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PROPERTYANNUAL REPORT 2005

PROPERTY FUND

(A property fund created under the Emira Property Scheme, registered in terms of the Collective Investment Schemes Control Act)Share code: EMI ISIN: ZAE000050712 (“Emira”)

Cover (from left to right):

● 267 West – Currently fully let, this multi-tenanted 9,800 m2 office building overlooks Centurion Lake and is ideally

located near the proposed location for Centurion’s Gautrain station.

● Sanlam Gables – Primarily occupied by Securicor until 2014, this property measures 2 851 m2 and has excellent exposure

to Schoeman Street in Hatfield, Pretoria.

● Umgeni Road A – 98/102 Intersite – A building situated in the the popular light industrial node of Umgeni Business

Park, occupied by a single tenant.

CONTENTS

Executive summary 5 Manager’s report 7 Directorate 23 Corporate governance 24

Financial statements 27 Segmental analysis 47 Administration 58

Corporate structureEmira Property Fund (“the fund”) is a property unit trust in terms of the Collective Investment Schemes Control Act, No. 45 of 2002. The fund is managed by Strategic Real Estate Managers (Pty) Ltd (“STREM”), which is approved by the Registrar of Collective Investment Schemes to manage the Fund.

In terms of the Collective Investment Schemes Control Act, No. 45 of 2002 (“CISC Act”) the fund is obliged to distribute all income earned to its participatory interest holders. As a result of its distribution obligations, no income tax or capital gains tax is payable by the Fund.

PROPERTY FUND

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HIGHLIGHTS HIGHLIGHTSDistributions per PI

67,55cannualised growth of

+15,9%Net asset value per PI

624can increase of

+18,6%12-month total return

268cor

51,5%

Investment strategy, objectives and prospectsThe Fund’s principal objective is to grow earnings from a quality based property portfolio. Growth will be sought by making strategic investments where yields are enhancing in the medium to long term. Management will further maintain the quality of the portfolio by disposals of assets, which no longer meet the strategic objectives of the Fund.

The strategic objectives of the fund are to:

● Optimise net income and growth in distributions;

● Apply gearing to the portfolio to the extent that it enhances returns, limited to 30% as provided for in the Collective Investment Schemes Control Act;

● Increase market capitalisation, liquidity and spread of investors through selective acquisitions and capital raising;

● Selectively recycle assets;

● Broaden the Fund’s geographic exposure to KwaZulu-Natal, the Western and Eastern Cape;

● Increase exposure to the retail sector;

● Dispose of non-performing or potentially under-performing properties; and

● Reduce vacancies and smooth the lease expiry profile of the portfolio.

PORTFOLIOEm

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PORTFOLIO

Deloittes –

Fully occupied by Deloitte

South Africa this 4 000 m2

office building is located

within walking distance of

Brooklyn Mall.

East Coast Radio House –

Multi tenanted modern

commercial property

totalling 5 700 m2,

accommodating retail and

office tenants. Major

tenants include East Coast

Radio and Strauss Daly Inc.

1059 Schoeman Street –

Primarily occupied by SABC

until 2012, the property is

located on a prominent

corner in Hatfield, Pretoria

and measures 6 048 m2.

Faerie Glen –

A newly developed single

tenanted office building,

located in a secure park

measuring 3 710 m2, facing

Atterbury Road, east of

Pretoria.

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Gift Acres –

A newly developed

convenience shopping

centre, located diagonally

across from Lynnridge Mall,

anchored by Woolworths

and Mr Price Weekend.

Rentworks –

Fully let prime office space

with excellent exposure on

the corner of Grosvenor

and Cumberland Avenues,

Bryanston.

Boskruin Shopping Centre –

A 6 752 m2 convenience

shopping centre in Boskruin

on the busy President

Fouché Avenue, anchored

by Woolworths Foods and

Clicks.

Lynnridge Mall –

Situated in the thriving,

upmarket residential area

of Lynnwood Ridge east of

Pretoria, anchor tenants

include Pick ’n Pay, Mr Price

and ABSA Bank.

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Mitek South Africa –

This single tenanted

property is located in

Midrand and offers excess

bulk for expansion for the

current tenant. Mitek – a

subsidiary of Berkshire

Hathaway – has a lease

until 2012.

Aeroport - Fulcrum –

Triple Net, single tenanted

warehouse and office

building in Spartan,

measuring 3,805 m2 with

good yard space and

additional land for

expansion.

Oracle House –

Located in Midrand with

excellent exposure to the

N1 highway between

Johannesburg and Pretoria,

this property is fully

occupied by Oracle

Corporation SA.

Westway –

A fully let 2 283 m2 office

complex situated in the

popular Westway Office

Park in Westville.

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SUMMARYfor the year ended 30 June 2005 Results for the Results for the seven months year ended ended % 30 June 2005 30 June 2004 Change

Financial highlights

Distributions per participatory interest (cents) 67,55 34,01 15,9*

Headline earnings per participatory interest (cents) 74,37 33,28 30,4*

Average vacancy factor (%) 6,0 6,1 0,2

Portfolio valuation analysis

Market value (R’000) 2 259 774 1 901 027 18,9

Net asset value per participatory interest (cents) 624 526 18,6

Listed market price (cents) 720 520 38,5

Premium/(discount) to net asset value (%) 15,4 (1,1) —

Capital and funding resources

Maintenance fund investment (R’000) —# 24 104 —

Debt funding facility available (R’000) 220 400 272 500 —

Salient features

Participatory interests in issue 286 828 772 285 293 684 0,5

Market capitalisation (R’000) 2 065 167 1 483 527 39,2

Long-term borrowings (R’000) 364 141 310 978 17,1

Long-term borrowings to total assets (%) 15,8 16 —

Property acquisitions (Rm) 90,5 181,0 (50,0)

Number of properties 84 84 —

*Annualised

#Whereas at June 2004 the maintenance fund was held separately, earning interest at short-term rates, it has now been used to reduce our access facility.

EXECUTIVE SUMMARY

Emira

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SUMMARY PORTFOLIO SUMMARYat 30 June 2005��

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REPORTfor the year ended 30 June 2005 MANAGER’S REPORT

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“The financial year to June 2005 was an extremely successful one for Emira.”

The directors of STREM are pleased to present their report

on Emira’s performance for the year ended 30 June 2005,

which represents the fund’s first full financial year of

operation.

Overview of performance

1. Summary of the fund’s performance

The financial year to June 2005 was an extremely

successful one for Emira, with healthy growth in

distributions and total returns being delivered to

unitholders, the portfolio being bedded down post-

listing, numerous enhancing acquisitions being made

and the fund’s debt profile being restructured.

● Distributions for the year amounted to 67,55

cents per PI. If this is compared to an annualised

distribution for the seven months to 30 June

2004 (34,01 cents for the seven months, or 58,3

cents on an annualised basis) this represents

exceptional growth of 15,9%;

● Emira’s PI price rose from 520 cents in June 2004

to 720 cents as at 30 June 2005, a rise of 38,5%

and the fund’s market capitalisation rose from

R1,48 billion to R2,07 billion over the same

period. Together with the distributions of 67,55

cents, PI holders therefore received a total return

of 51,5% over the past twelve months;

● Net asset value grew from 526 cents to 624

cents, representing growth of 18,6%;

● The fund concluded a number of attractive

acquisitions during the year: two buildings

totalling R22 million were transferred into Emira

during the period at yields of in excess of 12,5%

pre-gearing, one building of R25 million has been

transferred subsequent to year-end at a yield in

excess of 11% and three other properties totalling

R150 million are awaiting transfer, all having been

purchased at yields of approximately 12%;

● Two buildings were sold during the period, while a

further three are awaiting transfer. The majority of

these properties represented non-core investments

for Emira, while one of them, which was not on

the disposal list, was sold at a significant premium

to book value, with the funds being reinvested at

a more attractive yield;

● During the year Emira entered into certain swap

arrangements, which resulted in the fund’s debt

being restructured. Whereas at 30 June 2004

Emira’s had approximately half of its debt at

floating rates, by 30 June 2005 the fixed

component had increased to approximately 80%,

with staggered maturity dates ranging from

October 2007 to November 2011. This has

significantly reduced the interest rate risk to PI

holders;

● Vacancies declined from 6,1% in June 2004 to

6,0% in June 2005.

REPORTfor the year ended 30 June 2005Em

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MANAGER’S REPORT (continued)

2. Overview of the property market

2.1 Listed property sector

2.1.1 Total returns to June 2005

Listed property handsomely outperformed other

asset classes over the past year. In the twelve-

months to June 2005 PUTs and PLSs delivered pre-

tax total returns of 54,2% and 56,1% respectively,

well ahead of the All Share index at 42,8%. Long

bonds lagged considerably, showing a total return of

only 15,8%.

The three-month and six-month performance from

the listed property sector was equally impressive, as

seen in the table below.

TOTAL RETURNS (PRE-TAX)

Period

All Share

FINDI 30

PLSs

PUTs

R 153

3 months 7,1% 5,3% 11,6% 10,9% 3,7%

6 months 13,2% 5,8% 18,3% 13,9% 3,4%

12 months 42,8% 42,8% 56,1% 54,2% 15,8%

Source: Inet-Bridge

With this healthy performance over the past year,

the sector continues to boast an impressive

performance over one, three and five years. Using

after-tax numbers, the following table illustrates

why the sector is currently in vogue with investors.

COMPOUND ANNUAL TOTAL RETURNS (POST-TAX)

PeriodAll

ShareFINDI

30 PLSs PUTs R 153

1 Year 42,8% 42,8% 53,4% 51,7% 13,4%

3 Years 12,5% 15,5% 29,7% 29,8% 11,0%

5 Years 14,7% 7,6% 21,2% 20,5% 11,0%

Source: Inet-Bridge

*Assuming 29% corporate tax rate applied to the income portion of the total return.

Compound annual total after-tax returns over the

past five years from the PUT and PLS sectors were

20,5% and 21,2% respectively. This was well ahead

of the All Share index at 14,7% and long bonds at

11,0%.

Such impressive total returns illustrate why we

believe that property forms an important part of

any balanced portfolio and is also a useful substitute

for bonds for investors looking for a (growing)

income yield.

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2.1.2 Listed property fund results

As anticipated, growth in dividends from the listed

sector accelerated over the past twelve months.

Whereas market commentators had anticipated

growth in dividends of 4,5% to 5%, we believe

actual growth came in even higher than this, as

long-term interest rates continued to decline and

property fundamentals remained healthy.

Assuming that the economic environment remains

stable going forward, we believe that distribution

growth from the listed property sector will be between

5% and 10% in the next twelve months.

2.1.3 The listed property and bond yield

differential

With the improving listed property sector dividend

growth mentioned above, the yield differential

between listed property and the R153 long bond

(listed property yield less the yield on R153 long

bond) has remained relatively narrow over the past

year, currently well below the 1% level.

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Source: Inet-Bridge

Rather than investing in long bonds, at say 8%, investors

have been attracted to listed property stocks at yields

around 9%, with in the region of 5% growth in distributions.

Should the growth in distributions continue over the short

to medium term, we believe that this differential could

remain at current levels or even narrow further.

2.1.4 Summary

The listed property sector has performed

exceptionally well in recent years:

● Total returns have been in excess of the rest of

the asset classes;

● Healthy dividend growth is finally returning to

the sector;

● The sector is trading at a healthy premium to net

asset value of in excess of 30%;

● The market capitalisation of South African listed

property stocks has grown to close to R40 billion

from R7 billion ten years ago;

● The number of listed PUTs and PLSs has grown to

in excess of twenty-five counters.

Assuming the economic environment remains stable,

we believe that the sector should be able to show

solid returns for the foreseeable future.

2.2 Physical property market

In line with what has been experienced in the listed

property market, the physical property market has

also been extremely buoyant over the past twelve

months.

Nowhere is this more apparent than in the SAPOA/

IPD South Africa Property Index results for calendar

year 2004. The total return from the IPD Universe in

2004 was 22,6%. This was significantly higher than

the annualised return over the past ten years of

13,2%. It was also higher than the five-year average

of 13,6%.

“Assuming the economic environment remains stable, we believe that the listed property sector should be able to show solid returns for the foreseeable future.”


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Whereas a year ago the most competitive markets

were the national retail market and the Cape Town

market in general, this has now extended to all types

of commercial property. Properties of an average

standard are now being offered to Emira for purchase

at yields of below 10%, which we believe is

demanding.

The significant rise in capital values and resultant

decline in yields has meant that many property

owners have resorted to either developing for their

own account or refurbishing existing assets.

2.3 Rentals and vacancies

2.3.1 Rentals

2.3.1.1 Office market

The IPD universe of direct property shows that total

returns from offices (both decentralised and CBD)

showed a vast improvement in 2004. The chart

below shows the weighted average total returns

from the entire office sector since 1995. Total

returns from the office sector jumped from 9,2% in

2003 to 17,7% in 2004. This improved performance

was not only the result of declining cap rates but

also firming rentals.

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Empirical evidence from Emira’s portfolio supports

the view that fundamentals in the office market in

South Africa have improved over the past year,

although the extent of this improvement differed

from region to region. The Pretoria, Durban and Cape

Town markets were extremely strong with rentals

generally in the region of 10% to 20% higher year-

on-year, driven by declining vacancies in these areas.

In contrast, however, the Johannesburg market has

lagged (flat).

This evidence is supported by Rode’s March 2005

report, which shows that Sandton office rentals

were flat to lower over a twelve-month period,

compared to nodes such as Faerie Glen in Pretoria,

Westway and La Lucia in Durban and Claremont in

Cape Town, which showed good growth.

2.3.1.2 Retail market

The retail market has experienced a few years of

unprecedented growth thanks to buoyant consumer

spending, which has in turn resulted in higher

turnover rentals for landlords. Average real growth in

private consumption expenditure (PCE) has been

6,1% since the beginning of 2004, compared to a

ten-year average of 3,8%.

The beneficial impact of this run in PCE in the past

two years has further cemented retail’s position as

the best performer in recent years according to the

IPD. The table below shows that retail categories

occupy three of the five best performing market

segments over the past five years.

Source: IPD

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Average annual total return by market segment

5 Years

Gauteng regional shopping centres 16,8%

Industrial rest of SA 16,3%

Other retail shopping centres 15,4%

Other regional shopping centres 15,2%

Other* 14.2%

Other shopping centres 13,7%

Offices – Decentralised 11,5%

Industrial – Gauteng 11,1%

Offices – Gauteng CBD 8,8%

Offices – Provincial 6,9%

Offices – Other Metro CBD 5,9%

Source: IPD * Other is made up of a range of property types, but is dominated by

hotels.

2.3.1.3 Industrial market

The second half of calendar year 2004 saw industrial vacancies decline significantly and the demand for industrial land increase. This squeeze in the industrial market has resulted in rentals in this market firming as illustrated below.

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According to Rode, nominal rentals for 1 000 m2 of

industrial space on the Witwatersrand rose by 19%

in the twelve months to March 2005. In real terms

this represents a rise of 14%. Although the rise is

impressive in both real and nominal terms, real

rentals remain well below those pertaining ten

years ago.

2.3.2 SAPOA office vacancies

SAPOA office vacancies continued to show a

declining trend over the past year, declining from

13,7% in June 2004 to 11,4% in June 2005. At the

same time, the level of office development has

remained at relatively low levels despite rising

fractionally in the first half of 2005.

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“National office vacancies continued to show a declining trend over the past year.”

Source: Rode

Source: SAPOA


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The nodes to have contributed to this decline in

vacancies include:

● The Johannesburg CBD, which saw a reduction in

vacancies of 46 868 m2 (2,7%);

● Randburg, where vacancies declined by 34 846 m2

(6,6%);

● Parktown, which saw a reduction in vacancies of

19 545 m2 (5,9%) and;

● Claremont, where vacancies declined by

17 846 m2 (16,1%).

3. Emira’s performance and property portfolio

3.1 Emira’s price performance and tradability

In the twelve months since 30 June 2004 Emira’s

price has risen from 520 cents to 720 cents, or

38,5%. This compares to the PUT index’s rise of

45,5% over the same period, implying an

underperformance of 7%.

Liquidity has been good, with 99,6 million PI’s

trading during the same period. This equates to

34,7% of the PI’s in issue.

3.2 Emira’s portfolio

The property portfolio comprises good quality

properties, selected for their abilities to deliver

sustainable growth in income and diversify risk.

3.3 Sectoral exposure

By income, 50,1% of the portfolio is comprised of

office space, mainly located in Gauteng. A further

34,5% of income is from retail properties and the

remaining 15,4% is from industrial space. A more

detailed breakdown of the portfolio by value and

income can be found on page 48.

Using the IPD portfolio as a benchmark to determine

a suitable market weighting for commercial property

in South Africa, Emira is underweight retail properties.

For this reason, management believes that there is

scope for selectively increasing the fund’s exposure

to the retail sector.

3.3.1 Offices

The forty commercial properties in the fund comprise

49% of the fund’s investment properties by value.

Two acquisitions were made in the financial year,

namely Nimas House and Derby Downs both located

in Durban. This increased the fund’s exposure in

KwaZulu-Natal from 10% in 2004 to 11%.

3.3.2 Retail

Emira’s exposure to the retail sector as at the end of

the financial period stood at 36% by value with the

average size of the fund’s retail properties being

approximately R60 million.

3.3.3 Industrial

The industrial component is the smallest within the

fund, totalling 15% by value. The average size of the

fund’s industrial properties is just over R10 million.

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3.4 Vacancies and letting

Over the past year vacancies have shifted down

slightly, moving from 6,1% in June 2004 to 6,0%

(33 624 m2) in June 2005.

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Within the overall figure the largest improvement

has come from the industrial sector, which declined

from 7,7% in June 2004 to 4,7% by June 2005.

Retail vacancies also declined from 2,8% to 1,5%.

The underperforming sector was the office portfolio,

which saw a rise in vacancies from 6,9% to 9,7%.

It is important to note that although the vacancy

rate was 6,0% at June 2005, Emira has sold Grinaker

Electronics (deposits have already been received),

which accounted for 1 851 m2 of the total vacancies

in the fund. Furthermore, at Epping Warehouse

(WGA) a new lease has been concluded whereby all

of the vacant space (4 307 m2) will be occupied by

August 2005. Taking the aforesaid in account,

vacancies in the fund would decline to 4,9%.

3.4.1 Offices

Office vacancies rose from 6,9% to 9,7% over the

past year, representing an increase in vacancies of

6 559 m2. Major vacancies at year-end were:

● Epsom Downs Office Park – 4 230 m2;

● Woodmead Office Park – 3 938 m2;

● Grinaker Electronics – 1 851 m2.

Management is investigating the alternatives to

reduce the vacancies at both Epsom Downs and

Woodmead, which could include refurbishment of

these assets, while Grinaker Electronics is in the

process of being disposed of.

3.4.2 Retail

Retail vacancies declined from 2,8% to 1,5% over

the past year, representing a decline in vacancies of

1 696 m2. Major vacancies at year-end were:

● Lynnridge Mall – 603 m2;

● Epsom Downs – 388 m2;

● Randridge Mall – 351 m2.

3.4.3 Industrial

Industrial vacancies declined from 7,7% to 4,7%

over the past year, representing a decline in vacancies

of 5 745 m2. Major vacancies at year-end were:

● Epping Warehouse (WGA) – 4 307 m2;

● Cambridge Park – 1 457 m2;

● Admiral House – 1 233 m2.

As stated above, the vacant space at Epping

Warehouse (WGA) has been taken up effective

August 2005.

“Retail and industrial vacancies declined significantly over the past year.”


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3.5 Lease expiry profile

As can be seen in the table below, approximately 64% of the fund’s leases expire in the next three years. This is

representative of the fact that leases in the office and industrial portfolios are typically between three and five years.

FY06 FY07 FY08 FY09 FY10 FY11

Offices 11,8% 13,2% 7,4% 2,4% 1,0% 1,8%

Retail 3,9% 4,9% 3,0% 6,8% 3,8% 4,5%

Industrial 8,3% 6,3% 5,1% 3,4% 3,0% 3,6%

Total 24,0% 24,4% 15,5% 12,6% 7,8% 9,9%

3.6 Acquisitions

Properties worth close to R200 million were either transferred or were in the process of being transferred during the

financial year. The new investments will contribute to enhancing the quality and performance of the fund in the future

and will also further diversify the geographical spread of the portfolio.

The two properties that were actually transferred are both located in Durban, increasing the KwaZulu-Natal exposure

from 10% in 2004 to 11%. These acquisitions were funded through a combination of debt and the placing of PIs.

Property details are as follows:

Purchase Forward

New GLA price yield Effective

purchases Sector Location (m2) (Rm) (%) date Tenants

Nimas House Office Westway Office National Independent

Park, Westville 1 372 9,8 12,6 11 Oct 2004 Medical Aid Society

Derby Downs Office Derby Downs Office

Park, Westville 2 205 12,5 12,7 28 Feb 2005 Lafarge, Ivory Systems

Total 3 577 22,3 12,7

In addition to the above, the property known as 100 Armstrong in La Lucia Ridge, Durban was transferred during July

2005 at a purchase price of R25 million yielding 11,1%.

Purchase Forward

New GLA price yield Effective

purchases Sector Location (m2) (Rm) (%) date Tenants

100 Office Armstrong Drive, Imperial Bank, SAP,

Armstrong La Lucia 2 880 25,0 11,1 11 July 2005 RMB Asset Management

Total 2 880 25,0 11,1

Currently, we are awaiting transfer of the following properties into Emira:

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Purchase Forward

price yield

Property Sector Location (Rm) (%) Tenants

Gift Acres Retail Lynnwood Ridge, Woolworths, Mr Price Group,

Pretoria East 78,68 11,8 First National Bank

122 Pybus Road Office Sandton CBD, 15,75 11,1

Lincolnwood Office Park Office Woodmead, Sandton 55,75 12,2 SA Rail Commuter Corporation

Total 150,18 11,9

Note that although Emira is still awaiting the transfer of Gift Acres, the development consideration has been paid

according to the agreement with RMB Properties and income from the centre has been accruing to the fund since

opening in May 2005.

3.7 Disposals

In accordance with the strategy of the fund, certain properties that are underperforming or pose excessive risk to the

fund are earmarked and disposed of. In addition, should an offer be received reflecting a value substantially in excess

of the book value and management believes that this money can be reinvested at a more attractive yield, the fund will

consider disposing of an asset.

With this strategy in mind, Emira disposed of Electron Place in Isando – a mixed office/industrial building with limited,

specialised use – and Waterford Place – an office building in Century City at a yield of below 9% and in excess of

replacement cost – during the period.

Valuation at Sale

GLA June 2004 price Yield Effective

Buildings sold Sector Location (m2) (Rm) (Rm) (%) date

Waterford Place Office Century City 3 800 24,1 35,0 8,9 7 Jun 2005

Electron Place Industrial Isando 9 221 5,2 6,9 2,6 2 Dec 2004

Total 13 021 29,3 41,9

“Properties worth close to R200 million were either transferred or were in the process of being transferred during the financial year.”


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Motorola was transferred out of Emira subsequent to year-end.

Valuation at Sale

GLA June 2004 price Yield Effective

Buildings sold Sector Location (m2) (Rm) (Rm) (%) date

Motorola Office Midrand 719 2,4 3,0 11,1 11 Aug 2005

Total 719 2,4 3,0

Agreements for the disposal of Mafikeng Game and Grinaker Electronics, neither of which meets the fund’s investment

criteria, have also been signed and the fund is waiting for the fulfilment of certain suspensive conditions.

Valuation at

GLA June 2004 Price Yield

Awaiting transfer Sector Location (m2) (Rm) (Rm) (%)

Mafikeng Game Retail Mafikeng 5 218 20,1 20,7 15,9

Grinaker Electronics Office Samrand 3 261 3,8 7,0 1,6

Total 8 479 23,9 27,7

3.8 Valuations

The fund elected to have independent valuations of its entire portfolio at least every three years. To achieve this, the

fund has decided to have approximately one-third of the portfolio valued by independent valuers each year.

Four external companies were selected to undertake the valuations of 26 properties as at 30 June 2005, namely:

Mills Fitchet, Old Mutual Properties, The Property Partnership and Motseng Marriott.

The valuation movements on these 26 properties were as follows:

RMB Properties Independent

valuations valuations

June 2004 June 2005 Difference Difference

(R’000) (R’000) (%) (R’000)

Office 320 751 391 675 22,1 70 924

Retail 204 445 253 000 23,7 48 555

Industrial 111 541 130 960 17,4 19 419

636 737 775 635 21,8 138 898

17PAGE

Valuations of the remaining 56 properties were undertaken as at 30 June 2005 by qualified valuers employed by

RMB Properties (Pty) Ltd.

RMB Properties RMB Properties

valuations valuations


(R’000) (R’000) (%) (R’000)

Office 612 064 719 971 17,6 107 907

Retail 441 473 557 277 26,2 115 804

Industrial 179 465 206 658 15,2 27 193

1 233 002 1 483 906 20,3 250 904

As a result of the firming in capitalisation rates, advantageous renewals in a number of properties and rising rentals in

a number of areas, property values improved in all three sectors since June 2004.

Total portfolio movement


(R’000) (R’000) (%) (R’000)

Office 956 891 1 111 646 16,2 154 755

Retail 645 918 810 277 25,4 164 359

Industrial 296 206 337 618 14,0 41 412

General* 2 012 233 (88,4) (1 779)

Portfolio value 1 901 027 2 259 774 18,9 358 747

Adjustment to fair value as per IAS17/IAS40 — (32 669) — (32 669)

As reported 1 901 027 2 227 105 17,2 326 078

* General comprised of capitalised listing costs at the end of June 2004 and were subsequently reallocated to properties. June 2005 amount relates to costs incurred on Gift Acres and Unilever properties.

The office sector improved by 16,2% (R155 million), retail by 25,4% (R164 million) and the industrial properties

improved by 14,0% (R41 million). Overall the fund increased in value by 18,9% or R359 million since June 2004.

4. Net asset value of the fund

The valuation of R2 260 million has given rise to a change in fair value in the income statement totalling R280,8

million. The net asset value of the fund at 30 June 2005 was 624 cents per participatory interest. The fund’s listed price

at the same date was 720 cents per participatory interest, which reflects a 15,4 % premium to net asset value.

“As a result of firming cap rates, advantageous renewals and rising rentals, property values improved in all three sectors.”


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5. Gearing

5.1 Current debt profile

As at June 2005 Emira had a total debt facility available of R585 million, of which R522 million had been utilised, split

into five tranches.

The breakdown is as follows:

Rate Term Amount % of debt

1 Debt – Floating Prime – 2% N/A 107,4 20,6%

2 Debt – Fixed 9,35% September 2005 100,0 19,2%

3 Debt – Fixed 9,76% November 2006 126,1 24,2%

4 Debt – Fixed 10,21% November 2008 100,0 19,2%

5 Debt – Fixed 11,26% October 2009 88,5 17,0%

TOTAL 9,76%* 522,0 100%

*Weighted average cost of debt assuming prime at 10,5%

Emira has entered into additional interest rate swaps to further extend the maturities of the nearest-dated facilities

2 and 3 above:

Old New New

Term Amount Rate amount New term rate

Sep 2005 100,0 9,35% 100,0 8 Sep 2005 – 10 Sep 2007 9,24%

Nov 2006 126,1 9,76% 63,0 30 Nov 2006 – 30 Nov 2011 10,76%

63,1 30 Nov 2006 – 30 Nov 2011 10,41%

The net effect of these swaps is that Emira’s current debt profile can be illustrated below.

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In summary: the majority (79%) of the fund’s debt had been fixed for periods of between 28-months and in excess of

six years, with the remaining portion (21%) at rates linked to prime. Favourable interest rates on certain of these

tranches give the fund an effective weighted average cost of debt of 9,76%, which is amongst the lowest in the sector.

19PAGE

5.2 Future debt requirements

After an abnormally long delay in their transfer due

to the signing of a lease at Lincolnwood by the

major tenant, management expects that the

registration of Lincolnwood and Pybus Road into

Emira’s name is imminent. The suspensive conditions

for the transfer have been met and Competition

Commission approval has been received. The total

cost of these two properties is R71,5 million, which

could be funded out of the remaining debt facility of

R63 million, and proceeds from the disposal of

properties mentioned above.

The fund’s debt facility is expected to be raised as a

result of the increased valuations at June 2005.

Using the total assets as at June 2005 of R2,30 billion,

Emira’s potential debt facility could increase to

R690 million from the current R585 million. This

additional facility plus the cash realised from the

sale of the properties mentioned above will be

utilised to fund acquisitions, as well as refurbishments

of and extensions to the existing portfolio.

6. Prospects

Rand Merchant Bank economists believe that the

outlook for the economy for the remainder of 2005

and into 2006 is positive. Real GDP growth is

expected to be 4,1% in 2005, softening slightly to

3,8% in 2006. Inflation as measured by CPIX is

expected to remain within the target of 3% to 6%

set by the Reserve Bank, with the result that prime

interest rates should remain stable.

Against the economic outlook above, market

conditions in the retail and industrial property

sectors are expected to remain buoyant with

vacancies being maintained at current low levels.

There is continued demand for space from retailers,

while healthy economic growth is benefiting the

industrial sector. Vacancies in the office market

should continue their downward trend if the

economy continues to grow at levels in excess of 3%

and the supply of new office space from developers

remains moderate.

In the absence of any major shocks to the South

African economy the listed property sector is

expected to continue to show solid returns over the

next twelve months. Certain commentators believe

that growth from the listed sector could average

between 6% and 7%. We believe that Emira should

deliver market related growth in distributions in the

coming year.

7. Management of the fund

7.1 STREM and sub-contract of asset management

STREM has been approved by the Registrar of

Collective Investment Schemes to manage the

Emira Property Scheme. STREM has entered into an

asset management agreement with RMB Properties

to administer the affairs of the scheme.

STREM will receive an amount equal to 0,5% of the

total market capitalisation of the fund, calculated

monthly on the average daily closing price of the

fund as recorded by the JSE Limited, plus the total

long-term borrowings.

Fees paid for the period amounted to R10,59 million

(2004: R5,24 million).


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7.2 Changes to the STREM board

● Louisa Forrester resigned as an executive director

of STREM effective August 2004.

● Ron van der Bos resigned as CEO and executive

director of STREM effective July 2004.

● Bryan Jackson resigned as a non-executive director

of STREM effective January 2005.

The board wishes to thank all three for their

contribution to the fund’s success.

● James Templeton was appointed as CEO and

executive director effective July 2004.

7.3 Property management

Property management of the fund has been

outsourced to RMB Properties (Pty) Limited, a

subsidiary company of FirstRand. Property

management and commissions paid for the period

were R22,7 million (2004: R9,76 million).

8. Directorate

Details of the directors are set out on page 23 of this

report. According to the articles of association of

STREM, the executive and non-executive directors

shall retire at the following annual general meeting

of STREM and will be eligible for re-election.

9. Secretary of the fund

The secretary is Claire Middlemiss who was appointed

on 15 September 2003. Her business and postal

addresses, which are also the fund’s registered and

business addresses, are set out on page 58.

10. Auditors

PricewaterhouseCoopers Inc. has been appointed as

the fund’s auditors.

11. Directors of STREM interests in

participatory interests

The directors’ holdings in the participatory interests

of the fund as at 30 June 2005 were as follows:

Beneficial

Direct Indirect

Director 2005 2005

Executive directors:

Warren Schultze 301 000

James Templeton 89 800

Non-executive Directors:

No non-beneficial participatory interests were held

by any of the directors.

21PAGE

12. PI Holders’ profile and JSE information at 30 June 2005

Participatory Number of % of % of

Non-public interests holders capital holders

Directors

(of Management Company) 89 800 1 0,0 0,2

Directors’ associates 301 000 2 0,1 0,4

TOTALS 390 800 3 0,1 0,6

Participatory Number of % of % of

Non-public interests holders capital holders

Insurance companies 142 636 252 12 49,7 2,2

Investment trusts 4 349 148 66 1,5 12,2

Pension funds 25 824 041 48 9,0 8,9

Unit trusts 83 505 461 31 29,1 5,7

Other 30 123 070 380 10,5 70,4

TOTALS 286 437 972 537 99,9 99,4

286 828 772 540 100 100,0

Range analysis as at 24 June 2005 % of % of

Range Holders holders Number of PI capital

1 – 5 000 194 35,9 435 588 0,1

5 001 – 10 000 63 11,7 480 773 0,2

10 001 – 100 000 169 31,3 5 822 935 2,0

100 001 – 500 000 70 13,0 17 992 768 6,3

500 001 – 1 000 000 17 3,1 11 994 492 4,2

Over 1 000 000 27 5,0 250 102 216 87,2

540 100 286 828 772 100,0


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The following holders of PI’s hold, directly or

indirectly, at 24 June 2005, in excess of 5% of the

ordinary issued capital

Participatory % of issued

Holder interests capital

Momentum Life Assurers Limited 130 823 444 45,6

List of managers managing more than 5% of the

ordinary issued capital

Number of % of issued

Manager funds capital

RMB Asset Managers 77 62,1

Stanlib 17 12,4

Marriott Asset Management 7 12,3

13. Major interest holder

Momentum is the majority interest holder in Emira

with 45,6% of the participatory interests in issue.

14. Special resolutions

A full list of the special resolutions passed by the

fund during the year will be made available to

participatory interest holders on request.

15. Subsequent events to the balance sheet

date

Subsequent to year-end the building known as 100

Armstrong, which was purchased for R25 million

earlier in the year was transferred to Emira. Moreover,

Motorola has been transferred out of the portfolio,

for which Emira has received a cash lump sum. For

further details refer to the sections on acquisitions

and disposals.

16. Directors’ remuneration

The directors of STREM are remunerated from the

management fee payable by the fund.

23PAGE

DIRECTORATE DIRECTORATEDirectors of the management company, Strategic Real Estate Managers (Pty) Ltd (STREM)

The full names, ages, qualifications, occupations and profiles of the directors of STREM are as follows:

1. Benedict James van der Ross (57) (Non-executive Chairman)

Qualifications: Dip Law Occupation: Company director

Mr van der Ross was admitted to the Cape Bar as attorney in 1970 and practiced law in his own capacity until 1988. He has served as director of various companies including Executive Director for the Urban Foundation and Independent Development Trust.

He was appointed Commissioner to the First Independent Electoral Commission by the State President on the advice of the Transitional Executive Council and subsequently served as Deputy Chief Executive Officer of the Independent Development Trust.

He currently serves on the boards of FirstRand, Naspers, Momentum Group, and is the chairman of RMB Asset Management.

2. Warren Kirkwood Schultze (45) (Executive director)

Qualifications: BCom, BAcc, CA(SA) Occupation: Chief Executive Officer of RMB

Properties

Prior to joining RMB Properties, Mr Schultze served his articles with Arthur Young and was later appointed as financial director for two property financing and property trading companies and during this time he gained extensive experience in property asset management, property financing and property trading activities.

He was appointed as Chief Operating Officer of RMB Properties in 2000 and Chief Executive Officer in 2004.

3. James William Andrew Templeton (32) (Chief Executive Officer)

Qualifications: BCom (Hons), CFA Occupation: Chief Executive Officer of

Strategic Real Estate Managers (Pty) Ltd

Mr Templeton joined RMB Properties in April 2004 as Business Development Executive. Previously he was employed at Barnard Jacobs Mellet Securities as an Equities Analyst for seven years.

He was the top-ranked analyst in the Real Estate sector according to the Financial Mail in 2002 and 2003 and was appointed CEO of STREM in July 2004.

4. Liliane Barnard (41) (Independent non-executive director)

Qualifications: BCom Occupation: Consultant

Ms Barnard has 17 years experience in the asset management industry. She headed the asset management of Old Mutual Properties (Pty) Ltd and had 11 years experience in managing listed property portfolios for Old Mutual Asset Managers (Pty) Ltd. She now acts as consultant and independent advisor to the listed property industry and its investors.

She is also an independent non-executive director of Redefine Income Fund.

5. Mattys Stefanus Benjamin Neser (49) (Independent non-executive director)

Qualifications: BSc (Building Management), MBA Occupation: Director

Mr Neser has been involved with the Abcon group of companies since 1981 and has acted as Chief Executive Officer for the various companies in the group since the early 1990’s. He is active in the residential and commercial property field as well as in the juice, mushroom, flower and service station industries.

6. Leon Basson (36) (Non-executive director)

Qualifications: BCom (Hons), CTA, CA(SA) Occupation: Chief Financial Officer of

Momentum Retail Insurance

Mr Basson has been with Momentum since January 1995. He served his articles at Price Waterhouse from 1991 to 1993 and subsequently worked for Price Waterhouse until the end of 1994.

7. Bryan Terence Jackson (59) (Non-executive director)

Qualifications: BCom, LLB Occupation: Non-executive director of RMB

Properties

Mr Jackson was the Managing Director of RMB Properties (Pty) Ltd from 1992 and Chief Executive Officer from 2002, and retired in 2004. He has extensive experience in all facets of property development, management and investment. He has been a partner in property development companies and has been involved in excess of 100 retail and commercial property developments.

Mr Jackson resigned from the STREM board effective 3 January 2005.

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GOVERNANCEThe directors of STREM acknowledge the importance of

the principles of good corporate governance and support

the Code of Corporate Practices and Conduct contained in

the King II report. They recognise their responsibility to

conduct the affairs of Emira with integrity, openness and

accountability in accordance with generally accepted

corporate practices.

Although Emira is listed on the JSE Limited (“JSE”) and

therefore subject to the code, it is not a legal entity and is

regulated in terms of the Collective Investments Schemes

Control Act of 2002 (“CISC Act”). Certain requirements of

the code are therefore not directly applicable to the Fund.

However, the Managers have adopted the principles of the

code, being fairness, accountability, responsibility and

transparency.

The Fund has complied with the code to the following extent:

The board of directors

Structure

As at 30 June 2005 the board consisted of six members:

Director

Date

appointed

Date

resigned

No of board

meetings

Meetings

attended

Executive directors

J W A Templeton (CEO)* July 2004 4 4

W K Schultze* September 2003 4 4

Non-executive directors

B J van der Ross (Chairman)* September 2003 4 4

L Barnard September 2003 4 4

L Basson** September 2003 4 3

M S B Neser* September 2003 4 4

B T Jackson September 2003 January 2005 4 1

*Audit committee

** Audit committee chairman

CORPORATE GOVERNANCE

25PAGE

The capacity of the directors may be categorised as

follows:

Executive directors

Messrs J W A Templeton and W K Schultze are employed

by RMB Properties (Pty) Limited, and remunerated out of

the service charge payable by the Fund to STREM.

Non-executive directors

Mr L Basson represents Momentum Group Limited at

board level, which is a significant participatory interest

holder. Mr B J van der Ross is a director of FirstRand

Limited and Momentum Group Limited.

Independent non-executive directors

Mr M S B Neser and Ms L Barnard are not significant

holders of Emira participatory interests, as defined in the

code.

The roles of Chairman and Chief Executive Officer are

completely separated. The directors have a wide range of

skills, all with property experience in common.

The board schedules to meet at least four times per year.

In addition, seven asset performance committee meetings

were held during the year and were attended by the

executive members of the board.

All directors have unrestricted access to the advice and

services of the fund’s secretary and to the fund’s records,

information, documents and property. Non-executive

directors also have unfettered access to management at

any time.

The board will ensure that it has the expertise,

independence and diversity it needs to function

independently. Independence of the board from the

management team will be maintained by:

● maintaining a non-executive chairperson;

● maintaining a balance of executive and non-executive

directors;

● the remuneration of the non-executive directors being

unrelated to the financial performance of Emira; and

● all directors being entitled to seek independent

professional advice concerning the affairs of Emira at

the fund’s expense.

The board sets the strategic objectives of the fund and

determines the investment and performance criteria as

well as being responsible for the proper management,

control compliance and ethical behaviour of the business

under its direction.

Committees

Audit committee

The audit committee comprises five members of which

the chairman is non-executive. The committee meets at

least three times per year with the fund’s external

auditors and executive management as well as the

executives responsible for finance, the compliance officer

and internal auditors.

The primary objectives of the committee are to provide

the board with additional independent and objective

assurance regarding the efficacy and reliability of the

financial information used by the directors, to assist them

in the discharge of their duties. The audit committee is

required to provide reasonable assurance to the board

that adequate and appropriate financial and operating

controls are in place; that significant business, financial

and other risks have been identified and are being suitably

managed; and that satisfactory standards of governance,

reporting and compliance are in operation. The committee

also monitors proposed changes in accounting policies,

and discusses and advises the board on the accounting

implications of major transactions.

The board is responsible for the group’s system of internal

and operational control. The executive directors will be

charged with the responsibility of ensuring that assets are

protected, systems operate effectively and all valid

transactions are recorded properly. Comprehensive reviews

and testing of the effectiveness of the internal control

systems in operation will be performed by internal

auditors, who report to the audit committee. The internal

audit function will co-ordinate with other internal and

external providers of assurance to ensure proper coverage

of financial, operational and compliance controls.

The committee has the co-operation of all directors,

management and staff and is satisfied that controls and

systems within the fund have been adhered to and, where

necessary, improved during the period under review.

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GOVERNANCERemuneration committee

Due to the minimal staff employed by the manager, it is

not deemed necessary for the board to establish a

remuneration committee.

Investment committee

An investment committee comprises two executive

directors, and four senior staff employed by RMB Properties

(Pty) Limited. with the appropriate skills and experience.

The committee meets on an ad-hoc basis during the

period under review to assess acquisitions and disposals,

and makes recommendations to the board.

Managing and financial control

During the year independent internal auditors performed

a management and financial control review. No significant

weaknesses were identified and the overall conclusion was

that the:

● directors had maintained an adequate system of

internal controls and accounting records;

● the fund’s assets are safeguarded and appropriately

insured;

● the fund should remain a going concern for the

foreseeable future; and

● management understood the fund’s policy and

employed the appropriate strategy.

Risk management

The STREM management philosophy on risk recognises

that managing risk is an integral part of generating

sustainable unit holder value and enhancing stakeholder

interest. It also recognises that an appropriate balance

should be struck between entrepreneurial endeavour and

sound business practice.

The management of STREM operate a risk management

framework, which is based on COSO’s Enterprise Risk

Management Framework. The underlying premise of

enterprise risk management is that every entity exists to

provide value for its stakeholders. All entities face

uncertainty, and the challenge for management is to

determine how much uncertainty to accept as it strives to

grow stakeholder value.

Value is maximised when management sets strategy and

objectives to strike an optimal balance between growth

and return goals and related risks, and efficiently and

effectively deploys resources in pursuit of the entity’s

objectives.

Enterprise Risk Management in STREM encompasses:

● Aligning risk appetite and strategy which considers the

risk appetite in evaluating strategic alternatives, setting

related objectives, and developing mechanisms to

manage related risks.

● Enhancing risk response decisions by selecting

alternative risk response, which includes risk avoidance,

reduction, sharing or acceptance.

● Reducing operational surprises and losses by gaining

enhanced capabilities to identify potential events and

establish responses.

● Identifying and managing multiple cross-enterprise

risks.

● Seizing opportunities by identifying a full range of

potential events.

● Improving deployment of capital by obtaining robust

risk information to allow management to effectively

assess overall capital needs and enhance capital

allocation.

These capabilities inherent in enterprise risk management

help management achieve the fund’s performance and

profitability targets and prevent loss of resources.

Enterprise risk management helps to ensure effective

reporting and compliance with laws and regulations, and

helps avoid damage to the fund’s reputation and

associated consequences.

Directors’ dealings

The board has adopted policies prohibiting dealings by

directors and certain other managers in periods

immediately preceding the announcement of its interim

and year-end financial results and at any other time

deemed necessary by the board or as required in terms of

the JSE regulations.

CORPORATE GOVERNANCE (continued)

STATEMENTS

27PAGE

for the year ended 30 June 2005

ANNUAL FINANCIAL STATEMENTS

CONTENTS

Statement of directors’ responsibilities 28

Approval of annual financial statements 28

Report of the independent auditors 29

Report of the trustee 29

Income statement 30

Balance sheet 31

Cash flow statements 32

Statement of changes in equity 33

Notes to the annual financial statements 34

Properties listing 49

Notice to participatory interest holders 54

Administration 58

Form of proxy 59

FINANCIAL STATEMENT OF DIRECTORS’ RESPONSIBILITIESEm

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The directors of STREM are responsible for the preparation, integrity, and fair presentation of the financial statements of the

fund. The financial statements presented on pages 30 to 54 have been prepared in accordance with Statements of Generally

Accepted Accounting Practice (“GAAP”) in South Africa, and include amounts based on judgments and estimates made by

management.

The directors consider that in preparing the financial statements they have used the most appropriate accounting policies,

consistently applied and supported by reasonable and prudent judgments and estimates, and that all Statements of GAAP that

they consider to be applicable have been followed.

The directors are satisfied that the information contained in the financial statements fairly presents the results of operations

for the period and the financial position of the fund at year-end. The directors also prepared the other information included in

the report and are responsible for both its accuracy and its consistency with the financial statements.

The directors have responsibility for ensuring that accounting records are kept. The accounting records should disclose with

reasonable accuracy the financial position of the fund to enable the directors to ensure that the financial statements comply

with the relevant legislation.

The fund operated in a well-established control environment, which is well documented and regularly reviewed. This

incorporates risk management and internal control procedures, which are designed to provide reasonable, but not absolute,

assurance that assets are safeguarded and the risks facing the business, are being controlled.

The going-concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that

the fund will not be a going concern in the foreseeable future, based on forecasts and available cash resources. These financial

statements support the viability of the fund.

The fund’s external auditors, PricewaterhouseCoopers Incorporated, audited the financial statements, and their report is

presented on page 29.

B J van der Ross J W A Templeton

Chairman Chief Executive Officer

The annual financial statements of the fund, incorporating statutorily required information in respect of the fund, for the year

ended 30 June 2005 set out on pages 30 to 54 were approved by the board of directors of STREM on 22 August 2005 and are

signed on its behalf by:

B J van der Ross J W A Templeton

Chairman Chief Executive Officer

APPROVAL OF ANNUAL FINANCIAL STATEMENTS

STATEMENTS

29PAGE

TO THE PARTICIPATORY INTEREST HOLDERS OF EMIRA PROPERTY FUND

We have audited the financial statements set out on pages 30 to 54 for the year ended 30 June 2005. These financial

statements are the responsibility of STREM’s directors. Our responsibility is to express an opinion on these financial statements

based on our audit.

Scope

We conducted our audit in accordance with Statements of South African Auditing Standards. Those standards require that we

plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.

An audit includes:

● examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements;

● assessing the accounting principles used and significant estimates made by management; and

● evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

Audit opinion

In our opinion, the financial statements fairly present, in all material respects, the financial position of Emira Property Fund and

of its operations and cash flows for the year ended 30 June 2005 in accordance with South African Statements of Generally

Accepted Accounting Practice and in the manner required by the Collective Investment Schemes Control Act, No. 45 of 2002.

PricewaterhouseCoopers Inc.

Registered Accountants and Auditors Johannesburg

Chartered Accountants (SA) 22 August 2005

In terms of Section 70(I)(f) of the Collective Investment Schemes Control Act, No. 45 of 2002

TO THE PARTICIPATORY INTEREST HOLDERS OF THE EMIRA PROPERTY FUND

During the period as set out above during which the Collective Investment Schemes Control Act, No. 45 of 2002 has been in

effect the Trust has been administered in accordance with

i. The limitations imposed on the investment and borrowing powers of the Manager by the Act; and

ii. The provisions of the Act and the deed.

ABSA Bank Ltd Johannesburg

Trustee 19 August 2005

for the year ended 30 June 2005

REPORT OF THE TRUSTEE

REPORT OF THE INDEPENDENT AUDITORS

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INCOME STATEMENTfor the year ended 30 June 2005

2005 2004

Notes R’000 R’000

REVENUE 2 407 088 179 669

Property expenses (121 309) (60 843)

Administration and management expenses (22 740) (10 940)

Depreciation (6 464) (3 004)

Net income from property rental operations 3 256 575 104 882

Fair value adjustments 248 141 86 906

Change in fair value of investment properties 280 810 86 906

Change in fair value of investment properties as a

result of future rental escalations (32 669) —

Profit on disposal of investment property 11 179 —

Maintenance fund expenses (1 827) (1 330)

Listing costs (104) (345)

Operating profit 513 964 190 113

Financing costs 4 (45 662) (20 669)

Interest received 4 3 554 8 046

Net profit for the period 471 856 177 490

Earnings per participatory interest (cents) 165,1 65,22

Headline earnings per participatory interest (cents) 5 74,37 33,28

Distribution per participatory interest (cents) 5 67,55 34,01

STATEMENTS

31PAGE

BALANCE SHEETas at 30 June 2005

2005 2004


ASSETS

Non-current assets

Investment properties 6 2 227 105 1 901 027

Allowance for future rental escalations 32 669 —

2 259 774 1 901 027

Current assets

Trade and other receivables 7 31 757 4 269

Maintenance fund 8 — 24 104

Cash 9 9 252 4 027

41 009 32 400

Total assets 2 300 783 1 933 427

EQUITY AND LIABILITIES

Participatory interests 10 1 425 094 1 416 344

Reserves 11 363 512 85 403

Equity capital and reserves 1 788 606 1 501 747

Non-current liabilities

Borrowings 12 364 141 310 978

Current liabilities

Short-term portion of borrowings 12 1 867 1 867

Trade and other payables 13 34 257 39 121

Derivative liabilities 14 11 757

Distributions payable to participatory interest holders 100 155 79 714

148 036 120 702

Total equity and liabilities 2 300 783 1 933 427

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CASH FLOW STATEMENTfor the year ended 30 June 2005

2005 2004


CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations 15.1 196 087 141 063

Interest received 3 554 8 046

Interest paid (33 905) (20 669)

Distributions to participatory interest holders 15.2 (173 306) (12 373)

(7 570) 116 067

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of investment properties (104 693) (1 779 893)

Acquisition of furniture and fittings (8 984) (37 232)

Proceeds on sale of investment properties 40 455 —

Decrease/(increase) in maintenance fund 24 104 (24 104)

(49 118) (1 841 229)

CASH FLOWS FROM FINANCING ACTIVITIES

Issue of participatory interests 8 750 1 426 468

Cash utilised for listing expenses — (10 124)

Increase in borrowings 53 163 310 978

Increase in short-term portion of borrowings — 1 867

61 913 1 729 189

Net increase in cash and cash equivalents 5 225 4 027

Cash at the beginning of the period 4 027 —

Cash at the end of the period 9 252 4 027

STATEMENTS

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STATEMENT OF CHANGES IN EQUITYfor the year ended 30 June 2005

Partici- Non-

patory distributable Retained

interest reserve earnings Total

R’000 R’000 R’000 R’000

2004

Issue of participatory interest 1 426 468 — — 1 426 468

Listing costs (10 124) — — (10 124)

Net profit for the period — — 177 490 177 490

Distribution to PI holders — — (92 087) (92 087)

Maintenance fund expenses — (1 330) 1 330 —

Fair value adjustment — 86 906 (86 906) —

Balance at 30 June 2004 1 416 344 85 576 (173) 1 501 747

2005

Balance at 1 July 2004 1 416 344 85 576 (173) 1 501 747

Issue of participatory interest 8 750 — — 8 750

Net profit for the year — — 471 856 471 856

Distribution to PI holders — — (193 747) (193 747)

Transfer of allowance for future

rental escalations to non-

distributable reserve — 32 669 (32 669) —

Fair value adjustments — 248 141 (248 141) —

Profit on sale of investment property — 11 179 (11 179) —

Unrealised loss on interest rate swaps — (11 757) 11 757 —

Maintenance fund expenses — (1 827) 1 827 —

Balance at 30 June 2005 1 425 094 363 981 (469) 1 788 606

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NOTES TO THE FINANCIAL STATEMENTSfor the year ended 30 June 2005

1. ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below:

Basis of presentation

The preparation of financial statements in conformity with Statements of Generally Accepted Accounting Practice

requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, and the

disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of

revenue and expenses during the reporting period based on management’s best knowledge of current events and actions.

Actual results may ultimately differ from these estimates. The financial statements have been prepared in accordance

with South African Statements of Generally Accepted Accounting Practice using the historical cost convention as modified

by the revaluation of investment property.

1.1 Investment properties

1.1.1 Freehold properties

Investment properties held for the purpose of earning rental income and for capital appreciation.

Investment properties are treated as long-term investments and are initially recognised at cost and subsequently carried

at fair value. The fair value of an asset is the amount for which that asset could be exchanged between knowledgeable

willing parties in an arm’s length transaction. Properties are valued annually by accredited valuers at fair value.

Independent valuations are obtained on a rotational basis so as to ensure that external independent valuation

professionals have valued each property every three years.

Any gains or losses arising from changes in fair value are included in the net income or loss for the year. The net gains or

losses are transferred to a non-distributable reserve and are not available for distribution, as set out in the trust deed of

the fund.

Gains or losses arising from the disposal of investment properties, being the difference between the net disposal proceeds

and the carrying value, are brought to account in the determination of the net income/loss for the year. The net gains or

losses are transferred to a capital reserve and are not available for distribution in accordance with the fund’s trust deed.

1.1.2 Leasehold properties

Leasehold properties comprise buildings erected on land secured by means of long-term land leases. These leases are

classified as operating leases and have varying expiry dates from 15 to 45 years.

1.2 Furniture and fittings

Furniture and fittings are stated at historical cost less accumulated depreciation. Cost comprises the purchase price as

well as all costs incurred in order to bring the asset to working condition.

Depreciation is calculated on the straight-line method.

Repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Furniture and fittings are linked to specific properties. Consequently, any gains or losses on disposal are not separately

accounted for.

35PAGE

1. ACCOUNTING POLICIES (continued)

1.3 Allowance for future rental escalations

Allowance for future rental escalations represents the difference between the actual cash rentals received to date and the

rental income recognised on a straight-line basis over the period of the lease contracts.

1.4 Trade receivables

Trade receivables are carried at original invoice amounts less provision made for impairment of these receivables. A

provision for impairment of trade receivables is established when there is objective evidence that the fund will not be

able to collect all amounts due according to the original term of the receivables. The amount of the provision is the

difference between the carrying amount and the recoverable amount, being the present value of the expected cash flows,

discounted at the market rate of interest for similar borrowers.

1.5 Maintenance fund

The maintenance fund is accounted for at cost and comprises a diversified portfolio of money market instruments with

maturities of less than one year, for the replacement of retired fixed assets and for refurbishments required from time to

time. The expenses financed from the fund are transferred to a non-distributable reserve and do not form part of the

distributions to participatory interest holders.

1.6 Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and

cash equivalents comprise cash on hand, deposits held at call with banks, and bank overdrafts. Bank overdrafts are

included within borrowings in current liabilities on the balance sheet.

1.7 Borrowings

Borrowings are recognised initially at the fair value of proceeds received, net of transaction costs incurred, when the fund

becomes party to the contractual provisions. Borrowings are subsequently stated at amortised cost using the effective

interest rate method; any difference between proceeds (net of amortised costs) and the redemption value is recognised

in the income statement over the period of the borrowings as interest.

Financial liabilities are removed from the balance sheet when the obligation specified in the contract is discharged,

cancelled, or expires.

1.8 Derivative instruments

The fund uses derivative financial instruments to hedge its exposure to interest rate risks arising from financing and

investment activities. The fund does not hold or issue derivative financial instruments for trading purposes. However,

derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial

instruments are stated at fair value. The gain or loss on re-measurement to fair value is recognised immediately to profit

or loss. The fair value of interest rate swaps is the estimated amount that the group would receive or pay to terminate

the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the

swap counterparties.

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1.9 Trade payables

Trade payables are carried at the fair value of the consideration to be paid in future for goods or services that have been

received or supplied and invoiced or formally agreed with the supplier.

1.10 Revenue and expense recognition

1.10.1 Revenue

Comprises rental income and operating cost recoveries from tenants, but excludes value-added tax. Rental income is

accounted for on a straight-line basis over the period of the lease contracts.

1.10.2 Interest and other investment income

Interest income is recognised on a time proportion basis, taking into account the principal amount outstanding to the

effective rate over the period to maturity when it is determined that such income will accrue to the fund.

1.10.3 Operating leases

Leases under which the lessor effectively retains the risks and benefits of ownership are classified as operating leases.

Obligations incurred under operating leases are charged to the income statement in equal instalments over the period

of the lease.

1.10.4 Management fees

Management fees payable to STREM are equal to 0,5% of the total market capitalisation of the fund, calculated monthly

on the average daily closing price of the fund as recorded by the JSE Limited, plus the total long-term borrowings.

1.10.5 Property management fees

Property management fees payable to RMB Properties are calculated based on the rental collections using the market-

related rates applicable to the type and occupancy of buildings.

1.11 Distributions to participatory interest holders

Distributions to participatory interest holders are recognised in the period in which income is earned. The accrued income

arising as a result of the difference between actual cash rental received and the amortised amount on a straight-line basis

over the periods of the lease contracts is not distributable until realised.

1.12 Segment reporting

Business segments provide services that are subject to risks and returns that are different from those of other business

segments. Geographical segments provide services within a particular economic environment that is subject to risks and

returns that are different from those components operating in other economic environments.

NOTES TO THE FINANCIAL STATEMENTS (continued)for the year ended 30 June 2005

37PAGE


1.13 Financial risk management

Financial risk factors

The fund’s activities expose it to a variety of financial risks, including the effects of changes in the debt and equity market

prices and interest rates. The fund’s overall risk management programme focuses on the unpredictability of financial

markets and seeks to minimise potential adverse effects on the financial performance of the fund.

Interest rate risk management

The fund’s policy is to maintain a significant portion of borrowings in fixed rate instruments. At year-end, 79% of total

borrowing facilities were at fixed rates.

Credit risk management

The fund has no significant concentration of credit risk due to a large number of widespread tenants.

The fund has policies in place to ensure that lease agreements concluded are with tenants with an appropriate credit

history. The fund has policies that limit the amount of credit exposure to any one financial institution, and cash

transactions are limited to high credit quality financial institutions. The debts are monitored on a continuous basis in

order to maintain a low default rate on trade receivables.

Liquidity risk management

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of

funding through an adequate amount of secured credit facilities and the ability to close out market positions. Due to the

dynamic nature of the fund, management aims at maintaining flexibility in funding by keeping secured credit lines

available.

1.14 Taxation

No taxation is accounted for in the fund as all distributable income is distributed to participatory interest holders and

taxable in their hands. As a result no deferred taxation has been raised.

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2005 2004

R’000 R’000

2. REVENUE

Revenue from:

Operating lease rental income on investment properties 260 356 128 820

Operating lease rental income on leasehold properties 13 686 4 484

Allowance for lease rental income (accrued on straight-line basis) 32 669 —

Recoveries of operating costs from tenants 100 377 46 365

407 088 179 669

3. NET INCOME FROM PROPERTY RENTAL OPERATIONS

Net income from property rental operations is arrived at after taking

into account the following items:

Expenses

Auditors’ remuneration

Audit fee 439 453

Expenses 16 28

Depreciation of fixed assets

Furniture and fittings 6 464 3 004

Management fee

Asset management 10 590 5 240

Property management 12 150 5 699

Operating lease payments – leasehold properties 1 603 823

4. INTEREST

Financing costs

Interest paid on long-terms loans (33 562) (20 435)

Unrealised loss on interest rate hedge (11 757) —

Amortised borrowing costs (296) (173)

Interest paid other (47) (61)

Total financing costs (45 662) (20 669)

Interest received

Interest received on cash balances 1 987 7 325

Interest received on maintenance fund investment 1 567 721

Total interest received 3 554 8 046

39PAGE

2005 2004

R’000 R’000

5. EARNINGS PER PARTICIPATORY INTEREST

Reconciliation between earnings and headline earnings:

Net profit for the year 471 856 177 490

Adjusted for:

Profit on sale of investment property (11 179)

Change in fair value of investment properties (280 810) (86 906)

Change in fair value of investment properties as a result of future

rental escalations 32 669 —

Headline earnings 212 536 90 584

Headline earnings per participatory interest 74,37 33,28

The calculation of headline earnings per participatory interest is based

on net profit for the year of R471,8 million (2004: R177,5 million), adjusted

for the profit on disposal and change in fair value of investment properties

divided by the weighted average number of participatory interests in issue

during the year of 285 805 380 (2004: 272 133 684).

Reconciliation of headline earnings to distribution per

participatory interest:

Headline earnings 212 536 90 584

Adjusted for:

Allowance for future rental escalations (32 669) —

Unrealised loss on interest swaps 11 757 —

Maintenance fund expenses 1 827 1 330

Amortised borrowing costs 296 173

Distribution payable to participatory interest holders 193 747 92 087

Distribution per participatory interest 67,55 34,01

The calculation of distribution per participatory interest is based on

headline earnings adjusted for non-distributable items, divided by the

number of participatory interests in issue at the end of the period of

286 828 772 (2004: 285 293 684).

FINANCIALfor the year ended 30 June 2005 NOTES TO THE FINANCIAL STATEMENTS (continued)Em

property - sharedata · 2006. 8. 30. · and mr price weekend. rentworks – fully let prime...

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