Premium Properties continues to deliver solid returns

Posted On Thursday, 25 April 2013 14:26 Published by Commercial Property News
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Premium Properties Limited, the only JSE listed Company to offer significant residential sector exposure, this morning announced its preliminary annual results for the year ended 28 February 2013.

  • Total annual return of 34,7%
  • Distribution up by 9,0% to 126,2 cents per linked unit
  • Investment assets of R4,7 billion, up 9,6%
  • Increase in net asset value by 7,2% to 1 696 cents per linked unit
  • Presence established in the debt capital market
  • Weighted average cost of debt significantly reduced

Jeffrey Wapnick Premium PropertiesJeffrey Wapnick, Managing Director of Premium Properties, commented; "The Company's overall performance for the year was pleasing despite the tough economic climate. We focused on the upgrading of buildings and redevelopment, improvement in the quality of tenants as well as an increased focus on reducing vacancies and placed a great emphasis on improving the recovery of utilities expenses.

"Significant progress has been made in new lettings which became effective post the reporting date and more energy saving initiatives are underway to reduce non-recoverable costs, such as common area electricity costs.

"We have also initiated a debt capital market programme in the local market which significantly reduced our cost of capital."

Premium delivered a total distribution for the year ended 28 February 2013 of 126,2 cents per linked unit, representing growth in distributions to linked unit holders of 9,0%. An interim distribution of 60,0 cents per linked unit and a final distribution of 66,2 cents per linked unit was declared.

he combined distribution of 126,2 cents per linked unit accounts for an income yield of 8,4% with a total annual return of 34,7% for the year. The growth in the unit price from R15,00 at 29 February 2012 to R18,95 at 28 February 2013 provided investors with capital growth of 26,3% for the full year.

All rental income received by the Company, less operating costs and interest on debt, is distributed bi-annually. The group does not distribute capital profits.

Net property income increased by 7,2% to R303.7 million, compared to the prior year. Local trading conditions continued to remain challenging. The core portfolio on a like-for-like basis reflects rental income growth of 7,3%. The residential portfolio, comprising 28,7% of the portfolio by rental income, achieved core growth in core rental income of 6,7%. This was underpinned by low vacancies and strong demand for quality, secure and contemporary accommodation.

Wapnick added, "Cabinet's decision to locate government departments in city centres has contributed to a resurgence of interest in the Johannesburg and Pretoria CBDs. Currently only five of about thirty five government departments have embarked on this process, so it is poised for further growth."

In the review period, the Company had five major projects under construction. The total coThese were namely upgrades at the Protea Towers, an office block in Pretoria CBD which was completed in July 2012 for a total cost consideration of R15.9 million. Similarly the scheduled upgrade of Die Meent's (Centre Walk), with a 5 258m² retail component, also situated in the Pretoria CBD was completed in November 2012 at a total cost consideration of R43.2 million. To date, leases in respect of more than 95% of the gross lettable area have already been entered into at favourable rentals, with Pick n Pay as an anchor tenant.

The first phase of the redevelopment of the mixed-use property, Eastway (Silver Place), situated in Silverton, Pretoria consisting of 82 new residential units, was completed in April 2012. The second phase, which consists of an upgrade of the existing residential units, was completed in December 2012. The total cost of this project is R59.7 million. Finally, the construction of an additional residential block at The Fields in Hatfield, Pretoria is progressing well and will create a further 87 residential units and 87 parking bays at an estimated cost of R68.9 million. This development is scheduled to be completed in November 2013 and is expected to yield a return of 8,3% once fully let.

The upgrade of the Pavillion in Sunnyside, Pretoria at a total cost consideration of R8.3 million was completed in March 2012. To date leases in respect of approximately 90% of the gross lettable area have been entered into.

"Our retail is trading exceptionally well with a current low vacancy rate. Relatively high trading densities are achieved, which has led to a return by a number of the large food and fashion retailers to the city. Currently, the CBDs are taking lettable space from established shopping malls, especially in the east of Pretoria because of the significant growth big named retailers can achieve here in the CBD.

One of the advantages is that the cost of occupation is much lower. The utility costs in a shopping centre are much higher as there are no common area charges associated with high street shops.

"There is a notable commitment from tenants to the city through their continuous upgrading of stores. We are confident that these redevelopments and upgrades will pay dividends for our unitholders in the long term," he continued.

Premium also concluded an agreement for the acquisition of The Hangar, located in Centurion for a purchase consideration of R114.9 million. The property, comprising six blocks of residential accommodation will further enhance Premium's residential property component. The effective date of the acquisition is conditional upon the fulfilment of various conditions precedent and is expected to be during June 2013.

"We believe that these acquisitions will further enhance our position in addition to increasing income for unitholders. We are extremely proud of our efforts in converting office space in the CBD's into safe, clean and aspirational apartments. Bad debt is at 1,0% of total residential rental income mainly because of the high demand for safe, middle to high-end apartments in the CBD.

The Company's investment in IPS Investments Proprietary Limited ("IPS") provided strong growth with profits earned from the associate company, excluding capital profits, increasing to R22.1 million, which is an increase of 37,2% on the prior year. The performance of IPS was positively impacted by the improved occupancy levels achieved during the year at the mixed-use developments of Kempton Place, Craig's Place and Tali's Place.

During the reporting period, arrears and doubtful debt provisions remained acceptably low, up marginally from 0,9% of total rental income in the prior comparative year to 1,0% of total tenant income in the year under review. No significant deterioration is anticipated. Despite rapidly escalating utilities charges, the percentage of cost recovery from tenants has been maintained during the year. Total vacancies in the portfolio amounted to 20.8% of the total lettable area.

Wapnick concluded; "We continue to look for properties and opportunities where we can unlock value; where the potential rental increase is not confined to an annual inflationary increase. We have been successful in doing this for a very long time and have a good pipeline of redevelopment opportunities."

A dividend of 0,33 cents (2012: 0,30 cents) per ordinary share (out of income reserves) and interest of 65,87 cents per debenture (2012: 59,70 cents) has been declared for the period 1 September 2012 to 28 February 2013.

Last modified on Monday, 20 May 2013 11:01

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