Vukile increases distribution growth

Vukile reports a 9.5% increase in net profit for distribution for the full year. Property loan stock company Vukile today reported a 9.5% increase to R289.9 million in net profit available for distribution for the full year to 31 March and posted a 12.0% rise to 53.8 cents per linked unit in the final distribution for the last six months, making the total for the year 97.90 cents per linked unit, an increase of 10.9%.

Chief executive Gerhard van Zyl attributed the sound results to a strong performance by the company's underlying properties; a firm control on costs with the company's cost to property revenue ratio improving to 32.3% from 34.1% the previous year; and the containment of vacancy levels at 3.2% of gross rentals (2008: 2.8%).

He noted that, despite the deterioration in trading conditions especially in the latter part of the year, the company managed to contain the vacancy levels in the portfolio at very low levels.  "We can expect, however, that vacancy levels will increase from the current levels and that bad debts and tenancy failures are likely to increase in the year ahead. Further cuts in interest rates should start to have a positive effect on the economy which in turn will help reduce debt delinquency," he said.

During the year the company spent R92 million on expansions of existing properties, revamps and tenant installations.  New leases and renewals of 130 988m² with a contract value of R290 million were concluded during the year.  80% of leases that expired during the year ended 31 March were renewed.  The directors valued the company's property portfolio on 31 March 2009 at R4.53 billion which is R213 million or 4.9% higher than the valuation at the previous year end.

Van Zyl said the discussions between Vukile and Sanlam Properties regarding the proposed acquisition of the asset management business of the Vukile property portfolio of Sanlam Properties by Vukile as a going concern were continuing and that, in order to facilitate these discussions, the existing asset management contract between them was extended by a maximum of six months to 30 September 2009.  It was expected that these discussions would be finalised shortly.  He said that the purpose of the proposed acquisition was to internalise the company's asset management function in line with international best practice and the expected requirements of the new REIT structure, which is widely expected to be introduced in South Africa next year.

Looking ahead, van Zyl said that, despite a downward trend of the interest rate cycle, he expected the trading conditions to remain tough in the year ahead.  "The property sector tends to lag the broad economic cycle by about 12 to 18 months, which means we can expect to see further increases in vacancies, resistance to higher rentals and increased bad debts," he said.  "However, property fundamentals are still relatively sound with generally low vacancies, little new stock entering the market and high building costs."

"Internally, the company will continue its rigorous pursuit of cost control, tenant retention, credit control, and energy savings while, at the same time, enhancing the desirability of its property portfolio through the renovation and refurbishment of its existing buildings.  Therefore, barring any further deterioration in the market conditions, we expect to show reasonable growth in distributions for the year ahead."

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