Vunani’s tight management strategy pays off

Vunani Property Investment Fund CEO, Rob Kane says that Vunani’s “very conservative and thorough” approach had protected it from a highly challenging office market.

Property loan stock company Vunani Property Investment Fund has benefited from “tight” management, a stable portfolio, and yield-enhancing acquisitions, according to CEO Rob Kane.

The fund said last week it expected its distribution per linked unit for the year ending June to be 16%-19% higher than for the previous year — a figure that would be well above the sector’s average growth.

Vunani, which is heavily weighted towards the office market and has a significant government-tenanted portfolio, has increased its portfolio to R1.6bn from R935m at its listing 22 months ago. Vunani is targeting a R2.5bn asset base by the end of the year. Mr Kane said this week the fund had grown cautiously and had not sacrificed quality in growing its portfolio, thanks to it being “fussy about what we take on”.

Vunani’s “very conservative and thorough” approach had protected it from a highly challenging office market.

“This market is the toughest we’ve seen in the seven years that we’ve been running the fund.”

Mr Kane said key to Vunani’s success in the market had been tenant retention, which was at 95% in the six month periods ended December. High tenant retention meant time and resources spent between changing tenants was minimised.

Also the fund’s vacancy rate was “constant at about 5.7%”, and its major lease expiries “have been concluded positively”.

Vunani has predominantly Agrade offices, and Mr Kane said 80% of the fund’s tenants were blue-chip tenants, consisting of government, national and listed tenants. In addition, “our weighted average lease expiry is about five years, so 80% of income is secure for five years”.

With 80% of Vunani’s debt fixed, this resulted in a low-risk, stable portfolio. Mr Kane said the fund had benefited from a number of refurbishments completed in the six months ended December and said for every rand spent on refurbishments, “we got R3 back in fair-value adjustments”.

While fair-value adjustments on the fund’s balance sheet were not a major concern, the refurbishments resulted in “a huge kick in rentals”, and Vunani was now seeing this increased income flow in the fund. Vunani had “continued to buy good yield-accretionary assets”, including The Business Centre in Rivonia on a 10-year lease at a 9.63% yield, and the Foretrust Building in Cape Town. Vunani’s recent R450m capital raise would be partly used toward acquiring a further 10 buildings in the Greenstone Hill Office Park, Mr Kane said.