Premium fund focuses on upgrades

Posted On Thursday, 19 April 2012 02:00 Published by eProp Commercial Property News
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The past financial year signified an intense upgrade phase in the Premium portfolio, with redevelopment and conversions representing a value of R102,1 million, underway at many buildings

Jeffrey WapnickThe JSE listed property loan stock company has an investment portfolio of offices, retail, industrial and residential properties valued at R4,3 billion as at 29 February 2012 which portfolio comprises mainly multi-tenant buildings in the Pretoria CBD with further holdings in Hatfield, Silverton and the Johannesburg CBD. Premium's investment strategy  focusses on high-growth areas, and in properties with turnaround potential or redevelopment prospects.

“It is part of Premium’s strategy to acquire and upgrade buildings to unlock value, which has delivered exceptional distribution growth to our investors over the years. It also represents a large investment in urban renewal in Gauteng,” says Jeffrey Wapnick, MD of Premium Properties Limited.

He goes on to explain that property upgrades will remain the major driver of Premium’s performance:

“In recent years, Premium acquired several properties with large vacancies, offering redevelopment opportunities. We paid no or little consideration for the vacant space. We’re introducing these developments to market in line with demand, to realise the potential of the vacancies,” says Wapnick.

Premium’s defensive redevelopment capital spend during the past year has improved the quality of its buildings and attracted new tenants, including large national businesses, at higher rentals.

“This should provide investors with improved distribution growth in the medium to longer term, despite expected subdued short-term economic growth,” reports Wapnick.

Regarding performance, Premium Properties Limited today announced distributions for the year ended 29 February 2012 in line with its earlier forecast, indicating investors could expect improved performance during the second half of its financial year.

Premium’s second half performance increased substantially from its first half, with distributions up from 55.8 to 60.0 cents per linked unit. Full year distributions totalled 115.8 cents per linked unit. Premium increased its net asset value by 2.6% to 1,582.0 cents per linked unit during the year. Its rental income and net rental income increased by 14.9% and 9.6% respectively.

Wapnick, notes the results were in line with market expectations, but were achieved in a difficult trading environment with tenants’ total occupation costs increasing as utility costs and assessment rates in SA continue to soar. “Leases allow us to recover utilities and rates and taxes, however higher costs constrict new rentals when leases expire,” explains Wapnick.

Premium expects growth in distribution per linked unit for its current financial year to be on par with the listed property sector average, subject to no further decline in market conditions. This will be achieved by introducing new lettable space to market, increased occupancies and growth in rental income.

Already, at 29 February 2012, Premium’s portfolio vacancies decreased by 2.3% from the prior year. During the year Premium acquired six properties for a total amount of R176,0 million, and disposed of one at a profit of R3,9 million. It reported a 97.6% occupancy level in its industrial portfolio, 95.0% in its retail portfolio and 87.5% in its office portfolio.

Most properties are fully let, however some developments were vacant for construction. “Significant leasing progress has been made at these properties, impacting performance positively.”

Premium’s residential properties, which comprise 29.6% of its total portfolio by rental income, achieved growth of 7.5% and impressive 99.1% occupancy levels. “We continue to invest in urban rejuvenation in Gauteng city centres, specifically Johannesburg and Pretoria, and meet a real social need for well located, quality residential accommodation at reasonable rentals,” Wapnick says.

Property expenses increased to 42.8% of revenue from 40.0% in the prior year. Bad debt write-offs and provisions remained at tolerable levels of 0.9% of revenue.

Premium’s investment in IPS provided strong earnings growth with profits earned from the associate company, excluding capital profits, increasing to R16,1 million. This welcome increase of 28.3% on the prior year came from improved occupancies at Kempton Place and Tali’s Place during the year.

Using the positive dynamics of gearing to maximise returns to unitholders, Premium’s gearing at year end was 30.8% of total investment portfolio value, down from 37.6% at 28 February 2011. Some 57.8% of its debt was fixed for periods between two and seven years. Its weighted average cost of debt was 9.1%, with unutilised banking facilities exceeding R356 million.

Premium has also listed a R1 billion Domestic Medium-term Note Programme during March 2012 and has also issued its first corporate bond of R196,0 million at an annual interest rate of 6.13%.

“The focus of the past financial year was building for the future, applying defensive capital investment for sustainable distribution growth. We are already seeing good results and look forward to reaping the rewards for our investors in the current financial year and beyond”, concludes Wapnick.

Last modified on Monday, 21 April 2014 17:40

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