“This distribution reflects growth of 26% over the six months to July 31, 2006, the most comparable period following a change in year-end and a previous 17-month reporting period,” says Craig Ewin, SA Corporate’s CEO.

It includes two cents as a once-off distribution from the acquisition of SA Retail Properties Ltd which will not recur in the second half of the year.”

He says SA Corporate does not distribute capital or trading profits on the realisation of properties.

“The rest of the distribution growth results from underlying net rental growth and property investment activity. Management is confident of attaining the forecast distribution of 31,55 cents a unit for 2007, provided economic conditions and levels of business confidence do not deteriorate materially,” he says.

“The underlying property portfolio has performed well and has continued to enjoy excellent occupancy levels.  The overall vacancy factor is 2% of lettable space, well below industry norms.”

Ewin says most of the increase in portfolio value has been seen in the industrial portfolio reflecting the demand there and increased market rental levels.

“The portfolio valuation at June 30 gives rise to a net tangible asset value of SA Corporate of 343 cents a unit, inclusive of the distribution to be paid.  The current trading price reflects a premium of less than 10% to NTAV, which is justifiable given the benefits of listed property and arguably low compared with other funds and recent past trends.“

Ewin says improved performance of the underlying property portfolio is also to be seen in the IPD analysis of the portfolio for 2006. 

“The SA Retail portfolio was ranked first among the 14 listed funds measured by IPD with SA Corporate being placed fourth.  The total return of the combined portfolio of SA Corporate and SA Retail, calculated by IPD on a hypothetical basis, was 37%.”

The R965 million acquisition of the Buffcol portfolio of 40 mainly industrial properties, in line with SA Corporate’s expansion strategy, was expected to be settled by September 30, Ewin says.  The acquisition is being funded by new equity and management has secured irrevocable commitments at a clean capital price of 395 cents.

“At a property yield of 8,15% the acquisition will be marginally earnings enhancing in the short term but offers excellent medium to long term benefits due to the locality, quality and tenancy of the properties. “

SA Corporate’s strategy to sell properties which do not meet the fund’s investment criteria or internal rate of return requirements, saw 13 properties sold in the year to date.

”A total of 27 properties valued at R281 million have been sold over the last two years in an aggressive effort to improve the overall quality of the portfolio and its earnings growth potential.”

Ewin says SA Corporate’s portfolio after the Buffcol acquisition will comprise 197 properties with a total value of R8 billion, 33% being industrial, 60% retail and 7% offices.

“A substantial 62 840m² of space in the industrial sector was renewed during the six months to June, with particularly strong  25% average growth in rental levels being achieved.

The demand for quality space across all sectors and the evidence of the impact of positive reversionary rental adjustments augur well for SA Corporate.

The fundamentals of SA Corporate’s property portfolio remain strong and the growth in market rental levels is encouraging.  Accordingly the property portfolio is expected to generate sound growth in earnings in the short to medium term."

Ewin says management intends to increase the debt level to 20% from 10%.

“However, the cost of debt relative to equity funding has made this target inappropriate to achieve in the short term.  Management is finalising documentation with funders which will increase debt facilities and result in a meaningful improvement in the current variable rate of prime less 2,3% on debt of R642 million as well as the margin on future fixes.

SA Corporate is achieving the strategic objectives that it disclosed a year ago, and is confident that with the focused and committed team that is in place, the fund will continue to deliver.”