| Tue 10 Dec 2002, 17:59 | | Paramount Property Fund Limited - Press Release |
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Release Date: 10/12/2002 16:56:11 Code(s): PRA
Paramount Property Fund Limited - Press Release
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PARAPROP DELIVERS DESPITE TOUGH MARKET
Draft 2: for Wednesday, December 11, 2002
JSE-listed property loan stock company, Paramount Property Fund (Paraprop), has
met its projected annual distribution for the financial year ended 31 October
2002, and declared a final quarterly distribution of 24.4 cents per linked unit.
This brings the total distribution for the year to 86.4 cents, representing an 8
percent increase on the annualised distribution of 80 cents last year (60 cents
for the nine months ended 31 October 2001).
The year proved to be tough one for the listed Fund despite the optimistic start
when it seemed that inflation and interest rates were on a downward trend.
Managing Director Rodney Squire-Howe said, "We are pleased that we have
delivered on our forecast distribution and that we have met our undertaking to
shareholders. We were able to achieve these results as a result of proactive
management of the property portfolio and interest risk. We managed to keep
vacancies down to around 5 percent during the year under review, which is well
below the industry average. However, despite this active approach, net rental
income was below our expectations."
Commenting on current market conditions, Squire-Howe said the company was
concerned about the poor conditions in the property market, particularly during
the latter six months.
"A combination of low economic growth, a serious over-supply of space, and high
interest rates has lead to higher vacancies and lower rentals, with some areas
experiencing rental declines by up to 30 percent. Many tenants are struggling
financially and have requested rental relief or space reductions, and we have
seen liquidations, not only of small, but also of blue-chip tenants. These
conditions will have a big impact on income returns and capital values on the
property sector in general, and have impacted on Paraprop`s results."
Squire-Howe added that he was concerned about the prospects for 2003 because,
while business confidence was higher and the outlook for increased growth was
better, it would take some time for this to filter through to the property
market and impact positively through increased rentals and decreased vacancies.
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"Against this background, we need to point out that the continuation of the
current conditions will negatively impact on our results during the coming year.
Paraprop`s structure requires growth in income of around 6 percent so as to
maintain the distribution, and 8 percent to ensure growth in annual
distributions. When we launched Paramount, it was in an positive economic
environment, with low inflation outlook, long-term interest rates declining, and
strong property market fundamentals - we therefore had no doubt that this growth
would be achieved. But what has happened over the past 6 to 12 months, and in
particular the severity of the rental declines, is unprecedented in the industry
during recent times. Realistically, we believe that we will not see much growth
in our property income over the next financial year and this means that our
earnings might be diluted.
He went on to say that at both management and board level, Paramount was taking
immediate steps to minimise any dilutory effect.
"This will be done by firstly maximising our rental income through aggressive
letting of vacant space and the strict control of expenses, and secondly by
generating revenue from other sources, in particular releasing value from
specific properties where these opportunities exist. Essentially, we need to
see the Fund through some tough market conditions into 2004 when we believe
economic growth will once again translate into rental growth."
"In the same way that Paraprop`s structure exaggerates negative growth, so it
magnifies the effect of high growth, and, if current optimistic growth forecasts
are achieved, the medium term could produce excellent results for the Fund.
Paraprop has a very good quality property portfolio and focused, hands-on
management. In the interim period we will continue to manage Paraprop in a
proactive way, and to look for suitable properties to grow the portfolio," he
concluded.
Contact: Bruce Kerswill, Executive Director, Paramount Property Fund (021) 659
5946; Rodney Squire-Howe, Managing Director, Paramount Property Fund (021)
659-5945
Issued by: Nicola Nel; Atmosphere PR; 461-2117; 082 4592288
Date: 10/12/2002 04:56:07 PM Produced by the JSE SENS Department
