South African property fund Vukile (VKE) is confident that it will be able to produce real earnings growth for the year to end March 2006, as forecast in June when it published results for the 2004/05 financial year.
In his CEO's newsletter, Gerhard van Zyl said he defines that as growth in excess of the current rate of inflation which should equate to market related growth in distributions.
Van Zyl said since the publication of the annual report two months ago, market conditions in the property sector have remained buoyant.
Reflecting the continuing upswing in the office market, vacancy levels in this part of Vukile's portfolio have been reduced significantly to a low 4.4% of gross lettable area (GLA).
The Vukile property in Bedfordview, which was almost 80% vacant three months ago with the departure of the major tenant, has now been fully let after three transactions totalling 17 million rand.
"This will reduce the vacancy level in our office portfolio even further to below 2% of GLA from November 2005," he said.
In the industrial portfolio, meanwhile, the vacancy level has dropped to 2.5% from 3.6% of GLA in April, after a large transaction worth around 5.7 million rand was recently concluded in Gauteng.
In addition, the Dobsonville and Daveyton shopping centres are now fully let after the placement of Jet Mart, which is part of the Edcon group, in both as a major tenant. At Midrand, Sanitary City has signed a 10-year lease renewal worth 21 million rand, while the City of Tshwane has renewed its lease at 227 Andries Street in Pretoria for 8.4 million rand.
Furthermore, vacancy levels at the Bloemfontein Plaza have been reduced from 20% to 10% from October 2005 and, with various transactions still being negotiated, Vukile expects that it will be reduced even further.
Meanwhile, the Randburg Sanlam Centre - the only remaining retail property where vacancy is at an unsatisfactory level - is also being attended to.
One of the focuses during the current year is the enhancement of existing properties in order to extract maximum value from them. One of these is the prestigious Embassy building in Durban, on which it has spent 2.2 million rand on refurbishments over the past 17 months to maintain its status as a landmark in the Durban CBD.
Three other expansion and refurbishment projects, representing a combined investment of more than 100 million rand, are currently being considered, and an announcement in this regard can be expected soon.
Another key issue for Vukile is the proposed securitisation of a major portion of its long-term debt. "We are well advanced with this process, which is designed to achieve significant interest savings, and we are confident that we will be able to complete it before the end of this year," Van Zyl added.
It remains one of management's objectives to acquire the approximately 25% of MICC Property Income Fund which Vukile does not already own.
"Various ways of achieving this are being investigated, but it should be noted that the MICC investment is earnings-positive for Vukile in any event. We are therefore not under any pressure to conclude such a transaction, and will only do so on commercially equitable terms," he said.
Vukile's results for the half-year to 30 September 2005 will be published on or about 1 December.
