Fountainhead Property Trust lifts its distribution to investors 6.85%

Fountainhead Property Trust CEO, Len van Niekerk says we advised the market of our strategy to reduce risk and improve the quality and sustainability of our earnings, and we have made meaningful progress on these objectives.

JSE-listed REIT Fountainhead Property Trust on Thursday declared distribution growth of 6.85% for the year ended August 2014, delivering on its market guidance of 6.25 to 7.25%.

The property group achieved its stated prospects notwithstanding once-off legal and advisory costs of R5.3 million incurred in the second half of its financial year, relating to Redefine Properties’ offer to acquire the remaining 34% of Fountainhead it doesn’t own.

While the offer was approved by a substantial majority of Fountainhead unitholders (71.3%) it fell just short of the required 75% level. Excluding this extraordinary expense, Fountainhead’s distribution growth for the financial year would have exceeded guidance at 7.7% per PI. Fountainhead’s net asset value (NAV) increased by 7.2% per PI.

Commenting on the results, Fountainhead CEO, Len van Niekerk says, “We are pleased to report a solid set of results in this tough operating environment. We advised the market of our strategy to reduce risk and improve the quality and sustainability of our earnings, and we have made meaningful progress on these objectives.”

The group ended the year with 64 fixed assets worth R12.2 billion, with 75% of its properties by value being well-established metropolitan shopping centres. Its top 10 properties are valued at R9.1 billion and account for around 75% of the total value.

During the year, its commenced construction on a number of core assets, including a R318 million upgrade and expansion of Centurion Mall, and an additional 4 500m2 of lettable area with significantly improved access at Kenilworth Centre. It is also investing R65 million to convert an office park in Bedfordview into a private educational facility.

The company made four acquisitions for a total consideration of R778 million at a combined 8.5% yield. This includes the R571 million Robor industrial facility in Elandsfontein.

The Trust also identified 27 properties for its disposal programme and, in its current financial year, has concluded, or is in the process of concluding, agreements of sale on 19 of the properties for a total value of R219 million at a combined yield of 9.87%.

Its Southgate and Westgate disposals transferred shortly after year end and together with disposals agreed or in advanced negotiation represent a total value of R1.2 billion at a combined yield of 7.8%.

Vacancies, excluding the ones earmarked for development, increased slightly from 7.1% to 7.5%. Most of the increase can be ascribed to a few larger office and industrial vacancies.

At year-end, 49% of Fountainhead’s debt was fixed at an average rate of 8.1% for an average period of 4.2 years. The fixed position increases to 76% fixed after taking forward starting swaps into account and up to 95% after taking a loan repayment and application of net proceeds from disposals and acquisitions into  consideration.

Looking ahead, Fountainhead expects growth in distributions of 5% to 6% from its current portfolio for the 12 months to 31 August 2015.