NAP earnings jump on higher rentals
Isaac Pinielo | Tuesday November 3, 2015 15:07
During the year, distributable earnings amounted to P117.4 million or 19.43 thebe per linked unit, an increase on the comparable P109 million (18.03 thebe per linked unit) on the prior year.
Management attributed the growth to a 9.6 percent increase in net rental income and a corresponding 9.3 percent increase in operating profit, offset by lower net investment income following decreases in interest rates.
“The growth in net rental and operating income is indicative of the quality of earnings from the group’s asset base,” management stated in the latest annual report.
Total distributions to linked unitholders amounted to 19.43 thebe per linked unit, 0.8 percent above the comparative 17.99 thebe for the 2014 financial year. This equates to a 9.7 percent income yield on the initial listing price of P2 and 9.4 percent on the operating unit price of P2.06. These yields offer attractive return on investment, especially considering the nature of the income stream which grows in line with rental escalation.
Contractual rentals have also grown by 7.8 percent while operating costs have been contained and only increased by two percent. Net property expenses decreased by 2.7 percent while portfolio costs increased by 12.9 percent. As a result, contractual net rental income has increased by 9.6 percent and operating profit before straight lining adjustments by 9.3 percent.
Management said the reduction in property expenses was achieved through the reduction in debtors’ impairment provisions. Net impairment provisions for the year were P35,000 from P21 million in 2014.
Unprovided tenant arrears reduced to P0.7 million at year-end from P1.8 million in 2014, being 0.5 percent as compared to 1.2 percent in 2014 of contractual revenue after taking into account the VAT impact. Cumulative impairment provisions, adjusted for the VAT impact, amounted to 95% of total arrears at year-end compared to 81% in 2014.
In addition, the increase in portfolio expenses is attributable to currency fluctuations on Namibian profits prior to transfer of the cash to Botswana, with remaining portfolio expenses growing by four percent.
It is understood that the group also generates interest on cash held pending investment in property, while incurring taxes on the Namibian generated income, and these items form part of the distributable income.
Management noted that the group’s net investment income reduced as a result of declining interest rates while the distributable income tax charge remained almost flat.
Property valuations gave rise to a P91.5 million fair value gain, before straight-line adjustments, which amounts to an 8.1 percent increase on the opening value compared to P119.2 million in 2014 which was 11.7 percent. This valuation gain was mainly attributable to increases in net rentals but also took into account a 22 basis point shift in the weighted average capitalisation rate, which decreased, from 10.2% to 9.98 percent.
Some of the properties owned by NAP include RiverWalk Mall, Kagiso Shopping Centre and Madirelo Centre.