Richway portfolio exposes Primegro to rates volatility.

Posted On Thursday, 12 December 2002 10:01 Published by eProp Commercial Property News
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THE R1,2bn acquisition of the entire Richway portfolio has exposed property investment company Primegro to interest rates volatility, resulting in a stalled growth in earnings.


Derek Greenberg and Panico TheocharidesPrimegro's financial results for the year ended October show an 81% increase in income, from R191,5m to R348,2m, but headline earnings slipped from 90,6c a linked unit to 89,6c.

Primegro's joint MDs Martin Ettin and Derek Greenberg said that the lack of growth in earnings was the result of higher interest charges.

They said the increased interest charges related to the doubling in the size of the group's asset base at the time of the unexpected deterioration in economic conditions after September 11 last year.

The consequence of that economic environment was a four percentage point increase in interest rates during the course of this year.

Interest paid by the group increased to R141,7m from R77,3m the previous year.

The increase in interest paid was due mainly to the fact that the Richway acquisition was funded 50% by way of mortgage bond. The joint MDs said that up to 10% of the Richway acquisition price was deferred and was payable interest free, in four equal annual instalments beginning next year. 'We have bitten the bullet,' said the joint MDs.

They said that decisions which sacrificed growth in distribution in the short term needed to be taken sometimes in favour of the benefits in the long-term.

In the circumstances, they were reasonably satisfied with a distribution very close to last year's. However, interest rates would continue to affect growth in distributions until they were reduced. In the coming financial year, this effect would be cushioned by a carry-over of a R4m balance on the rental guarantee applicable in the Richway acquisition transaction.

'This offers a level of comfort in support of our efforts to keep next year's distributions in line with those achieved this year,' said the joint MDs.

The Richway acquisition left Primegro with a R2,5bn property portfolio. The portfolio comprises 74% retail property, 16% offices and 10% commercial properties. Ettin and Greenberg want to develop Primegro into a major property fund.

Last modified on Friday, 25 April 2014 17:08

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