| Tue 14 Oct 2008, 15:00 | | VKE - Vukile Property Fund Limited - Announcement |
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VKE
VKE
VKE - Vukile Property Fund Limited - Announcement
Vukile Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
JSE Share code: VKE ISIN: ZAE000056370
NSX Share code: VKN
("Vukile")
Announcement
14 October 2008
Dear Vukile stakeholder
The operating environment
Since the publication of our annual report at the end of June 2008, listed
property loan stock companies have staged a significant comeback. The SA Listed
Property Index was up 26% between July and August this year and it is pleasing
to report that Vukile was one of the top five individual performers.
Unfortunately most of these gains have been offset by the turmoil in the
international and South African markets brought about by the worldwide liquidity
crisis. It is becoming clear that this is an unprecedented crisis and that the
effects will be more severe and longer lasting than initially expected.
Due to the fact that liquidity will be in short supply and also because of a
lack of investor confidence, world economic growth will slow down materially
which will, in time, reduce inflation. In South Africa, unfortunately, the
situation is complicated by the effect of the rand. Although the South African
banking sector has, to a large extent, been isolated from the negative effects
of the liquidity crisis due largely to exchange controls, the JSE Limited and
the rand exchange rate have not been spared. The dilemma we have is that
although interest rate cuts are overdue, the South African Reserve Bank would
like to protect the rand against the turmoil and has, for that reason, decided
not to reduce the repo rate at the meeting of the Monetary Policy Committee
meeting held on 9 October. This means high interest rates will remain and will
inevitably contribute to a further slowdown in economic growth.
Although investor confidence is low and we find ourselves in a generally
unfavourable economic environment, it is comforting to note that the short to
medium term fundamentals of the property sector are still fairly sound. The
most important of these fundamentals is the ability to continue to grow rental
income given the current shortage of property stock. Properties across the
board are still experiencing record low vacancies and will continue to do so in
the foreseeable future. This is in a large part due to a number of barriers
that are preventing new properties from being developed including high building
costs, a shortage of electricity and the high cost of borrowing. On the
negative side, we have seen huge increases in energy costs and rates and taxes
and this will have a negative effect on the net incomes of property companies.
Generally speaking, retail is the one sector that is coming under more and more
pressure and is likely to see lower income growth, given the high interest and
inflation rate and the effect these have on the consumer. In Vukile`s case, the
majority of our retail centres, although not regional or super-regional centres,
are dominant in the areas they serve. The location of these properties as well
as the complementary mix of tenants provides a product that is specifically
tailored to our tenants` target markets. For this reason, these centres are less
exposed to the generally negative trading environment and we are nor yet
experiencing a dramatic slowdown in trading at any of them.
When all of the above is taken into account, we remain confident that we will be
able to deliver reasonable growth in distributions for the year to 31 March
2009.
Expansion and development projects
One of our major focuses during this year is on the enhancement and expansion of
our existing properties in order to extract the maximum value from them. These
include Phoenix Plaza (R27 million), Oshakati Shopping Centre in Namibia (R31
million), Dobsonville Shopping Centre (R17 million), Spartan Courier Warehouse
(R14.5 million) and Truworths Nelspruit (R9 million). All these projects are on
track. In addition, we are investigating a number of further value-adding
projects.
Back-up energy installation
In our annual report, we noted that we had embarked on a co-ordinated strategy
to audit each of our properties to determine what alternative energy sources we
can implement. This audit has now been completed and it enables us to provide
our tenants with the necessary information for them to make an informed decision
on whether we proceed to install back-up power. The decision to install
generators will be made on a property by property basis, depending on the
support of the tenants.
Electricity tariffs are expected to continue to increase and these will be
coupled with punitive measures for those properties and other electricity
consumers that don`t meet the electricity saving target of 10%. We therefore
intend to embark on a tenant awareness campaign to inform them of the penalties
that could apply if the savings target is not met. In addition, we will inform
tenants of the various mechanisms that can be implemented to reduce energy
consumption.
Interim results
Vukile`s results for the six months to September 2008 will be published towards
the end of November 2008. There will be a presentation on the results in
Johannesburg and Cape Town. If you would like to attend either of these
presentations, please email your details to our investor relations office at
vukile@dpapr.com.
Yours sincerely
Gerhard van Zyl
Chief executive
Date: 14/10/2008 15:00:02 Produced by the JSE SENS Department.
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