Pangbourne Properties on Thursday announced a 5.47% rise in distribution to 74.04 cents per linked unit for the six months ended December from the previous corresponding period.
Net rental and related revenue declined to R485.8 million from R508 million previously. Total comprehensive loss amounted to R33 million from a profit 46.8 previously.
While Pangbourne's leases allow for the recovery of utilities and increases in rates and taxes, the tenants' total cost of occupation increased substantially, which in turn limited the fund's ability to increase rentals on renewal.
Vacancies increased from 6.6% as at June 30 2010 to 10.8% at December 31 2010.
The vacancy in the portfolio as at December 31 2010 consisted of commercial 12.6% (Jun 2010: 10.9%), retail 4.2% (Jun 2010: 4.0%), industrial 12.5% (Jun 2010: 6.7%) and other 4.7% (Jun 2010: 3.4%).
Pangbourne, which invests predominantly in industrial and office space, said the manufacturing sector had been badly affected by the strong rand, labour action and the recession, with large manufacturing tenants - namely Africa Glass SA Holdings (AGI) and Cullinan Holdings - going into liquidation.
The vacancy as at December 31 2010 did not include Africa Glass SA Holdings as the liquidator had occupation of the property at year end.
"Management has taken advantage of the downturn to undertake refurbishment and renovation of a number of properties to attract new tenants and upgrade the quality of the portfolio," it said.
Despite the difficult economic environment, arrears only increased marginally due to firm credit control and an improvement in both tenant profile and the quality of the property portfolio.
Looking ahead, the fund said that, although the economy had emerged from the recession, market conditions remained difficult and vacancies were projected to increase further from the current levels.
"Pangbourne will, however, enjoy the benefit of lower interest rates through the restructured interest rate swap profile and the board remains confident that the projected growth in distributions for the full financial year of between 6% and 8% will be achieved," the group said.
The growth was based on the assumptions that a stable macro-economic environment will prevail, no major corporate failures will occur and that tenants will be able to absorb the recovery of rising utility costs. Budgeted rental income was based on contractual escalations and market related renewals.