South Africa's largest property fund Growthpoint Properties on Wednesday announced an 8.1% rise in its distribution to 63.9 cents per linked unit for the six months ended December 2010 from the previous comparable period.

Revenue was R2.2 billion from R2.1 billion previously, while property income grew to R1.7 billion from R1.6 billion previously.

The fund said the economic conditions during the review period continued to improve, albeit at a slow pace. This was reflected in the improvement in occupancy levels and arrears.

The 9.6% increase in gross revenue was mainly due to contractual rental escalations, as well as accounting for the acquisition of Growthpoint Properties Australia (GOZ) made in August 2009 for a full six month period in the current results.

On a "like-for- like" basis, net property income increased by 6.7% in South Africa.

The revaluation of properties resulted in an upward revaluation of R1.6 billion, or by 4.4%, to R38.6 billion, due to rental escalations and a decrease in discount rates as a result of lower interest rates.

"Interest-bearing borrowings were fair valued upwards by R311 million, using the yield curve as at 31 December 2010. The trading market value of the investment in GOZ, based on a stapled security price of AUD1.96 and translated at the closing exchange rate at the end of the period, resulted in an upward fair valuation adjustment of R178 million," the fund said in a statement.

As at the end of December 2010, arrears for the South African business amounted to R41.1 million compared with June 2010's R36.3 million, with a provision of R17 million having been raised for potential bad debts. For the period to December 2010, the total bad debts expense amounted to R3.3 million from December 2009's R9.7 million.

At end December 2010 Growthpoint's vacancy levels in South Africa, as a percentage of gross lettable area, were 5.5% against 6.4% in June 2010.

In addition to the acquisition of the seven properties by GOZ, the foreign subsidiary also acquired Worldpark, an office building in Adelaide for 334 million rand. The initial yield on the property is 8.4% and the weighted average lease expiry is 12.8 years.

Looking ahead, the company said it expects growth in distributions for the full year will be similar to the growth rate achieved in the six months ended December 2010.