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Annual Report 2006 Contents Page Executive Summary 1 Directorate & Administration 2-3 Chairman & Chief Executive Officer's Report 4-9 Corporate Governance Review 10 - 11 Unitholders' Diary 12 Analysis Of Linked Unitholders 13 Directors' Responsibility For & Approval Of The Annual Financial Statements 14 Independent Auditor’s Report 15 Annual Financial Statements Directors' Report 16 - 17 Balance Sheets 18 Income Statements 19 Statements Of Changes In Equity 20 Cash Flow Statements 21 Notes To The Annual Financial Statements 22 - 39 Property Portfolio 40 - 41 Notice Of Annual General Meeting 42 - 44 Proxy Form 45 - 46 Directors’ Traditional Income Statement & Balance Sheet 47 - 49 This report together with additional information on the property portfolio is available at: www.ambitprops.co.za Park Meadows, Kensington, Gauteng Executive Summary PROFILE Ambit Properties Limited (Ambit or The Company) is a property loan stock company which listed on the JSE Securities Exchange South Africa (JSE) in the Financials – Real Estate sector on 4 February 2004. (Share Code: ABT, ISN: ZAE000051645). The market capitalisation of the company as at 30 September 2006 was R606 million. The Group (Ambit and its subsidiary, Whirlprops 37 (Proprietary) Limited) has an investment in a property portfolio of 27 properties and an investment in Oryx Properties Limited (Oryx), a property loan stock company listed on the Namibian Stock Exchange. INVESTMENT STRATEGY, OBJECTIVES AND PROSPECTS To provide investors with sustainable and growing income, and the associated capital appreciation, from an investment portfolio of retail, office and industrial properties. To maintain the existing high quality of the portfolio and expand it with property acquisitions largely in the major metropolitan areas which offer good rental growth prospects. Ambit will also continue to seek investment opportunities in selected neighbouring countries. 30 September 2006 30 September 2005 (Restated) • Distribution (cents per unit) 29,60 27,50 • Income yield on unit price at beginning of year 9,2% 12,6% • Weighted average headline earnings (cents per unit) 32,24 31,30 • Weighted average earnings (cents per unit) 77,20 77,91 27 29 • Value of property portfolio (R) 824 550 000 671 000 000 • Oryx investment (R) 110 927 000 82 944 000 326 275 186 482 837 173 814 215 325 323 (0,3%) 17,5% 315 960 000 267 199 000 33,8% 35,5% • Number of properties • Net asset value including distribution yet to be paid (cents per unit) • Linked units in issue • Market price (cents per unit) • (Discount)/premium to net asset value • Borrowings (R) • Interest bearing borrowings as a percentage of long-term assets 1 Annual Report 2006 HIGHLIGHTS Directorate & Administration From top left to right R D Jeffery, R R Emslie, N B S Harris, D L Brown, F Uys, J H Beare, I N Mkhari and W H Raffinetti Directors of Ambit Properties Limited (Registration number: 2001/007003/06) as at 30 September 2006 and at the date of this report are: D L Brown (59) (FRICS, MIV (SA)) # * Non-executive independent Chairman He has 38 years experience in commercial real estate focused principally on development, leasing and asset management. He was previously the managing director of Equity Estates (Proprietary) Limited, until his retirement earlier this year. J H Beare (52) (BComm, CA(SA)) # • (C) Non-executive independent director He has 18 years experience in the property industry. He is the managing director of Beare Holdings (Proprietary) Limited which is extensively involved in property investment, development and administration. He was a business service partner of Pim Goldby (now Deloitte & Touche). N B S Harris (64) (FRICS) # Chief Executive Officer Executive director He has over 40 years experience in property. He was a director of Marriott Property Services (Proprietary) Limited. He is a director of Oryx Properties Limited (listed on the Namibian Stock Exchange), is a past president of the South African Property Owners Association and is chairman of the South African Board of the Royal Institution of Chartered Surveyors. R R Emslie (48) (BComm (Hons), CA (SA)) Non-executive director He has 19 years banking experience with Absa Bank Limited with senior appointments in both ACMB and the Business Bank. In August 2004 he was appointed as an executive director of the Absa Group. He is a director of Paramount Property Fund Limited. 2 R D Jeffery (61) Alternate director to R R Emslie (MBA) Non-executive director He has 41 years banking experience including 11 years experience in commercial property finance. He is a general manager within the Business Banking Services Division of Absa Bank Limited heading up the Commercial Property Finance Department. He is a director of Paramount Property Fund Limited. Administration Ambit has changed its registered office and as from 1 December 2006, the registered office is: Ambit Properties Limited First Floor, 4 Fricker Road Illovo, 2196 P O Box 618, Melrose Arch, 2076 Company secretary and manager Ambit Management Services (Proprietary) Limited First Floor, 4 Fricker Road Illovo, 2196 P O Box 618, Melrose Arch, 2076 I N Mkhari (32) (BA Soc. Science) * Non-executive independent director Ipeleng is the Chief Investment Officer of Motseng Investment Holdings (Proprietary) Limited. In 1998 she founded Phosa Iliso CCTV; the first black woman-owned and managed CCTV business in South Africa. She later co-founded Motseng Investment Holdings and is a shareholder of Motseng Investment Holdings. She is a director of all Motseng group subsidiaries, Kap International and Marriott Property Fund Managers Limited. Trustee Steinway Trustees (Proprietary) Limited The Manor House 14 Nuttall Gardens Morningside Durban, 4001 P O Box 37957, Overport, 4067 F Uys (59) (BA, BComm (Hons), MComm) (Namibian) • Non-executive independent director His experience includes being the managing director of Metje & Ziegler Limited from 1996 to 2004, of TransNamib Limited from 1989 to 1996 and a senior executive of the Trencor Group from 1970 to 1989. He founded the Road Transport Association in Namibia in 1976 and acted as chairman until 1980. He has served on various Government and advisory bodies in Namibia as well as in South Africa. He was chairman of the Namibian Stock Exchange from 1999 to 2001. He has been the chairman of FP du Toit Transport (Proprietary) Limited since 1999, is the chairman of Intercape Ferreira Mainliner (Proprietary) Limited and is a director of Oryx Properties Limited. Merchant bank Grindrod Bank Limited Building Three, First Floor, North Wing Commerce Square, 39 Rivonia Road Cnr Helling Road, Sandton PO Box 78011, Sandton, 2146 Member of the Investment Committee Member of the Risk, Audit and Compliance Committee Member of the Remuneration Committee Chairman of relevant sub-committee Auditors Deloitte & Touche Deloitte & Touche Place 2 Pencarrow Crescent La Lucia, Durban, 4001 P O Box 243, Durban, 4000 Transfer secretary Computershare Investor Services 2004 (Proprietary) Limited 70 Marshall Street Johannesburg, 2001 P O Box 61051, Marshalltown, 2017 Sponsors Exchange Sponsors (Proprietary) Limited Building Three, First Floor, North Wing Commerce Square, 39 Rivonia Road Cnr Helling Road, Sandton PO Box 78011, Sandton, 2146 3 Annual Report 2006 # • * (C) Commercial bank Absa Bank Limited Business Banking Services Palazzo Towers West Monte Casino Boulevard Fourways, 2055 P O Box 782991, Sandton, 2146 Chairman & Chief Executive Officer’s Report Ambit has performed well for the year under review providing investors with steady income growth. Ambit’s distributable earnings for the financial year ended 30 September 2006 amounts to R55,2million or 29,6 cents per unit (cpu) which shows growth of 7,6% over the 2005 distribution (2005: 27,5cpu). The second half distribution of 15,6cpu shows growth of 11,4% over the first half year distribution of 14,0cpu. 1. ECONOMIC REVIEW The economy continued the sound 4% growth of the past few years and at last job creation was positive. Inflation remained within the Reserve Bank target of 3 – 6%, albeit edging towards the upper end of the band. Consumer spending continued to grow, but this was tempered by the 0,5% interest rate increases in June and August. However, the weakening of the Rand against the major currencies will have a positive impact on exports. Business confidence ended the period under review at the same positive levels at which it commenced the year. 10 9 8 7 6 5 4 3 2 1 0 Oct Nov Dec 05 05 05 Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 ZAR/USD R153 Jul 06 Aug 06 Sep 06 ECPIX 2. LISTED PROPERTY The listed property sector started the period under review as a favoured asset class, with the strong investor demand driving the South African Property Index (SAPY) index well below the benchmark Government long bond yields (the R153). By May 2006, the SAPY index reached a peak of 465 from which it rapidly retreated 25% over the next 2 months following the global re-rating of the emerging markets and the Reserve Bank increase in interest rates. However, the underlying property fundamentals had not changed and ongoing growth in distributions from the sector soon had investors recognising the over sold situation and returning to this asset class. By the end of September 2006 the index had recovered to 408, within 12% of its May high. 10 8 6 4 2 0 Oct Nov Dec 05 05 05 Jan 06 Feb 06 Mar 06 AMBIT Apr 06 J253 May 06 Jun 06 Jul 06 Aug 06 Sep 06 R153 The market capitalisation of the sector commenced the period under review at R45 billion and, by the end of September 2006, stood at R57 billion. 4 Listed Property Market Capitalisation 70 000 Rand (Billions) 60 000 50 000 40 000 30 000 20 000 10 000 0 Oct 05 Nov 05 Dec 05 Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun Jul Aug Sep 06 06 06 06 Source: Inet and Catalyst 3. THE PROPERTY MARKET The strong economic conditions have had a substantial impact on the commercial property market. Demand for retail space has continued, only being satisfied by further new centres being brought to the market. According to SAPOA’s statistics, vacancies in A grade offices in the popular decentralised office nodes have halved from about 7% to 3,5%. Industrial and warehousing demand in all popular areas has virtually filled the available space and there is pressure on remaining vacant land from end users and developers. Rentals are rising in both the office and industrial sectors driven by demand and increasing building costs, which have risen substantially over the past two years. The Investment Property Data Bank (IPD), which measures direct property returns, and at December 2005 reflected a database of R81 billion (2005: R74,7 billion), recorded a total return of 30,1% for 2005. The retail and industrial sectors were the top performers as can be seen below. Total return (%) Retail Office Industrial All Property 2002 11,0 5,0 8,8 9,6 2003 17,3 8,9 17,7 15,3 2004 26,2 16,6 24,4 23,4 2005 33,0 24,5 33,1 30,1 Income return (%) Retail Office Industrial All Property 9,0 10,3 12,3 9,8 9,7 10,9 13,6 10,5 9,9 10,7 13,6 10,6 9,5 10,9 12,4 10,3 Source: IPD The consistent income return from each of the major sectors over the last few years is clearly demonstrated and it is this which forms the foundation of distribution growth to unitholders. 4. REVIEW OF FINANCIAL RESULTS Ambit has performed steadily for the year under review, with distributions showing 7,6% growth over 2005. The core property portfolio showed a 15% growth in value over 2005. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) for the first time in the current year, and IFRS 1 (First time adoption of IFRS) has been applied. The adoption of IFRS has not resulted in any adjustments to the amounts reported previously in the annual financial statements for the year ended 30 September 2005 or to the opening IFRS balance sheet at 1 October 2004. However, a change in accounting interpretation of IAS 32 has resulted in the reclassification of share premium to debenture premium and in the amortisation of the resultant debenture premium. This will increase earnings over the life of the debentures, and the Group has elected to transfer the amount to non-distributable reserves in order not to affect distributions. This has had the effect of increasing earnings by R1,8 million or 0,99 cents per weighted number of units in the current year (2005: R1,2 million or 0,72 cents) and increasing the opening balance of non-distributable reserves in 2005 by R0,7 million. 5 Annual Report 2006 Ambit, with an income return of 11,5%, outperformed the listed fund index income return of 11% for the 2005 period, but marginally lagged the growth index of 20,8% with 17,4%. This gave Ambit a total return of 30,8% for the year. Chairman & Chief Executive Officer’s Report (continued) 4. REVIEW OF FINANCIAL RESULTS (continued) In terms of IAS 17: Leases, rental income is recognised on the straight line basis. The directors believe that the straight line basis is inappropriate and this method of accounting does not add value to users of financial statements. The cash flows inherent in the leases and the straight line adjustment are separately disclosed in the financial statements in order to assist users to calculate growth trends. 5. AMBIT UNIT PRICE Ambit's unit price has shown very little growth over the 12 month period (325 cents at 30 September 2006, versus 323 cents at 30 September 2005). This is due to the fall in the price of listed property stocks in June 2006. Ambit’s historic yield on its price at 30 September 2006 was 8,7%, versus the SAPY index of 7,4%. The volatility of 2006 resulting from the seemingly insatiable retail investment demand for listed property in the first half of 2006, and the corrective interest rate increases thereafter, can be seen from the graph below. Ambit’s high of 435cpu in May, the low of 285cpu only two months later and the year-end price of 325cpu clearly indicate just how the market over-reacted in June and July. (Cents per unit) 500 400 300 200 Oct 05 Nov 05 Dec 05 Jan 06 Feb 06 Mar 06 Apr 06 May 06 Jun 06 Jul 06 Aug 06 Sep 06 During the year under review, 51% of Ambit's listed units were traded which represents a total value of R322,9 million. 6. THE PROPERTY PORTFOLIO At year-end, the portfolio comprised 27 quality properties, with a rentable area of 154 029m2. 6.1 Geographic and sectoral profile 6.1.1 Sectoral spread Ambit listed with a sectorally diversified property portfolio with a bias towards retail properties. It is management’s intention to maintain a spread across the 3 major sectors of the commercial property market. The major sectors of the market operate on slightly different cycles of demand and rental growth and thus at times opportunities arise in each sector for investment acquisitions which show good growth potential. The sectoral spread of Ambit’s portfolio is set out below. All amounts exclude straight line adjustments. By income By value 24% 23% Retail Office 55% Industrial 59% 18% 21% By value, retail has increased from 57% in 2005 to 59% in 2006 and income contribution increased by 3% as a result of the acquisition of Lowveld Lifestyle Centre. 6 6.1.2 Geographic Spread Ambit’s strategy is to predominantly invest in properties located in the major metropolitan areas and this strategy has been maintained. The geographic spread is set out below. By income By value 4% 3% 3% 3% 11% 5% 2% 12% Gauteng Pietermaritzburg Durban 13% Cape Town 10% Nelspruit 66% 68% East London The acquisition of the Lowveld Lifestyle Centre in Nelspruit has marginally reduced the exposure to Gauteng by value by 3% from last year to 68% this year-end. 6.2 Lease structure, vacancies and expiry profile During the period under review, leases in respect of 14,6% by rental value (13 783m2) of the portfolio fell due for renewal and of these, 74% by rental value (9 919m2) were successfully renewed. The space that was vacated was substantially re-let as can be seen in the continuing high occupancy levels. The vacancy is low at 3,80% by rental value (3,5% by area, 5 310m2) and is marginally above the levels at the end of last year of 3 981m2 (2,6%). The bulk of this vacancy (3 766m2) is in the office portfolio where the prospects of leasing are encouraging. 6.3 Lease expiry profile The lease expiry profile determined by rental value is reflected below: 30% 26% 25% 19% 20% 15% 14% 13% 10% 5% 14% 10% 4% 0% 2007 2008 2009 2010 2011 2012+ The favourable lease expiry profile continues with no more than 26% of the portfolio's contractual income falling due for renewal in a particular year. The increase in expiries in 2009 is a result of a number of 3-year leases being concluded during 2006. During 2007, the bulk of the renewals lie within the office sector. 6.4 Operating costs The operating costs of the buildings represent 25,3% of the gross rental income. These costs include all property related expenses without netting off recoveries, include property management fees, but exclude the asset management fees of the portfolio and interest on borrowings. Last year these costs represented 25,9% and in 2004 were 25,1% showing that the costs are being consistently maintained. Of the total expenditure (excluding rates, municipal charges, collection commission and insurance) the value of procurement paid to black owned companies increased from 35% in 2005 to 50% at year-end and is in line with the target Ambit set in 2004. 7 Annual Report 2006 Vacant Chairman & Chief Executive Officer’s Report 6.5 (continued) Acquisitions During the year Ambit took transfer of a building leased to Absa in Roodepoort on a 5-year lease at a price of R22,5 million on a forward yield of 11,1%. Lowveld Lifestyle Centre in Nelspruit was acquired at a cost of R43,2 million on a forward yield of 9,1%. This retail/ lifestyle centre is anchored by Wetherleys and is 79% let to national companies or their franchisees. In July 2006, Ambit acquired 50% of a property in Old Main Road, Pinetown, jointly with a subsidiary of Highpine Properties (Proprietary) Limited, a company concentrating on retail property investment in the Pinetown area, at a joint cost of R28,3 million. The co-owners intend to redevelop the site to create a shopping centre which will benefit from the site’s prime location between Pinecrest Shopping Centre and the taxi terminus. The development will be undertaken during 2007 but is presently let and is income producing. 6.6 Disposals The five properties which Ambit contracted to sell in the 2005 financial year, were transferred in January 2006. These realised a post capital gains tax profit of R1,0 million. 6.7 Portfolio revaluation The portfolio was valued by independent valuers, CB Richard Ellis, as at 30 September 2006. The valuation reflects a portfolio value of R824,6 million. The core portfolio (excluding additions and disposals) showed an increase in value of 15% over the year. 7. INVESTMENT IN ORYX PROPERTIES LIMITED Oryx comprises a quality portfolio of well tenanted investment properties, principally located in Windhoek. Oryx again produced excellent results, with distributions amounting to 78 cents for the year ended 30 June 2006, showing an 11% growth over the previous year's distributions. Realisable net asset value increased to 859 cents per unit (2005: 721cpu). During the year, Oryx completed its development of Phase II of Maerua Mall. The expanded Maerua Complex (39 800m2 of retail space) is fully tenanted and is trading well. At its year-end, Oryx had a portfolio of 17 properties with an open market value of N$560,6 million and a vacancy of 1%. During the year Oryx undertook a rights issue, which, although slightly dilutionary to Ambit in 2006, due to the prepayment of distributions, offered a sound yield for 2007 and beyond. Ambit followed its rights and applied for further units, thereby increasing its stake marginally to 30,6% (2005: 30,5%). At the date of this report Oryx was trading at 820 cents, which is 4,5% below its realisable net asset value. It therefore continues to offer sound investment value to Ambit. 2-4 Golf Course Drive, Mount Edgecombe, Durban 8 7. INVESTMENT IN ORYX PROPERTIES LIMITED (continued) Oryx is classified as an associate to Ambit. Ambit's share of the retained earnings of Oryx for the year was R12,5 million. This, combined with the rights issue and increased unitholding, has taken Ambit's holding in Oryx to R110,9 million and represents 11,9% of Ambit's investment portfolio. 8. FUNDING ARRANGEMENTS As at year-end Ambit had interest bearing borrowings of R316 million largely with ABSA and Nedbank who are Ambit's long-term financiers. This reflects a long-term borrowings to long-term asset ratio of 33,8% (2005: 35,5%). During March 2006, Ambit renegotiated the interest rates on its facilities and reduced the cost of variable borrowings by 50 basis points and fixed borrowings by 80 basis points. At year-end, R183,7 million (58%) of the debt was on fixed interest contracts (2005: R145 million or 54%). Ambit's average cost of debt at year-end was 9.7% p.a. (2005: 10,2% p.a.). The fixed and floating debt structure is set out in Note 14 to the financial statements. Management and the board will continue to actively manage the funding and interest rate risk. 9. BLACK ECONOMIC EMPOWERMENT (BEE) During the year management engaged in discussions to introduce an identified BEE group. However, these were terminated following differences between the shareholders of the management Company, Ambit Management Services (Proprietary) Ltd (AMS). The Board and management are committed to concluding a meaningful transaction with an appropriate BEE group during 2007. 10. MANAGEMENT COMPANY In August 2006, Absa Bank Limited acquired the rights to the remaining 50% interest in AMS held by Marriott Corporate Property. The AMS staff who were seconded from Marriott undertook to manage the year-end accounting, audit and the preparation of the financial statements. AMS has recruited new staff and resources and will relocate its offices to 4 Fricker Road, Illovo from 1 December 2006. 11. PROSPECTS The fundamentals of the underlying property market continue to firm notwithstanding the recent interest rate increases and the prospects of further increases in the next 12 months. Office and industrial rentals are increasing which will provide income growth from the existing portfolio when leases are renewed. Ambit’s strategy is to increase its property portfolio to in excess of R1,5 billion and its market capitalisation to in excess of R1 billion during the next year and management expects to be able to make announcements of acquisitions in the near future. There is no change to the strategy of owning quality properties in good growth nodes. Nick Harris has been requested and has accepted to remain on as the Chief Executive Officer of the Group until the end of June 2007 to manage the transition of AMS and to conclude and bed down the initial tranches of the anticipated growth of the asset base. During the first half of 2007, the Board will be appointing a new Chief Executive Officer to ensure a smooth handover. D L Brown Chairman 23 November 2006 N B S Harris Chief Executive Officer 23 November 2006 9 Annual Report 2006 We would like to express our appreciation to management and in particular to those seconded to AMS from Marriott for their dedication and hard work in what, for some of them, has been a difficult period. We would also thank the non-executive directors for their support, experience and advice during the past year. Corporate Governance Review 30 September 2006 The board of directors is committed to the implementation of good corporate governance within the group and endorses the principles of openness, integrity, accountability and transparency. The board has adopted and applied the Code of Corporate Practices and Conduct as set out in the King II Report. The Board is of the opinion that the Group currently complies with all the significant requirements as set out in the King II report and the Listings Requirements of the JSE Limited. In doing so, the directors recognise the need to conduct the enterprise with integrity in accordance with generally acceptable corporate policies. This includes timely, relevant and meaningful reporting to its unitholders and other stakeholders; and providing a proper and objective perspective of Ambit. The directors have accordingly established mechanisms and policies appropriate to the Group's business in keeping with its commitment to the best practices in corporate governance in order to ensure compliance with the King II Report. The directors will review these from time to time. BOARD OF DIRECTORS AND ITS SUB-COMMITTEES The board of directors consists of an executive director and five non-executive directors, four of whom are independent non-executives and hence the majority of the board comprises independent non-executives. These non-executive directors bring to the Group a wide range of skills and experience that enable them to contribute an independent view and to exercise objective judgement in matters requiring directors' decisions. The chairman is a nonexecutive director, whose role is independent from the executive director. The executive director holds a service contract. All non-executive directors are subject to retirement by rotation and re-election by Ambit unitholders at least once every three years in accordance with the Articles of Association. All new appointments to the board are done on a consensus basis between board members, subject to unitholder approval. The board, which meets at least quarterly, retains full and effective control over the Group and service providers. The board has established a number of committees to give detailed attention to its responsibilities and which operate within defined, written terms of reference. These are the investment committee, the remuneration committee and the risk, audit and compliance committee, and the compositions thereof are set out on pages 2 and 3. 79 Hyde Park Lane, Hyde Park, Gauteng 10 The board has approved a Board Charter to regulate how the business is to be conducted by the board in accordance with the principles of good corporate governance. During the period under review, directors who did not attend all 5 board meetings were J Zidel (1 absence), F Uys (1 absence) and I N Mkhari (2 absences). INVESTMENT COMMITTEE The board has established an investment committee, which is responsible to the board for monitoring and supervising the Group's strategic investment objectives and implementing the board's instructions as to acquisitions, disposals and the structuring of borrowings. REMUNERATION COMMITTEE The board has established a remuneration committee, which reviews the remuneration of the executive director and recommends non-executive directors’ fees. RISK, AUDIT AND COMPLIANCE COMMITTEE The board has established a risk, audit and compliance committee whose primary objectives are to provide the board with additional assurance regarding the efficacy and reliability of the financial information used by the directors and to assist them in the discharge of their duties. The committee provides comfort 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 is responsible for setting the principles for recommending the use of the external auditors for non-audit services, and any significant non-audit work must be approved by this committee. The committee has formal terms of reference for their responsibilities and the Board is of the opinion that these responsibilities have been satisfied for the year under review. Due to its size (one direct employee), Ambit does not have an internal audit function. Management and the Risk, Audit and Compliance Committee review the internal controls, processes and systems of the Group and it’s service providers. Within this context, the board is responsible for the Group's systems of internal financial and operational control. DIRECTORS' DEALINGS The group operates a policy of 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. RISK MANAGEMENT The objective of risk management is to identify, assess, manage and monitor the risks to which the business is exposed. This is a board responsibility. Ambit pursues active management policies designed to minimise the impact of risk. With the assistance of expert risk consultants, risks have been assessed and appropriate insurance cover provided for all material risks above pre-determined, self-insured limits. Levels of cover are re-assessed annually. DIRECTORS' RESPONSIBILITY The directors are responsible for the preparation of the annual financial statements, as set out on pages 16 to 39, which fairly represent the state of affairs of the Group at the end of the financial year. D L Brown Chairman 23 November 2006 J H Beare Chairman – Risk, audit and compliance committee 23 November 2006 11 Annual Report 2006 GOING CONCERN The directors are of the opinion that the Company and the Group have adequate resources to continue in operation for the foreseeable future and the annual financial statements and Group annual financial statements have accordingly been prepared on a going concern basis. Unitholders’ Diary Financial year-end Annual general meeting 30 September 21 February 2007 Distribution plan dates in respect of the financial year ending 30 September 2007: Financial period Declaration date Record date Payment date 18 May 2007 7 June 2007 11 June 2007 9 November 2007 30 November 2007 3 December 2007 1st half to 31 March 2007 2nd half to 30 September 2007 Park Meadows, Kensington, Gauteng 12 Analysis Of Linked Unitholders 30 September 2006 Number of unitholders % of unitholders Number of units held % of issued units Size of holding 1 – 10 000 699 46,94 3 640 819 1,95 10 001 – 25 000 432 29,01 7 654 281 4,10 25 001 – 50 000 176 11,82 6 771 823 3,63 50 001 – 100 000 86 5,78 6 464 015 3,47 100 001 – 500 000 64 4,30 14 823 169 7,95 500 001 – 1 000 000 14 0,94 10 401 439 5,58 `Over 1 000 000 18 1,21 136 727 291 73,32 1 489 100,00 186 482 837 100,00 Type of unitholders Corporates and investment companies 74 4,97 93 252 379 50,01 1 184 79,52 68 817 124 36,90 Nominee holders and trusts 168 11,28 14 685 002 7,87 Pension and provident funds 63 4,23 9 728 332 5,22 1 489 100,00 186 482 837 100,00 Redefine Income Fund 43 660 824 23,41 Absa 39 150 567 20,99 Marriott 21 381 327 11,47 Individuals and private companies Significant unitholders Unitholders invested in 5% or more of the company Oasis Asset Management 10 218 610 5,48 114 411 328 61,35 103 895 568 55,72 Unitholder spread Held by public 1 482 99,53 – directors 4 0,27 500 000 0,26 – unitholders with more than 10% unitholding 3 0,20 82 087 269 44,02 1 489 100,00 186 482 837 100,00 Held by non-public Units traded Number of units traded 92 200 304 Units traded as a percentage of issued capital 51,44% 12 month high (cents) 435 12 month low (cents) 285 13 Annual Report 2006 JSE price history Directors’ Responsibility For & Approval Of The Annual Financial Statements for the year ended 30 September 2006 The directors are responsible for the preparation and integrity of the annual financial statements and the related information included in the annual report. In order for the board to discharge its responsibilities, management has developed and continues to maintain a system of internal control. The board has ultimate responsibility for the system of internal controls and reviews its operation, primarily through the risk, audit and compliance committee. The internal controls include a risk-based system of internal accounting and administrative controls designed to provide reasonable but not absolute assurance that assets are safeguarded and that transactions are executed and recorded in accordance with generally accepted business practices and the Group's policies and procedures. These controls are implemented by trained, skilled personnel with appropriate segregation of duties, are monitored by management and the risk, audit and compliance committee and include a comprehensive budgeting and reporting system operating within an appropriate control framework. The external auditors are responsible for reporting on the annual financial statements, and their unmodified opinion is included on page 15. The annual financial statements are prepared in accordance with International Financial Reporting Standards and incorporate disclosures in line with the accounting philosophy of the Group. They are based on appropriate accounting policies consistently applied, except where otherwise stated, and are supported by reasonable and prudent judgements and estimates. The directors believe that the Group will be a going concern in the year ahead. Accordingly, in preparing the annual financial statements and Group annual financial statements, the going concern basis has been adopted. The annual financial statements for the year ended 30 September 2006 as set out on pages 16 to 39 were approved by the board of directors on 23 November 2006 and are signed on its behalf by: D L Brown Chairman 23 November 2006 J H Beare Chairman – Risk, audit and compliance committee 23 November 2006 Declaration By Secretary The Secretary certifies that the Company has lodged with the Registrar of Companies all such returns as are required of a public company, in terms of Section 268G(d) of the Companies Act No 61 of 1973, as amended, and that all such returns are true, correct and up to date. Ambit Management Services (Proprietary) Limited Company Secretary 23 November 2006 14 Independent Auditor’s Report TO THE MEMBERS OF AMBIT PROPERTIES LIMITED We have audited the annual financial statements and Group annual financial statements of Ambit Properties Limited set out on pages 16 to 39 for the year ended 30 September 2006. These financial statements are the responsibility of the Company's directors. Our responsibility is to express an opinion on these 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 a 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 financial statements fairly present, in all material respects, the financial position of the Company and of the Group at 30 September 2006, and the results of their operations and cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act in South Africa. Deloitte & Touche Registered Auditors Per GD Kruger Partner 23 November 2006 National Executive: GG Gelink – Chief Executive, AE Swiegers – Chief Operating Officer, GM Pinnock – Audit, DL Kenney – Tax, L Geeingh – Consulting, MG Crisp – Financial Advisory, L Bam – Strategy, CR Beukman – Finance, TJ Brown – Clients & Markets, SJC Sibisi – Public Sector and Corporate Social Responsibility, NT Mtubu – Chairman of the Board, J Rhynes – Deputy Chairman of the Board Regional Leader: GC Brazier 15 Annual Report 2006 2 Pencarrow Crescent La Lucia Ridge Office Estate Durban Directors’ Report 30 September 2006 NATURE OF BUSINESS Ambit Properties Limited is a property investment company and is listed on the JSE under the “Financials – Real Estate” sector. The Group derives its income from a portfolio of investment properties in the retail, office and industrial sectors and an investment in Oryx Properties Limited, a Namibian property investment company listed on the Namibian Stock Exchange. ISSUED SHARE CAPITAL As at 30 September 2006 there were 186 482 837 linked units in issue (2005: 173 814 215), each comprising one ordinary share of 1 cent and one unsecured variable rate debenture of 180 cents. In order to fund the acquisition of the Lowveld Lifestyle Centre in Nelspruit, 12 668 622 units were issued on 13 April 2006 at a price of 341 cents. An additional 14 cents per unit was received in respect of the interim distribution subsequently paid. FINANCIAL REVIEW 2006 cents 2005 (restated) cents Weighted average headline earnings per linked unit Weighted average earnings per linked unit Distribution per linked unit 32,24 77,20 29,60 31,30 77,91 27,50 International Financial Reporting Standards (IFRS) were adopted for the first time in the current year, and the adoption thereof has not resulted in any changes to the reported numbers. However, a change in accounting interpretation has resulted in the share premium being reclassified to debenture premium and amortised over the life of the debenture. Details are reflected in Notes 6 and 13. SUBSIDIARY Details of the Company's subsidiary are reflected in Note 8. The profit after tax of the subsidiary which is attributable to Ambit amounts to R11,2 million (2005: R10,4 million). ASSOCIATE Details of the Company's associate are reflected in Note 9. DIRECTORATE Details of the directors are set out on pages 2 and 3 of this report. The composition of the board, together with changes from 1 October 2006 to the date of this report, are set out below: Director D L Brown (Chairman) N B S Harris * C J Ewin J H Beare I N Mkhari F Uys R R Emslie J Zidel R D Jeffrey (alternate) Date appointed Date resigned 16/08/2006 07/02/2006 03/05/2006 Salaries R'000 2006 Directors’ fees R'000 Salaries R'000 2005 Directors’ fees R'000 – 95 – 95 – – – 48 90 50 – 50 65 13 920 795# 125 – – – – – – – – – – 65 90 12,5 37,5 50 65 – 1 061 411 920 * Executive The executive director holds a service contract until 30 June 2007. No other directors have service contracts. # The executive director's salary is deducted off asset management fees paid to Ambit Management Services (Proprietary) Limited. 415 Director D L Brown (Chairman) N B S Harris * – salary – bonus C J Ewin J H Beare R R Emslie N P Mageza I N Mkhari F Uys J Zidel 1 061 861# 200 – – – – – – – 16 DIRECTORS' INTERESTS The joint beneficial interests of directors in the equity of the company as at 30 September 2006 was 0,26% (500 000 units) and can be analysed as follows: Director Direct beneficial Linked units % Indirect beneficial Linked units % Total Linked units % 50 000 50 000 200 000 200 000 – 0,02 0,02 0,11 0,11 – 500 000 0,26 50 000 50 000 210 000 200 000 200 000 – 0,03 0,03 0,12 0,12 0,12 – 710 000 0,42 2006 D L Brown (Chairman) N B S Harris * F Uys R D Jeffery (alternate) * R R Emslie * 50 000 25 000 200 000 200 000 – 0,02 0,01 0,11 0,11 – – 25 000 – – – – 0,01 – – – 2005 D L Brown (Chairman) N B S Harris * C J Ewin * F Uys R D Jeffery (alternate) * R R Emslie * 50 000 25 000 210 000 200 000 200 000 – 0,03 0,01 0,12 0,12 0,12 – – 25 000 – – – – – 0,01 – – – – * These directors have insignificant indirect interests in Ambit as a result of having insignificant interests in either Absa Bank Limited or RMBT Holdings Limited as shareholders. In April 2006, Ambit acquired 50% of 17-19 and 21-35 Old Main Road, Pinetown in conjunction with Pinespring Properties (Proprietary) Limited, a wholly owned subsidiary of Highpine Properties (Proprietary) Limited, a company in which Mr J H Beare has an interest. BORROWINGS The directors are authorised to borrow funds up to an amount not exceeding 60% of the directors' bona fide valuation of the consolidated total assets of the Company and its subsidiaries. The Group's interest bearing borrowings at 30 September 2006 are disclosed in Note 14 to the annual financial statements. ACQUISITIONS, IMPROVEMENTS AND DISPOSALS Refer to paragraphs 6.5 to 6.7 of the Chairman and CEO's report. POST BALANCE SHEET EVENTS AND GOING CONCERN Other than the acquisitions and disposals referred to above, the directors are not aware of any material post balance sheet events and are of the opinion that the Group has adequate resources to continue in operation for the foreseeable future. The financial statements have accordingly been prepared on a going concern basis. MANAGEMENT BY THIRD PARTY Ambit has a service agreement with Ambit Management Services (Proprietary) Limited (AMS), the rights to which are 100% held by Absa Bank Limited, in respect of the property asset management, property management and the financial accounting and reporting of the company. During August 2006, Marriott Property Services (Proprietary) Limited disposed of the rights to its 50% share in the management company to Absa Bank Limited. Postal: P.O. Box 618 Melrose Arch 2076 Business: First Floor, 4 Frikker Road Illovo 2196 D L Brown Chairman 23 November 2006 N B S Harris Chief Executive Officer 23 November 2006 17 Annual Report 2006 COMPANY SECRETARY The company secretary is Ambit Management Services (Proprietary) Limited, whose business and postal address is as follows: Balance Sheets 30 September 2006 Group Notes 2006 Company R'000 2005 (restated) R'000 2006 R'000 2005 (restated) R'000 809 329 659 288 673 558 538 896 – At valuation 824 550 671 000 686 350 548 600 – Straight line adjustment (15 221) (11 712) (12 792) (9 704) ASSETS Non-current assets Investment properties Investment in associate company 7 9 110 927 82 944 83 998 68 480 14 551 11 437 12 122 9 429 934 807 753 669 769 678 616 805 6 446 9 679 5 048 9 273 5 776 9 404 4 378 8 998 670 275 670 275 10 56 128 28 929 56 620 28 839 8 – – 93 652 92 931 62 574 38 608 155 320 131 043 997 381 792 277 924 998 747 848 Rental receivable – straight line adjustment Total non-current assets Current assets Trade and other receivables – Trade and other receivables – Rental receivable – straight line adjustment Cash and cash equivalents Interest in subsidiary company Total current assets TOTAL ASSETS EQUITY AND LIABILITIES Capital and reserves Share capital 11 1 865 1 738 1 865 1 738 Non-distributable reserves 12 190 886 107 386 134 873 75 039 364 330 (1 966) (1 999) 193 115 109 454 134 772 74 778 335 669 312 866 335 669 312 866 Distributable reserves/ (in deficit) Total capital and reserves Non-current liabilities Debentures Debenture premium 13 6,13 49 586 31 094 49 586 31 094 Interest bearing borrowings 14 315 960 267 199 315 960 267 199 Deferred taxation liability 15 Total non-current liabilities 64 499 36 433 51 666 28 175 765 714 647 592 752 881 639 334 9 087 9 890 7 880 8 395 367 308 367 308 Current liabilities Trade and other payables Current tax liabilities Linked unitholders for distribution 29 098 25 033 29 098 25 033 Total current liabilities 38 552 35 231 37 345 33 736 997 381 792 277 924 998 747 848 TOTAL EQUITY AND LIABILITIES 18 Income Statements for the year ended 30 September 2006 Group Notes REVENUE – Rental – cash flows inherent in leases 16 – Rental – straight line adjustment Property expenses 17 NET RENTAL INCOME FROM PROPERTIES Interest income 2006 Company R'000 2005 (restated) R'000 2006 R'000 2005 (restated) R'000 103 620 99 448 86 844 81 177 99 813 93 530 83 458 76 154 3 807 5 918 3 386 5 023 (25 239) (24 229) (21 432) (20 486) 78 381 75 219 65 412 60 691 18 2 040 2 373 14 571 15 816 Debenture interest and dividend income from associate company 9 9 868 8 338 9 868 8 338 Amortisation of debenture premium 6 Finance costs 1 776 1 191 1 776 1 191 (23 902) (25 992) (23 902) (25 992) Administrative expenses 19 (5 266) (4 484) (5 250) (4 252) Other expenses 20 (2 026) (1 708) (2 026) (1 750) OPERATING PROFIT 60 871 54 937 60 449 54 042 Change in fair value of investment properties 93 450 87 495 78 095 73 905 – As per valuations 97 257 93 413 81 481 78 928 – Straight line adjustment (3 807) (5 918) (3 386) (5 023) Profit on disposal of investment properties Share of associate company's after tax profits 6, 9 72 711 72 711 12 465 12 972 – – 166 858 156 115 138 616 128 658 TO UNITHOLDERS Debenture interest – linked unitholders (55 199) (47 799) (55 199) (47 799) PROFIT BEFORE TAXATION 111 659 108 316 83 417 80 859 (28 125) (26 509) (23 550) (22 446) 83 534 81 807 59 867 58 413 Taxation 21 PROFIT ATTRIBUTABLE TO LINKED UNITHOLDERS Cents Cents Cents Cents EARNINGS PER LINKED UNIT (weighted) 22 77,20 77,91 64,03 63,84 EARNINGS AND DILUTED EARNINGS PER SHARE (weighted) 22 46,48 49,18 33,31 35,11 DISTRIBUTION PER LINKED UNIT 22 29,60 27,50 29,60 27,50 19 Annual Report 2006 PROFIT BEFORE TAXATION AND DISTRIBUTION Statements Of Changes In Equity for the year ended 30 September 2006 Share capital R'000 Share premium R'000 Distributable reserves R'000 Nondistributable reserves R'000 Total R'000 1 583 26 284 257 24 952 53 076 Reclassification to debenture premium – (26 284) – – (26 284) Amortisation of debenture premium – – 700 – 700 GROUP Balance at 30 September 2004 as previously reported Prior year adjustment: Transfer of amortisation to non-distributable reserves – – (700) 700 – 1 583 – 257 25 652 27 492 155 – – – 155 – – 81 807 – 81 807 – – 80 616 – 80 616 Amortisation of debenture premium – – 1 191 – 1 191 Transfer to non-distributable reserves (restated) – – (81 734) 81 734 – 1 738 – 330 107 386 109 454 127 – – – 127 Net profit attributable to linked unitholders – – 83 534 – 83 534 Transfer to non-distributable reserves – – (83 500) 83 500 – 1 865 – 364 190 886 193 115 1 583 26 284 289 15 130 43 286 Share of associates retained earnings – – (1 492) – (1 492) Reclassification to debenture premium – (26 284) – – (26 284) Amortisation of debenture premium – – 700 – 700 Restated balance at 30 September 2004 Shares issued during the period Net profit attributable to linked unitholders As previously reported Prior year adjustment: Balance at 30 September 2005 Shares issued during the year Balance at 30 September 2006 COMPANY Balance at 30 September 2004 as previously reported Prior year adjustments: Transfer of amortisation to non-distributable reserves Restated balance at 30 September 2004 Shares issued during the period Net profit attributable to linked unitholders As previously reported – – (700) 700 – 1 583 – (1 203) 15 830 16 210 155 – – – 155 – – 58 413 – 58 413 – – 70 194 – 70 194 Prior year adjustments: Share of associates retained earnings – – (12 972) – (12 972) Amortisation of debenture premium – – 1 191 – 1 191 Transfer to non-distributable reserves (restated) Balance at 30 September 2005 Shares issued during the year Net profit attributable to linked unitholders Transfer to non-distributable reserves Balance at 30 September 2006 – – (59 209) 59 209 – 1 738 – (1 999) 75 039 74 778 127 – – – 127 – – 59 867 – 59 867 – – (59 834) 59 834 – 1 865 – (1 966) 134 873 134 772 20 Cash Flow Statements for the year ended 30 September 2006 Group Notes 2006 R'000 Company 2005 R'000 2006 R'000 2005 R'000 OPERATING ACTIVITIES Cash generated by operating activities 23 Interest received and income from associate Finance costs Distributions paid to linked unitholders 24 Cash inflow/ (outflow) from operating activities 70 105 63 450 58 853 48 758 11 908 10 711 24 439 24 154 (23 902) (25 992) (23 902) (25 992) (51 134) (49 286) (51 134) (49 286) 6 977 (1 117) 8 256 (2 366) (80 431) (44 800) (80 431) (44 800) INVESTING ACTIVITIES Acquisition of investment properties Improvements to investment properties (1 172) (8 592) (1 148) (7 677) Proceeds on disposal of investment properties 25 382 32 011 25 382 32 011 (Increase)/ decrease in loan to subsidiary – – (721) 444 Acquisition of holding in associate company (15 518) (4 136) (15 518) (4 136) Cash outflow from investing activities (71 739) (25 517) (72 436) (24 158) 43 200 35 000 43 200 35 000 Linked units issued Share issue expenses – (268) – (268) 48 761 (8 455) 48 761 (8 455) Cash inflow from financing activities 91 961 26 277 91 961 26 277 Increase/ (decrease) in cash and cash equivalents 27 199 (357) 27 781 (247) Cash and cash equivalents at beginning of year 28 929 29 286 28 839 29 086 56 128 28 929 56 620 28 839 Interest bearing borrowings raised/ (repaid) CASH AND CASH EQUIVALENTS AT END OF THE YEAR 10 Scottsville Mall, Durban Road, Pietermaritzburg 21 Annual Report 2006 FINANCING ACTIVITIES Notes To The Annual Financial Statements 30 September 2006 1. GENERAL INFORMATION Ambit Properties Limited (the Company) is a public company listed on the JSE and is incorporated in South Africa. The address of its registered office and principal place of business is disclosed in the introduction to the annual report. The principal activities of the Company and its subsidiary (the Group) are described in the Directors’ Report 2. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on or before 1 October 2005. The adoption of IFRS has not resulted in any adjustment to the amounts reported previously in the annual financial statements for the year ended 30 September 2005. 3. ACCOUNTING POLICIES The annual financial statements have been prepared in accordance with International Financial Reporting Standards. The accounting policies used in the preparation of the financial statements are consistent with those applied in the prior year, with the exception of accounting for the premium on units issued as disclosed under Debentures in Note 3.10 below and the Company’s carrying value of its investment in associate as described in note 3.4 below. The principal accounting policies are set out below : 3.1 Basis of consolidation The consolidated financial statements incorporate the results and financial position of the Company and all its subsidiaries, which are defined as entities over which the Group has the ability to exercise control so as to obtain benefits from their activities. The results of subsidiaries are included from the effective dates of acquisition and up to the effective dates of disposal. All inter-company transactions and balances between Group companies are eliminated. The accounting policies of the subsidiaries are consistent with those of the holding company. 3.2 Business combinations The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the aggregate fair value of the underlying assets acquired, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill and is tested for impairment on an annual basis. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, attributable goodwill is included in the determination of the profit or loss on disposal. 3.3 Investment in subsidiaries Investments in subsidiaries are recognised at cost less accumulated impairment losses. 3.4 Investment in associates Associates are those companies, which are not subsidiaries or joint ventures, over which the Group exercises significant influence. Results of associates are accounted for in the Group using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5: Non-Current Assets Held for Sale and Discontinued Operations. Any losses of associates are brought to account until the investment in, and loans to, such associates are written down to a nominal amount. Thereafter losses are accounted for only insofar as the Group is committed to providing financial support to such associates. The carrying value of investments in associates represents the cost of each investment including unamortised goodwill, the share of post acquisition retained earnings or losses and other movements in reserves. Equity accounted income represents the Group’s proportionate share of the associate’s post-acquisition accumulated profit after accounting for dividends declared by those entities. Any significant movements between the year-end of associates and the Group are accounted for. Where a Group entity transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the associate. Undistributed equity accounted earnings may be transferred to non-distributable reserves. In the company the investment in associate is held at cost in accordance with IAS 27. The effects of this change in accounting policy are set out in Note 6 below. 3.5 Investment properties Investment properties are properties held to earn rental income and appreciate in capital value based on the increase in rental income. 22 3. ACCOUNTING POLICIES (continued) Investment properties are initially recognised at cost and are stated at their fair value at each reporting date. Gains or losses arising from changes in the fair values are reflected in the income statement in the period in which they arise. Unrealised gains are transferred to a non-distributable reserve in the statement of changes in equity. Unrealised losses are transferred against a nondistributable reserve to the extent that the decrease does not exceed the amount held in the non-distributable reserve. On disposal of investment properties, the difference between the net disposal proceeds and the carrying value is charged or credited to the income statement and then transferred from / to non-distributable reserves. Buildings are not depreciated. Properties purchased by the company and settled by issuing linked units are recorded at the fair value of the properties acquired, unless that fair value cannot be reliably estimated. If the entity cannot reliably estimate the fair value of the property, the entity shall measure the value of the equity issued, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted in terms of IFRS2: Share Based Payments. This excludes purchases of properties which are regarded as business combinations as described in 3.2 above. Buildings under development are carried at cost as property, plant and equipment and are transferred to investment property upon completion. 3.6 Capitalisation of interest Where the Group undertakes a major development or refurbishment of a property, interest is capitalised to the cost of the property concerned during the construction period. Capitalisation of interest is suspended during extended periods in which active development is interrupted. 3.7 Assets held for sale Properties held for sale are classified as assets for sale and are measured at the lower of the assets’ previous carrying amount and the fair value less costs to sell. 3.8 Taxation Income tax expense comprises the sum of current tax payable, Secondary Tax on Companies and deferred taxation. Tax currently payable is based on the taxable profit for the year. Taxable profit differs from accounting profit as it excludes income or expenses that are taxable or deductible in other years and it excludes items never deductible or taxable. Deferred taxation is provided for 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 taxation bases. Deferred taxation is charged to the income statement except to the extent that it relates to a transaction that is recognised directly in equity, or a business combination that is an acquisition. A deferred taxation 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 taxation assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred taxation assets and liabilities are only set off when there is a legally enforceable right to set off current tax assets and liabilities. Deferred taxation assets and liabilities are not recognised if the temporary difference arises from goodwill, or from the initial recognition (other than business combinations) of other assets and liabilities in a transaction which effects neither the taxable profit nor the accounting profit. 3.9 Impairment (excluding goodwill) The carrying amount of the Group's assets is reviewed at each balance sheet date to determine whether there is any indication of impairment. An impairment loss is recognised in profit or loss whenever the carrying amount of an asset exceeds its recoverable amount, which is the higher of an asset's net selling price and value in use. Where an impairment loss is subsequently reversed, the carrying amount of the asset is increased to the extent that the increased carrying amount does not exceed the original carrying amount. A reversal of impairment loss is recognised immediately in profit or loss. 3.10 Financial instruments A financial asset or financial liability is recognised on the balance sheet for as long as the group is party to the contractual provisions of the instrument. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held on call with banks and investments in money market instruments, net of bank overdrafts where legal set-off is permissible. 23 Annual Report 2006 Deferred taxation is raised at the company tax rate on all temporary differences, including those arising from the revaluation of properties. When a property is earmarked for future sale, deferred taxation is computed using the capital gains tax rate. Notes To The Annual Financial Statements (continued) 30 September 2006 3. ACCOUNTING POLICIES (continued) Trade receivables Trade and other receivables originated by the Group are held at amortised cost, using the effective interest rate method, after deducting accumulated impairment losses. Receivables with no fixed maturity are held at cost. Receivable- straight line basis adjustment Rental income is recognised on the straight-line basis. Future rentals receivable over the lease period as a result of escalations are recorded at the differential between the cash received inherent in the lease agreements and the smoothed revenue. Investments Financial instruments are initially measured at cost, including directly attributable transaction costs. Subsequent to the initial recognition these instruments are measured as follows: • Held-to-maturity investments are held at amortised cost using the effective interest rate method after deducting accumulated impairment losses. • Held-for-trading and available-for-sale financial assets are held at fair value. Gains or losses on Available-for-sale financial assets and Held-for-trading financial assets and liabilities are recognised in net profit for the year. Financial liabilities and equity Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Debentures Debentures are recognised at original cost less principal repayments. The premium arising on the issue of linked units is split between the premium relating to the share and the premium relating to the debenture. The debenture premium is amortised over the remaining life of the debenture (i.e. to 2029) and the resultant income may be transferred to non-distributable reserves. Interest bearing borrowings Interest bearing borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Amounts repayable in the next twelve months are classified as current borrowings. Trade payables Trade payables are carried at the fair value of the consideration to be paid in the future for goods or services that have been received or supplied and invoiced or formally agreed with the supplier. Financial guarantee contracts Financial guarantee contracts are accounted for as insurance contracts and are initially recorded at cost. Subsequently, they are valued in terms of IAS 37: Provisions, Contingent Liabilities and Contingent Assets. 3.11 Provisions Provisions are recognised when the Group 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 on the settlement amount of the obligation. 3.12 Revenue recognition Revenue comprises gross rental income, including all recoveries from tenants. Variable operating cost recoveries are recognised on the accrual basis. Rental income and fixed operating cost recoveries are recognised on the straight line basis in accordance with IAS 17: Leases. The difference between the rental income recognised on a cash flow/ accrual basis and the straight line basis is transferred to/ from non-distributable reserves. Interest income is recognised at the effective rates of interest on a time related basis. Dividend income and debenture interest are recognised when the right to receive them is established. 3.13 Leases Investment properties leased out under operating leases are reflected as investment properties on the balance sheet. Where there are fixed incrementals in rental, the income is recognised on a straight line basis in terms of IAS 17: Leases. 24 3. ACCOUNTING POLICIES (continued) 3.14 Deferred expenses Deferred expenses comprise tenant installation costs and letting commissions which are amortised on a straight line basis over the lease period to which they relate. These are currently included in accounts receivable due to the immaterial size thereof. 3.15 Distributions In terms of the Debenture Trust Deed the interest entitlement on each debenture shall be not less than 90% of the net earnings of the company before providing for debenture interest, depreciation, amortisation and taxes and before taking into account any revaluation surpluses or deficits and income transferred to any non-distributable reserves, but after provision for funding cost, whether interest or dividend in nature. 3.16 Segment reporting On a primary basis the group operates in the following segments: • Retail • Office • Industrial • Corporate On a secondary basis the group reports on geographical locations as follows: • Gauteng • Pietermaritzburg • Durban • Other 3.17 Changes in accounting policy Where there has been a change in accounting policy, all comparative numbers are retrospectively adjusted. 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgments are continually evaluated and are based on historical experience as adjusted for current market conditions and other factors. Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Estimate of fair value of investment properties The best evidence of fair value is current prices in an active market for similar leases and other contracts. In the absence of such information, the Group determines the amount within a range of reasonable fair value estimates. In making its judgement, the Group considers information from a variety of sources including: i) current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences; ii) recent prices of similar properties in less active markets, with adjustment to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. (b) Principal assumptions for management’s estimation of fair value If information on current or recent prices is not available, the fair values of investment properties are determined using discounted cash flow valuation techniques. The Group uses assumptions that are mainly based on market conditions existing at each balance sheet date. The principal assumptions underlying management’s estimation of fair value are those related to: the receipt of contractual rentals, expected future market rentals, maintenance requirement and appropriate discount rates. These valuations are regularly compared to actual market yield data, and actual transactions by the Group and those reported by the market. The expected future market rentals are determined with reference to current market rentals for similar properties in the same location and condition. 25 Annual Report 2006 4.1 Notes To The Annual Financial Statements (continued) 30 September 2006 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued) 4.2 Critical judgments in applying the Group’s accounting policies Allocation of share premium and debenture premium The Group has determined, in terms of the requirements of accounting standards, that the linked unit premium should be classified as debenture premium and not share premium. Debenture premium will be amortised over the minimum contractual period of the debentures, namely the remaining portion of 25 years from February 2004. Non-distributable reserves The Group transfers all capital profits and unrealised profits to non-distributable reserves. In addition, balances arising due to accounting anomalies are transferred to non-distributable reserves at the discretion of the directors and these currently comprise: - straight line adjustments to rental income and fair value adjustments to investment properties - deferred taxation on fair value adjustments to investment properties - amortisation of debenture premium 5. NEW ACCOUNTING STANDARDS AND IFRIC INTERPRETATIONS Certain new additional accounting standards and IFRIC interpretations have been published that are mandatory for accounting periods beginning on or after 1 January 2006. These new standards and interpretations have not been early adopted by the Group. The directors do not expect that the adoption of the standards and interpretations will have a material impact on future financial statements. The standards and interpretations in issue, but not yet effective, that are relevant to the Group are: IFRS 7: Financial Instrument Disclosures IFRIC 10: Interim Reporting and Impairment 6. PRIOR YEAR ADJUSTMENTS The accounting policy for the premium arising on the issue of linked units has been changed. This used to be accounted for as share premium but is now accounted for as debenture premium in terms of IAS 32. The full amount of share premium has therefore been transferred to debenture premium and is being amortised over the period until 2029. The prior year figures have been restated. The effect of the change in policy on the Group results is as follows: Gross Tax Net R’000 R’000 R’000 Increase in profit for the year 2005 1 191 1 191 2006 1 776 1 776 The additional profit has been transferred to a non-distributable reserve through the statement of changes in equity. The above has had the effect of increasing earnings by R1,8 million or 0,99 cents per weighted number of units in the current year (2005: R1,2 million or 0,72 cents). Balance sheet effect: 2006 R’000 32 985 20 268 (3 667) 49 586 Debenture premium as previously reported Reclassification from share premium Premium arising on current year unit issues Amortisation Debenture premium closing balance 2005 R’000 26 284 6 701 (1 891) 31 094 In accordance with IAS 27, the share of associate’s reserves is no longer accounted for in the Company, and is only accounted for in the Group financial statements. The effect of this change in policy on the Company results is as follows: Gross Tax Net R’000 R’000 R’000 Decrease in profit for the year 2005 12 972 12 972 2006 12 465 12 465 The effect on the Company’s balance sheet is as follows: 2006 R’000 110 927 (26 929) 83 998 Investment in associate as previously reported Removal of share of associate’s retained earnings Investment in associate as restated 26 2005 R’000 82 944 (14 464) 68 480 Group Company R'000 2005 (restated) R'000 R'000 2005 (restated) R'000 659 288 671 000 (11 712) 80 431 (25 310) 1 172 549 706 555 500 (5 794) 44 800 (31 305) 8 592 538 896 548 600 (9 704) 80 431 (25 310) 1 148 443 819 448 500 (4 681) 44 800 (31 305) 7 677 97 257 (3 509) 809 329 93 413 (5 918) 659 288 81 481 (3 088) 673 558 78 928 (5 023) 538 896 15 221 824 550 11 712 671 000 12 792 686 350 9 704 548 600 – 93 652 – 92 931 (93 652) (92 931) – – 139 102 112 946 Interest received from Whirlprops 37 amounts to 12 546 13 452 Profit after tax of subsidiary attributable to the holding company 11 202 10 422 2006 7. INVESTMENT PROPERTIES Carrying value at beginning of the year – At valuation – Straight line adjustment Acquisition of Investment properties Disposals Improvements to investment properties Fair value adjustment – At valuation – Straight line adjustment Carrying value at end of the year Reconciliation to valuation: Add: cumulative straight line adjustments Investment properties at valuation 2006 Property descriptions are detailed on pages 40 and 41 of this report. The property portfolio is subject to mortgage bonds in favour of Absa Bank Limited and Nedcor Bank Limited as detailed in Note 14. The cost of the investment properties is R604 million (2005: R547 million) and they were valued by CB Richard Ellis (Pty) Ltd, independent valuers. These fair values were approved by the directors, and the ranges of discount and capitalisations rates in the respective sectors were as follows: Sector Discount rates Terminal capitalisation rates % % Retail 13,5 to 16,0 9,0 to 12,0 Industrial 14,5 to 16,3 10,0 to 13,0 Office 15,5 to 16,5 11,0 to 13,0 8. INTEREST IN SUBSIDIARY COMPANY Less: Current portion Long term portion Directors' valuation These loans bear interest at variable rates and have no fixed repayment terms. The properties in the company have been sold to Ambit and will be transferred to Ambit in the 2007 financial year. 27 % Holding 100 Annual Report 2006 Whirlprops 37 (Pty) Ltd (incorporated in South Africa) Shares at cost Loans Issued share capital R 100 Notes To The Annual Financial Statements (continued) 30 September 2006 Group Company R'000 2005 (restated) R'000 R'000 2005 (restated) R'000 83 998 26 929 110 927 68 480 14 464 82 944 83 998 – 83 998 68 480 – 68 480 Directors' valuation 110 927 82 944 110 927 82 944 Market value 118 617 68 278 118 617 68 278 543 820 560 630 (16 810) – 16 119 16 089 (34 679) (55 714) (123 416) 283 698 296 350 (12 652) 86 034 11 908 12 625 (28 714) (31 667) (62 075) 543 820 560 630 (16 810) – 16 119 16 089 (34 679) (55 714) (123 416) 283 698 296 350 (12 652) 86 034 11 908 12 625 (28 714) (31 667) (62 075) 362 219 271 809 362 219 271 809 45 814 36 388 – – 107 278 (7 147) (34 645) 65 486 (24 029) 41 457 – 101 338 (6 652) (28 454) 66 232 (18 202) 48 030 (452) – – – – – – – – – – – – – – Net profit after dividends declared 41 457 47 578 – – Group's share Share of Oryx's prior year adjustments 12 465 – 13 589 (617) – – – – Group's share of profit after tax 12 465 12 972 – – 2006 2006 8. INTEREST IN SUBSIDIARY COMPANY (continued) Whirlprops 37 (Proprietary) Limited is a property investment company, the shares and loan account of which have been pledged as security for obligations in connection with the borrowing facilities set out in Note 14. The company has the same year-end as Ambit. 9. INVESTMENT IN ASSOCIATE COMPANY Oryx Properties Limited is a property loan stock company incorporated in Nambia and listed on the NSX. The carrying value of the Group's 30,56% (2005: 30,49%) interest in Oryx comprises: Shares (at cost) Cumulative share of post acquisition reserves Carrying value Financial information of associate at 30 June: Investment properties – At valuation – Straight line adjustment Property and equipment Rent receivable– straight line adjustment Current assets Current liabilities Deferred taxation Non-current liabilities Net asset value Group's share of income since acquisition: Results for the year to 30 June Rental revenue before straight line adjustments Profit before finance costs Finance costs Debenture interest Profit before taxation Taxation Net profit for the year Dividends declared 28 Group Company R'000 2005 (restated) R'000 R'000 2005 (restated) R'000 9 868 – 12 465 8 215 123 12 972 9 868 – – 8 215 123 – 22 333 21 310 9 868 8 338 4 53 185 2 939 2 28 065 862 4 53 185 3 431 2 28 065 772 56 128 28 929 56 620 28 839 20 000 20 000 20 000 20 000 1 865 1 738 1 865 1 738 2006 2006 9. INVESTMENT IN ASSOCIATE COMPANY (continued) During the 2006 year, Oryx restated its prior year figures in respect of the reallocation of share premium to debenture premium and the amortisation thereof. This did not have an effect on the profit accounted for by the Group. Income received from associate comprises: Debenture interest Dividends Share of retained income Oryx has a 30 June year-end, but there were no significant items between that date and 30 September 2006 that required adjustment. Guarantee The Company's investment in Oryx is pledged as security for obligations in connection with the borrowing facilities set out in Note 14. 10. CASH AND CASH EQUIVALENTS Petty cash Cash on call Current accounts 11. SHARE CAPITAL AND PREMIUM Share capital Authorised 2 000 000 000 ordinary shares of 1 cent each Issued 186 482 837 (2005: 173 814 215) ordinary shares of 1 cent each In order to fund property acquisitions, 12 668 622 units were issued for cash on 13 April 2006 at a price of 341 cents. An additional 14,00 cents per unit was received in respect of the interim distribution subsequently paid. Each share is linked to a debenture, which together comprise a linked unit (refer Note 13). 29 Annual Report 2006 The unissued shares are under the control of the directors, until the next Annual General Meeting. Notes To The Annual Financial Statements (continued) 30 September 2006 Group 12. NON-DISTRIBUTABLE RESERVES Balance at beginning of the year Movement: Revaluation/ disposal of investment properties net of deferred tax Undistributed equity accounted income Amortisation of debenture premium Straight line adjustments: – Rental accrued in advance (net of deferred taxation) – Revaluation effect (net of deferred taxation) Balance at end of the year Comprising: Capital reserves Realised capital surpluses (net of capital gains tax) Unrealised – Revaluations – Deferred taxation Straight line adjustments: – Rental accrued in advance (net of deferred taxation) – Revaluation effect (net of deferred taxation) Amortisation of debenture premium Share of associate retained earnings Company R'000 2005 (restated) R'000 R'000 2005 (restated) R'000 107 386 25 652 75 039 15 830 69 259 12 465 1 776 68 443 12 100 1 191 58 058 – 1 776 58 018 – 1 191 2 490 (2 490) 4 202 (4 202) 2 404 (2 404) 3 566 (3 566) 190 886 107 386 134 873 75 039 5 926 156 728 220 744 (64 016) 5 016 88 379 124 477 (36 098) 5 926 125 280 176 450 (51 170) 5 016 68 132 95 960 (27 828) 10 806 (10 806) 3 667 24 565 8 316 (8 316) 1 891 12 100 9 082 (9 082) 3 667 – 6 890 (6 890) 1 891 – 190 886 107 386 134 873 75 039 335 669 312 866 335 669 312 866 2006 2006 The reserves arise from the revaluation or realisation of investment properties, the adjustment to rental required for straight lining in terms of IAS 17, the amortisation of debenture premium and the share of the associates retained earnings. The unrealised capital reserve is not distributable. 13. DEBENTURES 186 482 837 (2005: 173 814 215) unsecured variable rate debentures of 180 cents each In terms of the Debenture Trust Deed, the interest entitlement of every debenture linked to each ordinary share shall not be less than 90% of net earnings of the Company before providing for debenture interest, depreciation, amortisation and taxes and before taking into account any revaluation surpluses or deficits and income which is to be transferred to any non-distributable reserves but after provision for funding costs, whether interest or dividend in nature. The interest is payable bi-annually. The debentures are redeemable at the option of the holder after 25 years from the first allotment date (i.e. 2029). 30 13. DEBENTURES (continued) Debenture premium Premium arising on listing Subsequent issues Accumulated issue expenses Amortisation of debenture premium prior years current year 14. INTEREST BEARING BORROWINGS 14.1 ABSA BANK LIMITED Loan bearing interest at 11,93% per annum until 09/03/2007, and prime less 1,5% thereafter Loan bearing interest at 11,13% per annum until 09/03/2007, and prime less 2,0% thereafter Loan bearing interest at 11,02% per annum until 26/08/2008, and prime less 1,5% thereafter Loan bearing interest at 10,22% per annum until 26/08/2008, and prime less 2,0% thereafter Loan bearing interest at 10,65% per annum until 28/10/2007, and prime less 1,5% thereafter Loan bearing interest at 9,85% per annum until 28/10/2007, and prime less 2,0% thereafter Loan bearing interest at prime less 1,5% per annum Loan bearing interest at prime less 2,0% per annum 14.2 NEDCOR BANK LIMITED Loan bearing interest at 14,64% per annum until 25/01/2006, and prime less 1,5% thereafter Loan bearing interest at 13,18% per annum until 05/02/2006, and prime less 1,5% thereafter Loan bearing interest at 14,63% per annum until 05/02/2006, and prime less 1,5% thereafter Loan bearing interest at 14,58% per annum until 05/02/2006, and prime less 1,5% thereafter Loan bearing interest at 11,73% per annum until 28/02/2009, and prime less 1,5% thereafter Loan bearing interest at 10,87% per annum until 28/02/2009, and prime less 2,0% thereafter Loan bearing interest at 10,76% per annum until 06/09/2010, and prime less 2,0% thereafter Loan bearing interest at 8,92% per annum until 09/03/2009, and prime less 2,0% thereafter Loan bearing interest at 8,97% per annum until 16/12/2005, and prime less 1,5% thereafter Loan bearing interest at prime less 1,5% per annum Loan bearing interest at prime less 2,0% per annum 31 Company R'000 2005 (restated) R'000 2006 R'000 2005 (restated) R'000 28 361 28 955 (4 063) 28 361 8 687 (4 063) 28 361 28 955 (4 063) 28 361 8 687 (4 063) (1 891) (1 776) (700) (1 191) (1 891) (1 776) (700) (1 191) 49 586 31 094 49 586 31 094 – 27 265 – 27 265 27 246 – 27 246 – – 25 226 – 25 226 25 210 – 25 210 – – 25 218 – 25 218 25 202 – 80 132 – 58 701 – 25 202 – 80 132 – 58 701 – 157 790 136 410 157 790 136 410 – 1 340 – 1 340 – 18 788 – 18 788 – 5 771 – 5 771 – 4 696 – 4 696 – 1 362 – 1 362 1 362 – 1 362 – 30 221 – 30 221 – 75 366 – 75 366 – – – 50 841 157 790 35 102 63 290 – 130 349 – – 50 841 157 790 35 102 63 290 – 130 349 Annual Report 2006 Group 2006 Notes To The Annual Financial Statements (continued) 30 September 2006 Group Company R'000 2005 (restated) R'000 R'000 2005 (restated) R'000 380 440 380 440 315 960 267 199 315 960 267 199 598 429 475 366 390 000 (315 960) 294 129 (267 199) 74 040 26 930 36 433 10 239 28 175 6 044 27 922 (1 104) 1 104 144 25 761 (1 716) 1 716 433 23 347 (982) 982 144 21 560 (1 457) 1 457 571 64 499 36 433 51 666 28 175 2006 2006 14. INTEREST BEARING BORROWINGS (continued) The loans detailed above in 14.1 and 14.2 are secured by first mortgage bonds over the property portfolio, which has a fair value of R824,6 million, and by a pledge of the Group’s investment in Oryx which has a value of R110,9 million. The Absa and Nedbank loans are repayable on 31/01/2014. 14.3 BP SOUTHERN AFRICA (PROPRIETARY) LIMITED This loan does not bear interest and is repayable in monthly installments of R5 000 until January 2012. It is secured over Section 92 Nedbank Plaza, Pietermaritzburg which has a fair value of R2,25 million. The Company’s Articles of Association limit the Group’s borrowing capacity (excluding debentures) to 60% of its consolidated total assets. Borrowing capacity Borrowing facility with Absa Bank Limited and Nedcor Bank Limited Less: borrowings Unutilised borrowing facility Subsequent to the year-end, the borrowing facility was increased to R700 million. An overdraft facility of R5 million exists with Absa Bank Limited, of which R0,8 million (2005:R0,9 million) has been utilised for municipal guarantees. With the exception of the guarantees issued, the overdraft bears interest at prime less 2% (2005:1,5%), with no security and is repayable on demand. 15. DEFERRED TAXATION LIABILITY Movements in deferred taxation: Balance at beginning of the year Charged to the income statement Deferred taxation on revaluation of investment properties Straight line adjustment- revaluation Straight line adjustment– rental Temporary differences charged to the income statement Balance at end of the year 32 Group Company R'000 2005 (restated) R'000 R'000 2005 (restated) R'000 202 583 (102) (143) (61) 64 020 135 388 (112) (38) (38) 36 098 202 451 (102) – (61) 51 176 135 361 (112) – (38) 27 829 64 499 36 433 51 666 28 175 82 806 17 007 76 889 16 641 69 345 14 113 63 459 12 695 99 813 93 530 83 458 76 154 17. PROPERTY EXPENSES Property expenses include the following major categories: Body corporate levies Cleaning Collection commission Electricity Rates and taxes Security Water 2 115 1 264 2 630 5 182 5 734 1 727 980 1 992 1 239 2 639 4 361 5 716 1 465 1 004 2 115 1 240 2 179 4 520 4 428 1 555 891 1 992 1 221 2 148 3 750 4 399 1 465 812 18. INTEREST INCOME Bank Interest on net rentals Prepaid debenture interest on units issued Subsidiary company 186 80 1 774 – 281 63 2 029 – 170 81 1 774 12 546 272 63 2 029 13 452 2 040 2 373 14 571 15 816 2006 15. DEFERRED TAXATION LIABILITY (continued) Temporary differences comprise of: Building allowances Tenant installation and letting commission costs Provision for doubtful debts Tax losses Deposits received Deferred taxation on revaluation of investment properties 2006 16. RENTAL REVENUE Rental revenue before straight line adjustments Recoveries 33 Annual Report 2006 Deferred taxation has been raised at the corporate tax rate of 29%, even though the taxation payable would be at the capital gains tax rate of 14,5% should the properties be realised. Notes To The Annual Financial Statements (continued) 30 September 2006 Group 19. ADMINISTRATIVE EXPENSES Announcements and annual reports Asset management fees JSE Securities Exchange fee Professional fees Travel Valuations Other 20. OTHER EXPENSES Net provision for doubtful debts expense Auditors’ remuneration – audit fee Directors' emoluments: Executive – salary, benefits and other emoluments Non-executive – fees Donations Other 21. TAXATION EXPENSE South African Normal Taxation Current Capital Gains Taxation Deferred taxation Current Change in tax rate Prior year Reconciliation of effective tax rate: Statutory rate Share of associate company's profits Non-taxable income Capital Gains Taxation Disallowable expenditure Change in tax rate Prior year adjustments 34 Company R'000 2005 (restated) R'000 R'000 2005 (restated) R'000 313 3 903 131 83 153 210 473 5 266 355 2 750 130 58 160 270 761 4 484 313 3 903 131 78 153 198 474 5 250 355 2 518 130 58 160 270 761 4 252 208 270 154 219 208 270 196 219 1 061 411 50 26 920 415 – – 1 061 411 50 26 920 415 – – 2 026 1 708 2 026 1 750 59 308 59 308 28 066 – – 26 281 (341) 261 23 491 – – 22 079 (202) 261 28 125 26 509 23 550 22 446 % 29,0 (3,2) (0,5) (0,1) – – – % 29,0 (3,5) (0,3) (0,7) 0,1 (0,3) 0,2 % 29,0 – (0,6) (0,2) – – – % 29,0 – (0,5) (0,9) 0,1 (0,2) 0,3 25,2 24,5 28,2 27,8 2006 2006 2006 R'000 2005 (restated) R'000 83 534 55 199 138 733 (1 776) (79 015) 57 942 (55 199) 2006 Cents per unit/share* 2005 (restated) Cents per unit/share* 81 807 47 799 129 606 (1 191) (76 339) 52 076 (47 799) 46,48 30,72 77,20 (0,99) (43,97) 32,24 (30,72) 49,18 28,73 77,91 (0,72) (45,89) 31,30 (28,73) 2 743 4 277 1,52 2,57 55 199 (2 703) 55 239 (55 199) 47 799 (4 202) 47 874 (47 799) 30,72 (1,50) 30,74 (30,72) 28,73 (2,53) 28,77 (28,73) 40 75 0,02 0,04 59 867 55 199 115 066 (1 776) (55 648) 57 642 (55 199) 58 413 47 799 106 212 (1 191) (53 718) 51 303 (47 799) 33,31 30,72 64,03 (0,99) (30,97) 32,07 (30,72) 35,11 28,73 63,84 (0,72) (32,29) 30,83 (28,73) 2 443 3 504 1,35 2,10 29,60 27,50 22. HEADLINE EARNINGS AND EARNINGS PER LINKED UNIT/ SHARE (WEIGHTED) GROUP Net profit (earnings) – shares Debenture interest Net profit (earnings) – linked units Amortisation of debenture premium Capital surpluses (net of deferred taxation) Headline earnings – linked units Debenture interest Headline earnings – shares Reconciliation to undistributed income: Debenture interest Rental straight lining net of deferred taxation Distributable earnings Debenture interest Undistributed income COMPANY Net profit (earnings) – shares Debenture interest Net profit (earnings) – linked units Amortisation of debenture premium Capital surpluses (net of deferred taxation) Headline earnings – linked units Debenture interest Headline earnings – shares Distribution per linked unit in issue Based on 186 482 837 (2005: 173 814 215) units in issue at 30 September 2006. 35 Annual Report 2006 * Based on a weighted average number of 179 707 418 (2005: 166 351 253) units in issue for the year. Notes To The Annual Financial Statements (continued) 30 September 2006 Group 23. CASH GENERATED BY OPERATING ACTIVITIES Profit before taxation Adjusted for: Straight-line adjustment Amortisation of debenture premium Share of income from associate Fair value adjustment for investment properties Profit on disposal of investment properties Interest received Debenture interest Finance costs Cash generated from operations before working capital changes Decrease/ (increase) in trade and other receivables (Decrease)/ increase in trade and other payables 24. DISTRIBUTIONS PAID TO LINKED UNITHOLDERS Debenture interest paid is reconciled as follows: Amounts unpaid at beginning of the year Amounts charged to the income statement Amounts unpaid at end of the year 25. COMMITMENTS Investment property contracted for 26. LEASES The future minimum lease commitments receivable under non-cancellable operating leases are as follows: Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years Ambit enters into lease contracts with tenants in exchange for their use of the property. 36 Company R'000 2005 (restated) R'000 R'000 2005 (restated) R'000 111 659 108 316 83 417 80 859 (3 807) (1 776) (12 465) (93 450) (72) (11 908) 55 199 23 902 67 282 3 628 (805) 70 105 (5 918) (1 191) (12 972) (87 495) (711) (10 711) 47 799 25 992 63 109 (4 019) 4 360 63 450 (3 386) (1 776) – (78 095) (72) (24 439) 55 199 23 902 54 750 4 620 (517) 58 853 (5 023) (1 191) – (73 905) (711) (24 154) 47 799 25 992 49 666 (4 065) 3 157 48 758 (25 033) (55 199) 29 098 (26 520) (47 799) 25 033 (25 033) (55 199) 29 098 (26 520) (47 799) 25 033 (51 134) (49 286) (51 134) (49 286) – 22 500 – 22 500 92 118 217 510 18 927 73 435 154 204 24 630 76 706 183 668 18 927 62 284 124 358 24 630 2006 2006 Retail R'000 Office R'000 Industrial R'000 Corporate R'000 Total R'000 55 556 41 257 58 270 (29) 25 818 18 011 18 861 77 18 439 15 306 20 126 24 – – – – 99 813 74 574 97 257 72 487 950 2 912 190 200 1 331 146 400 1 094 – 439 824 550 5 776 Liabilities Deferred taxation liability Trade and other payables 40 472 5 500 10 780 1 677 12 751 1 250 496 660 64 499 9 087 2005 GROUP Income statement Rental Net property income Fair value adjustments to investment properties Profit on disposal of investment properties 49 383 36 083 65 700 – 28 766 20 343 9 209 703 15 381 12 875 18 504 8 – – – – 93 530 69 301 93 413 711 381 900 3 292 155 800 1 184 133 300 426 – 4 502 671 000 9 404 23 987 6 430 5 257 2 178 6 843 1 029 346 253 36 433 9 890 27. SEGMENT INFORMATION – all items are stated before straight line adjustments 2006 GROUP Income statement Rental Net property income Fair value adjustments to investment properties Profit on disposal of investment properties Balance sheet Assets Investment properties Trade and other receivables Balance sheet Assets Investment properties Trade and other receivables Liabilities Deferred taxation liability Trade and other payables 37 Annual Report 2006 BUSINESS SECTORS Notes To The Annual Financial Statements (continued) 30 September 2006 Gauteng R'000 Durban R'000 Pietermartizburg R'000 Other R'000 Total R'000 65 227 49 392 12 028 8 196 14 065 9 979 8 493 7 007 99 813 74 574 80 114 10 303 2 154 4 686 97 257 558 300 97 550 80 900 87 800 824 550 59 044 12 061 14 613 7 812 93 530 475 900 72 800 77 800 44 500 671 000 27. SEGMENT INFORMATION (continued) – all items are stated before straight line adjustments GEOGRAPHICAL 2006 GROUP Income statement Rental Net property income Fair value adjustments to investment properties Balance sheet Investment properties 2005 GROUP Income statement Rental Balance sheet Investment properties 28. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT The Group's financial instruments consist primarily of cash deposits with banks, investments, trade and other receivables, payables and interest bearing borrowings. All these financial instruments are carried at cost or amortised cost. In the normal course of its operations, the Group is inter alia exposed to credit, interest rate and liquidity risk. In order to manage these risks, the Group may enter into transactions which make use of derivatives. The Group does not speculate in or engage in the trading of derivative instruments. Credit risk The Group's financial assets that are potentially subject to credit risk include cash deposits with banks and trade and other receivables. The credit risk attached to the Group's cash deposits is minimised by its cash deposits only being placed with reputable financial institutions. Credit risk with respect to trade and other receivables is limited due to the large and diverse tenant base. In addition tenant creditworthiness is thoroughly assessed before leases are signed. Interest rate risk The Group is exposed to interest rate price risk on its fixed rate loan liabilities and accounts receivable and payable, which can impact on the fair value of the instruments. The Group is exposed to interest rate cash flow risk in respect of its variable rate loans and short-term cash investments, which can impact on the cash flows of these instruments. The exposure to interest rate risk is managed through monitoring cashflows and investing surplus cash at negotiated rates which enables the Group to maximise returns while minimising risks. Liquidity risk The Group proactively manages its liquidity risk by regularly assessing cash requirements and monitoring cashflows, whilst ensuring surplus cash is invested in a manner to achieve maximum returns. 38 GROUP 2006 R'000 2005 R'000 707 2 573 3 903 12 574 386 2 176 2 750 12 861 54 344 953 9 868 – 12 465 33 2 029 8 215 123 12 972 20 – 68 52 61 157 790 136 410 34 197 21 860 29. RELATED PARTY TRANSACTIONS PARTY CONCERNED Amounts expensed to the income statement: Marriott Property Services (Proprietary) Limited Ambit Management Services (Proprietary) Limited Absa Bank Limited Amounts credited to the income statement: Absa Bank Limited Oryx Properties Limited TRANSACTION TYPE – Leasing commissions – Collection commissions – Asset management fees* – Interest paid on loans – Bank interest received – Interest received (prepaid distribution on issue of units) – Interest received – Dividends received – Share of after tax profits – Fees for directorship Property acquisitions and listing expenses: Motseng Marriott Property Services (Proprietary) Limited Exchange Sponsors (Proprietary) Limited – Valuation fees – Sponsors fees Amounts owing to related parties: Absa Bank Limited – Long-term loans Amounts owing from related parties: Absa Bank Limited – Cash The Group is managed by Ambit Management Services (Proprietary) Limited (AMS). This company, which is considered to be a related party, is owned by Absa Bank Limited (Absa). Marriott Property Services (Proprietary) Limited (Marriott) sold the rights to its 50% share in AMS to Absa in August 2006. Absa and Marriott, together with their related group companies, are consequently also regarded as related parties for the purpose of the disclosures above. All transactions are concluded on an arms length basis with market related terms and conditions. Key personnel are the executive and non-executive directors, whose remuneration is disclosed in Note 20. In April 2006, Ambit acquired 50% of Akals Properties (Proprietary) Limited in conjunction with Pinespring Properties (Proprietary) Limited, a wholly owned subsidiary of Highpine Properties (Proprietary) Limited, a company in which Mr J H Beare has an interest. 39 Annual Report 2006 * AMS sub-contracts certain of these services to Absa and Marriott and remunerates them out of the fees received from Ambit Properties Limited. Property Portfolio 30 September 2006 Address Location Site area m2 Rentable area m2 % Vacancy by rentable area Major leases Date of acquisition Year-end valuation % of fund by value RETAIL Park Meadows Kensington Gauteng 75 873 24 402 0 Pick 'n Pay Ackermans Furniture City Hi Fi Corporation Dischem Baby City Mr Price Weekend Mr Price Home Sportsmans Warehouse Home Etc and others 29/01/2004 327 500 000 39,7 Scottsville Mall Durban Road Pietermaritzburg 19 326 14 501 4,6 Shoprite Checkers Ster Kinekor El Sombrero Spur Miladys Absa Bank Nedbank and others 26/01/2004 72 500 000 8,8 Lowveld Lifestyle Centre Nelspruit 24 566 11 420 0 Wetherleys Beds 4 Africa Jumbo Cash & Carry 11/04/2006 43 700 000 5,3 cnr Oxford & Terminus Street East London 2 007 1 932 0 Mr Price Total Sports Discom and others 11/02/2004 15 400 000 1,9 Old Main Road Pinetown (50%) Durban 8 112 9 190 0 Midas Engen Wesbank 12/07/2006 14 150 000 1,7 Royal Palm Avenue Umgeni Durban 4 461 927 0 Engen Steers and others 27/01/2004 10 200 000 1,2 Truworths Corner Mitchells’ Plain Cape Town 512 512 0 First National Bank 08/03/2004 4 500 000 0,5 487 950 000 59,1 Total Retail OFFICES 43 Bekker Road Vorna Valley Midrand 1,2 Gauteng 14 503 8 312 14,4 Wyeth South Africa Syngenta South Africa 03/02/2004 52 500 000 6,4 79 Hyde Park Lane Hyde Park Gauteng 10 106 4 379 14,5 Marriott Universal Database Marketing 03/02/2004 26 500 000 3,2 Horizon Park Roodepoort Gauteng 4 158 2 427 0 Absa Bank Limited 11/01/2006 26 000 000 3,1 40 OFFICES (continued) cnr Reserve Road & Biccard Street Braamfontein Location Site area m2 Rentable area m2 % Vacancy by rentable area Major leases Date of acquisition Year-end valuation % of fund by value Gauteng 991 5 984 1,2 Firstrand Bank The Gauteng Provincial Government 28/01/2004 18 600 000 2,3 Accord Education Trust Toplink 27/01/2004 18 200 000 2,2 Engen Coimbra Splashes 26/01/2004 17 300 000 2,1 Department of Health 29/01/2004 10 700 000 1,3 2-4 Golf Course Drive Mount Edgecombe Durban 3 014 3 042 25,4 36 Newport Avenue Glenashley Durban 3 716 2 766 5,9 7 Derby Place Westville Durban 4 826 2 158 18,9 3 Sookhai Place Westville Durban 3 596 1 848 1,1 Thebe Risk Services Volker Wattrus & De Witt 29/01/2004 10 000 000 1,2 1 Derby Place Westville Durban 2 017 960 30,7 Ensign Shipping & Logistics Imperial Fleet Services 26/01/2004 4 900 000 0,6 2 George McFarlane Lane Pietermaritzburg 596 572 36,6 10 Derby Place Westville Durban 516 554 0 Total Offices INDUSTRIAL 8 Jansen Road Jet Park Wesbank 26/01/2004 3 200 000 0,4 The KZN Provincial Administration 26/01/2004 2 300 000 0,3 190 200 000 23,1 11,4 Gauteng 48 946 22 774 0 12 Piet Rautenbach Street, Rosslyn Gauteng 135 001 22 310 3,7 12 Nourse Avenue Epping Cape Town 17 277 10 581 4 062 233 Hendrik Verwoerd Drive, Gauteng Randburg 9 Montague Drive Montague Cape Town 2 Cardiff Road Pietermaritzburg 110 Intersite Avenue Springfield Picpack Grindrod 03/02/2004 59 200 000 7,2 Dept of Public Works and others 15/07/2005 37 500 000 4,5 0 Rare Woods First Garment 04/01/2005 16 200 000 2,0 2 958 0 McCarthy Retail 27/02/2004 10 500 000 1,3 5 028 2 669 2,0 Progress Lighting and Fire 19/03/2004 8 000 000 1,0 10 480 3 114 0 Central African Seed Services 26/01/2004 5 200 000 0,6 Durban 2 101 1 376 0 MacPhersons Office Plan 28/01/2004 4 500 000 0,6 94 Moore Road Durban 1 095 1 197 0 Transworld Tyres Africa 29/01/2004 3 400 000 0,4 32 Intersite Avenue Springfield Durban 1 157 600 0 Tactic Merchant Services 28/01/2004 1 900 000 0,2 Total Industrial 1,3 146 400 000 17,8 Total Portfolio 3,5 * 824 550 000 100,0 * Old Main Road Pinetown excluded as held for development. 41 Annual Report 2006 Address Notice Of Annual General Meeting AMBIT PROPERTIES LIMITED Reg. No. 2001/007003/06 JSE Code: ABT ISIN Code: ZAE000051645 PLEASE TAKE NOTICE that the Annual General Meeting of the Company will be held at the Quatermain Premier Boutique Hotel, 137 West Road South, Morningside, Johannesburg, on Wednesday 21st day of February 2007 at 10am. AGENDA 1. Notice convening the Meeting. 2. Apologies. 3. Confirmation of the minutes of the Annual General Meeting held on the 7th day of February 2006. 4. Report of the Chairman. 5. To receive the audited Annual Financial Statements of the Company including the reports of the auditors and directors for the year ended 30 September 2006. 6. To approve the remuneration of the non-executive directors for the financial year ended 30 September 2006 and to approve a 10% increase in the remuneration of the non-executive directors for the year ahead as follows: • Non-executive director R55 000 p.a. • Chairman of the Board, an additional R38 500 p.a. • Chairman of the Risk, Audit and Compliance Committee (RA&CC), an additional R33 000 p.a. • Member of the Risk, Audit and Compliance Committee (RA&CC), an additional R16 500 p.a. • Member of the Investment Committee, an additional R11 000 p.a. 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 the 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 Listings Requirements of the JSE Limited, to allot and/or issue linked units to such person or persons on such terms and conditions as they may determine, subject to the following limitations: a) The authority will expire at the next Annual General Meeting of the Company. b) The authority may be varied or revoked by any general meeting of the Company prior to such annual general meeting. c) The authority shall not authorize the allotment or issue of any such shares or debentures to any director of the Company or his nominee, or to any body corporate which is or the directors of which are accustomed to act in accordance with the directions or instructions of such director or nominee, or at a general meeting of which such director or his nominee is entitled to exercise or control the exercise of one-fifth or more of the voting power, or to any subsidiary of such body corporate unlessi) the particular allotment or issue has prior to the allotment or issue been specifically approved by the Company in general meeting; or ii) such shares or debentures are allotted or issued under a contract underwriting such shares or debentures; or iii) such shares or debentures are allotted or issued in proportion to existing holdings, on the same terms and conditions as have been offered to all the members or debenture-holders of the company or to all the holders of the shares or such debentures of the class or classes being allotted or issued; or iv) such shares or debentures are allotted or issued on the same terms and conditions as have been offered to members of the public.” 7.2 Ordinary Resolution number 2: “Resolved to authorise the directors to re-appoint Deloitte & Touche as the auditors of the company and to determine the remuneration of the auditors for the past period.” 42 7.3 Ordinary Resolution number 3: “To re-elect retiring and confirm the appointment of any new directors in accordance with the Articles of Association. Such elections will 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, Mr F Uys and Mr R R Emslie retire by rotation but being eligible, offer themselves for re-election.” “To ratify the resignation of Mr J Zidel (full director) who resigned from the board of directors on 3 May 2006.” “To ratify the resignation of Mr C J Ewin (full director) who resigned from the board of directors on 16 August 2006.” 7.4. Ordinary Resolution number 4: “To confirm the appointment of new directors nominated in accordance with the Articles of Association.” 7.5 Ordinary Resolution number 5: “Resolved that, subject to no less than 75% of linked unitholders, present in person or by proxy and entitled to vote at the Annual General Meeting at which this ordinary resolution is to be considered, voting in favour thereof, the directors of the Company be and are hereby authorised, by way of general authority, valid until the next Annual General Meeting of the Company, or for 15 months from the date of this Annual General Meeting, whichever is first, to issue all or any of the authorised but unissued linked units in the capital of the Company for cash as they in their discretion deem fit, subject to the following limitations: • The securities must be of a class already in issue; • The securities must be issued to public unitholders and not to related parties; • The general issue of linked units for cash in the aggregate in any one financial year may not exceed 15% of the Company's issued linked unit capital of that class; • The maximum discount at which the securities may be issued is 10% of the weighted average traded price of those securities over the 30 business days prior to the date that the price of the issue is determined or agreed by the directors of the Company; and • That a press announcement giving full details, including the impact on net asset value and earnings per linked unit, will be published at the time of any issue representing, on a cumulative basis within one year, 5% or more of the number of linked units of that class in issue prior to the issues.” 8. To transact any other business which under the Articles of Association, may be transacted at an Annual General Meeting. 9. General 43 Annual Report 2006 AMBIT MANAGEMENT SERVICES (PROPRIETARY) LIMITED COMPANY SECRETARY Notice Of Annual General Meeting (continued) AMBIT PROPERTIES LIMITED Reg. No. 2001/007003/06 JSE Code: ABT ISIN Code: ZAE000051645 NOTE: 1. A linked unitholder (certificated or own name dematerialised unitholder) entitled to attend and vote is entitled to appoint a proxy to attend, speak, vote, 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 less 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 Mrs M Peters 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 14 February 2006. Dated at FOURWAYS on this 23rd day of November 2006. Company Secretary's Office First Floor, 4 Fricker Road Illovo 2196 P O Box 618 Melrose Arch 2076 Tel. 011 268 5062 Fax. 011 252 7293 Registered Office First Floor, 4 Fricker Road Illovo 2196 P O Box 618 Melrose Arch 2076 Tel. 011 268 5062 Fax. 011 252 7293 P O Box 61051 Marshalltown 2107 Tel. 011 370 5000 Fax. 011 688 5217 Transfer Secretaries Computershare Investor Services 2004 (Proprietary) Limited 70 Marshall Street Johannesburg, 2001 8 Jansen Road, Jet Park, Gauteng 44 Proxy Form AMBIT PROPERTIES LIMITED (AMBIT) JSE Code: ABT ISIN Code: ZAE000051645 To be used by certificated or dematerialised linked unitholders with own name registration. I/We (Name/s in block letters) of address being the holder/s of linked units in AMBIT, as at 10am on Monday, the 19th February 2007, hereby appoint of or failing him of or failing him THE CHAIRMAN OF THE MEETING as my/our Proxy to act on my/our behalf at the Annual General Meeting of AMBIT to be held at the Quatermain, 137 West Road South, Morningside on Wednesday, the 21st February 2007 at 10am and at any adjournment thereof and to vote for or against the resolutions or to abstain from voting in respect of the units registered in my/our name/s, in accordance with the following instructions: 1 Resolution 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 30 September 2006. 2.1 Resolution to approve the remuneration of the non-executive directors for the financial year ended 30 September 2006; and 2.2 to approve the remuneration of the non-executive directors for the year ahead, as per item 6 of the Notice of the Meeting. 3 Ordinary Resolution number 1: Resolution to place the unissued linked units under the control of the directors. 4 Ordinary Resolution number 2: Resolution to authorise the directors to re-appoint the auditors for the ensuing year and approve their remuneration for the past year. 5 Ordinary Resolution number 3: 5.1 To re-elect Mr F Uys as director; 5.2 To re-elect Mr R R Emslie as director; 5.3 To ratify the resignation of Mr J Zidel (full director); 5.4 To ratify the resignation of Mr C J Ewin (full director); and 6 Ordinary Resolution number 4: To consider the nominations (if any) and, if deemed fit, appoint any new directors nominated in terms of the Company’s Articles of Association 7 Ordinary Resolution number 5: Resolution to authorise the directors by way of general authority to issue the unissued linked units in the Company for cash. 45 AGAINST ABSTAIN Annual Report 2006 FOR Proxy Form Each linked unitholder is entitled to appoint one or more proxies (who need not be a linked unitholder of AMBIT) to attend, speak, and on a poll, vote in place of the linked unitholder at the Annual General Meeting. Signed at on this Signature(s) Capacity day of Company Secretary’s Office First Floor, 4 Fricker Road Illovo 2196 P O Box 618 Melrose Arch 2076 Tel. 011 268 5062 Fax. 011 252 7293 Transfer Secretaries Computershare Investor Services 2004 (Proprietary) Limited 70 Marshall Street Johannesburg, 2001 P O Box 61051 Marshalltown 2107 Tel. 011 370 5000 Fax. 011 688 5217 200 . INSTRUCTIONS ON SIGNING AND LODGING OF THE PROXY FORM 1. The Proxy Form must be deposited at the Company Secretary’s Office or with the Transfer Secretaries not less than 48 (FORTY-EIGHT) hours before the time of holding the meeting. 2. A deletion of any printed matter and the completion of any blank space(s) need not be signed or initialed. Any alteration must be signed in full. 3. The Chairman of the meeting shall be entitled to decline to accept the authority of the signatory: (a) under a power of attorney; or, (b) on behalf of a company or any other entity, unless the power of attorney or authority is deposited at the registered office of the company not less than 48 (FORTY-EIGHT) hours before the time scheduled for the meeting. 4. The authority of a person signing a Proxy in a representative capacity must be attached to the Proxy Form unless the authority has already been recorded by the Secretaries. 5. The signatory may insert the name of any person(s) whom the signatory wishes to appoint as his Proxy in the blank space(s) provided for that purpose. 6. When there are joint holders of 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 units or his Proxy, as the case may be, shall alone be entitled to vote in respect thereof. 7. The completion and lodging of this Proxy Form will not preclude a signatory from attending the meeting and speaking and voting in person thereat, to the exclusion of any Proxy appointed in terms hereof should such signatory wish to do so. 8. The Chairman of the meeting may reject or accept any Proxy Form which is completed and/or submitted other than in accordance with these instructions, provided that he is satisfied as to the manner in which a member wishes to vote. 9. If the unitholding is not indicated on the Proxy Form, the Proxy will be deemed to be authorised to vote the total unitholding. 10. If unitholders have dematerialised their units with a CSDP or broker, other than own name dematerialised unitholders, 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 or the unitholder 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 unitholder and the CSDP or broker concerned. 46 Directors’ Traditional Income Statement & Balance Sheet for the year ended 30 September 2006 Due to the number of accounting adjustments that have resulted from changes to accounting standards over the last three years, the directors of Ambit Properties Limited (“Ambit”) have taken the decision to present a traditional income statement and balance sheet. This is for the benefit of users who wish to analyse the Ambit financials in a more user-friendly format. The following balance sheet and income statement are therefore unaudited and are provided as additional information, in a format better suited to user analysis. They are identical to the audited financials with the following exceptions: 1) Removal of the effects of straight lining of rentals IFRS requires rentals to be recognised on a straight-line basis over the period of the lease. This means that all escalations are taken into account upfront and smoothed over the period of the lease. In the audited financials this results in an increase to rentals in the first half of the lease and a decrease in the second half. The increase is recognised in the income statement as rental and in the balance sheet as a non-current receivable. There is a corresponding decrease in the revaluation of the investment properties. In the IFRS financials, the effects of straight lining of rentals are then moved to non-distributable reserves. All straight lining adjustments have been removed in the traditional balance sheet and income statement as presented herein. 2) Reduction of the provision for deferred taxation on revaluations IFRS requires deferred taxation to be raised on revaluations at the company tax rate of 29%. However, the buildings are valued using after tax rental streams, and the only tax payable would be the capital gains taxation on disposal of the buildings. The deferred taxation on revaluations has therefore been reduced to the capital gains tax rate of 14,5% in the financials below. Removal of the effects of reclassifying and amortising debenture premium IFRS requires that amounts that were classified as share premium are now allocated to debenture premium and reflected as a long-term liability. This amount is required to be amortised over the minimum contractual period of the debentures, being the remaining period of 25 years from February 2004. As the amount is not a liability, and is legally classified as share premium, the traditional financials have classified these amounts back to share premium and have removed the amortization thereof. A reconciliation back to the audited IFRS financials is presented below both the income statement and balance sheet. 43 Bekker Road, Vorna Valley, Midrand, Gauteng 47 Annual Report 2006 3) Directors’ Traditional Group Balance Sheet as at 30 September 2006 Group ASSETS Non-current assets Investment properties Investment in associate company Current assets Trade and other receivables Cash and cash equivalents Notes* 2006 R'000 2005 R'000 7 9 824 550 110 927 935 477 671 000 82 944 753 944 5 776 56 128 61 904 9 404 28 929 38 333 997 381 792 277 1 865 53 255 219 224 190 886 32 005 (3 667) 364 274 708 1 738 32 986 123 543 107 386 18 048 (1 891) 330 158 597 335 669 315 960 32 492 684 121 312 866 267 199 18 384 598 449 9 087 367 29 098 38 552 9 890 308 25 033 35 231 997 381 792 277 274 708 158 597 (32 005) (53 255) (18 048) (32 986) 3 667 193 115 1 891 109 454 343 285 10 TOTAL ASSETS EQUITY AND LIABILITIES Capital and reserves Share capital Share premium Non-distributable reserves Per IFRS Additional deferred taxation on revaluations Accumulated amortisation on debenture premium Distributable reserves 11 12 Non-current liabilities Debentures Long-term borrowings Deferred taxation 13 14 Current liabilities Trade and other payables Taxation payable Linked unitholders for distribution TOTAL EQUITY AND LIABILITIES Reconciliation of equity: Equity per traditional balance sheet above Less: Additional deferred tax on revaluations Reclassification of share premium to debenture premium Add back: Amortisation of debenture premium EQUITY PER AUDITED IFRS BALANCE SHEET Net asset value per linked unit (before payment of distribution) 48 Directors’ Traditional Group Income Statement for the year ended 30 September 2006 REVENUE Rental Property expenses NET RENTAL INCOME Investment income Debenture interest income from associate company Other expenses OPERATING PROFIT BEFORE FINANCE COSTS Less: Finance costs NET PROFIT BEFORE TAXATION Taxation DISTRIBUTABLE EARNINGS Debenture interest UNDISTRIBUTED INCOME Share of associate company’s after tax profits Capital profits Profit on sale of investment properties Capital gains taxation on disposals Changes in fair value of investment properties Deferred tax on revaluations at 14.5% 2006 R'000 2005 R'000 16 17 99 813 (25 239) 74 574 2 040 9 868 (7 292) 79 190 (23 902) 55 288 (49) 55 239 (55 199) 40 12 465 83 211 72 (160) 97 257 (13 958) 93 530 (24 229) 69 301 2 373 8 338 (6 192) 73 820 (25 992) 47 828 46 47 874 (47 799) 75 12 972 80 450 711 (793) 93 413 (12 881) 95 716 93 497 29,60 27,50 95 716 93 497 3 807 1 776 5 918 1 191 (3 807) (13 958) 83 534 (5 918) (12 881) 81 807 18 9 19,20 6,9 NET PROFIT FOR THE YEAR Distribution per linked unit Reconciliation to IFRS income statement: Net profit per traditional income statement above Add back: Rental straight lining Amortisation of debenture premium Less: Revaluation straight lining adjustment Additional deferred taxation on revaluations NET PROFIT PER AUDITED IFRS INCOME STATEMENT Notes*: Users are referred to the notes as included in the audited financials. Design: Design Insight, Printing: Fishwicks 49 Annual Report 2006 Group Notes* www.ambitprops.co.za Tel: +27 11 268 5062 Fax: +27 11 252 7293
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