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VKE
VKE
Vukile Property Fund Limited - CEO newsletter
Vukile Property Fund Limited
(Incorporated in the Republic of South Africa)
(Registration number 2002/027194/06)
Share code: VKE & ISIN: ZAE000056370
("Vukile")
18 September 2006
Dear Stakeholder
We introduced this newsletter last year as a means of keeping you informed
about developments at Vukile (and now MICC) in the intervals between our
results reports. It has generally been well received and we hope you will
continue to find this and subsequent issues useful.
Portfolio performance
With the market still characterised by strong demand, both the MICC and
Vukile portfolios have continued to perform well since the start of our new
financial year in April. In the Vukile portfolio, the industrial vacancy
level has improved since the year-end to approximately 1% of GLA, while the
office vacancy level is still around 3.5% but is expected to reduce further
as the Randburg Square occupancy improves, as noted below. On the retail
side, the performance is still strong. Following the disposal of 13 of
MICC"s properties that did not meet our investment criteria, the vacancy
level in that company"s portfolio has dropped to less than 2%.
Significant new deals and renewals
* Hallmark, Pretoria CBD: a lease for 23 400m2 with a contract value of
R17 million has been concluded with the Public Works Department.
* Sanlam Park, East London: Sanlam and Absa have signed up for 2 900m2
with a total value of R8 million. This very popular building is now
fully let.
* Supra Hino, Linbro Park: a 10-year lease with a value of R26 million
has been concluded with Subaru SA.
Expansion and development projects
Our two major expansion and upgrade projects, Phoenix Plaza and the
Dobsonville Centre, are both on track for completion in November this year
as scheduled. The additional space at both complexes has already been
fully let and, despite various new developments in Soweto, there is a
waiting list from tenants wanting to take up space in the Dobsonville
Centre. In addition, our new joint-venture value retail complex at King"s
Road, Pinetown (owned jointly with SA Retail) is also on track for
completion in November this year.
Raising Randburg"s profile
As we noted in last year"s annual report, we have been taking remedial
measures to improve the situation at primarily the office component of
Randburg Square, the only property in our portfolio which had an
unsatisfactory vacancy level. These measures have included a marketing
campaign designed not only to raise the building"s profile among potential
tenants but also to enhance perceptions of the Randburg CBD as a whole. It
is extremely gratifying to report that a total area of 4 700m2 has since
been let in the office tower and leases for an additional 2 600m2 are
currently being negotiated. Once these have been concluded, occupancy of
the office tower will increase to close to 90% and we are confident that we
should be able to let the remainder of the space in the near future.
Due to the letting successes that has been achieved, the entire office
tower is being upgraded and it offers quality space at very competitive
rentals. Although the occupancy status of the retail portion of the centre
has been satisfactory, the increased occupancy of the office tower has
caused renewed interest from prospective tenants and we are confident that
we should be able to reduce the vacancies in the retail portion of the
centre as well.
The MICC acquisition
We reported earlier that a linked unitholder, representing 0.01% of MICC"s
issued capital, had filed an application with the High Court opposing
Vukile"s compulsory acquisition of the remainder of MICC"s linked units in
terms of S440K of the Companies Act. (Following the offer to minorities at
the beginning of the year, Vukile currently owns 98.9% of MICC.) Vukile is
opposing the application. The legal process is under way but no date has
yet been set for a court hearing. Unitholders will be advised of the
outcome.
In the meantime, MICC"s debt has been restructured and now comprises a new
five-year loan of R251.2 million from Nedbank at a three-month JIBAR rate
which has been fixed at 10.66% (previously 11.51%) through an interest rate
swap agreement as well as a new five-year loan of R188.8 million from Absa
(replacing Standard Bank) at a three-month JIBAR rate which has been fixed
at 10.38% (previously 11.22%) through an interest rate swap agreement. In
addition, an access facility of R62.7 million at 1.5% below prime has been
negotiated with Absa. The net effect of this re-structuring is an annual
saving in debt costs of approximately R4.0 million.
Interest rate increases
The recent increases in interest rates have had a severe negative impact on
the listed property sector as a whole. Linked unit prices tumbled by
approximately 25% from the highs of March/April of this year. In reality,
there was no reason for the linked unit prices to reduce at all. In the
case of both Vukile and MICC (and most of the other PLS and PUT companies
as well), all our debt is either fixed or hedged and the increased interest
rates will have no effect whatsoever on our cost of debt. In addition, the
fundamentals of the property industry remains strong and there is some
evidence of a shortage of commercial space. Due to the fact that the
higher interest rates will curb development activity, this can only lead to
higher rentals. We are therefore of the opinion that the drop in prices
has been too severe and that a further upward correction can be expected.
Acquisitions
The acquisitions of the Oakhurst office building in Parktown, Johannesburg,
and No. 50 Sixth Road in Hyde Park, Sandton, have been completed. While
the acquisitions market remains tough, we continue to look for suitable
investment opportunities and several promising prospects are currently
under consideration.
Interim results
Vukile"s results for the six months to end September 2006 will be announced
in the latter half of November. At this stage, indications are that these
should reflect the favourable trading environment and a performance in line
with expectations is expected.
Yours sincerely
Gerhard van Zyl
Chief Executive
Date: 18/09/2006 12:00:07 PM Produced by the JSE SENS Department
