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: 29 JANUARY 2016

Good morning ladies and gentlemen It is great to once again see so many shareholders of City Capital here today and I thank everyone for taking the time to attend and participate in making important decisions for the company. The financial situation of the group has once again improved tremendously and the company is now able after 6 long years of struggle to start to pay dividends to its shareholders. At the last AGM we informed shareholders about a serious threat to the group from the “Dividend Investment Scheme” in its attempt to bring all the Dividend holding and property companies into the DIS as a single liquidated entity. I am extremely happy to inform shareholders that this application was dismissed by the Western Cape High Court, with costs against the DIS, on 12 October 2015. This dismissal removed a serious threat to the future success of City Capital and it means that the company can for the first time ever, start to pay dividends to shareholders. Although the news that we have for shareholders today is good, we still 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 2015 the net asset value of City Capital is R 239 million, equivalent to 111 cents per share. [ SHARE VALUATION AT 30 NOVEMBER 2015 ] We are expecting increases in property valuation in February 2016 for the Malmesbury factory, Colosseum sections and Estuaries properties. [ SHARE PRICE GRAPH ] Our net asset value per share price on the screen has quite closely matched the net asset value of the group, according to the audited annual financial statements. The graph reflects a nice upturn with steady, constant growth in net asset value. The board is confident that growth in net asset value will accelerate from now onwards, for reasons that will shortly become clear.

• 2. Property portfolio

[ LEASE SCHEDULE ] We currently have 1 vacancy in our property portfolio, 159 m2 at The Estuaries out of 22 196 available

• m2. We however have 7 leases that will be terminating during the next 6 months and will have to work

hard to find tenants to replace them.

2 The economy has definitely turned down in the past few months, considering the drop in the value of the Rand and rising inflation and interest rates . This is going to make it more difficult to eliminate vacancies as we don’t want to substantially reduce our rental rates per m2. Cost control is also very important as declining rental rates and increasing costs reduce the valuations of the properties. Thankfully, City Capital’s property investment model works very well in this situation as rental income from our other properties compensate and assist where a particular property is experiencing vacancies. Our property portfolio is now generating a net cash inflow of R 578 thousand per month, after paying mortgage bonds and all property and head office expenses, about R 7 million per annum. These positive cash flows create the opportunity for the company to start paying dividends and the board has presented a dividend policy for approval by shareholders today.

• 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 20 million in loan repayments from the Dividend property companies over the past 6 years. There is still over R 41 million outstanding and

• wing to City Capital, although we currently only reflect an amount of R 17 million in our financial

records, the amount that is covered by our mortgage bonds and signed settlement agreements. [ DIVIDEND LOAN SUMMARY 201602 ] To be prudent, the unsecured portion of our loans have been provided for. We have again been very successful in ongoing litigation against those companies that refuse to acknowledge our loans and repay them. As you know, we received a Western Cape High Court judgement, with costs against the Dividend Investment Scheme, in our favour on 12 October 2015 in the

3 DIS matter. That stopped the attempt by the director and liquidators of the DIS to have all the Dividend property and holding companies liquidated in a single entity, controlled by the DIS liquidators. [ JUDGEMENT IN THE DIS MATTER ] Shortly after this judgement, Ferreira applied for the liquidation of the companies that he controls, with the request that the court appoints the DIS liquidators as their liquidators, exactly what the above court

• rder stopped.

We immediately opposed the liquidations (after having to apply to court for permission to intervene) and these liquidation applications will be heard in March 2016. We are confident that we will successfully

• ppose the liquidations on the day.

We considered this move by the director and liquidators to be contrary to the spirit of the DIS court

• rder and have accordingly applied for the removal of the DIS liquidators with costs against the

liquidators in their personal capacities. This case will be heard in April 2016. The last case that we are currently preparing for is a consolidated matter that will be heard in about November 2016. In this case, we have summonsed the remaining Dividend property companies that owe us loans and we have to justify the amounts repayable to us. We have the historical records and evidence on hand and are also confident that we will be successful in this matter, especially considering the large amounts that we have already received through negotiations with other directors, BRP’s and liquidators. Unfortunately, these cases are again going to incur substantial legal costs for City Capital.

• 5. Stellenbosch land

At the last AGM we reported that the bond that had been registered over our land in Stellenbosch had been cancelled on 4 February 2015. [ STELLENBOSCH LAND TITLE DEEDS ] The board has met with a number of property developers and various options for the development and sale of sections of the Stellenbosch land are being considered. We have, in the interim, conducted a topographical analysis and approved Traffic and Visual Impact assessments. We will keep shareholders informed about the land and development possibilities.

• 6. Perspex factory

[ SALE AGREEMENT: PERSPEX FACTORY ] After careful consideration, the board has accepted an offer to dispose of the Perspex factory in Umbogintwini for R 52 million (after sales commission), for the following reasons:

• 1. The property is impaired with chemical contamination caused by the improper disposal of chemical

drums by AECI Ltd in the 1940’s and 50’s.

• 2. Financial institutions are unwilling to provide mortgage bond finance for the property because of the

contamination.

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• 3. The current tenant, Perspex SA, is struggling financially and it has asked us to prematurely terminate

the lease or dispose of the property. We anticipate that transfer of ownership will be registered during the month of March 2016. The proceeds of these funds will be used to further reduce debt, repurchase shares from shareholders if the Share Repurchase Policy is approved today, purchase under-valued commercial property, and provide initial funding for a possible development at Stellenbosch if a development is approved.

• 7. Audited annual financial statements

The consolidated annual financial statements of City Capital have been audited up to the 2015 financial year and they are available to all shareholders as a download on the official website. [ CCSAPH WEBSITE ] We are finally up-to-date with our statutory and fiduciary duty to prepare and distribute audited financial statements on an annual basis and we will definitely keep these up-to-date from now onwards. 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 31 August 2015 has been updated with the 2015 AFS and these confirm the current net asset value of 111 cents per share. 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 2015 and will be paid on 28 February 2016 for those companies that require payment.

• 8. Dividend policy

[ DIVIDEND POLICY ] Now that the threat posed by the DIS has been dismissed, it has become possible for the board to recommend a dividend policy for approval by shareholders at this AGM. The proposal is that a policy be approved to pay to shareholders a bi-annual dividend equal to 60% of net cash profit after income tax, with a proviso that no dividend will be paid if it is lower than 1 cent per share. This policy reinforces the confidence that the board has in the future of the company.

• 9. Repurchase of shares

[ SHARE REPURCHASE POLICY ] To assist those shareholders who urgently require funds for survival in these difficult economic conditions, the board has proposed a policy whereby the company will be authorised to purchase shares from those shareholders that apply at a price that is up to 50% of net asset value.

5 This policy will assist shareholders in need and at the same time increase the net asset value per share of the company for those shareholders who remain invested in the company.

• 10. Issue of share options to directors

[ ISSUE OF SHARE OPTIONS TO DIRECTORS ] The board has proposed a resolution for the issue of share options for approval. The purpose of the proposal is to retain skills that have developed in the board over the past 6 years and remunerate the board for past efforts and future performance. The proposal is clear that:

• 1. Directors cannot exercise options and acquire shares for at least 2 years. This should serve to retain

skills and will cause no reduction in the net asset value per share until then.

• 2. Share options will only be issued if the net asset value of the group has increased. The share options

are accordingly performance-based. In this way, the objectives of the directors will be effectively aligned with those of shareholders.

• 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.
• 2. We are applying for the removal of the liquidators of the DIS with costs to be awarded against the

liquidators.

• 3. We are applying for judgement 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.
• 5. We are consider options for the sale or development of the Stellenbosch land.
• 6. We will act in accordance with the wishes of shareholders as per the Dividend, Share Repurchase and

Issue of Share Option Policies to be voted on today.

• 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. I thank you for your time and attention. Are there any questions ?