CITY CAPITAL SA PROPERTY HOLDINGS LTD ANNUAL GENERAL MEETING OF SHAREHOLDERS: 19 MARCH 2015 Good morning ladies and gentlemen It is heartening to see so many shareholders of City Capital here today in person and participating in proxy at the Annual General Meeting of City Capital. I thank each and every one for taking the time to attend and participate in this important decision-making process of the company. I know that the City Capital investment has been an extremely painful one for investors, but I can assure every investor here today that your investment is improving, albeit slowly. While preparing for this important meeting of shareholders, the board has been able to reflect on the successes and failures that we have achieved and suffered over the past 5 years (can you believe that we have struggled with City Capital for over 5 years now ?) and I must say that I am extremely grateful to still be standing here before you with City Capital intact and growing with news that is better than it has ever been thus far. To-date, my report-backs to shareholders have reflected steady improvement but they have always been shrouded in warnings of danger and threats of possible liquidation, for various reasons. Today is the first time that I am able, with a clear conscience, to state here before you that the worst days for City Capital are over and the best have begun. We have a number of items of extremely good news to report back on today and only 1 item of bad news and I will deal with these in turn and elaborate on them as I proceed. 1. Net asset value As of 28 February 2015 the net asset value of City Capital is R 222 million, equivalent to 103 cents per share. [ SHARE VALUATION AT 28 FEBRUARY 2015 ] This amount does not yet take into account the property valuations that are now being performed by our property valuers. When these valuations come in, it is possible that the estimated share price at 28 February 2015 will reach 110 cents per share. We are expecting good increases in valuation for the Perspex factory and Tyger Valley Chambers 5 properties. If we compare the current net asset value to the amount we expected in December 2009, we can see exactly where we have gained and lost as we made decisions to reduce debt. [ SHARE PRICE GRAPH ] It is interesting to note on the graph of our share price on the screen that our estimated share price has quite closely matched the net asset value of the group, according to the audited annual financial statements, except for the period February 2010 to February 2011 when we experienced the most uncertainty, especially with regard to the future of Tyger Valley Chambers 5 and the Dividend loans and share investments. Overall, the graph reflects a nice upturn with steady, constant growth in net asset value. The board is confident that growth in net asset value will accelerate from now onwards, for reasons that will shortly become clear. 1
2. Property portfolio The next bit of good news concerns our property portfolio. [ LEASE SCHEDULE ] For the first time in the history of City Capital, our property portfolio is fully let. Zero % vacancy. For this I am grateful to Safcom Properties, our property portfolio managers (Elton Faber and Michael Wylie) and the other property brokers that have sourced tenants for us. I am also extremely grateful to our non-executive directors, Andrew Herweg, Elna Visagie and Steyn Boshoff, for their guidance, encouragement and attention to detail in making it possible to achieve this result. It wouldn’t have been possible to achieve 0% vacancy without spending funds on renovations at Tyger Valley Chambers 5 and The Estuaries. [ PICTURES OF TYGER VALLEY CHAMBERS ] At Tyger Valley Chambers, we invested over R 2 million putting in ceilings, lights, partitioning, carpets and airconditioners to lease premises to 4 tenants, Confiance Accountants and Tax Consultants (5 year lease), RON SA(2 year lease), Creative Performance (2 year lease) and Urban Dynamics (3 year lease). [ PICTURES OF THE ESTUARIES ] At the Estuaries, we invested in waterproofing and painting of the buildings, basement security gates, a camera-based security system and partitioning for new tenants. [ LEASE SCHEDULE ] This good news, however, will only be there until 30 April 2014, when 2 tenants at The Estuaries, UAS and TUV Rheinland will be vacating the premises as their leases terminate. This is normal for a property portfolio and what makes our property investment model so sustainable. When we have a situation like this, it does not create a crisis for the property. Rental income from our other properties compensate and assist where a particular property is experiencing vacancies. This was especially true for our property in Malmesbury that was vacant for 2 years before we found a new tenant in November 2014. This tenant, Leader Tyre Response 247 is also interested in purchasing the property for R 5,5 million at the end of October 2015. Obviously, the immediate impact of a fully let portfolio is the immediate cash flow improvement. You will see that our property portfolio is now generating net cash flow, after paying mortgage bonds and all property and head office expenses, of R 454 848 per month, about R 5 million per annum. I know that this creates the possibility to start paying dividends and we will address this very important issue a bit later on. 3. Cash flow [ CASH FLOW SCHEDULES ] There is a saying that “Revenue is vanity, margin is sanity, but cash is king”. There is also a saying that “Profit is an illusion, cashflow is fact”. Until our rental income reaches our bank account, it is only an illusion. We have worked very hard over the past 5 years to ensure that every cent of rental income and cost recoveries is safely banked in our bank account. I thank Carine van der Westhuizen, our rentroll administrator and bookkeeper, for her 2
efforts, attention to detail and perseverance in ensuring that our tenants pay their rentals on-time when they are due. She is a loyal and supportive person to work with and I rely on her tremendously to cost- effectively issue rental invoices each month and ensure that rental income is received on time. I use the cash flow schedule on the screen every day to control and to forecast over a two to three month period our cash in and outflows. You will see that although City Capital has been cash flow positive, from a property portfolio point-of-view, since April 2014, the months of January, February and March 2015 all reflect negative cash flows. This is because of cash outflows, not in the normal course of business, on tenant installation costs at Tyger Valley Chambers, legal costs, annual audit fees, letting commission and provisional tax payments. These types of payments would obviously have an impact on the ability of the company to pay dividends to shareholders. The important point is that our property portfolio is delivering positive cash flow, all major property renovations have been completed, our portfolio is fully let and a large portion of our audits have been finalised. Funds will however continue to be spent on legal costs for the recovery of the Dividend loans and this creates a level of uncertainty regarding dividend payments. This will be discussed in more detail shortly. 4. Dividend loan recovery Good progress has been made with regard to the recovery of loans that were previously made to the Dividend property companies. [ LOANS TO DIVIDEND COMPANIES ] The schedule on screen reflects that we have recovered almost R 17 million in loan repayments from the Dividend property companies over the past 5 years. There is still over R 42 million outstanding and owing to City Capital, although we currently only reflect an amount of R 19 million in our financial records, the amount that is covered by our mortgage bonds. [ DIVIDEND LOAN SUMMARY 201502 ] To be prudent, the unsecured portion of our loans have been provided for. We have been very successful in ongoing litigation against those companies that refuse to acknowledge our loans and repay them. As you know we received a Western Cape High Court judgement in our favour on December 2013 in the Midnight Storm 150 matter (the KPMG building). The opposing director, Ferreira, then instructed his attorney to take the judgement to the Supreme Court of Appeal. On 24 February 2015 the SCA heard the appeal and the excellent news is that on Monday this week, 16 March 2015, the SCA dismissed the appeal with costs of our two counsel. [ JUDGEMENT OF THE SUPREME COURT OF APPEAL ] All thanks go to Walid Brown of Werksmans Attorneys and Advocates Rod Howie and Andre’ Oosthuizen for the professional legal services that they have provided us. This team has fought tooth and nail for us, of course for a substantial fee. This judgement has destroyed every argument that Ferreira, Matthews and Blaauw have used to deny payment to City Capital for loans that have legitimately been made. That was the good news, now comes the 1 item of bad news for this AGM. 3
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