Premium Properties, one of few JSE listed companies to offer significant residential sector exposure, this morning announced its annual results for the year ended 28 February 2014.
Jeffrey Wapnick, Managing Director of Premium Properties, commented; “We are extremely pleased to have once again delivered on our strategy to enhance our existing portfolio’s profitability and provide growing returns to investors. The increase in distributions of 19,4% for the year is well ahead of sector average growth and represents an excellent performance.”
The Company’s rental income and net rental income increased by 13,1% and 13,7% respectively. The residential portfolio comprising 28,8% of the total property portfolio by rental income, achieved strong growth underpinned by low vacancies and high demand for quality, secure and affordable accommodation. Bad debts, write-offs and provisions decreased from 1% to 0,5% of total tenant income. Arrears and doubtful debt provisions remained at acceptable levels and no significant deterioration is anticipated.
“In this high cost environment, we focussed on reducing vacancies with more aggressive leasing activities. We also introduced various energy management initiatives which significantly contributed to the bottom line,” said Wapnick.
Premium continued with its value enhancing strategy, completing three major projects during the year with a fourth still under construction. The total cost of these projects is approximately R124,3 million of which R89,6 million had already been spent by 28 February 2014. The projects included:
– the construction of an additional residential block on the last remaining open space at The Fields in Hatfield, Pretoria which was completed in February 2014 at a total cost of R68,6 million, creating a further 87 residential units and 87 parking bays. Once fully let, this development is expected to yield a return of 8,3%.
– the redevelopment of the mixed-use property Silver Place, situated in Silverton, Pretoria progressing from the first phase residential component, completed in early 2013 which saw the construction of a further 82 units as well as the revamp of existing units to the second phase retail component which is expected to be completed in early 2015. The total cost of the project is R40,4 million.
– the upgrade of Prinsman Place, a residential property, at a total cost of R8 million and a R7,3 million residential and retail upgrade to the Demar Building, completed in September 2013 and October 2013, respectively. Both buildings are located in the Pretoria CBD.
Premium took transfer of The Hangar in Centurion in July 2013 for a purchase consideration of R114,7 million. The property which comprises six blocks of residential accommodation is expected to yield a return of 8,0%.
In addition, Volksbank situated in the Pretoria CBD was transferred to Premium on 8 November 2013 for a purchase consideration of R19,4 million. The construction of a high end residential development will commence in October this year at a total estimated project cost of R129,7 million. The project is expected to yield a return of 8,0% once fully let.
“A number of carefully selected upgrades and redevelopments completed during the period have improved the quality of our assets and grown the overall value of the portfolio. The addition of The Hanger and Volksbank will assist in growing the portfolio,” elaborated Wapnick.
During the year Premium increased its investment in associate company IPS Investments to 50%. IPS delivered another solid performance with profits increasing by 51,7% to R33,6 million. The growth was driven by the improved occupancy levels achieved across most of its assets.
Vacancies excluding properties held for redevelopment, amounted to 13,2% (2013: 13,9%) of total lettable area. Significant progress was made in letting some of the retail and office space at The Fields. Properties under development or housed for future development offer significant opportunity to realise further value for investors.
A saving in finance costs was achieved mainly due to the establishment of a R1 billion Domestic Medium-term Note Programme during March 2012.
Premium’s loan to value ratio at year end was 36,1% of the total value of the investment portfolio (2013: 31,6%). Premium entered into various fixed interest rate and swap rate agreements and in terms of these, interest rates in respect of 58,3% of borrowings have been fixed with expiry dates in 2017 and 2018. As at 28 February 2014, the weighted average annual cost of debt was 8,2% with unutilised banking facilities of R528 million.
Premium increased its debt capital market issuance to R775 million, or 40,7% of borrowings. In August 2013 Global Credit Ratings upgraded the long- and short-term national scale issuer ratings of Premium to A- (ZA) and A1-(ZA) respectively.
“A prudent approach to debt management has resulted in saving on funding costs and to take advantage of current interest rates. Today, we have sufficient unutilised facilities and a strong balance sheet to take advantage of future opportunities.
“It is anticipated that growth in the local economy will remain subdued in the short term, however, we are pleased with our progress in identifying value enhancing redevelopment opportunities which will further our growth objective of delivering sustainable distributions for our shareholders.
“The granting of REIT status to Premium from 1 March 2014 further paves the way to drive the merger between Premium and Octodec and we will provide further details in the coming weeks.
“As previously indicated, we believe that a combined entity makes strategic sense in that it will simplify the corporate structure, free up management time and create a more sizeable company with increased liquidity and clout in the sector,” concluded Wapnick.
A dividend of 0,42 cents (2013: 0,33 cents) per ordinary share (out of income reserves) and interest of 84,08 cents per debenture (2013: 65,87 cents) has been declared for the period 1 September 2013 to 28 February 2014.