Transcript VUKILE

2005 INTERIM RESULTS
for the six months ended 30 September 2005
Highlights
Distribution up 8.3% on strong property performance
Overall portfolio vacancy rate reduced to 3.8% of
gross rentals
R80m expansion and upgrading project launched
Securitisation will impact positively on full-year and
future results
Salient features of results
Net profit before tax, debenture interest and fair
value adjustment of R115m (2004: R75m) includes R33.9m from MICC
Net asset value per linked unit up to 654c from
494c at September 04 (+32.6%)
Distribution up to 32.5c from 30c (+8.3%)
Group income statement
Unaudited
six months
ended
30 Sept 2005
R000
Property revenue
Straight-line rental income accrual
275 196
13 797
Gross property revenue
288 993
Property expenses
(95 599)
Net profit from property operations
193 394
Administrative expenses
(5 595)
Investment and other income
1 313
Operating profit before finance costs
189 112
Finance costs
(73 981)
Net profit before debenture interest
115 131
Group income statement contd
Unaudited
six months
ended
30 Sept 2005
R000
Debenture interest
(94 518)
Net profit before fair value changes
20 613
Fair value adjustment
161 765
Net profit before taxation
182 378
Taxation
(28 149)
Net profit
154 229
Attributable to: Linked unitholders of the company
143 375
Minority shareholders
10 854
Reconciliation
Attributable profit after taxation
Unaudited
six months
ended
30 Sept 2005
R000
143 375
Adjusted for:
Change in fair value of investment properties
(175 562)
Straight-line rental accrual net of deferred taxation
11 766
Deferred taxation on change in fair value adjustment of investment properties
22 298
Debenture interest net of minority interest
86 982
Minority interest in revaluation surplus net of deferred taxation
10 063
Headline earnings of linked units
98 922
Adjusted for straight-line rental accrual net of deferred taxation
(11 766)
Earnings available for distribution
87 156
Distribution for six months ended 30 Sept 05
87 162
Group balance sheetat 30 Unaudited
Sept 2005
R000
ASSETS
Non-current assets
3 338 154
Current assets
45 931
Total assets
3 384 085
EQUITY AND LIABILITIES
Equity and reserves
422 865
Non-current liabilities
2 813 538
Current liabilities
147 682
Total equity and liabilities
NAV
Premium to NAV
Loan to value ratio
3 384 085
Sept 05
Sept 04
654 cents
494 cents
5.5%
39.7%
41%
The property portfolio
Vukile: 52 properties with GLA of 676 961m²
MICC: 40 properties with GLA of 395 322m²
(MICC to sell Sandton Sanlam Park for R60.25m cash, subject to conditions
precedent)
Vukile portfolio valued at R2.27 billion (up 6.4%)
MICC valued at R1.051 billion (up 4.9%)
The Vukile portfolio
National tenant groups - % of GLA and gross rentals
The Vukile portfolio
Lease expiry profile - % of gross rentals
The Vukile portfolio
Vacancy profile - % of gross rentals
Figures in brackets as at 31 March 2005 (Commercial space in Randburg re-classified)
The Vukile portfolio
Large vacancies (% of gross rentals)
Sept 04
Mar 05
Sept 05
Bloemfontein Plaza
21.2%
19.4%
10.7%
Randburg Square
23.6%
22.7%
23.7%
If Randburg excluded, overall vacancy drops to ± 1.8%
The Vukile portfolio
Sectoral spread - % of gross rentals
Figures in brackets prior to commercial space in Randburg re-classified
The Vukile portfolio
Geographical spread - % of GLA
The Vukile portfolio
New leases and renewals
Total contract value
R124 million
Total rentable area
71 060 m²
Includes
 CCMA in Durban Embassy (R16.1m)
 Bateman in Bedfordview GIS (R9.7m)
 Y Hotels in Bloemfontein Plaza (R9.1m)
The MICC portfolio
National tenant groups - % of GLA and gross rentals
The MICC portfolio
Lease expiry profile - % of gross rentals
The MICC portfolio
Vacancy profile - % of gross rentals
The MICC portfolio
Large vacancies (% of gross rentals)
Fredman Drive sold – commercial vacancy reduces to
11.8% (4.6% total)
With Fredman Drive out – Hillview, Randburg
contributes 35% of commercial vacancy (0.8% total)
i.e. if Fredman and Hillview out, overall vacancy drops
to 3.8%
The MICC portfolio
Sectoral spread - % of gross rentals
The MICC portfolio
Geographical spread - % of GLA
Combined portfolio
Number of properties
92
GLA
1 072 283m²
Market value
R 3.32 billion
Vacancy (% of gross rentals)
4.7%
Sectoral spread
• Retail
• Commercial
• Industrial
54%
34%
12%
Strategic objectives (annual report)
Enhancement of existing properties
Debt funding structure
Improvement of liquidity of linked units
Capex project
Board has approved R80m to upgrade and
expand Phoenix Plaza and Dobsonville
Phoenix Plaza GLA to be increased by 3 500m²
and Dobsonville by 5 000m²
Initial yield of ± 11% expected
Work to start in January and finish August 2006
CMBS Overview
Commercial Mortgage Backed Securitisation
(CMBS) used worldwide since late 1980s as
alternative to bank loans for commercial property
owners
Part of growing move towards disintermediation
(i.e. reduced reliance on traditional bank finance)
CMBS Overview contd
Cumulative Issuance
USD Millions
Number of New
CMBS Deals
140,000
54
48
120,000
42
100,000
33
80,000
26
22
60,000
21
36
30
23,844
24
20
13,801
18,120
40,000
13
18
21,100
13
18,045
11
12
5,900
20,000
4
2,300
1
4,200
6
200
300
0
0
1996
1997
1998
New CMBS Deals Per Annum
1999
2000
2001
2002
2003
2004
Cumulative Issuance (USD Millions)
2005 (May)
CMBS Overview contd
CMBS ± $120bn currently outstanding in Europe
South Africa’s first CMBS was launched in
November 2004.
Vukile launched second on
31 October, Growthpoint third on 23 November
CMBS Structure
CMBS is a substitute for bank debt through the use of a
special purpose vehicle (SPV)
The SPV makes a loan to the borrower and funds this loan
by issuing highly rated securitisation notes to capital
markets investors
The properties are generally (not always) held in an
insolvency-remote subsidiary SPV of the transaction
sponsor
CMBS Structure
Owner Trust
Borrower
CMBS
Notes
Secured Loan
Property
Portfolio
Securitisation
SPV
Investors
CMBS funding costs and benefits
Notes issued by SPV are rated by rating agency (e.g. Moody’s or Fitch)
Due to high credit rating of the notes, capital market investors prepared to
purchase with low margin
This low margin translates to lower cost of funds for SPV, which benefit is
passed back to borrower as lower margin on loan
In addition to lower funding costs, CMBS offers number of benefits to
property owners, including:
 Diversified funding base
 Decreased pressure on traditional credit lines
 Validation of asset and property management functions by the rating
agency
Vukile’s securitisation programme
R2 billion CMBS programme arranged by ABSA launched on
31 October 2005
First issuance of 5 and 7 year floating rate notes totalling
R770 million
Floating rate notes converted into fixed-rate exposure through interest
rate swaps
Overall debt cost, after all expenses and costs, will reduce from 11.16%
to 10% NACM
If in place for year ended 31 March 2005, earnings would have been
± 5% higher than reported
Future benefits if structure is utilised (set-up costs not repeated)
Liquidity
Trading volumes continue to improve :
 6 months to end March 2005 - R137 million
 6 months to end September 2005 – R174 million
(± 27%)
Average monthly trade
 6 months to end March 2005 – R22.8 million
 6 months to end September 2005 – R29.0 million
BEE initiatives
Discussions underway which may lead to
substantial portion of Sanlam shareholding (58%)
sold to BEE consortium
Acquisition of MICC
Vukile currently owns 75.003% of MICC’s issued
linked units
Making good progress towards acquiring balance
and delisting MICC
Cautionary announcement made on 22 November
2005
Prospects
Continued strong performance expected from
property portfolio
Prospects for further reduction in vacancies
Benefits of securitisation will start flowing through
in 2nd half and following years
Full-year distribution growth could be similar to
interims
Questions
?
END