One of the bugbears facing the distribution growth of industrial-focused property loan stock group Metboard Properties is the fact that it has been forced to reduce rentals on certain expiring property leases to lower market-related rentals.

Metboard, which has property assets worth R1,84bn, reported substantial increases to its revenue stream, income and net asset value, but a slight increase of 3% in its distributions to unitholders for the year to March.

It announced a distribution of 40,17c a linked unit compared with 39c last year.

Metboard, like other listed funds with large exposures to industrial properties, has experienced a situation where its contractual rentals at expiry are out of kilter with market rentals because annual escalation rates during the contract period have been greater than growth in the market rentals.

This means it has had to reduce rentals on those leases coming up for expiry so they are in line with the average industrial-market rentals.

But executive director and fund manager of Metboard, Estienne de Klerk, said he expected the overall improvement in the industrial sector’s rental levels to continue, and that total distributions for next year would exceed this year’s.

Len van Niekerk, a property analyst at Andisa Securities, said although the results were slightly better than he had expected, it was clear the "rental reversions are hurting it (Metboard)".

He said this was the reason why Metboard’s distribution growth was below the average growth of about 5,5% for listed property loan stock companies. The rental reversion problem was the "single biggest issue" for Metboard and would take time to "work itself out of the system", he said.

But Van Niekerk said industrial-market rentals were rising, which eased the pressure on the fund.

Andre Stadler, MD of Catalyst Securities, said distribution growth was as expected .