Property group Fountainhead has declared a distribution of 29.28c a unit for the six months ended August 31, taking the total distribution for the year to 58.28c a unit – an increase of 16.6% compared with the 11 months ended August 31, 2013.

The distribution for the second half of the financial year included legal and advisory costs of R5.3-million incurred as a result of the unsuccessful offer by counterpart Redefine to acquire the assets of the trust.   

The active portfolio, excluding properties acquired, sold and under development, achieved rental growth of 5.4% and net property income growth of 6% for the year under review.

CAPITAL INVESTMENT
Elaborating on its major capital costs over the period, Fountainhead outlined in a results statement that it had started the R318-million upgrade and expansion of the Centurion Mall, in Gauteng.

The project included the 2 260 m2 expansion of Woolworths, the addition of gross lettable area (GLA) on the upper level, the development of a new mall off the spine, as well as facilities and external upgrades.

“These interventions will address the tenant mix and merchandising demands and facilitate shopper circulation. Further, the R13-million acquisition of an adjacent property creates additional long-term value-added opportunities,” the group stated.

Fountainhead had, meanwhile, completed parking deck rectification at the Kenilworth Mall, in Cape Town, at a cost of R21.5-million.

Further, some R197-million would be spent on creating 4 500 m2 of new GLA on the upper level, as well as on additional parking, which would significantly improve access to the centre.

In addition, the AMR office park, in Bedfordview, was undergoing a refurbishment and tenant installation to accommodate a CTI Education Group campus on a ten-year yielding lease in two of the three buildings.

Total capital expenditure for this project would amount to R65-million, yielding 7.1% in the first year and 10% in the second year.

ACQUISITIONS & DISPOSALS
Fountainhead, in February, bought and took transfer of the CIB office building, in Bedfordview, for R159-million at an initial yield of 8.2%.  

It also entered into a sale and leaseback agreement with steel manufacturer Robor in terms of which the trust acquired the Robor industrial property in Elandsfontein for R570.5-million, which was transferred on September 3.

The acquisition was at an initial yield of 8.5% with an initial lease period of ten years escalating at 8% a year, starting on transfer of the property. 

Fountainhead also made two strategic acquisitions, including that of the motor dealership adjacent to the Kenilworth Centre for R34.7-million for an initial yield of 10%, which, on lease renewal in July, increased to 12.8%.

“We also acquired a vacant fuel station adjacent to the Centurion Mall for R13-million with 3 000 m2 of available bulk for future opportunities. Transfer is expected after year-end,” it outlined.

Fountainhead concluded the sale of its shares in the Westgate Shopping Centre, Southgate Mall and Southgate Value Mart for an aggregate consideration of R944-million.

The Westgate Shopping Centre was transferred in September at an escalated price of R720-million and the transfer of the Southgate Mall and the Southgate Value Mart was expected in October at an escalated price of R260-million.

“The trust continues to follow its long-term strategy to focus on core retail, commercial and industrial properties and is at an advanced stage of concluding sales agreements on 19 properties with an estimated value of R219-million at an average yield of 9.9%,” the fund stated.

Proceeds from disposals would be used to fund acquisitions and development activity.

VACANCIES
Meanwhile, vacancy levels increased 4.2% over the year with 3% attributed to “strategic vacancies” as a result of development activities.      

Subsequent to August 31, a number of vacancies had been filled, most notably 3 775 m2 at the Mifa Industrial Park, 1 987 m2 at the Supreme Industrial Park and 1 250m 2 at Lakeside A.

Vacancies, after taking “strategic vacancies” and letting activity that occurred after year-end into account, decreased to 7.5%.

Fountainhead expected to produce growth in distribution of between 5% and 6% from its current portfolio for the 2015 financial year, reflecting the challenging environment and the strategy to improve the quality of the portfolio.