Johannesburg - Listed property fund Vukile's vacancies and bad debt are on the rise, but fund managers are still keeping the counter on their stock picking lists.
Vukile announced earlier on Monday that income payouts (distributions) to shareholders rose by 6.6% for the six months to end-September 2009 year-on-year, in line with market expectations but down on the 10% growth declared for the year to end-March 2009. Still, its share price was up more than 3% in earlier trade on Monday, reaching a two-year high of 1 140 cents per share.
It appears that rising vacancies, increased bad debt and pressure on rentals have started to take their toll. Vukile CEO Gerhard van Zyl said more and more companies have had to close their doors and a record number of jobs have been lost in the economy in recent months, which has eroded property companies' profits.
Higher electricity tariffs and rising rates and taxes have also had a negative impact on distributable earnings, as these costs are not fully recovered from tenants. The provision for doubtful debts rose to R7.3m by end-September 2009, up from R6.5m on March 31 2009, while vacancies in Vukile's R4.55bn property portfolio jumped from 3.2% to 4.5% over the same period.
Van Zyl expected trading conditions to remain difficult for the second half of Vukile's financial year, but said the company will still be able to achieve "reasonable" growth in distributions over the next six months.
Vukile had traditionally not been one of the R100bn listed property sector's higher rated funds, as its portfolio includes many older buildings in less-than-prime areas. Vukile's retail properties include the likes of Randburg Square (old Sanlam Centre) in Johannesburg, Hillfox in Roodepoort, Dobsonville Shopping Centre in Soweto, Phoenix Plaza in Durban and PineCrest Shopping Centre in Pinetown.
However, a number of fund managers have in recent months punted Vukile's value proposition, chasing its share price up to levels last seen two years ago. In fact, Vukile has been one of the R100bn listed property sector's top performers so far this year.
Figures from Catalyst Fund Managers show that Vukile delivered a total return (income and share price growth) of 25% from January to end-October, compared to the sector's 11.8% over the same time.
Keillen Ndlovu, co-head of Stanlib's property franchise, described Vukile's results as "satisfactory" given the current economic environment.
"Vacancies may well have increased, but they are not out of hand. Moreover, the rental growth achieved on leases that expired during the six-month period is impressive, with industrial rentals up 7%, retail rentals up 11.9% and office rentals up 12.5%."
Although the stock had re-rated strongly in recent months, it was still trading at somewhat of a discount relative to the sector. As such, Stanlib still liked the stock, said Ndlovu, particularly its retail portfolio, which appears to be holding up well in the consumer downturn.
Ndlovu noted that fund managers are, however, anxiously waiting for more details on the deal announced in October in which Vukile plans to acquire a property portfolio for R775m from Sanlam. It is not certain at this stage how material the benefits from this deal will be, said Ndlovu.