Power, rate hikes hit Pangbourne tenants

Johannesburg – Pangbourne Properties [JSE:PAP], a group well-known for its hands-on portfolio management, is seeing warning signs that tenants are taking strain from rising utility costs and rates, it said on Thursday.

Barry Stuhler, the R8.3bn property group's CEO, said he was uneasy about the health of the recovery.

"We've been looking at tenants and how resilient they will be, and we're uncertain," he said.

Reporting annual results on Thursday, Pangbourne said it expects vacancies to rise.

According to Paul Duncan of Catalyst Fund Managers, most property funds are reporting that vacancies have hit a trough.

Total vacancies have been marginally reduced from 6.7 percent in December 2009 to 6.6 percent at June 30 2010. Office vacancies increased to 10.9 percent from 8.3 percent in the last six months, the group's annual results showed.

"These are good results," said Macquarie First South property analyst Leon Allison. "The recovery is going to be a very slow one, with potential hiccups along the way."

Distributions increased by 10.05 percent for the year to end-June 2010, the group reported.

Pangbourne owns industrial properties and offices as well as retail properties that include the Thrupps Centre in Illovo and the N1 Value Centre in Cape Town.

According to Stuhler, increases in rates and electricity costs will place tenants under pressure.

"Rates and utility expenses have also increased sharply, with no concomitant improvement in service delivery," the group said.

Stuhler said the group has successfully reduced gearing from 50 percent to 30 percent. "We can now go about acquiring A-grade industrial properties," he said.

However, he noted competition for tenants in certain areas among large property groups has lowered rentals.

"There is uncertainty in the market – so companies and tenants are careful and don't want to commit to long-term contracts," said Allison.

- Fin24.com