SA Corporate distribution 'in line with company expectation'

Posted On Monday, 25 August 2008 02:00 Published by eProp Commercial Property News
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SA Corporate Real Estate Fund, one of the country’s largest listed property funds, declared an interim distribution of 14,5 cents a unit, which was in line with expectations of management

Property-Housing-ResidentialThe 2007 interim distribution of 17 cents a unit included a once-off contribution of 2,4 cents a unit resulting from the acquisition of SA Retail Properties Ltd. Nevertheless, distribution growth is flat.

“The fund’s industrial properties, which comprise predominantly warehousing and distribution facilities and make up 34% of the total portfolio, continued to perform well in a firm industrial property market, “ said Craig Ewin, CEO of SA Corporate and head of listed real estate at Old Mutual Investment Group Property Investments, which manages the fund. There is not a single vacancy in 720 000m2 industrial portfolio and where leases have come up for renewal during the past 6 months we have achieved good rental growth. This is indicative of the industrial letting market generally where vacancies levels are low and good demand for space continues. In addition, the fund’s industrial portfolio is high quality and  is generally regarded as one of the premier industrial portfolios in the listed property sector.

“Similarly, offices, although less than 10% of the total portfolio, have performed satisfactorily, he said, “However, the retail portfolio , which makes up 57% of the fund’s total portfolio and approximately three quarters of  which are smaller centres under 35000m2, is coming under pressure in challenging retail conditions, influenced by a variety of factors impacting on consumer spend and letting of space.“

Ewin said the overall vacancies at June 30  were  2,4% of lettable space and 4% of total income which were much in line with those at the end of 2007. The vacancies in the retail portfolio stood at 4,1% of the retail  lettable space and made up over 80% of lost income caused by portfolio vacancies.. Although serious attention was being given to improving this position, management were being forced to revise their original expectations as to the rate of successful take-up of space given current conditions. 
“It is positive that it seems likely that the top of the interest rate cycle has been reached although the lag impact on consumer spend and high inflation will persist for some time still” he said.

“The value of the standing portfolio increased by 3,4% since January 1, 2008, with the industrial portfolio showing good capital growth of 9,4%. The retail portfolio’s value is flat on December 2007. The portfolio had been independently valued at R9 billion at June 30.

“This valuation  translates to an increase in a net tangible asset value  from 353 cents per unit in 2007 to  385 cents per unit, inclusive of the distribution to be paid. Despite recent strengthening in the listed property market, the units continue to trade at a discount of more than 20%. “

Ewin said developments costing in excess of R500 million were expected to be completed in the second half of the year.  These included two substantial industrial projects in Jet Park, Gauteng at a cost of R187m  to meet expansion requirements of Bell Equipment and the Fuel Group, both long tern existing tenants of the Fund, as well as a R66m new facility in Paarden Eiland, Cape Town, New regional offices were being developed for Vodacom  in Bloemfontein at a cost of R57m. Two shopping centres in under-serviced areas were also being developed at a total cost of R224m,– one in Philani Valley, Umlazi, Durban and another in Hammanskraal, Tshwane.

In May the fund took transfer of 1 Holwood Park, a R118m prime office building located in the La Lucia Ridge office node. The building houses Investec’s regional headquarters.

“Management’s current focus was to maximise net rental from the property portfolio and to extract maximum value from the recent acquisition and development activity”, Ewin said. “SA Corporate is a substantial diversified fund and over time management would look to enhance this position though increased investment in office properties and greater diversification of the fund’s retail portfolio.”


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