
92.5% |
18.7 |
26.3 |
7.6 |
41% |
|
Kindlewood Nature Estate |
89% |
48.7 |
50.0 |
1.3 |
3% |
|
Kyalami Residential Estate |
55% |
15.6 |
15.5 |
(0.1) |
(1)% |
|
Mixed Use |
|||||
|
Brakpan |
50% |
15.1 |
15.5 |
0.4 |
3% |
|
Emberton |
80% |
42.3 |
41.6 |
(0.7) |
(2)% |
|
Lenasia |
100% |
60.6 |
64.8 |
4.2 |
7% |
|
Longmeadow |
49% |
63.0 |
131.6 |
68.6 |
109% |
|
Sandton |
79% |
89.6 |
102.7 |
13.1 |
15% |
|
Industrial |
|||||
|
Clayville Industrial Park |
100% |
10.0 |
19.5 |
9.5 |
95% |
|
Gosforth Business Estate |
75% |
86.6 |
121.5 |
34.9 |
40% |
|
Hughes Industrial Park |
30% |
10.4 |
11.3 |
0.9 |
9% |
|
Imbonini Services Park (Phase 1) |
50% |
13.5 |
19.1 |
5.6 |
41% |
|
Acacia Park * |
50% |
23.9 |
25.3 |
1.4 |
6% |
|
Imbonini Services Park (Phase 2) |
50% |
29.5 |
54.3 |
24.8 |
84% |
|
Waltloo Industrial Park |
50% |
7.7 |
13.5 |
5.8 |
75% |
|
Total |
573.2 |
790.5 |
217.3 |
38% |
|
|
£1 = R13.70445 (31 December 2008 rate) |
|||||
|
* Acacia Park is a mini unit industrial park that has been developed on the Imbonini Park (Phase 1) land. |
|||||
It is important to note that International Financial Reporting Standards do not permit the recognition of increases in land values on property that is held for development and sale and that therefore the 15 projects are held in the Group's balance sheet at their book cost including any post acquisition expenditure that has been capitalised.
However, we have set out below the adjusted net asset value of the Group in accordance with the Best Practice Policy Recommendations of the European Public Real Estate Association (EPRA). We also include comparatives as at 30 June 2008. This valuation is not intended to replace the IFRS net asset value stated in the Group's balance sheet, but instead to provide complementary information to assist shareholders in better understanding the Group's performance.
|
Net Asset Value (NAV) Summary |
31 December 2008 (unaudited) |
30 June 2008 (audited) |
Change |
|
IFRS NAV (£ million) * |
63.4 |
58.4 |
+8.6% |
|
IFRS NAV (pence per ordinary share) |
101.8 |
93.8 |
+8.6% |
|
Fair value adjustment (£ million) |
15.6 |
9.8 |
+59.2% |
|
EPRA NAV (£ million) |
79.0 |
68.2 |
+15.8% |
|
EPRA NAV (pence per ordinary share) |
126.9 |
109.5 |
+15.8% |
|
Deferred tax adjustment (£ million) ** |
4.4 |
2.7 |
+59.2% |
|
EPRA Triple Net NAV (£ million) |
74.7 |
65.5 |
+14.0% |
|
Triple Net NAV (pence per ordinary share) |
119.9 |
105.1 |
+14.0% |
|
Shares in issue: 62,292,810 |
|||
|
* differs from announcement 05/02/09 due to accrual for potential performance fee (see note 3) |
|||
|
** Assumed corporation tax rate of 28% |
|||
Further information on all 15 projects in the portfolio is set out below.
Residential
a) African Renaissance Development. This development comprises a 146.6 hectare residential development, with a retail component, in a rapidly growing area east of Pretoria. Upon completion, the site, of which the majority is undeveloped vacant land, is expected to yield an estimated 252,920 sqm of bulk. The development is a joint venture with three individuals, one of whom is a local real estate project manager, one a building contractor and the other a quantity surveyor, who secured the opportunity and conceptualised the development plan over the last two years. SAPRO has a 65% interest in the development vehicle. The professional team continues to add value to the site and plan for the launch of the development. Targeted investor launches will be undertaken in the first quarter of 2009 to ascertain current demand for the development's residential product. Discussions with a potential purchaser for the retail component of the site are ongoing, although in the current challenging retail climate are unlikely to bear positive results in the next quarter. CBRE have attributed a R40m (105%) uplift on this development as a result of the receipt of full planning rights on all components of the development, which was a major milestone achieved in the second half of 2008.
b) Driefontein Residential Development. This development comprises a 13.2 hectare site, 4 miles south of Johannesburg's main international airport. The project is a joint venture in which the Group will hold a 92.5% stake and a local property developer will hold the remaining 7.5%. The Group intends to develop a high density residential estate targeting the region's fast growing middle income market. It was initially envisaged that the development company would develop 500 residential units, but the local authorities have now approved in principle a higher density of 850 units. The development company has obtained the provision of the electrical power required for the development, and final conditions of establishment have been issued by the local authorities. Unfortunately, the development company has not yet been able to obtain the required environmental approvals necessary to proceed with the development at this stage. It is anticipated that this may result in a delay of up to 18 months before the necessary approvals are received. While this is a set back for this particular project, the Group still hopes to achieve its hurdle rate of return from this development once the approvals have been obtained due to the increased building density supported by the local authorities.
c) Kindlewood Nature Estate. This development comprises two adjoining pieces of land with a combined area of 5.3 hectares in the Kindlewood Estate, Umhlanga, north of Durban, KwaZulu Natal. The proclaimed and serviced site is situated adjacent to the prestigious Mount Edgecombe Golf Estate, and will be developed into a residential conservation estate featuring natural wetlands aimed at the upper end of the market. The development is a joint venture with an experienced local residential developer with the Group initially holding a 65% stake. The Group has subsequently increased its equity to 89% which is expected to enhance its projected returns. Construction of the first phase of the development (41 residential homes) commenced in August 2008 and is progressing well. Completion is expected in the second half of 2009. The Group has injected a mezzanine loan of ZAR20 million into the development in order to access the senior debt facility of ZAR85 million (sufficient to complete the first phase of the development). Although 13 presales have been achieved sales are currently slow. However, it is anticipated that, should interest rates fall in 2009, this will provide impetus to further sales and the successful completion of the first phase of the development.
d) Kyalami Residential Estate. This development comprises an 8.9 hectare site in Kyalami, north of Johannesburg, Gauteng. The site, which is currently undeveloped land, is located within a growing node close to the well known Kyalami Racetrack, and it is intended that it will be developed into a residential complex aimed at middle market buyers. The development is a joint venture that includes an experienced local residential property developer. The Group will hold 55% of the equity following the result of a successful planning application. The site is currently zoned as an agricultural holding, but the joint venture has received preliminary township approval and draft conditions of establishment, and will now proceed with the steps necessary to proclaim the township. The development company anticipates beginning construction in 2011 and completing the project within two years.
Mixed Use
a) Brakpan. The development comprises 6.65 hectares of currently undeveloped vacant land opposite a newly developed regional shopping mall, and is close to a major commuting route into Johannesburg from the east, providing excellent access. It is expected to yield an estimated 25,500 sqm of net lettable area (NLA) after rights have been granted. The Group has a 50% interest in the development vehicle, and is partnering with a local property developer. Architects have compiled a draft site development plan, and engineers are currently busy with the internal services design. The planning process has commenced and planning approval is anticipated in the third quarter of 2009.
b) Emberton Development. This development comprises a 16.5 hectare prominent mixed use site in Hillcrest, approximately 15 km west of Durban. The site, an existing golf driving range, is currently zoned for agricultural use. It is situated directly adjacent to the main M13 highway and commuter route into Durban from the west, providing excellent visibility and exposure. The Group has agreed in principle that an experienced local contractor will acquire a minority stake in the development. The development will comprise an upmarket mixed-use secure estate, with commercial and retail components. The township planning process has commenced, and it is expected that planning rights will be received by early 2010. Thereafter the development company expects to commence construction in 2010, depending on the successful launch of the first phase of the project
c) Lenasia Development. This development comprises a 12.95 hectare prominent mixed use site (commercial and retail) in Lenasia, Johannesburg. The site, the majority of which is undeveloped vacant land, together with a commercial structure on part of it, should yield an estimated 51,600 sqm of NLA after rights have been granted. It is situated immediately south of Soweto (which is south west of Johannesburg). The site is opposite a newly developed regional shopping mall, and is directly alongside a major commuting route into Johannesburg from Lenasia, providing excellent visibility. The development company is currently applying for rights to build a mixed use retail and commercial development, and the town planning process is well underway. Architects have compiled a draft site development plan, and engineers are currently busy with the internal services design. Agreement has been reached in principle with a strategic partner to purchase a minority interest in the development, and preliminary marketing with possible anchor tenants has commenced. It is expected that building will commence in 2010 and that the build-out period will be three years
d) Longmeadow Development. This development is a significant strategic investment which comprises a 15.6 hectare, highly prominent, mixed use site (commercial, residential and retail) in Fourways, Johannesburg. The site, the majority of which is undeveloped vacant land, together with a number of small commercial structures, should yield an estimated 132,000 sqm of NLA after rights have been granted. It is situated approximately 5 miles to the north of Johannesburg's Sandton Central Business District in the Fourways node. The development is a joint venture with three partners comprising a Johannesburg listed property company, a local contractor (both of whom the Group has joint ventured with in previous transactions) and a trust representing the vendor of the land (which will remain as a 27.5% shareholder in the joint venture). The Group has a 49.2% interest in the development vehicle. The joint venture partners are currently applying for rights to build high density residential apartments, commercial office space, hotels, and a niche retail component on the site. Good progress has been made with developing the first phase of the site, where planning rights were received at the end of October 2008. A conditional long term ground lease was also signed with a major hotel operator for 9,040 sqm of land on the north eastern corner of the development where the planning rights have been received. In addition, a commercial development of approximately 5,400 sqm of NLA is at an advanced planning stage. Bulk earthworks on the first phase of the development were completed in December 2008. The planning application on the balance of the site is progressing well. We are pleased to report a R68.6 million (109.0%) uplift on this development. This is a result of having received planning rights on a portion of the property and very strong growth in values evidenced by sales of comparable property in the Fourways area. The Fourways area is one of the fastest economic growth nodes in Gauteng over the past decade. This performance highlights the importance of site selection and the value uplift to be gained from obtaining planning rights.
e) Sandton. This development is a significant strategic investment situated on a main arterial road in the heart of the Sandton Central Business District. It comprises a 0.777 hectare residential estate on which planning permission is being sought for a 14 storey building comprising up to 12,500 sqm of hotel space and a sectional title office development of up to 37,500 sqm. The development is 79% owned by the Group, with the balance held equally by Group 5 and Barrow Construction, two well known property developers / contractors. All 20 of the existing sectional title units had transferred to the development company as at 31 December 2008. The 20 units will be held as residential letting stock until such time as bulk earthworks commence. The planning application has commenced and planning approval is expected in the fourth quarter of 2009.
Industrial
a) Clayville Industrial Park. This development comprises a 49.3 hectare site located north west of the Johannesburg international airport. It is intended to service the site for industrial use and sell stands to owner occupiers. This project was initially delayed due to the unavailability of power. However, discussions with the local authorities have resulted in the granting in principle of sufficient power for the first phase of the development. As a result of updated geotechnical investigation findings the site layout is being amended prior to township proclamation in order to optimise the layout of the individual stands on site. The proclamation of the industrial township is expected in 2009, whereupon internal services will be installed. We are pleased to report that as a result of the shortage of industrial land in the area, CBRE have attributed a 95% valuation uplift to this particular site.
b) Gosforth Business Estate. This is an important strategic property investment for the Group comprising a 42 hectare prominent industrial site where an estimated 150,000 sqm of bulk can be developed. It is situated to the south east of Johannesburg's central business district adjacent to the main N3 highway running between Johannesburg and the port at Durban. The development is a joint venture with two partners, one a local contractor and the other a South African listed property fund. The Group has a 75% interest in the development vehicle. The installation of bulk services is substantially complete, and the installation of internal services has commenced. The township register has been opened, which is a significant town planning milestone, allowing the development company to proclaim the site as an industrial township. Initial marketing feedback has been positive, and a number of possible development schemes for the site are currently in the planning stage. CBRE have attributed a R34.9 million (40%) valuation uplift on this site, as a result of the value added from the completion of the bulk services installation, and from strong comparable sales adjacent to the site.
c) Hughes Industrial Park. This development is a project with a local contractor and a South African listed property fund in which the Group owns a 30% interest. The development comprises a sectional title mini unit development totalling 18,372 sqm. The development company has commenced with construction of the first phase of industrial mini-units on the park which are progressing well. Construction is expected to be completed by the end of July 2009.
d) Imbonini Services Park (Phase 1). This development is a joint venture with local developers in which the Group has a 50% interest. It comprises a 36 hectare site located close to the fast growing residential and leisure node of Ballito, just north of Durban, which has been developed for light industrial use. The township register was opened in mid 2008, and the industrial park is 60% sold. The c. 10,400 sqm sectional title mini-unit development on one of the park's serviced stands is now complete. Marketing of this scheme is currently underway, but sales are slow in the current environment. It is expected that the development will be substantially sold and leased out during the course of 2009.
e) Imbonini Services Park (Phase 2). This is the second phase of the Imbonini development and will comprise a 77 hectare industrial park directly north east of and adjoining the Group's current Imbonini Phase 1 development. The development is a joint venture with the same two partners who invested in Phase 1. The Group has a 50% interest in the development vehicle. The Group is very pleased to report that a successful planning application hearing was held in December 2008. At this hearing planning consent was verbally received, with written confirmation expected in February 2009, after which servicing of the site will commence. The total length of the project is expected to be four years. As disclosed on 27 May 2008, the development company took early transfer of the site in return for a ZAR10 million reduction in the purchase price. CBRE have recognised a strong valuation uplift of R24.8 million (84%) as a result of the acute shortage of available industrial land around Durban, the relocation of the Durban international airport to a site south of Imbonini, and encouraging sales from Imbonini Services Park Phase 1.
f) Waltloo Industrial Park. This development comprises a 4.4 hectare site located east of the Pretoria CBD, and is a 50% joint venture with a local contractor. It is envisaged that sectional title industrial premises catering to small businesses and freehold warehouse premises will be developed on the site, which comprises 21,948 sqm of NLA. Bulk services have been installed and the township has been proclaimed. The site development plan has been approved by the local authorities, and final building plan approval is expected shortly. Top structure development is expected to commence in 2009.
Economic Outlook
Although the South African economy performed well in 2008 in spite of the adverse global environment, analysts expect it to slow materially in 2009. Both private consumption and business investment are expected to be weak in the first half of 2009, putting pressure on job creation and employment prospects. Consumer indebtedness is still high, but declining. GDP growth forecasts for 2009 generally range from 0.6% to 1.5%1, lower than predicted in the fourth quarter of 2008 and possibly implying a fall into a technical recession (two quarters of negative growth), but still underpinned by the government's continuing large scale infrastructure investment.
Interest rates were cut by 50 basis points in December 2008 and a further 100 basis points in February 2009, and given the deteriorating global outlook and weak domestic economic growth, there is scope for further aggressive interest rate cuts in 2009. Lower interest rates should result over time in a recovery in consumer expenditure and improve the real estate outlook, particularly the residential sector. Although inflation still remains outside the SA Reserve Bank's 3% to 6% target range it is on a downward trend, and the sharp fall in global commodity prices, combined with the slowdown in domestic demand, is expected to return inflation to within the Reserve Bank's target by the second half of the year2.
Although South African growth is being affected by the global economic situation, its £54 billion public infrastructure programme planned for the next three years (currently the third largest in the world after China and the US), a solid banking system that has been protected by tight regulation, and scope for fiscal and monetary stimulus created through years of responsible financial management, leave South Africa relatively well positioned to face 20093.
Currency
Although the Rand / Sterling exchange rate was very volatile in 2008, as at 31 December 2008 it had recovered substantial ground from 30 June 2008 when the Company's year end results were presented. South Africa's commodity exports will probably come under pressure in 2009, and to the extent that global risk aversion remains high and while a degree of political uncertainty exists, the Rand's performance is likely to remain volatile. However, high South African real interest rates should encourage capital inflows over the medium term which will support the currency.
Real estate market overview
The fundamental drivers of the South African real estate market are still likely to underpin land values and rental growth in the medium and long term. Historically low vacancy rates, the difficulty in obtaining planning permission and the limited availability of external services will continue to restrict the supply of suitable development land. Operators who have the ability to secure planning permission / service delivery and development funding are well positioned to take advantage of a real estate market likely to improve on the back of potentially falling interest rates.
Residential Market4
The residential market is still generally under pressure, with nominal average house price growth in the middle segment of the market slowing to below 4% in 20085, the lowest price growth recorded since 1996. Mortgage interest rates are likely to be cut in 2009 as a result of falling inflation, but economic conditions are likely to remain depressed for most of the year. The residential market is expected to remain under pressure owing to lower affordability, high (but declining) borrowing costs, stricter lending requirements and weaker economic conditions. In nominal terms, house prices are forecast to drop by about 2.5% in 2009, while prices are set to decline for a second year in succession in real terms6. However, even in the current environment affordable houses continued to outperform more expensive houses, with affordable houses (priced under R250,000) growing roughly 19% in the third quarter (the most recent for which data is available), compared to luxury houses (R1,500,000 and over) growing only 1%. Many of the Group's residential projects are still in the planning and conceptualisation phase and will only be brought to the market over the next 18 to 24 months when market conditions are likely to be more favourable. The competitive prices at which the Group was able to secure its development land and the value uplift it has gained by progressing its planning rights mean that the Group is well positioned to service the mid level of the market over the next few years as demand recovers.
Industrial Market7
Over the past few years robust demand for industrial space and high replacement costs resulted in accelerating rental growth in all the major industrial areas. However, in recent quarters growth has started to slow from its previous fast pace as the economy has slowed. In the third quarter of 2008 (the most recent for which data is available), rental growth was 21% in Durban, 12% in Johannesburg, 10% in the Cape Peninsula, and 9% in Port Elizabeth. Slower economic growth could lead to a drop in demand for rental space, rising vacancies and a further cooling of rental growth. However, industrial vacancies in all the major areas (except Durban) decreased during the third quarter, and are estimated at between 2.5% and 5.3%, implying that industrial space is still hard to come by.
Commercial / Retail Market8
Nominal rentals for prime office space in most of the country's top decentralised areas once again showed robust growth. This strong rental growth was supported by low office vacancy rates (below 5% in all of the major metropolises) and high replacement costs. Potentially lower economic growth could lead to a moderation in the rental growth rates achieved over the last few quarters. However, limited supply of zoned serviced land should underpin continuing rental growth. Retail sales have been decelerating since the second half of 2006, on the back of higher interest rates and tighter credit conditions. Growth in retail sales are not expected to be as robust as over the past few years, possibly leading to moderating trading densities and slower retail rental growth.
Financing market
South African banks are generally well-capitalised and conservatively leveraged, given their focus more on traditional banking: loans, deposits, and transacting capacity. As a result of the local regulatory environment - exchange controls in particular - they appear to have had very limited exposure to the global banking crisis. But the lending environment has certainly tightened over the last six months, with banks becoming more cautious as the economy slows and the global environment continues to deteriorate. Bank asset quality is taking precedence over asset growth, and debt pricing has adjusted upwards to reflect the banks' increased cost of capital. Bank debt is still available to fund the Company's investments on a deal by deal basis.
Proteus Property Partners Limited
Investment Manager
13 February 2009
Consolidated Income Statement
|
|
|
(Unaudited)
|
(Unaudited)
|
|
|
|
Period 1 July 2008 to 31 December 2008
|
Period 1 July 2007 to 31 December 2007
|
|
|
Note
|
£'000
|
£'000
|
|
|
|
|
|
|
Revenue
|
|
-
|
-
|
|
|
|
|
|
|
Investment Manager's fees
|
3
|
(835)
|
(631)
|
|
Accrual for potential performance fee
|
3
|
(4,116)
|
-
|
|
Other administration fees and expenses
|
4
|
(848)
|
(236)
|
|
Administrative expenses
|
|
(5,799)
|
(867)
|
|
|
|
|
|
|
Operating loss
|
|
(5,799)
|
(867)
|
|
|
|
|
|
|
Finance income
|
|
916
|
1,358
|
|
Foreign exchange gain
|
|
6,904
|
1,568
|
|
Finance costs
|
|
(82)
|
(24)
|
|
Net finance income
|
|
7,738
|
2,902
|
|
|
|
|
|
|
Share of profit/(loss) of equity accounted investees
|
7.2
|
377
|
(25)
|
|
Profit before income tax
|
|
2,316
|
2,010
|
|
|
|
|
|
|
Income tax expense
|
5
|
(46)
|
(147)
|
|
Profit for the period
|
|
2,270
|
1,863
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
Equity holders of the Company
|
|
2,270
|
1,870
|
|
Minority interest
|
|
-
|
(7)
|
|
|
|
2,270
|
1,863
|
|
|
|
|
|
|
Basic and diluted earnings per share (pence) for profit attributable to the equity holders of the Company during the period
|
6
|
3.64
|
5.23
|
The accompanying notes form an integral part of these financial statements
Consolidated Balance Statement
|
|
|
(Unaudited)
|
(Audited)
|
|
|
Note
|
As at 31 December 2008
|
As at 30 June 2008
|
|
|
|
£'000
|
£'000
|
|
Assets
|
|
|
|
|
Non-current assets
|
|
|
|
|
Intangible assets
|
|
1,277
|
31
|
|
Inventories
|
8
|
40,686
|
24,531
|
|
Investments in equity accounted investees
|
7
|
6,979
|
5,469
|
|
Loans due from joint ventures
|
7
|
4,378
|
-
|
|
|
|
53,320
|
30,031
|
|
Current assets
|
|
|
|
|
Loans due from joint ventures
|
7
|
2,201
|
1,249
|
|
Trade and other receivables
|
9
|
3,512
|
2,804
|
|
Cash at bank and attorneys
|
10
|
15,488
|
27,269
|
|
|
|
21,201
|
31,322
|
|
Total assets
|
|
74,521
|
61,353
|
|
|
|
|
|
|
Equity
|
|
|
|
|
Capital and reserves attributable to equity holders of the Company:
|
|
|
|
|
Issued share capital
|
11
|
623
|
623
|
|
Share premium
|
12
|
61,943
|
61,943
|
|
Foreign currency translation reserve
|
|
1,105
|
(1,622)
|
|
Retained earnings/(deficit)
|
|
(240)
|
(2,510)
|
|
Total equity
|
|
63,431
|
58,434
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
Borrowings
|
15
|
1,105
|
-
|
|
|
|
1,105
|
-
|
|
Current liabilities
|
|
|
|
|
Trade and other payables
|
14
|
9,368
|
2,883
|
|
Current tax liabilities
|
|
91
|
36
|
|
Borrowings
|
15
|
526
|
-
|
|
|
|
9,985
|
2,919
|
|
Total liabilities
|
|
11,090
|
2,919
|
|
Total equity and liabilities
|
|
74,521
|
61,353
|
Approved by the Board of Directors on 13 February 2009 and signed on their behalf by:
R Tice D Humbles
Director Director
The accompanying notes form an integral part of these financial statements
Company Balance Statement
|
|
Note
|
As at 31 December 2008
|
As at 30 June 2008
|
|
|
|
£'000
|
£'000
|
|
Assets
|
|
|
|
|
Non-current assets
|
|
|
|
|
Loans and receivables due from subsidiary
|
9
|
36,603
|
28,595
|
|
Investment in subsidiary
|
7
|
21,741
|
21,741
|
|
|
|
58,344
|
50,336
|
|
Current assets
|
|
|
|
|
Trade and other receivables
|
9
|
77
|
45
|
|
Cash and cash equivalents
|
10
|
13,554
|
12,974
|
|
|
|
13,631
|
13,019
|
|
Total assets
|
|
71,975
|
63,355
|
|
|
|
|
|
|
Equity
|
|
|
|
|
Capital and reserves attributable to equity holders of the Company:
|
|
|
|
|
Issued share capital
|
11
|
623
|
623
|
|
Share premium
|
12
|
61,943
|
61,943
|
|
Retained earnings
|
|
4,830
|
523
|
|
Total equity
|
|
67,396
|
63,089
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
Trade and other payables
|
14
|
4,579
|
266
|
|
Total liabilities
|
|
4,579
|
266
|
|
Total equity and liabilities
|
|
71,975
|
63,355
|
Approved by the Board of Directors on 13 February 2009 and signed on their behalf by:
R Tice D Humbles
Director Director
The accompanying notes form an integral part of these financial statements
Consolidated Statement of Changes in Equity
|
|
Share capital
|
Share premium
|
Foreign currency translation reserve
|
Retained earnings/(deficit)
|
Total
|
|||||
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|||||
|
|
|
|
|
|
|
|||||
|
Balance at 1 July 2007
|
623
|
61,943
|
(44)
|
120
|
62,642
|
|||||
|
Foreign exchange translation differences
|
-
|
-
|
36
|
-
|
36
|
|||||
|
Profit for the period
|
-
|
-
|
-
|
1,870
|
1,870
|
|||||
|
Total recognised expense for the period
|
-
|
-
|
36
|
1,870
|
1,906
|
|||||
|
Balance at 31 December 2007
|
623
|
61,943
|
(8)
|
1,990
|
64,548
|
|||||
|
Balance at 1 July 2008
|
623
|
61,943
|
(1,622)
|
(2,510)
|
58,434
|
|||||
|
Foreign exchange translation differences
|
-
|
-
|
2,727
|
-
|
2,727
|
|||||
|
Profit for the period
|
-
|
-
|
-
|
2,270
|
2,270
|
|||||
|
Total recognised expense for the period
|
-
|
-
|
2,727
|
2,270
|
4,997
|
|||||
|
Balance at 31 December 2008
|
623
|
61,943
|
1,105
|
(240)
|
63,431
|
|||||
The accompanying notes form an integral part of these financial statements
Consolidated Cash Flow Statement
|
|
Note
|
Period 1 July 2008 to 31 December 2008
|
Period 1 July 2007 to 31 December 2007
|
|
|
|
£'000
|
£'000
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
Profit for the period
|
|
2,270
|
1,863
|
|
Adjustments for:
|
|
|
|
|
Interest income
|
|
(916)
|
(1,358)
|
|
Interest expense
|
|
82
|
-
|
|
Income tax
|
|
46
|
147
|
|
Share of (profit)/loss of equity accounted investees
|
|
(377)
|
25
|
|
Foreign exchange gain
|
|
(6,904)
|
-
|
|
Minority interest
|
|
-
|
7
|
|
Operating (loss)/gain before changes in working capital
|
|
(5,799)
|
684
|
|
Purchase of inventory
|
|
(11,030)
|
(13,597)
|
|
(Increase)/decrease in trade and other receivables
|
|
(243)
|
208
|
|
Increase in trade and other payables
|
|
4,833
|
271
|
|
Cash used in operations
|
|
(12,239)
|
(12,434)
|
|
Interest paid
|
|
(82)
|
(355)
|
|
Interest received
|
|
548
|
2,634
|
|
Cash outflows from operating activities
|
|
(11,773)
|
(10,155)
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
Acquisition of subsidiary
|
7
|
(1,118)
|
-
|
|
Acquisition of equity accounted investees
|
7
|
(197)
|
(219)
|
|
Loans to equity accounted investees
|
7
|
(4,256)
|
(36)
|
|
Loans from/(to) third parties
|
14
|
1,066
|
(784)
|
|
Cash restricted by bank guarantees
|
|
6,698
|
-
|
|
Cash inflows/(outflows) from investing activities
|
|
2,193
|
(1,039)
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
Proceeds from bank loans
|
15
|
1,470
|
-
|
|
Cash inflows from financing activities
|
|
1,470
|
-
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
(8,110)
|
(11,194)
|
|
Cash and cash equivalents at beginning of the period
|
|
20,403
|
51,797
|
|
Foreign exchange gains on cash and cash equivalents
|
|
2,666
|
85
|
|
Cash and cash equivalents at end of the period
|
10
|
14,959
|
40,688
|
The accompanying notes form an integral part of these financial statements
Notes to the Interim Financial Statements
1 General Information
South African Property Opportunities plc (the "Company") was incorporated and registered in the Isle of Man under the Isle of Man Companies Acts 1931 to 2004 on 27 June 2006 as a public limited company with registered number 117001C. The investment objective of South African Property Opportunities plc and its subsidiaries (the "Group") is to achieve capital growth from an opportunistic portfolio of real estate assets in South Africa.
The Company's investment activities are managed by Proteus Property Partners Limited (the "Investment Manager"). The Company's administration is delegated to Galileo Fund Services Limited (the "Administrator"). The registered office of the Company is Third Floor Britannia House, St George's Street, Douglas, Isle of Man, IM1 1JE.
Pursuant to a prospectus dated 20 October 2006 there was an original placing of up to 50,000,000 Ordinary Shares. Following the close of the placing on 26 October 2006 30,000,000 Shares were issued.
The Shares of the Company were admitted to trading on the Alternative Investment Market of the London Stock Exchange ("AIM") on 26 October 2006 when dealings also commenced. On the same date the Shares of the Company were admitted to the Official List of the Channel Islands Stock Exchange (the "CISX").
As a result of a further fund raising in May 2007 32,292,810 Ordinary Shares were issued, which were admitted to trading on AIM on 22 May 2007.
The Company's agents and the Investment Manager perform all significant functions. Accordingly, the Company itself has no employees.
Duration
In accordance with the Company's Articles of Association, Shareholders will be given the opportunity to vote on the life of the Company after approximately 7 years from incorporation.
At the annual general meeting of the Company to be held in 2013, the Directors are obligated to propose an ordinary resolution that the Company continues in existence. If the resolution is passed then it shall be proposed at every third annual general meeting thereafter. If the resolution is not passed then the Directors shall, within 3 months after the date of the resolution, put forward proposals to shareholders to the effect that the Company be wound up, liquidated, reorganised or unitised.
Financial Year End
The financial year end of the Company is 30 June in each year.
Company Profit
In accordance with the provisions of Section 3 of the Isle of Man Companies Act 1982, no separate income statement has been presented for the Company. The amount of the Company's profit for the period recognised in the Consolidated Income Statement is £4,307,330 (Period ended 31 December 2007: £3,008,595).
2 Summary of Significant Accounting Policies
The accounting policies applied by the Group in these condensed consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements for the year ended 30 June 2008. The interim consolidated financial statements are unaudited.
These interim financial statements have been prepared in accordance with International Financial Reporting Standard (IFRS) IAS 34: Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 30 June 2008.
The financial statements have been prepared under the historic cost convention and the requirements of the Isle of Man Companies Acts 1931 to 2004. The preparation of financial statements in conformity with IFRS requires the use of accounting estimates. It also requires management to exercise its judgement in the process of applying the Company's accounting policies. At the present time there are no critical estimates or assumptions underlying the financial statements.
3 Investment Manager's Fees
Annual fees
The Investment Manager receives a management fee of 2% per annum of the net asset value of the Group from Admission, payable quarterly in advance.
The Company has adopted the IFRS NAV adjusted by the open market valuation of the property portfolio for the purposes of calculating the Investment Manager's fee, which is equivalent to the EPRA NAV.
The Investment Manager is also entitled to recharge to the Group all and any costs and disbursements reasonably incurred by it in the performance of its duties including costs of travel save to the extent that such costs are staff costs or other internal costs of the Investment Manager. Accordingly, the Company is responsible for paying all the fees and expenses of all valuers, surveyors, legal advisers and other external advisers to the Company in connection with any investments made on its behalf. All amounts payable to the Investment Manager by the Company are paid together with any value added tax, if applicable.
Annual management fees payable for the period ended 31 December 2008 amounted to £834,853 (Period ended 31 December 2007: £631,569).
Performance fees
The Investment Manager is entitled to a performance fee which is payable by reference to the increase in net asset value per Ordinary Share. The net asset value used is the IFRS NAV adjusted by the market valuation of the property portfolio, which is equivalent to the EPRA NAV. The Investment Manager will become entitled to a performance fee in respect of the period from Admission to 30 June 2009 and any subsequent financial period at the end of which the net asset value per Ordinary Share is above the performance fee hurdle. The performance fee test for the period ending 30 June 2009 is 100p per Ordinary Share increased at a rate of 12% per annum, on an annual compounding basis up to the end of the period but adjusted so as to exclude any dividends paid during the period.
If the performance hurdle is met the performance fee payable will be an amount equal to 20% of the amount of the increase in the net asset value per Ordinary Share, multiplied by the time weighted average of the number of Ordinary Shares in issue since inception or (if later) the end of the last financial period by reference to which a performance fee was earned.
Any performance fee will be payable as follows:
a) 75% of the performance fee will be paid to the Investment Manager in cash within ten Business Days of the publication of the audited financial statements for the relevant period end; and
b) 25% of the performance fee shall be satisfied within ten Business Days of the publication of the audited financial statements for the relevant performance period end by the allotment and issue to the Investment Manager of such number of Ordinary Shares which, when multiplied by the Net Asset Value per Ordinary Share on the date of issue, results in a value equal to that of 25% of the performance fee.
Potential performance fees payable for the period ended 31 December 2008 amounted to £4,116,383 (Period ended 31 December 2007: £nil). This accrual is required at the period end, on the basis that as at 31 December 2008, the performance fee test, applied on a straight line basis, would have been passed. However, no amount is payable under the investment management agreement unless the test is passed at 30 June 2009, being the first date for the application of the performance fee test under that agreement. In the event the test is not passed, the accrual will be reversed.
4 Other Administration Fees and Expenses
|
Group Period ended 31 December 2008 |
Group Period ended 31 December 2007 |
|
|
£'000 |
£'000 |
|
|
Audit |
100 |
25 |
|
Directors' Remuneration (see below) |
72 |
111 |
Included within other administration fees and expenses are the following:
Nominated Adviser and Broker fees
As Nominated Adviser and Broker to the Company for the purposes of the AIM Rules, the Nominated Adviser and Broker receives a Nominated Adviser fee of £15,000 per annum and a Broker fee of £15,000 per annum, both fees payable half-yearly in advance.
Nominated adviser fees paid for the period ended 31 December 2008 amounted to £15,041 (Period ended 31 December 2007: £15,000).
Custodian fees
The Custodian receives a fee of 3 basis points of the value of the non real-estate assets held by the Company subject to a minimum annual fee of £5,000, payable quarterly in arrears.
Custodian fees payable for the period ended 31 December 2008 amounted to £2,906 (Period ended 31 December 2007: £2,938).
Administrator and Registrar fees
The Administrator receives a fee of 10 basis points of the net assets of the Company between £0 and £50 million; 8.5 basis points per annum of the net assets of the Company between £50 and £100 million and 7 basis points per annum of the net assets of the Company in excess of £100 million, subject to a minimum monthly fee of £3,750 and a maximum monthly fee of £10,000 payable quarterly in arrears.
The Administrator assists in the preparation of the financial statements of the Group for which it receives a fee of £1,750 per set.
The Administrator provides general secretarial services to the Group for which it receives a minimum annual fee of £5,000. Additional fees based on time and charges will apply where the number of Board meetings exceeds four per annum. For attendance at meetings not held in the Isle of Man, an attendance fee of £350 per day or part thereof will be charged.
The Administrator may utilise the services of a CREST accredited registrar for the purposes of settling share transactions through CREST. The cost of this service will be borne by the Group. It is anticipated that the cost will be in the region of £6,000 per annum subject to the number of CREST settled transactions undertaken.
Administration fees payable for the period ended 31 December 2008 amounted to £35,583 (Period ended 31 December 2007: £36,741).
Offshore Registrar fees
The Offshore Registrar receives an annual registration fee from the Company of £2 per shareholder account, subject to an annual minimum charge of £5,500.
Registrar fees payable for the period ended 31 December 2008 were £6,327 (Period ended 31 December 2007 £5,990).
Sponsor fees
The Sponsor receives a fee for the listing of the shares on the Channel Islands Stock Exchange. The Sponsor is paid a fee of £6,000 for the initial listing, charged to equity as a share issue expense, and an annual fee of £1,750 and a fee determined by reference to the number of hours spent on the work undertaken by the Sponsor by reference to its standard hourly charging rate.
Sponsor fees payable for the period ended 31 December 2008 were £1,134 (31 December 2007:£2,630).
Strategic Adviser fees
The Strategic Adviser receives a fee for its services of £40,000 per annum, payable quarterly in advance.
Strategic Adviser fees payable for the period ended 31 December 2008 were £20,000 (Period ended 31 December 2007: £20,000).
Directors' Remuneration
The maximum amount of remuneration payable to the Directors permitted under the Articles of Association is £200,000 per annum. The Directors are each entitled to receive reimbursement of any expenses incurred in relation to their appointment. The non-executive chairman is entitled to receive an annual fee of £25,000 and the non-executive directors (excluding Brian Myerson who has waived his fee) receive £20,000 each per annum. The Directors are each entitled to receive reimbursement of any expenses incurred in relation to their appointment.
Total fees and expenses paid to the Directors for the period ended 31 December 2008 amounted to £61,343 (Period ended 31 December 2007 £46,875) and directors insurance cover amounted to £10,183 (Period ended 31 December 2007 £64,111).
5 Income Tax Expense
|
Group |
Period ended 31 December 2008 |
Period ended 31 December 2007 |
|
£'000 |
£'000 |
|
|
Current tax |
46 |
147 |
|
46 |
147 |
The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate of the applicable profits of the consolidated companies as follows:
|
Group |
Period ended 31 December 2008 |
Period ended 31 December 2007 |
|
£'000 |
£'000 |
|
|
Profit before tax |
2,270 |
1,870 |
|
Tax calculated at domestic tax rates applicable in the Isle of Man (0%) |
- |
- |
|
Tax effect of expenses that are not deductible for tax purposes |
- |
- |
|
Effect of higher tax rates in South Africa (28%) |
46 |
147 |
|
Tax expense |
46 |
147 |
6 Basic and Diluted Earnings per Share
Basic and diluted earnings per share are calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of Ordinary Shares in issue during the period.
|
Period ended 31 December 2008 |
Period ended 31 December 2007 |
|
|
Profit attributable to equity holders of the Company (£'000) |
2,270 |
1,870 |
|
Weighted average number of Ordinary Shares in issue (thousands) |
62,293 |
35,729 |
|
Basic and diluted profit per share (pence per share) |
3.64 |
5.23 |
7 Subsidiaries, Associates and Joint Ventures
7.1 Subsidiaries
Since inception and for efficient portfolio management purposes, the Company established the following subsidiary company:-
|
Country ofincorporation |
Percentage ofshares held |
|
|
SAPSPV Holdings RSA (Pty) Limited |
South Africa |
100% |
SAPSPV Holdings RSA (Pty) Limited is a direct subsidiary of South African Property Opportunities plc. SAPSPV Holdings RSA (Pty) Limited was incorporated on 20 October 2006 with a share capital of ZAR 101 and share premium of ZAR 24,999,899.
During the period, there has been no change in the Company's investment in the direct subsidiary.
The direct and indirect subsidiaries held by SAPSPV Holdings RSA (Pty) Limited are as follows:-
|
Country of incorporation |
Percentage of shares held * |
|
|
8 Mile Investments 504 (Pty) Limited |
South Africa |
100% |
|
Breeze Court Investments 31 (Pty) Limited |
South Africa |
100% |
|
Breeze Court Investments 34 (Pty) Limited |
South Africa |
100% |
|
Breeze Court Investments 35 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1152 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1172 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1180 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1187 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1189 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1191 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1205 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1237 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1238 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1239 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1256 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1262 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1268 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1269 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1270 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1300 (Pty) Limited |
South Africa |
100% |
|
Business Venture Investments No 1306 (Pty) Limited |
South Africa |
100% |
|
Crane's Crest Investments 28 (Pty) Limited |
South Africa |
100% |
|
Crimson King Properties 378 (Pty) Limited |
South Africa |
75% |
|
Dream World Investments 551 (Pty) Limited |
South Africa |
100% |
|
Living 4 U Developments (Pty) Limited |
South Africa |
65% |
|
Madison Park Properties 33 (Pty) Limited |
South Africa |
100% |
|
Madison Park Properties 34 (Pty) Limited |
South Africa |
100% |
|
Madison Park Properties 36 (Pty) Limited ** |
South Africa |
50% |
|
Madison Park Properties 40 (Pty) Limited ** |
South Africa |
50% |
|
Royal Albatross Properties 313 (Pty) Limited |
South Africa |
100% |
|
SAPSPV Clayville Property Investments (Pty) Limited |
South Africa |
100% |
|
SAPSPV Imbonini Property Investments (Pty) Limited |
South Africa |
100% |
|
Wonderwall Investments 18 (Pty) Limited |
South Africa |
100% |
* this also represents the percentage of ordinary share capital and voting rights held - 2008
** the Group controls the company by means of direct control of the board
The contingent liability of £1,118,989 (ZAR 17,000,000) in relation to the purchase of shares in Living 4 U Developments (Pty) Ltd was realised and paid during the period.
7.2 Associates and joint ventures
|
31 December 2008 |
30 June 2008 |
|
|
£'000 |
£'000 |
|
|
Start of the period/year |
5,469 |
5,794 |
|
Acquisition of equity accounted investees |
197 |
219 |
|
Foreign exchange gain/(loss) |
936 |
(662) |
|
Share of profit of equity accounted investees |
377 |
118 |
|
End of the period/year |
6,979 |
5,469 |
In November 2006 the Group acquired 50% of the ordinary share capital of Imbonini Park (Pty) Limited, a property holding company incorporated in South Africa, for £72,005 (ZAR 1,000,000). There was goodwill of £71,969 (ZAR 999,500) as a result of this transaction.
In June 2007 the Group acquired 49.22% of the ordinary share capital of Longland Investments (Pty) Limited, a property holdings company incorporated in South Africa, for £5,753,040 (ZAR 81,633,346). There was goodwill of £1,655,153 (ZAR 23,485,952) as a result of this transaction. Longland Investments owns 100% of Tangmere Investments Corporation (Pty) Limited and 50% of Rivcroft (Pty) Limited, both of which are property holding companies incorporated in South Africa.
In September 2007 the Group acquired 50% of the ordinary share capital of Imbonini Park (Phase 2) (Pty) Limited, a property holding company incorporated in South Africa, for £219,124 (ZAR 3,000,000). During the period a second payment, £197,292 (ZAR 3,000,000), was made in relation to the initial purchase price of Imbonini Park (Phase 2) (Pty) Limited. There was goodwill of £416,379 (ZAR 5,999,500) as a result of these two transactions.
In July 2008 the Group acquired 30% of the ordinary share capital of Blue Waves Properties 2 (Pty) Limited, a property holding company incorporated in South Africa, for £4 (ZAR 60). There was goodwill of £2 (ZAR 30) as a result of this transaction.
The Group's share of the results of its principal associates and joint ventures, all of which are unlisted, and its aggregate assets (including goodwill) and liabilities, is as follows:
|
Name
|
Assets
|
Liabilities
|
Revenues
|
Profit/(Loss)
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Period ended 31 December 2008
|
|
|
|
|
|
Imbonini Park (Pty) Limited
|
2,999
|
(2,401)
|
1,663
|
475
|
|
Longland Investments (Pty) Limited
|
6,181
|
(84)
|
76
|
41
|
|
Imbonini Park (Phase 2) (Pty) Limited
|
2,679
|
(2,395)
|
9
|
(139)
|
|
Blue Waves Properties 2 (Pty) Limited
|
-
|
-
|
2
|
-
|
|
|
11,859
|
(4,880)
|
1,750
|
377
|
|
Year ended 30 June 2008
|
|
|
|
|
|
Imbonini Park (Pty) Limited
|
2,516
|
(2,454)
|
7
|
31
|
|
Longland Investments (Pty) Limited
|
5,434
|
(216)
|
85
|
87
|
|
Imbonini Park (Phase 2) (Pty) Limited
|
221
|
(32)
|
-
|
-
|
|
|
8,171
|
(2,702)
|
92
|
118
|
Loans due from Joint Ventures
The Group lent a total of £1,619,912 (ZAR 22,200,000) to its joint venture, Imbonini Park (Pty) Limited (30 June 2008: £1,217,555 (ZAR 19,350,000)). Of this, £1,594,373 (ZAR 21,850,000) (30 June 2008: £1,195,532 (ZAR 19,000,000)) is interest bearing at 15% per annum and the remaining £25,539 (ZAR 350,000) (30 June 2008: £22,023 (ZAR 350,000)) is non-interest bearing. The loans are repayable in full by 13 March 2009.
The Group lent a total of £4,414,624 (ZAR 60,500,000) to its joint venture, Imbonini Park Phase 2 (Pty) Limited. (30 June 2008: £31,466 (ZAR 500,000)). Of this, £4,378,140 (ZAR 60,000,000) is interest bearing at South African Prime +2.5% (capped at 16%) which is repayable in full by July 2012, and the remaining £36,485 (ZAR 500,000) is non-interest bearing and repayable as and when the directors of Imbonini Park Phase 2 (Pty) Limited resolve that repayment shall be effected, provided there are sufficient cash reserves available to do so and proportionately to each shareholder.
The Group also lent a total of £544,671 (ZAR 7,464,412) to Blue Waves Properties 2 (Pty) Ltd (30 June 2008: £137,224 (ZAR 2,180,839), which is a shareholder loan bearing interest at South African Prime +3.0%. The loan is unsecured and repayable on demand.
The fair value of these loans approximate their carrying value at 31 December 2008.
8 Inventories
|
Group |
31 December 2008 |
30 June 2008 |
|
£'000 |
£'000 |
|
|
At start of period/year |
24,531 |
4,231 |
|
Cost of land acquired |
11,030 |
22,524 |
|
Foreign exchange gain/(loss) |
5,125 |
(2,224) |
|
At end of period/ year |
40,686 |
24,531 |
During the period, the Group acquired land for £11,030,195 (ZAR 167,723,717) (Year ended 30 June 2008: £22,524,249 (ZAR 329,859,975)), which was acquired in order to develop it for future re-sale, and accordingly it was classified as inventory.
Security
At 31 December 2008, there was a first rank mortgage on the above inventory securing the bank loans of ZAR 22.4 million (see note 15).
9 Trade and Other Receivables
Group
|
31 December 2008 |
30 June 2008 |
|
|
£'000 |
£'000 |
|
|
Loan to third party (see note 7.2) |
- |
137 |
|
Interest on loan to associate/joint venture (see note 7.2) |
512 |
241 |
|
Prepayments |
61 |
34 |
|
VAT receivable |
2,520 |
2,111 |
|
Other receivables |
419 |
281 |
|
Trade and other receivables |
3,512 |
2,804 |
Company
|
31 December 2008 |
30 June 2008 |
|
|
£'000 |
£'000 |
|
|
Loan due from SAPSPV Holdings RSA (Pty) Limited |
36,603 |
28,595 |
|
Prepayments |
61 |
34 |
|
Other receivables |
16 |
11 |
|
Trade and other receivables |
77 |
45 |
The loan from the Company to SAPSPV Holdings RSA (Pty) Limited bears interest at the Prime Rate (up to 30 June 2007 at the Repurchase Rate) as published by the Reserve Bank of South Africa from the date of the advance to the date of repayment, which interest shall be compounded monthly in arrears on the last working day of each month.
This loan is repayable as and when the directors of SAPSPV Holdings RSA (Pty) Limited resolve that repayment shall be effected, provided there are sufficient cash reserves available to do so and that prior approval has been obtained from the Exchange Control Division of the South African Reserve Bank but in no case later than 30 June 2013.
The fair value of the loan approximates its fair value at 31 December 2008.
10 Cash at Bank and Attorneys
|
Group |
31 December 2008 |
30 June 2008 |
|
£'000 |
£'000 |
|
|
Bank balances |
1,319 |
918 |
|
Bank deposit balances |
14,169 |
20,046 |
|
Deposits with attorneys |
- |
6,305 |
|
Cash at bank and attorneys |
15,488 |
27,269 |
Included within the £14,169,000 bank deposit balances figure is an amount of £529,000 (ZAR 7,250,000) (30 June 2008: £6,866,000 (ZAR 109,100,000)) represented by bank guarantees retained by the bank under fixed deposit. These are further described within the Contingent Liabilities note (see note 16). This is the only figure excluded from the above balances for analysing the movements of cash and cash equivalents in the cash flow statement.
|
Company |
31 December 2008 |
30 June 2008 |
|
£'000 |
£'000 |
|
|
Bank balances |
43 |
67 |
|
Bank deposit balances |
13,511 |
12,907 |
|
Cash and cash equivalents |
13,554 |
12,974 |
11 Share Capital
|
Ordinary Shares of 1p each |
As at 31 December 2008 & 30 June 2008 Number |
As at 31 December 2008 & 30 June 2008 £'000 |
|
Authorised |
150,000,000 |
1,500 |
|
Issued |
62,292,810 |
623 |
The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
12 Share Premium
|
Company and the Group |
31 December 2008 £'000 |
30 June 2008 £'000 |
|
As at beginning of period/year |
61,943 |
61,943 |
|
Share premium arising on issue of ordinary shares |
- |
- |
|
As at end of period/year |
61,943 |
61,943 |
The Company's share premium has arisen on the issue of the Company's ordinary shares and represents the difference between the issue prices of £1.00 (30,000,000 shares in October 2006) and £1.06 (32,292,810 shares in May 2007) and the par value of £0.01 per share.
13 Net Asset Value per Share
Group
|
31 December 2008 |
30 June 2008 |
|
|
Net assets attributable to equity holders of the Company (£'000) |
63,431 |
58,434 |
|
Shares in issue (in thousands) |
62,293 |
62,293 |
|
NAV per share |
£1.02 |
£0.94 |
The NAV per share is calculated by dividing the net assets attributable to equity holders of the Group by the number of ordinary shares in issue.
14 Trade and Other Payables
|
Group |
31 December 2008 |
30 June 2008 |
|
£'000 |
£'000 |
|
|
Loans from third parties |
4,108 |
2,521 |
|
Management fees |
184 |
- |
|
Accrual for potential performance fee (see note 3) |
4,116 |
- |
|
Other payables |
960 |
362 |
|
9,368 |
2,883 |
|
Company |
31 December 2008 |
30 June 2008 |
|
£'000 |
£'000 |
|
|
Management fees |
184 |
- |
|
Accrual for potential performance fee (see note 3) |
4,116 |
- |
|
Other payables |
279 |
266 |
|
4,579 |
266 |
Loans from third parties consist of £1,241,000 (ZAR 16,950,000) (30 June 2008:£1,069,000 (ZAR 16,950,000)) from Abbeydale Investment Holdings (Pty) Ltd and £825,000 (ZAR 11,300,000) (30 June 2008: £711,000 (ZAR 11,300,000)) from Sable Holdings Limited in relation to their combined ownership of 25% of Crimson King Properties 378 (Pty) Limited and the Gosforth Business Estate development.
A further £640,000 (ZAR 8,774,354) (30 June 2008: £552,000 (ZAR 8,774,354) from Abbeydale Investment Holdings (Pty) Ltd in relation to its 50% prospective interest in Madison Park Properties 36 (Pty) Ltd and the Waltloo Industrial Park development, £1,183,000 (ZAR 16,212,272) (30 June 2008: £nil) from Homa Adama Trust in relation to its 50% interest in Madison Park Properties 40 (Pty) Ltd and the Brakpan development and £219,000 (ZAR 3,000,000) (30 June 2008: £189,000 (ZAR 3,000,000)) from Justin Nash in relation to his prospective interest in Madison Park Properties 34 (Pty) Ltd and the Kyalami Residential Estate development. All the above loans are unsecured, interest free and carry no fixed terms of repayment.
15 Borrowings
Non-current liabilities
|
Group |
Group |
|
|
31 December 2008 |
30 June 2008 |
|
|
£'000 |
£'000 |
|
|
Secured bank loans |
1,105 |
- |
Current liabilities
|
Group |
Group |
|
|
31 December 2008 |
30 June 2008 |
|
|
£'000 |
£'000 |
|
|
Secured bank loans |
526 |
- |
Terms and debt repayment schedule:
|
Loan Amount |
Bank |
Effective interest rate |
Final Maturity date |
|
31 December 2008 |
|||
|
ZAR 15,151,024 |
Investec Bank |
South African Prime Rate minus 0.85% |
March 2010 |
|
ZAR 7,206,115 |
Imperial Bank |
South African Prime Rate minus 1.25% |
February 2009 |
16 Contingent Liabilities and Commitments
The indirect-subsidiary Wonderwall Investments 18 (Pty) Ltd had a contingent liability to advance up to £1.0 million (ZAR 13.2 million) being the balance under a Mezzanine Loan Agreement with Living 4 U Developments (Pty) Ltd to finance the African Renaissance development.
The indirect-subsidiary Crimson King Properties 378 (Pty) Ltd ("Crimson") had a contingent liability to contribute up to £164,180 (ZAR 2,250,000) in connection with bulk services that are being installed by a consortium of the owners of three adjacent properties including that owned by Crimson.
The subsidiary SAPSPV Holdings RSA (Pty) Ltd had a contingent liability of £364,845 (ZAR 5,000,000) in connection with senior debt obligations of equity accounted investee company Imbonini Park (Pty) Ltd.
17 Related Party Transactions
Brian Myerson is a director of the Group and the Investment Manager. At the balance sheet date he was Executive Chairman of Principle Capital Holdings S.A. (PCH), the ultimate parent company of the majority shareholder in the Investment Manager and through Concerto, he has a potential beneficial interest in the shares of PCH. A total of £834,853 has been invoiced by the Investment Manager in respect of the period ending 31 December 2008 (31 December 2007: £631,569). Further details are provided in note 3 above.
Brian Padgett is a director of Group's subsidiaries in South Africa, the Investment Manager, of PCH and of Silex Management Ltd (Silex), a company that was acquired by PCH in October 2007 that has been retained by the Group to administer its South African subsidiaries. He is also a shareholder in PCH. A total of £251,459 has been invoiced by Silex in respect of the period ending 31 December 2008 (31 December 2007: £221,176).
James Peggie is a director of Group's subsidiaries in South Africa for which he received no direct remuneration. He is part of the PCH management team and a shareholder in PCH.
Notes
1 Moody's Economy.com 19 January, 2009
2 Moody's Economy.com 19 January, 2009
3 Alec Hogg, 30 January 2009
4 Standard Bank; Residential Property Gauge; 1 July 2008
5 Absa House Price Indices, 9 January 2009
6 Absa Housing Review; First Quarter 2009
7 Ervin Rode; Rode's Report on the South African Property Market; 2008:4
8 Ervin Rode; Rode's Report on the South African Property Market; 2008:4
Related Shares:
South African Property Opportunities