A-Prop earnings to be halved - Provest

Posted On Monday, 14 July 2003 02:00 Published by eProp Commercial Property News
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Investors can expect property loan stock company Arnold Property Fund's (A-Prop's) earnings to drop by at least 50% this financial year, says listed property asset management company Provest.

Angelique de Rauville" Based on the fact that there's going to be such a substantial decrease in earnings , Arnold Property Fund at current levels is not offering much value. There is so much upside in other listed property counters at the moment," Provest MD Angelique de Rauville said yesterday.

The expected drop was due to an increase in operational expenses and higher costs on borrowing facilities. A-Prop was "highly geared" and had increased vacancies, she said.

"As a result there has been a devaluation of their properties."

She said with the new accounting practices, a devaluation in property implied that a revaluation or devaluation of properties had to be factored into the income statements.

A-Prop's linked unit price gained 4,5% to 115c for each linked unit on Friday on the JSE Securities Exchange SA, but De Rauville said the move was not "significant" because A-Prop had been trading in the band between 108c and 115c a linked unit for some time.

Michael Aitken, who is a director of asset and fund management for Corovest, which manages A-Prop, also said not too much could be read into Friday's gain because it "came from a small base".

On June 13, A-Prop issued a cautionary announcement saying that the distribution for the year ended June 30 this year was going to be significantly lower than for the previous 10month period.

Aitken, who is also a director of A-Prop, said after the announcement the linked units, which had been trading at 135c or 140c, dropped to 100c.

Aitken declined to comment on De Rauville's expectation of a 50% drop in earnings.

He said unit holders who owned a large chunk of shares anything in excess of 10% were waiting for further information before making any decisions.

De Rauville said although there was speculation that A-Prop would merge with Capital Property Fund, she did not believe that this would "unlock much value for either Capital or Arnold unit holders".

"People invest in property because of sustainable and predictable earnings. This listing has turned out to be a disaster," the MD said.

Aitken said A-Prop would complete its year-end audit and property portfolio revaluation before issuing a report to unit holders by the middle of August.

"We are working on strategies. We are looking to grow the portfolio and to reduce gearing (borrowing) levels," he said.

The company's borrowing levels are 75%.

Aitken said the company, which focuses on retail offices and the industrial sector, would keep its retail offices and industrial components.


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