Despite the gloomy property market, listed property unit trust Capital Property Fund yesterday posted an increase of 14,67% to 25,72c in distributions per unit for the interim period to June.

The group’s strategy of selling poorer quality properties at the top of the property cycle and investing in well-located industrial and commercial properties with strong tenant covenants had paid dividends.

MD Andrew Teixeira said firm control of arrears and vacancies, together with upward rental reversions, contributed to the strong performance.

“At the time of the property boom we saw an opportunity to sell B-grade properties because the capital rate between A- and B grade properties was not realistic to us,” Teixeira said.

But lower demand for industrial and commercial space had, however, resulted in the vacancies in the group’s portfolio increasing from 2,7% to 3,6%.

Capital’s gearing rose to 22,5%, but this was largely due to the group’s acquisition of an additional 31169000 units in Pangbourne Properties Limited at an average price of R13,85.

“Ideally we would like to see our gearing at around 25%. We will only increase our gearing when we get good quality properties to acquire,” Teixeira said.

Capital now holds 43169000 units in Pangbourne, representing 9,8% of that group’s units in issue.

“Capital’s relatively low gearing places it in a strong position to continue to take advantage of any opportunities which may arise,” Teixeira said.

The group had agreed to the sale of 14 properties valued at R321,4m to a new property fund, Fortress Income Fund Limited, which plans to list on the JSE in October. Capital’s projected exit yield was 12,1%.

Capital was continuing with its strategy of investing in quality industrial parks with corporate tenants located in prime nodes.

The group acquired Isando Business Park, City Deep Industrial Park, Chemserve Spartan and a 25% stake in Montague Business Park (vacant land) from Resilient Property Income Fund for R611,5m with effect from this month.

The purchase price was payable in Capital units to be issued at R6,20 a unit, excluding the distribution for the period to June.

The acquisition became unconditional when Capital unitholders approved the transaction at a general meeting of unitholders on Monday.

The group had also acquired Mahogany Road, a 16209m² industrial park in Mahogany Ridge, for R65m at an initial yield of 9,2%. Tenants include Freddy Hirsh and LG Electronics.

The group’s 3514m² industrial development built on land in Surprise Park, Pinetown, was completed in April.

However, the market for industrial property had deteriorated in the Pinetown node and the property was vacant.

“Management is confident that the property will be let by year end,” Teixeira said.

He warned that further deterioration in market conditions was anticipated that would limit rental growth and increase vacancies from current levels.

“It is difficult to counter the current downturn because we lag the international property market.”

Teixeira was confident about the group’s growth prospects and anticipated growth in distributions of 14%-16% to be achieved for the full financial year.