As outlined in its October 2002 year end results and recent shareholder communications, the reduced distribution was expected. Managing director Rodney Squire-Howe says that due to the current tough property market conditions, rental income from properties was down, and that this, when combined with Paramount's particular financial structure, resulted in a dilution of distributions.

The situation will be worsened in the first two quarters by vacancies at two properties, which are steadily being closed. The company has taken action by changing its borrowing structure to reduce its interest costs, and is making good progress with the letting of vacant space.

"In addition to looking for increased operational efficiencies, we will continue to look for opportunities to generate additional revenue in order to enhance our distributions for the current year's earnings," Squire-Howe said. "Going forward, we are also looking to significantly change our financial structure.

Our structure involved the issue of non-interest bearing B-debentures, which were essential to enable the fund to list at the higher initial yield required by the market.

The B-debentures have the effect of providing better financial returns in a positive environment with growing property income streams, but of diluting returns if no or negative growth is experienced from the property portfolio. We have now taken a decision that these B-debentures will be phased out in future."

"The downward movement in longer-term interest rates makes it easier to acquire properties without issuing B-debentures, and going forward, no further B-debentures will be issued.

We are negotiating on several new acquisitions - by bringing new properties into the fund without issuing B-debentures, the overall percentage of B-debentures in the fund will be significantly lowered, and thus their potential negative effect in a continuing depressed market will be reduced."

Commenting on the company's expected results for the full financial year, he said while the overall results for this year will be better than reflected in this first distribution, they will nevertheless be significantly below last year's level.

"The current increasing optimism in our economy is not yet being demonstrated in the property market. An oversupply of space still exists, rentals have not improved, and businesses are still carrying the burden of high interest rates leaving many tenants vulnerable.

There is a sense however that the tide is turning and we are starting to see indications of improved conditions particularly in the industrial property market, which hopefully is a leading indicator."

He added that Paramount has an excellent property portfolio located in major metropolitan areas of South Africa, and is actively managed.