SA Corporate enjoys 19% increase in distribution

Posted On Monday, 25 February 2008 02:00 Published by eProp Commercial Property News
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SA Corporate Real Estate Fund which was reshaped in 2007 into the country’s third largest listed property fund through acquisitions of R4,7 billion, has beaten its distribution forecast for the year

Old Mutual Investment Group Property InvestmentsA final declaration of 15 cents a unit has brought the total distribution for 2007 to 32 cents a unit, a 19% increase on the annualised 2006 figure and ahead of the 31,55 cents a unit forecast last March.

Excluding a once-off contribution of 2,4 cents a unit to the interim distribution resulting from the acquisition of SA Retail Properties Ltd, the distribution growth was 10% over the comparable 2006 figure.  Income before expenses for 2007 was R732,1 million.

Craig Ewin, CEO of SA Corporate and head of listed real estate at Old Mutual Investment Group Property Investments, which manages the fund, said improved investment performance was reflected in the fund’s total return of 26,53% for 2007.

This was marginally above the South African listed property index and above the property unit trust index at 22,68%.

Ewin said the fund’s growing industrial component, the main beneficiary of a R524 million development pipeline for 2008, performed well.

“The industrial component continues to be buoyed by the shrinking supply of rental space and rising market rentals and this has impacted positively on property earnings.  Office rentals, similarly, have shown healthy growth, particularly in the secondary market, which has benefited from the slowing delivery of new office space and increasing tenant demand.”

Ewin said the retail component - 59% of the portfolio - had not been immune to the impact of the successive interest rate increases and other factors which have curtailed consumer spending and affected turnovers of major retailers.

The overall vacancy factor had increased from 1% in 2006 to 2,7% as a result of the major acquisitions during the year and the higher retail weighting of the portfolio, said Ewin.

He said all but two of the 40 mainly industrial properties in the Buffcol portfolio, a R964 million acquisition, were transferred during the year.

Following the first half acquisition of SA Retail and the Sharemax portfolio, in the six months to December SA Corporate bought a strategic 25% holding in Oryx Properties Limited, a Namibian listed property loan stock company for
R169 million, invested R87 million in a shopping centre in Elim, Limpopo Province, and sold six properties, with a total value of R234 million.

These included Eikestad Mall, Stellenbosch, which was sold for R146 million after a ruling by the competition authorities in their approving the acquisition of SA Retail by SA Corporate.  This brought total disposals for the year to R326 million.

Ewin said that, after year-end, the acquisition of a R115 million A grade office block in La Lucia Ridge Office Estate, Umhlanga, was approved.  The R524 million development pipeline included four industrial and office projects of R308 million and two retail complexes of R116 million, at yields of up to 9,5%.

The retail developments were commercially attractive projects in under-serviced areas at Hammanskraal,Tshwane, and Umlazi, Durban.

Ewin said the fall in business confidence resulting from global and domestic issues and the effect of increased interest rates and other adverse factors on consumer spend was a concern, especially in the retail sector.

”On the positive side, the industrial component of the portfolio is expected to perform well as positive upward reversions are likely as leases expire during the year ahead.”

He said SA Corporate’s total debt level, at 8% of the total property portfolio value, was low relative to industry norms.

”A high proportion of fixing means that there is little interest rate exposure in the short to medium term.  It has been management’s intention to increase the debt level to 20% in the medium term, but the relative cost of debt to equity funding has resulted in preference for equity issuance to fund SA Corporate’s expansion activity during the past year.

Distribution enhancing acquisitions are difficult to secure in the current environment but good investment opportunities will be available and SA Corporate, with low debt levels, is well placed to take advantage of viable acquisitions.”

Ewin says management will continue to assess acquisition opportunities based on the target property’s internal rate of return compared to that of the portfolio, as well as their impact on the fund’s distributions in the short term.

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