Paramount sees hardship ahead.

Posted On Wednesday, 11 December 2002 10:01 Published by eProp Commercial Property News
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PROPERTY investment group Paramount Property Fund has emerged from a difficult trading environment with an 8% increase in its distribution, but has hinted at more hardship ahead.

 

JSEThe distribution for the year ended October came in at 86,4c a linked unit compared with 60c for the previous year. Turnover hit R87,3m, up from R42,6m, reflecting the acquisition Paramount made during the year under review.

The group said that net rental income from the property portfolio was below its expectations.

'This was due to poor conditions in many sectors of the property market, where the hostile economic environment and an oversupply of space is resulting in increasing vacancies and declining rental levels,' said the group.

It said that despite improving economic expectations it would take some time for the benefits to filter through to the commercial property market. 'General consensus in the industry is that property income growth will be all but flat during the next year.'

The group said its financial structure worked to shareholders' advantage in times of rental growth, but was vulnerable to periods of low or declining growth and high interest rates.

'With the above prognosis, it is anticipated that the conversion of the B debentures will result in a material dilution of earnings in the year ahead,' said the group.

It said its management was looking at ways of actively addressing this earnings dilution situation.

The results under review had been achieved by proactive management of both the property portfolio and the interest risk.

'As a result of the hands on management of the properties, vacancies in the portfolio were kept down to approximately 5% over the course of the year, which is well below the industry average,' said the group.

The group said it would continue to make further acquisitions to increase the diversity and scale of its portfolio. Paramount concluded an acquisition valued at R220m during the year under review.

This acquisition brought the value of Paramount's portfolio close to the R600m mark.

The portfolio reflects a 40% exposure to the office sector, 34% to industrial property, 19% to retail, and 6% parking.

The latest acquisition increased the group's exposure to the industrial property sector.

This reflected the group's belief that the industrial sector in certain nodes across the country was set to grow as a result of improved exports. The group is targeting modern, airport-oriented industrial properties and multipurpose business parks.

The group's linked unit price lost 2% or 10c to close at 490c on the JSE Securities Exchange SA yesterday.

MD Rodney Squire-Howe said the year under review proved to be tough despite the optimistic start when it seemed that inflation and interest rates were on a downward trend.

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