A DIVERSIFIED AND BALANCED PORTFOLIO. annual report 2008

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1 A DIVERSIFIED AND BALANCED PORTFOLIO

2 A Fibonacci spiral is created by drawing arcs connecting the opposite corners of squares. Leonardo Da Vinci used it for beauty and balance in the design of architecture and for balance in the design of art. It was used in the design of the Notre Dame Cathedral in Paris. It also appears in the physical proportions of the human body, movements in the stock market and many other aspects of life and the universe. The Greeks recognised it as dividing a line in the extreme and mean ratio. The Renaissance artists knew it as the Divine Proportion. > 1 Objectives 2 Portfolio of top ten properties 4 Portfolio summary 6 Manager s report 20 Directorate 23 Corporate governance 29 Sustainability 33 Annual financial statements 62 Property listing 71 Strategic Real Estate Managers (Pty) Ltd financial statements 86 Administration information 87 Form of proxy A property fund created under the Emira Property Scheme, registered in terms of the Collective Investment Schemes Control Act Share code: EMI ISIN: ZAE ( Emira )

3 Distributions per participating interest 92,04 cents annualised growth of 11,8% Net asset value per participating interest cents an increase of 1,9% Capital projects completed R330 million Randridge Mall Fuel Group Acsa Park WorldWear Fashion Mall

4 A DIVERSIFIED AND BALANCED PORTFOLIO A robust portfolio of 164 properties spanning the office, retail and industrial sectors across a wide national footprint, in all the major cities of South Africa. A broad base of more than 4 000, predominantly blue-chip tenants, ranging from listed giants and government departments to individual entrepreneurs. A strong balance sheet with access to funding from the equity and debt capital markets, as well as traditional mortgages and shortterm finance. 164 PROPERTIES 4 000TENANTS BILLION R7,8TOTAL ASSETS Hyde Park Corner Boundary Terrace

5 Objectives The Fund s principal objective is to grow earnings from a quality-based property portfolio. Growth will be sought by making strategic investments where yields are enhancing in the medium to long term. Management will continually maintain the quality of the portfolio by disposals of assets, which no longer meet the strategic objectives of the Fund. the strategic objectives of the fund are to: Optimise net income and growth in distributions; Apply gearing to the portfolio to the extent that it enhances returns, limited to 60% as provided for in the Collective Investment Schemes Control Act; Increase market capitalisation, liquidity and spread of investors through selective acquisitions and capital raising; Selectively recycle assets; Broaden the Fund s geographic exposure to KwaZulu-Natal, the Western and Eastern Cape; Maintain a balanced exposure to the retail, office and industrial property sectors, given the relative size constraints of these sectors; Dispose of non-performing or potentially under-performing properties; Reduce vacancies and smooth the lease expiry profile of the portfolio; and Meet the requirements and deadlines of the Property Sector Charter. Results for the Results for the year ended year ended % 30 June June 2007 change FINANCIAL HIGHLIGHTS Distributions per participatory interest (cents) 92,04 82,35 12 Headline earnings per participatory interest (cents) 122,12 76,77 59 Vacancy factor (%) 6,8 5,9 Portfolio valuation analysis Market value (R 000) Net asset value per participatory interest (cents) Listed market price per participatory interest (cents) (25) Premium/(discount) to net asset value (%) (30) (5) SALIENT FEATURES Participatory interests in issue Market capitalisation (R 000) (24) Long-term borrowings (R 000) Long-term borrowings to total assets (%) 17,0 17,4 Number of properties (2) 1

6 Portfolio of top ten properties 1 Wonderpark Shopping Centre Highlights 2 Size: m Value at 30 June 2008: R569,0 million Average net rentals: R63,17/m² Number of tenants: 146 Located in middle-lsm market of Akasia, north-west of Pretoria between the Pretoria CBD and Rosslyn/ Soshanguve Major tenants: Pick n Pay ( m²) Game (4 000 m²) Edgars (3 450 m²) Builders Express (2 500 m²) Woolworths (2 000 m²) 2 Fuel Group Acsa Park and Fuel Group Continental Highlights Value at 30 June 2008: R332,5 million Size: m² Average net rentals: R41,46/m² Number of tenants: 1 Located in Jet Park adjacent to OR Tambo International Airport just off the N12 and R21 Single, triple-net tenant: Fuel Logistics Group 3 Quagga Centre Highlights Value at 30 June 2008: R207,4 million Size: m² Average net rentals: R45,36/m² Number of tenants: 68 Located in Pretoria West, within close proximity to Church Street and the Pretoria CBD Major tenants: Shoprite Checkers (5 715 m²) Pick n Pay (4 880 m²) Woolworths (1 800 m²) First National Bank (1 367 m²) Absa (1 155 m²) 4 Hyde Park Lane Highlights Value at 30 June 2008: R179,0 million Size: m² Average net rentals: R77,32/m² Number of tenants: 47 Located in Hyde Park on the corner of Jan Smuts Avenue and William Nicol Drive opposite Hyde Park Shopping Centre Major tenants: Standard Bank (1 730 m²) Tag Travel (1 073 m²) Property Marketers (855 m²) Finsettle Services (785 m²) WDB Investment Holdings (723 m²) 5 Randridge Mall Highlights Value at 30 June 2008: R170,0 million Size: m² Average net rentals: R72,75/m² Number of tenants: 84 Located in Randridge Park, just off Beyers Naudé Drive in a middle income residential area Major tenants: Pick n Pay (4 470 m²) Woolworths (2 140 m²) Dischem (1 400 m²) 2

7 Portfolio of top ten properties continued 6 WorldWear Fashion Mall Highlights Value at 30 June 2008: R159,0 million Size: m² Average net rentals: R94,79/m² Number of tenants: 67 Located on Beyers Naudé Drive adjacent the N1 freeway and close to Cresta Shopping Centre Major tenants: Mr Price Home (2 500 m²) The Pro Shop (1 025 m²) Seemanns (616 m²) 7 Lynnridge Mall Highlights Value at 30 June 2008: R157,5 million Size: m² Average net rentals: R88,60/m² Number of tenants: 57 Located in Lynnwood Ridge, in the eastern suburbs of Pretoria Major tenants: Pick n Pay (3 930 m²) Mr Price Home (1 707 m²) Absa Bank (1 190 m²) Lion Bridge (915 m²) 8 Boundary Terraces Highlights Value at 30 June 2008: R130,0 million Size: m² Average net rentals: R110,74/m² Number of tenants: 10 Located on the outskirts of the Claremont CBD, opposite the Newlands Cricket Stadium Major tenants: Coronation Asset Management (3 391 m²) Citadel Investment Services (1 348 m²) Pinnacle Point Investments (1 326 m²) 9 Faerie Glen Office Park Highlights Value at 30 June 2008: R124,5 million Size: m² Average net rentals: R76,08/m² Number of tenants: 9 Situated east of Pretoria overlooking Atterbury Drive, a short drive from Menlyn Shopping Centre Major tenants: Softline VIP (5 755 m²) FNB (1 296 m²) Sanlam (960 m²) 10 Woodmead Office Park Highlights Value at 30 June 2008: R123,1 million Size: m² Average net rentals: R54,67/m² Number of tenants: 42 Located within the Woodmead office node with exposure to the M1 highway Major tenants: DB Thermal (2 755 m²) Young & Rubicam (1 970 m²) Regenesys (1 752 m²) 3

8 Portfolio summary Portfolio value by sector Portfolio GLA by sector 18% Offices Retail 31% Offices Retail Industrial Industrial 46% 37% 36% 32% Portfolio value by region 1% 12% Gauteng 4% Western Cape Free State 10% KwaZulu-Natal 73% Eastern Cape Tenants have been graded as follows: A grade: Large national tenants, large listed tenants, government and major franchisees. These include, inter alia, the Department of Labour, Edgars Consolidated Stores, FirstRand Bank, Pepkor, Pick n Pay Stores, the Standard Bank Group, Ster-Kinekor, Truworths International and Virgin Active. B grade: National tenants, listed tenants, franchisees and medium to large professional firms. These include, inter alia, Debonairs Pizza, Fishaways, John Dory s, Mikes Kitchen, Rage Distribution, Torga Optical, UCS Group, Vodacom and Wimpy. C grade: Other tenants comprise all other tenants that do not fall into the above two categories. Portfolio GLA by region 2% 14% 5% 9% Tenant profile 39% 19% Gauteng Western Cape Free State KwaZulu-Natal 70% Eastern Cape Grade A Grade B Grade C 42% 4

9 Portfolio summary continued Lease expiry profile (% of GLA) Lease expiry profile by sector (% of revenue) Vacant 6,8 Year 1 16,5 10,5 3,9 Year 1 27,4 Year 2 8,4 8,8 3,1 Year 2 18,9 Year 3 8,4 8,2 2,8 Year 3 16,6 Year 4 4,2 4,2 1,5 Year 4 9,3 Year 5 + 5,2 8,7 5,4 Year 5+ 21,0 Offices Retail Industrial Lease expiry profile by sector (% of GLA) Weighted average lease escalation by sector (%) Vacant 4,01,41,4 Offices 9,2 Year 1 12,6 7,3 7,4 Retail 9,5 Year 2 6,9 6,6 5,4 Industrial 8,0 Year 3 6,6 5,4 4,6 Year 4 3,1 3,5 2,7 Year 5+ 4,1 7,6 9,3 Offices Retail Industrial Average annualised yield achieved by the portfolio was 9,8% Vacancy profile (% of GLA) Vacancy profile by sector (% of GLA) June ,9 June ,8 3,1 4,0 September 2007 December 2007 March 2008 June ,9 5,5 6,3 6,8 September 2007 December 2007 March ,8 9,0 9,6 3,8 4,0 3,1 2,6 5,6 2,8 June ,7 4,4 4,5 Offices Retail Industrial 5

10 Manager s report The directors of Strategic Real Estate Managers (Pty) Limited ( STREM ) are pleased to present their report on Emira s performance for the year ended 30 June Chief Executive Officer s message During the year, the Emira Property Fund capitalised on its portfolio of properties which is well diversified across South Africa in the office, retail and industrial markets. The Fund focused on applying its capital resources to maximising long-term growth in value and distributions through refurbishments and upgrades to strategic assets in the portfolio. Distributions per participatory interest ( PI ) once again showed strong growth, amounting to 92,04 cents, an increase of 11,8% from the previous year. The continued demand for rental properties across all sectors resulted in healthy income growth in Emira s portfolio, supported by double-digit upward reversions on new leases and lease renewals in the office and industrial sectors, while costs were also successfully contained. Despite higher interest rates during the period, net asset value per PI grew by 1,9% from cents to cents as a result of an increase in the value of investment properties and a rise in the fair value of derivative financial instruments. Excluding the provision for deferred tax, net asset value per PI grew by 2,6% from cents to cents. In line with the global contagion across equity markets, the price of Emira s PIs on the JSE declined by 24,9% to 819 cents on 30 June 2008 from cents the previous year, in line with the 27,7% decrease of the listed property sector. Emira s closing price at year-end reflected a discount of 29,9% to its net asset value of cents per PI. The PIs achieved a maximum level of cents on 6 November 2007, and its lowest point of 806 cents on 20 June Distributions amounting to 86,59 cents were paid to PI holders during the year, which dampened the negative performance of the PIs to 17,0%. Supply side fundamentals in the property market remained solid for the duration of the financial year despite a tighter economy and slowing growth. Vacancy rates continue to decrease across the industry, largely the result of rampant prices for serviced land and inflationary building costs which have constrained the number of new developments coming on stream. In the retail sector, the large retail chains remain in a strong position, although smaller players started to feel the impact on lower discretionary income among consumers. GDP growth, albeit at a more muted rate in the financial year, continued to filter through to demand for increased space across the industrial and office sectors. In addition, the increased cost of development and the demand for rental properties has supported rental levels, with positive reversions on renewals persisting. Industrial and office rentals are enjoying double digit growth in rentals, while the retail sector, which had led the cycle has slowed and is showing slightly lower rental increases. Emira s diversified portfolio of good quality properties remained well positioned during the year. While there was an increased supply of retail, office and industrial properties for sale in the latter part of the year as a result of higher interest rates, sellers inflated expectations resulted in unrealistic income yield expectations. As a result, Emira s investment focus was rather on internal opportunities to upgrade strategic properties to maximise value and enhance incremental yields. Hurlingham Office Park, corner Republic Road and William Nicol Drive, Hurlingham 6

11 Manager s report continued Emira invested a total of approximately R330 million in its property portfolio during the financial year, opting to focus on refurbishments and upgrades. Based on the Fund s well established pool of assets, which are in good locations, Emira chose the route of adding value through reinvestments. Major refurbishments included, among others, Lake Buena Vista in Centurion; the Quagga Shopping Centre in Pretoria West and the Granada Centre in Umhlanga Rocks. A further highlight of the year under review was Emira s replacement of R650 million of bank-sourced debt with funds raised in the capital market. With the tangible benefit of a R2 million reduction in annual interest costs to the Fund, the move is strategically significant due to the introduction of an additional source of funding for growth. Emira now has the ability to raise capital through equity markets, traditional mortgages as well as the debt capital market, the first Property Unit Trust ( PUT ) to do so in South Africa. The Fund will therefore better be able to optimise capital raised, depending on prevailing market conditions. Based on the quality of its properties and tenants, as well as the conservative covenants in place, the income streams from the ring-fenced portfolio of 36 properties were independently rated AAA, resulting in the meaningful saving on interest charges for the debt. Prospects and Outlook Emira will continue to evaluate investment opportunities as prices in the physical market correct to reflect the underlying fundamentals. Softening property prices could deliver value adding opportunities for the Fund, especially as sellers expectations become more realistic. In line with the clearly defined, limited mandate from the board, the managers will also continue to appraise opportunities to invest in vacant land or buildings where returns compensate for inherent risks. As a result of the higher cost of capital and debt, the manager anticipates that earnings enhancing capital projects will be less plentiful than in A recent change in legislation pertaining to Collective Investment Schemes in Property has permitted investments in other listed South African property funds. This could present yield enhancing investment opportunities, especially should there be continued pressure on local listed property prices. The current financial contagion in the developed markets of Western Europe and North America is expected to result in growth in those economies slowing in 2008 and This is expected to have a lagged impact in the markets in which the fund operates. Nonetheless, growth in the South African economy, although at a more muted rate than in the past few years, continues to provide some support for rental demand, particularly in the office and commercial environments. Simultaneously, the supply side fundamentals of the property market complement Emira s well established and diversified property portfolio with its extensive tenant base. The manager anticipates that rentals will remain relatively healthy with stable vacancies, although the retail sector could come under further pressure as a result of high interest rates, food and fuel prices. The STREM board remains confident that the Fund will continue to show strong growth in distributions for the forthcoming year ending 30 June

12 Manager s report continued 1. THE SOUTH AFRICAN PROPERTY MARKET 1.1 South African listed property sector Total returns to June 2008 During the 12 months to June 2008, overall equity markets have been volatile, with total returns of 9,8% for the JSE All Share Index and 8,9% for the JSE FINDI 30 Index. Compound annual returns to 30 June 2008 (Pre-tax) Period All Share FINDI 30 PLSs PUTs R 153 % % % % % 1 year 9,8 (8,9) (19,1) (23,2) (3,0) 3 year 30,4 18,5 14,7 6,2 2,4 5 year 30,4 25,0 19,9 13,9 5,6 10 year 16,9 9,4 16,9 14,1 9,0 Source: Inet-Bridge Over the same period the Property Loan Stock ( PLS ) index and Property Unit Trust ( PUT ) decreased by 19,1% and 23,2% respectively. Listed property index Jul 2006 Oct 2006 Jan 2007 Apr 2007 Source: Inet-Bridge Jul 2007 Oct 2007 Jan 2008 Apr The listed property and bond yield differential Capital values on the listed property sector showed a negative performance of (27,7%) during the 12 months ended 30 June The weakness in the sector since January 2008 wiped out all the gains made since July 2006, with the sector showing a (0,6%) return on a two year time horizon. Listed property funds, on average, showed strong double digit weighted distribution growth for the 12 months ended 30 June Despite the uncertain local economic outlook, market expectations for listed property sector distribution growth remain at double digits, albeit at slightly lower levels than in The R 157 and the property yield differential 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% Source: Inet-Bridge Differential Long bond (R 157) 15% 14% 13% 12% 11% 10% 9% 8% 7% 6% As a result of uncertainty across financial markets, weakening bond yields and the loss of capital value in the listed property sector, both locally and internationally, the differential between the historic listed property yield and the R157 narrowed to (0,9%) at 30 June 2008, from (2,4%) in July This weakness suggests that the market is discounting slightly slower growth in listed property distributions as tighter economic conditions take effect. 1.2 South African physical property market The weakness in equity markets and the listed property sector did not materially filter through to the physical property market due to strong supply side fundamentals and increasing demand for space. While the retail sector has felt some pressure from the impact of higher interest rates and inflation on consumers, the economy continues to show growth which is supporting the physical office and industrial markets. The scarcity of vacant serviced land and inflationary pressures on building costs continue to translate into demand for rental space. 8

13 Manager s report continued The Investment Property Databank s (IPD) South Africa Annual Property Index, which measures ungeared total returns to direct property investments, showed a return of 27,7% in 2007, slightly ahead of the 2006 overall property return of 27,1%. The performance in 2007 reflected the second highest annual return since the index was initiated in These returns consisted of strong capital growth of 17,7%, from 16,5% in Net income growth of 17,6% was reported, the highest since The sharp capital growth resulted in lower net income yields of 7,6% at year-end. For the second consecutive year, the industrial property sector led the pack with a return of 33,6%, from 31,4% in The office sector delivered increased returns of 30,8% in 2007 from 25,0% the previous year, while higher interest rates and oil prices impacting consumer demand started to filter into the retail sector whose return slowed to 26,0% from 27,7% a year earlier. Across all sectors of the property market, income returns continued to trend downwards during 2007, due to the continued high levels of underlying capital growth in property values. IPD total returns for 2007 Total return % Income return (2006) % Capital growth (2006) % All property 27,7 (27,1) 8,6 (9,2) 17,7 (16,5) Retail 26,0 (27,7) 8,0 (8,4) 16,8 (17,9) Offices 30,8 (25,0) 9,6 (10,3) 19,5 (13,4) Industrial 33,6 (31,4) 10,3 (10,9) 21,3 (18,7) Other 25,0 (21,9) 10,3 (10,3) 13,5 (10,6) Source: IPD Total returns % annualised Period Retail % Offices % Industrial % All property % 1 year 26,0 30,8 33,6 27,7 3 year 28,8 27,0 32,5 28,3 5 year 25,9 21,0 27,8 24,6 10 year 18,9 13,9 16,8 17,0 13 years 18,9 13,5 16,6 16,7 Source: IPD Vacancy rates across the property market continued to trend downwards as a result of increasing demand. Overall vacancies reached a low point of 3,1% at the end of 2007 from 4,5% in 2006 and the high of 12,8% in From a global perspective, the higher total returns in South Africa in 2007 were in line with current trends in Australia, New Zealand, South Korea and several European countries. Despite these higher returns, South African income yields exceed the global average. Quagga Centre, cnr Church Street and West Street, Pretoria West 9

14 Manager s report continued 2. EMIRA S PERFORMANCE AND PROPERTY PORTFOLIO 2.1 Emira s performance and tradeability on the JSE In line with the weakness across both the local and international listed property markets, during the year ended 30 June 2008, the price of Emira s PIs declined by 24,9% from cents to 819 cents at the end of the period. Total distributions paid during the year, amounting to 86,59 cents, dampened the negative return by 7,9% to 17,0%. 142,7 million PIs traded during the year ended 30 June 2008, representing 29% of the weighted average number of PIs in issue. 2.2 Performance relative to the IPD index According to the 2007 IPD index, which aggregates the capital and income of listed and unlisted portfolios to provide a measure of total annual performance, Emira achieved a return of 38,9%, representing the third consecutive year for which the Fund has delivered returns in excess of 38%. This reflects a significant outperformance on the 26,9% and 26,7% increase recorded by the IPD South Africa Listed Funds Benchmark and the IPD Universe respectively. Emira traded at a higher income return of 9,1% compared to its listed benchmark. In addition, the Fund s capital growth of 27,6% exceeded the listed benchmark s measure of 17,0% for Portfolio exposure In line with Emira s strategic objectives to maintain a balanced exposure to retail, office and industrial properties and to optimise net income and growth in distributions, the assets in the Fund s portfolio are of a high quality and continue to meet its objectives to deliver sustainable growth in income and to diversify risk. The broad geographic footprint of the portfolio with its base of more than tenants provides the Fund with further diversification benefits. At 30 June 2008, Emira s property consisted of 164 properties, with a total GLA of m 2, which was valued at R7,5 billion, translating into an average value of R45,7 million per property. Knightsbridge Manor, 33 Sloane Street, Bryanston Management is committed to continuously increasing Emira s investor appeal, and consequently its market capitalisation and liquidity by growing the property portfolio. Maximising returns necessitates active management of the portfolio, acquiring new properties which meet the investment criteria and reinvesting to add value to core properties, while disposing of non-performing or potentially under-performing properties. Five properties were disposed of and transferred out of the Fund during the year for a total consideration of R170,5 million, representing a forward exit yield of 6,5% and a premium of 71% to book value. The Fund has also reached agreement to dispose of a further two non-core properties, one of which has been transferred subsequent to year-end, while the other transaction is still suspensive on certain conditions. Acquisitions totalling R97,1 million in respect of three properties were completed at an average income yield of 9,5%. In addition, total refurbishments of R231,8 million were completed on ten properties at a yield of 11,4% during the year. The board has approved further investments of R75,8 million at an estimated yield of 9,3%. A detailed breakdown of Emira Property Fund s portfolio is disclosed on page

15 Manager s report continued 3. OFFICE PORTFOLIO 3.1 Market conditions The IPD reported that the office sector, which traditionally lags retail and industrial performance, showed a total return of 30,8% in 2007, underpinned by record levels of capital growth, at 19,5%. Increased cyclical output in both financial and business sectors of the economy continues to underpin the performance of the office rental market, driven by expansion of existing companies and demand from new entities for office space. Notably, office vacancy rates, at 5,4% for 2007, were at their lowest levels since the late 1990s and their peak of 23% in Higher demand was experienced for A-grade office space with vacancy levels below 4,0% in Office vacancy rates and net income growth 30% 24% 18% 12% 6% 0% -6% 23,6 22,2 18,8 16,9 17,0 14,0 11,3 10,2 10,6 7,7 5,4 2,5 3, Office vacancy rates Net income growth Source: IPD 15% 12% 9% 6% 3% 0% -3% In contrast, new office space has been slow in coming onstream despite strong economic demand. Scarcity of vacant land, delays in obtaining regulatory approvals and inflating building costs are impacting decisions to embark on new construction projects. Developments are concentrated in nodes including Sandton, Centurion, Midrand, Woodmead, Melrose/Waverley, Umhlanga/La Lucia, Highveld Technopark and Pretoria East. Recent years have seen offices outside of Gauteng, Western Cape and KwaZulu-Natal producing very strong returns. The approval of increased bulk rights close to prospective Gautrain stations is resulting in extensive redevelopment and upgrade opportunities for office developments in Sandton, Rosebank and Centurion. Office vacancy rates and total new development m Source: SAPOA 2003 Total development Total vacancies 15% 12% 9% 6% 3% 0% SAPOA office vacancies and development SAPOA office vacancies continued to show a declining trend, dropping from 6,2% or m 2 in June 2007 to 4,9% or m 2 in June Emira s portfolio Exposure At 30 June 2008, Emira s office portfolio was valued at R3,5 billion and comprised 46% of the Fund s total investment properties by value. The Fund owns 73 office buildings, with total GLA of m 2 and an average value of R47,5 million. 11

16 Manager s report continued Emira s office portfolio comprises the following grades of property, with the majority being B-grade office space. Grade Number of buildings GLA (m 2 ) A-grade B-grade C-grade Because of sellers demanding low asking yields on office properties, Emira focused on upgrading and refurbishing several properties in its portfolio during the year in order to add value while realising higher incremental returns. The development of Faerie Glen Phase 4 was completed in December 2007 for a total consideration of R29,9 million, implying a forward yield of 10,1%. The Faerie Glen Office Park now comprises a GLA of m 2 and was independently valued at R124,5 million. Major refurbishments with total investments of R62,8 million completed during the financial year included: Refurbishment and upgrade of foyers, bathrooms and park aesthetics at the Hurlingham Office Park; Refurbishment and upgrade of foyers, bathrooms and park aesthetics at the Knightsbridge Office Park; and Lake Buena Vista (see detailed case study below) Vacancies and letting Emira s office vacancies increased to 10,7% at 30 June 2008 compared to 9,8% in June 2007, mainly as a result of ongoing refurbishments to ensure sustainable future income streams and enhance income yields associated with several properties. Major office vacancies include: On completion of the major upgrade at Lake Buena Vista (GLA m 2 ) (see case study below), Momentum Short Term Insurance commenced its fiveyear lease on the entire property in July Due to the continuing refurbishments at Hurlingham Office Park (GLA m 2 ), vacancy levels were at m 2 in June 2008 of which m 2 is situated in the recently refurbished blocks which are now available for letting. Letting has been put on hold at the FNB Building (GLA m 2 ) while aspects relating to a potential refurbishment are approved by the various authorities, as a result, vacancies as at 30 June 2008 were m Lake Buena Vista, Gordon Hood Avenue, Centurion > CASE STUDY: Lake Buena Vista Capitalising on location to attract top class tenant Lake Buena Vista was a B-grade building with five floors of offices and two levels of basement parking with a total GLA of m 2. It is well-positioned in the heart of Centurion fronting on to the Centurion Lake in Pretoria and is in close proximity to the Centurion Mall. Within walking distance of the site for the Centurion Gautrain Station, Lake Buena Vista will enjoy further benefits once the Gautrain becomes operational in 2010.

17 Manager s report continued The previous anchor tenant of the property vacated the premises in April 2007 and Emira was faced with the decision of whether to refurbish the building or let it at a lower rental in its existing condition. No significant improvements had been made to the property since August Investigations indicated that with an investment of approximately R30 million, the building could be upgraded to A-grade offices and that by adding parking and other improvements would attract a better quality tenant with the benefit of improved rental rates. While SAPOA statistics indicated a shortage of A-grade offices in the area, an excess supply of B-grade office space existed which strengthened Emira s case for the investment. Based on the merits of the proposed upgrade and its potential to attract blue-chip tenants, the board of Emira approved the project on risk, that is, without a tenant in hand. The upgrade, completed in July 2008, increased the total rentable area by 20,2% to m 2 by converting various balconies to office space and reducing the ratio of common space relative to the usable space of the building. In addition, the parking ratio was improved from 2,3 bays per 100 m 2 to 4,4 bays per 100 m 2 by converting the ground floor to parking. Double digit incremental returns on the investment were attributable to the combined impact of the office grade enhancement and the increased rentable area. On completion of the upgrade, Emira successfully concluded a five-year lease with Momentum Short Term Insurance for the entire building. 4. RETAIL PORTFOLIO 4.1 Market conditions Although the retail sector, which generally leads the commercial property cycle, experienced strong total returns of 26,0% in 2007, these are in a downward trend. During 2007, the retail sector was particularly influenced by higher interest rates and the introduction of the National Credit Act. Rampant food and fuel prices had a further dampening effect on discretionary income since the beginning of 2008, with retail sales consistently trending down since the beginning of Despite this, net income growth for 2007 remained above inflation, supported by decreasing vacancies which reached their lowest levels in 10 years. Vacancy rates for 2007 were 2,3%, equalling levels last seen in Retail vacancy rates and net income growth 7% 6% 5% 4% 3% 2% 1% 0% 6,5 6,2 5,9 5,2 4,6 4,3 3,8 3,5 2,9 2,3 2,3 0,4 0, Retail vacancy rates Net income growth Source: IPD 25% 20% 15% 10% 5% 0% -5% 4.2 Emira s portfolio Exposure At 30 June 2008, Emira s retail portfolio was valued at R2,7 billion and comprised 36% of the Fund s total investment properties by value. The Fund owns 41 shopping centres, with total GLA of m 2 and an average value of R65,8 million. 13

18 Manager s report continued Investments made by Emira in its retail portfolio during the year, were focused on improvements rather than the acquisition of new properties, due to purchase prices remaining inflated. The Fund invested R26,3 million in one completely new development, namely the Wonderpark Builder s Express with a total GLA of m 2. It was completed in May 2008 and is located on the same site as the Wonderpark Shopping Centre, north of Pretoria. Major refurbishments and extensions with total value of R148,5 million were completed during the financial year: Property Location Value (Rm) Completion date Tramshed Pick n Pay Pretoria CBD 10,4 November 2007 Wonderpark Caltex refurbishment Akasia, Pretoria North 6,8 February 2008 Lynnridge Mall Extension Lynnwood Ridge, Pretoria 17,5 May 2008 Wonderpark upgrade for major tenants Akasia, Pretoria North 9,6 May 2008 Quagga Extensions Pretoria West 91,9 June 2008 Epsom Downs Shopping Centre William Nicol, Bryanston 11,3 June Vacancies and letting Emira s retail vacancies increased to 4,4% at 30 June 2008 compared to 3,1% in June 2007, as a result of increased refurbishments in progress at year-end. Major retail vacancies include: Ongoing construction at the Granada Centre in Umhlanga Rocks (GLA m 2 ) with completion due in March Vacancies of m at the WorldWear Fashion Mall (GLA m 2 ) resulted during the remodelling and relocation of smaller tenants to accommodate the larger tenancy of Pick n Pay. Vacancies at the Quagga Shopping Centre (GLA m 2 ) in Pretoria decreased to 969 m 2 as the extensions reached completion. > CASE STUDY: Wonderpark Shopping Centre Incremental investment to secure blue-chip retailers Wonderpark Shopping Centre is located in the suburb of Akasia in Pretoria North and services the nodes of Akasia, Soshanguve and Rosslyn. Wonderpark Shopping Centre, corner Brits Road and Heinrich Avenue, Karenpark The centre is the largest property, both by value and GLA, in Emira Property Fund s portfolio. It was acquired in September 2006, on completion of a significant redevelopment completed by Momentum in The upgrade entailed increasing the GLA from m 2 to m 2 which enabled the total number of tenants at the centre to increase from 68 to

19 Manager s report continued In June 2007, the Fund was approached by Mr Price Sports to open a store at the centre. At the same time national retailing chains Truworths, Markham and Foschini, requested extensions to their existing stores while increasing their brand exposure in the centre. The long-term benefits included enhancing the appeal of Wonderpark Shopping Centre among consumers. On evaluation of the opportunity, Emira concluded that with a relatively small investment of R10,0 million for the extensions totalling m 2, a double digit incremental return would be achieved. In addition, the increased rental income from these national tenants would enhance the quality of the Fund s income stream. In addition to the extensions for these national tenants, several smaller stores were relocated to facilitate the upgrade. The extensions were completed in May 2008, with the tangible benefits of these investments including longer term leases to higher quality tenants which will also improve foot traffic. 5. INDUSTRIAL PORTFOLIO 5.1 Market conditions SAPOA reported that the industrial sector produced the highest property returns in 2007, with a total return of 33,6%, underpinned by capital growth of 21,3%. The significant increase in retail sales which brought about greater demand for warehousing and distribution space, as well as increased activity in the manufacturing sector supported the sector s performance. Income growth remained solid during 2007, as a result of the continued shortage of industrial developments to meet economic demand for both distribution and the manufacturing sector. Underlying property fundamentals continue to support the industrial sector with vacancies at 2,2%, a ten year low. At the same time, record gross rentals and net income rates per m 2 have been reported by IPD. Industrial vacancy rates and net income growth 14% 12% 10% 8% 6% 4% 2% 0% 12,3 10,9 10,4 9,6 7,9 6,5 5,3 3,3 3,1 2,6 0,7 2,2 0, Industrial vacancy rates Net income growth Source: IPD 15% 12% 9% 6% 3% 0% -3% -6% In 2007 industrial warehouses once again produced the highest returns of the industrial sector at 35,9%. This was followed by high tech industrials and standard industrial units. Light manufacturing lagged the other property types. 5.2 Emira s portfolio Exposure At 30 June 2008, Emira s industrial portfolio was valued at R1,3 billion and comprised 18% of the Fund s total investment properties by value. The Fund owns 50 industrial properties, with total GLA of m 2 and an average value of R26,6 million. 15

20 Manager s report continued Vacancies and letting Emira s industrial vacancies increased to 4,5% at 30 June Major industrial vacancies include: Goodyear Tycon (GLA m 2 ) which was vacated by the single tenant on expiry and negotiations are continuing with prospective tenants to let this space; One Highveld (GLA m 2 ) is an industrial property with a relatively high proportion of office space which accounts for m 2 of the total vacancy of m 2 ; and Cambridge Park (GLA m 2 ) m 2 became fully let to Puma from July > CASE STUDY: Fuel Group Acsa Park Using additional bulk rights to maximise return potential The Fuel Group Acsa Park, located adjacent to the OR Tambo International Airport, was a new development acquired from RMB Properties by Emira in May 2006 for a consideration of R215,3 million. With its GLA of m 2, it makes up 12,8% of the Fund s industrial portfolio and constitutes its largest industrial property by GLA. The building serves as the Fuel Group s Head Office and the main Gauteng distribution facility of its subsidiary company, RTT. Fuel Group subsequently secured an extensive distribution agreement for Continental Tyres, and set about finding a suitable location for the additional distribution centre. At the same time, Emira viewed this as an opportunity to maximise its development on the Fuel Group Acsa Park property, using the available bulk to meet the increased requirements of its existing tenant. The STREM board approved the development of a second phase to accommodate the Fuel Group s increased requirements at a total cost of R41,0 million. The project was completed in November 2007 and resulted in the development on the site increasing to a total GLA of m 2. By fully utilising the bulk rights, and erecting the additional buildings, Emira achieved an incremental return of 10,1% on the additional invested capital. 6. ACQUISITIONS AND CAPITAL PROJECTS Acquisitions and capital projects totalling approximately R330 million were concluded during the year. Emira focused on upgrading and refurbishing a number of properties as this enabled the Fund to add value and enhance incremental yields in excess of what could be achieved on acquisitions of additional properties. Capital investments were funded by a combination of equity and debt. Fuel Group Acsa Park, cnr Springbok and Jones Street, Bardene 16

21 Manager s report continued 6.1 Acquisitions completed during 2008 financial year but yet to be transferred Property Sector Location GLA (m 2 ) Purchase price (Rm) Forward yield Effective date Key tenants TIS Corporate Park Office Midrand ,1 8,0% September 2008 TIS 6.2 Developments completed during 2008 financial year Property Sector Location GLA (m 2 ) Purchase price (Rm) Forward yield Effective date Key tenants Fuel Group Phase 2 Industrial Bartlett ,0 10,1% November 2007 Fuel Group Faerie Glen Phase 4 Office Pretoria ,9 10,1% December 2007 Wonderpark Builders Express Retail Akasia ,1 8,1% May 2008 VIP Payroll Solutions Builders Express 6.3 Capital expenditure projects completed Property Sector Location GLA (m 2 ) Purchase price (Rm) Effective date Key tenants Fuel Group Extension to Phase 1 Industrial Centurion ,5 July 2007 Fuel Group Fleetway Refurbishment Office Cape Town CBD ,7 October 2007 Various Tramshed Pick n Pay Retail Pretoria CBD ,0 November 2007 Pick n Pay Wonderpark Caltex Refurbishment Retail Akasia 422 6,2 January 2008 Chevron Epsom Downs Re-build Retail Bryanston ,3 May 2008 Nedbank Knightsbridge Office Park Refurbishment Office Bryanston ,0 May 2008 Various Lynnridge Mall Extension Retail Lynnwood Ridge ,5 May 2008 Mr Price Wonderpark Nationals Retail Akasia ,6 May 2008 Foschini, Truworths Hurlingham Office Park Refurbishment Office Hurlingham ,8 June 2008 Various Lake Buena Vista Refurbishment Office Centurion ,3 June 2008 Momentum STI Quagga Extensions Industrial Pretoria West ,9 June 2008 Woolworths 6.4 Capital expenditure projects in progress Property Sector Location GLA (m 2 ) Value (Rm) Expected completion date Key tenants Southern Life Plaza FNB Office Bloemfontein ,4 August 2008 First National Bank WorldWear Pick n Pay Retail Fairlands ,9 September 2008 Pick n Pay Woodmead Office Park Refurbishment Office Woodmead ,2 September 2008 Various Tramshed Virgin Active Retail Pretoria CBD ,5 November 2008 Virgin Active Granada Centre Refurbishment Retail Umhlanga Rocks ,9 March 2009 Various 17

22 Manager s report continued 7. DISPOSALS Two properties which were considered non-core were sold during the year under review, but were awaiting transfer at year-end. Kuehne & Nagel was transferred on 15 July 2008 and Barvic House on 30 September Awaiting transfer out of Emira Property Sector Location GLA (m 2 ) Valuation on 30 December 2007 (Rm) Sale price (Rm) Yield (%) Barvic House Office Randburg, Gauteng ,3 10,1 5,2 Kuehne & Nagel Office Berea, Durban ,3 8,8 10,4 In addition, five properties which were sold in the previous financial year were transferred out of Emira during the year ended 30 June The proceeds received from disposals were used to fund capital expenditure and repay debt. 7.2 Transferred out of Emira in 2008 financial year Property Sector Location GLA (m 2 ) Valuation on 30 December 2006 (Rm) Sale price (Rm) Yield (%) Contact Centre Inspectorate Offices Offices Parktown, Johannesburg ,9 9,0 6,4 Ormonde, Johannesburg ,2 7,3 9,3 11 Park Lane Offices Parktown, Johannesburg ,4 20,5 7,4 Fourways Game Retail Fourways, Sandton ,1 119,7 6,0 Wierda Gables Offices Sandown, Sandton ,9 14,0 8,0 * The valuations as at December 2006 have been used to reflect the premium to book value realised by the Fund on disposal. Valuations as at June 2007 reflected the disposal prices and therefore no premium to book value would have been evident. Management continually evaluates properties to ensure that the portfolio is optimised, and buildings are disposed of where these investments are found to fall outside Emira s investment criteria, risk profile and return requirements. 8. VALUATIONS AND NET ASSET VALUE The Fund has elected to have independent valuations of its entire portfolio at least every three years. To achieve this, independent valuers value approximately one-third of the portfolio each year. These valuations are included as part of the Fund s overall portfolio movement below. As a result of advantageous renewals and rising rentals in the office and industrial portfolios, property values rose in both sectors. In contrast, retail properties experienced a mixed performance. The Fund s smaller properties in outlying areas continued to benefit from good rental growth, the capital expenditure at several of the centres was value enhancing, however, certain of the neighbourhood and convenience centres were impacted by the deteriorating retail conditions. 18

23 Manager s report continued 8.1 Total portfolio movement June 2007 June 2008 Difference Difference Sector (R 000) R/m 2 (R 000) R/m 2 (%) (R 000) Offices , Retail (3,2) (88 488) Industrial , Total Net asset value grew from cents to cents (1 232 cents excluding the deferred tax provision), representing growth of 1,9%. This is the result of growth in the value of the portfolio, as well as gains in the fair value of derivatives. 9. GEARING Emira engaged FirstRand Bank Limited to assist the Fund in accessing the debt capital markets, thereby reducing its overall cost of funding. On 28 March 2008, the Fund undertook a commercial mortgage backed securitisation ( CMBS ), whereby it issued five-year notes to Rand Merchant Bank ( RMB ) amounting to R650 million. The proceeds received were used to repay existing loans received from RMB. The securitisation enabled the Fund to reduce the margin payable on these loans from 125 basis points to 93 basis points (including amortised securitisation costs). The notes attract interest at the three-month JIBAR rate. Existing interest rate swaps that were already in place prior to the securitisation have been novated to RMB which has resulted in an average all in fixed rate of 9,78% on this loan. These interest rate swaps revert back to Emira in April 2013, whereafter they will continue until their expiry dates. The weighted average cost of the entire debt of the Fund at 30 June 2008, is 9,67%, as per below. 9.1 Rate % Term Amount (Rm) % of debt 1. Debt Fixed 10,21 November ,0 7,5 Swap 9,38 December Preference shares Floating 10,91* January ,0 6,7 3. Debt Swap 9,78 April ,0 48,5 4. Debt Swap 9,20 June ,0 37,3 Total 9, ,0 100,0 Less: Costs capitalised not yet amortised (12,8) Per balance sheet 1 327,2 *Using a prime rate of 15,5% per annum. As at 30 June 2008, 93,3% of the Fund s debt was fixed by way of interest rate swap agreements. The Fund had a total debt facility of R1,8 billion as at 30 June Based on total assets of R7,8 billion at 30 June 2008, Emira could increase its gearing levels to a maximum of R4,7 billion, compared to R1,3 billion or 17% at year-end. During the first half of 2008, amendments to the Collective Investment Schemes Control Act effectively increased the gearing limits on property unit trusts from 30% to 60%. 19

24 Directorate Directors of the management company, Strategic Real Estate Managers (Pty) Limited (STREM) 1. Benedict James van der Ross (61) (Non-executive Chairman) Qualifications: Dip Law Occupation: Company Director Mr Van der Ross was admitted to the Cape Bar as attorney in 1970 and practised law for his own account until He has served as director of various companies including Executive Director for the Urban Foundation and Independent Development Trust. He was appointed Commissioner to the First Independent Electoral Commission by the State President on the advice of the Transitional Executive Council and subsequently served as Deputy Chief Executive Officer of the Independent Development Trust and acting Chief Executive Officer of South African Rail Commuter Corporation. He currently serves on a number of boards including those of FirstRand, Naspers, Momentum Group, and is the Chairman of RMB Asset Management. 2. Warren Kirkwood Schultze (48) (Executive Director) Qualifications: BCom, BAcc, CA (SA) Occupation: Chief Executive Officer of Eris Property Group (previously RMB Properties) Prior to joining RMB Properties, Mr Schultze served his articles with Arthur Young and was later appointed Financial Director for two property financing and property trading companies. During this time he gained extensive experience in property asset management, property financing and property trading activities. He was appointed Chief Operating Officer of RMB Properties in 2000 and Chief Executive Officer in He was appointed Chief Executive Officer of Eris Property Group on 1 April James William Andrew Templeton (35) (Chief Executive Officer) Qualifications: BCom (Hons), CFA Occupation: Chief Executive Officer of Strategic Real Estate Managers (Pty) Ltd Mr Templeton joined RMB Properties in April 2004 as Business Development Executive. Previously he was employed at Barnard Jacobs Mellet Securities as an Equities Analyst for seven years. He was the top-ranked analyst in the Real Estate sector according to the Financial Mail in 2002 and 2003 and was appointed CEO of STREM in July Mr Templeton currently also serves as the Deputy Chairman of the Association of the Property Unit Trusts. 20

25 Directorate continued 4. Peter John Thurling (53) (Chief Financial Officer) Qualifications: BCom, BAcc, CA (SA) Occupation: Chief Financial Officer of Strategic Real Estate Managers (Pty) Ltd Mr Thurling, a chartered accountant with over 20 years experience in the property industry, in particular with listed property vehicles. Previously he was the Financial Director of Corovest Property Group and the Chief Financial Officer of Freestone Property Holdings Limited. 5. Michael Simpson Aitken (51) (Non-executive Director) Qualifications: BA, LLB Occupation: Director Over 20 years experience in property-related activity, with specific expertise in asset and fund management related to directly-held and listed property vehicles. He was previously an Executive Director of Freestone Property Holdings Limited. Currently Managing Director of Corovest Property Group and the non-executive Chairman of Hyprop Investments Limited. 6. Liliane Sylvie Barnard (43) (Independent Non-executive Director) Qualifications: BCom Occupation: Consultant Ms Barnard has 20 years experience in the asset management industry. She headed the asset management of Old Mutual Properties (Pty) Ltd and has 11 years experience in managing listed property portfolios for Old Mutual Asset Managers (Pty) Ltd. She is now an independent consultant to the listed property industry and its investors. She is also an independent non-executive director of Redefine Income Fund. 7. Bryan Hugh Kent (63) (Independent Non-executive Director) Qualifications: BCom, FCMA, CA(SA) Occupation: Director Mr Kent was previously a partner at Pricewaterhouse. He is presently a financial business consultant with considerable experience in property matters and financial structuring. He was also previously a non-executive director of Freestone Property Holdings Limited and chairman of its audit and risk committee. He is currently a non-executive director of Set Point Technology Holdings Limited and non-executive director of Cadiz Holdings Limited and CIC Holdings Limited (Namibia). He is Chairman of Country Bird Holdings which was recently listed on the JSE. 21

26 Directorate continued 8. Nocawe Eustacia Makiwane (49) (Non-executive Director) Qualifications: BSocScience (UCT), BA (Hons) Economics (Wits), Executive Leadership Programme (Wharton Business School), MBA (University of Exeter) Occupation: Managing Director of Avuka Investments Ms Makiwane has served on the boards of Sentech, National Electricity Regulator and Blitec, a 100% black-owned IT company. Currently she serves as a non-executive director of National Housing Finance Corporation ( NHFC ), a parastatal specialising in whole financing for low-income housing and Rural Housing Loan Fund, a section 21 company focusing on facilitating housing and finance to rural communities in South Africa. 9. Matthys Stefanus Benjamin Neser (51) (Independent Non-executive Director) Qualifications: BSc (Building Management), MBA Occupation: Director Mr Neser has been involved with the Abcon group of companies since 1981 and has acted as Chief Executive Officer for the various companies in the group since the early 1990s. He is active in the residential and commercial property field as well as in other business ventures. 10. Nkululeko Leonard Sowazi (44) (Non-executive Director) Qualifications: MA Planning (UCLA) Occupation: Deputy Chairman of the Tiso Group Mr Sowazi is the founding deputy Chairman of the Tiso Group, a black empowerment investment company with interests in natural resources, industrial services and investment banking. He is currently a member of the boards of JSE listed Exxaro Resources, Aveng Limited and is a non-executive director of the boards of Grinaker-LTA, Trident Steel (Pty) Ltd, African Explosives Limited, Alstom SA and Improchem. He is also Chairman of Idwala Industrial Holdings, The Home Loan Guarantee Company and the Financial Markets Trust. Mr Sowazi was previously Executive Deputy Chairman of African Bank Investments Limited and prior to that Managing Director of the Mortgage Indemnity Fund (Pty) Ltd. He also served on the board of Kagiso Trust Investment Company, Kagiso Media and Development Bank of South Africa. 22

27 Corporate governance INTRODUCTION The directors of STREM acknowledge the importance of the principles of good corporate governance and support the Code of Corporate Practices and Conduct contained in the King II report and recognise their responsibility in conducting the affairs of Emira with integrity, openness and accountability in accordance with generally accepted corporate practices. Although Emira is listed on the JSE Limited ( JSE ) and is therefore subject to the code, it is not a legal entity and is regulated in terms of the Collective Investments Schemes Control Act of 2002 ( CISC Act ). Certain requirements of the code are therefore not directly applicable to the Fund. However, the Managers have adopted the principles of the code, being fairness, accountability, responsibility and transparency. The Fund has complied with the code, where applicable and to the following extent: THE BOARD OF DIRECTORS Structure As at 30 June 2008 the board consisted of ten members: Director Executive directors Date appointed Board of directors number of meetings/ attendance Audit committee number of meetings/ attendance JWA Templeton* (CEO) July /9 4/4 WK Schultze* September /9 4/4 PJ Thurling (CFO) April /8 Non-executive directors BJ van der Ross* (Chairman) September /7 4/4 MS Aitken April /8 LS Barnard September /8 BH Kent** April /8 4/3 NE Makiwane* August /9 4/4 MSB Neser September /8 NL Sowazi August /7 * Audit committee ** Audit committee chairman Remuneration committee The capacity of the directors may be categorised as follows: Executive directors: Messrs JWA Templeton and PJ Thurling are employed by STREM, and remunerated out of the service charge payable by the Fund to STREM. Mr WK Schultze is employed by Eris Property Group. Non-executive directors: Mr BJ van der Ross is a director of FirstRand Limited and Momentum Group Limited. Mr MS Aitken is employed by Corovest Property Group Holdings (Pty) Limited. Mr NL Sowazi and Ms NE Makiwane represent Emira s BEE partners. Independent non-executive directors: Messrs BH Kent, MSB Neser and Ms LS Barnard are not significant holders of Emira participatory interests, as defined in the Code. The roles of Chairman and Chief Executive Officer are completely separated. The directors have a wide range of skills. The directors of STREM are appointed at the discretion of STREM shareholders. The board schedules to meet at least four times per year. In addition, eleven asset performance committee meetings were held during the year and were attended by the executive members of the board. All directors have unrestricted access to the advice and services of the Fund s secretary and to the Fund s records, information, documents and property. Non-executive directors also have unfettered access to management at any time. The fund is in the process of developing and implementing a formal orientation procedure and training for new directors. 23

28 Corporate governance continued The board will ensure that it has the expertise, independence and diversity it needs to function independently. Independence of the board from the management team will be achieved by: maintaining a non-executive chairperson; maintaining a balance of executive and non-executive directors; the remuneration of the non-executive directors being unrelated to the financial performance of Emira; and all directors being entitled to seek independent professional advice concerning the affairs of Emira at the Fund s expense. The board sets the strategic objectives of the Fund and determines the investment and performance criteria as well as being responsible for the proper management, control compliance and ethical behaviour of the business under its direction. Committees Audit committee During the year, the audit committee comprised five members of which the Chairman was non-executive. In August 2008, the audit committee was reconstituted to comprise only independent non-executive directors. Accordingly, Messrs BJ van der Ross, WK Schultze and JWA Templeton stepped down from the audit committee and Ms LS Barnard joined the committee. The committee meets at least four times per year with the Fund s external auditors and executive management as well as the executives responsible for finance, the compliance officer and internal auditors. The primary objectives of the committee are to provide the board with additional independent and objective assurance regarding the efficacy and reliability of the financial information used by the directors, to assist them in the discharge of their duties. The audit committee is required to provide reasonable assurance to the board that adequate and appropriate financial and operating controls are in place; that significant business, financial and other risks have been identified and are being suitably managed; and that satisfactory standards of governance, reporting and compliance are in operation. The committee also monitors proposed changes in accounting policies, and discusses and advises the board on the accounting implications of major transactions. The board is responsible for the group s system of internal and operational control. The executive directors are charged with the responsibility of ensuring that assets are protected, systems operate effectively and all valid transactions are recorded properly. Comprehensive reviews and testing of the effectiveness of the internal control systems in operation are performed by internal auditors, who report to the audit committee. The internal audit function co-ordinates with other internal and external providers of assurance to ensure proper coverage of financial, operational and compliance controls. The committee has the co-operation of all directors, management and staff and is satisfied that controls and systems within the Fund have been adhered to and, where necessary, improved during the period under review. Investment committee An investment committee comprises at least two executive directors, and four senior staff employed by STREM with the appropriate skills and experience. The committee meets on an ad hoc basis to assess acquisitions and disposals, and makes recommendations to the board. Remuneration committee During the year a remuneration committee was established as a sub-committee of the board. The committee comprises the Chairman of the board of directors and an independent non-executive director. The committee considers and recommends the remuneration payable to non executive directors by the management company. Management and financial control During the year independent internal auditors performed a management and financial control review. No significant weaknesses were identified and the overall conclusion was that the: directors had maintained an adequate system of internal controls and accounting records; the Fund s assets are safeguarded and appropriately insured; the Fund should remain a going-concern for the foreseeable future; and management understood the Fund s policy and employed the appropriate strategy. 24

29 Corporate governance continued Directorate Details of the directors are set out on pages 20 to 22 of this report. According to the articles of association of STREM, one third of the executive and non-executive directors shall retire at the following annual general meeting of STREM and will be eligible for re-election. Directors of STREM holdings in Participatory Interests The directors holdings in the participatory interests of the Fund as at 30 June 2008 were: Executive directors Beneficial Beneficial Held by Beneficial Beneficial Held by direct indirect associates Total direct indirect associates Total Warren Schultze James Templeton Peter Thurling Non-executive directors Michael Aitken Liliane Barnard Bryan Kent Nocawe Makiwane Thys Neser Nkululeko Sowazi Ben van der Ross Totals Since the end of the financial year to the date of this report, the interests of directors have remained unchanged. Directors remuneration The directors of STREM are remunerated from the management fee payable by the Fund. Directors dealings The board has adopted policies prohibiting dealings by directors and certain other managers in periods immediately preceding the announcement of its interim and year-end financial results and at any other time deemed necessary by the board or as required in terms of the JSE regulations. Secretary of the Fund Desiree Isserow is the company secretary who was appointed on 1 October Her business and postal addresses, which are also the Fund s registered and business addresses, are set out on page 86. Auditors The Fund s auditors are PricewaterhouseCoopers Inc. Major interest holder Momentum is the majority interest holder in Emira with 34,4% of the participatory interests in issue. Special resolutions A full list of the special resolutions passed by the fund during the year will be made available to participatory interest holders on request. 25

30 Corporate governance continued Material changes and subsequent events to the balance sheet date The only events which are required to be noted are the disposal of two properties, details of which are noted on page 18. Structure of the Fund Emira Property Fund ( the Fund ) is a property unit trust in terms of the Collective Investment Schemes Control Act, No 45 of The Fund is managed by Strategic Real Estate Managers (Pty) Limited ( STREM ), which is approved by the Registrar of Collective Investment Schemes to manage the Fund. In terms of the Collective Investment Schemes Control Act, No 45 of 2002 ( CISC Act ) the Fund is obliged to distribute all income earned to its participatory interest holders. As a result of its distribution obligations, no income tax or capital gains tax is payable by the Fund. Participatory interest (PI) holders Effective ownership in property portfolio Management Strategic Real Estate Managers (Pty) Limited Asset management Reports to PI holders FirstRand Asset Management (Pty) Limited 70%** RMB Properties (Pty) Limited 15% Corovest Property Group Holdings (Pty) Limited 15% Eris Property Group (Pty) Limited Property Managers Regulatory Bodies JSE Limited Ensures compliance with JSE requirements and provides a market for trading PIs Registrar of Collective Investment Schemes Ensures compliance with Collective Investment Schemes Control Act, 2002, and monitors the operation of the collective investment scheme Trustee: Absa Bank Limited Protects PI holders interests Acts as custodian of Fund s assets and securities Ensures compliance with Trust Deed and legislation Auditors: PricewaterhouseCoopers Inc. Report on fair presentation of financial statements Emira Property Fund* PIs listed on the JSE Limited Freestone Property Holdings Limited Property Loan Stock Company Arnold Properties (Pty) Limited* Freestone Property Investments (Pty) Limited* Azgold Investments (Pty) Limited Backbone Investments (Pty) Limited* Kenview Share Block (Pty) Limited* No 9 Sturdee Holdings Share Block (Pty) Limited* Paddy s Pad (2091) (Pty) Limited Surgate Share Block (Pty) Limited* Windrifter Share Block (Pty) Limited* The Colony Centre Share Block (Pty) Limited * Property owning entities ** In the process of being transferred to another FirstRand Group company 26

31 Corporate governance continued Management of the Fund STREM Asset management STREM has been approved by the Registrar of Collective Investment Schemes to manage the Emira Property Scheme. STREM receives an amount equal to 0,5% of the total market capitalisation of the Fund, calculated monthly on the average daily closing price of the Fund as recorded by the JSE Limited, plus total long-term borrowings. Fees paid for the period amounted to R33,4 million (2007: R21,9 million). Property management Property management of the Fund has been outsourced to RMB Properties (Pty) Limited ( RMB Properties ), a subsidiary company of FirstRand, and Alliance Property Group (Pty) Limited, who managed the group s rural property portfolio until the end of May RMB Properties ceded all its property services to a new company named Eris Property Group (Pty) Limited ( Eris ) on 1 April From 1 June 2008, the entire property portfolio was outsourced to Eris Property Group. Property management fees and commissions paid for the period were R48,1 million (2007: R55,1 million). Risk management The STREM management philosophy on risk recognises that managing risk is an integral part of generating sustainable PI holder value and enhancing stakeholder interest. It also recognises that an appropriate balance should be struck between entrepreneurial endeavour and sound business practice. The management of STREM operates a risk management framework, which is based on COSO s Enterprise Risk Management Framework. The underlying premise of enterprise risk management is that every entity exists to provide value for its stakeholders. All entities face uncertainty, and the challenge for management is to determine how much uncertainty to accept as it strives to grow stakeholder value. Value is maximised when management sets strategy and objectives to strike an optimal balance between growth and return goals and related risks, and efficiently and effectively deploys resources in pursuit of the entity s objectives. Enterprise risk management in STREM encompasses: Aligning risk appetite and strategy which considers the risk appetite in evaluating strategic alternatives, setting related objectives, and developing mechanisms to manage related risks. Enhancing risk response decisions by selecting alternative risk response, which includes risk avoidance, reduction, sharing or acceptance. Reducing operational losses by gaining enhanced capabilities to identify potential events and establish responses. Identifying and managing multiple cross-enterprise risks. Seizing opportunities by identifying a full range of potential events. Improving deployment of capital by obtaining robust risk information to allow management to effectively assess overall capital needs and enhance capital allocation. These capabilities inherent in enterprise risk management help management achieve the Fund s performance and profitability targets and prevent loss of resources. Enterprise risk management helps to ensure effective reporting and compliance with laws and regulations, and helps avoid damage to the Fund s reputation and associated consequences. 27

32 Corporate governance continued Financial risk factors The financial instruments of the group consist mainly of deposits with banks, long term borrowings, derivative instruments, accounts receivable and accounts payable. The Fund issues or purchases financial instruments in order to finance operations and to manage the interest rate risks that arise from these operations. The Fund s credit, interest and liquidity risks are continually monitored. The main objective of using financial instruments is to reduce the uncertainty over future cash flows arising principally as a result of interest rate fluctuations. The Fund finances its operations through the combination of bank borrowings and issue of additional units. Interest rate risk management As at 30 June 2008, approximately 93% of total borrowing facilities were at fixed rates (in terms of the swap contracts). Credit risk management The Fund has no significant concentration of credit risk due to a large number of widespread tenants. The Fund has policies in place to ensure that lease agreements concluded are with tenants with an appropriate credit history. The Fund has policies that limit the amount of credit exposure to any one financial institution, and cash transactions are limited to high credit quality financial institutions. The debts are monitored on a continual basis in order to maintain a low default rate on trade receivables. Liquidity risk management Cash flows are monitored on a monthly basis to ensure that cash resources are adequate to meet the funding requirements of the Fund. 28

33 Sustainability INTRODUCTION The Emira Property Fund recognises its responsibility to protect the interests of all its stakeholders and believes that good governance is essential to the Fund s long-term sustainability and functioning. The objective of the Fund is to conform to its stringent requirement for transparency, while operating profitably and remaining accountable to the broader community which it serves and respecting the natural environment. The Fund has embraced the King II report s guidelines for socially responsible reporting according to the triple bottom line the economic, social and environmental impacts of its properties. Going forward, the Fund is formalising its approach in order to reflect its commitment to sustainable business practice, and introduce measurable targets for the future. Stakeholder engagement The STREM board considers it a duty to keep all the Fund s stakeholders informed and up to date with regard to its practices, policies and financial results, while remaining accountable for the sustainability of the Fund to its investors and tenants. Direct discussions with stakeholders are always welcomed by the Fund. In addition to communication at the annual results presentation which is made to key shareholders and analysts, media releases are published when appropriate as well as ad hoc meetings with interested parties on request. The Fund meets regularly with its shareholders and recognises its fiduciary duty to maximise the value of its assets for their benefit. In addition, shareholders are encouraged to attend the Fund s annual general meeting to vote on resolutions and, where appropriate, to enter into discussions with the STREM directors. The Fund has defined its major stakeholders and communicates with them as follows: Investors Tenants Suppliers and property management services providers Asset managers Communities Government As part of its duty as a South African corporate citizen, the Fund is committed to its responsibility of engaging with local communities where its operations have a potential environmental impact on their surroundings. The Fund aims to develop a positive working relationship with local communities through organised committees. For example, when the Fund engages in property development, where required, the impacts are fully evaluated with environmental impacts assessments, which involve extensive consultation with the local communities. Through its property management service provider, RMB Properties/Eris, the Fund engages with its base of more than tenants on a daily basis. These tenants range from small owner-run enterprises, to blue chip companies and government departments spanning local, provincial and national government. The Fund also engages with government departments in matters relating to properties, for example zoning, planning permissions and rates. 29

34 Sustainability continued Economic impact Transformation The Fund is committed to empowering historically disadvantaged South Africans and considers this as an imperative to model corporate citizenship. The underlying principles which define the STREM board s transformation agenda, and relating specifically to BEE ownership are as follows: transferring ownership of land to people who were previously denied access to land through discriminatory policy and legislation; empowering previously disadvantaged individuals in order to redress the imbalances of the past; and achieving a change in the racial and gender composition of ownership, control and management within the property sector. The Property Sector Charter entered into between representatives of the South African property industry and the Department of Public Works lists these reasons amongst its objectives and the directors believe that the BEE shareholding is an important step in achieving the targets as set out in the charter. Emira Property Fund s BEE holding in its PIs is 11,9% which was initially concluded in August A further tranche of PIs were issued late in 2007, bringing the BEE holding to 12,4%. The shareholders include: The Tiso Group (Pty) Limited Tiso is a leading black-owned, controlled and managed investment company investing in the natural resources, financial services and industrial services, employing in excess of 20 individuals with a diverse but complementary set of business and entrepreneurial skills. Tiso is predominantly controlled (59,4%) by its management and the Tiso Foundation (16%), a registered public benefit organisation created for the purpose of ensuring broad-based equity participation in Tiso beyond that of its employees. Other shareholders include Investec, Standard Bank and RMB (24,6%). Tiso is headed up by Nkululeko Sowazi and David Adomakoh. Tiso is the controlling shareholder of Idwala Industrial Holdings, while strategic partnerships include Aveng, AECI, Exxaro, Alstom and Investec. The Shalamuka Foundation The Shalamuka Foundation ( Shalamuka ) is a trust registered to create sustainable long-term funding for the Penreach Whole School Development Programme ( Penreach ). Its inclusion as a BEE shareholder in the Emira Property Fund creates sustainable long-term support and funding for the school-based outreach programme. For further information relating to Shalamuka see page 31. Avuka Investments (Pty) Limited Avuka is a black-controlled company established in The company is wholly owned by the following black women: Dr Lulu Gwagwa: ex-deputy Director General in the Department of Public Works and a non-executive director on the boards of the Airports Company of South Africa ( ACSA ), FirstRand, the Development Bank of Southern Africa ( DBSA ) and the Mineworkers Investment Company; Mrs Nocawe Makiwane: Managing Director of Avuka Investments and non-executive director of the following companies: National Housing Finance Corporation ( NHFC ); Rural Housing Loan Fund, Emira Property Fund, Advantage Asset Management, Scientia Financial Services and Eastern Cape Parks Boards; and Nhlanhla Mjoli Mncube: Economic adviser to the Deputy President of South Africa and a board member of Pioneer Foods, Capitec Bank, Cadiz Holdings and the NHFC. Mr Ben van der Ross Mr Ben van der Ross is the Chairman of STREM. Mr Van der Ross also serves on the boards of FirstRand, Naspers and Momentum. 30

35 Sustainability continued The RMBP Broad-Based Empowerment Trust In terms of the existing contracts between STREM and RMB Properties/Eris Property Group, all asset and property management functions are currently outsourced to STREM and RMB Properties/Eris Property group. RMB Properties/Eris and STREM employ approximately 113 black individuals, many of whom are responsible for the administration of the Fund and the day-to-day management of properties owned by Emira. The PIs issued in terms of the BEE transaction have been and will be utilised to retain and incentivise existing black employees and to attract future black executives. Environmental impact Notwithstanding the Emira Property Fund s classification as having a low environmental impact, the STREM directors acknowledge the importance of adopting sustainable environmental business practices to minimise the impact of the Fund s activities on all stakeholder groups. During the year under review, the Green Building Council of South Africa ( GBCSA ) launched its pilot Green Star SA Environmental Rating Tools, whereby developers can voluntarily apply to have their projects rated and certified by GBCSA. Emira recognises the significance of the new rating system and is intent on contributing to it once the tool is formally launched in November The Fund will make use of the tool to evaluate any new projects while seeking out ways of using it to evaluate the environmental impact of its existing property portfolio. Any future refurbishments and developments will also take cognisance of the council s recommendations. Looking forward, Emira is focused on a number of measures to improve the environmental efficiency of its property portfolio, including measures such as rolling out energy efficient light fittings throughout its properties, optimising the use of natural light in future developments as well as increasing the efficiency of any new properties vis-à-vis temperature control including eco-efficient heating and air conditioning. An environmental policy will be developed during 2009 to define appropriate environmental practices for the Fund. However, with its client base of more than tenants nationwide, the Fund leases properties to a number of large, established corporates who themselves engage in environmental best practice. Emira will engage with all of its tenants, and consider environmental improvements to fixed assets and buildings where these are viable. Social impact Health and safety The Emira Property Fund s health and safety policy complies with the Occupational Health and Safety Act 1970 and other relevant legislation, regulations and codes of practice for South Africa. It aims to prevent and minimise work-related and health impairments by applying international best practice and ensuring that all employees are supplied with adequate training and supervision for the role they undertake. The Fund, through its property management company, Eris, strives to continuously improve its Occupational Health and Safety ( OHS ) standards. All regulatory OHS progress is monitored and reported to the STREM Board of directors. During the year, evacuation drills, which are a high priority nationally, were highlighted to employees to heighten their awareness of risks. Individual and company responsibilities were communicated to avoid and deal with any crises. Tenants are continuously reminded of their OHS responsibilities. All tenants receive an Eris OHS manual, and an updated Eris House Rule guide is in progress. Community involvement As a Collective Investment Scheme in Property, EMIRA is precluded from making direct corporate social investments by the Collective Investments Schemes Control Act. However, as a shareholder in the Emira Property Fund, Shalamuka supports social development, constituting an indirect CSI initiative. One of the beneficiaries of Emira s BEE transactions in 2006 and 2007 is Shalamuka, a trust formed in 2006 to raise long-term, sustainable funding for the highly regarded Penreach. Penreach is a non-profit skills development programme that improves the teaching skills of qualified and unqualified teachers and their schools in Mpumalanga and the surrounding areas. It has resulted in the upliftment of local communities through improvement in education and the quality of schools, and has been recognised by numerous awards. Penreach holds weekly workshops that provide skills training to teachers. Workshops are supplemented by daily visits to schools by 31

36 Sustainability continued experienced fieldworkers, and tutorial workshops are offered to Mathematics and Science learners and their educators. Focus areas include: Pre-primary school educators Primary school educators High school educators (with focus on Mathematics and Science development) School governing bodies School management teams Tutorial lessons for Grade 10, 11 and 12 Mathematics and Science learners Early childhood development National Qualifications Framework ( NQF ) courses Penreach began working with 40 teachers from 10 schools in It has grown exponentially since then and now reaches more than teachers a year, representing over 900 schools. It is estimated that over learners from rural areas benefit from Penreach annually. 100% of the beneficiaries of Penreach are black, rural South Africans, with at least 90% being black rural women. Shalamuka aims to participate in BEE deals and other investment opportunities in order to create a long-term investment that will provide sufficient funds to sustain Penreach on an annual basis and allow room for planning, growth and important research. This will increase the number of educators, and consequently learners who can be reached, thereby improving their standard of education. It is the profound belief of the Shalamuka trustees that South Africa will benefit from widespread, improved education. The Shalamuka trustees are respected members of the business community and have impressive socio-economic development track records. 85% of the trustees are black South Africans and 71% are black women. The Shalamuka trustees are volunteers and do not benefit economically in any way from Shalamuka or Penreach. Shalamuka has EmpowerDex certification, scoring maximum points. It is 100% compliant as a broad-based organisation as per the 2007 Department of Trade and Industry codes and it significantly enhances the CSI/ BEE scorecard of investee companies. Shalamuka has successfully participated in a number of BEE transactions to date. These include Emira Property Fund; Hulamin (Pty) Limited; Shalamuka Capital/RMB Corvest; Brimstone Investment Corporation Limited; Sasol Inzalo Transaction; Barloworld; and PPC. Shalamuka has access to funding at favourable rates. The mission statement of Penreach is To improve the quality and accessibility of education in under-resourced schools in black rural communities. Penreach is striving to create functional, efficient schools where future generations of young people can acquire the skills they will need to take South Africa to new heights as a nation. 32

37 Annual financial statements for the year ended 30 June 2008 contents Emira Property Fund 34 Statement of directors responsibilities 34 Approval of annual financial statements 35 Report of the independent auditors 35 Report of the trustee 36 Income statements 37 Balance sheets 38 Cash flow statements 39 Statement of changes in equity 41 Notes to the financial statements 62 Property listing 81 Notice of annual general meeting 85 Participatory interest holders analysis 86 Administration information 87 Form of proxy Strategic Real Estate Managers (Pty) Ltd 71 Directors report 72 Statement of directors responsibilities 72 Certificate by company secretary 73 Report of the independent auditors 74 Balance sheet 74 Income statement 75 Statement of changes in equity 75 Cash flow statement 76 Notes to the financial statements Faerie Glen Offices, 291 Sprite Avenue, Faerie Glen 33

38 Statement of directors responsibilities The directors of STREM are responsible for the preparation, integrity, and fair presentation of the financial statements of the Fund. The financial statements presented on pages 36 to 61 have been prepared in accordance with International Financial Reporting Standards ( IFRS ), and include amounts based on judgements and estimates made by management. The directors consider that in preparing the financial statements they have used the most appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all statements of International Financial Reporting Standards that they consider to be applicable have been followed. The directors are satisfied that the information contained in the financial statements fairly presents the results of operations for the period and the financial position of the Fund at year-end. The directors also prepared the other information included in the report and are responsible for both its accuracy and its consistency with the financial statements. The directors have responsibility for ensuring that accounting records are kept. The accounting records should disclose with reasonable accuracy the financial position of the Fund to enable the directors to ensure that the financial statements comply with the relevant legislation. The Fund operated in a well-established control environment, which is well documented and regularly reviewed. This incorporates risk management and internal control procedures, which are designed to provide reasonable, but not absolute, assurance that assets are safeguarded and the risks facing the business, are being controlled. The going-concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that the Fund will not be a going-concern in the foreseeable future, based on forecasts and available cash resources. These financial statements support the viability of the Fund. The Fund s external auditors, PricewaterhouseCoopers Incorporated, audited the financial statements, and their report is presented on the next page. BJ van der Ross Chairman JWA Templeton Chief Executive Officer Approval of annual financial statements The annual financial statements of the Fund, incorporating statutorily required information in respect of the Fund, for the year ended 30 June 2008 set out on pages 36 to 61 were approved by the board of directors of STREM on 15 October 2008 and are signed on its behalf by: BJ van der Ross Chairman JWA Templeton Chief Executive Officer 34

39 Report of the independent auditors INDEPENDENT AUDITORS REPORT TO THE PARTICIPATORY INTEREST HOLDERS OF EMIRA PROPERTY FUND We have audited the group annual financial statements of Emira Property Fund and its subsidiaries, which comprise the balance sheet as at 30 June 2008, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 36 to 61. Directors responsibility for the financial statements The directors of Strategic Real Estate Managers ( STREM ) are responsible for the preparation and fair presentation of these financial statements in accordance with statements of International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Emira Property Fund and its subsidiaries as of 30 June 2008, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. PricewaterhouseCoopers Inc. Director: Sakhile Masuku Registered Auditor 16 October Eglin Road Sunninghill Sandton Report of the trustees In terms of section 70(I)(f) of the Collective Investment Schemes Control Act, No 45 of 2002 To the participatory interest holders of Emira Property Fund During the period as set out above during which the Collective Investment Schemes Control Act, No 45 of 2002 has been in effect the Trust has been administered in accordance with ii. The limitations imposed on the investment and borrowing powers of the Manager by the Act; and ii. The provisions of the Act and the deed. Absa Bank Limited Trustee Johannesburg 1 October

40 Income statements for the year ended 30 June 2008 FUND GROUP R 000 R 000 Notes R 000 R Revenue Operating lease rental and tenant recoveries Allowance for future rental escalations ( ) ( ) Property expenses ( ) ( ) (21 949) (23 359) Management expenses (33 431) (21 949) (20 968) (24 873) Administration expenses (32 976) (22 641) (9 958) (9 210) Depreciation 10 (9 902) (9 966) ( ) (17 680) (17 658) (9 130) (569) ( ) Net income from property rental operations Net fair value (deficit)/gain on investment properties (10 580) Change in fair value as a result of straight-lining lease rentals (19 415) (17 866) Change in fair value as a result of amortising upfront lease costs (13 565) (9 130) Change in fair value as a result of property appreciation in value (2 018) (3 245) Maintenance fund expenses (3 977) (2 018) Impairment of goodwill 4 ( ) (92 348) (5 914) IFRS 2 adjustment in respect of PI-based payments 5 (5 914) (92 348) (24 822) (5 914) Discount on the issue of PIs to BEE partners (5 914) (24 822) Acquisition of fixed property in exchange for (67 526) the issue of PIs (67 526) Operating profit (36 784) Finance income/(costs) net (23 457) (55 226) (68 999) Interest paid and amortised borrowing costs ( ) (65 901) Interest capitalised to the cost of developments Preference share dividends paid (8 213) Unrealised gain on interest-rate swaps Investment income Net profit for the year before taxation Deferred taxation 8 (53 189) ( ) Revaluation of investment properties (34 049) ( ) Other (19 140) STC on preference dividends paid (821) (367) Net profit for the year Earnings per participatory interest (cents) 9 113,03 363,02 The reconciliation between earnings, headline earnings and distribution payable is disclosed in note 9. 36

41 Balance sheets as at 30 June 2008 FUND GROUP R 000 R 000 Notes R 000 R 000 Assets Non-current assets Investment properties Allowance for future rental escalations Unamortised upfront lease costs Subsidiary companies Current assets Accounts receivable and prepayments Derivative financial instruments Cash and cash equivalents Non-current assets held for sale Total assets Equity Participatory interest holders capital and reserves 17, Non-current liabilities Redeemable preference shares Interest-bearing debt Deferred taxation Current liabilities Short-term portion of interest-bearing debt Accounts payable Distributions payable to participatory interest holders Total liabilities Total equity and liabilities

42 Cash flow statements for the year ended 30 June 2008 FUND GROUP R 000 R 000 Notes R 000 R 000 Cash FLOWS FROM OPERATING ACTIVITIES Cash generated from operations Investment income (54 788) (68 999) Interest paid 6 ( ) (65 463) Preference share dividends paid 6 (8 213) (2 934) Taxation paid (764) (367) ( ) ( ) Distribution to participatory interest holders 21 ( ) ( ) Cash flows from investing activities ( ) ( ) Acquisition of investment properties ( ) ( ) (8 001) (5 610) Acquisition of furniture and equipment (7 122) (8 299) Proceeds on disposal of investment properties Proceeds on disposal of furniture and 997 equipment ( ) Acquisition of Freestone Property Holdings 4 Limited Investment properties ( ) Interest rate swaps (4 144) Preference shares Long-term borrowings Deferred taxation Goodwill ( ) (77 306) Loan to subsidiary ( ) ( ) ( ) ( ) Cash flows from financing activities Issue of participatory interests Increase in interest-bearing debt Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year

43 Statement of changes in equity for the year ended 30 June 2008 GROUP Participatory Fair value Other Retained interest reserve reserve earnings Total R 000 R 000 R 000 R 000 R Balance at 1 July (906) Net profit for the year Distribution to participatory interest holders ( ) ( ) Issue of participatory interests IFRS 2 adjustment in respect of PI-based payments (92 348) Preference share dividends paid (2 934) (2 934) Transfer to fair value reserve (net of deferred taxation) ( ) Balance at 30 June (92 348) (1 345) Balance at 1 July (92 348) (1 345) Net profit for the year Distribution to participatory interest holders ( ) ( ) Issue of participatory interests IFRS 2 adjustment in respect of PI-based payments (5 914) Transfer to fair value reserve (net of deferred taxation) ( ) Balance at 30 June (98 262) (1 345)

44 Statement of changes in equity for the year ended 30 June 2008 continued FUND Participatory Fair value Other Retained interest reserve reserve earnings Total R 000 R 000 R 000 R 000 R Balance at 1 July (906) Net profit for the year Distribution to participatory interest holders ( ) ( ) Issue of participatory interests IFRS 2 adjustments in respect of PI-based payments (92 348) Transfer to fair value reserve (net of deferred taxation) ( ) Balance at 30 June (92 348) (37 565) Balance at 1 July (92 348) (37 565) Net profit for the year Distribution to participatory interest holders ( ) ( ) Issue of participatory interests IFRS 2 adjustments in respect of PI-based payments (5 914) Transfer to fair value reserve (net of deferred taxation) (24 785) Balance at 30 June (98 262) (1 511)

45 Notes to the financial statements for the year ended 30 June ACCOUNTING POLICIES Basis of presentation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the Companies Act of South Africa. The following amendments to IFRS standards and interpretations have been issued with an effective date applicable to the current financial year of the group. IFRS 7 Financial instruments: Disclosure (new) and IAS 1 Presentation of financial statements: Capital disclosures (amended) The adoption of IFRS 7 and the amendment to IAS 1 impacts the disclosures made in these financial statements, but had no impact on the reported profits or financial position of the group, in accordance with the transitional requirements of the standards, the group has provided full comparative information. AC 503 Accounting for BEE transactions The interpretation applies to accounting for BEE transactions where the fair value of cash and other assets received is less than the fair value of equity instruments granted to the BEE partner, ie. to the BEE equity credentials. The impact of this interpretation on the group is not considered to be significant. IFRIC 10 Interim Financial Reporting and Impairment The interpretation concludes that an impairment loss recognised in a previous reporting period, in respect of goodwill, investments in equity instruments classified as available-for-sale and investments in financial assets carried at cost, cannot be reversed at a subsequent balance sheet date. The impact of this interpretation on the company is not considered to be significant. The financial statements are prepared on the historical cost basis except for investment properties and certain financial instruments which are carried at fair value, and incorporate the following accounting policies which are consistent with those applied in the previous year. The financial statements are prepared on a going-concern basis. The group financial statements include those of Emira Property Fund and its wholly owned subsidiary, Freestone Property Holdings Ltd and its subsidiaries. 1.1 Basis of consolidation Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. Subsidiaries are fully consolidated from the date on which control is transferred to the group. The group ceases to consolidate on the date on which control ceases. 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 fair value of the assets given, 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. 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. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. 1.2 Investment property Investment property comprises both freehold and leasehold land and buildings and installed equipment held for the purpose of earning rental income and for capital appreciation. Investment property is treated as a long-term investment and is initially recognised at cost (including related transaction costs) and subsequently carried at fair value. Subsequent additions that produce future economic benefit to the group are capitalised. Investment property under construction is valued at cost. Maintenance and repairs which neither materially add to the value of the properties nor prolong their useful lives are expensed in the income statement. Independent valuations are obtained on a rotational basis so as to ensure that external independent valuation professionals have valued each property every three years. The directors value the remaining properties annually. Investment properties are classified as held for sale when the board has approved the disposal of the properties. 41

46 Notes to the financial statements for the year ended 30 June 2008 continued The valuation calculations are based on the aggregate of the net annual rents receivable and associated costs, using the discounted cash flow method. The discounted cash flow method takes projected cash flow and discounts it at a rate which is consistent with the comparable market transactions. Any gains or losses arising from changes in fair value are included in the net income or loss for the year. The net gains or losses are transferred to a revaluation reserve and are not available for distribution, as set out in the trust deed of the Fund. Gains or losses arising from the disposal of investment properties, being the difference between the net disposal proceeds and the carrying value, are brought to account in the determination of the net income/loss for the year. The net gains or losses are transferred from retained earnings to a fair value reserve and are not available for distribution in accordance with the Fund s trust deed. Property located on land that is held under an operating lease is classified as investment property as long as it is held for long-term rental yield. These leases in respect of land are classified as operating leases and have varying expiry dates from 7 to 42 years. 1.3 Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. The Fund is party to numerous leasing contracts as the lessor of property. 1.4 Furniture and equipment Furniture and equipment are stated at historical cost less accumulated depreciation and impairment charges. Cost comprises the purchase price as well as all costs incurred in order to bring the asset to a working condition. Depreciation is calculated at cost less accumulated depreciation and any impairment and expected residual value on the straight-line method, which is reviewed annually. The useful lives of furniture and equipment are five years. Repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Furniture and equipment are linked to specific properties. Consequently, any gains or losses on disposal are incorporated with the gains or losses on the disposal of the investment property. 1.5 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the group s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. 1.6 Impairment of assets The Fund assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that a financial asset or group of financial assets is impaired includes observable data that comes to the attention of the Fund about the following events: A breach of contract, such as a default or delinquency in payments. Significant financial difficulty of the debtor. The disappearance of an active market for that financial asset because of financial difficulties. Observable data indicating that there is a measurable decrease in the estimated future cash flow from a group of financial assets since the initial recognition of those assets. If any of the above indications exist and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. Impairment losses and reversal of impairment losses are recognised in the income statement. 1.7 Allowance for future rental escalations Allowance for future rental escalations represents the difference between the actual cash rentals received to date and the rental income recognised on a straight-line basis over the period of the lease contracts. 42

47 Notes to the financial statements for the year ended 30 June 2008 continued 1.8 Upfront lease costs Upfront lease costs are amortised on a straight-line basis over the lease period to which they relate. 1.9 Trade and other receivables Trade receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method. A provision for impairment of trade receivables is established when there is objective evidence that the Fund will not be able to collect all amounts due according to the original term of the receivables Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and highly liquid investments that are readily convertible to known amounts of cash which are subject to an insignificant risk of changes in fair value. Cash and cash equivalents are stated at fair value Non-current assets held for sale Non-current assets held for sale are assets that will be recovered principally through a sale transaction. These assets are measured at the lower of their carrying amounts and fair value less selling costs Borrowings, including redeemable preference shares Borrowings are recognised initially at fair value net of transaction costs incurred, when the Fund becomes party to the contractual provisions. Borrowings are subsequently stated at amortised cost using the effective interest rate method; any difference between proceeds (net of amortised costs) and the redemption value is recognised in the income statement over the period of the borrowings as interest. Financial liabilities are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled, or has expired Derivative financial instruments The Fund uses derivative financial instruments to hedge its exposure to interest rate risks arising from financing and investment activities. The Fund does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are initially recognised and subsequently stated at fair value. The gain or loss on remeasurement to fair value is taken immediately to profit or loss. The fair value of interest rate swaps is the estimated amount that the group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties Trade and other payables Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. Provisions are recognised when the Fund has a present legal or constructive obligation as a result of the past event and it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation and in addition a reliable estimate of the amount can be made Offsetting Financial assets and financial liabilities are only offset if there is a legally enforceable right to set-off the recognised amounts and there is an intention to either settle on a net basis or to realise the asset and settle the liability simultaneously Revenue and expense recognition Revenue Comprises rental income and operating cost recoveries from tenants, but excludes value added tax. Rental income is accounted for on a straight-line basis over the period of the lease contracts Investment income Investment income is recognised on a time-proportion basis, taking into account the principal amount outstanding to the effective rate over the period to maturity when it is determined that such income will accrue to the Fund Operating leases Leases under which the lessor effectively retains the risks and benefits of ownership are classified as operating leases. Obligations incurred under operating leases are charged to the income statement in equal instalments over the period of the lease. 43

48 Notes to the financial statements for the year ended 30 June 2008 continued Management fees Management fees payable to STREM are equal to 0,5% of the total market capitalisation of the Fund, calculated monthly on the average daily closing price of the Fund as recorded by the JSE Securities Exchange South Africa, plus the total long-term borrowings Property management fees Property management fees payable to RMB Properties/Eris Property Group, and Alliance Property Group are calculated based on the rental collections using market-related rates applicable to the type and occupancy of buildings. The agreement with Alliance Property Group was terminated on 31 May 2008 and transferred to Eris Property Group Borrowing costs All borrowing costs are recognised in the period in which they are incurred using the effective-rate method. In the event that borrowing costs are incurred prior to the qualifying asset being ready for its intended use, such costs will be capitalised until such time as the asset is substantially ready for its intended use. Qualifying assets are those that necessarily take a substantial period of time to prepare for their intended use. Capitalisation is suspended during extended periods in which active development is interrupted. All other borrowing costs are expensed upon recognition Distributions to participatory interest holders Distributions to participatory interest holders are recognised in the period in which income is earned in accordance with the trust deed of the Fund. The accrued income arising as a result of the difference between actual cash rental received and the amortised amount on a straight-line basis over the periods of the lease contracts is not distributable until realised. The additional profit arising as a result of the Fund amortising upfront lease costs over the period of the lease contracts is not distributable Segment reporting A business segment is a group of assets and operations engaged in providing services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide services within a particular economic environment that are subject to risks and returns that are different from those components operating in other economic environments. The major sectoral segments are retail, office and industrial. Properties are classified as retail, office and industrial according to the nature of their tenants. The geographical split is a secondary segment, the major segments are Gauteng, Western and Eastern Cape, KwaZulu-Natal and Free State. All segment revenue and expenses are directly attributable to the segment. Segment assets include all operating assets used by a segment, and consists principally of investment properties and property, furniture and equipment PI-based payments For equity settled PI-based payment transactions, the services acquired and liability incurred are measured at the fair value of the liability. Until the liability is settled, the fair value of the liability is remeasured at each reporting date and at the date of settlement, with any changes in value recognised in the income statement for the period Taxation No taxation is accounted for in the Fund as all distributable income is distributed to participatory interest holders and is taxable in their hands. As a result no deferred taxation has been raised in the Fund. As a result of the acquisition of Freestone Property Holdings Ltd, which is a tax-paying entity, the group is required to account for deferred taxation. Deferred taxation on the fair value adjustment of investment properties held by Freestone Property Holdings Ltd and its subsidiaries, has been provided at a combination of the applicable income tax and capital gains tax rates, based on the manner in which each asset is expected to be realised and only to the extent that there are not sufficient tax losses to shield the charge Key estimates and assumptions The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect amounts reported in the financial statements. Information on key estimates and assumptions which have the most significant effect on the financial statements are set out in the following notes to the financial statements: Accounting policies notes 1.2, 1.5, 1.6, 1.12, 1.15, 1.20 Investment properties note 10 Receivables note 14 Deferred taxation note 8 44

49 Notes to the financial statements for the year ended 30 June 2008 continued 1.23 New and amended International Financial Reporting Standards not yet adopted Any changes required will be implemented in the accounting period commencing after the effective date. IAS I Presentation of Financial Statements: Comprehensive revision requiring a statement of comprehensive income Effective date: 1 January 2009 The changes made to IAS I require information in financial statements to be aggregated on the basis of shared characteristics and introduce a statement of comprehensive income. The revision includes changes in titles of financial statements to reflect their functions more clearly. The revised standard will affect the disclosures in the financial statements. IAS 32 and IAS I Presentation of Financial Statements: Amendment relating to disclosure of puttable instruments and obligations arising on liquidation Effective date: 1 January 2009 The amendment requires additional information to be presented on puttable instruments that are presented as equity. The amendment will not have any effect as there are no puttable instruments that are presented within equity. IFRS Share Based Payment: Amendment relating to vesting conditions and cancellation Effective date: 1 January 2009 Under IFRS 2, a failure to meet a condition, other than a vesting condition, is treated as a cancellation. IFRS 2 specifies the accounting treatment of cancellations by an entity, but does not give guidance on the treatment of cancellations by a party other than the entity. The amendment requires cancellations by parties other than the entity to be accounted for in the same way as cancellations by the entity. The amendment will not impact on financial statements. IFRS 3 Business Combinations: Comprehensive revision on applying the acquisition method and consequential amendments to IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interest in Joint Ventures. Effective 1 July 2008 The revised IFRS 3 retains the basic requirements of IFRS 3 (2004) to apply acquisition accounting to all business combinations within the scope of IFRS3, to identify the acquirer and to determine the acquisition date for every business combination. The most significant change is a move from a purchase price allocation approach to a fair value measurement principle. The revision is applicable prospectively and will not affect past business combinations. IFRS 8 Operating Systems Effective date: 1 January 2009 IFRS 8 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the chief operating decision maker in order to allocate to the segment and assess its performance. A reconciliation of reportable segments to the total reportable IFRS figures is required for the following items: revenue profit or loss before (or after; in certain circumstances) income tax expense/income and discontinued operations assets liabilities every other material item of information disclosed as required by IFRS 8 It is not expected that the implementation of IFRS 8 will have any significant effect on the financial statements. IAS 23 Borrowing Costs Effective date: 1 January 2009 The previous treatment of immediately recognising borrowing costs as an expense has been eliminated. The revision requires that borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets form part of the costs of that asset. The standard also states a number of exceptions to the above. The revision will not affect results as the current accounting policy is consistent with the revised standard. 45

50 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R REVENUE Revenue from: Operating lease rental income on investment properties Recoveries of operating costs from tenants Allowance for future rental escalations NET PROFIT FOR THE YEAR BEFORE TAXATION Net profit for the year before taxation is arrived at after taking into account the following items: Expenses Auditors remuneration Audit fee Expenses Operating lease payments leasehold properties ACQUISITION OF FREESTONE PROPERTY HOLDINGS LIMITED AND IMPAIRMENT OF GOODWILL With effect from 1 April 2007, Emira acquired all the units in issue of Freestone Property Holdings Limited for new Emira Pis and cash. An analysis of the acquisition is as follows: Settlement of purchase price by the issue of PIs at a value of R10,88 each to Freestone unitholders Cash alternative paid 666 Acquisition costs Total cost of acquisition Assets and liabilities acquired Investment properties Bank balances Other assets Interest-bearing liabilities and preference shares issued ( ) Deferred taxation ( ) Creditors and unitholders for distribution (77 844) Goodwill excess of purchase price paid over fair valuation of assets and liabilities Less: Impairment of goodwill ( ) As the assets and liabilities acquired were fairly valued, it was not possible to attribute the difference between the cost of the acquisition and the value of the assets and liabilities acquired to any individual item. As a result goodwill arising on the acquisition was impaired in full.

51 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R IFRS 2 ADJUSTMENT IN RESPECT OF PI-BASED PAYMENTS During the year PIs were issued which required the following IFRS 2 adjustments: (24 822) (5 914) Discount on the issue of PIs to BEE partners (5 914) (24 822) (67 526) Acquisition of fixed property in exchange for the issue of PIs (67 526) (92 348) (5 914) (5 914) (92 348) 6 FINANCE COSTS (54 788) (68 999) Interest paid on interest-bearing debt ( ) (65 463) Interest capitalised to the cost of developments* (438) Amortised borrowing costs (438) Preference share dividends paid** (8 213) Unrealised gain on interest-rate swaps (36 784) Total finance costs (23 457) * Interest was capitalised at an average rate of 9,78% per annum during the year. ** In 2008 preference share dividends paid have been included in finance costs. In 2007, preference share dividends amounted to R and were included in the statement of changes in equity. 7 INVESTMENT INCOME Debenture interest received from subsidiary Interest received on cash balances Total interest received TAXATION Deferred taxation Revaluation of investment properties Other Reconciliation of the taxation charge Net profit before taxation at 28% (2007: 29%) Rate change (8 948) ( ) ( ) Exempt income ( ) ( ) Non-allowable deductions Fair value adjustments Utilisation of losses (21 907) (27 015)

52 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R EARNINGS PER PARTICIPATORY INTEREST Reconciliation between earnings and headline earnings and distribution payable: Net profit for the year Adjusted for: Net fair value deficit/(gain) on investment properties ( ) Change in fair value of investment properties as a result of straight-lining lease rentals Change in fair value of investment properties as a result of amortising upfront lease costs Change in fair value as a result of property appreciation in value (22 400) ( ) Impairment of goodwill Deferred taxation on revaluation of investment properties Headline earnings Adjusted for: Allowance for future rental escalations (19 415) (17 866) Amortised upfront lease costs (13 565) (9 130) Unrealised gain on interest-rate swaps ( ) (42 444) IFRS 2 adjustments in respect of PI-based payments Maintenance fund expenses Amortised borrowing costs 438 Deferred taxation on revaluation of investment properties Preference share dividends paid (2 934) Distribution payable to participatory interest holders Distribution per participatory interest Interim (cents) 44,34 40,10 Special (cents) 20,75 Final (cents) 47,70 21,50 92,04 82,35 Number of Pis in issue at the end of the year Weighted average number of Pis in issue Earnings per participatory interest (cents) 113,03 363,02 The calculation of earnings per participatory interest is based on net profit for the year of R555,2 million (2007: R1 346,6 million), divided by the weighted average number of participatory interests in issue during the year of (2007: ). Headline earnings per participatory interest 122,12 76,77 The calculation of headline earnings per participatory interest is based on net profit for the year, adjusted for the non-trading items, of R599,9 million (2007: R284,8 million), divided by the weighted average number of participatory interests in issue during the year of (2007: ). Headline earnings for 2007 have been adjusted to comply with SAICA circular 8/2007 which is applicable for financial periods ending on or after 31 August 2007.

53 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP Freehold Freehold and and leasehold Furniture leasehold Furniture land and and land and and buildings equipment Total buildings equipment Total R 000 R 000 R 000 R 000 R 000 R investment properties Net carrying value at 30 June Cost (34 751) (34 751) Accumulated depreciation (35 451) (35 451) Revaluation surplus (18 635) (18 635) Non-current assets held for sale (18 635) (18 635) Movement for the year Valuation at the beginning of the year Additions ( ) (2 095) ( ) Disposals ( ) (2 095) ( ) Disposals accumulated depreciation (9 210) (9 210) Depreciation (9 902) (9 902) (1 101) Reclassification (5 449) ( ) ( ) Deficit on revaluation (10 580) (10 580) Non-current assets held for sale prior year (18 635) (18 635) Non-current assets held for sale current year (18 635) (18 635) Valuation at the end of the year Reconciliation to independent valuations Valuation at the end of the year as above Allowance for future rental escalations Unamortised upfront lease costs Non-current assets held for sale Independent valuations at 30 June

54 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP Freehold Freehold and and leasehold Furniture leasehold Furniture land and and land and and buildings equipment Total buildings equipment Total R 000 R 000 R 000 R 000 R 000 R Investment properties continued Net carrying value at 30 June Cost (26 639) (26 639) Accumulated depreciation (26 646) (26 646) Revaluation surplus ( ) ( ) Non-current assets held for sale ( ) ( ) Movement for the year Valuation at the beginning of the year Additions Acquisition of Freestone Property Holdings Limited (23 215) (23 215) Disposals (23 215) (23 215) (9 958) (9 958) Depreciation (9 966) (9 966) Surplus on revaluation ( ) ( ) Non-current assets held for sale current year ( ) ( ) Valuation at the end of the year Reconciliation to independent valuations Valuation at the end of the year as above Allowance for future rental escalations Unamortised upfront lease costs Non-current assets held for sale Independent valuations at 30 June Full details of freehold and leasehold investment properties owned by the group are available for inspection at the registered office of the group. In terms of its accounting policy, one third of the group s property portfolio is valued annually by independent valuers. The properties were valued as at 30 June 2008 using a discounted cash flow approach based on future income streams, applying an appropriate capitalisation rate to each property. Independent valuations were carried out by CB Richard Ellis, Mills Fitchet (Natal) and Old Mutual, all registered valuers in terms of section 19 of the Property Valuers Profession Act (Act No 47 of 2000). The balance of the portfolio was valued by the directors on a similar basis. Investment properties classified as held for sale were valued at the lower of their carrying amount and fair value less costs to sell. Investment properties to the value of R7 305,2 million (2007: R7 009,6 million) have been used to provide security for loans taken out. See note

55 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R ALLOWANCE FOR FUTURE RENTAL ESCALATIONS Opening balance Subsidiary acquired Income recognised during the year Closing balance UNAMORTISED UPFRONT LEASE COSTS Opening balance Expense deferred during the year Closing balance SUBSIDIARY COMPANIES Shares at cost (97 506) (20 200) Amounts owed to subsidiary companies The group s shares in Arnold Properties (Pty) Ltd have been pledged to Nedbank Limited as security for the issue of preference shares to them. The group s shares in Freestone Property Investments (Pty) Ltd have been pledged to Freestone Mortgage Bond SPV Series 1 (Pty) Ltd as security for the issue of CMBS notes. 14 ACCOUNTS RECEIVABLE AND PREPAYMENTS Trade receivables (4 492) (8 038) Less: Provision for non-recoverable receivables (11 146) (7 941) Net trade receivables Prepayments Other receivables Due within one year Ageing of receivables past due but not impaired days days days days Total

56 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R ACCOUNTS RECEIVABLE AND PREPAYMENTS continued Ageing of impaired receivables days days days days DERIVATIVE FINANCIAL INSTRUMENTS Net fair values of derivative liabilities at the balance sheet date were: Interest rate swap contracts Interest rate swaps The nominal principal amount of the outstanding interest rate swap contracts at 30 June 2008 was R1 504,6 million (2007: R818,7 million) 16 CASH AND CASH EQUIVALENTS Cash at bank PARTICIPATORY INTEREST HOLDERS CAPITAL Authorised and issued Opening balance Issued during the year IFRS 2 adjustment in respect of PI-based payments Number of units Opening balance Issued during the year

57 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R RESERVES Fair value reserve Opening balance ( ) Fair value adjustments (10 580) Allowance for future rental escalations Unamortised upfront lease costs Unrealised gain on interest rate swaps Impairment of goodwill ( ) (2 018) (3 245) Transfer of maintenance fund expenses (3 977) (2 018) Deferred taxation (53 189) ( ) Other reserve (92 348) Opening balance (92 348) (92 348) (5 914) IFRS 2 adjustment in respect of PI-based payments (5 914) (92 348) (92 348) (98 262) (98 262) (92 348) Retained earnings (906) (37 565) Opening balance (1 345) (906) Net profit for the year before taxation ( ) ( ) Distribution to participatory interest holders ( ) ( ) ( ) Fair value adjustments ( ) (17 680) (17 658) Allowance for future rental escalations (19 415) (17 866) (9 130) (569) Unamortised upfront lease costs (13 565) (9 130) (18 442) ( ) Unrealised gain on interest rate swaps ( ) (42 444) Impairment of goodwill Transfer of maintenance fund expenses IFRS 2 adjustment in respect of PI-based payments STC on preference share dividends paid (821) (367) (37 565) (1 511) Closing balance (1 345) (1 345) Total reserves INTEREST-BEARING DEBT 19.1 Borrowings FirstRand Bank Fixed rate 5-year funding term with a capital repayment upon termination. The loan, which bore interest at the one month JIBAR plus 125 basis points, was repaid in full on 28 March FirstRand Bank Floating rate 5-year funding term with a capital repayment on termination. The loan, which bore interest at the one month JIBAR plus 125 basis points, was repaid in full on 28 March

58 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R INTEREST-BEARING DEBT continued FirstRand Bank Floating rate 5-year funding term with a capital repayment on termination. The loan, which bore interest at the one month JIBAR plus 125 basis points, was repaid in full on 28 March FirstRand Bank Floating 7-year access funding with a capital repayment on termination. The loan bears interest at the prime rate less 225 basis points FirstRand Bank Fixed rate 5-year funding term with a capital repayment upon termination. The loan terminates on 30 November Interest is payable at a fixed rate of 10,21% per annum on a nominal annual compounded monthly basis. (Balance shown below under short-term portion of long-term debt) Freestone Finance Company CMBS notes issued to Rand Merchant Bank (RMB) repayable on 28 March Various interest rate swap agreements held by the Fund were novated to RMB, resulting in an effective rate of 9,78%, inclusive of securitisation costs. The notes are secured by a first mortgage bond over fixed property with a carrying value of R1,962 million. (6 189) Less : unamortised securitisation costs (6 189) Freestone Finance Company CMBS notes repayable on 18 June An interest rate swap has been entered into for seven years, which when taking the securitisation costs into account, gives an effective rate of 9,20% per annum. The notes are secured by a first mortgage bond over fixed property with a carrying value of R1,642 million. Less: unamortised securitisation costs (4 214) (5 618) (2 957) (2 393) Amortised borrowing costs (2 393) (2 957) (1 042) (2 957) Opening balance (2 957) (1 042) (2 353) (284) Costs capitalised to borrowings (284) (2 353) Less: Amounts amortised Borrowings carried forward

59 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R INTEREST-BEARING DEBT continued Borrowings Preference shares issued to Nedbank Ltd redeemable years after issue ie. on 31 January 2010 Short-term portion of interest-bearing debt Nedbank limited interest at the prime rate less basis points FirstRand Bank Fixed rate 5-year funding term with a capital repayment in full due on 30 November Total borrowings Debt funding In terms of the trust deed, the fund s aggregated indebtedness may not exceed an amount equal to 30% of the gross value of the underlying assets of the Fund. At 30 June 2008, the aggregate indebtedness amounted to 17,2% of the gross value of the underlying assets. As at 30 June 2008 Emira had a total debt facility available of R1,790 million. Various swaps have been entered into. The breakdown is as follows: Rate Amount % of (%) Term (Rm) debt Debt fixed 10,21 November ,0 7,5 swap 9,38 December 2014 Preference shares floating 10,91* January ,0 6,7 Debt swap 9,78 April ,0 48,5 Debt swap 9,20 June ,0 37,3 Total 9, ,0 100,0 Less: Costs capitalised not yet amortised (12,8) Per balance sheet 1 327,2 * Using a prime rate of 15,5% per annum. FUND GROUP R 000 R 000 R 000 R ACCOUNTS PAYABLE Trade payables Tenant deposits Accrued expenses Prepaid debtors Other payables Due within one year

60 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R NOTES TO THE CASH FLOW STATEMENT Cash generated from operations Net profit for the year adjusted for: ( ) Fair value adjustments ( ) (17 680) (17 658) Allowance for future rental escalations (19 415) (17 866) (9 130) (569) Unamortised upfront lease costs (13 565) (9 130) Impairment of goodwill IFRS 2 adjustment in respect of PI-based payments Interest paid (7 635) Interest capitalised to the cost of developments (7 635) (18 444) ( ) Unrealised gain on interest rate swaps ( ) (42 444) 438 Amortised borrowing costs 438 (3 349) ( ) Interest received (5 864) (4 495) Depreciation Operating profit before working capital changes (12 497) (6 445) Increase in accounts receivable and prepayments (6 251) (23 734) Increase in accounts payable Cash generated from operations Distribution to participatory interest holders ( ) ( ) Distribution payable at the beginning of the year ( ) ( ) ( ) ( ) Distribution for the year ( ) ( ) Distribution payable at the end of the year ( ) ( ) Distribution paid to participatory interest holders ( ) ( ) 22 RELATED PARTIES AND RELATED PARTY TRANSACTIONS Momentum Group ( Momentum ) is the major participatory interest holder. At 30 June 2008, Momentum owned 34,4% of the Fund s participatory interests and the Fund s BEE partners The Tiso Group, The Shalamuka Foundation, Avuka Investments, The RMBP Broad Based Empowerment Trust and Mr B van der Ross- held 12,4%. The remaining 53,2% were widely held. the following transactions were carried out with related parties: strategic Real Estate Managers (Proprietary) Limited Expenditure comprising asset management fees Relationship: Associated company of the FirstRand Group 56

61 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R RELATED PARTIES AND RELATED PARTY TRANSACTIONS continued Rand Merchant Bank a division of FirstRand Bank Limited Long-term interest bearing debt Net finance cost in respect of long-term interestbearing debt Cash on call Finance income on cash on call Relationship: Associated company of the FirstRand Group RMB Properties (Proprietary) Limited Expenditure comprising: property management fee and letting commissions Purchase consideration of Faerie Glen Phase Purchase consideration of RTT Acsa Park Purchase consideration of Newlands Terraces Purchase consideration of Worldwear Fashion Mall Development expenditure Relationship: Associated company of the FirstRand Group Momentum Limited Purchase consideration of Builders Express Purchase consideration of Wonderpark Shopping Centre Purchase consideration of Wesbank House Relationship: Associated company of the FirstRand Group The above transactions were carried out on commercial terms and conditions no more favourable than those available in similar arm s length dealings at market-related rates. 23 MINIMUM CONTRACTED RENTAL INCOME The group has rental income receivable in terms of operating lease contracts: Due within one year Due within two to five years Due beyond five years

62 Notes to the financial statements for the year ended 30 June 2008 continued FUND GROUP R 000 R 000 R 000 R COMMITMENTS AND CONTINGENCIES Authorised capital expenditure Committed Operating lease commitments Commitments due in respect of leases entered into on leasehold properties: Due within one year Due within two to five years Due beyond five years Contingencies The Fund had no material contingent liabilities at 30 June POST BALANCE SHEET EVENTS See page 18 of the Manager s report. 26 SEGMENT INFORMATION The Fund s activities are divided into three main categories namely: Retail Comprises shopping centres Office Comprises decentralised commercial properties Industrial Comprises industrial properties Retail Office Industrial Corporate Total Sectoral segments R 000 R 000 R 000 R 000 R 000 June 2008 Revenue Revenue Allowance for future rental escalation Segmental result Net income from property rental operations (37 122) Other information Investment properties June 2007 Revenue Revenue Allowance for future rental escalation Segmental result Net income from property rental operations Other information Investment properties No segment analysis of liabilities and the related interest payable has been presented as liabilities cannot be linked to specific properties.

63 Notes to the financial statements for the year ended 30 June 2008 continued 26 SEGMENT INFORMATION continued Retail Office Industrial Corporate Total Geographical segments R 000 R 000 R 000 R 000 R 000 June 2008 Revenue Gauteng Western and Eastern Cape KwaZulu-Natal Free State Investment properties Gauteng Western and Eastern Cape KwaZulu-Natal Free State June 2007 Revenue Gauteng Western and Eastern Cape KwaZulu-Natal Free State Investment properties Gauteng Western and Eastern Cape KwaZulu-Natal Free State

64 Notes to the financial statements for the year ended 30 June 2008 continued 27 FINANCIAL RISK MANAGEMENT The group s financial instruments consist mainly of deposits with banks, accounts receivable and prepayments, derivative financial instruments, interest-bearing debt, accounts payable and distributions payable to participatory interest holders. In respect of the abovementioned financial instruments, book values approximate fair value. Exposure to interest rate, credit and liquidity risks occurs in the normal course of business. Weighted average effective 1 year More than interest rate or less 1 5 years 5 years Total (%) R 000 R 000 R 000 R 000 Year ended 30 June 2008 Financial assets Accounts receivable and prepayments Derivative financial instruments Cash and cash equivalents 9,5 11, Total financial assets Financial liabilities Redeemable preference shares Interest-bearing debt 9, Accounts payable Distributions payable to participatory interest holders Total financial liabilities Year ended 30 June 2007 Financial assets Accounts receivable and prepayments Derivative financial instruments Cash and cash equivalents Total financial assets Financial liabilities Redeemable preference shares Interest-bearing debt 9, Accounts payable Distributions payable to participatory interest holders Total financial liabilities

65 Notes to the financial statements for the year ended 30 June 2008 continued 27 FINANCIAL RISK MANAGEMENT continued Cash and cash equivalents It is the group s policy to deposit short-term cash investments with reputable financial institutions. Liquidity risk management Liquidity risk is the risk that the group will be unable to meet its financial commitments. The risk is minimised by holding cash balances and by a floating loan facility. In addition, the company monitors liquidity risk by regularly monitoring forecast cash flows. The group s borrowings are limited to 30% of the value of the group s property portfolio. The company s utilised borrowing capacity at 30 June 2008 can be summarised as follows: R 000 R 000 Valuation of property portfolio % thereof Total borrowings Unutilised borrowing capacity Interest rate risk management The group s exposure to interest rates on financial instruments at balance sheet date is set out on page 55. Interest rates are constantly monitored and appropriate steps are taken to ensure that Emira s exposure to interest rate fluctuations is limited. Interest rates have been fixed for extended periods ranging from 2013 to The average rate of interest at year-end (applicable to the fixed interest rate agreements) was 9,67% (2007: 9,86%). At year-end 6,7% of Emira s debt was subject to a variable or floating interest rate and was not covered by an interest rate swap agreement. An increase in the prime interest rate of 1% per annum would result in an increase in interest payable, of R per annum, in respect of the floating portion of the Fund s debt. Credit risk management Credit risk is limited to the carrying amount of financial assets at the balance sheet date. Potential areas of credit risk consist of trade receivables and short-term cash investments. Trade receivables consist of a large, widespread tenant base. All specific doubtful debts have been impaired and at year-end management did not consider there to be any material credit risk exposure that was not already covered by an impairment adjustment. The impairment adjustment at 30 June 2008 was R11,1 million (2007: R7,9 million) net of tenants deposits and guarantees held as security. The company held cash deposits and guarantees with a fair value of R67,1 million at 30 June 2008 (2007: R51,9 million). The specifically impaired receivables relate to tenants who have either been handed over for non-payment, or have vacated the premises. It is expected that a portion of the specifically impaired receivables will be recovered. The allowance for impaired receivables and receivables written off are included in property expenses. Amounts charged to the allowance will be written off when all avenues for recovery have been exhausted and there is no expectation that any further cash will be received. At balance sheet date no geographic area, rental sector or size of tenant had been identified as a specific credit risk. Receivables past due but not impaired Receivables are considered to be past due when they are uncollected one day or more beyond their contractual due date. As at 30 June 2008, trade receivables of R15,5 million (2007: R10,1 million) were considered past due but not impaired. These include varied tenants with no recent history of payment default. 61

66 Property listing (including new acquisitions) Type Property Location Major Tenant GLA Jun 08 valuation (R 000) Weighted average rental/m² % of sector % of portfolio ,72 1,0% 0,4% Offices 100 on Armstrong 100 Armstrong Avenue, Forest Park, La Lucia Ridge, Durban Offices 1059 Schoeman Street 1059 Schoeman Street, Hatfield SAP Africa (Pty) Ltd, Imperial Bank (Pty) Limited, DBC Woven (Pty) Ltd, Pastel Software (Pty) Ltd, RMB Asset Management (Pty) Ltd SABC Ltd, United Nations Office for Drug Control & Crime Prevention, The Embassy of Ireland, Khuthele Projects (Pty) Ltd ,52 1,5% 0,7% Office 12 Baker Street 12 Baker Street, Rosebank Sasol Group Services (Pty) Limited * 1,3% 0,6% Offices 122 Pybus Road 122 Pybus Road, Sandton Rennies Travel (Pty) Ltd, SBT Juul South Africa, ,38 0,9% 0,4% MECS Africa Pty Ltd, Zim Integrated Shipping Services SA (Pty) Ltd, TAS Appointments and Management Services CC Office 2 Sturdee Avenue 2 Sturdee Avenue, Rosebank Sasol Group Services (Pty) Limited * 1,5% 0,7% Offices 267 West 267 West Avenue, Centurion Afgri Capital A Division of Afgri Operations ,72 2,4% 1,1% Limited, FirstRand Bank Limited, FNB Life, Momentum Group Limited Office Albury Park Magalieszicht Avenue, Dunkeld West Resolve SA (Pty) Ltd, Front Range Solutions SA (Pty) Ltd, Trilion Video SA (Pty) Ltd, Northam Platinum Limited, Bowers Incorporated ,29 2,0% 0,9% Offices Bank Forum 337 Bronkhorst Street, New Muckleneuk, Pretoria Office Barvic House 4 Burker Street, Kensington B, Randburg Offices Boundary Terraces 1 Mariendahl Lane, Newlands, Cape Town Offices Braamfontein Centre 23 Jorissen Street, Braamfontein Newtons Incorporated, Nedbank Limited, Bild Architects, FirstRand Bank Ltd, Old Mutual Life Assurance Company SA Ltd Platinum Reload (Pty) Ltd, PIM Services, Medigroup Citadel Investment Service Ltd, Pinnacle Point Investments (Pty) Ltd, Saving & Investment Association, Resafrica (Pty) Ltd Pick n Pay, CTH Legal Administration Trust, City of Joburg Property Company (Pty) Limited, The Ford Foundation, Open Society Initiative for Southern Africa, Jet Education Services (Pty) Ltd ,67 1,7% 0,8% ,53 0,3% 0,1% ,57 3,7% 1,7% ,33 3,5% 1,6% Offices Bradenham Hall Mellis Avenue, Rivonia Millward Brown SA (Pty) Ltd, Qad Software ,17 1,2% 0,6% South Africa (Pty) Ltd, Strats Solutions CC Offices Brooklyn Office Park Nicolson Street, Brooklyn Moores Rowland, Fast Communication Systems ,49 1,0% 0,5% (Pty) Ltd, Foundation for Professional Developments (Pty) Ltd, Austrian Embassy, Synovate (Pty) Ltd Office CBC House 261 Surrey Avenue, Ferndale Advtech Resourcing (Pty) Ltd ,95 0,2% 0,1% Offices Century Gate Cnr Century Boulevard & Bosmandam Road, Century City Office Chiappini House 26 Chiappini Street, Cape Town Office Ciros House 41A Homestead Avenue, Edenburg Office CRB House Cnr Kramer & Desmond Roads, Kramerville FirstRand Bank Limited, Afroteq Facilites Management (Pty) Ltd, Sunair Holdings Limited ,66 0,3% 0,1% Icicle Investments (Pty) Ltd, Diamond s Discount Liquor (Pty) Ltd, The Propfin Trading Trust, Diana Christine Davis ,56 0,3% 0,1% The Glass Recycling Company (Pty) Ltd ,08 0,4% 0,2% St Leger & Viney (Pty) Ltd, XDSL Trading 561 (Pty) Ltd *Single tenant weighted average of all single tenant buildings in office sector R87,40/m ,16 1,0% 0,5% 62

67 Property listing (including new acquisitions) continued Type Property Location Major Tenant GLA Jun 08 valuation (R 000) Weighted average rental/m² % of sector % of portfolio Offices Dalefern 284 Oak Avenue, Ferndale Only the Best (Pty) Ltd, Primedia at Home (Pty) ,99 0,6% 0,3% Ltd, Population Council, Health Science Academy (Pty) Ltd Offices Deloitte Cnr Fehrsen Street & Waterkloof Road, Brooklyn Deloitte and Touche * 1,3% 0,6% Offices Derby Downs 9 Derby Place & 4 Sookhai Place, Derby Downs Offices Discovery Health 2 Frosterley Crescent, La Lucia Ridge, Umhlanga Rocks, Durban Offices Dorbyl Parktown 16 Jan Smuts Avenue, Parktown Office Dresdner House 2 North Road, Dunkeld West Dresdner Bank, Interact Research Design & Training CC Offices East Coast Radio House 314/7 Umhlanga Rocks Drive, Umhlanga Rocks Lafarge South Africa (Pty) Ltd, McCarthy Limited, ,93 0,5% 0,2% Healthbridge Discovery Health (Pty) Ltd * 0,8% 0,4% Pyromet (Pty) Ltd ,46 0,7% 0,3% East Coast Radio (Pty) Ltd, Strauss Daly Inc, Absa Bank Limited, Seekers World Travel Offices East Rand Junction Cnr North & K90, Boksburg Hammond Pole Inc, Afgri Operations Limited, Virtual Card Acquiring (Pty) Limited, Wesbank Offices Epsom Downs Office Park 13 Sloane Street, Bryanston Angor Property Specialists (Pty) Ltd, Modernarch Offices (Pty) Ltd, Standard Bank of SA Ltd, Mint Net (Pty) Ltd, WBHO Construction (Pty) Ltd Offices Faerie Glen 291 Sprite Avenue, Faerie Glen Office Fleetway House 17 Martin Hammerschlag Way, Cape Town VIP Personnel & Payroll Systems (Pty) Ltd, FirstRand Bank Ltd, Sanlam Life Insurance Ltd, Simeka Employee Benefits (Pty) Ltd Sea Harvest Corporation Limited, Print Active CC, The Property Administrators (Pty) Ltd, Management Computer Services, Enroute Traders (Pty) Ltd ,98 0,2% 0,1% ,59 1,6% 0,7% ,26 1,3% 0,6% ,67 2,4% 1,1% ,48 3,6% 1,7% ,60 1,3% 0,6% Office Fluor Building 1 Kikuyu Street, Sunninghill Fluor SA (Pty) Ltd * 2,3% 1,0% Office FNB Building Heerengracht Street, First National Bank Limited, Mariams Kitchen, ,59 0,6% 0,3% Cape Town School of Shipping CC Offices FNB Midrand Cnr 16th & Old Pretoria Road, Midrand First National Bank of SA Limited, Healthtech Laboratories (Pty) Ltd ,43 0,4% 0,2% Offices Gateview 3 Sugar Close, Umhlanga Almar Agencies, Private Property Listing, The ,18 0,8% 0,3% Internet Solutions (Pty) Ltd, VJV Consultants Office Georgian Place 18 Southway Road, Kelvin Sweets From Heaven Franchise (Pty) Ltd, ,97 1,4% 0,6% Kwesuba Consulting (Pty) Ltd, JPC Restaurants CC, Infinex Financial Services Pty Ltd, JD Grota Office Hamilton House 30 Chiappini Street, Cape Town BBDO (Pty) Ltd, Chiappini s Pizza & Pasta ,02 1,0% 0,5% Office Harbour Place Cnr Oswald Pirow & Martin Hammerschlag Way, Cape Town Office Harrogate Park Pretorius Street, Hatfield, Pretoria Hyundai Automotive South Africa (Pty) Ltd, Raft Holdings, Tracker Network (Pty) Ltd, Metal & Engineering Industries Bargaining Council Family Trust Management Services (Pty) Ltd, Strachan & Crouse, Affirmative Portfolio, KPMG Services (Pty) Ltd *Single tenant weighted average of all single tenant buildings in office sector R87,40/m ,51 1,2% 0,6% ,74 0,4% 0,2% 63

68 Property listing (including new acquisitions) continued Type Property Location Major Tenant GLA Jun 08 valuation (R 000) Weighted average rental/m² % of sector % of portfolio Office Herdbuoys Building 6 Kikuyu Road, Sunninghill, Sandton Herdbuoys McCann-Erickson Pty Ltd * 1,8% 0,8% Office Howick Gardens Becker Street, Waterfall Park, Midrand Office Hurlingham Office Park Cnr Republic & William Nicol Streets, Hurlingham Office Hyde Park Lane Cnr Jan Smuts & William Nicol Drive, Hyde Park Office Iustitia Building Cnr St Andrews & Aliwal Streets, Bloemfontein Offices Knightsbridge Manor 33 Sloane Street, Bryanston Ext 4 Office Kuehne & Nagel House 381 Berea Road, Bulwer, Durban Offices Lake Buena Vista 1 Gordon Hood Avenue, Centurion Offices Lincoln Wood Office Park Woodlands Drive, Woodmead African legent Indigo (Pty) Ltd, SA Rail Commuter Corporation Ltd, Intertie Property Management Services (Pty) Ltd, ZTE Corporation SA, Reunert Management Services Office Linkview 260 kent Avenue, Ferndale, Randburg Offices Lone Creek Cnr Mac Mac & Howick Close, Midrand Offices Lynnridge Mews Cnr Hibiscus Street & Jacobsen Offices Menlyn Cnr Lois & Gobie Streets, Menlyn Offices Midrand Business Park 563 Main Road, Halfway House, Midrand Offices Momentum House Cnr Stanger, Prince Albert & Dunford Roads, Kingsmead, Durban Cipla Medpro Pty Ltd, Minco Mineral Holdings (pty) Ltd, Postilion International Ltd, Inkwali Engineering Services ,62 0,6% 0,3% Computer Software Consultants (Pty) Ltd, ,26 2,9% 1,3% Pambili Document Solutions (Pty) Ltd, consumer Goods Council of SA, Hurlingham Office Suites CC, Tsebo Holdings and Operations (Pty) Ltd The Standard Bank of SA, Willis RE (Pty) Ltd, ,43 5,2% 2,4% Property Marketers CC, Tag Travel (Pty) Ltd, Dynamic Visual Technologies (Holdings) Society of Advocates, Mutual & Federal, ,02 0,6% 0,3% Departement van Openbare Werke Afgri Operations Limited, Norilsk Nickel Africa ,80 2,0% 0,9% (Pty) Ltd, Dovetail Business Solutions (Pty) Ltd, Motswedi TLC Software (Pty) Ltd, Kuehne & Nagel (Pty) Ltd, Port Natal Lodge, ,3% 0,1% Small Enterprise Development Agency Outsurance ,4% 0,7% Aqua Engineering SA (Pty) Ltd, Ability Financial Advisors (Pty) Ltd, Verify Solutions (Pty) Ltd Cement and Concrete Institute, End User Finance, Hoge Presentation & Graphics, Batseta Consulting CC Phakama Funeral Society (Pty) Ltd, Freeworld Travel (Pty) Ltd, Defence Dynamics Absa Bank Limited, The Standard Bank of South Africa Limited, First National Asset Management and Trust Company, FirstRand Bank Limited, Van Zyl, Le Roux & Hurter Incorporated Construction Education & Training Authority, Land Use Transport & Environmental Specialists (Pty) Ltd, Postnet Southern Africa (Pty) Ltd, Ngubane & Co Management Consultants (Pty) Ltd, Celtrac (Pty) Ltd Telesure Group Services (Pty) Ltd, Grafton Everest, Larson Burton & Falconer Inc, Tshwane University of Technology Offices Newlands Terraces 8 Boundary Road, Newlands UCS Solutions (Pty) Ltd, The Western Province Rugby Football Union, Taquanta Asset Management (Pty) Ltd *Single tenant weighted average of all single tenant buildings in office sector R87,40/m ,90 2,9% 1,4% ,35 0,2% 0,1% ,70 1,1% 0,5% ,27 0,5% 0,2% ,01 2,8% 1,3% ,73 1,6% 0,8% ,18 1,4% 0,7% ,58 1,9% 0,9% 64

69 Property listing (including new acquisitions) continued Type Property Location Major Tenant GLA Jun 08 valuation (R 000) Weighted average rental/m² % of sector % of portfolio ,18 0,4% 0,2% Offices Nimas House 5 The Boulevard, Westway Office Park, Westville Office Olivedale Office Park Cnr Olive & Lima Street, Olivedale, Randburg Office Omni Centre 73 Aliwal Street, Bloemfontein Metropolitan Health Corporate (Pty) Ltd, Uniclox (Pty) Ltd DNA Telesales CC, IDA Biz SA CC, CRS Holdings, Birthday Suit Corporate Gifts CC Surveyor General - Dept Public Works, Free State Province - Dept of Education, Agricultural - Dept of Public Works ,79 0,4% 0,2% ,37 0,5% 0,2% Offices Oracle House Smuts Drive, Midrand Oracle Corporation SA (Pty) Ltd * 1,6% 0,7% Offices Podium House Cnr Atterbury & Lois Avenues, Discovery Health, Equitac Commodity Brokers, ,02 0,6% 0,3% Menlyn Global Television and Communication Services CC, Wendy Machanik Property Holdings Offices Rentworks 48 Grosvenor Road, Bryanston Rentworks Africa (Pty) Ltd, Amadeus Global ,65 1,0% 0,5% Travel Distribution Southern Africa (Pty) Ltd Offices Rigel Park 446 Rigel Avenue, Erasmusrand, Pretoria Financial Services Board * 1,2% 0,5% Office Riverworld Park 42 Homestead Road, Edenburg The Jupiter Drawing Room (Pty) Ltd, Galaxy Holdings (Pty) Ltd, Aptus Integrated Solutions ,96 1,0% 0,5% Offices Sandgate Park 16 Desmond Street, Eastgate Griffiths & Griffiths CC, Four Moons Trading CC, ,46 1,9% 0,9% GE Sapani & S Brook, Jaycor International (Pty) Ltd, Symetric Information Technologies (Pty) Ltd, Nicci Boutiques CC Office Southern Life Plaza 41 Maitland Street, Free State Legislature, FirstRand Bank Limited ,63 1,7% 0,8% Bloemfontein Offices Strathmore Park 305 Musgrave Road, Durban Orion Telecom South Africa (Pty) Ltd, Adcorp ,15 0,9% 0,4% Holdings Limited, Citigate South Africa (Pty) Ltd, Kayser, Baird & Associates, SA Biomedical (Pty) Ltd Office Sturdee House 9 Sturdee Avenue, Rosebank Netcare Hospitals (Pty) Ltd, RA Hellman & Company ,15 0,4% 0,2% Office The Avenues North Mellis Road, Edenburg, Sandton Offices The Gables 1209 Schoeman Street, Hatfield Connection Group Holdings Limited, Skeeme Designs CC, Brand Soldiers CC Securicor, The Centre for Development Population Activities Incorporated ,87 1,0% 0,5% ,38 0,7% 0,3% Office The Pinnacle 2 Burg Street, Cape Town Grant Thornton, Frater Asset Management (Pty) ,30 3,0% 1,4% Ltd, Logical Options (Pty) Ltd, Marais Muller Management Trust, independent Development Trust Offices Tuinhof 265 West Avenue, Centurion Trans Caledon Tunnel Authority, Internex ,67 2,3% 1,1% Engineering & Management Consulting (Pty) Ltd, FirstRand Bank Limited, Quality Business Consultants Office UNDP House Cnr Leeukop & Naivasha United Nations Development Programme * 1,1% 0,5% Road, Sunninghill, Sandton Offices Wesbank House 21 Riebeek Street, Cape Town Department of Labour, Wesbank, FNB Commercial Banking, Reuters SA ,02 2,1% 1,0% *Single tenant weighted average of all single tenant buildings in office sector R87,40/m 2 65

70 Property listing (including new acquisitions) continued Type Property Location Major Tenant GLA Jun 08 valuation (R 000) Weighted average rental/m² % of sector % of portfolio ,12 0,8% 0,4% Offices Westway 17 The Boulevard, Westway Office Park, Westville Offices Woodmead Office Park 145 Western Services Road, Woodmead Subtotal Offices First National Asset Management & Trust Company, Emmanuel Staffing Services (Pty) Ltd, Davis Langdon Farrow Laing (Pty) Ltd Young & Rubicam Hedley Byrne (Pty) Ltd, Regenesys Management (Pty) Ltd, ECI Africa Consulting (Pty) Ltd, Zebra Technology Group (Pty) Ltd, Dusty Trax CC ,36 3,6% 1,6% ,17 100% 46% Retail Bizana Shopping Centre Main Road, Bizana Boxer Superstores, Barnetts, Pep, Power Factory Shop, Discom Retail Boskruin Shopping Centre Cnr of President Fouche & Hawken Avenue, Bromhof Retail Brandwag Melville Drive, Brandwag, Bloemfontein Retail Central Square Idutywa Cnr Bell & Richardson Streets, Idutywa Retail Retail Centurion Discount Centre Cofimvaba Shopping Centre 1289 Heuwel Avenue, Centurion Main Road, Cofimvaba Retail Cresta Corner Cnr Beyers Naude Drive & Pendoring Street, Cresta Retail Dundee Boulevard Karel Landsman Street, Dundee Retail Retail Epsom Downs Shopping Centre Flagstaff Shopping Centre ,31 0,5% 0,2% Woolworths (Pty) Ltd, Boskruin Village Hardware Centre, Clicks, Luigi s Pizzeria, Keg & Countryman, Island Fusion Restaurant CC ,29 3,5% 1,3% Pick n Pay Retailers (Pty) Ltd, Engen Petroleum ,67 3,2% 1,2% Limited, FNB Learning, First National Bank of SA Ltd, Pepkor Retail Limited Pep Stores, Buzi Cash & Carry, Dunns, Power ,72 0,7% 0,2% Factory Shop, Carelishelf Investments Fabric & Décor, Hikers Paradise CC, Clothing City ,52 0,4% 0,2% Boxer Superstores (Pty) Ltd, Pep Stores, Lewis Stores, Ellerines Furnishers, Jabula Store Virgin Active (Pty) Ltd, Audi Centre Northcliff, Hyundai Automotive (Pty) Ltd, Indgro Investments Pick n Pay Retailers, Edgars, Woolworths, Clicks, Truworths 13 Sloane Street, Bryanston Pick n Pay, Woolworths (Pty) Ltd, Nedbank Ltd, Goldex 243 (Pty) Ltd Main Road, Flagstaff Score Supermarkets, The Standard Bank, Dong Jiawang, Zama Zama Supermarket ,26 0,8% 0,3% ,62 2,2% 0,8% ,72 1,1% 0,4% ,67 2,3% 0,8% ,40 0,4% 0,1% Retail Gateway 1319 Pretoria Street, Hatfield Hatfield Kwikspar, McDonalds SA (Pty) Ltd ,66 0,6% 0,2% Retail Gift Acres Lynnwood Road, Lynnwood Ridge Woolworths (Pty) Ltd, Younique (Pty) Limited, FirstRand Bank Limited, Mimmo s Gift Acres, Solomons, Mr Price Clothing ,22 3,7% 1,3% Retail Granada Shopping Centre 16 Chartwell Drive, Umhlanga Rocks Meumann White Attorneys, Cape Project Services (Pty) Ltd, Andritz (Proprietary) Limited, Europa Umhlanga CC, SA Independent Catering Services ,00 1,7% 0,6% Retail Greytown Centre Bell Street, Greytown U-Save, Pep, Dunn s, Kentucky Fried Chicken ,98 0,3% 0,1% Retail Home Centre Springfield Durban B & J Meltz (Proprietary) Limited, Relyant Trading ,61 3,7% 1,3% (Pty) Ltd, Fruit and Veg City Holdings (Pty) Ltd, Greg s Bedding CC, Moresport Retail Kokstad Boxers Main Street, Kokstad Boxer Superstores (Pty) Ltd * 0,2% 0,1% *Single tenant weighted average of all single tenant buildings in retail sector R54,70/m 2 66

71 Property listing (including new acquisitions) continued Type Property Location Major Tenant GLA Jun 08 valuation (R 000) Weighted average rental/m² % of sector % of portfolio Retail Kokstad Shopping Centre Main Street, Kokstad Rhino Cash & Carry, Jet Stores, Barnetts, ,49 1,3% 0,5% Ackermans Kokstad, Dunns, Jwayelani Butchery Retail Linksfield Road Linksfield Road, Linksfield Woolworths (Pty) Ltd, Regal Palace Chinese Restaurant, Edenroc (Pty) Ltd, Canoa Dining CC ,89 1,2% 0,4% Retail Lynnridge Mall Cnr Freesia & Mayflower, Lynnwood Ridge Pick n Pay Stores Limited, Mr Price Group Limited, Absa Bank Limited, Kraal Products CC, The Standard Bank of South Africa Limited, Ackermans, Lion Bridge Retail Market Square Beacon Way, Plettenberg Bay Pick n Pay Family Store, Woolworths (Pty) Ltd, Ackermans, Mr Price Clothing, Yellow Wood Spur Retail Matatiele Centre Station Road, Matatiele Rhino Cash & Carry, Matatiele Power Stores, Pep Stores, Discom, Natal Fashion Wear Retail Midrand Motor City Main Road, Midrand Midrand Action Sports CC, Dent Doctor, Midrand Speedy Tyre & Exhaust, Tam Bakery CC Retail Montana Value Centre Zambezi Drive, Sinoville, Pretoria North Retail Mutual Mews 333 Rivonia Boulevard, Edenburg Retail Ngwavuma Shopping Main Road, Ingwavuma Centre Bathroom Bizarre (Pty) Ltd, Doxa Deo Congregation North Campus, Relyant Trading (Pty) Ltd, Outdoor Warehouse, Vaal Tyre Centre Holdings (Pty) Ltd Glyda Enterprises CC, Lee Chang Export & Import CC, Steers Supatrade Spa, Ellerine Furnishers, Pep Stores, Ithala Bank ,53 5,8% 2,1% ,91 4,3% 1,5% ,03 1,3% 0,4% ,24 1,0% 0,4% ,60 2,3% 0,8% ,36 0,4% 0,2% ,13 0,9% 0,3% Retail Nongoma Centre Sizwe Road, Nongoma King Super Store, Supatrade Spar, Jet Stores, Price ,77 1,3% 0,5% n Pride, Pep Stores, Absa Bank Retail Nqutu Cnr Manzolwandle & Hlube Roads, Nqutu Boxer Superstores, Town Talk, Power Group, KFC ,83 0,6% 0,2% Retail Old Acre Plaza Cnr Victoria & Wilson Streets, Dundee Retail Park Boulevard Retail Centre 11 Brownsdrift Road, Riverside, Durban North Retail Quagga Centre Cnr Church & West Street, Pretoria West Retail Randridge Mall John Vorster Drive, Randpark Ridge Pop In Supermarket, Shell SA Marketing (Pty) Ltd, Jet Stores, Ackermans Limited, Discom Connoisseur Electronics, Coastal Music (Pty) Ltd, Leeseev CC, SSS Fitness & Nutrition Company, On Tap, The Machine O Shoprite Checkers (Pty) Ltd, Pick n Pay Stores Limited, Edgars Consolidated Stores Limited, New Clicks South Africa (Pty) Ltd, Mr Price, Pep Stores, The Standard Bank of SA Pick n Pay Tvl (Pty) Ltd, Woolworths (Pty) Ltd, Dischem, Pepkor Retail Limited, AG Canossa ,76 1,0% 0,4% ,91 0,9% 0,3% ,44 7,7% 2,8% ,51 6,3% 2,3% Retail Southern Sentrum Benade Drive, Bloemfontein Pick n Pay Stores, Shell SA Marketing (Pty) Ltd, ,80 2,9% 1,0% Pepkor Retail Limited, Purchase Milton & Associates, Crazy Store Retail Standard Bank Glenwood 88 Brand Street, Glenwood, Durban Standard Bank of South Africa Limited * 0,1% 0,0% Retail The Colony Centre 345 Jan Smuts Avenue, Craighall Park *Single tenant weighted average of all single tenant buildings in retail sector R54,70/m 2 Baby City, Worldwide Sports Marketing & Advertising, JDI Consultants, Colony Arms, Janes Linen Warehouse ,66 2,1% 0,8% 67

72 Property listing (including new acquisitions) continued Type Property Location Major Tenant GLA Jun 08 valuation (R 000) Weighted average rental/m² % of sector % of portfolio Retail The Tramshed Van der Walt Street, Pretoria Pick n Pay Stores Ltd, Virgin Active South Africa ,59 2,6% 0,9% (Pty) Ltd, The Government of the Republic of South Africa, Dicom Tramshed, SA Post Office Retail Tin Roof Cnr Madeira & Callaway Street, Umtata Transkei Yamaha, Ackermans, Dunns ,31 0,3% 0,1% Retail Tokai Shopping Centre 20 Hans Strijdom Avenue, Ferndale, Randburg Retail Umhlanga Centre 185 Ridge Road, Umhlanga Rocks Craighall Car Radio, Dros Restaurant Randburg CC, Kumnandi Food Company (Pty) Ltd, Potters Pool & Pub The Spar Group Limited, Jimmy s Killer Prawns, Mews Pharmacy, Contours Express, Pam Golding Properties Retail Umzimkulu Centre Main Road, Umzimbulu Rhino Cash & Carry, Barnetts, Pep Stores, Ellerines, Kentucky Fried Chicken Retail Wonderpark Shopping Centre Cnr R513 Brits Road & Heinrich Avenue, Karenpark Retail WorldWear Fashion Mall Cnr Beyers Naude Drive & Wilson Road, Fairland Subtotal Retail Pick n Pay Stores Limited, Masstores (Pty) Ltd, Virgin Active South Africa (Pty Ltd, Edgars Consolidated Stores Limited, Cashbuild South Africa (Pty) Ltd, Woolworths, Builders Express, Chevron SA (Pty) Ltd Mr Price Group Limited, Pick n Pay (Pty) Ltd, The Pro Shop, Seemann s Quality Meat, Busby Retail (Pty) Ltd, Adidas SA (Pty) Ltd ,18 0,8% 0,3% ,99 1,6% 0,6% ,15 0,9% 0,3% ,33 21,1% 7,6% ,93 5,9% 2,1% ,06 100% 36% Industrial 8 Grader Road 8 Grader Road, Spartan AIC Chemicals (Pty) Ltd * 0,8% 0,1% Industrial Admiral House 151 Lechwe Street, Mega Packaging, Kaira Technologies (Pty) Ltd, ,02 1,8% 0,3% Randjiespark New Channel Trading CC Industrial Aeroport - Fulcrum 96 Loper Avenue, Spartan Sturrock & Robson Industries Ltd * 1,4% 0,2% Industrial Aeroport - Grenco 98 Loper Avenue, Spartan Grenco (SA) (Pty) Ltd * 0,6% 0,1% Industrial Arjo Wiggins - Mahogany Ridge 1 Monte Carlo Road, Mahogany Ridge, Pinetown Industrial Barracuda 82 Lechwe Street, Randjiespark Antalis (Pty) Limited * 2,6% 0,5% OBC Group (Pty) Ltd, McCarthy Ltd, Maxxis Auto (Pty) Ltd Industrial Cambridge Park Witkoppen Road, Paulshof Estee Lauder Companies (Pty) Ltd, Itec SA, Itec North (Pty) Ltd, Dafoss (Pty) Ltd, Puma Sports Distribution (Pty) Ltd Industrial Crocker Road Industrial Park Cnr Peddie & Crocker Roads, Wadeville Industrial Defy Appliances Cnr Mimetes Rd & Kruger St, Denver ,88 2,2% 0,4% ,75 3,5% 0,6% George John Rubenstein, Arnold Clinton de Beer, National Conveyor Products, Inline Distributors, Generator Boys CC ,18 1,6% 0,3% Defy Appliances Ltd * 2,3% 0,4% Industrial Electrocom Indianapolis Crescent, Kyalami RS Components (Pty) Ltd, Mobideck CC ,26 1,0% 0,2% Industrial Epping Warehouse 1 Bofors Circle, Epping Nampak Products Ltd, Bonerts Motor Spares ,11 4,9% 0,9% (WGA) (Pty) Ltd, Auto Part Distributors (Pty) Ltd Industrial Evapco Cnr Quality and Barlow Streets, Isando Evapco SA (Pty) Ltd * 1,5% 0,3% *Single tenant weighted average of all single tenant buildings in industrial sector R34,23/m 2 68

73 Property listing (including new acquisitions) continued Type Property Location Major Tenant GLA Jun 08 valuation (R 000) Weighted average rental/m² % of sector % of portfolio Industrial Executive City 81 Industrial Road, Kya Sands Blue Chip Lubricants (Pty) Ltd, Sensient Colours ,42 1,3% 0,2% South Africa (Pty) Ltd, Kitchen Unique CC, Health & Beauty, Shimba Marketing Distribution Promotion CC Industrial Flexitainer 59 Lechwe Street, Bridging Technologies South Africa (Pty) Ltd ,61 0,5% 0,1% Randjiespark Industrial Fosa Park 570 Inanda Road, Durban Adcock Ingram Healthcare (Pty) Ltd * 1,1% 0,2% Industrial Freeway Park Cnr Barkley & Camp Roads, Maitland Torga Optical (Pty) Ltd, Armageddon Security Guarding Company CC, Advanced Material Technology, X International (Pty) Ltd, Inhep Electronics Holdings (Pty) Ltd ,46 3,3% 0,6% Industrial Goodyear Tycon Cochrane Avenue, Epping Goodyear South Africa (Pty) Ltd * 1,6% 0,3% Industrial Greenfields 1455 North Coast Road, Durban North Newsstand Investments, A & B Movers KZN CC, Media Film Services SA (Pty) Ltd, Alvin Dudley Meyer, Longlife Tyres (Pty) Ltd ,27 2,4% 0,4% Industrial Highway Business Park-IST 36 Park Avenue North, Old Johannesburg Rd, Centurion Industrial Highway-Ceramic World 95 Park Avenue North, Rooihuiskraal, Centurion Industrial Highway-National TT 95 Park Avenue North, Rooihuiskraal, Centurion Industrial Industrial Highway-Outdoor Warehouse Highway-Productive Systems 95 Park Avenue North, Rooihuiskraal, Centurion 95 Park Avenue North, Rooihuiskraal, Centurion Industrial Industrial Village Jet Park Cnr Kelly Street and Ackerman Road, Jet Park Industrial Industrial Village Kya Sands Cnr Elsecar & Bernie Streets, Kya Sands Westinghouse Electric South Africa (Pty) Ltd * 1,4% 0,3% Ceramic World * 0,7% 0,1% National Tile Traders (Pty) Ltd * 0,5% 0,1% Patels Ceramics (Potchefstroom) (Pty) Ltd * 0,5% 0,1% Productive Systems (Pty) Ltd * 0,8% 0,1% Universal Church of the Kingdom of God, CSE Equipment Company (Pty) Limited, Siemag Blanes (Pty) Limited, Rene Turck & Associates (Pty) Ltd, New Deal Trading 11 (Pty) Ltd Aqua-Touch (Pty) Ltd, LGB Distributors CC, Poli-Film South Africa (Pty) Ltd, Group Africa Marketing (Pty) Ltd, Rolands Building & Roofing Specialists CC ,51 3,0% 0,5% ,46 4,1% 0,7% Industrial Industrial Village Rustivia 6 Rover Street, Elandsfontein Major Tech (Pty) Ltd, Johnson Access (SA) (Pty) ,35 1,8% 0,3% Ltd, ISO Bearings CC, In Line Trading 112 (Pty) Ltd Industrial Isando - Unitrans 20 Anvil Road, Isando, GMG Power SA, Joshua Doore Warehouse ,27 2,2% 0,4% Kempton park Industrial Johnson & Johnson 1 Medical Road, Midrand Johnson & Johnson Medical (Pty) Ltd * 1,0% 0,2% Industrial Midline Business Park Cnr Richards Drive & Le Roux Road, Midrand Sil Farming CC, Coated Fabrics (SA) (Pty) Limited, Amandla Coupter & Machine Moving CC, Niser Composites SA (Pty) Ltd, Zenith (Africa) Rollers (Pty) Ltd ,02 3,6% 0,6% Industrial Mitek South Africa 16th Street, Midrand Mitek South Africa Pty Ltd * 2,3% 0,4% Industrial Morgan Creek 38 Mahogany Road, Simba (Pty) Ltd * 1,6% 0,3% Mahogany Ridge, Pinetown *Single tenant weighted average of all single tenant buildings in industrial sector R34,23/m 2 69

74 Property listing (including new acquisitions) continued Type Property Location Major Tenant GLA Jun 08 valuation (R 000) Weighted average rental/m² % of sector % of portfolio Industrial Nampak Building Nicolson Street, Denver Nampak Cartons & Labels Limited * 1,6% 0,3% Industrial New Zealand Milk Cnr 16th and Douglas Roads, Ceva Animal Health (Pty) Ltd * 1,0% 0,2% Products Midrand Industrial One Highveld 5 Bellingham Street, Centurion Industrial Portion 130 Spartan Director Road, Aeroport, Spartan Industrial QD House Silverstone Crescent, Kyalami Industrial Rep-Props Winnipeg Avenue, Aeroport Industrial Rinaldo Park 50 Moreland Road, Redhill Industrial Park Industrial RTT Acsa Park Cnr Springbok & Jones Street, Bardene Industrial RTT Continental Cnr Springbok & Jones Street, Bardene Industrial Siliconics Cnr Precision & Silicon Streets, Kya Sands V-Custom Cycles, S & J Office Furniture CC, Eclipse Infrastructure Solutions (Pty) Ltd, Pro Angling Equipment CC ,94 1,7% 0,3% Elanco - Eli Lily (SA) (Pty) Ltd, Bearing Man Ltd ,54 0,5% 0,1% QD Group (Pty) Ltd * 1,0% 0,2% Applied Coating Technologies (S.A) (Pty) Ltd, Masterguard Fabric Protection Africa (Pty) Ltd, Freight-X Cargo Solutions CC, General Pneumatics Natal (Pty) Ltd, Espadon Logistics (Pty) Ltd ,03 0,5% 0,1% Blaizing Sun Investments S44 (Pty) Ltd * 0,4% 0,1% Fuel Logistics Group (Pty) Ltd * 21,3% 3,8% Fuel Logistics Group (Pty) Ltd * 3,7% 0,7% Control Techniques SA (Pty) Ltd * 0,4% 0,1% Industrial Starsky House 9 Dartfield Street, Kramerville Christ Embassy (Pty) Limited, Grove 239 (Pty) ,75 0,5% 0,1% Ltd Industrial Steiner Services Loper Road, Aeroport, Kempton Park Steiner Services (Pty) Ltd * 1,3% 0,2% Industrial The Wolds A 82 Intersite Avenue, Umgeni Business Park Industrial The Wolds B 56 Intersite Avenue, Umgeni Business Park Industrial Umgeni Road A Intersite Avenue, Umgeni Business Park Industrial Umgeni Road B Intersite Avenue, Umgeni Business Park Industrial Universal Print House 72 Stanhope Place, Briardene, Durban North Industrial Wadeville Industrial Village Cnr Peddie & Crocker Roads, Wadeville Industrial Xpanda 918 Morkels Close, Halfway House, Midrand Clipsal SA (Pty) Ltd, TNT Express Worldwide SA (Pty) Ltd ,95 0,5% 0,1% Heidelberg Graphic Systems SA (Pty) Limited, ,30 0,3% 0,0% Optiplan (Pty) Ltd Ubunye Uniforms (Pty) Ltd * 0,5% 0,1% Pharmaceutical Health Distributors, Sahara ,82 1,5% 0,3% Computers, Carters Office Furniture Universal Print Group (Pty) Ltd ,58 2,4% 0,4% Multisurge CC, Ferobrake Wadeville, Helmut Franz Lehle, AMC CEMA Electric (Pty) Ltd, Aeidel Electronic System CC TCS John Huxley Africa (Pty) Ltd, Spray Nozzle (Pty) Ltd ,05 2,2% 0,4% ,48 0,7% 0,1% Subtotal industrial ,26 100% 18% Total investment properties % *Single tenant weighted average of all single tenant buildings in industrial sector R34,23/m 2 70

75 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Director s report for the year ended 30 June 2008 NATURE OF BUSINESS The company continued with its business as the manager of the Fund in terms of the Collective Investment Schemes Control Act. GENERAL REVIEW The results for the year under review are reflected in the accompanying annual financial statements. During the year, the company acquired the asset management agreement in respect of the properties held by Freestone Property Holdings Limited (Freestone) and its subsidiaries, for R30 million, from Freestone Management Company (Pty) Limited. The purchase price was settled by the issue of 90 shares in the company at R1 each, at a premium of R As a result of the acquisition by Emira Property Fund (Emira) of Freestone, the asset management of the properties owned by Freestone was incorporated into the existing asset management agreement between STREM and Emira. Although it was decided to impair the value of the Freestone management agreement in full, the asset management responsibilities of STREM and therefore the value of the company, remain largely unchanged. SHARE CAPITAL Details of the authorised and issued share capital of the company appear in note 2 to the financial statements. DIVIDENDS No dividends were paid by the company during the year under review. Executive directors WK Schultze JWA Templeton PJ Thurling Registered address 3 Gwen Lane Sandton Central 2196 Non-executive directors BJ van der Ross (Chairman) MS Aitken LS Barnard BH Kent NE Makiwane MSB Neser NL Sowazi Company secretary DA Isserow Postal address PO Box Sandton 2146 Auditors PricewaterhouseCoopers Inc. Bankers First National Bank Limited Registration number 1997/020911/07 71

76 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Statement of directors responsibilities The directors are responsible for the preparation, integrity, and fair presentation of the financial statements of Strategic Real Estate Managers (Proprietary) Limited. The financial statements presented on pages 74 to 80 have been prepared in accordance with International Financial Reporting Standards ( IFRS ), and include amounts based on judgements and estimates made by management. The directors consider that in preparing the financial statements they have used the most appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all statements of International Financial Reporting Standards that they consider to be applicable have been followed. The directors are satisfied that the information contained in the financial statements fairly presents the results of operations for the year and the financial position of the group at year-end. The directors also prepared the other information included in the annual report and are responsible for both its accuracy and its consistency with the financial statements. The directors have responsibility for ensuring that accounting records are kept. The accounting records should disclose with reasonable accuracy the financial position of the company to enable the directors to ensure that the financial statements comply with the relevant legislation. Strategic Real Estate Managers (Proprietary) Limited operated in a well-established control environment, which is well documented and regularly reviewed. This incorporates risk management and internal control procedures, which are designed to provide reasonable, but not absolute, assurance that assets are safeguarded and the risks facing the business are being controlled. The going-concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that the company will not be a going concern in the foreseeable future, based on forecasts and available cash resources. These financial statements support the viability of the company. The company s external auditors, PricewaterhouseCoopers Incorporated, audited the financial statements, and their report is presented on page 73. The financial statements were approved by the board of directors on 15 October 2008 and are signed on its behalf: JWA Templeton Chief Executive Officer BJ van der Ross Director Certificate by Company Secretary We declare that to the best of our knowledge, for the year ended 30 June 2008, 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, 1973, as amended and all such returns are true, correct and up to date. D Isserow Company Secretary 72

77 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Report of the independent auditors INDEPENDENT AUDITORS REPORT TO THE SHAREHOLDER OF STRATEGIC REAL ESTATE MANAGERS (PROPRIETARY) LIMITED We have audited the annual financial statements of Strategic Real Estate Managers (Proprietary) Limited, which comprise the balance sheet as at 30 June 2008, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on page74 to 80. Directors responsibility for the financial statements The company s directors are responsible for the preparation and fair presentation of these financial statements in accordance with statements of International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors responsibility 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depends on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Strategic Real Estate Managers (Proprietary) Limited as of 30 June 2008, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. PricewaterhouseCoopers Inc. Director: Sakhile Masuku Registered Auditor 16 October Eglin Road Sunninghill Sandton 73

78 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Balance sheet as at 30 June Notes R R ASSETS Current assets Accounts receivable and prepayments Cash at bank Deferred tax asset Total assets EQUITY AND LIABILITIES Capital and reserves Share capital Share premium Non-distributable reserve ( ) Retained earnings Shareholders funds Current liabilities Term loan Accounts payable Taxation payable Total equity and liabilities Income statement for the year ended 30 June Notes R R Turnover Operating (loss)/profit 6 ( ) Impairment of management contract ( ) Net interest income Net (loss)/profit for the year before taxation ( ) Taxation 8 (65 396) (10 106) Net (loss)/profit for the year ( )

79 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Statement of changes in equity for the year ended 30 June R R Share capital Ordinary shares Balance at the beginning of the year Shares issued during the year 100 Balance at the end of the year Share premium Balance at the beginning of the year Shares issued during the year Balance at the end of the year Share capital and share premium at the end of the year Reserves Non-distributable reserve Balance at the beginning of the year Share option expenditure reserve Transfer from retained earnings ( ) Balance at the end of the year ( ) Retained earnings Balance at the beginning of the year Net (loss)/profit for the year ( ) Transfer to non-distributable reserve Balance at the end of the year Total reserves at the end of the year ( ) Cash flow statement for the year ended 30 June Notes R R Cash flow from operating activities Cash flows from operating activities ( ) Net interest income Taxation paid 10 (44 256) (10 807) Net cash utilised in operating activities ( ) Cash flows from financing activities Shares issued during the year 10 Loan from fellow subsidiary ( ) Net cash generated by financing activities ( ) Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

80 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Notes to the financial statements for the year ended 30 June ACCOUNTING POLICIES The principal accounting policies adopted in the presentation of these financial statements are set out below. These policies have been consistently applied to all years presented. The financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). 1.1 Turnover Turnover comprises management fees received from Emira Property Fund accounted for on the accrual basis as services are performed. The fees are based on the substance of the management agreement. 1.2 Trade and other payables Trade payables are carried at the fair value of the consideration to be paid in future for goods or services that have been received. 1.3 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand and deposits held at call with banks. 1.4 Accounts receivable Trade receivables are initially recognised at fair value and subsequently at amortised cost. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original term of the receivables. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of the expected cash flows, discounted at the market rate of interest for similar borrowers. 1.5 Taxation Taxation is provided at current rates on net income before tax for the year after taking into account income and expenditure, which is not subject to taxation. 1.6 Intangible assets and impairment losses Intangible assets are initially measured at cost if acquired separately or at fair value if acquired as part of a business combination. Intangible assets are amortised over their estimated useful life on a straight-line basis. The estimated useful lives and residual values are reviewed annually. Impairment losses are recognised as an expense in the income statement. 1.7 Borrowings Interest-bearing borrowings are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method. 76

81 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Notes to the financial statements for the year ended 30 June 2008 continued R R 2 ACCOUNTS RECEIVABLE Trade receivables Other receivables Due within one year SHARE CAPITAL Authorised Ordinary shares ordinary shares of R1 each Issued Ordinary shares 300 shares of R1 each (2007: 200 shares of R1 each) Share premium TERM LOAN Owing to: RMB Properties (Proprietary) Limited The loan is unsecured and has no fixed terms of repayment and bears interest at rates agreed from time to time ACCOUNT payable Trade payables Accrued expenses Due within one year OPERATING LOSS/PROFIT The following items have been charged in arriving at operating loss/profit: Management fee paid to RMB Properties (Pty) Ltd/Eris Property Group Management fee paid to Corovest Property Group Holdings (Pty) Ltd Audit fees current year Staff costs Number of staff at the end of the year 9 10 Operating lease expense Directors emoluments Remuneration (executive directors) Directors fees (non-executive directors) The fees paid to non-executive directors for the year ended 30 June 2008, were paid on the following basis, as approved by the remuneration committee: Members of the board R per annum (Chairman R per annum) Members of the audit committee R per annum (Chairman R per annum) Members of the remuneration committee R per annum 77

82 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Notes to the financial statements for the year ended 30 June 2008 continued R R 7 NET INTEREST INCOME Interest received Interest paid (71 139) (52 391) TAXation South African normal taxation current Deferred taxation (10 167) (34 848) Tax rate reconciliation % % Standard rate 28,00 29,00 Timing differences rate change (0,01) Permanent differences (28,21) Effective rate of taxation (0,22) 29,00 9 NOTES TO THE CASH FLOW STATEMENT Cash generated from operations Net (loss)/profit for the year before taxation ( ) Net interest income ( ) (5 289) Impairment of management contract Share option expenditure reserve Operating (loss)/profit before working capital changes ( ) Decrease/(increase) in receivables and prepayments ( ) Increase in trade and other payables ( ) 10 TAXATION PAID Balance owing at the beginning of the year (44 954) (10 807) Taxation charge for the year (75 563) (44 954) Balance owing at the end of the year (44 256) (10 807) 78

83 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Notes to the financial statements for the year ended 30 June 2008 continued 11 FINANCIAL RISK MANAGEMENT The company s financial instruments consist mainly of deposits with a bank, accounts receivable and prepayments, a term loan from a shareholder and accounts payable. In respect of the abovementioned financial instruments, book values approximate fair value. Exposure to interest rate, credit and liquidity risks occurs in the normal course of business. Weighted average effective 1 year More than interest rate or less 1 5 years 5 years Total % R000 R000 R000 R000 Year ended 30 June 2008 Financial assets Accounts receivable and prepayments Cash at bank 10, Total financial assets Financial liabilities Term loan 10, Accounts payable Total financial liabilities Year ended 30 June 2007 Financial assets Accounts receivable and prepayments Cash at bank 5, Total financial assets Financial liabilities Term loan 5, Accounts payable Total financial liabilities Interest rate risk management Exposure to interest risk is considered minimal. Interest paid on the term loan from a shareholder is equivalent to the interest earned on the call deposit at Rand Merchant Bank. Credit risk management Credit risk is considered to be minimal. Trade receivables consist of the asset management fee due by Emira Property Fund. Liquidity risk management Cash flows are monitored on a monthly basis to ensure that cash resources are adequate to meet funding requirements. 79

84 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Notes to the financial statements for the year ended 30 June 2008 continued R R 12 RELATED PARTY TRANSACTIONS The company is controlled by FirstRand Asset Management (Proprietary) Limited, which owns 70% of the company s shares, the other 30% being owned by Freestone Management Company (Proprietary) Limited. The ultimate parent of the group is FirstRand Limited. Income received from group companies Emira Property Fund (associate of parent) asset management fees FirstRand Bank Limited (parent) interest received Expenses paid to group companies RMB Properties (Proprietary) Limited (associate of shareholder) management fees interest paid Corovest Property Group Holdings (Proprietary) Limited (associate of shareholder) management fees Inter-group balances RMB Properties (Proprietary) Limited (shareholder) term loan ( ) ( ) FirstRand Bank Limited (parent) bank balances Acquisition of management agreement Freestone Management Company (Proprietary) Limited (associate of RMB Properties (Proprietary) Limited and Corovest Property Group Holdings (Proprietary) Limited)

85 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Notice of annual general meeting EMIRA PROPERTY FUND (Participatory interest code: EMI, ISIN: ZAE ) ( Emira or the Fund ) Notice is hereby given that the fifth annual general meeting of the members of Emira will be held in the Boardroom, Third Floor, 3 Gwen Lane, Sandton at 14:00 on Tuesday 18 November 2008 for the purposes of considering, and if deemed fit, passing with or without modification the resolutions set out below: 1 ORDINARY RESOLUTIONS 1.1 Ordinary resolution number 1 Resolved that the annual financial statements for the financial year ended 30 June 2008 including the management company s report and the report of the auditors thereon be received, considered and approved. 1.2 To reappoint PricewaterhouseCoopers Inc. as auditors of the Fund and N Mtetwa as the individual designated auditor of the Fund for the 2009 financial year until the next annual general meeting. 1.3 Ordinary resolution number 2 Resolved that the directors of Strategic Real Estate Managers (Proprietary) Limited, the manager of Emira, are hereby authorised, by way of a renewable general authority, to issue participatory interests in the authorised but unissued capital of the Fund for cash, as and when they in their discretion deem fit, subject to the trust deed of the Fund and the Listing Requirements of the JSE Limited ( JSE ), when applicable provided that: this general authority shall be valid until the Fund s next annual general meeting or for 15 months from the date of this resolution, whichever period is the shorter; the participatory interests must be of a class already in issue, or where this is not the case, must be limited to such securities or rights that are convertible into a class already in issue; that a press announcement giving full details, in accordance with the Listing Requirements of the JSE including the impact on net asset value and earnings per participatory interest, will be published at the time of any issue representing, on a cumulative basis within one financial year, 5% or more of the number of participatory interests prior to the issue; that issues in the aggregate in terms of this authority will not exceed 15% of the number of the Fund s participatory interests already in issue in any one financial year; in determining the price at which an issue of participatory interests will be made in terms of this general authority, the maximum discount permitted will be 10% of the weighted average traded price of the participatory interests measured over the 30 business days prior to the date that the price of the participatory interests are agreed between Emira and the party subscribing for the securities; and any such issue will only be made to public participatory interest holders as defined in the Listing Requirements of the JSE and not to related parties. The approval of a 75% majority of the votes cast in favour of such resolution by participatory interest holders present or represented by proxy at this annual general meeting is required for this ordinary resolution to become effective. 81

86 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Notice of annual general meeting continued 2 SPECIAL RESOLUTION 2.1 Special resolution number 1 Resolved that the directors of Strategic Real Estate Managers (Proprietary) Limited, the manager of Emira, be hereby authorised by way of a renewable general authority, to approve the repurchase of its own participatory interests by the Fund, subject to the trust deed of the Fund and the JSE Listing Requirements, when applicable, provided that: this general authority shall be valid until the Fund s next annual general meeting or for 15 months from the date of the passing of this resolution, whichever period is shorter; the repurchase of participatory interests will be effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the Fund and the counterparty (reported trades are prohibited); an announcement complying with the Listing Requirements of the JSE be published by the Fund when (i) the Fund has cumulatively repurchased 3% of the participatory interests in issue as at the time the general authority was given ( the initial number ) and (ii) for each 3% in aggregate of the initial number of participatory interests acquired thereafter by the Fund; the general repurchase by the Fund of its own participatory interests shall not in the aggregate in any one financial year exceed 20% of the Fund s issued capital of that class as at the beginning of the financial year; repurchases must not be made at a price more than 10% above the weighted average of the market value of the participatory interests for the five business days immediately preceding the date on which the transaction is effected; at any point in time the Fund may only appoint one agent to effect any repurchase on the Fund s behalf; the Fund will, after a repurchase, still comply with the provisions of the Listing Requirements of the JSE regarding participatory interest spread; the Fund will not repurchase participatory interests during a prohibited period as defined in paragraph 3.67 unless Emira has in place a repurchase programme where the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement over SENS prior to the commencement of the prohibited period; and such repurchases shall be subject to the trust deed of the Fund, the provisions of the Collective Investment Schemes Act and the JSE Listing Requirements, where applicable. It is the intention of the directors of Strategic Real Estate Managers (Proprietary) Limited, the manager of Emira, that they use such general authority should prevailing circumstances in their opinion warrant it. The directors of Strategic Real Estate Managers (Proprietary) Limited, the manager of Emira, undertake that they will not implement any such repurchases while this general authority is valid, unless: the Fund and the group will be able, in the ordinary course of business, to pay its debts for a period of 12 months after the date of the general repurchase; the assets of the Fund and the group will exceed the liabilities of the Fund and the group for a period of 12 months after the date of the general repurchase. For this purpose, the assets and liabilities will be recognised and measured in accordance with the accounting policies used in the Fund s latest audited annual group financial statements; the Fund and the group will have adequate participatory interest capital and reserves for ordinary business purposes for a period of 12 months after the date of the general repurchase; the available working capital of the Fund and the group will be adequate for ordinary business purposes for a period of 12 months after the date of the notice of the general repurchase; and upon entering the market to proceed with the repurchase, the Fund s sponsor will confirm the adequacy of Emira s working capital for the purposes of undertaking a repurchase of participatory interests in writing to the JSE. 82

87 Strategic Real Estate Managers (Proprietary) Limited ( STREM ) Notice of annual general meeting continued Reason for and effect of the special resolution The reason for and effect of the special resolution is to grant the Fund s directors a general authority to approve the Fund s repurchase of its participatory interests in itself. For the purposes of considering special resolution number 1 and in compliance with the JSE Listing Requirements, the information listed below has been included in the annual report, to which this notice forms part, on the pages indicated: Directors and management (page 20) Major participatory interest holder s details (page 85) Directors interests (page 25) Participatory interest capital of the Fund (page 52) Directors responsibility statement The directors, whose names are set out in this report, collectively and individually accept full responsibility for the accuracy of the information contained in this special resolution number 1 and certify that, to the best of their knowledge and belief, there are no other facts, the omission of which would make any statement false or misleading and that they have made all reasonable enquiries in this regard and that the notice contains all information required by law and the JSE Listing Requirements. Litigation statement There are no legal or arbitration proceedings (including any such proceedings that are pending or threatened of which the Fund is aware), which may have or have had a material effect on Emira s financial position over the last 12 months. Material changes There have been no material changes in the financial or trading position of the Fund and its subsidiaries since the date of signature of the audit report and up to the date of this notice. 3 TO TRANSACT ANY OTHER BUSINESS WHICH MAY BE TRANSACTED AT AN ANNUAL GENERAL MEETING Strategic Real Estate Managers (Proprietary) Limited Desiree Isserow Company Secretary 15 October

88 Voting and proxies Participatory interest holders who have not dematerialised their participatory interests or who have dematerialised their participatory interests with own name registration are entitled to attend and vote at the meeting and are entitled to appoint a proxy or proxies to attend, speak and vote in their stead. The person appointed need not be a participatory interest holder. Proxy forms must be forwarded to reach the Fund s transfer secretaries, Computershare Investor Services (Proprietary) Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) by no later than 14:00 on Friday, 14 November Proxy forms must only be completed by members who have not dematerialised their participatory interests or who have dematerialised their participatory interests with own name registration. On a show of hands, every participatory interest holder of the Fund present in person or represented by proxy shall have one vote only. On a poll, every participatory interest holder of the Fund shall have one vote for every participatory interest held in the company by such participatory interest holder. Participatory interest holders who have dematerialised their participatory interests, other than those participatory interest holders who have dematerialised their participatory interests with own name registration, should contact their Central Securities Depository Participant (CSDP) or broker in the manner and time stipulated in their agreement: to furnish them with their voting instructions; and in the event that they wish to attend the meeting, to obtain the necessary authority to do so. PO Box Sandton 2146 Tel: (011) /

89 Participatory interest holders analysis PARTICIPATORY INTEREST (PI) HOLDERS PROFILE AND JSE INFORMATION AT 30 JUNE 2008 Number of Number % of participatory % of of holders holders interests capital Directors holdings 10 0, ,81 Strategic holdings (more than 10%) 1 0, ,42 Empowerment partners (excluding directors holdings) 5 0, ,81 Non-public 16 0, ,04 Public , ,96 Totals , ,00 Distribution of PI holders Empowerment partners 5 0, ,35 Insurance companies 37 1, ,46 Investment companies 29 1, ,20 Retirement funds 124 4, ,70 Mutual funds 116 4, ,94 Other , ,35 Totals , ,00 Range analysis at 30 June , , , , , , , ,44 Over , ,45 Totals , ,00 The following holders of PIs hold, beneficially directly or indirectly, at 30 June 2008, in excess of 5% of the ordinary issued capital: Holder Momentum Group ,42 Tiso Group ,58 List of managers managing in excess of 5% of the ordinary issued capital: Manager Stanlib ,32 No other PI holder held a beneficial interest of more than 5% in the PI capital of the Fund at 30 June

90 Administration information REGISTERED ADDRESS 3 Gwen Lane Sandton PO Box , Sandton, 2146 ASSET MANAGER Strategic Real Estate Managers (Pty) Limited 3 Gwen Lane Sandton PO Box , Sandton, 2146 PROPERTY MANAGERS RMB Properties (Pty) Limited Eris Property Group (Pty) Limited 3 Gwen Lane Sandton PO Box , Sandton, 2146 TRUSTEES Absa Bank Ltd 2nd Floor, Block E Flora Park Office Block Corner of Ontdekkers and Conrad Roads Florida, 1709 PO Box 1132, Johannesburg, 2000 TRANSFER SECRETARIES Computershare Investor Services 2004 (Pty) Limited 70 Marshall Street, Johannesburg, 2001 PO Box 61051, Marshalltown, 2107 AUDITORS PricewaterhouseCoopers Inc. 2 Eglin Road Sunninghill 2157 Private Bag X36, Sunninghill, 2157 BANKERS FirstRand Bank Ltd t/a First National Bank Wierda Valley Sandton Outlet Wierda Valley PO Box , Sandton, 2146 ATTORNEYS Hofmeyr Herbstein & Gihwala Inc 6 Sandown Valley Crescent Sandown Sandton Private Bag X40, Benmore, 2010 MERCHANT BANK AND SPONSOR Rand Merchant Bank, a division of FirstRand Bank Ltd 1 Merchant Place Fredman Drive Sandton PO Box , Sandton,

91 Form of proxy EMIRA PROPERTY FUND (Participatory interest code: EMI ISIN: ZAE ) ( Emira or the Fund ) FORM OF PROXY THIS FORM OF PROXY IS ONLY FOR USE BY: registered members who have not yet dematerialised their Emira participatory interests; and registered members who have already dematerialised their Emira participatory interests and are registered in their own names in the Fund s sub-register. For completion by the aforesaid registered members of Emira and who are unable to attend the 2008 annual general meeting of the Fund to be held in the boardroom, Third Floor, 3 Gwen Lane, Sandton at 14:00 on, Tuesday 18 November 2008 ( the annual general meeting ). I/We (name/s in block letters) Of (address) Being the registered holder/s of units in Emira, as at Hereby appoint (see instruction 1 overleaf) 1. or failing him/her, 2. or failing him/her 3. the Chairman of the annual general meeting, as my/our proxy to attend, speak and vote for me/us and on my behalf or abstain from voting at the annual general meeting of the Fund and at any adjournment thereof, as follows (see note 2 and instruction 2 overleaf): ORDINARY RESOLUTIONS FOR AGAINST ABSTAIN 1.1 To receive, consider and adopt the annual financial statements for the financial year ended 30 June To reappoint PricewaterhouseCoopers Inc. as auditors of the Fund and N Mtetwa as the individual designated auditor of the Fund 1.3 To vote on a general authority to issue participatory interests for cash SPECIAL RESOLUTION NUMBER To vote on a general authority to repurchase participatory interests Signed at on 2008 Signature(s) Assisted by (where applicable) Please read notes and instructions overleaf 87

92 Notes 1. A participatory interest holder entitled to attend and vote at the meeting may appoint a proxy to speak and vote in this capacity. A proxy need not be a participatory interest holder of the Fund. Proxy forms should be forwarded to reach the Fund s transfer secretary Computershare Investor Services 2004 (Proprietary) Limited, Ground Floor, 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107) by no later than 14:00 on Friday 14 November The appointment of a proxy will not preclude a participatory interest holder from attending the meeting. 2. A participatory interest holder may insert the name of a proxy or alternative proxy of the ordinary participatory interest holder s choice in the space provided with or without deleting the Chairman of the annual general meeting. The participatory interest holder must initial any such deletion. The person whose name appears first on the form of proxy and has not been deleted will be entitled to act as a proxy to the exclusion of those whose names follow. 3. A participatory interest holder s instructions to the proxy must be indicated by the insertion of the relevant number of votes exercisable by that participatory interest holder in the appropriate space provided. Failure to comply with the above will be deemed to authorise the Chairman of the annual general meeting, if he/she is an authorised proxy, to vote in favour of the resolutions, or any other proxy to vote or abstain from voting at the annual general meeting as he/she deems fit, in respect of the participatory interest holder s vote exercisable thereat. A participatory interest holder or his/her proxy is not obliged to use all the votes exercisable by the participatory interest holder or by his/her proxy, but the total of votes cast and in respect whereof abstention is recorded may not exceed the total of the votes exercisable by the participatory interest holder or his/her proxy. 4. An alteration or correction must be initialled by the signatory/ies. 5. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form unless previously recorded by the transfer secretaries of the Fund or waived by the Chairman of the annual general meeting. 6. His/her parent or guardian, as applicable, must assist a minor or any other persona under legal incapacity unless the relevant documents establishing his/her capacity are produced or have been registered by the Fund. 7. The completion and lodging of this form will not preclude the relevant ordinary participatory interest holder from attending the annual general meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such participatory interest holder wish to do so. 8. The Chairman of the annual general meeting may accept or reject a proxy which is completed and/or received other than in accordance with the instructions, provided that he/she shall not accept a proxy unless he/she is satisfied as to the manner in which a participatory interest holder wishes to vote. 9. If participatory interest holders have dematerialised their participatory interests with a CSDP or broker, other than own name dematerialised participatory interest holders, they must arrange with the CSDP or broker concerned to provide them with the necessary authorisation to attend the general meeting and vote thereat, or the participatory interest holders 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 participatory interest holders and the CSDP or broker concerned. 88

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94 EMIRA