Vunani's returns likely to be 16% to 19%

The fund said last week it expected its distribution per linked unit for the year to June to be between 16% and 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. Kane said this week the fund had grown cautiously and had not sacrificed quality in increasing 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," Kane added.

He said a key factor in Vunani's success was the retention of its tenants, which was at 95% for the six months to December. High tenant retention meant time and resources spent between changing tenants was minimised.

Vacancy rates

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

Vunani has predominantly A-grade offices, and Kane said 80% of the fund's tenants were blue-chip companies comprising government, national and listed tenants. In addition, Kane says, Vunani's weighted average lease expiry is about five years, so about 80% of its income is secure for five years.

"This resulted in a low-risk, stable portfolio," he said.

Kane pointed out that the fund had benefited from a number of refurbishments that were completed last year and added that for every rand spent on refurbishments, the fund got back R3 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 boost in rentals allowing Vunani to get higher income into the fund.

Vunani had had bought the Business Centre in Rivonia on a 10-year lease at a 9.63% yield, and the Foretrust Building in Cape Town. Kane said that Vunani's recent R450m capital raising exercise would be partly be used to buy a further 10 buildings in the Greenstone Hill Office Park.

Source: Business Day via I-Net Bridge