PROPERTY ASSET MANAGERS ANNUAL · Consumer demand continues to be the major driver fuelling the...
Transcript of PROPERTY ASSET MANAGERS ANNUAL · Consumer demand continues to be the major driver fuelling the...
A D M I N I S T R A T I O N(Registration number: 1999/025764/06)
COMPANY SECRETARY AND REGISTERED OFFICE
Marriott Property Services (Pty) LimitedA subsidiary of Old Mutual Property Group (Pty) LimitedMarriott at Kingsmead,Kingsmead Office Park,Durban, 4001P O Box 207, Durban, 4000
PROPERTY ASSET MANAGERS
Marriott Property Services (Pty) LimitedA subsidiary of Old Mutual Property Group (Pty) LimitedMarriott at Kingsmead,Kingsmead Office Park,Durban, 4001P O Box 207, Durban, 4000
TRUSTEES
Steinway Trustees (Pty) LimitedThe Manor House,14 Nuttall Gardens,Morningside,Durban, 4001P O Box 712, Durban, 4000
TRANSFER SECRETARIES
Computershare Investor Services 2005 (Pty) Limited70 Marshall Street,Johannesburg, 2001P O Box 61051, Marshalltown, 2107
AUDITORS
KPMG Inc.20 Kingsmead Boulevard,Kingsmead Office Park,Durban, 4001P O Box 1496, Durban, 4000
COMMERCIAL BANKERS
FirstRand Bank Limitedt/a First National BankCorporate Account Services Durban8 Rydallvale Park,La Lucia Ridge Office Park,La Lucia Ridge, 4051P O Box 4130, Umhlanga Rocks, 4320
SPONSORS
Exchange Sponsors (Pty) Limited1st Floor, Building 3, North Wing Commerce Square,39 Rivonia Road, Sandhurst, SandtonP O Box 78011, Sandton, 2146
ATTORNEYS
Cox YeatsVictoria Maine,71 Victoria Embankment,Durban, 4001P O Box 3032, Durban, 4000
JSE code: SRLISIN code: ZAE 000034328Website: www.saretail.co.zaMember of the Property Loan Stock Association
A N N U A LR E P O R T2 0 0 6
Profile, Investment Objectives and Highlights 1
Directorate 2
Chairman's and Managing Director's Review 3
Statement on Corporate Governance 8
Linked Unitholders' Analysis 11
Linked Unitholders' Diary 13
Statement of Directors' Responsibilities 14
Approval of Annual Financial Statements 14
Certificate by Company Secretary 14
Report of the Independent Auditors 15
Directors' Report 16
Balance Sheet 20
Income Statement 21
Statement of Changes in Equity 22
Cash Flow Statement 23
Notes to the Annual Financial Statements 24
Property Portfolio 42
Notice of Annual General Meeting 45
Form of Proxy 47
Form of Proxy Notes 48
C O N T E N T S
This report together with additional information on the property portfolio is available at www.saretail.co.za
PROFILE
S A Retail Properties Limited (“S A Retail” or “the Company”)
is a property loan stock company which was listed on
The JSE Limited (“JSE”) in the “Financials – Real Estate”
sector on 15 November 2001.
The market capitalisation of the Company as at 31 March 2006
was R2 202 million (2005: R1 976 million) and the investment
properties were valued at R1,9 billion (2005: R1,5 billion).
The Company's retail property portfolio consists of investments
in 21 neighbourhood shopping centres, three regional shopping
centres and one semi-industrial property that was disposed
of post 31 March 2006.
INVESTMENT OBJECTIVES
S A Retail seeks to invest in a focused portfolio of retail
properties, which cater for the needs of stable communities,
are anchored by established retailers and which offer sustainable
rental growth and steady capital appreciation. In addition
to neighbourhood centres, S A Retail will invest in flagship
regional centres.
P R O F I L EI N V E S T M E N T
O B J E C T I V E S& H I G H L I G H T S
HIGHLIGHTS 2006 2005
• Total return 19,6% 67,1%
• Market capitalisation (Rm) 2 202 1 976
• Linked units in issue (000's) 225 874 225 874
• Listed market price
(cents per linked unit) 975 875
• Distribution (cents per linked unit) 71,18 69,20
• Number of properties 25 26
• Property acquisitions (Rm) 29 218
• Property disposals (Rm) 89 56
• Developments and
refurbishments (Rm) 171 24
• Value of property portfolio (Rm) 1 880 1 544
• Net asset value (cents per linked unit) 728 678
(including distribution yet to be paid)
• Vacancy factor 2,3% 2,8%
(based on lettable space)
(excluding development property)
• Premium to net asset value 33,9% 29,1%
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Members of the Investment and
Management Committee.
From left to right: Back: C J Ewin, W J Swain,
A P W Sparks and A M Hyatt. Front: A M Malan
and D L Pronk.
D I R E C T O R A T ER A Norton (67) M.A. (OXON)
Fellow Institute of Bankers $ (*by invitation)
Non-executive, independent
Chairman, Remuneration and
Nomination Committee Chairman;
Has extensive business experience in various corporate and
financial institutions in an executive and non-executive capacity.
Chairman of KwaZulu-Natal University Health (Pty) Limited,
a director of Grindrod Limited and Illovo Sugar Limited. Past
president of the JSE Limited.
A P W Sparks (37) BSc (Hon),
MTRP RICS # (*by invitation)
Executive director
Managing director
Has 11 years diverse property experience with the Marriott
Group. Member of S A Council of Town and Regional Planners
and the Royal Institute of Chartered Surveyors. Founding member
and past executive committee member of the Association of
Property Loan Stock Companies and past executive committee
member of SAPOA-KZN.
H S C Bester (56) B. Comm (Hon), (FIA) London,
AMP (Harvard) *
Non-executive, independent
Currently serving on the boards of Vukilé Property Fund Limited,
Barnard Jacobs Mellet and the Board of HTL GROUP (Pty)
Limited, (unlisted). Was a senior general manager and later an
executive director of Sanlam between 1997 and 2001. Before
1997, he held various positions in the Sanlam Group. Other
previous directorships include Gensec, Sankorp and Sanlam
Unit Trusts and the Board of Quantity Surveyors. He is a past
president of SAPOA, a former director of the Board of Quantity
Surveyors and served on the Van Huysteen Commission on
government properties.
C J Ewin (46) B. Comm CA (SA) * # ($ by invitation)
Non-executive
Has 16 years property experience with particular emphasis in
the listed property sector. The managing director of Marriott
Property Services (Pty) Limited, a member of the executive
committee of the Old Mutual Property Group (Pty) Limited, a
director of Marriott Property Fund Managers Limited and an
alternate director of Oryx Properties Limited. Past chairman of
the Association of Property Unit Trust Management Companies.
A M Hyatt (68) BA (Natal), FIV (SA) #
Non-executive
Has 44 years property experience incorporating all facets of the
property industry. Executive director of Marriott Holdings Limited,
director of various subsidiaries of Marriott Holdings Limited and
Oryx Properties Limited. Past president of the S A Institute
of Valuers.
W J Swain (65) CA (SA) * $ #
Non-executive, independent
Risk, Audit and Compliance Committee Chairman,
A director of Mr Price Group Limited and Chairman of
Natal Sharks (Pty) Limited. Other previous listed company
directorships held include BOE Limited, Commercial Finance
Company Limited and Congella Federation Limited. A past
partner of Ernst & Young.
U J Van der Walt (55) B. Econ (Hon), A.E.P $
Non-executive, independent
Has 35 years of property experience with the Sanlam Group,
eight of which as the managing director of Gensec Property
Services Limited. He is currently the managing director of Sanlam
Properties (Pty) Limited as well as the director of iFour. He is
a past president of SAPOA.
* Member of the Risk, Audit and Compliance Committee$ Member of the Remuneration and Nomination Committee# Member of the Investment and Management Committee
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LISTED PROPERTY MARKET REVIEW
The S A Listed Property Index (J253:SAPY) recorded an
exceptional 204% appreciation for the period 1 April 2002 to
31 March 2006. This appreciation and increased demand for
listed property was driven by firming bond yields and improved
earnings growth within the sector with continued retail buoyancy
and strong consumer demand benefiting especially retail property.
SAPY
Longer term performance
Source: INET Bridge
Listed property has strongly outperformed the other major asset
classes over the last four years as is demonstrated in the
following graph.
Performance: Property relative to other asset classes
Long-term performance
Source: INET Bridge
RETAIL PROPERTY MARKET REVIEW
Consumer demand continues to be the major driver fuelling the
thriving retail sector in South Africa. This consumer confidence
during the year in review has seen retailers performing well and
as a result occupying more space and opening new stores. This
demand from retailers has seen retail occupancy levels improve
and rentals firm.
The strength in consumer retail sales and consequent related
corporate profitability is unlikely to continue unabated.
Although favourable retail trading conditions are expected to
continue, caution is required.
Hyprop offer to Unitholders of S A Retail
The Board of Directors of S A Retail were advised on 31 March
2005 of Hyprop's firm intention to make an offer to the linked
unitholders of S A Retail to acquire all the linked units in
S A Retail.
The Hyprop offer finally closed almost 6 months later on
9 September 2005. Hyprop had acquired 7% of S A Retail linked
units in the open market prior to the opening of the offer and
25% from Redefine Income Fund as prior acceptance of the
offer. At the close of the offer Hyprop's stake in S A Retail stood
at 44%, an increase of 12% from the date the offer opened.
Since the closure of the offer, Hyprop has acquired an additional
2% of S A Retail linked units in the open market and at the date
of this report hold 46% of the S A Retail linked units.
S A RETAIL’S FINANCIAL RESULTS
A total distribution of R160,7 million (2005: R150,5 million) was
declared for the financial year ended 31 March 2006. S A Retail's
distributable income in cents for the period under review
amounted to 71,18 cents (2005: 69,20 cents). This represents
an increase of 3% on the 2005 financial year.
The corporate action by Hyprop Investments Limited (“Hyprop”)
against S A Retail during the year in review had a negative
influence on the Company's earnings and it has been calculated
that had it not been for this activity, the growth in distribution
for the reporting period would have been greater than 8%. The
5% reduction in distribution growth, is demonstrated as follows:
• S A Retail incurred R3,3 million in direct costs as a result of
the Hyprop offer. These costs, including corporate advisory,
announcements, legal, and sponsor fees were expensed in
the period under review and the consequence of this was a
2% reduction in distribution growth.
C H A I R M A N ' S & M A N A G I N GD I R E C T O R ' S R E V I E W
Property (J256) (204%)
Bonds (ALBI) (86%)
Equities (ALSI) (80%)
Cash (Stefi Call) (42%)
0
100
200
300
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J O D F2002 2003 2004 2005 2006
A A J O D FA A J O D FA A J O D FA A
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J O J A J O J A J O J A J O J2002 2003 2004 2005 2006
A
Property (SAPY)
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Prior to the declaration by Hyprop on 31 March 2005 of its
intention to make an offer to linked unit holders of S A Retail,
the Company was in advanced negotiations with vendors of
property with a value in excess of R300 million. In terms of the
SRP Regulations these negotiations were unable to be transacted.
Given the anticipated need for funding at this time prior to the
offer being made, and the demand for S A Retail linked units,
R124 million was successfully raised to pursue the said
acquisitions through the issue of S A Retail linked units as follows:
• 13 882 288 linked units on 8 March 2005 at a price of
680 cents per linked unit.
• 4 004 118 linked units on 18 March 2005 at a price of
680 cents per linked unit.
S A Retail was unable to benefit from the higher property yield
on these investment opportunities but the cash raised generated
comparatively low returns. The dilutionary impact on growth has
been calculated at 3%.
The distribution of 71,18 cents gives rise to a yield of 8,1% on
the listed price of 875 cents per linked unit on 1 April 2005, the
commencement of the 2006 financial year. As at 31 March 2006
the ruling price was 975 cents per linked unit, an appreciation
of 11,4%. Accordingly, the total return on S A Retail units during
the year under review was 19,6%.
S A RETAIL’S PRICE MOVEMENT
The following graph reflects S A Retail's positive price movement
during 2005 and for the year ended 31 March 2006.
S A Retail Properties Limited
1 April 2004 — 31 March 2006
Source: INET Bridge
S A RETAIL’S INVESTMENT POLICY
S A Retail's investment strategy is to procure a focused portfolio
of retail properties, catering for the needs of stable communities
and anchored by established retailers, which offers sustainable
rental growth and steady capital appreciation.
More specifically, S A Retail's investment objectives for the
2006 financial year were to:
• Trade out of underperforming assets with low growth potential.
• Increase retail investment in under serviced areas where
favourable trading opportunities exist.
• Build yield through developments and adding value by the
exploitation of unutilised potential in existing properties.
S A Retail has during the year in review:
• Disposed of three investment properties, with a cumulative
value R89,4 million, that no longer met with the Company's
investment philosophy.
• Purchased two investment properties to the value of
R29,2million.
• Secured in excess of R200 million of development activity in
pursuance of achieving an investment through yield of
10,75% in year one.
The following key investment criteria will continue to be
considered in assessing future acquisitions, developments and
disposals:
• Property investment to be located in stable communities
where primary and secondary spending capacity is unlikely
to be disrupted by extraneous factors such as demographic
change, decentralisation or competition.
• Properties should be located in well-established communities
or growth nodes.
• Line shop income should not exceed 60% of the portfolio
income. Leases with the major tenants should generally
exceed five years save for special circumstances where lease
renewal is assured.
• S A Retail will seek stable and complementary tenant mixes
incorporating both the major national retail chains and small
independent retailers and line shops.
C H A I R M A N ' S & M A N A G I N GD I R E C T O R ' S R E V I E W
continued
0
500
1000
1500
A M J J A S O N D2004 2005 2006
O N DJ F M A M J J A S J F M
S A Retail Properties Limited
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• Retail centres to be of an adequate size, well constructed,
visible, accessible to arterial routes and remain dominant
within their micro location.
The geographic spread of the properties in the portfolio should
generally follow regional contribution to GDP and the following
broad geographical spread is targeted:
50 – 60% Gauteng
20 – 30% KwaZulu-Natal
20 – 30% Western Cape
+ – 10% All other provinces
S A RETAIL’S PROPERTY PORTFOLIO
1. SAPIX/IPD Benchmarks
The S A Retail property portfolio has once again outperformed
the SAPIX/IPD benchmarks of total returns, vacancies and
operating costs. The total return generated by S A Retail's
portfolio of 32,6% for the 2005 calendar year compares to
the IPD universe of 28,8% and S A Retail's three year
annualised total return of 24,6% compares with the IPD
universe of 21,9% over the same period.
2. Portfolio Valuation
The value of S A Retail's property portfolio at year-end was
R1 879,7 million (2005: R1 544,4 million).
The S A Retail 31 March 2006 year end valuations were carried
out independently by Broll CB Richard Ellis (CBRE). The range
of discount and market capitalisation rates adopted in their
discounted cash flow analysis was 14,5% – 16,0% and 8,5%
to 12,0% respectively depending on the quality and profile of
the investment. The S A Retail portfolio was valued at a forward
yield of 9,5% (excluding development properties).
3. Acquisitions and Disposals
Four transactions, which were unconditional before the offer
was made by Hyprop, were transferred during the period
under review. Kyalami Downs and Cambridge Downs were
disposed of on 21 April 2005 for R53,8 million and
R25,5 million respectively and Florida Junction Shopping
Centre (50% undivided share) was disposed of on 13 July
2005 for R10,8 million. An assembly of 12 residential properties
to develop Kings Road Value Centre was transferred to
S A Retail on 13 June 2005 for R10,6 million.
Since the closing of the Hyprop offer in September 2005,
management have actively pursued a number of acquisition
opportunities.
Three transactions were concluded in the 1st quarter of 2006:
• Rhodesdene Shopping Centre, a R18,5 million quality
convenience shopping centre anchored by the highest
trading Pick 'n Pay in the S A Retail portfolio, was transferred
to S A Retail on the 24 February 2006;
• The R65,5 million acquisition of Willow Way Shopping
Centre in suburban Pretoria became unconditional on
31 March 2006. Willow Way is an 8 140m2 convenience
shopping centre anchored by a 2 564m2 SuperSpar with a
lease to 2014. Transfer took place in July 2006; and
• The sale of Kyalami Crescent for R30,7 million, the only non-
retail property in the portfolio, became unconditional in
March 2006 and transfer took place in August 2006.
Five acquisition proposals have been approved by the
S A Retail Board post 31 March 2006. Transfer of the properties
is pending, subject to the fulfillment of a selection of
predominantly statutory suspensive conditions. This includes
the proposed acquisition by S A Retail of:
• The Sharemax portfolio of properties for R995,8 million.
Unitholders are referred to the cautionary announcement
dated 11 July 2006 where it was reported that S A Retail
had entered into agreements with Sharemax Investments
(Pty) Limited to acquire a number of investment properties.
The S A Retail board approved the acquisition of the said
portfolio at a special board meeting on the 22 August 2006.
The acquisition remains conditional upon S A Retail linked
unitholder approval, shareholder approval from the respective
sellers and the required statutory approvals. A circular
detailing the effects of the transaction and proposed funding
will be distributed to S A Retail unitholders in October 2006;
• Hubyeni Shopping Centre, in the course of construction,
a 12 684m2 investment anchored by a 3 000m2 SuperSpar
in Elim, Limpopo Province, for R86,0 million;
• Dube Village Shopping Centre, a R43,3 million investment
anchored by a Shoprite Checkers on a long lease in
KwaMashu, Durban;
• Axiz IBG in Midrand for R92,0 million; and
• Summer Cottage in Fourways for R10,9 million.
4. Developments
In a pro-active undertaking to build yield rather than to purchase
relatively more expensive, lower yielding completed property
investments, management focused on securing a large pipeline
of development activity. The projected average return on capital
invested in these development projects during the year under
review is 10,75% which compares very favourably to current
acquisition yield of comparable retail property in the market
place of 8,0% – 9,5%. A short overview of each project follows:
• Umlazi MegaCity, a 31 000m2 regional shopping centre
developed jointly by S A Retail and Martprop Property Fund
at a total cost of R165 million and a projected initial yield
of 11,25%, opened on 1 April 2006. This major investment
in Durban will offer Umlazi residents a premier quality
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shopping centre anchored by a SuperSpar, Woolworths and
many of SA's leading national tenants. This investment in
Umlazi is trading exceptionally well. With an estimated
R400 million annual spend capacity from 900 000 residents
in Umlazi, the rental growth prospects and sustainability of
the investment are favourable. Construction of an additional
4 000m2 retail outlet for Hirsch and a 2 500m2 free-standing
outlet for a Nissan dealership will commence shortly.
• Construction commenced in November 2005 on the
8 363m2 Kings Road Value Centre in Pinetown, Durban, in
partnership with Vukilé Property Fund Limited at an estimated
total capital cost of R55 million and an anticipated initial
yield of 11,0%. This investment, adjacent S A Retail's and
Vukilé's successful R300 million Pine Crest Shopping Centre,
is anchored by a 2 500m2 SuperSpar and a number of SA's
leading national retailers. The centre is scheduled to open
in October 2006.
• The re-development of Bluff Shopping Centre, incorporating
an additional 7 500m2 of bulk at a capital commitment of
R77 million, is well advanced with Phase 1 having opened
in December 2005. National tenants will occupy
approximately 80% of the area of the new centre and
Phase 2, including a new 2 177m2 Woolworths store,
2 300m2 Edgars store and 1 000m2 Mr Price store will be
opening in the third quarter of 2006. The centre is currently
anchored by a 4 950m2 Shoprite Checkers. Adjacent to Bluff
Shopping Centre, on the same erven, S A Retail are currently
developing a 1 852m2 retail investment anchored by FNB,
Spur and Ocean Basket, at a capital cost of R12,5 million
and a projected initial yield of 10,6 %.
• The re-development of Highland Mews Shopping Centre
in partnership with Martprop Property Fund, increasing the
existing centre from 12 670m2 to 16 676m2 at a capital cost
of R41 million, is progressing very satisfactorily. The project
is driven by the requirements of the Foschini Group and
Truworths with deals for eight of their stores totalling
2 073m2 having been concluded. This investment will
accommodate most of SA's leading national fashion retailers
including the existing anchor, Woolworths.
• Additional significant upgrades and developments that were
satisfactorily completed during the period under review,
include a R6 million refurbishment of East Rand Galleria in
Boksburg and the completion of Phase 2 at Tokai Junction
in Cape Town at a capital cost of R49 million, the latter also
in partnership with Martprop Property Fund.
5. Sectoral and Geographic Allocation
S A Retail is a retail focused fund with only one non-retail
property in the portfolio. This property, Kyalami Crescent, was
sold in a post balance sheet event for R30,7 million.
S A Retail has increased its exposure to KwaZulu-Natal during
the period under review with developments in the province
including Umlazi MegaCity, Kings Road Value Centre and
Bluff Shopping Centre. The geographical spread for the
property portfolio is depicted in the graph below with
KwaZulu-Natal exposure at 45%, Gauteng 38%, Cape 13%
and Mphumalanga 4%.
Geographic spread% of year-end valuations
6. National Tenant Composition
The space occupied by national tenants, including anchor
supermarkets, has decreased to 69% in 2006 (2005: 72%).
Pick 'n Pay, Shoprite Checkers, Woolworths and Spar, South
Africa's largest supermarket chains, account for 41%, 16%,
10% and 9% of this national tenant area respectively. This
demonstrates the quality of the income streams that underpin
the S A Retail portfolio.
Analysis of spread of tenants per category% of total GLA of portfolio
Spread of tenants per national retailer% of total GLA of portfolio
Gauteng
Cape
KwaZulu-Natal
Mphumalanga
38%
13%
45%
4%
Vacancies
Anchor Tenants
National Tenants
Line Shops
38%
32%
28%
2%
41%
Pick n PayShopriteSparWoolworthsMr Price GroupPepkorClicksFoschini GroupEdcon GroupTruworths GroupFamous Brands16%
10%
9%
9%
4%3%
3%2%2%1%
C H A I R M A N ' S & M A N A G I N GD I R E C T O R ' S R E V I E W
continued
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7. Vacancies, Renewals Lease Expiries and Trading Densities
The year-end vacancy factor for the portfolio (excluding
properties under development) was 2,3%. This compares
favourably to the SAPIX/IPD benchmark for similar retail
property of 7,1% and reflects an improvement on the 2005
year-end vacancy factor of 2,8%. The portfolio expense ratio
of 32,1% is below the industry SAPIX/IPD benchmark.
S A Retail has maintained a favourable lease expiry profile.
Similar to 2005, the majority of the leases expiring over
the next three years are line shop leases which are
traditionally for a shorter duration. This favourable situation
is demonstrated in the following graph:
Lease Expiry Profile: Total Portfolio per m2
The trading densities of all the major national tenants in the
S A Retail portfolio are monitored on a monthly basis to ensure
that the necessary corrective intervention is implemented to
optimise the performance of the individual investments.
Management are currently satisfied that the trading densities
of tenants in the portfolio exceed the required minimum
benchmarks.
During the year under review the charge against income for
bad debts written off and provided for amounted to 0,75% of
gross revenue. This is considered satisfactory.
BEE
Subsequent to year-end, management has made considerable
progress towards concluding arrangements with BEE partners
for S A Retail. To this end, on 15 August 2006, the S A Retail
board approved two substantial black economic empowerment
(BEE) partners and agreements are in the process of being
finalised.
The S A Retail board is confident that these partners not only
have excellent BEE profiles and proven track records but will
play a meaningful role in furthering the Company's strategic and
transformation objectives with their property skills and experience,
as well as excellent relationships with capital market players.
Further details of the BEE parties will be announced shortly.
Whirlprops 33 (Pty) Limited (“Whirlprops”)
Whirlprops owns 64 388 474 units in S A Retail. The details and
obligations pertaining to these units are more fully described in
notes to these annual financial statements set out on pages 29
to 30.
Management and the S A Retail board have, on an ongoing basis
during the financial year, considered the merit of exercising the
Call right over the units owned by Whirlprops. The Call right has
not been exercised as this would have diluted both earnings
and net asset value. Management will continue to analyse the
impact of the Call right on the Company.
Prospects
The four major development projects referred to earlier in this
report are expected to contribute positively to S A Retail earnings
in 2007. The largest of these being Umlazi MegaCity which
opened on 1 April 2006 at a projected initial yield of 11,25%.
Management are proactively pursuing further acquisition activity
and development work which will enhance the profile and
critical mass of the portfolio and contribute to favourable
earnings growth.
Coupled with this investment activity, the Company is well
positioned to take advantage of continued consumer confidence
and increased tenant trading densities in the portfolio and
unitholders can expect to benefit accordingly.
R A Norton A P W Sparks
Chairman Managing Director
1 September 2006
2006 2007 2008 2009 2010+0
20000
40000
60000
80000
100000
120000
140000
12% 18% 13% 14% 40%
From left to right: R A Norton and A P W Sparks.
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INTRODUCTION
The board of directors endorse and during the year under review,
have adopted and applied, where applicable, the Code of
Corporate Practices and Conduct as set out in the King II Report.
In supporting the Code, the directors recognise the need to
conduct the enterprise with integrity and accountability in
accordance with generally accepted corporate practices.
The directors recognise that the application of the Code must
be reviewed and updated regularly. Accordingly, the Company's
corporate governance principles and practices have been reviewed
taking market practices into account, as well as compliance with
the Code.
BOARD CHARTER
The charter has been formally adopted by the board and has
been designed to take into account legislative requirements and
recommendations of the King II Report.
The purpose of the charter is to regulate how business is to be
conducted by the board in accordance with the principles of
good corporate governance and sets out specific responsibilities
to be discharged by board members. The objectives of the charter
are to ensure that all board members acting on behalf of the
Company are aware of their duties and responsibilities as board
members in terms of various legislation and regulations affecting
their conduct and to ensure that the principles of good corporate
governance are applied in any dealings in respect of, and on
behalf of, the Company.
BOARD OF DIRECTORS AND ITS SUB-COMMITTEES
The board acknowledges that it is responsible for ensuring
the following:
• determining the overall objectives of the Company, developing
the strategies to meet those objectives and monitoring
performance;
• good corporate governance and implementation of the
Code of Corporate Practices and Conduct as set out in the
King II Report;
• that the Company performs at an acceptable level and that
its affairs are conducted in a responsible and professional
manner;
• the board recognises its responsibilities to all stakeholders;
• determining and reviewing mandates and terms of reference
of board committees;
• monitoring the performance of the managing director, directors
and the asset managers; and
• approving and reviewing company policies, setting an approval
framework and monitoring the compliance of such approval
framework by directors and asset managers.
Although certain responsibilities are delegated to committees
and management, the board acknowledges that it is not
discharged from its obligations in regards to these committees'
responsibilities.
The board acknowledges its responsibilities in the following
areas:
• the adoption of strategy and ensuring that strategy is carried
out by management;
• monitoring of the operational performance of the business
against predetermined budgets;
• monitoring the performance of management at both operational
and executive level;
• ensuring that the Company complies with all laws, regulations
and codes of business practice.
The composition of the board and its sub-committees, viz: the
Investment and Management Committee, the Risk, Audit and
Compliance Committee and the Nomination and Remuneration
Committee, as set out on page 2, have established clear mandates.
The board consists of six non-executive directors (including the
chairman), four of which are independent and one executive
director. The non-executive directors' remuneration is subject
to the motivation of the remuneration and nomination committee,
recommendations made by the board and approved from time
to time in the annual general meeting. One third of the non-
executive directors retire annually by rotation and if available,
offer themselves for re-election to the members in the annual
general meeting. Non-executive directors are obliged to retire
at the annual general meeting following their 70th birthday.
Executive directors retire every five years and if available, offer
themselves for re-election to the members in the annual
general meeting. There are no directors' contracts in place.
S T A T E M E N T O NC O R P O R A T E G O V E R N A N C E
9
The directors bring a wealth of experience from their own fields
of business and ensure that debate on matters of strategy, policy,
progress and performance is robust, informed and constructive.
The roles of the chairman and an executive director do not vest
in the same person. The composition also ensured a high level
of independence on the board.
The board of directors' independence from the daily management
team or asset managers is maintained by:
• keeping the roles of the chairman and managing director
separate;
• the Risk, Audit & Compliance Committee consisting of a
majority of independent directors;
• the non-executive directors not holding service contracts and
their remuneration is not tied to the financial performance of
the company; and
• all directors having access to the advice and services of the
company secretary and are entitled to seek additional
independent professional advice on behalf of the affairs of
the Company, at the expense of the Company. The company
secretary provides guidance to the board as a whole and to
individual directors with regards to how their responsibilities
should properly be discharged in the best interests of the
Company. The secretary also oversees the appointment and
termination of new and old directors and assists the chairman
and the managing director in formulating governance and
board related issues.
The board which meets at least quarterly, retains full and effective
control over the Company and executive management. The board,
through a disciplined approach to reporting and accountability
within an approved approval framework monitors the performance
of executive management and the Company's major service
providers.
During the financial year under review there were eight board
meetings (four quarterly and four special). H S C Bester did not
attend one, and W J Swain did not attend two special meetings.
The overall directors attendance for the eight meetings
was 94,6%.
Directors have to obtain written clearance from the chairman of
the Company of any intention to trade in linked units in the
Company, whether directly or indirectly. Directors and any
employees of the property asset managers who become aware
of sensitive information cannot directly or indirectly trade in the
Company's linked units until such information becomes
knowledge of the public. The Company has a closed period
commencing one month prior to the month of its financial interim
or year end month.
The Company has established an Investment and Management
Committee which consists of an executive director, three non-
executive directors, and two representatives of the property
asset managers. The committee meets at least quarterly and
reports directly through to the main board and assists the board
of directors in the discharging of their duties relating to the
acquisitions, disposals and asset management of the property
portfolio of the Company.
The Risk, Audit and Compliance Committee, is chaired by a non-
executive independent director, and consists of a further two
non-executive directors (one of which is independent). The
chairman of the board, who is independent is invited to attend,
while the managing director of the company and the financial
manager of the asset manager, although not members of this
committee, are expected to attend. This committee meets at
least three times a year and these meetings are attended by
the external auditors. This committee provides assistance to the
board and its responsibilities include inter-alia:
• ensuring compliance with applicable legislation and the
requirements of the regulatory authorities;
• matters relating to risk, financial and internal control, accounting
policies, reporting and disclosure;
• reviewing and approving external audit findings, reports and
fees; and
• appointment or termination of the services of the external
auditors.
The minutes of the Risk, Audit & Compliance Committee are
open for inspection by members of the board of directors. There
is a close communication between the board of directors, Risk,
Audit & Compliance Committee and the external auditors. Areas
of control weakness will be brought to the attention of the
relevant parties and remedial action will be taken immediately
to ensure no loss or misstatements due to the inadequacy of
the internal control environment. Limited internal audit assurance
is obtained by interacting with the internal auditors of the
asset managers.
Risk management is the responsibility of the board, the adequacy
of which, is reviewed by the Risk, Audit and Compliance
Committee. It is the opinion of the board that the identified
areas of risk pertaining to the Company are contained by being
pro-actively managed and are not outside expected industry
expectations.
The Nomination and Remuneration Committee, is chaired by
the board chairman, who is independent and consists of a further
two non-executive, independent directors. This committee meets
twice a year and recommends to the board:
10
• the remuneration policy;
• remuneration of executive and non-executive directors for
recommendation to unitholders;
• recommendations to the board on the appointment of new
executive as well as non-executive directors to the board or
its sub-committees.
• succession planning.
EMPLOYMENT EQUITY
The Company having contracted out the property management
and property asset management of the underlying properties
has no direct employees. Accordingly it has no worker participation,
affirmative action programmes, employee share incentive
schemes, nor any other employee targeted programmes.
The board does, however, support and encourage their material
service providers to adhere to these recommended practices.
DIRECTORS’ RESPONSIBILITY
The directors are responsible for the preparation of the annual
financial statements that fairly represent the state of affairs of
the Company at the end of the financial year and the results for
the year as set out on pages 14 to 41. The financial statements
have been prepared in accordance with International Financial
Reporting Standards. The external auditors are responsible for
reporting on the annual financial statements. The directors
are further responsible for maintaining the accounting records,
internal controls and risk management as well as consistent use
of appropriate accounting policies supported by reasonable
judgements and estimates.
GOING CONCERN
The directors are of the opinion that the Company has adequate
resources to continue in operation for the foreseeable future
and that the annual financial statements have accordingly been
prepared on a going concern basis.
The auditors have concurred with the directors' statement on
internal controls and going concern.
ETHICS
The directors of the Company and staff of the asset manager
are required to observe the highest ethical standards, thereby
ensuring that business practices are conducted in a manner
which, in all reasonableness, is beyond reproach.
R A Norton A P W Sparks
Chairman Managing Director
1 September 2006
S T A T E M E N T O NC O R P O R A T E G O V E R N A N C E
continued
11
ANALYSIS OF UNITHOLDERS
Number of % of Number of % of
unitholders unitholders units held issued units
Size of holding
1 – 1 000 179 64,16 25 350 0,01
1 001 – 10 000 35 12,54 196 622 0,09
10 001 – 100 000 39 13,98 1 420 417 0,62
100 001 – 1 000 000 16 5,73 5 817 552 2,58
over 1 000 000 10 3,59 218 413 885 96,7
Total 279 100,00 225 873 826 100,00
Type of unitholders
Banks 2 0,72 3 920 0,00
Close Corporations 1 0,36 15 000 0,01
Endowment Funds 1 0,36 21 450 0,01
Individuals 213 76,34 482 044 0,21
Insurance Companies 4 1,43 11 355 913 5,03
Investment Companies 3 1,08 699 240 0,31
Mutual Funds 15 5,38 40 477 883 17,92
Nominees and Trusts 14 5,02 427 683 0,19
Other Corporations 1 0,36 8 000 0,00
Pension Funds 17 6,09 2 999 112 1,33
Private Companies 6 2,15 65 246 474 28,89
Public Companies 2 0,71 104 137 107 46,10
Total 279 100,00 225 873 826 100,00
Significant unitholders
Number of
units held %
Unitholders who are invested in 5% or more of the Company
Hyprop Investments Limited 104 137 007 46,10
Whirlprops 33 (Pty) Limited* 64 388 474 28,51
Marriott Asset Management Limited as nominee for various companies 30 148 128 13,35
Old Mutual Asset Management Limited as nominee for various companies 14 549 081 6,44
213 222 690 94,40
*A right to nominate two representatives to the board of directors
in terms of the Whirlprops funding arrangement.
L I N K E D U N I T H O L D E R S ' A N A L Y S I S& O T H E R J S E R E Q U I R E M E N T S
31 March 2006
12
Unitholder spread Number of % of % of
(Nominee holders analysed) unitholders unitholders units held issued units
Held by public 273 97,84 27 200 117 12,04
Held by non-public 6 2,16 198 673 709 87,96
Held by directors and associates of
the Company holdings 3 1,08 1 438 560 0,63
Strategic holdings (more than 10%) 3 1,08 197 235 149 87,33
Total 279 100,00 225 873 826 100,00
Units traded during the year ended 31 March 2006
Number of units traded 42 118 792
Units traded as a percentage of issued capital 18,64%
JSE Price History High Low Month-end close
March 2005 875
April 2005 840 790 840
May 2005 870 815 848
June 2005 846 810 846
July 2005 915 820 915
August 2005 961 871 960
September 2005 955 940 940
October 2005 950 940 950
November 2005 955 950 950
December 2005 950 950 950
January 2006 1 015 950 1 015
February 2006 977 960 977
March 2006 1 100 975 975
L I N K E D U N I T H O L D E R S ' A N A L Y S I S& O T H E R J S E R E Q U I R E M E N T S
31 March 2006continued
13
Financial year-end 31 March 2006
Annual general meeting 1 November 2006
Distribution plan dates in respect of the financial year ending 31 March 2007:
Anticipated Last date Units trade
Financial period distribution to trade cum- ex-distribution Record date Payment date
announcement distribution
1st Half to
30 September 2006 3 November 2006 17 November 2006 20 November 2006 24 November 2006 27 November 2006
2nd Half to
31 March 2007 4 May 2007 18 May 2007 21 May 2007 25 May 2007 28 May 2007
L I N K E D U N I T H O L D E R S ' D I A R Y
14
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The directors are responsible for the preparation of the annual financial statements with integrity, giving a true and fair view of thestate of affairs of the Company and of the profit or loss for the year. The financial statements are prepared in accordance withInternational Financial Reporting Standards and the Companies Act in South Africa. The accounting policies are consistently appliedand are supported by reasonable and prudent judgements and estimates. In preparing the annual financial statements the directorsare responsible for:
• selecting suitable accounting policies and then applying them consistently;
• making judgements and estimates that are reasonable and prudent; and
• stating whether applicable accounting standards have been followed in terms of International Financial Reporting Standardssubject to any material departures disclosed and explained in the annual financial statements.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time thefinancial position of the Company and which enables them to ensure that the annual financial statements comply with the CompaniesAct, 1973, as amended.
The directors are responsible for managing the risks and internal controls of the Company. In order for the directors to dischargetheir responsibilities, management has developed a system of internal controls. The risks and internal controls are continuallyreviewed and updated when necessary, primarily through the board's sub committee – The Risk, Audit and Compliance Committee.
The directors believe that the Company will be a going concern in the year ahead and accordingly have prepared the financialstatements on a going concern basis.
APPROVAL OF THE ANNUAL FINANCIAL STATEMENTS
The annual financial statements for the year ended 31 March 2006 as set out on pages 1 to 44 were approved by the board ofdirectors on 1 September 2006 and are signed on its behalf by:
R A Norton A P W Sparks
Chairman Managing Director
CERTIFICATE BY COMPANY SECRETARY
Marriott Property Services (Pty) Limited, in its capacity as Company Secretary of S A Retail Properties Limited, hereby certifiesthat to the best of its knowledge and belief, all returns required by a public company, in terms of the Companies Act, 1973, asamended, for the period 1 April 2005 to 31 March 2006 have been lodged with the Registrar of Companies and that all such returnsare true, correct and up to date.
Marriott Property Services (Pty) Limited
Company Secretary1 September 2006
S T A T E M E N T O F D I R E C T O R S 'R E S P O N S I B I L I T I E S , A P P R O V A L O F
T H E A N N U A L F I N A N C I A LS T A T E M E N T S & C E R T I F I C A T E B Y
C O M P A N Y S E C R E T A R Y31 March 2006
15
TO THE MEMBERS OF S A RETAIL PROPERTIES LIMITED
We have audited the annual financial statements of S A Retail
Properties Limited as set out on pages 16 to 41 for the year
ended 31 March 2006. These annual financial statements are
the responsibility of the Company's directors. Our responsibility
is to express an opinion on these annual financial statements
based on our audit.
We conducted our audit in accordance with International
Standards on Auditing. Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the annual financial statements present fairly, in
all material respects, the financial position of the Company at
31 March 2006, and the results of its operations and cash flows
for the year then ended in accordance with the International
Financial Reporting Standards and in the manner required by
the Companies Act in South Africa.
KPMG Inc.
Registered Auditor.
Per N Bhoola
Chartered Accountant (SA)
Registered Auditor
Director
1 September 2006
KPMG Inc.
20 Kingsmead Boulevard,
Kingsmead Office Park,
Durban
R E P O R T O F T H EI N D E P E N D E N T A U D I T O R S
16
The directors have pleasure in presenting the annual financial statements of the Company for the year ended 31 March 2006.
NATURE OF BUSINESS
S A Retail is a property investment company and is listed on the JSE Limited under the “Financials – Real Estate” sector.The Company derives its income from a focused retail portfolio of regional and convenience retail shopping centres.
ISSUED SHARE CAPITAL
At the beginning of the year there were 225 873 826 linked units in issue and this remained unchanged to 31 March 2006.Each linked unit comprises one ordinary share of 0,001 cent and one unsecured variable rate debenture of 499,999 cents.
FINANCIAL REVIEW
2006 2005
R'000 R'000
Headline earnings per linked unit (cents) (weighted) 71,22 81,29
Earnings per linked unit (cents) (weighted) 120,60 197,39
Distribution per linked unit (cents)
Interest 71,16 69,18Dividend 0,02 0,02
71,18 69,20
A final distribution comprising a dividend of 0,01 cents per ordinary share and interestof 38,22 cents per linked debenture (2005: 36,69 cents per linked debenture), totalling38,23 cents per linked unit (2005: 36,70 cents per linked unit) has been declared inrespect of the income distribution for the period 1 October 2005 to 31 March 2006.
Distribution analysis per linked unit (cents per linked unit):
For the period 1 April 2005 to 30 September 2005 (1 April 2004 to 30 September 2004) 32,95 32,50
For the period 1 October 2005 to 31 March 2006 (1 October 2004 to 31 March 2005) 38,23 36,70
71,18 69,20
The results of the Company are fully set out in the financial reports onpages 20 to 41 of this report.
DIRECTORATE
Details of the directors are set out on page 2 of this report.
The following directors held office for the year under review:
Director Directors' fees Directors' fees
2006 2005
R'000 R'000
Non-executive
R A Norton (Chairman) 115 40H S C Bester 70 40C J Ewin * 70 40A M Hyatt * 60 40W J Swain 85 40U J van der Walt 70 40F M Berkeley * (resigned 30 March 2005) – 30 #D G Gorven * (resigned 1 April 2005) – 30 #
Executive
A P W Sparks (managing director)
– As a director * 60 40– Basic salary º 715 650– Bonuses º 852 365
D I R E C T O R S ' R E P O R T31 March 2006
* Fees accrue to the corporate entity where the directoris employed.
# Fees were accrued pro-rata.º The executive director is employed and paid by
Marriott Property Services (Pty) Limited from assetmanagement fees earned as detailed on page 39.
17
Fees paid for the 2006 financial year include additional fees for the chairman and members of various sub-committees.
The following director changes were made during the period to the date of this report.
Resignations:
D G Gorven – (1 April 2005).
No directors have service contracts.
DIRECTORS’ INTERESTS
The joint beneficial interests of directors in the equity of the Company as at 31 March 2006 is 0,66% (1 438 560 units) and can
be analysed as follows:
Director Direct Beneficial Indirect Beneficial Total
2006 2005 2006 2005 2006 2005
Linked % Linked % Linked % Linked % Linked % Linked %
units units units units units units
A M Hyatt – – – – 1 356 021 0,60 1 356 021 0,60 1 356 021 0,60 1 356 021 0,60
C J Ewin – – – – 73 854 0,03 73 854 0,03 73 854 0,03 73 854 0,03
A P W Sparks 100 – 50 100 0,03 8 585 – 8 585 – 8 685 – 58 685 0,03
100 – 50 100 0,03 1 438 460 0,63 1 438 460 0,63 1 438 560 0,63 1 488 560 0,66
No directors held in excess of 1% of the equity of the Company at 31 March 2006.
A P W Sparks disposed of 50 000 linked units on 7 June 2005.
On the 19 May 2006, Old Mutual Property Group (Pty) Limited acquired certain of the business units from Marriott Holdings Limited.
As a result of the change in ownership of these business units from Marriott Holdings Limited, there is no longer any indirect
beneficial interest held by the directors in S A Retail.
Apart from the abovementioned trade and the adjustment to the indirect beneficial interest, there were no further changes in the
directors' interests between 31 March 2006 and 1 September 2006, being the latest practical date prior to finalisation of this
annual report.
BORROWINGS
The directors are authorised to borrow funds up to an amount not exceeding 55% (in terms of the Whirlprops covenant) of the
directors' bona fide valuation of the consolidated property portfolio and any other assets of the Company. At 31 March 2006, the
Company had interest bearing borrowings of R129 542 941 or 6,6% (2005: R23 493 943 or 1,4%) of asset value. These borrowings
attract interest at a variable rate of prime less 2,2% (2005: prime less 1,5%) per annum and expire in May 2014. The Company has
contingent liabilities as set out in notes 6 and 25 of the notes to the annual financial statements.
ACQUISITIONS AND IMPROVEMENTS
In June 2005, S A Retail took transfer of 12 residential properties in Kings Road adjacent to Pine Crest Shopping Centre. Conversion
from residential to an 8 363m2 value centre commenced in November 2005. This centre is anchored by a 2 500m2 SuperSpar.
Completion of the value centre is anticipated in October 2006 at a total capital cost of R55,0 million and at an initial yield of 11,0%.
Vukilé who own a 50% undivided share of Pine Crest Shopping Centre, have acquired a 50% undivided share of this development.
18
On the 24 February 2006, the company acquired a 2 981m2
convenience shopping centre known as Rhodesdene in Kimberley
for R18,5 million. This investment is anchored by 1 821m2
Pick 'n Pay with a lease until 2013.
R80,1 million was spent on capital improvements (excluding
development expenditure) during the financial year. This includes:
East Rand Galleria R6,5 million
Bluff Shopping Centre R47,5 million
Highland Mews R15,2 million
Tokai Junction R5,3 million
Pinecrest Shopping Centre R2,2 million
DISPOSALS
During the period under review, the Company disposed of three
properties, namely Cambridge Downs in Sandton, Kyalami Downs
in Kyalami and a 50% undivided share of Florida Junction in
Florida at a combined realised value of R89,6 million. A further
two properties (Kyalami Crescent in Kyalami and a basement in
Knowles Shopping Centre in Pinetown, of which S A Retail owns
a 50% undivided share) were disposed of post 31 March 2006
at a combined realised value of R33,4 million. The abovementioned
properties did not meet the Company's investment criteria.
HYPROP INVESTMENTS LIMITED ( HYPROP ) OFFER TO
UNITHOLDERS OF S A RETAIL
The board of directors of S A Retail were advised on 31 March
2005 of Hyprop’s firm intention to make an offer to the linked
unitholders of S A Retail to acquire all the linked units in
S A Retail not already owned by Hyprop (“Hyprop offer”).
The Hyprop offer finally closed six months later on
9 September 2005.
Hyprop had acquired 7% of the S A Retail linked units in the
open market prior to the opening of the offer and 25% from
Redefine Income Fund as prior acceptance of the offer. At the
close of the offer, Hyprop's share in S A Retail stood at 44%,
an additional 12%.
At the date of this report, Hyprop owns 46% of S A Retail linked
units in the open market.
POST BALANCE SHEET EVENTS
Acquisitions:
Willow Way Shopping Centre was acquired on 14 July 2006 for
R65,5 million at an initial yield of 9,1%. 7 119 565 linked units
were issued, at 920 cents per linked unit, in settlement of the
transaction.
Five acquisition proposals have been approved by the S A Retail
Board post 31 March 2006. Transfer of the properties is pending,
subject to the fulfillment of a selection of predominantly statutory
suspensive conditions. This includes the proposed acquisition
by S A Retail of:
• Dube Village Shopping Centre, a R43,3 million investment
anchored by a Shoprite Checkers on a long lease in KwaMashu,
Durban;
• Summer Cottage at a capital cost of R10,9 million and an initial
yield of 9,0%;
• Axiz IBG at a capital cost of R92,0 million and initial yield
of 9,5%;
• Hubyeni Shopping Centre at an estimated capital cost of
R86,0 million and an agreed initial yield of 9,5%. This
development is expected to open on 1 April 2007 at which
date S A Retail will take ownership, and
• The Sharemax portfolio of properties for R995,8 million.
Unitholders are referred to the cautionary announcement
dated 11 July 2006 where it was reported that S A Retail had
entered into agreements with Sharemax Investments (Pty)
Limited to acquire a number of investment properties. The
S A Retail board approved the acquisition of the said portfolio
at a special board meeting on the 22 August 2006. The
acquisition remains conditional upon S A Retail linked unitholder
approval, shareholder approval from the respective sellers and
the required statutory approvals. A circular detailing the effects
of the transaction will be distributed to S A Retail unitholders
in October 2006.
D I R E C T O R S ' R E P O R T31 March 2006
continued
19
Disposals:
The following property disposals have been effected:
• The basement area of the Knowles Shopping Centre was
sectionalised and transferred on the 11 July 2006 at a price
of R2,8 million.
• Kyalami Crescent was transferred on the 17 August 2006 at
a price of R30,7 million and an exit yield of 9,8%.
Black Economic Empowerment (“BEE”)
Subsequent to year end management has made considerable
progress towards concluding arrangements with BEE partners
for S A Retail. To this end, on the 15 August 2006 the S A Retail
board approved two substantial black economic empowerment
(BEE) partners and agreements are in the process of being
finalised.
The directors have considered all material post balance sheet
events up to the date of issue of the annual financial statements.
Other than those stated in this report, the directors are not
aware of any other material post balance sheet events and are
of the opinion that the Company has adequate resources to
continue in operation for the foreseeable future. The annual
financial statements have accordingly been prepared on a going
concern basis.
MANAGEMENT BY THIRD PARTY
S A Retail entered into a five year service agreement with
Marriott Property Services (Pty) Limited (a subsidiary of Marriott
Holdings Limited) on 30 September 2005 in respect of the
property asset management and property management of the
portfolio and its properties. On the 19 May 2006, the acquisition
of Marriott Property Services (Pty) Limited by the Old Mutual
Property Group (Pty) Limited was finalised, and as a result
Marriott Property Services (Pty) Limited has become a wholly
owned subsidiary of the Old Mutual Property Group (Pty) Limited.
CORPORATE GOVERNANCE
The directors endorse, and during the period under review, as
set out on pages 8 to 10, have adopted and applied where
applicable the Code of Corporate Practices and Conduct as set
out in the King II Report. By supporting the Code the directors
recognise the need to conduct the enterprise with integrity and
in accordance with generally accepted corporate practices.
R A Norton A P W Sparks
Chairman Managing Director
1 September 2006
20
2006 2005
Notes R'000 R'000
ASSETS
Non-current assets
Investment properties 2 1 788 198 1 394 793
At valuation 1 846 210 1 454 820
Prepaid letting commission 4 173 3 801
Rental straight line adjustment (62 185) (63 828)
Rental receivable – straight line adjustment 53 929 61 875
1 842 127 1 456 668
Current assets
Net receivables 39 348 18 070
Trade and other receivables 31 092 16 117
Rental receivable – straight line adjustment 8 256 1 953
Cash and cash equivalents 22 62 555 62 402
Properties classified as held for sale 3 33 439 89 600
135 342 170 072
TOTAL ASSETS 1 977 469 1 626 740
EQUITY AND LIABILITIES
Capital and reserves
Share capital and premium 4.1 33 238 33 238
Non-distributable reserves 4.2 381 999 257 769
Distributable reserves (9 590) 3 015
405 647 294 022
Non-current liabilities
Debentures 5 1 154 210 1 154 858
Fair value of Put obligation 6 17 722 12 118
Interest bearing borrowings 7 129 543 23 494
Deferred taxation 8 157 685 50 384
1 459 160 1 240 854
Current liabilities
Trade payables 4 138 9 014
Other payables 9 22 224 –
South African Revenue Services 3 3
Linked unitholders for distribution 86 297 82 847
112 662 91 864
TOTAL EQUITY AND LIABILITIES 1 977 469 1 626 740
B A L A N C E S H E E T31 March 2006
21
2006 2005
Notes R'000 R'000
Revenue 229 800 219 502
Contractual lease revenue 231 443 214 107
Straight line adjustment on leases (1 643) 5 395
Net rental income from properties 10 149 293 144 884
Interest earned 9 947 3 200
Finance costs – (1 429)
Capital (loss)/profit on disposal of investment properties (728) 48
Net profit before fair value adjustments 158 512 146 703
Write up on revaluation of investment properties 226 796 275 947
As per valuation 225 153 281 342
Adjusted for rental straight line adjustment 1 643 (5 395)
(Deficit)/surplus on revaluation of Put obligation 6 (5 604) 20 332
Net profit before debenture interest and taxation 379 704 442 982
Debenture interest (160 727) (150 435)
Net profit before taxation 218 977 292 547
Taxation 11 (107 307) (41 554)
Net profit attributable to linked unitholders 111 670 250 993
Earnings per share (cents) 14 49,44 123,41
(Weighted)
Diluted earnings per share (cents) 14 49,44 123,41
(Weighted)
Distribution per linked unit (cents) 15
Interest 71,16 69,18
Dividend 0,02 0,02
71,18 69,20
I N C O M E S T A T E M E N Tfor the year ended 31 March 2006
22
Non-
Share Share Distributable Distributable
Capital Premium Reserves Reserves Total
Notes R'000 R'000 R'000 R'000 R'000
Balance at 31 March 2004 2 33 236 21 675 (21 191) 33 722
Prepaid distribution received – – – 9 350 9 350
Net profit attributable to linked
unitholders – – – 250 993 250 993
Transfer to non-distributable
reserve 4.2 – – 236 094 (236 094) –
Dividend distributed – – – (43) (43)
Balance at 31 March 2005 2 33 236 257 769 3 015 294 022
Net profit attributable to linked
unitholders – – – 111 670 111 670
Transfer to non-distributable
reserve 4.2 – – 124 230 (124 230) –
Dividend distributed – – – (45) (45)
Balance at 31 March 2006 2 33 236 381 999 (9 590) 405 647
S T A T E M E N T O FC H A N G E S I N E Q U I T Y
for the year ended 31 March 2006
23
2006 2005
Notes R'000 R'000
OPERATING ACTIVITIES
Cash received from tenants 16 216 096 206 468
Cash paid to suppliers and employees 17 (63 718) (73 947)
Cash generated by operating activities 18 152 378 132 521
Interest received 9 947 3 200
Finance costs – (1 429)
Distribution to linked unitholders: 19
– Interest (157 278) (128 146)
– Dividend (45) (55)
Taxation paid 20 (6) (6)
Net cash inflow 4 996 6 085
INVESTING ACTIVITIES
Acquisition of investment properties 21 (29 213) (313 339)
Disposal of investment properties 89 475 56 082
Improvements to investment properties (171 066) (23 456)
Net cash outflow (110 804) (280 713)
FINANCING ACTIVITIES
Debentures issued (88) 300 110
Increase in interest bearing borrowings 106 049 23 494
Net cash inflow 105 961 323 604
Net increase in cash and cash equivalents 153 48 976
Cash and cash equivalents at beginning of the year 62 402 13 426
CASH AND CASH EQUIVALENTS AT END OF THE YEAR 22 62 555 62 402
C A S H F L O W S T A T E M E N Tfor the year ended 31 March 2006
24
1. Accounting policies
These are the first annual financial statements prepared in
accordance with International Financial Reporting Standards
(IFRS), the interpretations adopted by the International
Accounting Standards Board (IASB) and the requirements
of the South African Companies Act. IFRS 1 has been applied.
The accounting policies set out below have been applied in
preparing the financial statements for the year ended
31 March 2006, the opening IFRS balance sheet and
the 2005 annual financial statements were prepared in
accordance with South African Statements of Generally
Accepted Accounting Practice. A reconciliation is provided
in note 28.
The financial statements are prepared on the historical cost
basis, except for investments properties and financial
instruments which are carried at fair value. Properties classified
as held for sale are stated at the lower of carrying value and
the fair value less costs to sell.
The preparation of financial statements in conformity with
IFRS requires management to make judgements, estimates
and assumptions that affect the application of policies and
reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are
based on historical experience and various other factors that
are believed to be reasonable under circumstances, the
results of which form the basis of making judgements about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimate is revised if
the revision affects only that period, or the period of the
revision and future periods if the revision affects both current
and future periods.
1.1 Investment properties
Investment properties are held for the purpose of
earning rental income and for capital appreciation. The
cost of investment properties comprises the purchase
price and directly attributable expenditure. Subsequent
expenditure relating to investment properties is
capitalised when it is probable that future economic
benefits from the use of the asset will be increased.
All other subsequent expenditure is recognised as an
expense in the period in which it is incurred.
Expenditure incurred on letting commission is capitalised
and amortised over the period of the lease.
Investment properties are revalued annually at open
market values using the discounted cash flow method
of valuation. At 31 March 2006, all investment properties
were revalued by a registered valuer. It is the Company's
policy to revalue a minimum one third of the property
portfolio on a rotation basis by a registered valuer in
September (half year), in December (in line with
SAPIX/IPD reporting) and in March (financial year-end).
Investment properties under development are valued
using the fair value model. These properties are
developed for the continued use as investment
properties and therefore are not classified as property,
plant and equipment. Any gain or loss arising from the
change in fair value of the investment properties is
included in net profit for the year in which it arises and
is then transferred to the non-distributable reserve net
of deferred taxation in the statement of changes in
equity.
On disposal of investment properties, the difference
between the net disposal proceeds and the fair value
at the date of the last valuation is charged or credited
to the income statement. Revaluation gains/losses
accounted for in non-distributable reserves relating
to such disposals are transferred to/against the
distributable reserves in the statement of changes in
equity and realised capital profits are transferred to the
non-distributable reserve to comply with the terms of
the Debenture Trust Deed.
N O T E S T O T H EA N N U A L F I N A N C I A L S T A T E M E N T S
31 March 2006
25
Borrowing costs that are directly attributable to
investment properties that necessarily take a substantial
period of time to prepare for their intended use are
capitalised. Capitalisation continues up to the date that
the investment properties are substantially complete.
Capitalisation is suspended during extended periods
in which active development is interrupted.
1.2 Properties classified as held for sale
On initial classification as held for sale, the investment
property is recognised at fair value less costs to sell.
Any gain or loss arising from the change in fair value
of the investment property is included in net profit and
is then transferred to the non-distributable reserve net
of deferred taxation in the statement of changes in
equity.
1.3 Taxation
Income tax on the profit or loss for the year comprises
current and deferred tax.
Current tax comprises tax payable calculated on the
basis of the expected taxable income for the year, using
the tax rates enacted or substantially enacted at the
balance sheet date, and any adjustment of tax payable
for previous years.
Deferred tax is provided using the balance sheet liability
method, based on temporary differences. Temporary
differences are differences between the carrying
amounts of assets and liabilities for financial reporting
purposes and their tax base. The amount of deferred
tax provided is based on the expected manner of
realisation or settlement of the carrying amount of
assets and liabilities using tax rates enacted or
substantially enacted at the balance sheet date.
Additional income taxes that arise from the distribution
of dividends are recognised at the same time as the
liability to pay the related dividend.
A deferred tax asset is recognised to the extent that
it is probable that future taxable profits will be available
against which the associated unused tax losses and
deductible temporary differences can be utilised.
Deferred tax assets are reduced to the extent that it
is no longer probable that the related tax benefit will
be realised.
1.4 Provisions
Provisions are recognised when the Company has a
present legal or constructive obligation as a result of
past events, for which it is probable that an outflow of
economic benefits will occur, and where a reliable
estimate can be made of the settlement amount of
the obligation. Where the effect of discounting is
material, provisions are discounted. The discount
rate is a pre-tax rate that reflects current market
assessments of the time value of money and, where
appropriate, the risks specific to the liability.
1.5 Financial instruments
A financial asset or liability is recognised on the balance
sheet for as long as the Company is party to the
contractual provisions of the instruments.
Measurement
Financial instruments are initially measured at fair value,
which includes transaction costs except for those
financial instruments carried at fair value through profit
and loss. Financial instruments on the balance sheet
include trade and other receivables, cash and cash
equivalents and financial liabilities. Subsequent to the
initial recognition these instruments are measured as
set out below:
• Trade and other receivables:
Trade and other receivables are stated at amortised
cost less impairment losses.
• Cash and cash equivalents:
Cash and cash equivalents comprise cash balances
and call deposits and are measured at fair value.
• Financial liabilities:
Financial liabilities including trade and other payables
are measured at amortised cost using the effective
interest rate method. Debentures are recognised at
original debt less amortisations and principle
repayments. Derivative financial instruments are
recognised at fair value through profit and loss.
Interest bearing borrowings are initially measured at
the loan proceeds received net of direct transaction
costs. Subsequent to initial recognition interest
bearing borrowings are measured at amortised cost
using the effective interest rate method.
26
N O T E S T O T H EA N N U A L F I N A N C I A L S T A T E M E N T S
31 March 2006continued
Gains and losses on subsequent measurement of
instruments carried at fair value
Gains and losses arising from a change in fair value of
financial instruments are included in net profit or loss
in the period in which the change arises.
Set off
Financial assets and financial liabilities are offset and
the net amount reported in the balance sheet when
the Company has a legally enforceable right to set off
the recognised amounts, and intends either to settle
on a net basis, or to realise the asset and settle the
liability simultaneously.
Derecognition
Financial assets are derecognised when the Company
realises the rights to the benefits specified in the
contract, the rights expire or the Company surrenders
or otherwise loses control of the contractual rights that
comprise the financial asset. On derecognition, the
difference between the carrying amount of the financial
asset and proceeds receivable are included in the
income statement.
Financial liabilities are derecognised when the obligation
specified in the contract is discharged, cancelled or
expires. On derecognition, the difference between the
carrying amount of the financial liability, including related
unamortized costs, and amount paid for it are included
in the income statement.
1.6 Revenue recognition
Revenue
Revenue comprises gross rental income, including all
recoveries from tenants, excluding VAT. Turnover rental
is recognised when it is due in terms of the lease
agreement.
Operating lease receipts are recognised on a straight-
line basis over the lease term. There will be an offsetting
effect to the change in fair value, of investment property
in the income statement (where relevant).
1.7 Net finance costs
Financing costs comprise interest payable on borrowings
calculated using the effective interest rate method.
Interest earned
Interest earned is recognised at effective rates
of interest and is brought to income on a yield to
maturity basis.
1.8 Property letting fees
Letting fees are written off over the period of the lease,
with the deferred portion being included in investment
properties under non-current assets. Letting fees for
developments are capitalised to the cost of the property
when it is probable that future economic benefits
flowing from the asset will be increased.
1.9 Capitalisation of borrowing costs
Where the Company undertakes a major development
or refurbishment of a property, borrowing costs are
capitalised to the cost of the property concerned during
the construction period. Capitalisation is suspended
during extended periods in which active development
is interrupted.
1.10 Segmental information
On a primary basis, the Company operates in the
following geographical areas of South Africa:
• Gauteng
• KwaZulu-Natal
• Western Cape
It is the Company's investment philosophy to invest
only in retail property, therefore the Company can only
report on a primary segment basis. Segment results
include revenue and expenses directly attributable to
a segment and the relevant portion of the enterprise
revenue and expenses that can be allocated on a
reasonable basis to a segment.
Segment assets and liabilities comprises those
assets and liabilities that are directly attributable to the
segment or can be allocated to the segment on a
reasonable basis.
27
1.11 Impairment
The carrying amounts of the Company's assets, other
than investment property and deferred tax assets are
reviewed at each balance sheet date to determine
whether there is an indication of impairment. If any
such indication exists, the asset's recoverable amount
is estimated.
An impairment loss is recognised whenever the
carrying amount of an asset exceeds its recoverable
amount. Impairment losses are recognised in the
income statement.
The recoverable amount is the greater of their fair
value less cost to sell and value in use. In assessing
value in use, the estimated future cash flows are
discounted to their present value using a pre-tax
discount rate that reflects current market assessments
of the time value of money and the risks specific to
the asset.
An impairment loss is reversed if there is an indication
that the impairment loss may no longer exist and there
has been a change in the estimates used to determine
the recoverable amount.
An impairment loss is reversed only to the extent that
the asset's carrying amount does not exceed the
carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment
loss had been recognised.
1.12 Jointly controlled assets
Where the Company has interest in jointly controlled
assets, the Company records its share of the jointly
controlled assets, classified according to the nature
of the assets, rather than as an investment. Liabilities
in respect of the jointly controlled asset are recognised
to the extent it has been incurred by the Company.
The Company recognises rental income of its share
of the output of the joint venture, together with its
share of any expenses incurred by the joint venture.
Any direct expenses that the Company has incurred
in respect of its interest in the joint venture is also
recognised by the Company.
Because the assets, liabilities, income and expenses
are recognised in the financial statements of the
venturer, no adjustments or other consolidation
procedures are required in respect of these items
when the venturer presents consolidated financial
statements.
1.13 Accounting estimates and judgements
Management discusses with the audit committee the
development, selection and disclosure of the
Company's critical accounting policies and estimates
and the application of these policies and estimates.
In applying the Company's accounting policies, critical
judgements are made:
• Determining the capitalisation rates used to value
investment properties. Changes in market conditions
may result in capitalisation rates being revised and
the fair value of investment properties adjusting
accordingly. Independent valuers are consulted in
determining the applicable capitalisation rates.
• Determining if an investment property will be
recovered through sale or use.
28
2006 2005
R'000 R'000
2. Investment properties
Cost of fixed property 1 081 717 1 081 766Subsequent expenditure* 211 127 41 321Revaluation 553 366 331 733Prepaid letting commission 4 173 3 801Rental straight line adjustment (62 185) (63 828)
Carrying value 1 788 198 1 394 793
Movements in investment properties:Carrying amount at beginning of the year 1 394 793 1 022 099At valuation 1 454 820 1 077 730Prepaid letting commission 3 801 2 802Straight line rental adjustment (63 828) (58 433)Acquisitions 29 213 217 926Disposals – (56 082)Improvements** 170 463 23 456Revaluation 225 153 281 390Increase in prepaid letting commission 372 999Adjustments for rental straight line 1 643 (5 395)Transfer to investment properties held for sale (33 439) (89 600)
Carrying amount at end of the year 1 788 198 1 394 793
* includes cumulative interest capitalised of R10 327 699.
** includes interest capitalised of R7 344 134 at prime less 2,2%(2005: R1 752 624 at prime less 1,5%) rate of interest.
Property descriptions of freehold and leasehold investment properties aredetailed on pages 42 to 44 of this report.
Investment properties are encumbered as per note 6.
Investment properties were valued independently by Broll C B Richard Ellis whoare registered with the South African Council of Valuers using the discountedcash flow method.
3. Properties classified as held for sale
(Date of classification)
Knowles Shopping Centre – Basement, Pinetown, KwaZulu-Natal 14 December 2005 2 761 –Kyalami Crescent, Kyalami, Gauteng 3 March 2006 30 678 –Cambridge Downs, Sandton, Gauteng 20 September 2004 – 25 250Florida Junction, Florida, Gauteng 5 November 2004 – 10 750Kyalami Downs, Kyalami, Gauteng 2 February 2005 – 53 600
33 439 89 600
The above properties were considered as non-core holding and no impairmentlosses have been recognised.
4. Share capital and reserves
4.1 Share capital
Authorised500 000 000 ordinary shares of 0,001 cent each 5 5
Issued225 873 826 (2005: 225 873 826) ordinary shares of 0,001 cent each 2 2
N O T E S T O T H EA N N U A L F I N A N C I A L S T A T E M E N T S
31 March 2006continued
29
2006 2005
R'000 R'000
Share premium
Premium arising on listing 50 342 50 342Share issue expenses on listing (17 106) (17 106)
33 236 33 236
33 238 33 238
Each share is linked to a debenture, which together comprises a linked unit.
The unissued linked units are under the control of the directors until thenext annual general meeting.
4.2 Non-distributable reserves
Investment property revaluation reserve:Revaluation of investment property 556 887 321 115Rental straight line adjustment (8 072) (21 412)Deferred tax (158 646) (43 457)
Realised capital profit:Investments properties (9 556) 1 791Capital gains tax 1 386 (268)
381 999 257 769
Movement for the year:
Balance at the beginning of the year 257 769 21 675Net surplus on write up of investment property 124 852 236 053On revaluation 112 268 240 745On rental straight line adjustment 12 584 (4 692)Capital (loss)/profit on disposal of investment property (622) 41
Balance at the end of the year 381 999 257 769
5. Debentures
225 873 826 (2005: 225 873 826) unsecured variable rate debentures of499,999 cents each, net of amortised debenture issue expenses 1 154 210 1 154 858
The debentures are valued at amortised cost at rates approximating the distributionyield of the Company or the acquisition yield of the properties over the expectedperiod of repayment.
In terms of the debenture trust deed, the interest entitlement of every debenturelinked to each ordinary share cannot be less than 90% of net earnings of theCompany before debenture interest, amortisation, taxes and before any revaluationsthat are transferred to any non-distributable reserve. Debenture interest is payablesemi-annually. The debentures are redeemable after 25 years from November 2001at the instance of the debenture holders, commencing from November 2026.
6. Fair value of Put obligation and Call right 17 722 12 118
In terms of IAS 39, the accounting statement on financial instruments,the Put obligation and the Call right that exists between S A Retail andWhirlprops has been fair valued at 31 March 2006.
In terms of the accounting standard, the fair value adjustment at31 March 2006 has been charged to the income statement. Thisadjustment has had no effect on distributable income.
30
N O T E S T O T H EA N N U A L F I N A N C I A L S T A T E M E N T S
31 March 2006continued
Put obligation
The fair value of the Put obligation that Whirlprops has onS A Retail at 31 March 2006, based on the assumption that thePut will be exercised by Whirlprops in November 2011, is ashortfall of R17,7 million (2005: R12,1 million). This equates toa decrease in the net asset value of 7,8 cents per linked unit(2005: 5,4 cents per linked unit); a dilution of 1,1% (2005: 0,8%).The fair value of the Put obligation was determined by presentvaluing the terminal value in November 2011 having givencognisance to projected interest rates and distribution growth.
The fair value assumptions were reviewed by the directors forreasonableness.
Background to transaction
Whirlprops subscribed for 64 388 474 units in S A Retail at anissue price of 578,18 cents per linked unit in November 2001.Nedcor Investment Bank Limited and BoE Bank Limited (nowNedcor Investment Bank Limited), the funding banks, advancedR372,2 million to fund the investment. The loans at 31 March2006 comprise a fixed loan of R310,0 million (2005: R310,0million) bearing interest fixed at 12,85% per annum (2005:12,85% per annum) repayable in 5 years and 8 months and avariable loan of R121,3 million (2005: R116,5 million) bearinginterest at either 2,25% (2005: 2,25%) above the JohannesburgInter Bank Agreed Rate or 1,5% (2005: 1,5%) below the primeoverdraft rate, at the election of Whirlprops. Both loans will berepaid from the distributions by S A Retail and the sale of linkedunits. The linked units owned by Whirlprops rank pari passu inall respects with all linked units issued by S A Retail save forthe Put obligation described below:
The Put obligation given by S A Retail to the funding banks isfor their shares in Whirlprops and their sale claims or alternativelythe linked units in S A Retail owned by Whirlprops. The pricingof such shares is the greater of the 30 day weighted averagetrading price of S A Retail, or the outstanding loans to the banksin Whirlprops, plus all applicable cancellation costs relating tosuch loans. The net cost to S A Retail had the Put obligationbeen exercised at 31 March 2006 would have beenR230,4 million (2005: R17,1 million), being the excess of theaverage trading price per linked unit above the outstanding loanplus cancellation costs. The Put obligation is only exercisable ifthe covenants set out below are breached or any time afterNovember 2011. All covenants were maintained during the yearunder review.
• The distributions of S A Retail for the periods set out belowshall not be less than:– From listing to 31 March 2002 20,29 cents;– 1 April 2002 to 31 March 2003 55,62 cents;– 1 April 2003 to 31 March 2004 60,01 cents;– 1 April 2004 to 31 March 2005 63,74 cents;– 1 April 2005 to 31 March 2006 67,46 cents;– 1 April 2006 to 31 March 2007 63,87 cents;– 1 April 2007 to 31 March 2008 65,78 cents;– 1 April 2008 to 31 March 2009 67,76 cents;– 1 April 2009 to 31 March 2010 69,79 cents;– 1 April 2010 to 31 March 2011 71,88 cents or
• S A Retail fails to make two distributions per financial year; or
• S A Retail encumbers its assets without the prior writtenconsent of Whirlprops; or
• S A Retail borrows, issues guarantees, suretyships or otherwise
incurs liabilities, actual or contingent, in excess of R5 millionin the aggregate without the prior written consent of Whirlprops;or
• the borrowings of Whirlprops from the funding banks at anytime exceed 55% of the net asset value excluding thedebenture liabilities of S A Retail. At 31 March 2006 theborrowings were 27,6% (2005: 30,7%) of net asset value; or
• S A Retail grants any other party a Put option without theconsent of Whirlprops; or
• the rental income of S A Retail for four consecutive monthsduring the first five years is below 75% of the projected rentalstream; or
• a judgement in excess of 1,5% of the value of the propertiesbe granted against S A Retail and an appeal is not lodgedagainst the judgement or should S A Retail attempt tocompromise with any of its creditors; or
• S A Retail fails to ensure that the properties are insured; or
• any redemption or repayment of debentures without the priorwritten consent of Whirlprops; or
• at any time after 15 November 2011.
After the Put obligation has been exercised the linked units inS A Retail owned by Whirlprops will be either cancelled throughtheir repurchase or traded on the open market. Any sale of linkedunits owned by Whirlprops will cause a pro-rata reduction in thevalue of the Put obligation and must first be applied against theoutstanding loans.
Call right
S A Retail has a Call right, exercisable at any time, whereby thelinked units held by Whirlprops can be redeemed at the greaterof the value of the market value of the linked units based upona 30 day weighted average trading price of S A Retail or thevalue of the outstanding loan in Whirlprops including allapplicable cancellation costs relating to such loans and apremium. The premium on the Call right is 2% on the value ofthe outstanding fixed loan and 1% on the variable loan. It is notthe intention of management to exercise the Call right inthe future. The net cost to S A Retail had the Call right beenexercised at 31 March 2006 would have been R223,0 million(2005: R9,8 million).
Notarial Deeds of Restraint
The following properties are subject to Notarial Deed of Restraintof free alienation in favour of Nedbank Limited in terms of theWhirlprops arrangement:• East Rand Galleria• Eikestad Mall• Value Centre Springfield• Hayfields Mall• Coachman's Crossing• Cambridge Crossing• Bluff Shopping Centre• Queensburgh Shopping Centre• Kyalami Cresent (disposed post 31 March 2006)• Middelburg Pick 'n Pay• The Quarry Shopping Centre• Checkers Somerset West• Canterbury Crossing• Kempton Park Shoprite
2006 2005
R'000 R'000
7. Interest bearing borrowings
Secured variable rate loansNedbank Limited
The terms are as follows:
A facility available to the Company of R140,0 million; the loan attracts interest at 129 543 –prime less 2,2% per annum; interest is payable monthly in arrears with thecapital being repayable in November 2011; and the loan is secured by the notarialdeed in restraint of free alienation over the investment properties in terms of theWhirlprops financing structure as detailed in note 6 above.
The Company has further facilities available with Nedbank Limited. As at 31 March2006 the Company had repaid the outstanding borrowings. Terms of the facilities areas follows:
• A facility available to the Company of R187,5 million; the loan attracts interest atprime less 2,2% (2005: 1,5%) per annum; interest is payable monthly in arrearswith the capital being repayable in November 2011; and the loan is secured by thenotarial deed in restraint of free alienation over the investment properties in termsof the Whirlprops financing structure as detailed in note 6 above. – –
• A facility available to the Company of R25 million, the loan attracts interest at primeless 2,2% (2005: 1,5%) per annum; interest is payable monthly in arrears with thecapital being repayable in May 2014; and the loan is secured by way of a mortgagebond over the investment property known as “Town Square” for R25 million. – 23 494
8. Deferred taxation
Movements in deferred taxation:Balance at beginning of the year 50 384 8 835Charged to income statement 107 301 41 549
Deferred tax on property related assets 109 460 41 512Other temporary differences charged to the income statement (2 159) 37
Balance at end of the year 157 685 50 384
Analysis of deferred tax charged to the income statement:Deferred tax on property related assets 109 460 41 512Prepaid expenses (5) 312Accelerated capital allowances 659 355Other allowances (545) –Assessed losses (2 268) (630)
107 301 41 549
Composition of deferred taxation:Deferred tax on property related assets 159 340 49 880Other deferred tax assets (4 738) (1 925)Sundry deferred tax liabilities 3 083 2 429
157 685 50 384
31
32
2006 2005
R'000 R'000
9. Other payables 22 224 –
As at 31 March 2006 development expenditure to the value of R22 224 000 asdetermined by a Quantity Surveyor was accrued for at year-end.
10. Net rental income from properties
Net rental income is arrived at after taking the following items into account:
Audit fees
Current 338 205Other services 53 3Underprovision prior year 60 –
451 208
Asset management fee 7 610 4 863
Property expensesAdministration fees 6 772 6 591Letting fees 2 512 2 335
9 284 8 926
Debenture amortisation 559 42
Directors' emoluments:For services of executive director 60 40For services of non-executive directors 470 300Underprovision prior year 20 –
550 340
11. Taxation
S A Normal taxationCurrent – –Deferred tax other (2 159) 37Deferred tax on property related assets 109 460 41 512Secondary taxation on companies 6 5
107 307 41 554
Reconciliation of tax rate:
Taxation as a percentage of profit:Effective tax rate 49,00% 14,20%
Unrecognised tax on property related assets (49,99%) (14,19%)Secondary tax on companies – –Disallowable expenses 29,99% 29,99%
Standard tax rate 29,00% 30,00%
No current taxation has been provided for as the Company has a loss for taxationpurposes estimated to be R14 459 000 (2005: R6 636 000).
N O T E S T O T H EA N N U A L F I N A N C I A L S T A T E M E N T S
31 March 2006continued
33
2006 2005
R'000 R'000
12. Headline earnings per linked unit 71,22 81,29
(Cents per linked unit)
The calculation of headline earnings per linked unit is based on profit attributable
to unitholders of R160 856 964 (2005: R165 327 039) (refer to note 15) and
225 873 826 (2005: 203 365 682) weighted average linked units in issue during
the year.
13. Earnings per linked unit 120,60 197,39
(Cents per linked unit)
The calculation of earnings per linked unit is based on profit attributable to unitholders
adjusted for the payment of debenture interest of R272 396 747
(2005: R401 427 708) and 225 873 826 (2005: 203 365 682) weighted average
linked units in issue during the year.
14. Headline earnings per share and earnings per share
In terms of the JSE listing requirements it is mandatory to disclose headline
earnings per share and earnings and diluted earnings per share is required by IFRS.
The disclosure below is not meaningful to investors as the shares are linked to a
debenture and virtually all the distributable profit is distributed in the form of
debenture interest.
Headline earnings/(loss) per share 0,06 7,32
(Cents per share)
The calculation of headline earnings per share is based on a profit attributable
to shareholders of R130 660 (2005: R14 891 815) (refer to note 15) and
225 873 826 (2005: 203 365 682) weighted average shares in issue during
the year.
Earnings per share and diluted earnings per share 49,44 123,41
(Cents per share)
The calculation of earnings per share and diluted earnings per share is based on
profit attributable to shareholders of R111 670 443 (2005: R250 992 485) and
225 873 826 (2005: 203 365 682) weighted average shares in issue during
the year.
34
2006 2006 2005 2005
R'000 c/u R'000 c/u
15. Reconciliation of weighted average earnings per
share to weighted average headline earnings per
share to headline earnings per linked unit
Earnings and diluted earnings 111 670 49,44 250 993 123,41Net surplus on write up of investmentproperties (net of deferred taxation) (112 268) (49,70) (236 053) (116,07)
Loss/(profit) on disposal of investmentproperty 728 0,32 (48) (0,02)Headline earnings per share 130 0,06 14 892 7,32Debenture interest 160 727 71,16 150 435 73,97Headline earnings per linked unit 160 857 71,22 165 327 81,29
Headline earnings per linked unit have beenbased on the weighted average number of linkedunits in issue and therefore cannot be compared tothe total distribution of 71,18 (2005: 69,20) centsper linked unit, which has been derived as follows:
For the period 1 April 2005 to 30 September 2005(1 April 2003 to 30 September 2003) 32,95 32,50
For the period 1 October 2005 to 31 March 2006 38,23 36,70(1 October 2003 to 31 March 2005)
71,18 69,20
Distributable earnings are not impacted by therevaluation of the Put obligation (ISA 39 fair valueadjustment) or rental straight line adjustment, whichis included in earnings per linked unit and headlineearnings per linked unit.
16. Cash received from tenants
Revenue 229 800 219 502Rental straight line adjustment 1 643 (5 395)Increase in trade and other receivables (15 347) (7 639)
216 096 206 468
17. Cash paid to suppliers and employees
Revenue 229 800 219 502Net rental income from properties (149 293) (144 884)
80 507 74 618
Amortisation of debenture premium, discountand expenses 559 42Increase in trade and other payables (17 348) (713)
63 718 73 947
N O T E S T O T H EA N N U A L F I N A N C I A L S T A T E M E N T S
31 March 2006continued
35
2006 2005
R'000 R'000
18. Cash generated by operating activities
Net rental income from properties 149 293 144 884Adjusted for:
Rental straight line adjustment 1 643 (5 395)Amortisation of debenture issue expenses (559) (42)Working capital changes
Increase in trade and other receivables (15 347) (7 639)Increase in trade and other payables 17 348 713
152 378 132 521
19. Distribution to linked unitholders
Debenture interest paid is reconciled as follows:
Amounts unpaid at beginning of the year (82 825) (60 536)Amounts charged to the income statement (160 727) (150 435)Amounts unpaid at end of the year 86 274 82 825
(157 278) (128 146)
Dividends paid are reconciled as follows:
Amounts unpaid at beginning of the year (23) (35)Amounts declared during the year (45) (43)Amounts unpaid at end of the year 23 23
(45) (55)
(157 323) (128 201)
20. Taxation paid
Taxation paid is reconciled as follows:
Amounts unpaid at beginning of the year (3) (4)Amounts charged to the income statement (107 307) (41 554)Deferred tax charged to the income statement 107 301 41 549Amounts unpaid at end of the year 3 3
(6) (6)
21. Acquisition of investment properties
Total acquisition of investment properties (29 213) (217 926)Property acquisition obligation – (95 413)
(29 213) (313 339)
22. Cash and cash equivalents at end of the year
Cash and cash equivalents included in the cash flow statementcomprise the following amounts:
Cash at bank 11 937 1 648Cash on call and fixed term deposits 50 618 60 754
62 555 62 402
36
Year-end 31 March 2006 KwaZulu-Natal Gauteng Western Cape Corporate Total
R'000 R'000 R'000 R'000 R'000
23. Segment results
Income Statement
Revenue (external) 92 315 134 921 2 564 – 229 800Contractual lease revenue 107 758 91 345 32 340 – 231 443Straight line adjustment (15 443) 43 576 (29 776) – (1 643)
Segment result
Net rental income 60 272 109 351 (7 531) (12 799) 149 293Interest received 310 646 567 8 424 9 947Finance costs – – – – –Capital loss on disposal ofinvestment properties – (728) – – (728)Write up on revaluation ofinvestment properties 134 134 45 969 46 693 – 226 796As per valuation 118 691 89 545 16 917 – 225 153Adjustment for rentalstraight line 15 443 (43 576) 29 776 – 1 643Revaluation of Put obligation – – – (5 604) (5 604)Debenture interest (76 022) (66 418) (22 812) 4 525 (160 727)
118 694 88 820 16 917 (5 454) 218 977
Other information
Investment properties 910 511 631 433 246 254 – 1 788 198At valuation 930 970 664 998 250 242 – 1 846 210Prepaid letting commission 1 579 2 200 394 – 4 173Rental straight lineadjustment (22 038) (35 765) (4 382) – (62 185)Current and other long-termassets 41 354 88 103 12 396 47 418 189 271Excluding rental straightline adjustment 19 316 52 338 8 014 47 418 127 086Rental straight lineadjustment 22 038 35 765 4 382 – 62 185
Total segment assets 951 865 719 536 258 650 47 418 1 977 469
Debentures * – – – 1 154 210 1 154 210Interest bearing borrowing – – – 129 543 129 543Fair value of Put obligation – – – 17 722 17 722Deferred taxation – – – 157 685 157 685Current liabilities 72 095 42 146 13 831 (15 419) 112 653
Total segment liabilities 72 095 42 146 13 831 1 443 741 1 571 813
Acquisition of
investment property 10 671 – 18 542 – 29 213
* Due to the nature of debentures, segmentation could not be allocated in any meaningful manner.
N O T E S T O T H EA N N U A L F I N A N C I A L S T A T E M E N T S
31 March 2006continued
37
Year-end 31 March 2005 KwaZulu-Natal Gauteng Western Cape Corporate Total
R'000 R'000 R'000 R'000 R'000
23. Segment results (continued)
Income Statement
Revenue (external) 85 659 105 624 28 219 – 219 502Contractual lease revenue 83 793 103 583 26 731 – 214 107Straight line adjustment 1 866 2 041 1 488 – 5 395
Segment result
Net rental income 60 386 71 949 18 636 (6 087) 144 884Interest received 234 260 67 2 639 3 200Finance costs – – – (1 429) (1 429)Capital profit on disposalof investment properties – – 48 – 48Write up on revaluationof investment properties 123 045 110 780 42 122 – 275 947As per valuation 124 911 112 821 43 610 – 281 342Adjustment for rentalstraight line (1 866) (2 041) (1 488) – (5 395)Revaluation of Put obligation – – – 20 332 20 332Debenture interest – – – (150 435) (150 435)
183 665 182 989 60 873 (134 980) 292 547
Other information
Investment properties 626 976 593 676 174 141 – 1 394 793At valuation 663 050 583 770 208 000 – 1 454 820Prepaid letting commission 1 407 2 095 299 – 3 801Rental straight lineadjustment (37 481) 7 811 (34 158) – (63 828)Current and otherlong-term assets 42 796 96 605 37 517 55 029 231 947Excluding rental straightline adjustment 5 315 104 416 3 359 55 029 168 119Rental straight lineadjustment 37 481 (7 811) 34 158 – 63 828
Total segment assets 669 772 690 281 211 658 55 029 1 626 740
Debentures * – – – 1 154 858 1 154 858Interest bearing borrowing – – – 23 494 23 494Fair value of Put obligation – – – 12 118 12 118Deferred taxation – – – 50 384 50 384Current liabilities 5 655 5 564 2 673 77 972 91 864
Total segment liabilities 5 655 5 564 2 673 1 318 826 1 332 718
Acquisition of investment
property 190 197 – 27 729 – 217 926
Segment revenue and expenses
Revenue and expenses that are directly attributable to properties in the particular region are allocated to those regions. Expensesnot directly attributable to a region are allocated to the corporate segment.
Segment assets and liabilities
Segment assets include all operating assets used by a region and consist principally of property assets, trade receivables, cashand cash equivalents. Segment liabilities include all operating liabilities of a region and consist principally of outstanding accounts.Assets and liabilities not directly attributable to a particular region are allocated to the corporate segment.
* Due to the nature of debentures, segmentation could not be allocated in any meaningful manner.
38
2006 2005
R'000 R'000
24. Operating leases
Minimum lease rentalsContractual lease revenue within one year 166 663 151 082Contractual lease revenue within two – five years 392 491 339 269Contractual lease revenue after five years 307 485 216 073Total future contractual lease revenue 866 639 706 424Rental straight line adjustment already accrued (62 185) (63 828)
Future straight line lease revenue 804 454 642 596
Minimum lease paymentsContractual lease payments within one year 746 –Contractual lease payments within two – five years 3 628 –Contractual lease payments after five years 154 488 –Total future contractual lease payments 158 862 –Rental straight line adjustment already accrued (5 466) –
Future straight line lease payment 153 396 –
25. Contingent assets, liabilities and commitments
25.1 Guarantees
Issued in lieu of municipal services deposits. 2 998 2 554
The Company has a total facitity of R5 million,which is renewable on 31 October 2007.
25.2 Capital expenditure
Capital expenditure amounting to R130,9 million has been authorised and contracted for re-development and improvementsto existing properties.
This expenditure will be funded through existing facilities.
25.3 Property disposals
Investment property to the value of R33,4 million has been transferred post 31 March 2006. Refer to note 3.
26. Financial risk management
The financial instruments consist mainly of deposits with banks, accounts receivable, accounts payable and derivative financialinstruments. In respect of financial instruments, carrying amounts approximate fair values. In terms of the international accountingstatement IAS 39, derivative financial instruments are fair valued and their potential gains or losses are recognised in the incomestatement. The risk associated with these and other transactions have been addressed as set out below:
Operation risk management
Operational risk includes the risk of non-compliance with applicable legal, regulatory requirements, board policies and therisk that counterparty's performance obligations will be unenforceable. S A Retail has established risk management proceduresthat are designed to ensure compliance with applicable governance.
N O T E S T O T H EA N N U A L F I N A N C I A L S T A T E M E N T S
31 March 2006continued
39
26. Financial risk management (continued)
Interest rate and liquidity risk management.
Fluctuations in interest rates impact on the value of short-term cash investments and financing activities, giving rise tointerest rate risk.
In the ordinary course of business, the Company receives cash from the letting of its investment properties and is requiredto fund working capital requirements. This cash is managed to ensure surplus funds are invested in a manner to achievemarket related returns while minimising risks. The Company is able to actively source financing at competitive rates.
The Company has sufficient undrawn borrowing facilities available to fund working capital requirements.
Credit risk management
Potential areas of credit risk consist mainly of trade receivables. Trade receivables consist of debt from a large widespreadtenant base. The financial position of the tenants is monitored on an ongoing basis. Impairment is recognised for amountsnot expected to be recovered. At year-end management did not consider there to be any further impairment or materialcredit risk exposure.
27. Related party transactions
Related party transactions are concluded on an arm's length basis in the normal course of business. Details of materialtransactions with those related parties that took place during the year ended 31 March 2006 are summarised below:
2006 2005
Party concerned Class of related party Transaction R'000 R'000
Management fees:
Marriott Property Services Directors are also – Asset management fees 7 610 4 863(Pty) Limited directors of related party (0,35% p.a. of market
capitalisation plus debt,calculated and payable monthly)
– Property management fees 6 660 6 591(based upon collections at ratesvarying between 1,5% and 3,5%dependent upon the nature andsize of each property)
– Leasing commissions 3 557 3 623(paid during the year)
Other:
Marriott Corporate Property Directors are also – Guarantee fees – 20Bank Limited directors of related party
Motseng Marriott Property Directors are also – Valuation fees 158 162Services (Pty) Limited directors of related party
Property acquisitions, disposals, development and listing expenses:
Marriott Property Services Directors are also – Acquisition, disposal, 4 331 2 024(Pty) Limited directors of related party technical and
development fees
Marriott Corporate Property Directors are also – Professional, advisory, 1 702 1 980Bank Limited directors of related party guarantee and placing fees
Other related parties that have been identified by way of their relatedness to the directors of the Company or the associationof the asset management company include:
• Martprop Property Fund• Vukilé Property Fund• Mr Price Group Limited and its subsidiaries.
No fees have been paid or received and there are no outstanding amounts with these parties apart from those disclosed above.
Old Mutual South Africa Limited has been identified as a related party with effect from 19 May 2006 due to the acquisition ofcertain business units from Marriott Holdings Limited.
Key management personnel
Other than the directors of the Company, D L Pronk and A M Malan have been identified as key management personnel of theCompany. Both D L Pronk and A M Malan are employed by the asset managers – Marriott Property Services (Pty) Limited.
40
2006 2005
Notes R'000 R'000
28. Explanation of transition to IFRS
As stated in note 1 these are the Company’s first annual financial statements
prepared in accordance with IFRS.
The accounting policies set out in note 1 have been applied in preparing
the financial statements for the year ended 31 March 2006, the comparative
information presented in these financial statements for the year ended
31 March 2005 and in the preparation of an opening IFRS balance sheet
as at 1 April 2004.
In preparing its opening IFRS balance sheet, the Company has adjusted
amounts reported previously in financial statements prepared in accordance
with South African Statements of Generally Accepted Accounting Practice
(SA GAAP) and the requirements of the South African Companies Act. An
explanation of how the transition from previous SA GAAP to IFRS has
affected the Company’s financial position is shown below.
Effective changes:
Prepaid letting commission 2
Prepaid letting commission has been reclassified from trade and other
receivables to investment properties in terms of IAS 17 which requires
initial direct costs incurred by lessors on negotiating an operating lease
to be added to the carrying amount of the leased asset.
Investment properties held for sale 3
Investment properties that would be realised within twelve months
are reclassified as held for sale.
Investment properties 2
– as previously stated 1 788 198 1 480 592
– reclassification
• prepaid letting commission – 3 801
• investment properties held for sale – (89 600)
As restated 1 788 198 1 394 793
Trade and other receivables
– as previously stated 39 348 21 871
– reclassification – (3 801)
As restated 39 348 18 070
Investment properties held for sale 3
– reclassification 33 439 89 600
N O T E S T O T H EA N N U A L F I N A N C I A L S T A T E M E N T S
31 March 2006continued
28. Explanation of transition to IFRS (continued)
The income statement has not been effected by the transition to IFRS.
A reconciliation of equity in terms of IFRS 1 transition statement is not required as a reclassification of investment property to
non current assets held for sale has had no impact on equity.
None of the IFRS 1 optional exemptions were applied. Therefore the above figures were restated in terms of IFRS 1 as it requires
an entity to apply all standards effective at year end.
29. International Financial Reporting Standards and Interpretations issued but not yet effective
International Financial Reporting Standards and Interpretations issued but not yet effective that will be applicable to the Company
are as follows:
IFRS 7
IFRS 7 lays out disclosure requirements for all financial instruments. As it does not affect the recognition and measurement
of financial instruments, the application of IFRS 7 will have no financial implications for the Company.
IFRIC 8 and AC 503
The entity has not yet entered into a BEE transaction at balance sheet date. When the Company does, IFRIC 8 and AC 503
would be considered.
At this stage the financial impact of these interpretations cannot be determined.
30. Post balance sheet acquisitions
Property acquisitions to the value of R1 228,1 million has been authorised by the Directors after the year-end but before
the date of this report. Agreements have been entered into.
This expenditure will be funded through a combination of existing facilities, debt and an issue of linked units.
Standard/Interpretation Effective Date
IFRS 7 Financial Instruments:
Disclosures (including amendments to IAS 1),
Presentation of Financial Statements:
Capital Disclosures
Annual periods commencing on or after
1 January 2007
IFRIC 8 Scope of IFRS 2 Annual periods commencing on or after
1 May 2006
AC 503 Accounting For Black Economic Empowerment
(BEE) Transactions
Annual periods commencing on or after
1 May 2006
41
42
P R O P E R T Y P O R T F O L I O31 March 2006
Valuation (R) % of Gross Material
portfolio lettable leases
area (m2)
1 East Rand Galleria # 345 700 000 18,42 52 855 Pick 'n PayRetail Regional Centre DionCnr Northrand & Rietfontein Roads Toys R UsJansenpark, Boksburg Joshua Doore
2 Musgrave Centre 238 600 000 12,71 39 872 Pick 'n Pay(50% co-owned with Martprop Property Fund) StuttafordsRetail Regional Centre Woolworths103–115 Musgrave Road Ster KinekorMusgrave, Durban Mr Price
Truworths
3 Pine Crest Centre, Pinetown 150 150 000 8,00 39 950 Pick 'n Pay(Formerly known as Sanlam Centre Pinetown) Game(50% co-owned with Vukilé Property Fund) WoolworthsRetail Regional Centre The HubKings RoadPinetown
4 Eikestad Mall # 139 800 000 7,45 28 431 ABSA BankRetail Community Centre Clicks43 Andringa Street Shoprite CheckersStellenbosch Ster Kinekor
TruworthsWoolworths
5 Value Centre Springfield # 136 100 000 7,25 19 887 Hi-Fi CorporationRetail Value Centre Pro-ShopCnr Umgeni & Electron Roads, Springfield Sportsmans WarehouseDurban Mr Price
6 Hayfields Mall # 95 200 000 5,07 12 218 ABSA BankRetail Community Centre ClicksCnr Cleland & Blackburrow Road, Hayfields First National BankPietermaritzburg Nedcor Bank
Pick 'n PayStandard Bank
7 Bluff Shopping Centre # 87 496 417 4,66 19 475 Shoprite CheckersRetail Community Centre Ackermans328 Tara Road, Bluff TruworthsDurban Edgars
WoolworthsMr Price
8 Umlazi MegaCity 85 700 000 4,57 32 075 Spar(50% co-owned with Martprop Property Fund) WoolworthsLeasehold Property Mr PriceRetail Community Centre Jet50 Mangosuthu Highway AckermansUmlazi, Durban
9 Town Square Shopping Centre * 66 700 000 3,55 5 460 WoolworthsRetail Community Centre ClicksHendrik Potgieter DriveConstantia KloofWestrand
43
Valuation (R) % of Gross Material
portfolio lettable leases
area (m2)
10 Coachman's Crossing # 58 500 000 3,12 6 370 Pick 'n PayRetail Neighbourhood Centre AdegaCnr Peters Place & Karen Street Mugg & BeanSandton
11 Highland Mews 46 697 997 2,49 18 563 Woolworths(50% co-owned with Martprop Property Fund) FoschiniRetail Community Centre ClicksWatermeyer Street RussellsWitbank Truworths
12 Queensburgh Shopping Centre # 45 200 000 2,41 8 133 Pick 'n PayRetail Neighbourhood Centre ABSACnr of Ridley Park and Main RoadQueensburghDurban
13 Cambridge Crossing # 43 300 000 2,31 3 650 WoolworthsRetail Convenience Centre Nando'sCnr Witkoppen & Stone Haven Streets Mugg & BeanPaulshof, Sandton
14 The Quarry Shopping Centre # 33 200 000 1,77 7 761 ClicksRetail Neighbourhood Centre First National Bank57 Hilton Avenue Standard BankHilton Spar
15 Middelburg Pick 'n Pay # 31 700 000 1,69 7 688 Pick 'n PayRetail Neighbourhood Centre Pep StoresCnr Church & Joubert StreetsMiddelburg
16 Paradys Park 31 600 000 1,68 8 026 SparRetail Community Centre Virgin ActiveCnr Paradys Street & Frans Conradie DriveBrackenfell
17 Kyalami Crescent # 30 677 500 1,64 10 084 Le Petit PaineLight IndustrialKyalami Business ParkKyalami
18 Checkers Somerset West # 30 600 000 1,63 6 253 Shoprite CheckersRetail Neighbourhood Centre SpecsaversCnr Main & Gordon Roads Cash CrusadersSomerset West
19 Tokai Junction 29 700 000 1,58 7 547 Pick 'n Pay(50% co-owned with Martprop Property Fund) Toys 'R UsRetail Convenience Centre Cell CCnr Tokai & Main Roads Torga OpticalTokai
SOLD
Valuation (R) % of Gross Material
portfolio lettable leases
area (m2)
20 Kempton Park Shoprite # 28 600 000 1,52 17 807 Shoprite Checkers
Retail Community Centre Cash CrusadersCnr Langenhoven & Central Streets VodacomKempton Park
21 Montclair Mall 25 300 000 1,35 11 640 Pick 'n Pay(50% co-owned with Martprop Property Fund) ClicksRetail Community Centre Mr PriceCnr Wood & Montclair Roads AckermansMontclair, Durban
22 Westwood Village Shopping Centre 24 800 000 1,32 4 761 SparRetail Neighbourhood CentreCnr Atlas & Phillips RoadsBoksburg
23 Canterbury Crossing # 19 000 000 1,01 4 800 Pick 'n PayRetail Community Centre O’HagansCnr Hendrik Verwoerd Drive Scooters Pizza& Hunter Street, Ferndale Freemantle ProductionsRandburg
24 Rhodesdene Shopping Centre 18 542 326 0,99 2 866 Pick 'n PayRetail Neighbourhood Centre SteersCnr Carters Road & Selous AvenueRhodesdeneKimberley
25 Knowles Centre 15 050 000 0,80 15 179 Spar(50% co-owned with Martprop Property Fund) Geen and RichardsRetail Community Centre St Elmo’s22 Chancery Lane Ithala BankPinetown
Total 1 857 914 240 98,99 391 351
CONTRACTED DEVELOPMENT COMMITMENTS
1 Kings Road Value Centre 18 973 711 1,01 8 127 Spar(50% co-owned with Vukilé Property Fund)Retail Value CentreKings RoadPinetown
Total 1 876 887 951 100 399 478
#Notarially tied in terms of Deed of Restraint of free alienation in favour of Nedbank Limited
*Secured in terms of a first mortgage bond in favour of Nedbank Limited
P R O P E R T Y P O R T F O L I O31 March 2006
continued
44
45
N O T I C E O FA N N U A L G E N E R A L M E E T I N G
31 March 2006
Notice is hereby given that the annual general meeting of the
linked unitholders of S A Retail Properties Limited (“the
Company”) in respect of the period ended 31 March 2006 will
be held in the conference room at the offices of Marriott Property
Services (Pty) Limited, Marriott at Kingsmead, Kingsmead Office
Park, Durban on Wednesday, 1 November 2006 at 09h00 for
the following purposes:
AGENDA
1. Notice convening the meeting.
2. Apologies.
3. Confirmation of the minutes of the annual general meeting
held on the 1st day of November 2005.
4. Report of the Chairman of S A Retail Properties Limited.
5. To receive and adopt the audited annual financial statements
of the Company and the reports of the auditors and the
directors for the year ended 31 March 2006.
6. Remuneration
6.1. To approve the remuneration of the directors for the
year ahead as follows:
Chairman of the board
R94 500 p.a.
Per director
R63 000 p.a.
Chairman of various sub-committees, a further
R15 750 p.a.
Member of various sub-committees, a further
R10 500 p.a.
Should board meetings be held more frequently than
quarterly within the year, or where the board appoints
ad hoc committees for a specific purpose, attendees
will receive a fee determined by the board on an
appropriate basis. Such fees will be subject to linked
unitholder approval at the next annual general meeting.
6.2. To approve the special remuneration of the non-
executive directors and the executive director.
For the period 29 March 2005 to 15 September 2005
there were five special meetings. A special fee of
R258 750 is proposed based upon the individual
directors attendance. The calculation was based upon
half of the approved quarterly fee per director and that
of the chairman, being R7 500 and R11 250 per special
meeting respectively.
7. To consider and, if deemed fit, to pass, with or without
modification, the following resolutions:
7.1 Ordinary resolution number 1:
“Resolved that the unissued linked units of company
be placed under the control of the directors, and that
they are hereby authorised, subject to section 221 and
222 of the Companies Act of 1973, as amended, and
to the rules and regulations of the JSE Securities
Exchange South Africa, to allot and/or issue linked units
to such person or persons on such terms and conditions
as they may determine, such authority to expire at the
next annual general meeting of the Company.”
7.2 Ordinary resolution number 2:
“Resolved to authorise the directors to appoint and to
determine the remuneration of the auditors for the
past period.”
7.3 Ordinary resolution number 3:
“To re-elect retiring directors in accordance with the
Articles of Association. Such elections should be moved
in a single motion, if a resolution that it be so moved
is first agreed, without any vote being cast against it.
Otherwise motions for re-election will be moved
individually.”
“In terms of the Company's Articles of Association, one
third of the directors are required to retire annually on
a rotation basis, but are eligible for re-election,
accordingly Messrs R A Norton and U J van der Walt
retire by rotation but being eligible, offer themselves
for re-election.”
7.4 Ordinary resolution number 4:
“To confirm the appointment of new directors nominated
in accordance with the Articles of Association.”
8 . To transact such other business as may be transacted at an
annual general meeting.
9. General.
46
NOTES
1 . A linked unitholder (certificated or own name dematerialised
unitholder) entitled to attend and vote is entitled to appoint
a proxy to attend, speak, and on a poll, vote in his stead, and
such proxy need not also be a linked unitholder of the
Company.
2 . The Proxy Form must be deposited at the Company
Secretary's office or with the Transfer Secretaries not later
than 48 (FORTY-EIGHT) hours before the time of holding the
meeting. Linked unitholders (other than own name
dematerialised unitholders) who have dematerialised their
units should instruct their broker or CSDP as to how they
want to vote on the resolutions at the meeting. Alternatively
should they wish to attend the meeting, they must arrange
with the CSDP or broker concerned to provide them with
the necessary authorisation to attend the annual general
meeting and vote thereat. This must be done in terms of
the agreement entered into between the linked unitholder
and the CSDP or broker concerned.
3 . Should you wish to nominate a director in terms of the
Company's Articles of Association, a directors’ nomination
form, to be completed by the nominator and person(s)
nominated as director can be collected from Miss P Nel at
the Company Secretary's office. The directors' nomination
form together with the nominated director's curriculum vitae
is to be lodged at the Company Secretary's office by no later
than 16:00 on 26 October 2006.
By order of the Board of Directors
Marriott Property Services (Pty) Limited
Company Secretary
Durban
1 September 2006
Company Secretary and Registered Office
Marriott Property Services (Pty) Limited
Delivery Address
Marriott at Kingsmead,
Kingsmead Office Park,
Durban
Postal Address
PO Box 207, Durban, 4000
Transfer Secretaries
Computershare Investor Services 2005 (Pty) Limited
70 Marshall Street,
Johannesburg, 2001
P O Box 61051, Marshalltown, 2107
47
F O R M O F P R O X Y
S A Retail Properties Limited
(Incorporated in the Republic of South Africa)(Registration number: 1999/025764/06)
Share code: SRLISIN code: ZAE 000034328
(“S A Retail Properties Limited” or “the Company”)
To be completed by certificated linked unitholders and own name dematerialised linked unitholders only for use at the
annual general meeting to be held at 09h00 on Wednesday, 1 November 2006.
I/We (block letters)
of (address)
Telephone (work) Telephone (home)
being the holder(s) of linked units
in the Company as at close of business on Friday, 27 October 2006 (see note 1)
hereby appoint
or failing him/her,
or failing him/her,
the chairman of the meeting
as my/our proxy to act on my/our behalf at the annual general meeting of the linked unitholders of the Company to be held at 09h00on Wednesday, 1 November 2006 and at each adjournment thereof and to vote for or against the resolutions or to abstain fromvoting in respect of the linked units registered in my/our name/s, in accordance with the following instructions (see note 2):
For Against Abstain
1. Resolution to receive and adopt the Company's audited annual financial statementsfor the year ended 31 March 2006.
2. Resolution to approve the remuneration of the directors for the year ahead.
3. Resolution to approve the special remuneration of the directors for the period29 March 2005 to 15 September 2005.
4. Ordinary resolution number 1.
To place the unissued linked units under the control of the directors.
5. Ordinary resolution number 2.
5.1 To authorise the directors to appoint the auditors for the ensuing year, and
5.2 To authorise the directors to approve the remuneration of the auditors for thepast period.
6. Ordinary resolution number 3.
6.1 To re-elect Mr R A Norton; and
6.2 To re-elect Mr U J Van Der Walt; and
7. Ordinary resolution number 4.
7.1 To confirm the appointment of any new directors nominated in terms of theCompany's Articles of Association.
Insert unitholding in the relevant spaces above according to how you wish your votes to be cast.
Each linked unitholder is entitled to appoint one or more proxies (who need not be a linked unitholder of the Company) to attend,speak, and on a poll, vote in place of that linked unitholder at the annual general meeting.
Signed at on 2006
Signature(s)
Capacity
Please read the notes on the reverse side hereof.
48
Notes
1 . A linked unitholder entitled to attend and vote at the meeting
may appoint a proxy to speak and vote in his capacity.
A proxy need not be a linked unitholder of the Company.
Proxy Forms should be forwarded to reach the Company
Secretary’s office or with the Transfer Secretary not later
than 48 hours before the time of holding the meeting. The
appointment of a proxy will not preclude a member from
attending the meeting.
2 . A linked unitholder may insert the name of a proxy or the
name of two alternative proxies of the linked unitholder's
choice in the space/s provided, with or without deleting “the
chairman of the annual general meeting”. Any such deletion
must be initialed by the linked unitholder. The person at the
meeting whose name appears first on the form of proxy and
has not been deleted will be entitled to act as proxy to the
exclusion of those whose names follow.
3 . A linked unitholder's instructions to the proxy must be
indicated by the insertion of the relevant number of votes
exercisable by that linked unitholder in the appropriate space
provided. Failure to comply with the above will be deemed
to authorise the chairman of the annual general meeting, if
he is an authorised proxy, to vote in favour of the resolutions,
or any other proxy to vote or abstain from voting at the
annual general meeting as he/she deems fit, in respect of
the linked unitholder's vote exercisable thereat. A linked
unitholder or his/her proxy is not obliged to use all the votes
exercisable by the linked unitholder or by his/her proxy, but
the total of votes cast and in respect whereof abstention is
recorded may not exceed the total of the votes exercisable
by the linked unitholder or by his/her proxy.
4 . A deletion of any printed matter and the completion of any
blank space(s) need not be signed or initialed. Any alteration
or correction to this form of proxy must be signed, and not
initialed by the relevant signatory/ies.
5 . Documentary evidence establishing the authority of a person
signing the form of proxy in a representative capacity must
be attached to the form of proxy unless previously recorded
by the transfer secretaries of the Company or waived by the
chairman of the annual general meeting.
6 . The completion and lodging of this form will not preclude
the relevant linked unitholder from attending the annual
general meeting and speaking and voting in person thereat
to the exclusion of any proxy appointed in terms hereof,
should such linked unitholder wish to do so.
7. When there are joint holders of linked units and if more than
one such joint holder be present or represented, then the
person whose name stands first in the register in respect
of such linked units or his Proxy, as the case may be, shall
alone be entitled to vote in respect thereof.
8. The chairman of the meeting shall be entitled to decline to
accept the authority of the signatory: under a power of
attorney; or on behalf of a company or any other entity unless
the power of attorney or authority is deposited at the Company
Secretary’s office or with the Transfer Secretary not later
than 48 hours before the time of holding the meeting.
9. The chairman of the annual general meeting may accept or
reject a proxy which is completed and/or received other than
in accordance with the instructions, provided that he shall
not accept a proxy unless he is satisfied as to the manner
in which a linked unitholder wishes to vote.
10. If linked unitholders have dematerialised their linked units
with a CSDP or broker, other than own name dematerialised
linked unitholders, they must arrange with their CSDP or
broker concerned to provide them with the necessary
authorisation to attend the annual general meeting and vote
thereat or the linked unitholders concerned must instruct
their CSDP or broker as to how they wish to vote in this
regard. This must be done in terms of the agreement entered
into between the linked unitholder and their CSDP or broker
concerned in the manner and by the cut-off time stipulated
therein.
11. If the unitholding is not indicated on the Proxy Form, the
Proxy Form will be deemed to be authorised to vote the
total unitholding.
Company Secretary and Registered Office
Marriott Property Services (Pty) Limited
Delivery Address
Marriott at Kingsmead,
Kingsmead Office Park,
Durban
Postal Address
P O Box 207, Durban, 4000
Tel: 031 – 366 1201
Fax: 031 – 366 1273
Website: www.saretail.co.za
Transfer Secretaries
Computershare Investor Services 2005 (Pty) Limited
70 Marshall Street,
Johannesburg, 2001
P O Box 61051, Marshalltown, 2107
Tel: 011 – 370 5000
Fax: 011 – 688 5520
Website: www.computershare.com
F O R M O F P R O X Y
N O T E S
DESIGNED AND PRODUCED BY WHALLEY & ASSOCIATES 23901