CITY CAPITAL SA PROPERTY HOLDINGS LTD ANNUAL GENERAL MEETING OF - - PDF document

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CITY CAPITAL SA PROPERTY HOLDINGS LTD ANNUAL GENERAL MEETING OF SHAREHOLDERS: 27 JANUARY 2017

Good morning ladies and gentlemen Thank you once again for taking the time to attend the third annual general meeting of the shareholders of City Capital. The financial situation of the group has continued to improve and the company has successfully paid a dividend based on the cash profit earned during the financial year ended 28 February 2016 and the six month period ended 31 August 2016. Although the news that we have for shareholders today is good, we still have 3 major court cases in the coming months, but we will get to that news a bit later on.

• 1. Net asset value

As of 30 November 2016 the net asset value of City Capital is R 223 million, equivalent to 124 cents per share. [ NET ASSET VALUE AT 30 NOVEMBER 2016 ] We are expecting good increases in property valuations in February 2017 for the Malmesbury factory, Colosseum offices, Estuaries buildings, Tyger Valley Chambers 2 building and Parow factory. [ NET ASSET VALUE PER SHARE GRAPH ] The net asset value per share graph reflects steady, constant growth in net asset value. The board is confident that the growth in net asset value will continue to increase as property valuations increase and the Stellenbosch property is developed.

• 2. Property portfolio

[ LEASE SCHEDULE ] We currently have 2 vacancies in our property portfolio, both at our new acquisition, Tyger Valley Chambers 2. The entire third floor measuring 729 m2 is vacant after the tenant unilaterally terminated its

• lease. We have taken legal action and are advised that the lease termination is illegal and that we should

recover damages in due course. A ground floor office measuring 381 m2 is also vacant after the normal termination of a lease. There is healthy interest in the vacant offices and we are confident that the vacancies will be filled in the next month or two. The body corporate is currently repainting Tyger Valley Chambers 5 and building number 2 will also be repainted during March or April this year. This should facilitate letting of any vacancies that arise. Cost control continues to be very important to maintain property valuations. We were very successful in

• bjecting to excessive municipal property valuations for the Malmesbury factory, Colosseum offices,

Tyger Valley Chambers 5 and Estuaries buildings. This will minimise increases in property rates. Our property portfolio is now only generating a net cash inflow of R 124 thousand per month, after paying mortgage bonds and all property and head office expenses. The cash inflow dropped substantially

2 after the disposal of the Perspex factory, where we were receiving good rental income with no mortgage bond in place. The risk of that tenant terminating the lease was however very high and we now have a lower risk profile with multiple tenants and two separate properties.

• 3. Cash flow

[ CASH FLOW SCHEDULES ] The cash flow schedule on the screen is used every day to control and to forecast over a two to three month period our cash in and outflows. We continue to experience a huge drain on our cash flows in the form of legal fees incurred in our ongoing battle to recover the loans that were made to the Dividend property companies. The expected return is however massive and we are committed to recovering these loans wherever possible. The important point is that our property portfolio is delivering positive cash flow, all major property renovations have been completed, our portfolio is almost fully let and our audits have been finalised and paid to-date. We also have reserves to fight the opposition to recover our loans to the Dividend property companies.

• 4. Dividend loan recovery

Good progress has again been made with regard to the recovery of loans that were previously made to the Dividend property companies. [ LOANS TO DIVIDEND COMPANIES ] The schedule on screen reflects that we have recovered over R 24 million in loan repayments from the Dividend property companies over the past 7 years. There is still almost R 40 million outstanding and

• wing to City Capital, although we currently only reflect an amount of R 13 million in our financial

records, the amount that is covered by our mortgage bonds and signed settlement agreements. [ DIVIDEND LOAN SUMMARY 201702 ] We have continued to provide for the unsecured portion of our loans and are able to grow our net asset value when we have been repaid the unsecured portions. To-date we have been successful in opposing continuous applications for the liquidation of 13 Dividend property companies and will again be in court on 27 March 2017 to oppose the applications. We have made progress in getting our consolidated claim to either court or arbitration during April 2017, although the opposition is adamant that they wish to first liquidate the companies before getting to court or an arbitrator. Where companies have been placed in business rescue, we have been able to work with the Business Rescue Practitioner and affected creditors and shareholders to dispose of properties for much better prices than those that would have been obtained by a liquidator. We are also working with the Zambezi Rescue Board and the majority of shareholders in those companies to obtain the discharge of the Zambezi companies from liquidation. We are hopeful that we will be successful with this initiative and that we will be able to achieve a better result than the liquidator is able to provide.

3 We had a setback this past year where our claim against Dream World Investments 246 was rejected by a magistrate after the opposition objected to our claim. We had to apply to court to have our status as a creditor recognised by the liquidator and objected to the proved claims of the Ferreira Family Trust, Kriek and Edeling. [ GREENFORD JUDGEMENT ] Unfortunately, these cases continue to incur substantial legal expenses for City Capital.

• 5. Stellenbosch land

During the course of last year we met with a number of interested property developers to discuss development prospects on our land outside Stellenbosch. There is good demand for residential accommodation in Stellenbosch and we are confident that a successful development can be achieved. After many discussions we decided to enter into a joint venture agreement with Horn and De Koning Property Developers, who actively develop in the Stellenbosch area. We expect a development proposal and a comprehensive feasibility analysis by the end of April 2017, when a final decision will be taken as to whether a development should be undertaken. We hope to earn a profit in the region of R 9 million in cash and to end up owning a community shopping centre and 48 residential apartments in the development that we will lease out. These properties will be acquired at cost and we will earn a substantial fair value gain. [ HDK JOINT DEVELOPMENT AGREEMENT ] We have received confirmation from the department of environmental affairs that we will not need to perform an environmental impact assessment as the proposed development is within the urban edge and is not in an environmentally sensitive area. We will keep shareholders informed about the land and development possibilities.

• 6. Audited annual financial statements

The consolidated annual financial statements of City Capital have been audited up to the 2016 financial year and they are available to all shareholders as a download on the company website, www.ccsaph.co.za. We encourage all shareholders to register on the City Capital website to gain access to all the financial information that is available on the site. [ AFS SUMMARY ] The summary of financial results from 2007 to 30 November 2016 has been updated with the 2016 audited AFS and these confirm the net asset value of 111 cents per share at 29 February 2016. Income tax returns are submitted for each company as the audited financial statements become available and income taxes are paid on assessment. Provisional taxes have been paid on 31 August 2016 and will be paid on 28 February 2017 for those companies that require payment.

• 7. Property acquisitions

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Using some of the proceeds from the disposal of the Perspex factory, we acquired sections in Tyger Valley Chambers 2 for R 32 million and a factory in Parow for R 12,5 million. Transfer was registered on 18 July and 6 September 2016 respectively.

[ TRANSFER LETTERS ]

The Parow acquisition was very smooth with no glitches. The Tyger Valley Chambers 2 acquisition did give us a few headaches when 2 major tenants terminated their lease, one legally and the other not. As I mentioned earlier, legal action is being taken and we have been actively looking for replacement tenants. Thankfully, there is a lot of interest and we are confident that we will lease the premises at higher rental rates. This will improve the property valuation going forward.

• 8. Dividend report

[ DIVIDEND REPORT ] The report on the screen sets out the two dividends that have been paid, in accordance with the approved Dividend Policy, to shareholders in March and October 2016. It also indicates our expectation that a dividend for the second half of 2017 will not be paid, in terms of the policy, as it will be lower than 1 cent per share. Profitability in the first half of the 2017 financial year was boosted by the profit that was earned on the disposal of the Perspex factory and this resulted in the higher than normal dividend payment.

• 9. Repurchase of shares

[ SHARE REPURCHASE REPORT ] The share repurchase report indicates that City Capital has to-date repurchased, in accordance with the approved Share Repurchase Policy, almost 35 million shares at 46 cents per share, paying R 16 million to shareholders that could no longer wait for repayment of their investments. The repurchase of shares at lower than net asset value resulted in an increase in net asset value of approximately 12 cents per share for those shareholders that are able to wait a bit longer for the return

• f their capital.

The board has taken a decision to fully investigate the possibility of listing the shares of City Capital on either the JSE Alternative Exchange or one of the recently licensed exchanges. Prior to any listing, all litigation with the Dividend property companies would have to be resolved and finalised to improve the possibility of an increase in the share price after listing. We will keep shareholders informed about these developments.

• 10. Share option report

[ SHARE OPTION REPORT ] The share option report indicates that City Capital has issued 816 089 options to acquire shares in the company to each of the five directors, in accordance with the approved Share Option Policy. A further 23 561 options will shortly be issued effective on 28 February 2016, in accordance with the policy.

5 The directors are not permitted to exercise the options to acquire shares for two years after issue and none of the options issued to-date have been exercised.

• 11. Future prospects

The board of City Capital is currently focussed on the following:

• 1. We are opposing the liquidation of 13 Dividend property companies in March 2017.
• 2. We are working with the Zambezi Rescue Board to obtain the discharge of the companies from

liquidation to achieve a better sales value for the property for City Capital and all investors in the scheme.

• 3. We are applying for judgement in April 2017, either in court or in arbitration proceedings, against the

remaining Dividend property companies that are denying liability to us.

• 4. We are recovering loans owing to City Capital as properties of the Dividend companies are sold by

directors and business rescue practitioners.

• 5. We will be deciding on the joint development of the Stellenbosch land.
• 6. We will continue to repurchase shares at 46 cents per share from any shareholder that requires

funds and act in accordance with the Dividend, Share Repurchase and Share Option Policies.

• 7. We will consider any offers to purchase any of our investment properties and reinvest surplus funds

in good-quality commercial property to enhance the attractiveness of the property portfolio to a listed property fund or future purchaser.

• 8. We will investigate the listing of the shares of City Capital to enable shareholders to earn a better

price on the sale of their shares in the future. I thank you for your time and attention. Are there any questions ?